Preview Travel Inc – ‘10-K’ for 12/31/98

As of:  Wednesday, 3/31/99   ·   For:  12/31/98   ·   Accession #:  1012870-99-967   ·   File #:  0-23177

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Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         60    407K 
 2: EX-10.21    Settlement Agreement & Mutual Release                  8     37K 
 3: EX-10.22    Amendment of Restated & Amended Agreement              2     11K 
 4: EX-23.1     Consent of Pricewaterhousecoopers LLP                  1      5K 
 5: EX-27.1     Financial Data Schedule                                2      9K 

10-K   —   Annual Report
Document Table of Contents

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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998 

Commission file number:  000-23177

PREVIEW TRAVEL, INC.  
(Exact name of registrant as specified in its charter)

Delaware                                     94-2965892     
(State or other jurisdiction of                     (I.R.S. Employer            
incorporation or organization)                      Identification No.)         

747 Front Street, San Francisco, CA 94111 
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code:  (415) 439-1200 

Securities registered pursuant to Section 12(b) of the Act:  None 

Securities registered pursuant to Section 12(g) of the Act: 
Common Stock - $0.001 par value 

 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 than 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [_]                                                                 

  The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $186,000,000 as of March 12, 1999, based upon  
the closing sale price on the Nasdaq National Market reported for such date.    
Shares of Common Stock held by each officer and director and by each person who 
owns 5% or more of the outstanding Common Stock have been excluded in that such 
persons may be deemed to be affiliates. This determination of affiliate status  
is not necessarily a conclusive determination for other purposes.               

  There were 13,807,683 shares of the registrant's Common Stock issued and
outstanding as of March 12, 1999.                                               

DOCUMENTS INCORPORATED BY REFERENCE 

     Definitive Proxy Statement relating to the Company's 1999 Annual Meeting to
be filed hereafter (incorporated into Part III hereof).                         

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PART I

Item 1.  BUSINESS                                                               

   This description contains certain forward-looking statements that involve
risks and uncertainties.  The Company's actual results could differ materially  
from the results discussed in the forward-looking statements as a result of     
certain of the risks set forth herein and elsewhere in this Form 10-K.  The     
Company assumes no obligation to update any forward-looking statements contained
herein.                                                                         

Introduction                                                                    

Preview Travel, Inc. ("Preview Travel" or the "Company") is a leading 
provider of branded online travel services for leisure and small business       
travelers. The Company operates its own Web site (www.previewtravel.com), the   
primary travel service on America Online, Inc. ("AOL") (AOL keyword:            
previewtravel), a co-branded travel Web site with Excite, Inc. ("Excite")       
(City.Net) and a travel reservation service and co-branded Web site with Lycos, 
Inc. ("Lycos"). The Company offers one-stop travel shopping and reservation     
services, providing reliable, real-time access to schedule, pricing and         
availability information for over 500 airlines, 25,000 hotels and all major car 
rental companies. The Company's proprietary technology and user-friendly        
interface enable customers to easily and quickly access travel information 24   
hours a day, seven days a week, to make informed choices about their travel     
purchases. In addition to its reservation and ticketing service, the Company    
offers vacation packages, discounted and promotional fares, travel news and     
destination content, including content licensed from Fodor's Travel             
Publications, Inc. ("Fodor's").  The Company complements its compelling content 
and user-friendly interface with a high level of customer service.              

     To broaden its online presence and build brand recognition, the Company has
entered into various strategic relationships. In 1997, the Company entered into 
long-term agreements with AOL, the leading online service provider with over 16 
million members, and Excite, a leading search engine provider. The Company is   
AOL's primary and preferred provider of online travel services and the exclusive
provider of travel reservations services on Excite's Travel Channel (City.Net). 
In February 1998, the Company launched its Destinations Guides feature created  
with content licensed from Fodor's. In March 1998, the Company entered into a   
two-year agreement with Lycos, another leading search engine provider, under    
which the Company will be the exclusive multiservice provider of travel         
reservations on Lycos' Travel Web Guide and Travel Network. Through such        
strategic agreements, the Company's travel services are prominently featured on 
the AOL, Excite and Lycos travel channels and contextually integrated throughout
the AOL, Excite and Lycos services.                                             

 Since launching its online booking service in May 1996, the Company has
experienced significant growth in its gross bookings. As of December 31, 1998,  
6.4 million users had registered on the Company's online sites, and over $300   
million in gross bookings of travel services had been purchased by approximately
454,000 customers in over 937,000 transactions.                                 

     On December 31, 1998, the Company completed a transaction pursuant to which
substantially all of the assets of the Company's television business, as        
operated by the Company's wholly owned subsidiary, News Travel Network, Inc.    
("NTN"), were transferred to NewsNet Central, Inc. The Company currently holds a
minority equity interest in NewsNet Central, Inc. Prior to this transaction,    
through its NTN division, Preview Travel produced entertainment programming for 
broadcast and cable television and the in-flight market. NTN also produced 90-  
second news inserts for local television station newscasts.                     

 Preview Travel, Inc. (formerly Preview Media, Inc.) was incorporated in
California in March 1984 and was reincorporated in Delaware in November 1997.   
The Company's principal corporate offices are located at 747 Front Street, San  
Francisco, California 94111. Its telephone number is (415) 439-1200.            

Industry Background                                                             

Growth of the Internet and Online Commerce                                    

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 The Internet and commercial online services such as AOL have emerged as
significant global communications media enabling millions of people to share    
information and conduct business electronically. A number of factors have       
contributed to the growth of the Internet and commercial online services usage, 
including the large and growing installed base of advanced personal computers in
the home and workplace, improvements in network infrastructure, easier, faster  
and cheaper access to the Internet and commercial online services, the          
introduction of alternative Internet access devices and increased awareness of  
the Internet and commercial online services among consumer and business users.  
Jupiter Communications estimates that the number of online users in the United  
States will grow from approximately 37 million in 1996 to approximately 99      
million in 2001.                                                                

   The functionality and accessibility of the Internet and commercial online
services have made them an increasingly attractive commercial medium by         
providing features that historically have been unavailable through traditional  
channels. For example, the Internet and commercial online services provide users
with convenient access to large volumes of dynamic data to support their        
investment, purchase and other decisions. Online retailers are able to          
communicate effectively with customers by providing frequent updates of featured
selections, content, pricing and visual presentations and provide tailored      
services by capturing valuable data on customer tastes, preferences, shopping   
and buying patterns. Unlike most traditional distribution channels, online      
retailers do not have the burden of managing and maintaining numerous local     
facilities to provide their services on a global scale. In contrast, online     
retailers benefit from the relatively low cost of reaching and electronically   
serving customers worldwide from a central location. Because of these           
advantages, an increasingly broad base of products and services is being sold   
online, including books, brokerage services, computers and music, as well as    
travel services. In April 1998, Jupiter Communications estimated that the total 
value of services and products sold over the Web by retailers, catalogers and   
online merchants of approximately $2.7 billion in 1997 will increase to         
approximately $26.5 billion by 2001.                                            

   Moreover, as the number of online content, commerce and service providers
has expanded, strong brand recognition and strategic alliances have become      
critical to the success of such companies. Brand development is especially      
important for online retailers due to the need to establish trust and loyalty   
among consumers in the absence of face-to-face interaction. In addition, some   
online retailers have begun to establish long-term strategic partnerships and   
alliances with content, commerce and service providers to rapidly build brand   
recognition and trust, enhance their service offerings, stimulate traffic, build
repeat business, take advantage of cross-marketing opportunities and create     
barriers to entry.                                                              

The Traditional Travel Industry                                             

The travel industry is large and growing, with travelers in the United
States spending over $502 billion on travel and tourism in 1997 according to the
Travel Industry Association of America. Historically, airlines, hotels, rental  
car agencies, cruise lines and vacation packagers (collectively, "travel        
suppliers") have relied on internal sales departments and travel agencies as    
their primary distribution channels. According to the American Society of Travel
Agents ("ASTA"), travel agency sales in the United States grew from $86 billion 
in 1991 to $126 billion in 1997, of which approximately half was spent on       
leisure travel. The traditional travel agency channel is highly fragmented, with
few nationally recognized brands. According to Travel Weekly's 1998 U.S. Travel 
Agency Survey published in August 1998, there are over 28,000 travel agencies   
operating in more than 33,000 locations in the United States, with the average  
travel agency location generating less than $4 million in annual gross bookings 
per location.                                                                   

    Travel agents are compensated primarily through commissions paid by travel
suppliers on services booked. Some travel agencies also charge service fees to  
their customers. Traditionally, typical standard base commission rates paid by  
travel suppliers to travel agents have been approximately 10% for airline       
tickets (subject to a maximum of $25 and $50 for one-way and roundtrip tickets, 
respectively), 10% for hotel reservations, 5% to 10% for car rentals, and 10% to
15% for cruises and vacation packages. In addition, travel agencies can earn    
significant performance based incentive compensation ("override commissions")   
from travel suppliers, which can substantially impact financial performance.    
These commission rates and override commissions are determined by travel        
suppliers and are subject to frequent change. For example, in a move to lower   
distribution costs, in September 1997 the major U.S. airlines reduced the       
commission rate payable to traditional travel agencies from approximately 10% to
approximately 8%, following a similar move by the major U.S. airlines in the    
first nine months of 1997 reducing the commission rate payable to online travel 
services from approximately 8% to approximately 5%. In a continuation of this   
trend, in the first half of 1998 two major airlines reduced their fixed rate    
commission for online roundtrip ticket sales to ten dollars. These reductions   
were followed by similar reductions made by other airlines. Currently, the      
Company earns an average commission of approximately 4% on the sale of airline  
tickets. Furthermore, during the                                                

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first quarter of 1998, one hotel chain eliminated commissions paid to the       
Company and other online travel service providers for online bookings. In       
response, the Company discontinued offering bookings for that hotel chain. In   
January 1999, the largest hotel chain for which the Company books reservations  
adopted a flat commission rate of two dollars per completed hotel stay. The     
Company expects that its weighted average commission rate on hotel reservations 
will decline as a result of these reductions. Due to the limited profitability  
of many traditional travel agencies, the Company believes that the downward     
pressure on commission rates paid to traditional travel agencies, such as the   
reduction imposed by most major airlines, may cause these agencies to charge    
service fees to their customers, shift their focus to higher margin non-air     
travel services or reduce the level of customer service in an effort to lower   
costs.                                                                          

Travel agencies typically book reservations through electronic global 
distribution services ("GDS") such as Galileo International Partnership's Apollo
system ("Apollo") and SABREGroup Holdings Inc.'s SABRE system ("SABRE"), which  
provide real-time access to voluminous data on fares, availability and other    
travel information. The GDS data is constantly changing, with as many as one    
million airfare changes being made daily.  Customers traditionally have relied  
on travel agents to access and interpret such rapidly changing information via  
complex and proprietary interfaces to GDS systems. As a result, the ability of  
customers to obtain the most favorable schedules and fares has been subject to  
the skill and experience of individual travel agents, whose availability may be 
limited.                                                                        

The Online Travel Opportunity                                         

     Recent trends in the traditional travel industry have contributed to a need
for a more effective and efficient means of purchasing and distributing travel  
services to address the changing needs of consumers and travel suppliers. The   
increasing complexity and time sensitivity of pricing structures for travel     
services have generally outpaced traditional means of delivering accurate and   
reliable information to customers. Moreover, at a time when many traditional    
travel agencies may be experiencing pressure to reduce levels of service as a   
result of recent reductions in commission rates, many customers are demanding   
greater convenience and flexibility in how, where and when they shop for travel 
services. In an effort to reduce their distribution costs and develop more      
direct relationships with their customers, travel suppliers seek ways to        
distribute their services outside of the traditional travel agency channel. In  
addition, the fragmentation of the travel agency channel often limits the       
ability of travel suppliers to quickly implement effective marketing programs   
targeted to specific customer segments.                                         

  As a result of these trends, the Internet and commercial online services
have emerged as an attractive medium through which travel services can be       
purchased. According to Jupiter Communications, online travel bookings were $274
million in 1996 and are expected to grow from $2.1 billion in 1998 to $11.7     
billion in 2002, representing a projected compounded annual growth rate of 87%  
for the period 1996 through 2002. The electronic nature of the online medium    
enables participants to automate the processing and confirmation of travel      
reservations, thus facilitating lower cost fulfillment of services and reducing 
the need for investment in local facilities. The online medium also provides    
travel suppliers with an effective advertising and promotional vehicle.         
According to Competitive Media Reporting, in 1995 the travel industry purchased 
over $2.3 billion in advertising through traditional vehicles such as broadcast 
and cable television, radio, print and outdoor media to reach and influence     
customers. Jupiter Communications reported that advertising revenue on online   
travel related sites was $2.3 million in 1996 and is expected to grow from $11.0
million in 1997 to $281.5 million in 2002, representing a projected compounded  
annual growth rate of 129% for the period 1996 through 2002.                    

     Notwithstanding the attractive opportunities presented by the online travel
service market, significant barriers exist which make it increasingly difficult 
to cost effectively enter the online travel marketplace. In order to succeed in 
the online travel service industry, entrants must establish broad distribution  
to drive online traffic and achieve economies of scale to overcome the following
barriers: (1) required investments in technology and technical infrastructure,  
(2) reduced level of commissions paid by travel suppliers on bookings made      
online, (3) cost of building a brand, and (4) challenges of creating compelling 
content. Further, the Company believes that the largest traditional travel      
agencies that sell services through franchisee or representative networks may be
hesitant to engage in online sales of travel services, which would directly     
compete with their networks and result in lower average commissions.            

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Preview Travel Solution                                                         

    Preview Travel is a leading provider of branded online travel services for
leisure and small business travelers, offering one-stop travel shopping for     
airline tickets, hotel rooms, car rentals and vacation and cruise packages. The 
Company operates its own Web site (www.previewtravel.com), the primary travel   
service on America Online (AOL keyword: previewtravel) and co-branded travel Web
sites with Excite, Lycos, Snap! and USA Today. Preview Travel has already become
one of the most widely known, used and cited online services for travel. As of  
December 31, 1998, 6.4 million users had registered on the Company's online     
site, and over $300 million in gross bookings of travel services had been       
purchased by approximately 454,000 customers in over 937,000 transactions.      
According to Media Metrix, an independent Internet measurement service, in      
February 1999, Preview Travel was ranked the 35th most visited Web site and was 
the most visited travel site overall. Preview Travel's Web sites (excluding AOL)
attracted 3.6 million unique visitors in February 1999, based on tracking of    
combined at-home and at-work audiences.                                         

 Preview Travel's online reservation service was launched in May 1996 to
respond to its customers' needs for consistent and more immediate access to     
rapidly changing travel related information, and to capitalize on opportunities 
created by the emergence of online commerce and the existing inefficiencies of  
the traditional travel industry. The Company's full-featured reservations and   
ticketing services enable customers to book their own travel arrangements online
24 hours a day, seven days a week, including the fulltime availability of       
professional customer service via telephone. Preview Travel provides reliable,  
real-time access to relevant schedule, pricing and availability information for 
over 500 airlines, 25,000 hotels worldwide and all major car rental companies.  
The Company's technology and proprietary interface enable customers to easily   
and quickly access this information to make informed choices about their travel 
purchases. Customers also can find extensive destination information, photos,   
streaming video and Web links, providing them with valuable resources for       
planning their travel.                                                          

    The Company believes that, in addition to benefiting consumers, its online
travel services benefit travel suppliers by providing them with an efficient    
channel to reach consumers interested in researching and purchasing travel. In  
effect, Preview Travel creates an electronic marketplace that matches the       
purchasing needs of consumers with the available inventory of travel suppliers. 
Travel suppliers also can realize cost savings from distributing their services 
through the Company. In the airline industry, for example, a higher percentage  
of tickets booked online are issued as electronic tickets, representing a       
substantial savings in transaction costs for the airlines. Through customer     
profiles, the Company compiles demographic and behavioral data about its        
customers, which can be analyzed and used in cooperation with the Company's     
travel supplier partners to develop personalized marketing and services for     
individual customers and groups of customers.                                   

Key features of the Preview Travel solution include:                  

    Easy-to-Find. The Company's online travel services can be accessed through
the Web and AOL 24 hours a day, seven days a week, enabling customers to shop   
for and purchase travel services at their convenience. Through its long-term    
agreements with AOL, the leading online service provider with over 16 million   
members, and with Excite and Lycos, two leading search engine providers, the    
Company's travel services are prominently featured on the AOL, Excite and Lycos 
travel channels and also contextually integrated throughout the AOL, Excite and 
Lycos services. In addition, the Company operates co-branded Web sites with     
Snap! and USA Today.                                                            

  Easy-to-Use. The Company has developed a graphical user interface with a
unique "look and feel" emphasizing ease of use. The Company continually enhances
its interface based on feedback from regularly conducted focus groups and market
research conducted on the Company's behalf. In addition, the Company provides   
online help and assistance designed to ensure that consumers get the full       
benefit of Preview Travel's services, including tips on how to find the best    
available rates and fares. The Company's customer service center, staffed by    
travel professionals, provides toll-free telephone support and fulfillment      
services seven days a week.                                                     

  Comprehensive, Up-to-Date Selection. The Company provides comprehensive,
accurate and timely travel information to enable customers to prioritize among  
price, convenience and services without going through a traditional travel agent
intermediary. Through a computerized search and retrieval process, customers are
presented with a wide array of travel service options available in the GDS      
systems accessed by the Company, updated on a real-time basis. For example, the 
Company's Farefinder service presents the lowest fares available in the Apollo  
GDS system for roundtrip airline travel to key cities selected by the user.     

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  Personalized Service. By compiling a profile of each online customer who
purchases travel services from the Company and tracking the preferences and     
behavioral patterns of its customers, the Company obtains key customer          
information that enables Preview Travel to tailor value-added services for its  
customers, such as e-mail notifications for schedule changes and flight         
cancellations, last minute travel opportunities and other targeted marketing    
programs developed in conjunction with travel suppliers.                        

  Compelling Content. The Company produces and acquires compelling content
for its online areas, including developing an easy-to-use interface with a      
customer oriented "look and feel" and links to numerous other travel related    
sites. In addition, through the Company's agreement with Fodor's, destination   
information from Fodor's Gold Guides series is prominently featured in its      
online areas, currently providing travel information for over 200 destination   
sites.                                                                          

 Transaction Security. The Company believes that account and transaction
security are critical factors in the success of the online travel industry.  The
Company uses a combination of proprietary and industry standard encryption and  
authentication measures designed to protect its customers' information. As an   
added level of protection for its customers, the Company neither retains credit 
card information nor sells the information in its customer database to third    
parties.                                                                        

Strategy                                                                        

    Preview Travel's objective is to be the leading provider of branded online
travel services for leisure and small business travelers and to create a valued 
channel for advertisers and travel suppliers to access the Company's user base. 
The Company plans to attain this goal through the following key strategies:     

Deliver Compelling Value to Customers. The Company seeks to deliver   
comprehensive, accurate and easily accessible information, innovative tools and 
high levels of personalized service to enable customers to make informed        
purchases of travel services based on their preferred combination of            
convenience, price, class of service and amenities. In addition, the Company    
seeks to offer its customers a high quality online experience through relevant, 
informative and entertaining content, as well as simple and efficient navigation
and search capabilities.                                                        

Build Customer Loyalty and Brand Recognition. By focusing on customer 
service and striving to deliver the highest quality online experience to its    
customers, the Company seeks to expand its customer base and build strong       
customer loyalty. The Company also seeks to build global brand recognition by   
combining world class customer service with the Company's distinctive online    
presence, as well as by employing a variety of marketing and promotional        
efforts, including public relations activities, targeted advertising across a   
variety of electronic and print media and strategic distribution arrangements.  

     Enhance and Expand Strategic Relationships. The Company intends to continue
to leverage its strategic relationships with AOL, Excite, Fodor's, Lycos and    
travel suppliers to increase awareness of the Company's online travel services  
through a variety of joint marketing programs, including targeted e-mail, online
promotions, booking incentives and interactive advertising. The Company also    
intends to broaden its online visibility and expand its customer base by        
entering into relationships with additional domestic and international Internet 
access providers, content and commerce providers, search engines and other Web  
sites.                                                                          

  Broaden Existing Offerings and Pursue Incremental Revenue Opportunities.
The Company intends to capitalize on its brand, online commerce experience,     
operating infrastructure and customer base to broaden its online travel         
offerings to include a broader selection of hotels and cruises, vacation        
packages and special interest tours. The Company plans to aggressively pursue   
media sales to targeted advertisers based on increased traffic to its online    
sites. The Company also plans to offer additional services and products to meet 
its customers' needs, such as travel insurance, travel financing services and   
travel related merchandise.                                                     

 Continue Investment in Technology. The Company uses scaleable, industry
standard hardware and software that enable rapid deployment of additional       
capacity. In addition, the Company intends to continue to invest substantial    
resources in developing, acquiring and implementing technology driven           
enhancements to its online services and sites, including continuing to make its 
user interface faster, more user-friendly and intuitive, providing increasingly 
valuable personalized information and incorporating multimedia content.         

Online Media Sales. The Company believes that the sale of online      
advertising will continue to represent an important source of revenue.          
Accordingly, the Company intends to increase its investment in media sales that 
target key advertisers who seek to reach a travel oriented online audience.     
Client advertisements are incorporated into the Company's online sites in the   
form of banners, fixed ad positions, links and buttons that encourage viewers to
click through for additional information. In addition, Preview Travel can       
develop extensive editorial and marketing content to support the various        
marketing initiatives of sponsors. The Company also offers participation in     
targeted e-mail programs. Recent online advertisers include AT&T, American      
Tourister Luggage, AVIS Rental Car, British Airways, Celebrity Cruises, Discover
Brokerage, Hewlett Packard, Mastercard, MCI and Sandals Resorts.                

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  Expand into International Markets. The Company is exploring alternatives
available to expand its brand, operating infrastructure and strategic           
relationships globally. To achieve this objective, the Company believes this    
will require the localization of the user interface, the offering of native     
language customer service and the development of travel services and content    
that complies with local regulations and customs.                               

Preview Travel Online Service                                                   

    Through the Company's Web sites or on AOL, customers can easily access the
wide selection of Preview Travel online travel services in order to shop for and
book airline tickets, car rentals, hotel reservations, vacation packages and    
cruises.                                                                        

   The Preview Travel Experience. Visitors to the Company's online sites are
presented with a wide variety of travel information, including airline ticket   
prices for popular destinations (Farefinder), destination information, travel   
news and specials, vacation packages, cruises and sweepstakes. To use the       
Company's reservation services or purchase an airline ticket, each customer     
completes a profile that includes required information such as name and e-mail  
address, as well as optional information such as street address, telephone      
number, preferred home airport, seating assignment, special meals, airline, car 
and hotel preferences, club memberships and frequent flier information. This    
information is stored in the Company's database and is used solely by the       
Company to customize its services.                                              

    By completing personal travel profiles, customers can automatically access
the Company's reservation system on subsequent visits, thus expediting the      
reservation process. Once a customer accesses the reservation system, fares and 
schedules of over 500 airlines, 25,000 hotels and the major car rental companies
may be searched and reservations booked through the Company's system. Guided by 
an easy-to-use interface, the customer selects travel options such as departure 
and destination cities, airline preference, class of service and hotel and car  
selection. A key feature of the Company's service is the ability to shop and    
compare many combinations of prices and schedules, enabling customers to        
maximize their travel dollar. Customers can also register to receive Fare Alert 
e-mails when a specified airfare is available between cities selected by the    
customer.                                                                       

   To complete a purchase of an airline ticket, the customer enters a credit
card number, which is validated and transmitted to the GDS system. The customer 
receives an e-mail confirmation soon thereafter. Depending on the departure date
and method of ticketing, airline tickets and itineraries are sent to the        
customer by express delivery or through regular mail. Upon returning from his or
her trip, first time customers automatically receive another e-mail that        
includes a thank you message and a customer satisfaction survey.                

Online Travel Services Content. In addition to accessing the Company's
reservation services, customers can use the following travel related services to
make better informed travel purchase decisions:                                 

.  Destination Guides. This feature, launched in February 1998, currently   
provides comprehensive destination guides for over 200 destinations with content
from Fodor's Travel Publications. Users can access Fodor's reviews and picks for
restaurants and hotels, research information on sights and attractions or create
their own customized travel mini-guide. Users can also access weather           
information with content from WeatherLabs, mapping capabilities from Vicinity,  
and currency exchange rates from Direct FX. Destinations Guides also providers  
extensive photo and video information throughout the various destinations.      

.  Farefinder. This service provides quick and easy access to the lowest    
airfares available in the Apollo GDS system from a customer's home city to      
destinations around the world. Farefinder searches the Apollo GDS system several
times daily to update the posted fares.                                         

.  Vacation and Cruise Packages. In July 1998, the Company began offering   
real-time bookings of vacations and cruises. The service currently offers more  
than 800 vacation and cruise packages to over 100 destinations worldwide from an
assortment of leading suppliers. The Company supports its online booking of     
vacation and cruise packages with professional reservation agents available via 
a toll-free number to assist customers.                                         

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.  Business Travel Center. This service, launched in February 1998, offers  
access to travel information and resources of particular interest to the small  
business and home office market. The center features a travel newswire targeted 
to business travelers, as well as links to small business travel resources,     
hotel and restaurant finders and reservation services.                          

  .  Travel Newswire. This feature provides customers with timely information on
the latest travel bargains by highlighting daily listings of discounted         
airfares, special hotel rates and car rental offers as well as important travel 
industry news.                                                                  

   Customer Service. The Company has invested and will continue to invest in
systems, personnel and training to maintain a premier in-house customer service 
operation, which the Company believes is essential to establishing and          
maintaining long-term customer relationships. In addition to extensive online   
help, Preview Travel's customers have access to e-mail support and toll-free    
telephone support seven days per week to help them with any problems or changes 
before, during or after their travel.                                           

Strategic Relationships                                                         

  Preview Travel pursues strategic relationships to increase its access to
online customers, to build brand recognition and to expand the Company's online 
presence. To date, the Company has established the following alliances, among   
others, for distribution and product enhancement:                               

 America Online. Preview Travel and America Online, the leading Internet
online service provider with over 16 million members, have entered into an      
agreement establishing Preview Travel as AOL's primary and preferred provider of
travel services through a Preview Travel content area on the AOL Network and    
AOL's Web site (aol.com) (the "AOL Online Area"). The Company's original        
agreement with AOL was entered into in November 1995 and was restated to expand 
the relationship in September 1997. In addition to establishing the Company as  
AOL's primary and preferred provider of travel services, AOL has agreed to      
exclusively promote and advertise Preview Travel in online areas controlled by  
AOL and to deliver a minimum number of annual page views to the online areas    
promoting Preview Travel. Over the five year term of the restated agreement, the
Company is obligated to make minimum payments totaling $32 million to AOL, as   
well as pay a percentage of commissions earned by the Company in excess of      
certain thresholds. The Company has also agreed to deliver content through the  
AOL Online Area, provide travel services that are competitive in price and      
performance and manage, operate and support such content and travel services.   
The Company and AOL both have the right to sell advertising in the Company's    
content areas distributed through AOL, subject to the Company's obligation to   
pay a percentage of advertising revenues above certain threshold amounts to AOL 
after the second year of the arrangement. Under a separate agreement, the       
Company has agreed to develop and manage a travel related destination database  
for AOL in exchange for the right to receive all advertising revenues generated 
from such database up to a certain threshold, and share in advertising revenues 
thereafter. See "Certain Transactions" for a description of the Company's       
relationship with AOL.                                                          

  The Company's agreements with AOL expire in September 2002; however, AOL
may terminate the distribution agreement earlier in the event of a material     
breach or the Company's failure to deliver satisfactory content to the database 
or achieve specified annual levels of travel services bookings. In particular,  
the Company's ability to achieve such specified annual levels of travel services
bookings will require the Company to continue to significantly increase such    
bookings from current levels. At the first annual measurement date occurring in 
September 1998, the Company was in compliance with the required level of        
bookings. Travel services sold through the AOL network (including the primary   
AOL service and AOL.COM) accounted for 52%, 38%, 35% and 28% of the Company's   
gross bookings for the three months ended March 31, 1998, June 30, 1998,        
September 30, 1998 and December 31, 1998, respectively. Accordingly, the AOL    
arrangement represents a significant distribution channel for the Company's     
travel services, and any termination of the Company's agreements with AOL would 
likely have a material adverse effect on the Company's business, operating      
results and financial condition. See "Risk Factors That May Affect Future       
Results--Reliance on Distribution Agreements with America Online and Excite."   

Excite. In September 1997, Preview Travel and Excite, a leading search
engine provider with over two million visitors a day, entered into an agreement 
under which Preview Travel became the exclusive provider of travel reservations 
services for Excite's Travel Channel (City.Net) in the United States and on the 
WebCrawler Travel Channel. The agreement was amended and restated in March 1998,
permitting the Company to enter into similar                                    

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arrangements with other search engine providers and providing for the Company to
continue to be the exclusive provider of travel reservations services for the   
Excite Travel Channel and to provide travel reservations services and content   
for the WebCrawler Travel Channel. The agreement was further amended in March   
1999 to reduce the minimum payments over the term of the amended agreement by   
$500,000. In addition, Preview Travel will create a co-branded travel           
reservations site that will be included on all travel channels within the Excite
network, as well as travel related content for the Excite Travel Channel and    
other Excite services. Excite has agreed to promote and advertise Preview       
Travel's services throughout the Excite network and to deliver a minimum number 
of annual impressions within the Excite network. The Company is also eligible to
receive payments from Excite representing a share of advertising revenues       
received by Excite in connection with the online areas featuring the Company's  
travel services; however, there can be no assurance that such payments, if any, 
will be significant. Over the five-year term of the amended agreement, the      
Company is obligated to make minimum payments totaling $23.5 million to Excite  
as well as pay a percentage of commissions earned by the Company in excess of   
certain thresholds. The Company and Excite will cooperate in selling, and share 
revenues from, advertising on the Excite Travel Channel. The Company's          
arrangement with Excite expires in September 2002, or earlier in the event of a 
material breach. If the Company enters into a third party Internet co-branding  
agreement with substantially the same scope as its agreement with Excite and on 
terms which, taken as a whole, are more favorable for such third party than the 
terms of the Excite agreement, then the Company is required to offer such terms 
to Excite. Travel services sold through Excite accounted for 16%, 18%, 15% and  
16% of the Company's gross bookings for the three months ended March 31, 1998,  
June 30, 1998, September 30, 1998 and December 31, 1998, respectively.          
Accordingly, the Excite arrangement is expected to represent a significant      
distribution channel for the Company's travel services, and any termination of  
the Company's agreement with Excite would likely have a material adverse affect 
on the Company's business, operating results and financial condition. See "Risk 
Factors That May Affect Future Results--Reliance on Distribution Agreements with
America Online and Excite."                                                     

 Lycos. In March 1998, Preview Travel and Lycos, a leading search engine
provider, entered into an agreement pursuant to which Preview Travel became the 
exclusive travel service provider of travel reservation services for Lycos'     
Travel Web Guide and Travel Network. In addition, Preview Travel and Lycos      
created a co-branded Web site that is be promoted throughout the Lycos Web site,
and Lycos has agreed to deliver a minimum number of annual impressions to       
promote the co-branded site. In addition, the Company is eligible to receive    
payments from Lycos representing a share of advertising revenues received by    
Lycos in connection with the co-branded site; however, there can be no assurance
that such payments, if any, will be significant.  Over the two-year term of the 
agreement, the Company is obligated to make minimum payments totaling $4.25     
million to Lycos, as well as pay a portion of commissions earned by the Company 
through the co-branded website in excess of certain thresholds. Travel services 
sold through Lycos accounted for 1%, 2% and 3% of the Company's gross bookings  
for the three months ended June 30, 1998, September 30, 1998 and December 31,   
1998, respectively. See "Risk Factors That May Affect Future Results--Reliance  
on Distribution Agreements with America Online and Excite."                     

 Fodor's. Preview Travel has entered into a non-exclusive agreement with
Fodor's Travel Publications, Inc. ("Fodor's"), a leading travel guide book      
publisher, to license content from Fodor's Gold Guide series and other guidebook
series. In February 1998, the Company launched its Destinations Guides feature  
created with the Fodor's content. The Destination Guides feature is available on
the Company's sites on America Online, Excite, Lycos and the Web. Under the     
agreement, the Company created and operates a co-branded Web site               
(www.fodors.previewtravel.com) that offers links to both Fodor's and Preview    
Travel's websites. Under the terms of the agreement, the name of the co-branded 
Web site appears on the outside front covers of all 1999 Gold Guide editions.   
The agreement also requires that Fodor's include a promotional page for Preview 
Travel in each of the 1999 and 2000 Gold Guide editions published by Fodor's.   

   There can be no assurance that the Company will achieve sufficient online
traffic, travel bookings or commissions to realize economies of scale that      
justify the Company's significant fixed financial obligations to AOL, Excite and
Lycos or that the Company will satisfy the minimum levels of travel services    
bookings required to maintain the AOL and Excite agreements and content delivery
required to maintain the AOL, Excite and Lycos agreements; and failure to do so 
would likely have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors That May Affect Future       
Results--Reliance on Distribution Agreements with America Online and Excite."   

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The Company is pursuing other strategic relationships for both        
distribution, marketing and content that could generate additional significant  
financial obligations over the next several years. There can be no assurance    
that the Company will be successful in establishing such additional strategic   
relationships. See "Risk Factors That May Affect Future Results--Reliance on    
Distribution Agreements with America Online and Excite."                        

Marketing and Sales                                                             

  Preview Travel's marketing strategy is to strengthen the Company's brand
name, enhance customer awareness, develop loyalty programs to better serve the  
Company's customers, continue to add new customers to the Company's database and
pursue complementary revenue opportunities by leveraging the Company's          
distribution capabilities, compelling content and extensive customer database.  
The Company's sales strategy is focused in part on generating advertising and   
promotional revenue from sponsors who seek a cost effective way to reach a      
travel oriented audience online.                                                

The Company maintains a proprietary customer database comprised of    
demographic profiles, customer preferences, shopping and buying patterns and    
other key customer attributes. This data enables the Company to create and      
quickly implement marketing programs targeted to specific customer segments. In 
addition, the Company regularly communicates with its customers through         
targeted, relevant e-mail.                                                      

The Company also employs a variety of traditional media programs and  
promotional activities to enhance the effectiveness of the Company's marketing  
initiatives:                                                                    

     Advertising. To supplement its strategic relationships with AOL, Excite and
Lycos, the Company invests in online advertising to drive traffic to its online 
sites. By placing advertisements on selected high volume sites, as well as      
purchasing targeted keywords on several popular search engines such as Yahoo!,  
Alta Vista, Infoseek and others, the Company seeks to cost effectively generate 
traffic to the Preview Travel online site.  The Company may also advertise from 
time to time in traditional media such as print, radio and broadcast to increase
the awareness of its service.                                                   

Public Relations. Preview Travel proactively pursues public relations 
opportunities to build brand awareness. The Company targets traditional print,  
radio, syndicated news services and broadcast outlets with its public relations 
programs and has been covered widely by the travel, business, technology and    
consumer press. The Company also pursues coverage by online publications, search
engines and directories. More than 1,000 independent Web sites have hyperlinks  
to the Company's Web sites, helping to increase brand awareness and generate    
traffic to its online sites. Preview Travel also actively participates in       
industry events and conferences.                                                

Co-marketing/Promotions. The Company has established a number of      
significant co-marketing relationships to promote its service and to sponsor    
contests that offer travel related prizes. These programs typically involve     
participation with airlines, hotels, car rental agencies and online service     
providers. The Company intends to enter into additional co-marketing            
relationships in support of its marketing strategy.                             

    From time to time, the Company offers various incentives and awards to its
customer base. These incentives are designed to increase customer loyalty and   
awareness of Preview Travel's brand and travel services. For example, the       
Company has provided customers with bonus frequent flier miles and special      
companion fares during targeted promotional periods. The Company also engages in
promotional programs with hotels and car rental agencies.                       

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Technology                                                                      

 The Company's transaction processing system automates the processing of
customer orders, interacts with the systems of third party travel suppliers,    
searches and filters travel information and provides real-time operational      
reports to management. The Company has developed proprietary applications that  
interact with third party systems such as GDS systems to present an integrated  
easy-to-use interface to the Company's customers, accessible by either standard 
Web browsers or AOL client software to access travel reservation information and
make purchases. In addition, the Company's systems support automated e-mail     
communications with customers to facilitate confirmations of orders, provide    
customer support, obtain customer feedback and engage in targeted marketing     
programs. The Company's online sites also utilize a number of proprietary       
search, screen scraping and database tools. While the system is built on a      
combination of proprietary and commercial software and hardware, the Company    
seeks to utilize industry standard technology whenever possible and focuses its 
development efforts on creating and enhancing proprietary software that is      
unique to its business, as well as enhancing its existing service offerings and 
creating new products.                                                          

Preview Travel maintains a relational database containing information 
compiled from customer profiles, shopping patterns and sales data. The Company  
has developed, and continues to develop, techniques for analyzing the           
information in this database to develop targeted marketing programs, to provide 
personalized and enhanced customer service and to take advantage of short-term  
opportunities in the travel marketplace. The Company does not retain credit card
information from its customers and has committed to its customers not to sell or
rent customer data to third parties. The Company's complex database was designed
to be scaleable to permit large transaction volumes with no significant software
changes. In most circumstances, capacity is increased through the addition of   
new servers or the addition of processing boards to existing servers. The       
Company believes that the scaleability of its architecture has been demonstrated
by serving over 6.4 million registered users since May 1996.                    

 Internet and AOL users are linked to the Company's servers through a T3
data communication line from the Company's Internet service provider. Backup T1 
data communications lines are available in the event of a failure of the T3     
line. Additional leased lines are used for data communications between the      
servers and systems run by third party reservation systems such as Galileo's    
Apollo GDS system and the global hotel reservation system operated by Pegasus.  
The Company has significantly expanded its data communications capacities during
the past year and anticipates continuing to do so in the future to support      
increased growth. The Company maintains an Internet firewall to protect its     
internal systems, and all credit card transactions are processed using          
encryption and authentication technology, including public key cryptography     
technology and secure socket layer technology. There can be no assurance that   
the Company's security measures will prevent security breaches or that failure  
to prevent such security breaches will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk Factors
That May Affect Future Results--Online Commerce and Database Security Risks."   

Any reduction in performance, disruption in the Internet access or    
discontinuation of services provided by the Company's Internet service provider,
AOL or other telecommunications provider, or any disruption in the Company's    
ability to access the systems of Galileo, Pegasus or any other travel           
reservation systems, could have a material adverse effect on the Company's      
business, operating results and financial condition. There can be no assurance  
that the Company's transaction processing systems and network infrastructure    
will be able to accommodate increases in traffic in the future, or that the     
Company will, in general, be able to accurately project the rate or timing of   
such increases or upgrade its systems and infrastructure to accommodate future  
traffic levels on its online sites. In addition, there can be no assurance that 
the Company will be able in a timely manner to effectively upgrade and expand   
its transaction processing systems or to successfully integrate any newly       
developed or purchased modules with its existing systems. See "Risk Factors That
May Affect Future Results--Risk of Capacity Constraints; Reliance on Internally 
Developed Systems; System Development Risk." There can be no assurance that the 
Company will successfully utilize new technologies or adapt its online sites,   
proprietary technology and transaction processing systems to customer           
requirements or emerging industry standards. See "Risk Factors That May Affect  
Future Results--Rapid Technological Change."                                    

    Substantially all of the Company's computer and communications hardware is
located at a single facility in San Francisco, California. The Company's systems
and operations are vulnerable to damage or interruption from fire, flood, power 
loss, telecommunications failure, break-ins, earthquake and similar events. The 
Company currently does not have redundant systems or a formal disaster recovery 
plan and may not carry sufficient business interruption insurance to compensate 
it for losses that may occur. Despite the implementation of network security    
measures by the Company, its servers are vulnerable to computer viruses,        
physical or electrical break-ins and similar disruptions,                       

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which could lead to interruptions, delays, loss of data or the inability to     
accept and confirm customer reservations. See "Risk Factors That May Affect     
Future Results--Risk of System Failure; Single Site."                           

Competition                                                                     

  The online travel services market is new, rapidly evolving and intensely
competitive, and the Company expects such competition to intensify in the       
future. The Company competes primarily with traditional travel agency           
reservation methods and online travel reservation services. In the online travel
services market, the Company competes with other entities that maintain similar 
commercial Web sites, such as Expedia (operated by Microsoft Corporation),      
Travelocity (operated by SABREGroup Holdings Inc., a majority owned subsidiary  
of American Airlines), Cendant Corporation, TravelWeb (operated by Pegasus),    
Internet Travel Network, Biztravel.com, Cheap Tickets and TheTrip.com, among    
others. Several traditional travel agencies, including larger travel agencies   
such as American Express Travel Related Services Co. Inc., Uniglobe Travel and  
Carlson Wagonlit Travel, have established, or may establish in the future,      
commercial Web sites offering online travel services. Additionally,             
Priceline.com operates a Web site that allows users to bid on airline tickets   
and hotel rooms.                                                                

     In addition to the traditional travel agency channel, most travel suppliers
also sell their services directly to customers, predominantly by telephone. As  
the market for online travel services grows, the Company believes that the range
of companies involved in the online travel services industry, including travel  
suppliers, traditional travel agencies and travel industry information          
providers, will increase their efforts to develop services that compete with the
Company's services. Most major airlines, car rental companies and hotel chains  
offer travel services directly through their own Web sites, including travel    
services from other travel suppliers, eliminating the need to pay commissions to
third parties such as the Company. The Company is unable to anticipate which    
other companies are likely to offer competitive services in the future.  There  
can be no assurance that the Company's online operations will compete           
successfully with any current or future competitors.                            

Many of the Company's current and potential competitors have longer   
operating histories, larger customer bases, greater brand recognition and       
significantly greater financial, marketing and other resources than the Company 
and may enter into strategic or commercial relationships with larger, more      
established and well financed companies. Certain of the Company's competitors   
may be able to secure services and products from travel suppliers on more       
favorable terms, devote greater resources to marketing and promotional campaigns
and devote substantially more resources to Web site and systems development than
the Company. In addition, new technologies and the expansion of existing        
technologies may increase competitive pressures on the Company. In particular,  
Microsoft Corporation has publicly announced its intent to continue to invest   
heavily in the area of travel technology and services. Increased competition may
result in reduced operating margins, loss of market share and brand recognition.
There can be no assurance that the Company will be able to compete successfully 
against current and future competitors, and competitive pressures faced by the  
Company may have a material adverse effect on the Company's business, operating 
results and financial condition. See "Risks Factors--Competition."              

Proprietary Rights                                                              

     The Company regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success, and 
relies on trademark and copyright law, trade secret protection and              
confidentiality and/or license agreements with the Company's employees,         
customers, partners and others to protect its proprietary rights. The Company   
pursues the registration of certain of its key trademarks and service marks in  
the United States and internationally. Effective trademark, service mark,       
copyright and trade secret protection may not be available in every country in  
which the Company's products and services are made available online. The Company
has licensed in the past, and expects that it may license in the future, certain
of its proprietary rights, such as trademarks or copyrighted material, to third 
parties. While the Company attempts to ensure that the quality of its brand is  
maintained by such licensees, there can be no assurance that such licensees will
not take actions that might materially adversely affect the value of the        
Company's proprietary rights or reputation, which could have a material adverse 
effect on the Company's business, operating results and financial condition.    
There can be no assurance that the steps taken by the Company to protect its    
proprietary rights will be adequate or that third parties will not infringe or  
misappropriate the Company's copyrights, trademarks, trade dress and similar    
proprietary rights. In addition, there can be no assurance that other parties   
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be subject to legal proceedings and claims from time to time in the ordinary    
course of its business, including claims of alleged infringement of the         
trademarks and other intellectual property rights of third parties by the       
Company and its licensees. Such claims, even if not meritorious, could result in
the expenditure of significant financial and managerial resources. See          
"Business--Legal Proceedings."                                                  

The Company also intends to continue to strategically license certain 
content for its online sites from third parties, as it did with Fodor's,        
including content which is integrated with internally developed content and used
on the Company's online sites to provide key services. There can be no assurance
that these third party content licenses will be available to the Company on     
commercially reasonable terms or that the Company will be able to successfully  
integrate such third party content. Such content licenses may expose the Company
to increased risks, including risks associated with the assimilation of new     
content, the diversion of resources from the development of the Company's       
content, the inability to generate revenues from new content sufficient to      
offset associated acquisition costs and the maintenance of uniform, appealing   
content. The inability to obtain any of these licenses could result in delays in
site development or services until equivalent content could be identified,      
licensed and integrated. Any such delays in site development or services could  
have a material adverse effect on the Company's business, operating results and 
financial condition. See "Risk Factors That May Affect Future Results--Uncertain
Protection of Intellectual Property; Risks of Third Party Licenses."            

Government Regulation                                                           

     Certain segments of the travel industry are heavily regulated by the United
States and international governments, and accordingly certain services offered  
by the Company are affected by such regulations. For example, the Company is    
subject to United States Department of Transportation ("DOT") regulations       
prohibiting unfair and deceptive practices. In addition, DOT regulations        
concerning the display and presentation of information that are currently       
applicable to the GDS services accessed by the Company could be extended to the 
Company in the future, as well as other laws and regulations aimed at protecting
consumers accessing online travel services or otherwise. In California, under   
the Seller of Travel Act, the Company is required to register as a seller of    
travel, comply with certain disclosure requirements and participate in the      
State's restitution fund.                                                       

The Company is also subject to regulations applicable to businesses   
generally and laws or regulations directly applicable to access to online       
commerce. Although there are currently few laws and regulations directly        
applicable to the Internet and commercial online services, it is possible that a
number of laws and regulations may be adopted with respect to the Internet or   
commercial online services covering issues such as user privacy, pricing,       
content, copyrights, distribution, antitrust and characteristics and quality of 
products and services. Furthermore, the growth and development of the market for
online commerce may prompt calls for more stringent consumer protection laws    
that may impose additional burdens on those companies conducting business       
online. The adoption of any additional laws or regulations may decrease the     
growth of the Internet or commercial online services, which could, in turn,     
decrease the demand for the Company's products and services and increase the    
Company's cost of doing business, or otherwise have a material adverse effect on
the Company's business, operating results and financial condition.              

    Moreover, the applicability to the Internet and commercial online services
of existing laws in various jurisdictions governing issues such as property     
ownership, sales and other taxes, libel and personal privacy is uncertain and   
may take years to resolve. For example, tax authorities in a number of states   
are currently reviewing the appropriate tax treatment of companies engaged in   
online commerce, and new state tax regulations may subject the Company to       
additional state sales and income taxes. Any such new legislation or regulation,
the application of laws and regulations from jurisdictions whose laws do not    
currently apply to the Company's business, or the application of existing laws  
and regulations to the Internet and commercial online services could have a     
material adverse effect on the Company's business, operating results and        
financial condition. See "Risk Factors That May Affect Future Results--         
Governmental Regulation and Legal Uncertainties."                               

Employees                                                                       

 As of December 31, 1998, the Company employed a total of 224 people, of
whom 88 were employed in the reservations call center, 60 in marketing and      
sales, 35 in technology operations, including research and development and 41 in
finance and administration. The Company's ability to attract and retain highly  
qualified employees will be the principal                                       

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determinant of its success in maintaining online leadership. The Company has a  
policy of using equity-based compensation programs to reward and motivate       
significant contributors among its employees. Competition for qualified         
personnel in the Company's industry is intense. There can be no assurance that  
the Company's current and planned staffing will be adequate to support the      
Company's future operations or that management will be able to hire, train,     
retain, motivate and manage required personnel. Although none of the Company's  
employees is represented by a labor union, there can be no assurance that the   
Company's employees will not join or form a labor union or that the Company, for
certain purposes, will not be required to become a union signatory. The Company 
has not experienced any work stoppages and considers its relations with its     
employees to be good. See "Risk Factors That May Affect Future Results--        
Management of Potential Growth" and "--Dependence on Attraction and Retention of
Key Personnel."                                                                 

Legal Proceedings                                                               

     The Company is not currently subject to any material legal proceedings. The
Company may from time to time become a party to various legal proceedings       
arising in the ordinary course of its business.                                 

Executive Officers                                                              

Executive officers of the Company and their ages are as follows:      

Name                           Age  Position                                    
----                           ---  --------                                    
James J. Hornthal               44  Acting President and Chief Executive        
                      Officer, Chairman and Director
Thomas W. Cardy                 42  Executive Vice President and                
               Chief Financial Officer
Christopher L. McAndrews        34  Executive President of Media Sales          
John M. Petrone                 36  Executive Vice President of Technology      
Barrie Seidenberg               33  Executive Vice President of Online Services 
Leonard R. Stein                43  Senior Vice President and General Counsel   

     James J. Hornthal founded the Company in 1985, has served as Chairman since
inception and was named as  interim Chief Executive Officer in February 1999.   
Mr. Hornthal also served as President of the Company until April 1994 and as    
Chief Executive Officer until June 1997. Prior to starting Preview Travel, Mr.  
Hornthal was a General Partner at Oak Grove Ventures, a venture capital firm,   
and a Consultant for The Boston Consulting Group, a management consulting firm. 
Mr. Hornthal also serves as a director of several privately held technology     
based and media companies. Mr. Hornthal received an A.B. degree from Princeton  
University and an M.B.A. degree from Harvard Business School, where he was a    
Baker Scholar.                                                                  

Thomas W. Cardy was named Executive Vice President of Finance and     
Administration, Chief Financial Officer and Secretary in March 1999. Mr. Cardy  
has been a director of the Company since December 1991. Since September 1988,   
Mr. Cardy has been employed with Communications Equity Associates, Inc. ("CEA"),
an investment banking firm serving the communications, entertainment and new    
media industries, and is currently Executive Vice President, Entertainment and  
New Media at CEA. Prior to joining CEA in 1988, Mr. Cardy was Senior Manager    
with Arthur Andersen & Co., a public accounting firm. Mr. Cardy received a B.S. 
degree from the University of Florida and is a certified public accountant.     

 Christopher L. McAndrews joined the Company as Senior Vice President of
Online Media Sales in September 1997 and was promoted to Executive Vice         
President of Media Sales in January 1999. From 1994 to 1997, he held a series of
executive marketing and sales positions, including Vice President of National   
Accounts, at International Data Group ("IDG"), an information technology media  
and research company. Mr. McAndrews received a B.A. degree from Harvard         
University and an M.B.A. degree from Stanford University.                       

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John M. Petrone joined the Company in August 1995 as Vice President of
Technology and in August  1998 was promoted to the position of Executive Vice   
President of Technology. From September 1997 until August 1998, Mr. Petrone     
served as Senior Vice President of Technology. From August 1993 to August 1995, 
he was a Practice Manager at Oracle Corporation, a database software company;   
from April 1993 to August 1993, he was a Consulting Engineer at Lotus           
Development Corporation, a software company; and from September 1992 to April   
1993, he was a Consulting Manager with Marathon Systems, a software consulting  
firm. Mr. Petrone received a B.S. degree from the University of Maryland.       

   Barrie Seidenberg joined the Company as Director of Consumer Marketing in
April 1995 and was promoted to Executive Vice President of Online Services in   
August 1998. In November 1995, she became Vice President of Online Services and 
was promoted to the position of Senior Vice President of Online Services in     
September 1997. From January 1994 to March 1995, she was an Account Manager at  
Epsilon, a database marketing company. From July 1992 to January 1994, she was a
Customer Acquisition Planner at Williams-Sonoma, Inc., a catalog and retail     
company. Ms. Seidenberg received a B.A. degree from Yale University and an      
M.B.A. degree from Stanford University.                                         

    Leonard R. Stein joined the Company in March 1999 as Senior Vice president
and General Counsel. Prior to joining Preview Travel, Mr. Stein was a member of 
the San Francisco law firm of Steefel, Levitt and Weiss, where he represented   
leading consumer products companies such as Clorox, Quaker Oats and Gerber      
Products. Mr. Stein also represented the Interactive Travel Services Association
(ITSA) since its inception, of which the Company is a founding member. He began 
his legal career at the Washington, D.C. firm of Covington and Burling. Mr.     
Stein earned B.A. and M.A. degrees in economics from Yale University and holds a
law degree from Harvard Law School.                                             

Item 2.  PROPERTIES                                                             

    The Company is headquartered in San Francisco, California, where it leases
an aggregate of approximately 34,000 square feet of space, housing its principal
administrative, sales and marketing, customer service and computer and          
communications systems facilities. The Company's lease for such space expires on
June 30, 2001 with an option to renew such lease for an additional five-year    
term. In addition, the Company leases approximately 16,000 square feet in San   
Francisco that previously housed the Company's television operations and is now 
subleased to NewsNet Central, Inc., a related party. Such lease and sublease    
expire in June 2003, with an option for the Company to terminate the lease      
earlier in July 2001. The Company anticipates that it will require additional   
space within the next 12 months, and there can be no assurance that such        
additional space will be available on commercially reasonable terms, if at all. 

Item 3.  LEGAL PROCEEDINGS                                                      

     The Company is not currently subject to any material legal proceedings. The
Company may from time to time become a party to various legal proceedings       
arising in the ordinary course of its business.                                 

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                    

None.                                                                       

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PART II 

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS   

Price Range of Common Stock                                                     

  The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol PTVL since the Company's initial public offering on November   
19, 1997. The following table shows the high and low sales prices of the        
Company's Common Stock as reported by the Nasdaq National Market for the periods
indicated.                                                                      

 1997                                               High           Low
 ----                                               -----          ---

    Fourth quarter (from November 19, 1997).........   $11.13         $ 6.88

1998                                                                
----                                                                

    First quarter...................................   $33.13         $ 7.50
    Second quarter..................................   $38.13         $23.75
    Third quarter...................................   $44.00         $12.75
    Fourth quarter..................................   $29.13         $ 9.75

The closing sale price of the Company's Common Stock as reported on the Nasdaq  
National Market on March 12, 1999 was $22.94 per share. As of that date, there  
were 281 holders of record of the Company's Common Stock. This does not include 
the number of persons whose stock is in nominee or "street name" accounts       
through brokers.                                                                

     The market price of the Company's Common Stock has been and may continue to
be subject to wide fluctuations in response to a number of events and factors,  
such as quarterly variations in the Company's operating results, announcements  
of technological innovations or new products by the Company or its competitors, 
changes in financial estimates and recommendations by securities analysts, the  
operating and stock performance of other companies that investors may deem      
comparable to the Company, and news reports relating to trends in the Company's 
markets. In addition, the stock market in recent years has experienced extreme  
price and volume fluctuations that have particularly affected the market prices 
of many high technology and Internet related companies that have often been     
unrelated or disproportionate to the operating performance of companies. These  
fluctuations, as well as general economic and market conditions, may adversely  
affect the market price for the Common Stock.                                   

Dividend Policy                                                                 

  The Company has never declared or paid any cash dividends on its capital
stock or other securities. The Company currently anticipates that its will      
retain all of its future earnings for use in the expansion and operation of its 
business and does not anticipate paying cash dividends in the foreseeable       
future.                                                                         

Use of Proceeds                                                                 

On November 19, 1997, in connection with the Company's initial public 
offering, a Registration Statement on Form S-1 (No. 333-37183) was declared     
effective by the Securities and Exchange Commission, pursuant to which 2,500,000
shares of the Company's Common Stock were offered and sold for the account of   
the Company at a price of $11.00 per share, generating gross offering proceeds  
of $27.5 million. The managing underwriters were Hambrecht & Quist LLC and      
NationsBanc Montgomery Securities, Inc. After deducting approximately $1.9      
million in underwriting discounts and $1.0 million in other related expenses,   
the net proceeds of the offering were approximately $24.6 million. As of        
December 31, 1998, the Company has used $8.0 million of the net proceeds of the 
offering for payments to AOL under the distribution agreement with AOL, $2.0    
million for payments to Excite                                                  
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under the distribution agreement with Excite and $2.2 million for payments to   
Lycos under the distribution agreement with Lycos. The remaining $12.4 million  
has been invested in investment grade, interest bearing securities. The Company 
intends to use such remaining proceeds for capital expenditures, for payment of 
its obligations to AOL, Excite and Lycos and for general corporate purposes,    
including working capital to fund anticipated operating losses.                 

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Item 6. SELECTED FINANCIAL DATA                                                 

Selected Consolidated Financial Data                                            

     The following selected consolidated financial data for the five years ended
December 31, 1998, have been derived from the Company's consolidated financial  
statements. Previously reported periods have been restated to reflect           
the results of the Company's television operations as discontinued operations.  
The following information is qualified by reference to, and should be read in   
conjunction with, "Management's Discussion and Analysis of Financial Condition  
and Results of Operations" and the consolidated financial statements and related
notes thereto.                                                                  

                                                        [Enlarge/Download Table]

                                                                     Year Ended December 31,                
                                                   -------------------------------------------------------- 
                                                        1998        1997       1996       1995       1994   
                                                     ----------  ----------  ---------  ---------  ---------
Consolidated Statement of Operations Data:                    (in thousands, except per share data)         
                                                                                                            
Revenues:                                                                                                   
      Transaction revenue..........................   $ 10,667    $  5,430    $ 2,338    $   446   $     -- 
      Advertising revenue..........................      3,341         580        235        133         -- 
                                                      --------    --------    -------    -------   -------- 
                  Total revenues...................     14,008       6,010      2,573        579         -- 

Cost of revenues...................................      6,093       3,648      2,308      1,078         -- 
                                                      --------    --------    -------    -------   -------- 

Gross profit.......................................      7,915       2,362        265       (499)        -- 

Operating expenses:                                                                                         
      Marketing and sales..........................     22,714       7,025      2,815        537         -- 
      Research and development.....................      3,706       1,825      1,314        626         -- 
      General and administrative...................      6,158       3,620      1,440        406         -- 
                                                      --------    --------    -------    -------   -------- 
                  Total operating expenses.........     32,578      12,470      5,569      1,569         -- 
                                                      --------    --------    -------    -------   -------- 

Loss from continuing operations before interest                                                             
   and income tax expense..........................    (24,663)    (10,108)    (5,304)    (2,068)        -- 

Interest income (expense)..........................      2,636         266        (89)      (264)        -- 
                                                      --------    --------    -------    -------   -------- 

Loss from continuing operations before income                                                               
   tax expense.....................................    (22,027)     (9,842)    (5,393)    (2,332)        -- 
Income tax expense.................................        (51)         (2)        (2)        (2)        -- 
                                                      --------    --------    -------    -------   -------- 
Loss from continuing operations....................    (22,078)     (9,844)    (5,395)    (2,334)        -- 

Discontinued operations:                                                                                    
   Loss from discontinued operations...............       (681)       (324)      (197)    (2,599)    (5,418)
   Loss on disposal of discontinued operations.....     (4,202)         --         --         --         -- 
                                                      --------    --------    -------    -------   -------- 

Net loss...........................................   $(26,961)   $(10,168)   $(5,592)   $(4,933)   $(5,418)
                                                      ========    ========    =======    =======   ======== 

Basic and diluted loss per share (1)...............     $(2.11)     $(3.54)    $(3.43)    $(4.02)   $ (4.75)
                                                      ========    ========    =======    =======   ======== 

Shares used in computation of basic and diluted                                                             
   net loss per share..............................     12,796       2,869      1,631      1,228      1,140 
                                                      ========    ========    =======    =======   ======== 

Supplemental Financial Data (unaudited):                                                                    
      Gross bookings (2)...........................   $200,068    $ 80,389    $20,263    $ 2,043   $     -- 
                                                      ========    ========    =======    =======   ======== 

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                                                        [Enlarge/Download Table]

                                                                                    December 31,                                
                                                   ---------------------------------------------------------------------------- 
                                                         1998           1997           1996           1995            1994      
                                                     -------------  -------------  -------------  -------------  ---------------
                                                                                   (in thousands)                               
                                                                                                                                
Consolidated Balance Sheet Data:                                                                                                
     Cash, cash equivalents and marketable                                                                                      
         securities................................        $61,525        $28,662        $ 6,016         $1,064         $   138 
     Total assets..................................         72,168         41,855         12,554          9,066           8,593 
     Long-term obligations (3).....................          3,020          2,496          4,656          4,993           6,164 
     Total stockholders' equity....................         62,687         35,365          4,411          1,249          (1,027)

__________                                                                      
(1)  See Note 1 of Notes to Consolidated Financial Statements for a description 
    of the method used to determine the number of shares used in computing net
loss per share.                                                       
(2)  Represents the total purchase price of all travel services booked through  
the Company's online reservation system. This presentation of gross   
bookings does not affect the Company's operating results, and gross   
bookings are not included in revenues. Management believes that gross 
  bookings provide a more consistent comparison between historical periods
than do online revenues. Gross bookings are not required by generally 
 accepted accounting principles ("GAAP") and should not be considered in
   isolation or as a substitute for other information prepared in accordance
with GAAP, and period-to-period comparisons of gross bookings are not 
     necessarily meaningful as a measure of the Company's revenues due to, among
   other things, changes in commission rates and, as with operating results,
should not be relied upon as an indication of future performance. See 
     "Management's Discussion and Analysis of Financial Condition and Results of
Operations."                                                          
(3)  Long-term obligations include capital lease obligations, long-term notes   
payable, line of credit, subordinated convertible notes payable,      
subordinated notes payable and bank equipment note.                   

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Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS                                                                   

  The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in   
this Form 10-K. This discussion contains certain forward-looking statements that
involve risks and uncertainties. The Company's actual results and the timing of 
certain events could differ materially from those discussed in these forward-   
looking statements as a result of certain factors, including, but not limited   
to, those set forth herein and elsewhere in this Form 10-K.                     

Overview                                                                        

    Preview Travel is a leading provider of branded online travel services for
leisure and small business travelers. From its inception in 1985 until December 
1998, when it sold substantially all of the assets of its television business,  
the Company operated as a producer of travel related programming for broadcast  
television stations and cable networks around the world. The Company shifted its
business focus and resources to online travel services and launched its online  
service on America Online ("AOL") in January 1995 and on the Web in December    
1995, providing users with access to travel information and the ability to book 
travel services by telephone. In May 1996, the Company launched its online      
airline reservation service and, in the first half of 1997, enhanced its online 
reservation service to include hotels and car rentals. In April 1997, the       
Company launched its co-branded Web site for Excite's Travel Channel (City.Net).
In the third quarter of 1997, the Company expanded and extended its             
relationships with Excite and AOL, respectively, by entering into new five-year 
distribution agreements. In February 1998, the Company launched its Destinations
Guides feature created with content licensed from Fodor's. In March 1998, the   
Company entered into an agreement with Lycos, under which the Company serves as 
the exclusive multiservice provider of travel reservation services for Lycos'   
Travel Web Guide and Travel Network.  In July 1998, the Company began offering  
real-time bookings of vacation and cruise packages through strategic            
partnerships with American Airlines Vacations and Royal Caribbean Cruises Ltd.  
and currently offers over 800 packages to over 100 destinations.                

    Sale of Television Business. On December 31, 1998, the Company completed a
transaction with NewsNet Central, Inc. ("NNC"), pursuant to which substantially 
all of the assets of the Company's television business, as operated by the      
Company's wholly owned subsidiary, News Travel Network, Inc. ("NTN"), were      
transferred to NNC (the "TV Disposition"). Upon the closing of the TV           
Disposition, the Company contributed certain assets to NNC, including the       
following: (a) cash in the amount of $88,000, (b) certain assets related to     
NTN's business, including a library of travel video content, and (c) assignment 
of the Company's rights and obligations under certain contracts related to NTN's
business.                                                                       

   In consideration of the transfer of the assets of NTN to NNC, the Company
received from NNC the following: (a) a convertible promissory note in the       
principal amount of $250,000 (the "Note"), (b) a subordinated promissory note in
the principal amount of $1,000,000 (the "Subordinated Note"), which will bear   
interest at the rate of 6% per annum and will be secured by certain portions of 
the assets of NNC, including its fixed assets and the video library, and (c) a  
warrant to purchase up to 2,275,445 shares of Common Stock of NNC at an exercise
price of $0.45 per share (the "Warrant"). The Note will be due and payable upon 
demand by the Company on December 31, 1999; provided, however, that the Note    
will be automatically converted into shares of Series A Preferred Stock of NTN  
at a conversion price of $4.50 per share upon the occurrence of certain         
conditions.                                                                     

    As of December 31, 1998, James Hornthal, the Company's Chairman and acting
President and Chief Executive Officer, holds 800,000 shares and the Company     
holds 829,000 shares of Common Stock of NNC, which each purchased on November   
15, 1998 at a price of $0.015 per share. Following the closing of the TV        
Disposition and the conversions of all outstanding convertible promissory notes,
including the Note, the Company owns approximately 19.7% of NNC's voting stock. 

 In addition, the Company and NNC entered into a Services Agreement that
provides for, among other things, the following:  (a) the sublease to NNC of the
Company's facilities at One Beach Street in San Francisco, (b) the Company's    
right to act as the co-exclusive advertising sales representative for NTN's     
Travel Update programs, (c) a perpetual, non-exclusive, royalty-free license to 
use NTN's travel video library (including any enhancements thereto), and (d) the
continued branding of NTN's "Travel News" and "Travel Update" programs with     
"Preview                                                                        

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Travel" marks. NNC has also agreed not to provide online travel services for a  
period of five years following the termination of the Services Agreement.       

    As the historical operations of the Company's television business were not
profitable, and due to the significant risks inherent in the independent        
television business, the Company has attributed no value to the Subordinated    
Note and the Warrant.  The net value of the Company's investment in NNC will be 
recorded at $250,000. As of the closing of the TV Disposition, substantially all
of the Company's employees engaged in NTN's business became employees of NNC.   

    Upon the completion of the TV Disposition, the Company incurred a one-time
loss of approximately $4.2 million related to the sale of the television        
assets.                                                                         

     Overview of Continuing Operations. The Company's revenues are predominantly
comprised of commissions paid by airlines, hotels, rental car agencies, cruise  
lines and vacation packagers (collectively, "travel suppliers") for travel      
services booked through the Company, segment fees received from its GDS supplier
and the sale of advertisements on the Company's online sites. In addition,      
certain travel suppliers pay performance-based compensation known as "override  
commissions" or "overrides." Commission revenues for air travel, hotel rooms,   
car rentals and vacation packages, net of allowances for cancellations, are     
recognized upon the confirmation of the reservation. Overrides are recognized on
an accrual basis once the amount has been confirmed with the travel supplier,   
which generally reflects the performance for a prior quarterly period.          

  The Company commenced its online airline reservation service in May 1996
and enhanced the service to include hotels and car rentals in the first half of 
1997. In July 1998, the Company began offering real-time bookings of vacation   
and cruise packages through strategic partnerships with American Airlines       
Vacations and Royal Caribbean Cruises Ltd. The Company's online travel services 
have experienced substantial growth since the Company first enabled customers to
book travel services online in May 1996. Gross bookings of travel services      
online increased from approximately $2.8 million in the second quarter of 1996  
to $57.1 million in the fourth quarter of 1998, which resulted in revenues,     
including advertising revenue, of approximately $424,000 and $4.6 million,      
respectively, for the corresponding periods.                                    

  The commission rates paid by travel suppliers, in addition to overrides,
are determined by individual travel suppliers and are subject to change.        
Historically, typical standard base commission rates paid by travel suppliers   
have been approximately 10% for hotel reservations, 5% to 10% for car rentals   
and 10% to 15% for cruises and vacation packages. During the quarter ended June 
30, 1997, the commissions paid by most of the major airlines for online         
reservations was changed from a typical base rate of approximately 8% to        
approximately 5% (excluding overrides). In a continuation of this trend, in the 
first half of 1998, two major airlines reduced their fixed rate commission for  
online roundtrip ticket sales to ten dollars. These reductions were followed by 
similar reductions made by other airlines. The Company expects that its weighted
average commission on online transaction revenue will decline as a result of    
these reductions. Currently, the Company earns an average commission of         
approximately 4% on the sale of airline tickets. During the first quarter of    
1998, one hotel chain eliminated commissions paid to the Company and other      
online travel service providers for online bookings. In response, the Company   
discontinued offering bookings for that hotel chain. Beginning in January 1999, 
the largest hotel chain whose hotels are offered by the Company started to pay a
flat commission of two dollars per completed hotel stay. As a result, the       
Company expects that its commission rate from hotels will decline significantly.
There can be no assurance that other hotel chains or other travel suppliers will
not also reduce commission rates paid to the Company or eliminate such          
commissions entirely, which could, individually or in the aggregate, have a     
material adverse effect on the Company's business, operating results and        
financial condition. See "Risk Factors That May Affect Future Results--Reliance 
on Travel Suppliers; Potential Adverse Changes in Commission Payments."         

Advertising revenue has accounted for an increasing portion of the    
Company's revenues, representing 9%, 10% and 24% of total revenues for 1996,    
1997 and 1998, respectively. The Company currently expects that future growth,  
if any, of advertising revenue may be adversely affected by seasonality in      
advertising expenditures in certain quarters by advertisers and the uncertainty 
of the acceptance by the advertisers of the Company's Web sites as an           
advertising medium. See "Risk Factors That May Affect Future Results--Risks     
Associated with Advertising Revenues."                                          

Travel services sold through the AOL network (including the primary AOL 
service and AOL.COM) accounted for 52%, 38%, 35% and 28% of the Company's gross 
bookings for the three months ended March 31, 1998, June 30, 1998, September 30,
1998 and December 31, 1998, respectively. The decline in the percentage of gross
bookings sold through the AOL network is due to faster growth in gross bookings 
sold through the Company's own Web site. Travel services sold through Excite    
accounted for 16%, 18%, 15% and 16% of the Company's gross bookings for the     
three months ended March 31, 1998, June 30, 1998, September 30, 1998 and        
December 31, 1998, respectively. The Company's arrangements with AOL and Excite 
are expected to continue to represent significant distribution channels for the 
Company's travel services. Any termination of either or both of the Company's   
agreements with AOL or Excite would likely have a material adverse effect on the
Company's business, operating results and financial condition. Since launching  
its online operations, the Company's cost of revenues and operating expenses    
have grown substantially and are expected to continue to grow substantially in  
absolute dollars for the foreseeable future. In particular, the Company's       
agreements with AOL and Excite require minimum aggregate payments of            
approximately $55.5 million during the terms of such agreements in exchange for 
their providing distribution, marketing and other services. There can be no     
assurance that the Company will achieve sufficient online traffic, travel       
bookings or commissions to realize economies of scale that justify the Company's
significant fixed financial obligations to AOL and Excite. Further, there can be
no assurance that the Company will satisfy the minimum levels of travel services
bookings, or provide satisfactory content on the specified time schedule,       
required to maintain the AOL and Excite agreements. Failure to do either of the 
foregoing would likely have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors That May Affect    
Future Results--Reliance on Distribution Agreements with America Online and     
Excite" and "--Risk of Termination of Distribution Agreement with America       
Online."                                                                        

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Overview of Discontinued Operations. From inception through 1994, the 
Company derived all of its revenues from its television operations. The Company 
has restated its previously reported financial statements to reflect the results
of television operations as discontinued operations. Television revenues were   
derived primarily from fees associated with sales of advertising time and the   
licensing of travel related news and entertainment programming. Program license 
revenues were recognized when all of the following conditions are met: (i) the  
license period begins, (ii) the license fee and the production costs are known  
and (iii) the program has been accepted by the licensee and is available for    
telecast. Advertising revenues were recognized when all the terms of the        
advertising agreement were met, and advertising is shown on various media as    
designated by the agreement.                                                    

   The Company produced travel related news inserts and news and entertainment
programs that were syndicated in exchange for either cash or commercial         
advertising time. The Company also syndicated third party news inserts. The     
local commercial advertising time earned for providing these programs was       
aggregated and sold to advertisers seeking to reach a national audience. To     
fulfill such advertisers' requirements to reach a national audience, the Company
from time to time purchased commercial advertising time for resale in selected  
markets. In addition, the Company produced in-flight programs, primarily for    
Northwest Airlines.                                                             

Gross Margins. Gross margins may be impacted by a number of different 
factors, including the mix of transaction revenues versus advertising revenues, 
the mix of travel services sold, the mix of revenues from AOL, Excite, Lycos and
the Company's Web site, the mix of airline ticket commissions (which vary from  
airline to airline) and the amount of override commissions. The Company         
typically realizes higher gross margins on advertising revenues than transaction
revenues, higher commissions on vacation packages than hotel rooms and car      
rentals, higher commissions on hotel rooms from certain suppliers and car       
rentals than airline tickets, higher gross margins on advertising revenues from 
its own Web site than through AOL, Excite or Lycos, higher commissions from     
certain airlines than others, and higher gross margins in periods of higher     
overrides. Any change in one or more of the foregoing factors could materially  
adversely affect the Company's gross margins and operating results in future    
periods. In addition, the Company expects to add a second reservations call     
center during 1999 that is expected to increase cost of revenues and likely     
lower gross margins in the near term. See "Risk Factors That May Affect Future  
Results--Unpredictability of Future Revenues; Fluctuations in Quarterly         
Results."                                                                       

   Anticipated Losses. The Company has incurred significant operating losses
and, as of December 31, 1998, had an accumulated deficit of $52.7 million. The  
Company believes that its success will to a large part depend on its ability to 
greatly increase sales volume to realize economies of scale. As the Company     
increases its spending for product development, advertising, customer service,  
facilities, international expansion and general and                             

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administrative expenses, the Company expects to continue to incur significant   
operating losses on a quarterly and annual basis for the foreseeable future, and
the rate at which such losses will be incurred is expected to increase          
significantly from current levels, resulting in corresponding decreases in      
working capital, total assets and stockholders' equity. In particular, the      
Company's operating expenses are expected to increase substantially in 1999 as  
compared to 1998, primarily due to scheduled increases in the Company's payment 
obligations to strategic partners and advertising and marketing expenses for the
Company's online travel services, resulting in corresponding increases in       
operating losses and decreases in working capital, total assets and             
stockholders' equity. See "Risk Factors That May Affect Future Results--Limited 
Operating History of Online Business; History of Net Operating Losses;          
Accumulated Deficit" and "--Anticipated Losses and Negative Cash Flow."         

Results of Operations                                                           

   The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's consolidated statement of      
operations to total revenues, except as indicated:                              

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                                                        [Enlarge/Download Table]

                                                                      Year Ended December 31,            
                                                           ----------------------------------------------
                                                                1998            1997            1996     
                                                           --------------  --------------  --------------
                                                                              Restated        Restated   
                                                                                                         
As a Percentage of Total Revenues:                                                                       
Revenues:                                                                                                
     Transaction revenue..................................          76.1%           90.3%           90.9%
     Advertising revenue..................................          23.9             9.7             9.1 
                                                                 -------         -------         ------- 
                Total revenues............................         100.0           100.0           100.0 

Cost of revenues..........................................          43.5            60.7            89.7 
                                                                 -------         -------         ------- 

Gross profit..............................................          56.5            39.3            10.3 

Operating expenses:                                                                                      
     Marketing and sales..................................         162.1           116.9           109.4 
     Research and development.............................          26.5            30.4            51.0 
     General and administrative...........................          44.0            60.2            56.0 
                                                                 -------         -------         ------- 
                Total operating expenses..................         232.6           207.5           216.4 

Loss from continuing operations before                                                                   
   interest and income tax expense........................        (176.1)         (168.2)         (206.1)

Interest income (expense).................................          18.9             4.4            (3.5)
                                                                 -------         -------         ------- 

Loss from continuing operations before                                                                   
   income tax expense.....................................        (157.2)         (163.8)         (209.6)
Income tax expense........................................          (0.4)            --             (0.1)
                                                                 -------   -------------         ------- 
Loss from continuing operations...........................        (157.6)         (163.8)         (209.7)

Discontinued operations:                                                                                 
   Loss from operations of discontinued operations........          (4.9)           (5.4)           (7.6)
   Loss on disposal of discontinued operations............         (30.0)            --              --  
                                                                 -------   -------------   ------------- 

Net loss..................................................       (192.5)%        (169.2)%        (217.3)%
                                                                 =======         =======         ======= 

Comparison of years ended December  31, 1996, 1997 and 1998                     

Revenues                                                                    

     Transaction Revenue. In the first four months of 1996, transaction revenues
consisted entirely of the sale of vacation packages by telephone. In May 1996,  
the Company began to book airline tickets through its online services, and      
commissions from these bookings constituted the majority of transaction revenues
for the year. Transaction revenues increased from $2.3 million in 1996 to $5.4  
million in 1997 due to increased usage of the Company's Web sites as a result of
the addition of car and hotel reservation capability in May 1997 and the        
expansion of the Company's distribution agreements with strategic partners in   
September 1997. Transaction revenue increased to $10.7 million in 1998 due to   
the implementation of the Company's distribution agreements with strategic      
partners and an increase in marketing expenditures to attract customers. In July
1998, the Company also began offering real-time bookings of vacation and cruise 
packages. In 1996, 1997 and 1998, the Company's gross bookings were $20.3       
million, $80.4 million and $200.1 million, respectively.                        

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     Advertising Revenue. Advertising revenue increased from $235,000 in 1996 to
$580,000 in 1997 and to $3.3 million in 1998 due to an increased effort by the  
Company to sell advertising on the Company's Web sites and an overall increase  
in the number of advertisers. The Company currently expects that future growth, 
if any, of advertising revenue may be adversely affected by seasonality in      
advertising expenditures in certain quarters by advertisers and the uncertainty 
of the acceptance by advertisers of the Company's Web sites as an advertising   
medium.  See "Risk Factors That May Affect Future Results--Risks Associated with
Advertising Revenues."                                                          

Cost of Revenues                                                            

 Cost of Revenues. As a percentage of revenues, cost of revenues of $2.3
million fell from 90% in 1996 to 61% of revenues in 1997, due to efficiencies   
associated with the increased transaction volume in 1997. In 1998, cost of      
revenues increased to $6.1 million, representing 44% of revenues. The reduction 
in cost of revenues in 1998, as a percentage of revenue, reflects a continuation
of efficiencies associated with increased transaction volume, the allocation of 
fixed costs over a larger revenue base and the increase in advertising revenue  
as a percentage of total revenues. The Company expects to add a second          
reservations call center during 1999 that is expected to increase cost of       
revenues and likely lower gross margins in the near term.                       

Operating Expenses                                                          

    Marketing and Sales. Marketing and sales expenses increased 150% from $2.8
million in 1996 to $7.0 million in 1997. In 1998, the increase was 223% to $22.7
million.  As a percentage of total revenues, marketing and sales expenses rose  
from 109% in 1996 to 117% in 1997 and rose to 162% in 1998. The increase in     
marketing and sales expenses from 1996 to 1998 was attributable primarily to the
hiring of additional personnel for development of online offerings and content  
and additional personnel for the sale of advertising, expenditures related to   
the Company's strategic agreements with AOL, Excite and others and increased    
advertising expenditures. The Company intends to pursue an aggressive branding  
and marketing campaign, including significant advertising expenditures aimed at 
acquiring new registered users and retaining existing users. In addition, the   
Company is obligated to make minimum payments totaling $44.4 million to AOL and 
Excite over the next four years, which payments will be accounted for as        
marketing and sales expense. As a result, the Company expects marketing and     
sales expenses to increase significantly in absolute dollars in future periods. 

   Research and Development. Research and development expenses increased 39%
from $1.3 million in 1996 to $1.8 million in 1997. In 1998, expenses increased  
103% to $3.7 million.  As a percentage of total revenues, research and          
development expenses decreased from 51% in 1996 to 30% in 1997 and 27% in 1998. 
The increases in 1997 and 1998 were attributable primarily to increased staffing
and consulting fees, as well as increased costs related to enhancing the        
features, content and functionality of the Company's online services and        
enhancing or updating transaction processing systems.  The Company believes that
continued investment in research and development is critical to attaining the   
Company's strategic objectives and, as a result, expects research and           
development expenses to increase significantly in absolute dollars in future    
periods.                                                                        

   General and Administrative. General and administrative expenses increased
151% from $1.4 million in 1996 to $3.6 million in 1997, and increased 70% to    
$6.2 million in 1998. As a percentage of total revenues, general and            
administrative expenses were 56% in 1996, 60% in 1997 and 44% in 1998. The      
increases in general and administrative expenses in 1997 and 1998 were due      
primarily to increased salaries and expenses associated with the hiring of      
personnel related to the growth of the Company's business and the additional    
costs of being a public company. The Company expects general and administrative 
expenses to increase in absolute dollars in future periods as the Company       
expands its staff and incurs additional costs related to the growth of its      
business.                                                                       

     Deferred Compensation.  The Company grants stock options to hire and retain
employees.  With respect to the grant of certain stock options to employees,    
the Company recorded aggregate deferred compensation of $570,000 in 1997.       
Deferred compensation is recorded as a reduction of shareholders' equity and is 
amortized ratably over the vesting period of the applicable options, generally  
four years.  The Company recorded amortization of deferred compensation for     
options granted of $70,000 and $143,000 in 1997 and 1998, respectively, and     
currently                                                                       

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expects to record additional amortization of approximately $143,000 per year for
1999 and 2000 and $71,000 in 2001. The amortization of deferred compensation is 
recorded as operating expenses in such periods.                                 

   Interest Income (Expense).  Interest expense, net of interest income, was
$89,000 in 1996. For 1997, interest income, net of expense, was $266,000.  The  
change from 1996 to 1997 was due primarily to a reduction on borrowings under   
the Company's line of credit and interest income earned on higher cash balances 
in 1997, primarily from an equity financing completed in September 1997 and     
proceeds from the Company's initial public offering in November 1997. For 1998, 
interest income, net of expense, was $2.6 million. The increase from 1997 to    
1998 was due primarily to higher cash and marketable securities balances from   
the Company's initial public offering and the Company's secondary offering in   
May 1998, offset by increased interest expense incurred for capitalized lease   
obligations.                                                                    

Discontinued Operations. Loss from discontinued operations include the
results of the Company's television operations prior to the TV Disposition on   
December 31, 1998. Loss from discontinued operations in 1996 of $197,000 was    
comprised of television revenues of $9.8 million less cost of television        
revenues of $7.0 million and operating expenses of $3.0 million. Loss from      
discontinued operations in 1997 of $324,000 was comprised of television revenues
of $7.6 million less cost of television revenues of $5.8 million and operating  
expenses of $2.2 million. Loss from discontinued operations from the operations 
of the television business in 1998 of $681,000 was comprised of television      
revenues of $6.1 million less cost of television revenues of $4.6 million and   
operating expenses of $2.1 million. Additionally, loss on the disposal of the   
television business was $4.2 million.                                           

Variability of Results                                                          

    The Company's gross bookings have increased significantly year to year due
to expansion of the Company's distribution channels, travel services and        
customer base, repeat purchases by existing customers and increased customer    
acceptance of electronic commerce. Revenues from transactions grew in           
conjunction with the growth in gross bookings. Advertising revenue has also     
increased significantly year to year. Operating expenses have similarly         
increased on a year to year basis, reflecting increased spending on developing  
the Company's online operations and expanding its strategic relationships.      

   As a result of the Company's limited operating history in online commerce
and the emerging nature of the market in which the Company competes, the Company
is unable to accurately forecast its revenues. The Company's current and future 
expense levels are based predominantly on its operating plans. The Company may  
be unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in revenues would     
likely have a material adverse effect on the Company's business, operating      
results and financial condition. Further, the Company currently intends to      
substantially increase its operating expenses to develop and offer new and      
expanded travel services, to fund increased sales and marketing and customer    
service operations and to develop its technology and transaction processing     
systems. To the extent such expenses precede or are not subsequently followed by
increased revenues, the Company's operating results will fluctuate and          
anticipated net losses in a given period may be greater than expected.          

  The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of other factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's  
quarterly operating results include, but are not limited to (i) the Company's   
ability to retain existing customers, attract new customers at a steady rate and
maintain customer satisfaction, (ii) changes in inventory availability from     
third party suppliers or commission rates paid by travel suppliers, such as the 
reduction in commissions paid by major airlines for online bookings implemented 
during the first nine months of 1997, (iii) the announcement or introduction of 
new or enhanced sites, services and products by the Company or its competitors, 
(iv) general economic conditions and economic conditions specific to the        
Internet, online commerce or the travel industry, (v) the level of use of online
services and consumer acceptance of the Internet and commercial online services 
for the purchase of consumer products and services such as those offered by the 
Company, (vi) the Company's ability to upgrade and develop its systems and      
infrastructure and to attract new personnel in a timely and effective manner,   
(vii) the level of traffic on the Company's online sites, (viii) technical      
difficulties, system downtime or Internet brownouts, (ix) the amount and timing 
of operating costs and capital expenditures relating to                         

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expansion of the Company's business, operations and infrastructure, (x)         
governmental regulation and (xi) unforeseen events affecting the travel         
industry.                                                                       

     In addition, the Company expects that it will experience seasonality in its
business, reflecting seasonal fluctuations in the travel industry, Internet and 
commercial online service usage and advertising expenditures. The Company       
anticipates that travel bookings will typically increase during the first and   
second quarter in anticipation of summer travel and will typically decline      
during the fourth quarter. Internet and commercial online service usage and the 
rate of growth of such usage may be expected typically to decline during the    
summer. Depending on the extent to which the Internet and commercial online     
services are accepted as an advertising medium, seasonality in the level of     
advertising expenditures could become more pronounced for Internet-based        
advertising. Seasonality in the travel industry, Internet and commercial online 
service usage and advertising expenditures is likely to cause fluctuations in   
the Company's operating results and could have a material adverse effect on the 
Company's business, operating results and financial condition.                  

    Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period           
comparisons of its operating results will not necessarily be meaningful and     
should not be relied upon as an indication of future performance. It is likely  
that the Company's future quarterly operating results from time to time will not
meet the expectations of security analysts or investors. In such event, the     
price of the Company's Common Stock would likely be materially and adversely    
affected.                                                                       

LIQUIDITY AND CAPITAL RESOURCES                                                 

    In November 1997, the Company completed an initial public offering ("IPO")
of its common stock, resulting in net proceeds to the Company of approximately  
$24.6 million. Additionally, in May 1998, the Company completed a secondary     
public offering of its common stock, resulting in net proceeds to the Company of
approximately $52.4 million. Prior to the two public offerings, the Company had 
financed its operations primarily through private sales of common stock,        
convertible preferred stock and convertible notes, which totaled $34.7 million  
in aggregate net proceeds through 1997.                                         

   Cash used in operations in 1996 of $2.1 million was composed of cash used
in continuing operating activities of $3.2 million offset by cash provided by   
discontinued operations of $1.1 million. Cash used in continuing operating      
activities was primarily attributable to a net loss of $5.6 million partly      
offset by an increase in accounts payable and accrued liabilities of $1.7       
million associated with expansion of the Company's business. Cash used in       
operations in 1997 of $13.6 million was composed of cash used in continuing     
operating activities of $13.4 million and by cash used by discontinued          
operations of $0.2 million. Cash used in continuing operating activities was    
primarily attributable to a net loss of $10.2 million and increases in other    
assets of $6.0 million mainly attributed to prepaid marketing distribution      
expenses for AOL and Excite. Cash used was partly offset by an increase in      
accounts payable and accrued liabilities of $2.1 million associated with        
expansion of the Company's business. Cash used in operations in 1998 of $18.8   
million was composed of cash used in continuing operating activities of $17.0   
million and by cash used by discontinued operations of $1.8 million. Cash used  
in continuing operating activities was primarily attributable to a net loss of  
$27.0 million adjusted for loss from discontinued operations of $4.9 million,   
decreases in other assets of $2.9 million relating to reductions of prepaid     
marketing distribution expenses  and increases in accounts payable and accrued  
liabilities of $2.4 million.                                                    

 Cash used in investing activities was $175,000 in 1996, $1.5 million in
1997 and $41.9 million in 1998. Cash used in investing activities in 1996 and   
1997 was primarily for acquisition of equipment and, in 1997, purchases of      
marketable securities. In 1998, cash used in investing activities of $41.7      
million was attributable primarily to purchases of short-term marketable        
securities of $62.8 million, purchases of long-term marketable securities of    
$14.6 million and acquisition of property and equipment of $1.3 million         
partially offset by proceeds on sales of short-term marketable securities of    
$37.0 million.                                                                  

In 1996, cash provided by financing activities totaled $7.2 million,  
consisting primarily of proceeds from the issuance of preferred stock and a     
convertible note, partly offset by repayment of long-term debt and payments     
under capital leases. In 1997, cash provided by financing activities of $37.0   
million consisted primarily of proceeds from the issuance of common stock       
through the Company's IPO  and preferred stock offerings, partly offset by      
repayment of an equipment lease line and payment of obligations under capital   
leases. In 1998, cash provided by financing activities of $52.9 million         
consisted primarily of proceeds from the issuance of common stock through the   
Company's secondary stock offering of $52.4 million.                            

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As of December 31, 1998, the Company had $61.5 million of cash, cash  
equivalents and marketable securities. As of that date, the Company's principal 
commitments consisted of obligations outstanding under the agreements with AOL, 
Excite, Lycos and others and lease obligations. See Note 6 of Notes to          
Consolidated Financial Statements for a summary of the principal terms of these 
commitments. Although the Company has no material commitments for capital       
expenditures, it anticipates an increase in its capital expenditures and lease  
commitments consistent with anticipated growth in operations, infrastructure and
personnel. In addition, pursuant to its arrangement with AOL, the Company is    
obligated to make minimum payments totaling $32 million, of which $9.1 million  
had been paid as of December 31, 1998, and to pay a percentage of commissions   
earned by the Company in excess of certain thresholds. Pursuant to its          
arrangement with Excite, the Company is obligated to make minimum payments      
totaling $23.5 million, of which $2.0 million had been paid as of December 31,  
1998, and to pay a percentage of commissions earned by the Company in excess of 
certain thresholds. Pursuant to its arrangement with Lycos, the Company is      
obligated to make minimum payments totaling $4.3 million, of which $2.1 million 
had been paid as of December 31, 1998 and to pay a percentage of commissions    
earned by the Company in excess of certain thresholds. In addition, the Company 
is required to develop content areas featured on AOL, Excite and Lycos sponsored
primarily by advertising revenues, of which the Company is entitled to receive a
share. However, there can be no assurance that the Company will receive         
significant revenues, if any, from such payments. See "Risk Factors That May    
Affect Future Results--Reliance on Distribution Agreements with America Online  
and Excite" and "--Risk of Termination of Distribution Agreement with AOL."     

     The Company believes that its current cash, cash equivalents and marketable
securities will be sufficient to meet its anticipated cash needs for working    
capital and capital expenditures through the end of 1999.  However, the Company 
could be required, or could elect, to seek to raise additional financing during 
such period or thereafter, through the sale of equity or debt securities or by  
obtaining credit facilities. The sale of additional equity or convertible debt  
securities could result in additional dilution to the Company's stockholders.   
There can be no assurance that financing will be available in sufficient amounts
or on terms acceptable to the Company, if at all. See "Risk Factors That May    
Affect Future Results--Need for Additional Capital."                            

Year 2000                                                                       

  The Year 2000 issue relates to computer systems that have time and date-
sensitive programs that may not properly recognize the Year 2000. If a computer 
system or software application used by the Company or a third party dealing with
the Company fails because of the inability of the system or application to      
properly read the year "2000," the results could include, among other things,   
the inability to process transactions or conduct normal business activities and 
could have a material adverse effect on the Company.                            

The Company's process towards Year 2000 readiness includes planning,  
assessment, testing and remediation. The Company has engaged an outside         
consultant to assist in this process. The Company is in the process of          
undertaking Year 2000 assessment and testing and anticipates completing this    
process by June 30, 1999. Based on its review to date, the Company has not      
uncovered any significant computer programs or systems which would not become   
Year 2000 compliant in a timely manner. The Company continues to review its     
systems for Year 2000 issues. The Company expects to spend up to $200,000 for   
contractors, consultants and software involved in the planning, assessment and  
testing phases of the Year 2000 process. The Company also expects to utilize    
significant internal resources and personnel in the Year 2000 process. The      
extent of any remedial efforts and other additional costs of the Year 2000      
process will not be known until the testing and assessment phase has been       
completed. However, the costs to complete the Year 2000 process are not expected
to have a material adverse effect on the Company's business, operating results  
or financial condition.                                                         

  The Company has also initiated contact with key suppliers whose computer
systems' functionality could impact the Company's ability to conduct business.  
The Company is dependent upon certain third party service providers including,  
without limitation, the Apollo GDS system, AOL, Level 3 Communications,         
Pegasus and major travel suppliers. Any interruption of such services due to    
such providers' failure to be Year 2000 compliant would be disruptive to the    
Company's business and could have a material adverse effect on the Company's    
business, operating results and financial condition. In particular, the Company 
is substantially dependent on the Year 2000 compliance of the Apollo GDS system,
the failure of which could, in the                                              
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worst case, prevent the Company's customers from being able to reserve airline  
tickets, car rentals and other travel services, which would have a material     
adverse effect on the Company's business, operating results and financial       
condition. In addition, the Company believes it could take up to six months and 
require substantial expenditures to fully transition the Company's travel       
services to an alternative GDS System. Similarly, the failure by Pegasus to be  
Year 2000 compliant could prevent the Company's customers from being able to    
reserve hotel rooms, which could have a material adverse effect on the Company's
business, operating results and financial condition. Currently, the Company has 
not yet developed a contingency plan to address the risk of failure of such     
service providers to be Year 2000 compliant.                                    

The foregoing assessment of the impact of the Year 2000 problem on the
Company is based on management's best estimates at the present time and could   
change substantially.  The assessment is based upon numerous  assumptions as to 
future events.  There can be no guarantee that these estimates will prove       
accurate, and actual results could differ from those estimated if these         
assumptions prove inaccurate.                                                   

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS                                     

    In addition to the other information in this Report, the following factors
should be considered carefully in evaluating the Company's business and         
prospects:                                                                      

Limited Operating History of Online Business; History of Net Operating
Losses; Accumulated Deficit. The Company incurred net losses of $5.6 million,   
$10.2 million and $27.0 million in 1996, 1997 and 1998, respectively. As of     
December 31, 1998, the Company had an accumulated deficit of approximately $52.7
million. The Company believes that its future success depends on its ability to 
significantly increase revenues from its Internet and commercial online service 
operations, for which it has a limited operating history. The Company initiated 
its reservations operations in 1994, first recognized revenues from its         
reservations operations in the first quarter of 1995 and booked its first       
airline ticket reservations online in the second quarter of 1996. Accordingly,  
the Company's prospects must be considered in light of the risks, expenses and  
difficulties frequently encountered by companies in an early stage of           
development, particularly companies engaged in new and rapidly evolving markets 
such as online commerce. There can be no assurance that the Company will be     
successful in addressing such risks, and the failure to do so could have a      
material adverse effect on the Company's business, operating results and        
financial condition.                                                            

  Anticipated Losses and Negative Cash Flow. The Company believes that its
success will depend in large part on, among other things, its ability to attract
and retain registered users, to generate sufficient sales volume to achieve     
profitability and effectively maintain existing relationships and develop new   
relationships with travel suppliers, strategic partners and advertising         
customers. Accordingly, the Company intends to expend significant financial and 
management resources on brand development, marketing and promotion, site and    
content development, strategic relationships and technology and operating       
infrastructure. As a result, the Company expects to incur additional losses and 
continued negative cash flow from operations for the foreseeable future, and    
such losses are anticipated to increase significantly from current levels. There
can be no assurance that the Company's revenues will increase or even continue  
at their current level or that the Company will achieve or maintain             
profitability or generate cash from operations in future periods. In view of the
rapidly evolving nature of the Company's business and its limited operating     
history in the online business, the Company believes that period-to-period      
comparisons of its operating results are not necessarily meaningful and should  
not be relied upon as an indication of future performance.                      

    Unpredictability of Future Revenues; Fluctuations in Quarterly Results. As
a result of the Company's limited operating history in online commerce and the  
emerging nature of the markets in which the Company competes, the Company is    
unable to accurately forecast its revenues. The Company's current and future    
expense levels are based predominantly on its operating plans and estimates of  
future revenues and are to a large extent fixed. The Company may be unable to   
adjust spending in a timely manner to compensate for any unexpected revenue     
shortfall. Accordingly, any significant shortfall in revenues would likely have 
an immediate material adverse effect on the Company's business, operating       
results and financial condition. Further, the Company currently intends to      
substantially increase its operating expenses to develop and offer new and      
expanded travel services, to fund increased sales and marketing, including      
obligations under its distribution agreements, and customer service operations  
and to develop its technology and transaction processing systems. To the extent 
such expenses precede or                                                        

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are not subsequently followed by increased revenues, the Company's operating    
results will fluctuate and net anticipated losses in a given quarter may be     
greater than expected.                                                          

  The Company expects that it will experience seasonality in its business,
reflecting seasonal fluctuations in the travel industry, Internet and commercial
online service usage and advertising expenditures. The Company anticipates that 
travel bookings will typically increase during the first and second quarter in  
anticipation of summer travel and will typically decline during the fourth      
quarter. Internet and commercial online service usage and the rate of growth of 
such usage may be expected typically to decline during the summer. Depending on 
the extent to which the Internet and commercial online services are accepted as 
an advertising medium, seasonality in the level of advertising expenditures     
could become more pronounced for Internet based advertising. Seasonality in the 
travel industry, Internet and commercial online service usage and advertising   
expenditures are likely to cause quarterly fluctuations in the Company's        
operating results and could have a material adverse effect on the Company's     
business, operating results and financial condition.                            

  The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of other factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's  
quarterly operating results include, but are not limited to: (i) the Company's  
ability to retain existing customers, attract new customers at a steady rate and
maintain customer satisfaction, (ii) changes in inventory availability from     
third party suppliers or commission rates paid by travel suppliers, such as the 
reduction in commissions paid by major airlines for online bookings implemented 
during 1997 and the first half of 1998, (iii) the announcement or introduction  
of new or enhanced sites, services and products by the Company or its           
competitors, (iv) general economic conditions and economic conditions specific  
to the Internet, online commerce or the travel industry, (v) the level of use of
online services and consumer acceptance of the Internet and commercial online   
services for the purchase of consumer products and services such as those       
offered by the Company, (vi) the Company's ability to upgrade and develop its   
systems and infrastructure and to attract new personnel in a timely and         
effective manner, (vii) the level of traffic on the Company's online sites,     
(viii) technical difficulties, system downtime or Internet brownouts, (ix) the  
amount and timing of operating costs and capital expenditures relating to       
expansion of the Company's business, operations and infrastructure, (x)         
governmental regulation and (xi) unforeseen events affecting the travel         
industry.                                                                       

  Gross margins may be impacted by a number of different factors including
the mix of transaction revenues versus  advertising revenues, the mix of travel 
services sold, the mix of revenues from AOL, Excite, Lycos and the Company's Web
site, the mix of airline ticket commissions (which vary from airline to airline)
and the amount of override commissions. The Company typically realizes higher   
gross margins on advertising revenues than commission revenues, higher          
commissions on vacation packages than hotel rooms and car rentals, higher       
commissions on hotel rooms and car rentals than airline tickets, higher gross   
margins on advertising revenues from the Company's own Web site than through    
AOL, Excite or Lycos, higher commissions from certain airlines than others and  
higher gross margins in periods of higher overrides.  Any change in one or more 
of the foregoing factors could materially adversely affect the Company's gross  
margins and operating results in future periods.                                

As a result of the foregoing factors, the Company's annual or quarterly     
operating results may be below the expectations of public market analysts and   
investors. In such event, the price of the Company's Common Stock would likely  
be materially and adversely affected.                                           

Dependence on the Travel Industry. The Company derives a significant  
portion of its revenues directly or indirectly from the travel industry, and the
Company's future growth is dependent on the travel industry. The travel         
industry, especially leisure travel, which is dependent on personal             
discretionary spending levels, is sensitive to changes in economic conditions   
and tends to decline during general economic downturns and recessions. The      
travel industry is also highly susceptible to unforeseen events, such as        
political instability, regional hostilities, fuel price escalation, travel      
related accidents, unusual weather patterns or other adverse occurrences. Any   
event that results in decreased travel generally would likely have a material   
adverse effect on the Company's business, operating results and financial       
condition.                                                                      

   Uncertain Acceptance of the Preview Travel Brand; Dependence on Increased
Bookings. The Company believes that establishing, maintaining and enhancing the 
Preview Travel brand is a critical aspect of its efforts to                     

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attract and expand its online traffic. The number of Internet sites that offer  
competing services, many of which already have well established brands in online
services or the travel industry generally, increases the importance of          
establishing and maintaining brand name recognition. Promotion of the Preview   
Travel brand will depend largely on the Company's success in providing a high   
quality online experience supported by a high level of customer service, which  
cannot be assured. In addition, to attract and retain online users, and to      
promote and maintain the Preview Travel brand in response to competitive        
pressures, the Company may find it necessary to increase substantially its      
financial commitment to creating and maintaining a strong brand loyalty among   
customers. If the Company is unable to provide high quality online services or  
customer support, or otherwise fails to promote and maintain its brand, or if   
the Company incurs excessive expenses in an attempt to promote and maintain its 
brand, the Company's business, operating results and financial condition would  
be materially adversely affected.                                               

The Company's future success, and in particular its revenues and operating  
results, depends upon its ability to successfully execute several key aspects of
its business plan. The Company must increase the dollar volume of transactions  
booked through its online sites, either by generating significantly higher and  
continuously increasing levels of traffic to its online sites or by increasing  
the percentage of visitors to its online sites who purchase travel services, or 
through some combination thereof. The Company must also increase the number of  
repeat purchasers of travel services through its online sites. In addition, the 
Company must deliver a high level of customer service and compelling content in 
order to attract users with demographic characteristics valuable to advertisers.
Although the Company has implemented strategies designed to accomplish these    
objectives, including its relationships with AOL, Excite, Lycos and other       
strategic partners, as well as advertising the Company's services in online and 
traditional media, there can be no assurance that these strategies will be      
effective in increasing the dollar volume of transactions booked through its    
online sites, increasing traffic to its online sites, increasing the percentage 
of visitors who purchase travel services, increasing the number of repeat       
purchasers or increasing its advertising revenues. The failure to do one or more
of the foregoing would likely have a material adverse effect on the Company's   
business, operating results and financial condition.                            

 Reliance on Distribution Agreements with America Online and Excite. The
Company has entered into agreements with AOL and Excite establishing the Company
as the primary and preferred provider of travel services on AOL and the         
exclusive provider of travel reservations services on Excite's Travel Channel   
(City.Net) until September 2002. Under these agreements, as amended, AOL and    
Excite are obligated to promote the Company and to deliver minimum numbers of   
annual page views or impressions to the online areas featuring the Company's    
travel services. In addition, the Company is eligible to receive payments from  
Excite representing a share of advertising revenues received by Excite in       
connection with the online areas featuring the Company's travel services;       
however, there can be no assurance that such payments, if any, will be          
significant. During the terms of these agreements, the Company is obligated to  
make minimum payments totaling $55.5 million to AOL and Excite as well as pay to
AOL and Excite a percentage of certain commissions earned by the Company in     
excess of specified thresholds. The Company is also obligated to share certain  
advertising revenues with each of AOL and Excite, as specified in their         
respective agreements. Moreover, the Company's agreement with AOL is conditioned
upon the Company achieving specified levels of travel services bookings, which  
will require the Company to significantly increase such bookings from current   
levels. There can be no assurance that the Company will achieve sufficient      
online traffic, travel bookings or commissions to realize economies of scale    
that justify the Company's significant fixed financial obligations to AOL and   
Excite or that the Company will satisfy the minimum levels of travel services   
bookings required to maintain the AOL agreement, and failure to do so would     
likely have a material adverse effect on the Company's business, operating      
results and financial condition. In addition, the agreements with AOL and Excite
do not provide the Company with renewal rights upon expiration of their         
respective terms. The AOL agreement provides AOL with the right to renew the AOL
agreement for successive one-year terms on a non-exclusive basis during which   
period AOL would continue to receive a percentage of commissions and share in   
advertising revenues, but the Company would not be obligated to make any        
additional minimum payments. There can be no assurance that such agreements will
be renewed on commercially acceptable terms, or at all.                         

 In addition, the Company is a party to a database services agreement with AOL
to develop and manage a travel related destinations database for AOL with       
content that is reasonably satisfactory to AOL. The Company has committed to an 
aggressive schedule to develop and maintain the destinations database which will
require significant efforts and resources on the Company's part. There can be no
assurance that the Company will be able to fulfill its commitments to AOL on the
agreed upon schedule, and failure to do so could result in a breach of the      
distribution                                                                    

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agreement with AOL, as well as the database services agreement, which would     
likely have a material adverse effect on the Company's business, operating      
results and financial condition.                                                

 Furthermore, the Company's significant investment in the AOL and Excite
relationships is based on the continued positive market presence, reputation and
anticipated growth of AOL and Excite, as well as the commitment by each of AOL  
and Excite to deliver specified numbers of annual page views or impressions. Any
decline in the significant market presence, business or reputation of AOL or    
Excite, or the failure of AOL or Excite to deliver the specified numbers of     
annual page views, will reduce the value of these strategic agreements to the   
Company and will likely have a material adverse effect on the business,         
operating results and financial condition of the Company. In addition, while the
Company and Excite have agreed to cooperate on advertising, AOL and the Company 
have the right to separately pursue and sell advertising in the Company's       
content areas distributed through AOL. There can be no assurance that the       
Company and AOL will not compete for limited travel supplier advertising        
revenues. Travel services sold through the AOL network (including the primary   
AOL service and AOL.COM) accounted for  52%, 38%, 35% and 28% of the Company's  
gross bookings for the three months ended March 31, 1998, June 30, 1998,        
September 30, 1998 and December 31, 1998, respectively. Travel services sold    
through Excite accounted for 16%, 18%, 15% and 16% of the Company's gross       
bookings for the three months ended March 31, 1998, June 30, 1998, September 30,
1998 and December 31, 1998, respectively. The Company's arrangements with AOL   
and Excite are expected to continue to represent significant distribution       
channels for the Company's travel services. Any termination of either or both of
the Company's agreements with AOL or Excite would likely have a material adverse
effect on the Company's business, operating results and financial condition     

   Except for its arrangements with AOL and Excite, the Company has no other
significant long-term distribution arrangements with any other service provider 
on the Internet or commercial online services and accordingly must rely on      
search engines, directories and other navigational tools which significantly    
affect traffic to the Company's online sites. There can be no assurance that    
such cooperation will be available to the Company on acceptable commercial terms
or at all or that such relationships will not already be established with the   
Company's competitors. If the Company is unable to maintain satisfactory        
relationships with AOL or Excite, or if the Company is unable to develop and    
maintain satisfactory relationships with additional third parties on acceptable 
commercial terms, or if the Company's competitors are better able to leverage   
such relationships, the Company's business, operating results and financial     
condition could be materially adversely affected.                               

Risk of Termination of Distribution Agreement with America Online. The
Company's future success depends in part upon its ability to maintain its       
distribution agreement with AOL. The Company's distribution agreement with AOL  
may be terminated by AOL in the event that the Company fails to make certain    
minimum payments to AOL, fails to achieve specified levels of travel services   
bookings or breaches its database services agreement with AOL pursuant to which 
the Company is required to develop and manage a travel related destinations     
database for AOL. In particular, the Company must achieve specified annual      
levels of travel services bookings, for which the Company was in compliance with
the first annual measurement date occurring in September 1998.  There can be no 
assurance that the Company will be able to meet its significant financial       
obligations to AOL, achieve the specified minimum levels of travel services     
bookings, or deliver satisfactory content to the database.  Failure to do any of
the foregoing could result in the termination by AOL of the Company's           
distribution agreement with AOL, which would likely have a material adverse     
effect on the Company's business, operating results and financial condition.    

Reliance on Travel Suppliers; Potential Adverse Changes in Commission 
Payments. The Company is dependent on airlines, hotels and other providers of   
travel services ("travel suppliers") in order to offer its customers            
comprehensive access to travel services and products. Consistent with industry  
practices, the Company currently has no agreements with its travel suppliers    
that obligate such suppliers to sell services or products through the Company.  
In addition, travel suppliers may be unable or choose not to make their         
inventory of services and products available through online distribution,       
including those services offered by the Company. Accordingly, travel suppliers  
could elect to sell exclusively through other sales and distribution channels or
to restrict the Company's access to their inventory, which could significantly  
decrease the amount or breadth of the Company's inventory of available travel   
offerings and could have a material adverse effect on the Company's business,   
operating results and financial condition.                                      

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   In addition, a substantial majority of the Company's revenue is dependent
on the commissions customarily paid by travel suppliers for bookings made       
through the Company's online travel service. Consistent with industry           
practices, these travel suppliers are not obligated to pay any specified        
commission rate for bookings made through the Company or to pay commissions at  
all. For example, during the first quarter of 1998, a major hotel chain         
eliminated commissions paid to the Company and other online travel service      
providers for online bookings. Beginning in January 1999, the largest hotel     
chain whose hotels are offered by the Company started to pay a flat commission  
of two dollars per completed hotel stay. As a result, the Company expects that  
its average commission rate received from hotels will decline. There            
can be no assurance that other hotel chains or other travel suppliers will not  
reduce current industry commission rates or eliminate such commissions          
entirely, which could, individually or in the aggregate, have a material        
adverse effect on the Company's business, operating results and financial       
condition. For example, in 1995, most of the major airlines placed a cap on     
per-ticket commissions payable to all travel agencies for domestic airline      
travel. In September 1997, the major U.S. airlines reduced the commission rate  
payable to traditional travel agencies from 10% to 8%.                          

  In 1997, the major U.S. airlines reduced the commission rate payable for
online reservations from approximately 8% to approximately 5%, which had a      
material adverse effect on the Company's results of operations in 1997 and the  
nine months ended September 30, 1998. In addition, in the first half of 1998 two
major airlines reduced their fixed rate commission for online roundtrip ticket  
sales to ten dollars. These reductions were followed by similar reductions made 
by other smaller airlines.  The Company expects that its weighted average       
commission on online transaction revenue will decline as a result of these      
reductions. There can be no assurance that airlines or other of the Company's   
travel suppliers will not further reduce the amount of compensation payable to  
the Company and other online service providers.                                 

In addition, certain travel suppliers have initiated direct online    
distribution channels and, in some cases, have offered negotiated rates directly
to major corporate customers. Further, the Company's travel service offerings   
are limited to those travel suppliers whose services and products are available 
through the global distribution services ("GDS") systems accessed by the        
Company, namely, the Apollo GDS system ("Apollo") operated by Galileo           
International Partnership ("Galileo") for airlines and car rentals and the GDS  
system operated by Pegasus Systems, Inc. ("Pegasus") for hotel reservations. For
example, Southwest Airlines is currently unavailable in the Apollo GDS system,  
and, therefore, the Company is unable to offer access to Southwest Airline's    
inventory. There can be no assurance that the Company's current travel suppliers
will continue to sell services or products through Apollo or Pegasus on current 
terms with adequate compensation to the Company, or at all, or that the Company 
will be able to establish new or extend current travel supplier relationships to
ensure uninterrupted access to a comprehensive supply of the travel services.   
The Company's failure to do so would likely result in a material adverse effect 
on its business, operating results and financial condition.                     

Reliance on Third Party Systems. The Company is dependent upon certain
third party service providers, including, without limitation, the following: AOL
and Level 3 Communications, the Company's Internet service provider which       
provides the Company with a T3 data communication line; Pegasus, which provides 
the Company with access to a global hotel reservation system and which operates 
an online travel service competitive with the Company; Galileo, which provides  
the Company with access to the Apollo GDS system; and AT&T, which provides the  
Company with data connectivity to the Apollo GDS System.                        

The Company is dependent on these third party providers to continue to
offer and maintain these services. Any discontinuation of such services, or any 
reduction in performance that requires the Company to replace such services,    
would be disruptive to the Company's business. In particular, if the Company    
were required to replace services provided by the Apollo GDS system, the Company
believes it could take up to one year and require substantial expenditures to   
fully transition the Company's travel services to an alternative service        
provider. In the past, these third party providers have experienced             
interruptions or failures in their systems or services, which have temporarily  
prevented the Company's customers from accessing or purchasing certain travel   
services through the Company's online sites. Any reduction in performance,      
disruption in Internet or online access or discontinuation of services provided 
by AOL, Level 3 Communications or any other Internet service provider, or any   
disruption in the Company's ability to access the Apollo GDS system, Pegasus or 
any other travel reservation systems, could have a material adverse effect on   
the Company's business, operating results and financial condition.              

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    In addition, the Company is dependent on Apollo and Pegasus to ensure that
all software used in connection with their GDS systems will manage and          
manipulate data involving the transition of dates from 1999 to 2000 without     
functional or data abnormality and without inaccurate results related to such   
dates. Any failure by Galileo or Pegasus to ensure that such software complies  
with year 2000 requirements could have a material adverse effect on the         
Company's business, operating results and financial condition. The Company's    
agreements with its third party service providers have terms of, or expire      
within, one year or less and in some cases are subject to cancellation for any  
reason or no reason upon short notice. Specifically, the Company does not have a
written agreement with Pegasus. Any cancellation of services, or failure to     
renew such services upon expiration, by any of such third party providers       
without notice sufficient to allow the Company to transition to a new service   
provider in a timely and cost effective manner would have a material adverse    
effect on the Company's business, operating results and financial condition. See
"--Year 2000 Compliance."                                                       

     Competition. The online travel services market is new, rapidly evolving and
intensely competitive, and the Company expects such competition to intensify in 
the future. The Company competes primarily with traditional travel agency and   
online travel reservation services. In the online travel services market, the   
Company competes with other entities that maintain similar commercial Web sites,
such as Expedia (operated by Microsoft Corporation), Travelocity (operated by   
SABREGroup Holdings Inc., a majority owned subsidiary of American Airlines),    
Cendant Corporation, TravelWeb (operated by Pegasus), Internet Travel Network,  
Biztravel.com, Cheap Tickets and TheTrip.com, among others. Several traditional 
travel agencies, including larger travel agencies such as American Express      
Travel Related Services Co. Inc., Uniglobe Travel and Carlson Wagonlit Travel,  
have established, or may establish in the future, commercial Web sites offering 
online travel services. Additionally, Priceline.com operates a Web site that    
allows users to bid on air tickets and hotel rooms.                             

     In addition to the traditional travel agency channel, most travel suppliers
also sell their services directly to customers, predominantly by telephone. As  
the market for online travel services grows, the Company believes that the range
of companies involved in the online travel services industry, including travel  
suppliers, traditional travel agencies and travel industry information          
providers, will increase their efforts to develop services that compete with the
Company's services. Most major airlines, car rental companies and hotel chains  
offer travel services directly through their own Web sites, including travel    
services from other travel suppliers, eliminating the need to pay commissions to
third parties such as the Company. The Company is unable to anticipate which    
other companies are likely to offer competitive services in the future.  There  
can be no assurance that the Company's online operations will compete           
successfully with any current or future competitors.                            

Many of the Company's current and potential competitors have longer   
operating histories, larger customer bases, greater brand recognition and       
significantly greater financial, marketing and other resources than the Company 
and may enter into strategic or commercial relationships with larger, more      
established and well financed companies. Certain of the Company's competitors   
may be able to secure services and products from travel suppliers on more       
favorable terms, devote greater resources to marketing and promotional campaigns
and devote substantially more resources to Web site and systems development than
the Company. In addition, new technologies and the expansion of existing        
technologies may increase competitive pressures on the Company. In particular,  
Microsoft Corporation has publicly announced its intent to continue to invest   
heavily in the area of travel technology and services. Increased competition may
result in reduced operating margins, as well as loss of market share and brand  
recognition. There can be no assurance that the Company will be able to compete 
successfully against current and future competitors, and competitive pressures  
faced by the Company could have a material adverse effect on the Company's      
business, operating results and financial condition.                            

 Dependence on Continued Growth of Online Commerce. The Company's future
revenues and any future profits are substantially dependent upon the widespread 
acceptance and use of the Internet and commercial online services as an         
effective medium of commerce by consumers. For the Company to be successful,    
these consumers must accept and utilize novel ways of conducting business and   
exchanging information. Convincing consumers to purchase travel services online 
may be particularly difficult, as such consumers have traditionally relied on   
travel agents for advice and recommendations as to destinations and             
accommodations as well as bookings, and are accustomed to a high degree of human
interaction in purchasing travel services. Rapid growth in the use of and       
interest in the Web, the Internet and commercial online services is a recent    
phenomenon, and there can be no assurance that acceptance and use will continue 
to develop or that a sufficiently broad base of consumers will adopt,           

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and continue to use, the Internet and commercial online services as a medium of 
commerce, particularly for purchases of travel services.                        

    Demand for recently introduced services and products over the Internet and
commercial online services is subject to a high level of uncertainty and there  
exist few proven services and products. The development of the Internet and     
commercial online services as a viable commercial marketplace is subject to a   
number of factors, including continued growth in the number of users of such    
services, concerns about transaction security, continued development of the     
necessary technological infrastructure and the development of complementary     
services and products. If the Internet and commercial online services do not    
become a viable commercial marketplace, the Company's business, operating       
results and financial condition would be materially adversely affected.         

 Risks Associated with Advertising Revenues. During 1996, 1997 and 1998,
approximately 9%, 10% and 24%, respectively, of the Company's total revenues    
were derived from the sale of advertising on its online sites. The Company's    
advertising customers may terminate their advertising commitments at any time   
without penalty. Consequently, the Company's advertising customers may move     
their advertising to competing online sites or to other traditional media       
quickly and at low cost, thereby increasing the Company's exposure to           
competitive pressures and fluctuations in net revenues and operating results. If
the Company loses advertising customers, fails to attract new customers or is   
forced to reduce advertising rates in order to retain or attract advertising    
customers, the Company's business, operating results and financial condition    
could be materially adversely affected.                                         

   Management of Potential Growth. The Company has rapidly and significantly
expanded its operations, and anticipates that further significant expansion will
be required to address potential growth in its customer base and market         
opportunities. The Company has also recently added a number of key managerial   
and technical employees, and the Company expects to add additional key personnel
in the future. This expansion has placed, and is expected to continue to place, 
a significant strain on the Company's management, operational and financial     
resources. To manage the expected growth of its operations and personnel, the   
Company will be required to improve existing and implement new transaction      
processing, operational, customer service and financial systems, procedures and 
controls, implement a formal disaster recovery program and expand, train and    
manage the Company's growing employee base. The Company also will be required to
expand its finance, administrative and operations staff. Further, the Company's 
management will be required to maintain and expand its relationships with       
various travel service suppliers, other Web sites and other Web service         
providers, Internet and commercial online service providers and other third     
parties necessary to the Company's business. There can be no assurance that the 
Company's current and planned personnel, systems, procedures and controls will  
be adequate to support the Company's future operations, that management will be 
able to hire, train, retain, motivate and manage required personnel or that the 
Company's management will be able to successfully identify, manage and exploit  
existing and potential market opportunities. If the Company is unable to manage 
growth effectively, its business, operating results and financial condition     
could be materially adversely affected.                                         

Dependence on Attraction and Retention of Key Employees. The Company's
performance is substantially dependent on the continued services and on the     
performance of its senior management and certain other key personnel. The loss  
of the services of any of its executive officers or other key employees could   
have a material adverse effect on the Company's business, operating results and 
financial condition. In particular, the Company is currently seeking to hire a  
new chief executive officer due to the resignation of the Company's previous    
chief executive officer in February 1999. The Company does not have long-term   
employment agreements with any of its key personnel. The Company's future       
success also depends on its ability to identify, attract, hire, train, retain   
and motivate other highly skilled technical, managerial, editorial, marketing   
and customer service personnel. Competition for such personnel is intense, and  
there can be no assurance that the Company will be able to successfully attract,
assimilate or retain sufficiently qualified personnel. In particular, the       
Company may encounter difficulties in attracting a sufficient number of         
qualified software developers for its online services and transaction processing
systems, and there can be no assurance that the Company will be able to retain  
and attract such developers. The failure to retain and attract necessary        
technical, managerial, editorial, merchandising, marketing and customer service 
personnel could have a material adverse effect on the Company's business,       
operating results and financial condition.                                      

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   Although none of the Company's employees is represented by a labor union,
there can be no assurance that the Company's employees will not join or form a  
labor union or that the Company, for certain purposes, will not be required to  
become a union signatory.                                                       

 Risk of Capacity Constraints; Reliance on Internally Developed Systems;
System Development Risks. The Company's revenues depend on the number of        
customers who use its online travel sites to book their travel reservations.    
Accordingly, the satisfactory performance, reliability and availability of the  
Company's online sites, transaction processing systems and network              
infrastructure are critical to the Company's operating results, as well as its  
ability to attract and retain customers and maintain adequate customer service  
levels. Any system interruptions that result in the unavailability of the       
Company's online sites or reduced performance of the reservation system would   
reduce the volume of reservations and the attractiveness of the Company's       
service offerings, which could have a material adverse effect on the Company's  
business, operating results and financial condition.                            

  The Company uses an internally developed system for its online sites and
substantially all aspects of transaction processing, including customer         
profiling, making reservations, credit card verification and confirmations.  The
Company has experienced periodic system interruptions, which it believes will   
continue to occur from time to time. Any substantial increase in the volume of  
traffic on the Company's online sites or the number of reservations made by     
customers will require the Company to expand and upgrade further its technology,
transaction processing systems and network infrastructure. The Company has      
experienced and expects to continue to experience temporary capacity constraints
due to sharply increased traffic during "fare wars" or other promotions, which  
may cause unanticipated system disruptions, slower response times, degradation  
in levels of customer service, impaired quality and speed of reservations and   
confirmations and delays in reporting accurate financial information.           

     There can be no assurance that the Company's transaction processing systems
and network infrastructure will be able to accommodate such increases in traffic
in the future, or that the Company will, in general, be able to accurately      
project the rate or timing of such increases or upgrade its systems and         
infrastructure to accommodate future traffic levels on its online sites.  In    
addition, there can be no assurance that the Company will be able in a timely   
manner to effectively upgrade and expand its transaction processing systems or  
to successfully integrate any newly developed or purchased modules with its     
existing systems. Any inability to do so could have a material adverse effect on
the Company's business, operating results and financial condition.              

   Risk of System Failure; Single Site. The Company's success, in particular
its ability to successfully receive and fulfill orders online and provide high  
quality customer service, largely depends on the efficient and uninterrupted    
operation of its computer and communications hardware systems.  Substantially   
all of the Company's computer and communications systems are located at a single
facility in San Francisco, California. The Company's systems and operations are 
vulnerable to damage or interruption from fire, flood, power loss,              
telecommunications failure, break-ins, earthquake and similar events. The       
Company currently does not have redundant systems or a formal disaster recovery 
plan. Despite the implementation of network security measures by the Company,   
its servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of data
or the inability to accept and confirm customer reservations. The occurrence of 
any of the foregoing risks could have a material adverse effect on the Company's
business, operating results and financial condition.                            

   Rapid Technological Change. The Internet and the online commerce industry
are characterized by rapid technological change, changes in user and customer   
requirements and preferences, frequent new product and service introductions    
embodying new technologies and the emergence of new industry standards and      
practices that could render the Company's existing online sites and proprietary 
technology and systems obsolete. The emerging nature of these products and      
services and their rapid evolution will require that the Company continually    
improve the performance, features and reliability of its online services,       
particularly in response to competitive offerings. The Company's success will   
depend, in part, on its ability to enhance its existing services, to develop new
services and technology that address the increasingly sophisticated and varied  
needs of its prospective customers and to respond to technological advances and 
emerging industry standards and practices on a cost effective and timely basis. 
The development of online sites and other proprietary technology entails        
significant technical and business risks and requires substantial expenditures  
and lead time. There can be no assurance that the Company will successfully use 
new technologies effectively or adapt its online sites, proprietary technology  
and transaction processing systems to                                           

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customer requirements or emerging industry standards. If the Company is unable, 
for technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or customer requirements, its business,  
operating results and financial condition could be materially adversely         
affected.                                                                       

    Online Commerce and Database Security Risks. A fundamental requirement for
online commerce and communications is the secure transmission of confidential   
information over public networks. The Company relies on encryption and          
authentication technology licensed from third parties to provide the security   
and authentication necessary to effect secure transmission of confidential      
information, such as customer credit card numbers. In addition, the Company     
maintains an extensive confidential database of customer profiles and           
transaction information. There can be no assurance that advances in computer    
capabilities, new discoveries in the field of cryptography, or other events or  
developments will not result in a compromise or breach of the algorithms used by
the Company to protect customer transaction and personal data contained in the  
Company's customer database. If any such compromise of the Company's security   
were to occur, it could have a material adverse effect on the Company's         
reputation, business, operating results and financial condition. A party who is 
able to circumvent the Company's security measures could misappropriate         
proprietary information or cause interruptions in the Company's operations. The 
Company may be required to expend significant capital and other resources to    
protect against such security breaches or to alleviate problems caused by such  
breaches. Concerns over the security of transactions conducted on the Internet  
and commercial online services and the privacy of users may also inhibit the    
growth of the Internet and commercial online services, especially as a means of 
conducting commercial transactions. To the extent that activities of the Company
or third party contractors involve the storage and transmission of proprietary  
information, such as credit card numbers or other personal information, security
breaches could expose the Company to a risk of loss or litigation and possible  
liability. There can be no assurance that the Company's security measures will  
prevent security breaches or that failure to prevent such security breaches will
not have a material adverse effect on the Company's business, operating results 
and financial condition.                                                        

Need for Additional Capital. The Company requires substantial working 
capital to fund its business and expects to use a portion of the net proceeds of
its initial public offering and secondary offering to fund its operating losses.
In the last three years, the Company has experienced negative cash flow from    
operations and expects to continue to experience significant negative cash flow 
from operations for the foreseeable future. The Company currently anticipates   
that the net proceeds of its initial public offering and secondary offering,    
together with its existing capital resources, will be sufficient to meet the    
Company's capital requirements through the end of 1999, although the Company    
could be required, or could elect, to seek to raise additional financing during 
such period or thereafter, in part to fund its financial obligations to AOL,    
Excite and Lycos or for other purposes. There can be no assurance that such     
financing will be available in sufficient amounts or on terms acceptable to the 
Company, if at all.                                                             

     Risks Associated with Offering New Services. The Company plans to introduce
new and expanded services and to enter into new relationships with third parties
in order to generate additional revenues, attract more consumers and respond to 
competition. For example, the Company may offer travel insurance and  travel    
financing services. There can be no assurance that the Company would be able to 
offer such services in a cost effective or timely manner or that any such       
efforts would be successful.  Furthermore, any new service launched by the      
Company that is not favorably received by consumers could damage the Company's  
reputation or its brand name. Expansion of the Company's services in this manner
would also require significant additional expenses and development and may      
strain the Company's management, financial and operational resources. The       
Company's inability to generate revenues from such expanded services or products
sufficient to offset their cost could have a material adverse effect on the     
Company's business, operating results and financial condition.                  

  Liability for Internet Content. As a publisher and distributor of online
content, the Company faces potential liability for defamation, negligence,      
copyright, patent or trademark infringement and other claims based on the nature
and content of the materials that the Company publishes or distributes. Such    
claims have been brought, and sometimes successfully pressed, against online    
services. In addition, the Company does not and cannot practically screen all of
the content generated by its users on the bulletin board system on the Company's
online sites, and the Company could be exposed to liability with respect to such
content. Although the Company carries general liability insurance, the Company's
insurance may not cover claims of these types or may not be adequate to         
indemnify the Company for all liability that may be imposed. Any imposition of  
liability, particularly liability that is not covered by                        

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insurance or is in excess of insurance coverage, could have a material adverse  
effect on the Company's reputation and its business, operating results and      
financial condition.                                                            

Uncertain Protection of Intellectual Property; Risks of Third Party   
Licenses. The Company regards its copyrights, service marks, trademarks, trade  
dress, trade secrets and similar intellectual property as critical to its       
success, and relies on trademark and copyright law, trade secret protection and 
confidentiality and/or license agreements with the Company's employees,         
customers, partners and others to protect its proprietary rights. The Company   
pursues the registration of certain of its key trademarks and service marks in  
the United States and internationally. Effective trademark, service mark,       
copyright and trade secret protection may not be available in every country in  
which the Company's products and services are made available online. The Company
has licensed in the past, and expects that it may license in the future, certain
of its proprietary rights, such as trademarks or copyrighted material, to third 
parties. While the Company attempts to ensure that the quality of its brand is  
maintained by such licensees, there can be no assurance that such licensees will
not take actions that might materially adversely affect the value of the        
Company's proprietary rights or reputation, which could have a material adverse 
effect on the Company's business, operating results and financial condition.    
There can be no assurance that the steps taken by the Company to protect its    
proprietary rights will be adequate or that third parties will not infringe or  
misappropriate the Company's copyrights, trademarks, trade dress and similar    
proprietary rights. In addition, there can be no assurance that other parties   
will not assert infringement claims against the Company. The Company may be     
subject to legal proceedings and claims from time to time in the ordinary course
of its business, including claims of alleged infringement of the trademarks and 
other intellectual property rights of third parties by the Company and its      
licensees. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.                              

The Company also intends to continue to strategically license certain 
content for its online sites from third parties, as it did with Fodor's,        
including content which is integrated with internally developed content and used
on the Company's online sites to provide key services. There can be no assurance
that these third party content licenses will be available to the Company on     
commercially reasonable terms or that the Company will be able to successfully  
integrate such third party content. Such content licenses may expose the Company
to increased risks, including risks associated with the assimilation of new     
content, the diversion of resources from the development of the Company's       
content, the inability to generate revenues from new content sufficient to      
offset associated acquisition costs and the maintenance of uniform, appealing   
content. The inability to obtain any of these licenses could result in delays in
site development or services until equivalent content can be identified,        
licensed and integrated. Any such delays in site development or services could  
have a material adverse effect on the Company's business, operating results and 
financial condition.                                                            

  Governmental Regulation and Legal Uncertainties. Certain segments of the
travel industry are heavily regulated by the United States and international    
governments, and accordingly, certain services offered by the Company are       
affected by such regulations. For example, the Company is subject to United     
States Department of Transportation ("DOT") regulations prohibiting unfair and  
deceptive practices. In addition, DOT regulations concerning the display and    
presentation of information that are currently applicable to the GDS services   
accessed by the Company could be extended to the Company in the future, as well 
as other laws and regulations aimed at protecting consumers accessing online    
travel services or otherwise. In California, under the Seller of Travel Act, the
Company is required to register as a seller of travel, comply with certain      
disclosure requirements and participate in the State's restitution fund. The    
television industry is also subject to extensive regulation at federal, state   
and local levels, including the Federal Communications Act and rules and        
regulations of the Federal Communications Commission. In addition, legislative  
and regulatory proposals under ongoing consideration by Congress and federal    
agencies may materially affect the television industry and the Company's ability
to obtain distribution for its television programming.                          

The Company is also subject to regulations applicable to businesses   
generally and laws or regulations directly applicable to access to online       
commerce. Although there are currently few laws and regulations directly        
applicable to the Internet and commercial online services, it is possible that a
number of laws and regulations may be adopted with respect to the Internet or   
commercial online services covering issues such as user privacy, pricing,       
content, copyrights, distribution, antitrust and characteristics and quality of 
products and services. Furthermore, the growth and development of the market for
online commerce may prompt calls for more stringent consumer                    

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protection laws that may impose additional burdens on those companies conducting
business online. The adoption of any additional laws or regulations may decrease
the growth of the Internet or commercial online services, which could, in turn, 
decrease the demand for the Company's products and services and increase the    
Company's cost of doing business, or otherwise have a material adverse effect on
the Company's business, operating results and financial condition.              

    Moreover, the applicability to the Internet and commercial online services
of existing laws in various jurisdictions governing issues such as property     
ownership, sales and other taxes, libel and personal privacy is uncertain and   
may take years to resolve. For example, tax authorities in a number of states   
are currently reviewing the appropriate tax treatment of companies engaged in   
online commerce, and new state tax regulations may subject the Company to       
additional state sales and income taxes. Any such new legislation or regulation,
the application of laws and regulations from jurisdictions whose laws do not    
currently apply to the Company's business, or the application of existing laws  
and regulations to the Internet and commercial online services could have a     
material adverse effect on the Company's business, operating results and        
financial condition.                                                            

     Risks Associated with International Expansion. A component of the Company's
strategy is to evaluate expanding its operations into international markets. The
Company may expend significant financial and management resources to establish  
offices overseas, create localized user interfaces and comply with local customs
and regulations. If the revenues generated by these international operations are
insufficient to offset the expense of establishing and maintaining such         
operations, the Company's business, operating results and financial condition   
could be materially adversely affected. To date, the Company has no experience  
in developing localized versions of its online sites and marketing and          
distributing its travel services internationally. There can be no assurance that
the Company will be able to successfully market or sell its services in these   
international markets. In addition to the uncertainty as to the Company's       
ability to expand its international presence, there are certain risks inherent  
in conducting business on an international level, such as unexpected changes in 
regulatory requirements, tariffs and other trade barriers, difficulties in      
staffing and managing foreign operations, political instability, currency rate  
fluctuations, seasonality in leisure travel in certain countries and potentially
adverse tax consequences. There can be no assurance that one or more of the     
foregoing factors will not have a material adverse effect on the Company's      
future international operations and, consequently, on its business, operating   
results and financial condition.                                                

Risks Associated with Potential Acquisitions. The Company's current   
strategy is to broaden the scope and content of its online sites through the    
acquisition of existing online services and businesses specializing in travel   
related content, as well as through internally developed new travel services    
offerings. Any future acquisitions would expose the Company to increased risks, 
including risks associated with the assimilation of new operations, sites and   
personnel, the diversion of resources from the Company's existing businesses,   
sites and technologies, the inability to generate revenues from new sites or    
content sufficient to offset associated acquisition costs, the maintenance of   
uniform standards, controls, procedures and policies and the impairment of      
relationships with employees and customers as a result of any integration of new
management personnel.  Acquisitions may also result in additional expenses      
associated with amortization of acquired intangible assets or potential         
businesses. There can be no assurance that the Company would be successful in   
overcoming these risks or any other problems encountered in connection with such
acquisitions, and its inability to overcome such risks could have a material    
adverse effect on the Company's business, operating results and financial       
condition.                                                                      

Volatility of Stock Price. The market price of the Common Stock of the
Company could be subject to significant fluctuations in response to quarter-to- 
quarter variations in the Company's operating results, announcements of         
technological innovations or new products by the Company or its competitors, and
other events or factors. For example, a shortfall in revenue or net income, or  
increase in losses from levels expected by securities analysts, could have an   
immediate and significant adverse effect on the market price of the Company's   
Common Stock. In addition, the stock market in recent years has experienced     
extreme price and volume fluctuations that have particularly affected the market
prices of many high technology companies and that have often been unrelated or  
disproportionate to the operating performance of companies. These fluctuations, 
as well as general economic and market conditions, may adversely affect the     
market price for the Common Stock.                                              

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     Antitakeover Effect of Certain Charter Provisions; Stockholder Rights Plan.
The Board of Directors has the authority to issue up to 5,000,000 shares of     
Preferred Stock and to determine the price, rights, preferences, privileges and 
restrictions, including voting rights, of those shares without any further vote 
or action by the stockholders. The rights of the holders of Common Stock may be 
subject to, and may be adversely affected by, the rights of the holders of any  
Preferred Stock that may be issued in the future. The issuance of Preferred     
Stock may have the effect of delaying, deferring or preventing a change of      
control of the Company without further action by the stockholders and may       
adversely affect the voting and other rights of the holders of Common Stock,    
which could have an adverse impact on the market price of the Common Stock.  The
Company has no present plans to issue shares of Preferred Stock. Further,       
certain provisions of the Company's charter documents, including provisions     
eliminating the ability of stockholders to take action by written consent and   
limiting the ability of stockholders to raise matters at a meeting of           
stockholders without giving advance notice, may have the effect of delaying or  
preventing changes in control or management of the Company, which could have an 
adverse effect on the market price of the Company's Common Stock.               

 In October 1998, the Company's Board of Directors adopted a stockholder
rights plan. This plan provides stockholders with special purchase rights under 
certain circumstances, including if any person or group acquires 20 percent or  
more of the Company's common stock. This plan could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party   
from attempting to acquire, or of making the Company less attractive to a       
potential acquiror of, a majority of the outstanding voting stock of the        
Company, and may complicate or discourage a takeover of the Company.            

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK            

The Company's exposure to market risk for changes in interest rates 
relates primarily to its investment portfolio. The Company maintains an         
investment policy which is intended to ensure the safety and preservation of its
invested funds by limiting default risk, market risk and reinvestment risk. The 
Company does not currently use, nor has it historically used, derivative        
financial instruments to manage or reduce market risk. The Company mitigates    
default risk by investing in high credit quality securities such as debt        
instruments of the United States government and its agencies and high quality   
corporate issuers, as well as money market funds. The portfolio includes only   
marketable securities with active secondary or resale markets to ensure         
portfolio liquidity and maintains a prudent amount of diversification. As of    
December 31, 1998, the Company had $20.4 million and $41.2 million of cash and  
cash equivalents and marketable securities, respectively.                       

  The Company does not currently transact any significant portion of its
business in functional currencies other than the United States dollar. To the   
extent that it continues to transact its business using the United States dollar
as its functional currency, the Company does not believe that fluctuations in   
foreign currency exchange rates will have a material adverse effect on the      
Company's results of operations.                                                

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

See Part IV, Item 14 of this Form 10-K.                               

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE                                                            

None.                                                                 

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PART III

    The Company's Proxy Statement for its 1998 Annual Meeting of Stockholders,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act  
of 1934, will be incorporated by reference in this Annual Report on Form 10-K   
pursuant to General Instruction G(3) of Form 10-K and will provide the          
information required under Part III (Items 10, 11, 12 and 13), except for the   
information with respect to the Company's executive officers, which is included 
in "Item 1. Business--Executive Officers."                                      

PART IV 

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K        

(a) Financial Statements and Schedules                                

1.  Consolidated Financial Statements:                        

          The financial statements which are filed with this Form 10-K are
        set forth in the Index to Consolidated Financial Statements at
page F-1, which immediately precedes such document.   

(b) Financial Statement Schedules:                                    

       Financial Statements Schedules have not been included inasmuch as the
information required to be included therein is not material.  

(c) Reports on Form 8-K                                               
      The Company filed a Form 8-K on December 24, 1998 in connection with
the sale of the Company's television business.                

(d) Exhibits                                                          

Exhibit                                                                         
Number    Description                                                           
------    -----------                                                           

2.1*      Form of Agreement and Plan of Merger between the Company and Preview  
Travel, Inc., a Delaware corporation.                       
2.2       Note and Warrant Purchase Agreement dated December 17, 1998 among the 
        Company, News Travel Network, Inc., a wholly owned subsidiary of the
        Company, and NewsNet Central, Inc. (incorporated herein by reference
       to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on
12/24/98)                                                   
3.1*      Certificate of Incorporation of the Company.                          
3.2       Form of Bylaws of the Company. (incorporated herein by reference to   
       Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed on
11/16/98)                                                   
3.3*      Form of Amended and Restated Certificate of Incorporation of the      
Company.                                                    
3.4       Certificate of Designation of Rights, Preferences and Privileges of   
  Series A Participating Preferred Stock (incorporated herein by
          reference to Exhibit 3.4 to the Company's Quarterly Report on Form 10-
Q filed on 11/16/98)                                        
4.1*      Form of the Company's Common Stock Certificate.                       
4.2       Preferred Shares Rights Agreement, dated as of October 29, 1998,      
     between Preview Travel, Inc. and U.S. Stock Transfer Corporation,
 including the Certificate of Designations, the form of Rights
         Certificate and the Summary of Rights attached thereto as Exhibits A,
       B and C, respectively. (incorporated herein by reference to Exhibit
         3.4 to the Company's Quarterly Report on Form 10-Q filed on 11/16/98)
10.1*     Form of Indemnification Agreement.                                    

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10.2*     1988 Stock Option Plan, as amended.                                   
10.3*     1997 Stock Option Plan.                                               
10.4*     1997 Employee Stock Purchase Plan.                                    
10.5*     1997 Directors' Stock Option Plan.                                    
10.6*     Third Amended and Restated Registration Rights Agreement, dated June  
 28, 1996, by and among the Company and certain holders of the
Company's capital stock.                                    
10.7*     Amendment No. 1 to the Third Amended and Restated Registration Rights 
     Agreement, dated September 26, 1997, by and among the Company and
certain holders of the Company's capital stock.             
10.8+*    Travel Channel Agreement, dated September 30, 1997, by and between the
Company and Excite, Inc.                                    
10.9+*    Interactive Services Agreement, dated September 1, 1997, by and       
between the Company and America Online, Inc.                
10.10+*   Subscriber Services Agreement, dated October 1997, by and between the 
Company and Apollo Travel Partnership.                      
10.11*    Warrant Agreement to Purchase Shares of Series D Preferred Stock,     
          dated December 15, 1995, by and between the Company and Comdisco, Inc.
10.12*    Warrant Agreement to Purchase Shares of Series E Preferred Stock,     
      dated July 22, 1997, by and between the Company and Comdisco, Inc.
10.13*    Office Lease, dated September 15, 1990, by and between the Company and
Blum's Building Associates.                                 
10.14*    Severance Agreement, dated March 1997, by and between the Company and 
Kenneth Orton.                                              
10.15*    Amendment No. 2 to the Third Amended and Restated Registration Rights 
    Agreement, dated November 17, 1997, by and among the Company and
certain holders of the Company's capital stock.             
10.16+    Agreement, dated as of March 15, 1998 between the Company and Lycos,  
        Inc. (incorporated herein by reference to the Company's Form 10K for
the year ended December 31, 1997)                           
10.17+    Restated and Amended Excite Agreement, dated as of March 12, 1998,    
          between the Company and Excite, Inc. (incorporated herein by reference
   to the Company's Form 10K for the year ended December 31, 1997)
10.18     Sublease, dated as of April 7, 1998, by and between the Company and   
        CNET, Inc. (incorporated herein by reference to Exhibit 10.18 to the
          Company's Registration Statement on Form S-1 (Commission File No. 333-
49631))                                                     
10.19     Employment Transition Agreement effective as of April 1, 1998, by and 
       between the Company and Roy F. Walkenhorst. (incorporated herein by
         reference to Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (Commission File No. 333-49631))                   
10.20     Television Program Representation Agreement effective as of January 1,
          1998, by and between the Company and Roy F. Walkenhorst. (incorporated
      herein by reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (Commission File No. 333-49631))      
10.21     Settlement Agreement and Mutual Release dated as of February 16, 1999,
by and between the Company and Kenneth J. Orton.            
10.22     Amendment to Restated and Amended Excite Agreement, dated as of March 
22, 1999, between the Company and Excite, Inc.              
21.1*     Subsidiaries of the Company.                                          
23.1      Consent of Independent Accountants.                                   
24.1      Power of Attorney (see p. 44)                                         
27.1      Financial Data Schedule.                                              
__________                                                                      
*  Incorporated herein by reference to the exhibit filed with the Company's     
Registration Statement on Form S-1 (Commission File No. 333-37183)        
+  Confidential treatment has been granted by the Securities and Exchange       
Commission with respect to certain information in these exhibits.         

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Company has duly caused this report to be signed on   
its behalf by the undersigned, thereunto duly authorized.                       

PREVIEW TRAVEL, INC.  

     By: /s/   JAMES J. HORNTHAL
              ----------------------------
               James J. Hornthal
                       Acting President and Chief Executive Officer,
               Chairman and Director

Date:  March 31, 1999                                                           

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POWER OF ATTORNEY 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature  
appears below constitutes and appoints James J. Hornthal and Thomas W. Cardy    
jointly and severally, his or her attorneys-in-fact, each with the power of     
substitution, for him or her in any and all capacities, to sign any amendments  
to this Report on Form 10-K, and to file the same, with exhibits thereto and    
other documents in connection therewith with the Securities and Exchange        
Commission, hereby ratifying and confirming all that each of said attorneys-in- 
fact, or his or her substitute or substitutes may do or cause to be done by     
virtue hereof.                                                                  

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company  
and in the capacities and on the dates indicated.                               

                                                        [Enlarge/Download Table]

            Signature                                       Title                                    Date          
---------------------------------  -------------------------------------------------------  -----------------------
                                                                                                                   

/s/ JAMES J. HORNTHAL              Acting President and Chief Executive Officer, Chairman       March  31, 1999    
---------------------------------  and Director                                                                    
  (James J. Hornthal)                                                                                              

/s/ THOMAS W. CARDY                Executive Vice President, Chief Financial Officer            March  31, 1999    
---------------------------------  (Principal Financial Officer)and Director                                       
  (Thomas W. Cardy)                                                                                                

/s/ BRUCE E. CARMEDELLE            Vice President and Controller (Principal Accounting          March  31, 1999    
---------------------------------  Officer)                                                                        
 (Bruce E. Carmedelle)                                                                                             

/s/ THOMAS A. CULLEN               Director                                                     March  31, 1999    
---------------------------------                                                                                  
  (Thomas A. Cullen)                                                                                               

/s/ DAVID S. POTTRUCK              Director                                                     March  31, 1999    
---------------------------------                                                                                  
  (David S. Pottruck)                                                                                              

/s/ JAMES E. NOYES                 Director                                                     March  31, 1999    
---------------------------------                                                                                  
  (James E. Noyes)                                                                                                 

/s/ THEODORE J. LEONSIS            Director                                                     March  31, 1999    
---------------------------------                                                                                  
  (Theodore J. Leonsis)                                                                                            


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PREVIEW TRAVEL, INC. AND SUBSIDIARIES 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants.....................................  F-2     
Consolidated Balance Sheets...........................................  F-3     
Consolidated Statements of Operations.................................  F-4     
Consolidated Statements of Stockholders' Equity.......................  F-5     
Consolidated Statements of Cash Flows.................................  F-6     
Notes to Consolidated Financial Statements............................  F-7     

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Stockholders of Preview Travel, Inc.,             

In our opinion, the accompanying consolidated balance sheets and the related    
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Preview     
Travel, Inc.  (the "Company") at December 31, 1998 and 1997, and the results of 
their operations and their cash flows for each of the three years in the period 
ended December 31, 1998, in conformity with generally accepted accounting       
principles.  These financial statements are the responsibility of the Company's 
management; our responsibility is to express an opinion on these financial      
statements based on our audits.  We conducted our audits of these statements in 
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial    
statements, assessing the accounting principles used and significant estimates  
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed 
above.                                                                          

PricewaterhouseCoopers LLP                                                      
San Francisco, California                                                       
January 21, 1999                                                                

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PREVIEW TRAVEL, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

(in thousands, except share and per share amounts)

                                                        [Enlarge/Download Table]

                                                                                             December 31,        
                                                                                     ----------------------------
                                                                                         1998           1997     
                                                                                     -------------  -------------
                                                                                                                 
ASSETS                                                                                                           

Cash and cash equivalents...........................................................     $ 20,363       $ 27,912 
Marketable securities...............................................................       26,501            750 
Accounts receivable, net of allowance for doubtful accounts of $120 and $40.........        2,423            549 
Other assets........................................................................        2,722          6,037 
Net assets of discontinued operations...............................................          419          3,629 
                                                                                         --------       -------- 
          Total current assets......................................................       52,428         38,877 

Marketable securities - noncurrent..................................................       14,661             -- 
Property and equipment..............................................................        4,124          2,978 
Other assets........................................................................          955             -- 
                                                                                         --------       -------- 
          Total assets..............................................................     $ 72,168       $ 41,855 
                                                                                         ========       ======== 

LIABILITIES AND STOCKHOLDERS' EQUITY                                                                             

Accounts payable....................................................................     $  1,809       $  1,689 
Accrued liabilities.................................................................        4,038          2,305 
Current portion of capital lease and other obligations..............................        1,379            882 
                                                                                         --------       -------- 
          Total current liabilities.................................................        7,226          4,876 
Capital lease obligations, less current portion.....................................        1,641          1,614 
Accrued liabilities, noncurrent.....................................................          614             -- 
                                                                                         --------       -------- 
           Total liabilities........................................................        9,481          6,490 
                                                                                         --------       -------- 
Commitments (Note 5)                                                                                             
Stockholders' equity:                                                                                            
  Preferred stock: $0.001 par value; 5,000,000 shares authorized; no                                             
     shares issued and outstanding..................................................           --             -- 
  Common stock, $0.001 par value; 50,000,000 shares authorized; 13,657,480                                       
     and 11,337,205 shares issued and outstanding...................................           14             11 
Additional paid-in capital..........................................................      115,774         61,676 
Other stockholders' equity..........................................................         (357)          (539)
Accumulated deficit.................................................................      (52,744)       (25,783)
                                                                                         --------       -------- 
          Total stockholders' equity................................................       62,687         35,365 
                                                                                         --------       -------- 
          Total liabilities and stockholders' equity................................     $ 72,168       $ 41,855 
                                                                                         ========       ======== 

The accompanying notes are an integral part of these consolidated financial 
statements. 

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CONSOLIDATED STATEMENTS OF OPERATIONS 

(in thousands, except per share amounts)

                                                        [Enlarge/Download Table]

                                                                                   Year Ended December 31,                     
                                                               ----------------------------------------------------------------
                                                                       1998                  1997                  1996        
                                                               --------------------  --------------------  --------------------
                                                                                                                               
Revenues:                                                                                                                      
  Transaction revenue.........................................            $ 10,667              $  5,430               $ 2,338 
  Advertising revenue.........................................               3,341                   580                   235 
                                                                          --------              --------               ------- 
       Total revenues.........................................              14,008                 6,010                 2,573 

Cost of revenues..............................................               6,093                 3,648                 2,308 
                                                                          --------              --------               ------- 

Gross profit..................................................               7,915                 2,362                   265 

Operating expenses:...........................................                                                                 
  Marketing and sales.........................................              22,714                 7,025                 2,815 
  Research and development....................................               3,706                 1,825                 1,314 
  General and administrative..................................               6,158                 3,620                 1,440 
                                                                          --------              --------               ------- 
       Total operating expenses...............................              32,578                12,470                 5,569 
                                                                          --------              --------               ------- 

Loss from continuing operations before interest...............                                                                 
   and income tax expense.....................................             (24,663)              (10,108)               (5,304)

Interest income (expense).....................................               2,636                   266                   (89)
                                                                          --------              --------               ------- 

Loss from continuing operations before income                              (22,027)               (9,842)               (5,393)
  tax expense.................................................                                                                 
Income tax expense............................................                 (51)                   (2)                   (2)
                                                                          --------              --------               ------- 
Loss from continuing operations...............................             (22,078)               (9,844)               (5,395)

Discontinued operations:                                                                                                       
   Loss from discontinued operations..........................                (681)                 (324)                 (197)
   Loss on disposal of discontinued operations................              (4,202)                   --                    -- 
                                                                          --------              --------               ------- 

Net loss......................................................            $(26,961)             $(10,168)              $(5,592)
                                                                          ========              ========               ======= 

Basic and diluted loss per share..............................              $(2.11)               $(3.54)               $(3.43)
                                                                          ========              ========               ======= 

Shares used in computation of basic and diluted net loss                                                                       
  per share  ................................................               12,796                 2,869                 1,631 
                                                                          ========              ========               ======= 

Supplemental Financial Data (unaudited) (Note 1)                                                                               
  Gross bookings..............................................            $200,068              $ 80,389               $20,263 
                                                                          ========              ========               ======= 

The accompanying notes are an integral part of these consolidated financial 
statements. 

F-4 

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PREVIEW TRAVEL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

(in thousands)

                                                        [Enlarge/Download Table]


                                  Preferred Stock           Common Stock         Additional    Other                      Total     
                               ----------------------  -----------------------    Paid-In    Stockholders' Accumulated Stockholders'
                                Shares      Amount      Shares      Amount        Capital      Equity         Deficit     Equity    
                               -------  -------------  -------   ------------  -----------  -------------  -----------  ---------   
                                                                                                                                    
Balance at January 1, 1996....  3,366   $          4     1,564   $          1  $    10,991  $         276  $   (10,023) $   1,249   
   Issuance of common stock...     --             --       138              1          244           (234)          --         11   
   Repayment of note..........     --             --        --             --           --              8           --          8   
   Issuance of Series E                                                                                                             
    preferred stock...........    956              1        --             --        8,561             --           --      8,562   
   Issuance of common stock                                                                                                         
    warrants..................     --             --        --             --           --             11           --         11   
   Issuance of Series E                                                                                                             
    preferred stock warrants..     --             --        --             --           --            162           --        162   
   Net loss...................     --             --        --             --           --             --       (5,592)    (5,592)  
                               -------  -------------  -------   ------------  -----------  -------------  -----------  ---------   

Balance at December 31, 1996..   4,322             5     1,702              2       19,796            223      (15,615)     4,411   
   Issuance of common stock...      --            --       496             --        1,065             --           --      1,065   
   Issuance of common stock,                                                                                                        
    net.......................      --            --     2,500              3       24,616             --           --     24,619   
   Exercise of warrants.......     264            --        --             --          501           (504)          --         (3)  
   Exercise of  Series C                                                                                                            
    preferred stock warrants..     149            --        --             --          406             (4)          --        402   
   Issuance of Series E                                                                                                             
    preferred stock...........   1,563             1        --             --       13,973             --           --     13,974   
   Issuance of warrants.......      --            --        --             --           --            118           --        118   
   Conversion of preferred                                                                                                          
    stock to common stock.....  (6,298)           (6)    6,298              6           --             --           --         --   
   Conversion of subordinated                                                                                                       
    debt to common stock......      --            --       341             --          749             --           --        749   
   Deferred compensation in                                                                                                         
    connection with issuance of                                                                                                     
    stock options (net of                                                                                                           
    amortization of $70)......      --            --        --             --          570           (500)          --         70   
   Repayment of notes                                                                                                               
    receivable................      --            --        --             --           --            255           --        255   
   Issuance of notes                                                                                                                
    receivable................      --            --        --             --           --           (127)          --       (127)  
   Net loss...................      --            --        --             --           --             --      (10,168)   (10,168)  
                               -------  -------------  -------   ------------  -----------  -------------  -----------  ---------   

Balance at December 31, 1997..       --           --    11,337             11       61,676           (539)     (25,783)  $ 35,365   
   Issuance of common stock                                                                                                         
    under stock option and                                                                                                          
    purchase plan.............       --           --       336              1        1,654             --           --      1,655   
   Issuance of common stock,                                                                                                        
    net.......................       --           --     1,959              2       52,378             --           --     52,380   
   Exercise of warrants.......       --           --        25             --           66            (66)          --         --   
   Amortization of deferred                                                                                                         
    compensation in connection                                                                                                      
    with issuance of stock                                                                                                          
    options...................       --            --       --             --           --            143           --        143   
    Repayment of notes receivable,                                                                                                  
     net of issuance..........       --            --       --             --           --            105           --        105   
    Net loss..................       --            --       --             --           --             --      (26,961)   (26,961)  
                               -------  -------------  -------   ------------  -----------  -------------  -----------  ---------   

Balance at December 31, 1998..    --    $          --   13,657   $         14   $   115,774  $        (357) $   (52,744) $  62,687  
                               =======  =============  =======   ============  ===========  =============  ===========  =========   

The accompanying notes are an integral part of these consolidated financial 
statements. 

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PREVIEW TRAVEL, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(in thousands)

                                                        [Enlarge/Download Table]

                                                                         Year Ended December 31,             
                                                             ------------------------------------------------
                                                                  1998              1997            1996     
                                                             ---------------  ----------------  -------------
                                                                                                             
Cash flows from operating activities:                                                                        
  Net loss..................................................       $(26,961)         $(10,168)       $(5,592)
  Adjustments to reconcile net  loss to net cash                                                             
     used in operating activities:                                                                           
     Loss from discontinued operations......................          4,883               324            197 
     Depreciation and amortization..........................          1,477               578            148 
     Amortization of deferred compensation..................            143                70             -- 
     Value of warrants issued for services..................             --               130            172 
     Changes in operating assets and liabilities:                                                            
       Accounts receivable..................................         (1,874)             (396)          (152)
       Other assets.........................................          2,910            (6,029)           320 
       Accounts payable and accrued liabilities.............          2,406             2,057          1,732 
                                                                   --------          --------        ------- 
       Net cash used in continuing operating activities.....        (17,016)          (13,434)        (3,175)
       Net cash (used in) provided by discontinued                   (1,765)             (162)         1,096 
         operations.........................................                                                 
                                                                   --------          --------        ------- 
       Net cash used in operations..........................        (18,781)          (13,596)        (2,079)
                                                                   --------          --------        ------- 
Cash flows from investing activities:                                                                        
  Acquisition of property and equipment.....................         (1,302)             (739)          (175)
  Purchase of short-term marketable securities..............        (62,760)             (750)            -- 
  Proceeds on sales of short-term marketable securities.....         37,009                --             -- 
  Purchases of long-term marketable securities..............        (14,661)               --             -- 
                                                                   --------          --------        ------- 
       Net cash used in investing activities................        (41,714)           (1,489)          (175)
                                                                   --------          --------        ------- 
Cash flows from financing activities:                                                                        
  Proceeds from borrowings on long-term debt................             --             1,350            100 
  Payment of long-term debt.................................             --            (3,350)          (718)
  Payments on equipment note................................             --              (408)          (135)
  Payments on obligations under capital leases..............         (1,194)             (725)          (623)
  Proceeds from repayment of stockholder notes..............            105               254              8 
  Proceeds from issuance of convertible bridge loans........             --                --          1,000 
       Proceeds from issuance of common stock, net..........         54,035            24,691             11 
  Proceeds from issuance of preferred stock, net............             --            14,487          7,562 
  Proceeds from stock warrant exercises.....................             --               682              1 
                                                                   --------          --------        ------- 
       Net cash provided by financing activities............         52,946            36,981          7,206 
                                                                   --------          --------        ------- 
       Net (decrease) in cash...............................         (7,549)           21,896          4,952 
Cash and cash equivalents, beginning of year................         27,912             6,016          1,064 
                                                                   --------          --------        ------- 
Cash and cash equivalents, end of the year..................       $ 20,363          $ 27,912        $ 6,016 
                                                                   ========          ========        ======= 

The accompanying notes are an integral part of these consolidated financial 
statements. 

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PREVIEW TRAVEL, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Company Background And Summary Of Significant Accounting Policies:          

The Company:                                                            

Preview Travel, Inc. ("Preview Travel" or the "Company") is a leading 
provider of branded online travel services for leisure and small business       
travelers. The Company operates its own Web sites (www.previewtravel.com,       
www.reservations.com and www.vacations.com), the primary travel service on      
America Online, Inc. ("AOL") (AOL keyword: previewtravel) and a co-branded      
travel Web site with Excite, Inc. ("Excite") and with Lycos, Inc. ("Lycos"). In 
addition to its reservation and ticketing service, the Company offers vacation  
packages, discounted and promotional fares, travel news and destination content,
including content licensed from Fodor's Travel Publications, Inc. ("Fodor's").  

     On December 31, 1998, the Company completed a transaction pursuant to which
substantially all of the assets of the Company's television business, as        
operated by the Company's wholly owned subsidiary, News Travel Network, Inc.    
("NTN"), were transferred to NewsNet Central, Inc.("NNC") The Company currently 
holds a minority equity interest in NNC. Prior to this transaction, through its 
television business, Preview Travel produced entertainment programming for      
broadcast and cable television and the in-flight market. The television business
also produced 90-second news inserts for local television station newscasts.    
Certain items previously reported in specific financial captions have been      
reclassified to conform with the 1998 presentation.                             

Use of Estimates:                                                               

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent assets and liabilities at the dates of the financial   
statements and the reported amounts of revenues and expenses during the         
reporting periods. Actual results could differ from those estimates.            

Basis of presentation:                                                          

   The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Preview Travel Online, Inc. and NTN. All     
significant intercompany balances and transactions have been eliminated in the  
consolidated financial statements.                                              

Revenue Recognition:                                                            

Transaction Revenues:                                                 

   Transaction revenues consist of commissions from travel suppliers for air
travel, hotel rooms, car rentals, vacation packages and cruises, net of         
allowances for cancellations, and are recognized upon confirmation of the       
reservation. In addition, transaction revenues include segment fees received    
from global distribution services ("GDS") suppliers. Certain travel suppliers   
also pay performance-based compensation, known as overrides which are recognized
on an accrual basis once the amount has been confirmed with the travel supplier,
which generally reflects the performance for a prior quarterly period.          

Advertising Revenues:                                                 

     Advertising revenues are derived primarily from the delivery of advertising
impressions on the Company's Web sites.  Advertising revenues are recognized in 
the period the advertising impressions are delivered.                           

Research and Development Costs:                                                 

Research and development costs are expensed as incurred.              

Cash Equivalents and Marketable Securities:                                     

   The Company invests certain of its excess cash in debt instruments of the
U.S. Government and its agencies, and high quality corporate and foreign        
government issuers as well as money market funds and certificate of deposits.   
All highly liquid instruments with an original maturity of 90 days or less are  
considered cash equivalents; those with original maturities greater than 90 days
and current maturities less than twelve months from the balance sheet date are  
considered short-term marketable securities. Marketable securities with maturity
of twelve months or more from the balance sheet date are considered marketable  
securities - noncurrent.                                                        

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The Company has classified debt securities as available-for-sale.     
Available-for-sale securities are carried at fair value, based on quoted market 
prices, with the unrealized gains or losses, net of tax, reported in            
stockholders' equity. The amortized cost of debt securities is adjusted for     
amortization of premiums and accretion of discounts to maturity, both of which  
are included in interest income. Realized gains and losses are recorded using   
the specific identification method.  Unrealized gains and losses were not       
significant at December 31, 1998 and 1997 and the estimated fair value          
approximated cost.                                                              

     The following is a summary of available-for-sale securities at December 31,
1998 and 1997 (in thousands):                                                   

                                                  1998            1997
                                                  Cost            Cost
                                                  ------          ------
Corporate debt securities                          $  53,106       $  27,325    
U.S. government obligations                            3,030              63    
Certificates of deposit                                4,000              --    
Foreign government obligations                         1,045              --    
Money market funds                                       233              --    
                                                  ------          ------
                                               $  61,414       $  27,388
                                                  ======          ======

Amounts included in cash and                                                    
cash equivalents                                    20,252          26,638  
Amounts included in marketable securities             26,501             750    
Amounts included in marketable                                                  
securities - noncurrent                          $  14,661       $      --  
                                                  ------          ------
                                               $  61,414       $  27,388
                                                  ======          ======
Property and Equipment:                                                         

   Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets,         
typically five years.  Assets held under capital leases are amortized using the 
straight-line method over the term of the lease or estimated useful lives,      
whichever is shorter.  Amortization of leasehold improvements is computed using 
the shorter of the term of the Company's facility leases or the estimated useful
lives of the improvements.                                                      

Income Taxes:                                                                   

     Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes," which requires recognition of deferred tax liabilities and   
assets for the expected future tax consequences of events that have been        
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the temporary difference     
between the financial statement and tax bases of assets and liabilities using   
enacted tax rates in effect for the year in which the differences are expected  
to reverse. Valuation allowances are established when necessary to reduce       
deferred tax assets to the amounts expected to be realized. Income tax expense  
is the tax payable for the period and the change during the period in deferred  
tax assets and liabilities.                                                     

Supplemental Information (unaudited):                                           

  Gross bookings represent the total purchase price of all travel services
booked through the Company's online sites. This information does not affect the 
Company's operating results. Disclosure of gross bookings is not required by    
generally accepted accounting principles. Gross bookings are not included in    
revenues or operating results, and should not be considered in isolation or as a
substitute for other information prepared in accordance with generally accepted 
accounted principles. Management believes that gross bookings provide more      
consistent comparison between historical periods than do transaction and        
advertising revenues. In addition, management believes that gross bookings are  
meaningful because such information and, in particular, year-to-year changes in 
such information, are a useful measure of market acceptance.                    

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Business Risk and Credit Concentration:                                         

    The Company operates in the online travel services industry, which is new,
rapidly evolving and intensely competitive. The Company competes primarily with 
traditional travel agency reservation methods and online travel reservation     
services. In the online travel services market, the Company competes with other 
entities that maintain similar commercial Web sites. There can be no assurance  
that the Company will achieve sufficient online traffic, travel bookings or     
commissions to realize economies of scale that justify its significant          
commitments to third parties.                                                   

Financial instruments which potentially subject the Company to        
concentrations of credit risk consist of cash equivalents, marketable securities
and accounts receivable.  Cash equivalents and marketable securities are        
maintained with two major financial institutions.                               

  The Company's advertising customers are located across the United States
and are primarily in travel, internet and consumer businesses. The Company does 
not perform formal credit evaluations of customers and does not require         
collateral. Allowances are maintained for potential credit losses, and such     
losses have been within management's expectations.                              

  Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the carrying value of the      
borrowings under the capital lease obligations approximate their fair value.    

Comprehensive Loss                                                              

  The Company adopted Statement of Financial Accounting Standard No. 130
("SFAS No. 130"), Reporting Comprehensive Income, which was issued in June 1997,
during the year ended December 31, 1998.  There was no impact to the Company as 
a result of the adoption of SFAS No. 130, as there were no differences between  
net loss and comprehensive loss for all periods presented.                      

Recent Accounting Pronouncements                                                

In April 1998, the Accounting Standards Executive Committee released  
Statement of Position (SOP), 98-5, Reporting on the Costs of start-up           
Activities.  SOP No. 98-5 is effective for the fiscal years beginning after     
December 15, 1998 and requires companies to expense all cost incurred or        
unamortized in connection with start-up activities.  The new standard is        
effective for the Company's fiscal year ending December 31, 1999 and is not     
expected to have a material effect on the financial statements as the Company   
has not capitalized such costs to date.                                         

2.  Discontinued Operations:                                                    

   In December 1998, the Company's Board of Directors adopted a plan to sell
the Company's television business, as operated by the Company's wholly owned    
subsidiary, NTN. On December 31, 1998, the Company completed a transaction      
with NNC, pursuant to which substantially all of the assets of the Company's    
television business, as operated by NTN, were transferred to NNC (the "TV       
Disposition"). Upon the closing of the TV Disposition, the Company contributed  
certain assets to NNC, including the following: (a) cash in the amount of       
$88,000, (b) certain assets related to NTN's business, including a library of   
travel video content, and (c) assignment of the Company's rights and            
obligations under certain contracts related to NTN's business.                  

   In consideration of the transfer of the assets of NTN to NNC, the Company
received from NNC the following: (a) a convertible promissory note in the       
principal amount of $250,000 (the "Note"), (b) a subordinated promissory note in
the principal amount of $1,000,000 (the "Subordinated Note"), which will bear   
interest at the rate of 6% per annum and will be secured by certain portions of 
the assets of NNC, including its fixed assets and the video library, and (c) a  
warrant to purchase up to 2,275,445 shares of Common Stock of NNC at an exercise
price of $0.45 per share (the "Warrant"). The Note will be due and payable upon 
demand by the Company on December 31, 1999; provided, however, that the Note    
will be automatically converted into shares of Series A Preferred Stock of NTN  
at a conversion price of $4.50 per share upon the occurrence of certain         
conditions. The Subordinated Note is due and payable upon demand at any time    
after December 31, 2003.                                                        

    As of December 31, 1998, James Hornthal, the Company's Chairman and acting
President and Chief Executive Officer, holds 800,000 shares and the Company     
holds 829,000 shares of Common Stock of NNC, which each purchased on November   
15, 1998 at a price of $0.015 per share. Following the closing of the TV        
Disposition and the conversions of all outstanding convertible promissory notes,
including the Note, the Company owns approximately 19.7% of NNC's voting stock. 

 In addition, the Company and NNC entered into a Services Agreement that
provides for, among other things, the following: (a) the sublease to NNC of the 
Company's facilities at One Beach Street in San Francisco, (b) the Company's    
right to act as the co-exclusive advertising sales representative for NTN's     
Travel Update programs, (c) a perpetual, non-exclusive, royalty-free license to 
use NTN's travel video library (including any enhancements thereto), and (d) the
continued branding of NTN's "Travel News" and "Travel Update" programs with     
"Preview Travel" marks. NNC has also agreed not to provide online travel        
services for a period of five years following the termination of the Services   
Agreement.                                                                      

    As the historical operations of the Company's television business were not
profitable, and due to significant risks inherent in the independent television 
business, the Company has attributed no value to the Subordinated Note and the  
Warrant. The net value of the Company's investment in NNC will be recorded at   
$250,000. As of the closing of the TV Disposition, substantially all of the     
Company's employees engaged in NTN's business became employees of NNC.          

 Discontinued operations include the results of the Company's television
operations prior to the TV Disposition on December 31, 1998. Upon the completion
of the TV Disposition, the Company incurred a one-time loss of approximately    
$4.2 million related to the sale of the television assets. The $4.2 million loss
was comprised of cash of $88,000, prepaid expenses of $130,000, film library,   
net of accumulated amortization of $4,521,000, of $1,883,000, property and      
equipment, net of accumulated depreciation of $1,591,903, of $1,268,000,        
employee compensation, transaction expenses and accrued loss on sublet to NNC of
$785,000, and the operating loss of the television business from the measurement
date to December 31, 1998 of $298,000, offset by the investment recorded in NNC 
of $250,000.                                                                    

    Net assets of discontinued operations of $419,000 at December 31, 1998 are
comprised of receivables of $1.1 million offset by account payable and accrued  
liabilities of $724,000. Net assets of discontinued operations of $3,629,000 at 
December 31, 1997 are comprised of receivables of $1.4 million, other assets of 
$50,000, film library, net of accumulated amortization, of $2,402,000 and       
property and equipment, net of accumulated depreciation, of $666,000 offset by  
accounts payable and accrued liabilities of $930,000.                           

The Company has restated its prior financial statements to present the
operating results of the television business as a discontinued operation.       
Operating results from discontinued operations are as follows:                  

                                       Year Ended December 31,
                                   -------------------------------------------
                                     1998           1997          1996
                                   -------------  --------------  ------------
Revenues.........................         $6,079         $7,634        $9,801   
Costs and expenses                                                              
Cost of revenue..................          4,637          5,751         7,000   
Sales and marketing expenses.....          1,297          1,643         1,558   
General and administrative                                                      
expenses........................            826            564         1,440  
                                       ------         ------         -----
Loss from operations.............         $ (681)        $ (324)        $(197)  
                                        ======         ======         ======

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3.  Balance sheet detail:                                                       

Other current assets are comprised of the following (in thousands):     

                                      December 31,
                                      ------------------------------------
                                     1998               1997
                                      -----------------  -----------------
Prepaid online distribution expense......           $1,143             $5,533   
Other....................................            1,579                504   
                                                 ------             ------
                                                 $2,722             $6,037
                                                 ======             ======
Property and equipment are summarized as follows (in thousands):              

                                        December 31,
                                       -------------------------------------
                                        1998                1997
                                        ------------------  ------------------
Computer equipment.......................          $ 4,826             $ 2,728  
Furniture and fixtures...................              917                 643  
Leasehold improvements...................              748                 497  
                                                 -------             -------
                                                   6,491               3,868
                                                 -------             -------
Less accumulated depreciation and                                               
amortization............................           (2,367)               (890)
                                                 -------             -------
Property and equipment, net..............          $ 4,124             $ 2,978  
                                                 =======             =======

    Equipment under capital leases included in property and equipment amounted
to $2,451,000 (net of $1,636,000 accumulated amortization) and $2,328,000 (net  
of $1,143,000 accumulated amortization) at December 31, 1998 and 1997,          
respectively, and primarily composed of computer equipment.                     

Accrued liabilities are comprised of the following (in thousands):            

                                      December 31,
                                      ------------------------------------
                                     1998               1997
                                      -----------------  -----------------
Accrued trade payables                              $1,763             $  382   
Accrued employee compensation                        1,900              1,024   
Other                                                  185                505   
Accrued rent expense                                   190                394   
                                                 ------             ------
                                                 $4,038             $2,305
                                                 ======             ======

4.  Income Taxes:                                                               

  For the years ended December 31, 1998 and 1997, the provision for income
taxes is comprised of minimum state tax expense.  No provision for federal or   
state income taxes has been recorded for the years ending December 31, 1998,    
1997 and 1996 as the Company incurred net operating losses.                     

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     Deferred tax assets (liabilities) as of December 31, 1998 and 1997 comprise
the following (in thousands):                                                   

                                      December 31,
                                      ------------------------------------
                                      1998                1997
                                       -----------------  ------------------
Net Operating Loss carryforwards........        $ 22,288            $ 11,502  
Other...................................             269                 105  
Deferred Rent...........................             260                 157  
Property and Equipment..................             217                 373  
Warrants................................              --                  27  
Film Library............................              --                (149) 
                                              --------            --------
                                                23,034              12,015
Less valuation allowance................         (23,034)            (12,015) 
                                              --------            --------
                                              $     --            $     --
                                              ========            ========

Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, the Company has placed a full valuation allowance  
against its net deferred tax assets. The valuation allowance has increased by   
$11,019,000 and $6,437,000 during 1998 and 1997, respectively. Deferred tax     
assets and the related valuation allowance include approximately $1,220,000     
related to certain U.S. operating loss carryforwards resulting from the exercise
of employee stock options, the tax benefit if which, when recognized, will be   
accounted for as a credit to additional paid-in capital rather than a reduction 
of the income tax provision.                                                    

    The difference between the statutory rate of approximately 34% and the tax
benefit of zero recorded by the Company is primarily due to the Company's full  
valuation allowance against its net deferred tax assets.                        

At December 31, 1998, the Company had available net operating loss    
carryforwards for federal and state income tax purposes of approximately        
$60,371,000 and $30,209,000, respectively. These carryforwards expire from 1999 
to 2018. Due to changes in the Company's ownership in 1996 and 1997, future     
utilization of a portion these net operating loss carryforwards will be subject 
to certain limitations of annual utilization as defined by the Tax Reform Act of
1986.                                                                           

5.  Commitments:                                                                

    The Company leases its office space under a non-cancelable operating lease
expiring in 2001. Certain operating expenses and property taxes related to the  
leased office space are paid by the Company. In addition, the Company leases    
office space that formerly housed the Company's television operations. The      
Company has entered into a sublease agreement with NNC for the former television
operations space (see Note 2). The lease and sublease both expire in 2003, with 
an option for early termination in 2001. The Company also leases certain office 
equipment and computers under capital leases expiring through 2001.             

    Future minimum annual lease payments for both operating and capital leases
are as follows (in thousands):                                                  

                                               Operating           Capital
                                               ---------           -------
1999.....................................           $ 1061             $1,391   
2000.....................................             1118              1,067   
2001.....................................              866                582   
2002.....................................              559                145   
2003.....................................              279                 --   
                                                 ------             ------
Total minimum lease payments.............           $3,883              3,185   
                                                 ======             ------

Less amounts representing interest.......                                 379   
                                                                    ------
Present value of minimum lease payments..                               2,806   
Less current portion.....................                               1,165   
Noncurrent portion of capital lease                                             
obligations.............................                              $1,641  
                                                                    ======

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 Total rent expense for office space was $1,143,000 and $457,000 for the
years ended December 31, 1998 and 1997, respectively.                           

 The Company has entered into distribution and licensing agreements with
AOL, a related party,  Excite, Inc. ("Excite"), Lycos and others under which    
these companies are obligated to deliver minimum numbers of annual page views to
the Company through online areas featuring the Company's travel services. The   
Company is also obligated to pay a percentage of commissions earned by the      
Company in excess of certain thresholds and, to retain the right to be the      
primary provider of travel services on AOL, must achieve specified levels of    
annual travel service bookings.                                                 

In connection with these agreements, the Company is obligated to make 
aggregate minimum payments to AOL, Excite (adjusted for amended amount, see Note
12), Lycos and others as follows (in thousands):                                

1999.....................................          $12,981                      
2000.....................................          $12,900                      
2001.....................................          $12,525                      
2002.....................................          $ 9,827                      
                             -------
Total minimum lease payments.............          $48,233                      
                             =======
7.   Stockholders' Equity:                                                      

Stockholder Rights Plan                                               

    In October 1998, the Board of Directors adopted a stockholders rights plan
under which rights were distributed to stockholders of record on November 12,   
1998. The rights are not exercisable until ten days after a person or group     
announces the acquisition of 20 percent or more of the Company's outstanding    
Common Stock or the commencement of a tender offer which would result in        
ownership by the person or group of 20 percent or more of the outstanding Common
Stock. Each right entitles stockholders to buy one one-thousandth of a share of 
the Company's Series A Participating Preferred Stock at an exercise price of    
$100. The Company will be entitled to redeem the rights at $0.01 per right at   
any time on or before the tenth day following acquisition by a person or group  
of 20 percent or more of the Company's Common Stock. If a person or group       
acquires 20 percent or more of The Company's Common Stock prior to redemption of
the rights, the rights will entitle stockholders other than the potential       
acquiror to purchase, at the then current exercise price, that number of shares 
of the Company's Common Stock (or, in certain circumstances as determined by the
Board of Directors, cash, other property or other securities) having a market   
value at that time of twice the exercise price. If, after the tenth day         
following acquisition by a person or group of 20 percent or more of the         
Company's Common Stock, the Company sells more than 50 percent of its assets or 
earning power or is acquired in a merger or other business combination          
transaction, the acquiror must assume the obligations under the rights, and the 
rights will become exercisable to acquire common stock of the acquiror at the   
discounted price. Under certain circumstances, the Company's Board of Directors 
may also exchange the rights (other than those owned by the acquiror or its     
affiliates) for its Common Stock at an exchange ratio of one share of Common    
Stock per right.                                                                

Preferred Stock                                                       

    In November 1997 all 6,033,686 shares of Series A, B, C, D and E preferred
stock were converted on a one to one basis into common stock of the Company.    

   In November 1997 the shareholders of the Company approved an amendment to
the Company's certificate of incorporation, authorizing 5,000,000 shares of     
preferred stock of which the Board of Directors has the authority to issue and  
to determine the rights, preferences and privileges. In October, 1998 in        
connection with the stockholders rights plan the company designated 100,000     
shares of preferred stock as Series A Participating Preferred Stock with $0.001 
par value per share.                                                            
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Other Stockholders' Equity                                            

Other stockholders' equity comprise the following (in thousands):     

                                  December 31,
                                  ----------------------------
                                 1998           1997
                                  -------------  -------------
Deferred compensation....................         $(357)         $(500)         
Stockholder notes receivable.............            --           (106)         
Stock warrants...........................            --             67          
                                        -----          -----
                                         $(357)         $(539)
                                        =====          =====

     Stockholder notes receivable represent the amounts due from stockholders in
exchange for the issuance of common stock together with accrued interest. During
1998, all outstanding stockholder notes receivable and accrued interest thereon 
were paid in full. During 1998, all outstanding warrants to purchase common     
stock were exercised. As of December 31, 1998, there were no warrants           
outstanding.                                                                    

Reverse Stock Split                                                   

     In November 1997, the Company completed a reincorporation of the Company in
Delaware having the effect of a 1:2 reverse stock split. All share and per share
information in the accompanying consolidated financial statements and notes     
thereto have been restated for such stock split.                                

8.  Stock Option Plan:                                                          

 In 1988, the stockholders of the Company approved the 1988 Stock Option
Plan (the "1988 Plan"), which, as amended, authorized 1,681,750 shares of the   
Company's common stock as available for the granting of options. Under the 1988 
Plan, the Board of Directors may grant options for common stock to employees,   
directors, and consultants either as incentive stock options or nonstatutory    
options. Options granted as incentive stock options are at an exercise price not
lower than the fair market value of the stock at the date the options are       
granted. Nonstatutory options are issued at between 85% and 100% of fair market 
value. Options granted under the 1988 Plan generally vest 25% on the first      
anniversary of the grant date and the remainder will vest monthly over the next 
three years. Generally, the term of this plan provide that options expire up to 
a maximum of five years from the date of grant.                                 

   In November 1997, the stockholders of the Company approved the 1997 Stock
Option Plan (the "1997 Plan"), which authorized an additional 1,500,000 shares  
of the Company's common stock as available for the granting of options with     
terms and conditions substantially similar to those of the 1988 Plan, except    
that under this plan the options expire up to ten years from the date of grant. 

In November 1997, the stockholders of the Company approved the 1997   
Directors' Stock Option Plan (the "1997 Directors' Plan"), which authorized an  
additional 250,000 shares of the Company's common stock as available for the    
granting of options. Options granted under the 1997 Directors' Plan are         
nonstatutory options and will be issued at 100% of fair market value at the time
of grant. Options granted become exercisable over four years and expire up to   
ten years from the date of grant. The 1997 Directors' Plan calls for an initial 
grant of shares for each new non-employee member of the Board of Directors in   
addition to an automatic annual grant thereafter.                               

In November 1997, the stockholders of the Company approved the 1997   
Employee Stock Purchase Plan (the "ESPP") and reserved 500,000 shares of common 
stock for sale to employees at a price no less than 85% of the lower of the fair
market value of the common stock at the beginning of the two-year offering      
period or the end of each of the six-month purchase periods.                    

 At December 31, 1998 and 1997, 2,627,000 and 3,008,000 shares of common
stock, respectively, were reserved for the exercise of stock options.           

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  The following table summarizes activity under the Company's stock option plans
for the years ended December 31, 1996, 1997 and 1998:                           

[CAPTION]                                                                       

                                                        [Enlarge/Download Table]

                                                                 Outstanding Options              
                                                     ---------------------------------------------
                                     Available               Number           Weighted Average    
                                     For Grant             of Shares           Exercise Price     
                              ---------------------   -------------------   ----------------------
                                                                                                  
Balance at December 31, 1995                 783                   677                  $    2.10 
        Options granted                     (277)                  277                  $    2.52 
        Options exercised                     --                  (137)                 $    1.78 
        Options canceled                      82                   (82)                 $    2.56 
                              ---------------------   -------------------                         
Balance at December 31, 1996                 588                   735                  $    2.28 
        Options authorized                 1,750                    --                  $      -- 
        Options granted                     (658)                  658                  $    6.05 
        Options exercised                     --                   (67)                 $    2.15 
        Options canceled                      27                   (27)                 $    2.37 
                              ---------------------   -------------------                         
Balance at December 31, 1997               1,707                 1,301                  $    4.18 
        Options granted                     (726)                  726                  $   19.04 
        Options exercised                     --                  (267)                 $    3.73 
        Options canceled                     144                  (144)                 $   10.60 
        Options expired                     (114)                   --                         -- 
                              ---------------------   -------------------                         
Balance at December 31, 1998               1,011                 1,616                  $   10.43 
                              ---------------------   -------------------                         

Options exercisable at:                                                         
December 31, 1998                   487,000         $2.92       
December 31, 1997                   466,000         $2.33       
December 31, 1996                   279,000         $2.16       

  The following table summarizes information with respect to stock options
outstanding at December 31, 1998:                                               

                                                        [Enlarge/Download Table]


                                       Options Outstanding                                Options Exercisable          
                  -----------------------------------------------------------------------------------------------------
                                           Weighted Average       Weighted                                  Weighted   
                           Number             Remaining            Average                                   Average   
     Range of           Outstanding       Contractual Life        Exercise        Number Exercisable        Exercise   
 Exercise Prices        (thousands)            (years)              Price            (thousands)              Price    
-----------------------------------------------------------------------------------------------------------------------
                                                                                                                       
   $ 2.20 - $ 2.60                618                  2.94           $ 2.43                    441               $2.39
   $ 6.50 - $ 9.25                502                  6.43           $ 8.28                     46               $7.97
   $ 9.94 - $15.50                185                  9.11           $14.26                     --                  --
   $16.06 - $24.00                164                  9.61           $23.43                     --                  --
   $26.88 - $36.00                147                  9.46           $32.05                     --                  --
                                -----                                                           ---                    
                                1,616                  6.00           $10.43                    487               $2.92
                                =====                                                           ===                    

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  The following information concerning the Company's stock option plans is
provided in accordance with SFAS No. 123, "Accounting for Stock-Based           
Compensation."  The Company accounts for such plans in accordance with APB No.  
25, "Accounting for Stock Issued to Employees."                                 

     The fair value of each option grant has been estimated on the date of grant
using the minimum value method for all years ended prior to the initial public  
offering, and subsequently through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully 
transferable options without vesting restrictions, which significantly differ   
from the Company's stock option awards. These models also require subjective    
assumptions, including future stock volatility and expected time to exercise,   
which greatly affect the calculated values. The Company's calculations were made
using the minimum value method in 1996 and the Black-Scholes option pricing     
model in 1998 and 1997 with the following weighted average assumptions used for 
grants in 1998, 1997 and 1996:                                                  

                     Stock Option                 Employee Stock
                        Plan                     Purchase Plan
                     ---------------------------   ---------------------------
                      1998             1997          1996             1998
                     -------------  ------------   ------------  -------------
Risk-free                                                                       
interest rate.......    5.26%           7.00%          6.15%           5.22   
Expected volatility..     129%             50%             0%            104%   
Expected life........   5 years          5 years       5 years         6 months 
Dividend rate........      --              --             --              --    

   The weighted average fair value per option granted in 1998, 1997 and 1996
was $16.53, $4.46 and $0.64, respectively.                                      

 The following pro forma net loss and net loss per share information has
been prepared as if the Company had followed the provisions of SFAS No. 123 (in 
thousands except per share data):                                               

                         Year Ended December 31,
                              ----------------------------------------------
                             1998             1997            1996
                              --------------  --------------  --------------
Net loss:                                                                       
As reported.....................     $(26,961)       $(10,168)        $(5,592)  
Pro forma.......................     $(29,942)       $(10,901)        $(5,732)  

Basic and diluted net loss                                                      
per share:                                                                  
As reported.....................     $  (2.11)       $  (3.54)        $ (3.43)  
Pro forma.......................     $  (2.34)       $  (3.80)        $ (3.51)  

These pro forma amounts may not be representative of the effects on   
reported net income (loss) for future years as options vest over several years  
and additional awards are generally made each year.                             

     In connection with the completion in November 1997 of the Company's initial
public offering, certain options granted in 1997 have been considered to be     
compensatory. Compensation associated with such options as of December 31, 1997 
amounted to $570,000. Of that amount, $143,000 and $70,000 has been charged to  
operations in the year ended December 31, 1998 and 1997, respectively. The      
remaining $357,000 will be charged to operations over the remaining period to   
2001.                                                                           

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9.  Supplemental Disclosures Of Cash Flow Information:                          

During the years ended December 31, 1998 and 1997, the Company made cash
payments for interest of approximately $327,000 and $168,000, respectively, and 
state franchise taxes of $8,300 and $2,400, respectively.                       

  The following noncash investing and financing transactions occurred during
the years ended December 31, 1998 and 1997 (in thousands):                      

                                     Year Ended December 31,
                                    ----------------------------
                                     1998       1997      1996
                                    -------    -------   -------
Property and equipment obtained                                                 
through capital leases................    $1,321     $1,721    $1,039     
                                     ======     ======    ======

Common stock issued for                                                         
notes receivable......................    $   33     $  128    $  234     
                                     ======     ======    ======

Common stock issued for services.........    $   --     $   46    $   --        
                                     ======     ======    ======

Common stock issued upon conversion                                             
of notes payable..................        $   --     $  750    $   --     
                                     ======     ======    ======

10. Related Party Transaction:                                                  

During the years ended December 31, 1998 and 1997, the Company recorded 
marketing expenses of $6,400,000 and $2,631,000, respectively, pursuant to an   
agreement with America Online, Inc., a stockholder of the Company. See Note 5.  

11. Earnings Per Share (EPS) Disclosures:                                       

In accordance with the requirements of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," a reconciliation of the numerator and  
denominator of basic and diluted EPS is provided as follows (in thousands,      
except per share amounts).                                                      

                                               Year Ended December 31,
                                               -------------------------------
                                              1998       1997       1996
                                               ---------  ---------  ---------
Numerator - Basic and Diluted EPS                                               
 Net loss                                     $(26,961)  $(10,168)  $(5,592)
                                             ========   ========   =======

Denominator - Basic and Diluted EPS                                             
Weighted average common                                                   
stock outstanding                              12,796      2,869     1,631
                                             ========   ========   =======

Basic and diluted earnings per share            $  (2.11)  $  (3.54)  $ (3.43)  
                                             ========   ========   =======

Stock options outstanding as of December 31, 1998, 1997 and 1996 of   
1,616,000, 1,301,000 and 735,000 at weighted average prices of $10.43, $4.18 and
$2.28, respectively, have not been included in the diluted EPS calculations as  
they are antidilutive.                                                          

12. Subsequent Events (unaudited):                                              

   In March 1999, the Company's agreement with Excite, as discussed in Note 5,
was amended to reduce the minimum payments required over the term of the        
agreement from $24.0 million to $23.5 million.                                  

    In connection with the resignation in February 1999 of the Company's Chief
Executive Officer, the cost of certain stock options granted and consulting fees
per Settlement Agreement and Mutual Release between the Company and the former  
Chief Executive Officer will be charged to operations over the twelve month     
period of the consulting agreement. The ultimate value of the options granted   
can not be determined until the options are exercised or expire.                

F-16

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		12/31/03		53
		6/30/01		15
		12/31/99		20		53
		6/30/99		28					10-Q
Filed on:		3/31/99		43		44			10-Q
		3/22/99		42
		3/12/99		1		16
		2/16/99		42					SC 13G,  SC 13G/A
		1/21/99		46
For Period End:		12/31/98		1		60
		12/24/98		41					8-K
		12/17/98		41					8-K,  8-K/A
		12/15/98		53
		11/15/98		20		53
		11/12/98		56
		10/29/98		41
		9/30/98		8		33			10-Q
		6/30/98		8		32			10-Q
		4/7/98		42
		4/1/98		42
		3/31/98		8		32			10-K405,  10-Q
		3/15/98		42
		3/12/98		42
		1/1/98		42
		12/31/97		24		60			10-K405
		11/19/97		16					AW,  S-1/A
		11/17/97		42
		9/30/97		42
		9/26/97		42
		9/1/97		42
		7/22/97		42
		6/30/97		21
		12/31/96		24		60
		6/28/96		42
		1/1/96		49
		12/15/95		42
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