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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, 1997



                       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.  [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $141,100,000 as of March 12, 1998, 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% of 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 11,339,485 shares of the registrant's Common Stock issued and
outstanding as of March 12, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Definitive Proxy Statement relating to the Company's 1998 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 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") (City.Net). 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,
13,000 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. The Company complements
its compelling content and user- friendly interface with a high level of
customer service.

     Through its News Travel Network, Inc. division ("NTN"), Preview Travel
produces entertainment programming for broadcast and cable television and the
in-flight market. NTN also produces 90-second news inserts for local television
station newscasts. NTN has compiled and continually updates an extensive library
of over 6,000 hours of proprietary, broadcast quality footage featuring over
2,000 destinations around the world. NTN employs an in- house sales staff that
syndicates this programming to television stations worldwide and sells the
commercial airtime within these programs to national advertisers.

     To broaden its online presence and build brand recognition, in 1997 the
Company entered into long-term agreements with AOL, the leading online service
provider with over eleven million members, and Excite, a leading search engine
provider with over two million visitors per day. 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 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 multi-
service 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, 1997,
2.6 million users had registered on the Company's online site, and over $100
million in gross bookings of travel services had been purchased by approximately
168,000 customers in over 297,000 transactions.

     Preview Travel, Inc. (formerly Preview Media, Inc.) was incorporated in
California in March 1985 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.

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INDUSTRY BACKGROUND

Growth of the Internet and Online Commerce

     The Internet and commercial online services such as AOL are emerging 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 in 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.
International Data Corporation ("IDC") estimates that the number of World Wide
Web (the "Web") users will grow from approximately 28 million in 1996 to
approximately 129 million by 2000.

     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 are being sold
online, including books, brokerage services, computers and music, as well as
travel services. IDC estimates that the total value of services and products
purchased over the Web grew from $296 million in 1995 to approximately $2.6
billion in 1996, and will increase to approximately $123 billion by 2000.

     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 $470 billion on travel and tourism in 1996, 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 $101 billion in 1995, of which approximately half was spent on
leisure travel. The traditional travel agency channel is highly fragmented, with
few nationally recognized brands. According to ASTA, there are over 23,000
travel agencies operating in more than 33,000 locations in the United States,
with the average travel agency generating less than $3 million in annual gross
bookings per location. Furthermore, in 1995, the top 50 travel agencies
accounted for less than 33% of all airline bookings.

     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 and car rentals, and 10% to 15% for
cruises and vacation packages. In addition, travel agencies can earn significant

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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 10% to 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 10% to 5%. 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 recent 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 $816 million in 1997 to $8.6
billion in 2002, representing a projected compounded annual growth rate of 77%
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 on airline 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 packages. The Company
operates its own Web sites (www.previewtravel.com, www.reservations.com and
www.vacations.com), the primary travel service on America Online (AOL keyword:
previewtravel), and co-branded travel Web sites with Excite and Lycos. Preview
Travel has already become one of the most widely known, used and cited online
services for travel. As of December 31, 1997, 2.6 million users had registered
on the Company's online site, and over $100 million in gross bookings of travel
services had been purchased by approximately 168,000 customers in over 297,000
transactions.

     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 24
hours a day, seven days a week. Preview Travel provides reliable, real-time
access to relevant schedule, pricing and availability information for over 500
airlines, 13,000 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 travel-oriented consumers. 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 data 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
AOL as well as the Web 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 eleven
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.

     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 round-trip 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.

     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. 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.
In addition, the Company intends to continue promoting its online services
through its national television programs.

     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.

     Leverage Travel Programming and Television Relationships. The Company
leverages the editorial, syndication and advertising resources of its television
operations to enhance its online sites. Consistent with this strategy, Preview
Travel sells online advertising bundled with television advertising to targeted
sponsors, promotes its online travel services on its television programs and
adapts television content for the Company's online sites.

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     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.

     Expand into International Markets. The Company intends to expand its brand,
operating infrastructure and strategic relationships globally. To achieve this
objective, the Company intends to localize the user interface and its customer
service operations to offer native language capability, 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 and hotel reservations.

     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 and contests. To use the Company's
reservation services or purchase an airline ticket, each customer completes a
profile that includes required information such as name, street address, e-mail
address and telephone number, as well as optional information such as 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, 13,000 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. For domestic air travel, the Company's Farefinder
service automatically finds the lowest published fares available in the Apollo
GDS system on the dates of travel 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 at no additional charge 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, provides
         comprehensive destination guides for 87 cities 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.

      .  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 four times daily to update the posted fares.

      .  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

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         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.

      .  Vacations. This service offers complete vacation packages (airline,
         hotel and car rental), cruises and specialty tours, with an emphasis on
         providing value to customers. Customers can also find extensive
         destination information, photos, video and links to relevant Web sites.

      .  Find-a-Trip. This feature allows the customer to select from a variety
         of vacation packages matching the customer's preferences as to
         activities, location and price. In addition, Find-a-Trip provides the
         customer with extensive information about hotels and destinations,
         which in many instances is illustrated by photos and streaming video.

     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 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 eleven 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.

     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 significantly increase such bookings from
current levels, with the first annual measurement date occurring in September
1998. Travel services sold through AOL accounted for 89%, 77%, 67% and 62% of
the Company's total online revenues for the three months ended March 31, 1997,
June 30, 1997, September 30, 1997 and December 31, 1997, respectively.
Accordingly, the AOL arrangement represents a significant distribution channel
for the Company's

                                      -8-
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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 "Management's Discussion and
analysis of financial Condition and Results of operations -- Risk Factors that
May Affect Future Results -- Reliance on distribution Agreements with America
Online, Excite and Lycos."

     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 U.S. and on the
WebCrawler Travel Channel. The agreement was amended and restated in March 1998,
permitting the Company to enter into similar 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. 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. 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. Over the five year term of the agreement,
the Company is obligated to make minimum payments totaling $24 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 8%, 13% and
15% of the Company's online revenues for the three months ended June 30, 1997,
September 30, 1997 and December 31, 1997, 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Risk Factors that
May Affect Future Results -- Reliance on Distribution Agreements with America
Online, Excite and Lycos."

     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
and content delivery required to maintain the AOL agreements, and failure to do
so would likely have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
analysis of financial Condition and Results of operations -- Risk Factors that
May Affect Future Results -- Reliance on distribution Agreements with America
Online, Excite and Lycos."

     Fodor's. Preview Travel has entered into a nonexclusive agreement with
Fodor's Travel Publications ("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 and the Web. The agreement also calls
for the Company to create and operate a co-branded Web site
(www.fodors.previewtravel.com) that will offer links to both Fodor's and Preview
Travel's websites. Under the terms of the agreement, the name of the co-branded
Web site will appear 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.

     Lycos. Preview Travel and Lycos, a leading search engine provider, have
entered into an agreement under which Preview Travel will be the exclusive
multiservice provider of travel reservation services for Lycos' Travel Web Guide
and Travel Network.  In addition, Preview Travel and Lycos will create a co-
branded Web site that will 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. The Lycos
arrangement is expected to represent a significant distribution channel for the
Company's travel services, and any termination of the Company's agreement with
Lycos would likely have a material adverse affect on the Company's business,
operating results and financial condition. See "Management's Discussion and
analysis of financial Condition and Results of operations -- Risk Factors that
May Affect Future Results -- Reliance on distribution Agreements with America
Online, Excite and Lycos."

                                      -9-
<PAGE>

     The Company is aggressively 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.

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.

     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.

     Online Media Sales. The Company believes that the sale of online
advertising will become an increasingly 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, 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. In conjunction with the NTN media sales team, the Company offers
integrated media programs that incorporate presence on the Company's online
sites, participation in targeted e-mail programs and advertising time in the
Company's broadcast television and in-flight programs. Recent online

                                      -10-
<PAGE>

advertisers include AT&T, American Tourister Luggage, AVIS Rental Car, CBS
Sportsline USA, Celebrity Cruises, Caribbean Tourism Organization and
MasterCard.

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 two million registered users since May 1996.

     Internet users are linked to the Company's servers through a T3 data
communication line from the Company's Internet access provider, GeoNet
Communications, and AOL users are linked to the servers through a single T1
line. Additional 56 Kbp 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 in
recent months 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- 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 AOL, GeoNet Communications, any other
Internet service provider, or 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.
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.

                                      -11-
<PAGE>

     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 does 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, which could lead to
interruptions, delays, loss of data or the inability to accept and confirm
customer reservations.

PREVIEW TRAVEL TELEVISION OPERATIONS

     In addition to its online service, Preview Travel owns and operates its
television programming division, NTN. NTN is an independent producer of travel-
related programming for broadcast and cable television and the in- flight
market. NTN clients include affiliates of all major broadcast networks in the
United States and foreign broadcast, cable and satellite networks. NTN handles
program production, domestic program syndication and media sales in-house.
Revenues from the Company's television operations accounted for 79% and 56% of
total revenues for the years ended December 31, 1996 and 1997, respectively.

     NTN's film library, built up over 16 years, has grown to over 6,000 hours
of proprietary, broadcast-quality footage of over 2,000 destinations around the
world. Through the efforts of a staff of award-winning producers, writers and
editors, this library is updated and expanded by over 50 new on-location
productions per year. The library has been logged and indexed in a searchable
text database allowing easy access to the library content for use by the
Company.

     Program Production. NTN's News Programming group produces five 90-second
travel-related news inserts per week for distribution to local broadcast
stations for use in local newscasts. The Company's Consumer Travel Reports is
shown daily in over 55 markets throughout the United States. In addition, the
News Programming group produces fifty-minute documentaries for the sell-through
video market.

     NTN's Entertainment Programming group produces a variety of half-hour
specialty programs for the domestic and international television and in-flight
markets. Included in these programs is a weekly half-hour magazine-style program
called Travel Update that can be seen in over 90 markets throughout the United
States. Travel Update features travel news and destination features with links
to online resources including travelupdate.com to enable users to easily find
additional information online. NTN's international programming portfolio
includes Globe-Trotter, World's Weirdest Places, Earth Journeys, the e-Report,
Holiday USA and Bon Voyage. The Company also licenses certain video content from
its library to third parties for use in non-competitive programs. In-flight
programs include Northwest World Update, On Arrival and Northwest Network
Business Channel, which are produced under an agreement with Northwest Airlines.

     Program Syndication. The Company employs an in-house staff of sales
professionals that syndicates Travel Update and Consumer Travel Reports, as well
as three other news insert series produced by third parties: Dr. Dean Edell's
Medical Reports, CNET Technology Reports and Jack Hanna's Animal Tales. These
news inserts are syndicated to local broadcast television stations in exchange
for either cash or commercial time during their local newscasts. These local
commercial time slots are packaged and sold to national advertisers. Travel
Update is syndicated to local stations in exchange for a portion of the total
commercial time within the program, which is then sold by the Company to
national advertisers. Internationally, programs are licensed for specific uses
and limited times for cash fees negotiated with the broadcast or cable network.

     The Company's ability to generate revenues from its television operations,
as well as its ability to use its television programming to promote and enhance
its online services and brand recognition, depends upon its ability to reflect
in its programming the changing tastes of consumers, news directors and program
directors, and to secure and maintain distribution for its television
programming on acceptable commercial terms through local stations, and domestic
and international cable and broadcast networks. These syndication agreements
typically have duration's of one year or less, and there can be no assurance
that such stations and networks will continue to renew syndication

                                      -12-
<PAGE>

agreements for the Company's programs. In addition, the Company's ability to
cost-effectively update and expand its film library is essential to its ability
to continue to offer compelling content. Although the Company maintains a back-
up of the film library in offsite storage, both the film library and the back-up
library are vulnerable to damage from fire, flood, break-ins, earthquake and
similar events. Loss of access to its film library for an extended period of
time could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion of Financial
Condition and Results of Operations -- Risk Factors -- Risks Associated with
Television Operations."

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) and
Internet Travel Network, 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.

     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. Many airlines and hotels offer travel services directly
through their own Web sites, 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.

     In the television and in-flight programming markets, the Company's News
Travel Network division competes for airtime for its programs with news and
entertainment programming produced by local stations, broadcast and cable
networks, infomercial producers and third party syndicators. NTN competes for
national advertising sales with networks, national advertising representation
firms and syndicators.

     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 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 Management's Discussion of Financial Condition and
Results of Operations -- Risk Factors that May Affect Future Results --
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

                                      -13-
<PAGE>

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 strategically license certain content for its
online sites from third parties, 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 "Management's
Discussion of Financial Condition and Results of Operations -- Risks that May
Affect Future Results Uncertain Protection  of Intellectual Property; Risks of
Third Party Licenses."

GOVERNMENT REGULATIONS

     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 the 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 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

                                      -14-
<PAGE>

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
"Management's Discussion of Financial Condition and Results of Operations --
Risk Factors that may Affect Future Results -- Governmental Regulation and Legal
Uncertainties."

EMPLOYEES

     As of December 31, 1997, the Company employed a total of 181 people, of
whom 132 where involved in online travel service operations and 49 were involved
in television operations. The Company's ability to attract and retain highly
qualified employees will be the principal 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, it is common for employees in the television industry to belong to a
union, and 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
"Management's Discussion of Financial Condition and Results of Operations --
Risk Factors that May Affect future Results -- Management of Potential Growth"
and "-- Dependence on Attraction and Retention of Key Personnel."

EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
NAME                                          AGE                         POSITION
--------------------------------------------  ---  -------------------------------------------------------
<S>                                           <C>  <C>
Kenneth J. Orton                               46  President, Chief Executive Officer and Director
James J. Hornthal                              43  Chairman and Director
Kenneth R. Pelowski                            38  Executive Vice President of Finance and Administration,
                                                     Chief Financial Officer and Secretary
David E. Lambert                               45  Executive Vice President of Online Operations
Karen S. Askey                                 38  Senior Vice President of Consumer Marketing
Christopher L. McAndrews                       33  Senior Vice President of Online Media Sales
John M. Petrone                                35  Senior Vice President of Technology
Barrie Seidenberg                              32  Senior Vice President of Online Services
</TABLE>

     Kenneth J. Orton joined the Company in April 1994 as President and Chief
Operating Officer, and in June 1997, was appointed to serve as the President and
Chief Executive Officer and a director of the Company. From September 1989 to
March 1994, Mr. Orton was Vice President and General Manager of the San
Francisco division of Epsilon, a database marketing firm and a wholly owned
subsidiary of American Express Company. Prior to his employment with Epsilon,
Mr. Orton was Vice President of M/A/R/C Inc., a market research and database
marketing company, and Vice President of Sales and Marketing for Future
Computing. Mr. Orton also serves as a director of ONSALE, Inc. Mr. Orton
received a B.A. degree from California State University, Fullerton.

     James J. Hornthal founded the Company in 1985 and has served as Chairman
since inception. 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.

     Kenneth R. Pelowski joined the Company as Executive Vice President of
Finance and Administration, Chief Financial Officer and Secretary in September
1997. From June 1996 to September 1997, he was Vice President, Corporate
Development of General Instrument Corporation. From May 1995 to June 1996, Mr.
Pelowski was Vice President, Corporate Planning and Development of Quantum
Corporation, and from 1989 to 1995, he was

                                      -15-
<PAGE>

Senior Director, Corporate Planning and Development at Sun Microsystems, Inc.
Mr. Pelowski received B.S.E. and M.B.A. degrees from the University of Michigan
and an M.S.E. degree from Wayne State University.

     David E. Lambert joined the Company in June 1995 and served as Senior Vice
President of Finance and Administration, Chief Financial Officer, Secretary and
Treasurer until September 1997, when he was appointed Executive Vice President
of the Company and President of Preview Travel Online, Inc., a wholly owned
subsidiary of the Company. From December 1992 to June 1995, Mr. Lambert was
Executive Vice President, Chief Financial Officer, Treasurer and Secretary of
Excalibur Technologies Corp., a software company. From April 1985 to May 1991,
he was President and Chief Executive Officer of Grand American Fare, Inc., a
restaurant company, and from October 1981 to April 1985, he served as Executive
Vice President and Chief Operating Officer of Colony Hotels, Inc., a resort
hotel subsidiary of Radisson Hotels. Mr. Lambert serves as a director of
Sunstone Hotel Investors, Inc., a publicly traded real estate investment trust.
Mr. Lambert received a B.A. degree from Occidental College and an M.B.A. degree
from the University of California at Los Angeles.

     Karen S. Askey joined the Company as Senior Vice President of Consumer
Marketing in February 1998. From January 1996 to January 1998, Ms. Askey was
Vice President of Marketing and Analysis for Charles Schwab and Co.'s Electronic
Brokerage division and from 1983 to 1996 she held a series of marketing and
management positions with Charles Schwab and Co. Ms. Askey received a B.A.
degree from Stanford University and an M.B.A. degree from the University of
California, Berkeley.

     Christopher L. McAndrews joined the Company as Senior Vice President of
Online Media Sales in September 1997. 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.

     John M. Petrone joined the Company in August 1995 as Vice President of
Technology and in September 1997 was promoted to the position of 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. 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.

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, computer and
communications systems and product development 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. Although the Company believes that its current
facilities are adequate and suitable for its current operations, the Company
anticipates that it will require additional space within the next 12 months.
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.

                                      -16-
<PAGE>

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

     On November 3, 1997, the shareholders of the Company approved the following
matters: (1) the reincorporation of the Company under the laws of Delaware,
including the exchange of shares of the Company's California predecessor
corporation for shares of the Delaware corporation, which exchange had the
effect of a one-for-two reverse stock split, (2) the adoption of the 1997
Directors' Stock Option Plan, the 1997 Employee Stock Purchase Plan and the 1997
Stock Option Plan, and the reservation of 250,000 shares, 500,000 shares and
1,500,000 shares, respectively, of Common Stock for issuance under such plans,
and (3) the amendment of the Company's certificate of incorporation, authorizing
5,000,000 shares of undesignated Preferred Stock of which the Board of Directors
has the authority to issue and to determine the rights, preferences and
privileges. The foregoing matters were approved by written consent of the
holders of 6,808,946 shares.

                                    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 period
indicated.

     1997                                                      HIGH     LOW
     ----                                                      ----     ---

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

The closing sale price of the Company's Common Stock as reported on the Nasdaq
National Market on March 12, 1998 was $25.00 per share. As of that date there
were 229 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. Under the terms of the Company's current bank line of credit, the
Company's ability to pay dividends is disallowed without prior approval from the
bank. See Note 4 of Notes to Consolidated Financial Statements.

SALES OF UNREGISTERED EQUITY SECURITIES

     In 1997, the Company issued and sold the following unregistered securities:

                                      -17-
<PAGE>

     (1)  In connection with the reincorporation of the Company under the laws
          of Delaware effected in November 1997, the Company exchanged shares of
          its capital stock for the outstanding shares of capital stock of
          Preview Travel, Inc., a California corporation.
     (2)  In 1997, 246,942 shares of Common Stock had been issued upon exercise
          of options or pursuant to restricted stock purchase agreements under
          the 1988 Stock Option Plan.
     (3)  In January 1997, the Company issued Series C Preferred Stock upon
          exercise of warrants held by 13 holders for an aggregate exercise
          price of $415,000.  Such shares of Series C Preferred Stock were
          converted into an aggregate of 148,214 shares of Common Stock in
          November 1997.
     (4)  In July 1997, the Company issued to an equipment lease provider a
          warrant to purchase shares of Series E Preferred Stock convertible
          into 11,666 shares of Common Stock for an aggregate purchase price of
          $105,000.
     (5)  In September 1997 the Company issued to a strategic partner a warrant
          to purchase shares of Series E Preferred Stock convertible into 94,500
          shares of Common Stock at an aggregate exercise price of $850,500.
          The warrant was exercised in November 1997 on a net issuance basis,
          resulting in the issuance of 17,181 shares of Common Stock to the
          holder.
     (6)  In November 1997, warrants to purchase an aggregate of 55,269 shares
          of Common Stock were exercised for total proceeds of $169,947.  In
          addition, warrants to purchase an aggregate of 683,977 shares of
          Common Stock (or Preferred Stock subsequently converted into Common
          Stock) were issued on a net exercise basis, resulting in the issuance
          of 421,763 shares of Common Stock to the holders of such warrants.
     (7)  In September 1997, the Company issued and sold to 31 investors shares
          of Series E Preferred Stock for an aggregate purchase price of
          $14,065,258.  All of such shares of Series E Preferred Stock were
          converted into an aggregate of 1,562,806 shares of Common Stock

     There were no underwritten offerings employed in connection with any of the
foregoing transactions.

     The issuance described in (1) was or will be exempt from registration under
Section 2(3) of the Securities Act on the basis that such transaction did not
involve a "sale" of securities.  The issuances described in (3) through (7) were
deemed to be exempt from registration under the Securities Act in reliance upon
Section 4(2) thereof as transactions by an issuer not involving any public
offering.  The issuances described in (2) were deemed to be exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to written
compensatory benefit plans or pursuant to a written contract relating to
compensation, as provided by Rule 701.  In addition, such issuances were deemed
to be exempt from registration under Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering.  The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends where affixed to the
securities issued in such transactions.  All recipients had adequate access,
through their relationships with the Company, to information about the Company.

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 for the account of the Company. 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. The Company has used $6.4 million of the net proceeds of the
offering for a payment to AOL under the Company's agreement with AOL. The
remaining $18.2 million has been invested in short-term, investment grade,
interest bearing securities. The Company intends to use such remaining proceeds
for capital expenditures, including the acquisition of redundant computer and
communications systems, for payment of its obligations to AOL and Excite
pursuant to its agreements with AOL and Excite, and for general corporate
purposes, including working capital to fund anticipated operating losses.

                                      -18-
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data for the four years ended
December 31, 1997, have been derived from the Company's consolidated financial
statements which have been audited by Coopers & Lybrand L.L.P., independent
public accountants. The following selected consolidated financial data for the
year ended  December 31, 1993 have been derived from the audited consolidated
financial statements of the Company.  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.

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                   ------------------------------------------------------
                                                       1993      1994       1995       1996        1997
                                                     --------  ---------  ---------  ---------  ----------
Consolidated Statement of Operations Data:                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                  <C>       <C>        <C>        <C>        <C>
Revenues:
  Online...........................................  $  --     $  --       $   579    $ 2,573    $  6,010
  Television.......................................   12,309      9,598      9,564      9,801       7,634
                                                     -------    -------    -------    -------    --------
       Total revenues..............................   12,309      9,598     10,143     12,374      13,644

Cost of revenues:
  Online...........................................       --         --      1,078      2,308       3,648
  Television.......................................    9,972      9,103      8,393      7,000       5,751
                                                     -------    -------    -------    -------    --------
       Total cost of revenues......................    9,972      9,103      9,471      9,308       9,399
                                                     -------    -------    -------    -------    --------
Gross profit.......................................    2,337        495        672      3,066       4,245
                                                     =======    =======    =======    =======    ========

Operating expenses:
  Marketing and sales..............................       --      2,759      2,687      4,373       8,668
  Research and development.........................       --         --        626      1,314       1,825
  General and administrative.......................       --      1,162      2,026      2,880       4,184
  Loss on canceled programming (1).................       --      2,166         --         --          --
                                                     -------    -------    -------    -------    --------
       Total operating expenses (2)................    2,617      6,087      5,339      8,567      14,677
                                                     -------    -------    -------    -------    --------
Loss from operations...............................     (280)    (5,592)    (4,667)    (5,501)    (10,432)
                                                     -------    -------    -------    -------    --------
Interest income (expense) (2)......................       --       (246)      (264)       (89)        266
                                                     -------    -------    -------    -------    --------
Loss before income taxes...........................     (280)    (5,838)    (4,931)    (5,590)    (10,166)
Income tax benefit (expense).......................      (23)       420         (2)        (2)         (2)
                                                     -------    -------    -------    -------    --------
Net loss...........................................  $  (303)   $(5,418)   $(4,933)   $(5,592)   $(10,168)
                                                     =======    =======    =======    =======    ========

  Basic and diluted loss per share (3).............   $(0.28)    $(4.75)    $(4.02)    $(3.43)     $(3.54)
                                                     =======    =======    =======    =======    ========

Shares used in computation of net loss
per share calculation..............................    1,076      1,140      1,228      1,631       2,869
                                                     =======    =======    =======    =======    ========

SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
  Gross bookings (4)...............................  $  --     $  --       $ 2,043    $20,263    $ 80,389
                                                     =======   ========    =======    =======    ========
</TABLE>

                                      -19-
<PAGE>

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                   ------------------------------------------------------------------------------
                                                          1993            1994            1995           1996           1997
                                                     --------------  ---------------  -------------  -------------  -------------
CONSOLIDATED BALANCE SHEET DATA:                                                    (IN THOUSANDS)
<S>                                                  <C>             <C>              <C>            <C>            <C>
     Cash and cash equivalents.....................         $   765         $   138          $1,064        $ 6,016        $27,912
     Total assets..................................          13,011           8,593           9,066         12,554         42,785
     Long-term obligations (5).....................           6,197           6,164           4,993          4,656          2,496
     Total shareholders' equity....................           4,336          (1,027)          1,249          4,411         35,365
</TABLE>
__________
(1)  Effective September 30, 1994, the Company canceled all further development
     of environmental-related programming, primarily IMPACT Environmental
     Reports, a series of daily 90-second environmental news inserts licensed to
     local broadcast television stations.
(2)  Prior to 1994, the Company did not classify operating expenses, interest
     income or interest expense. As a result, only total operating expenses
     (including interest income and interest expense) are presented for 1993.
(3)  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.
(4)  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 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."
(5)  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.

                                      -20-
<PAGE>

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. Since its inception in 1985, the Company
has operated as a producer of travel-related programming for broadcast
television stations and cable networks around the world. In 1994, the Company
began offering travel services by developing television programs
("infomercials") designed to generate interest in vacation packages offered by
the Company. The Company sold these vacation packages directly to consumers by
telephone. At the time, the commercial online services industry was beginning to
develop as a new medium to entertain, inform and transact with consumers. In
response to strong interest in travel from its television audience and in
recognition of new opportunities presented by the online market, the Company
adopted a new business model to address this demand in a more cost-effective
manner. Consequently, the Company shifted its business focus and resources from
infomercials to online travel services. The Company launched its online service
on 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.

     Overview of Television Operations. From inception through 1994, the Company
derived all of its revenues from its television operations. In 1995, 1996 and
1997, the Company's television operations accounted for approximately 94%, 79%
and 56% of the Company's total revenues, respectively. Television revenues are
derived primarily from fees associated with the licensing of travel-related news
and entertainment programming and sales of advertising time. Program license
revenues are 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 are recognized when all the terms of the
advertising agreement are met, and advertising is shown on various media as
designated by the agreement.

     The Company produces travel-related news inserts and news and entertainment
programs that are syndicated in exchange for either cash or commercial
advertising time. The Company also syndicates third party news inserts. The
local commercial advertising time earned for providing these programs is
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 purchases commercial advertising time for resale in selected
markets. In addition, the Company produces in-flight programs for several
airlines, primarily Northwest Airlines. In 1996, the Company discontinued its
practice of exchanging commercial advertising time on its news and entertainment
programming for travel services such as airline tickets, hotel rooms and car
rentals ("travel inventory"). During the year ended December 31, 1996, the
Company significantly reduced its travel inventory and wrote off the remaining
balance of unused travel inventory.

     In 1995 and 1996, advertising revenue from MCI comprised 49% and 58%,
respectively, of the Company's total television revenues. Commencing in the
first quarter of 1997, MCI began to phase out its sponsorship of the Company's
television programming, which phase-out was completed in the quarter ended
September 30, 1997. MCI continues to advertise in the Company's in flight
programming. Revenues attributable to MCI comprised 30% and 10% of the Company's
total television revenues for the year and the quarter, respectively, ended
December 31,

                                      -21-
<PAGE>

1997. However, because the Company does not expect to receive any additional
revenues from MCI for television sponsorships, the Company expects revenues
attributable to MCI to decrease significantly from historical periods.

     Although the Company's television operations have had positive cash flow
from television operations in the past, the Company experienced negative cash
flow from television operations in 1997 and expects to experience negative cash
flow from television operations for the foreseeable future. As a result of the
amortization of the Company's film library as well as depreciation and other
factors, the Company's television operations incurred a net operating loss in
1997, and the Company anticipates that its television operations will continue
to incur net operating losses for the foreseeable future. As a result of these
losses and the Company's anticipated increase in operating expenses primarily
for its online operations, the Company believes that its future success depends
on its ability to maintain its current level of television revenues and to
significantly increase revenues from its online operations, for which it has a
limited operating history.  See "Risk Factors that May Affect Future Results--
Limited Operating History of Online Business; History of Net Operating Losses;
Accumulated Deficit" and "--Risks Associated with Television Operations."

     Overview of Online Operations. The Company's online 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 and, to a much lesser extent, the
sale of advertisements on the Company's online sites. In addition, certain
travel suppliers pay performance-based compensation known as "override
commissions" to travel agencies. 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'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 $26.4 million in the fourth quarter of
1997, which resulted in online revenues of approximately $424,000 and $1.8
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 and 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
10% to approximately 5% (excluding overrides). In March 1998, one large domestic
airline announced that it was further reducing online commissions for domestic
tickets. Travel suppliers can further reduce current industry commission rates
or eliminate such commissions entirely, which would likely have a material
adverse effect on the Company's revenues and operating results. See "Risk
Factors that May Affect Future Results--Reliance on Travel Suppliers; Potential
Adverse Changes in Commission Payments."

     Travel services sold through AOL accounted for 89%, 77%, 67% and 62% of the
Company's online revenues for the three months ended March 31, 1997, June 30,
1997, September 30, 1997 and December 31, 1997 respectively. Travel services
sold through Excite accounted for 8%, 13% and 15% of the Company's online
revenues for the three months ended June 30, 1997, September 30, 1997 and
December 31, 1997, respectively.  The Company's arrangements with AOL and Excite
are expected to continue to represent significant distribution channels for the
Company's travel services, and any termination of either or both of the
Company's agreements with AOL and 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 new agreements with AOL and Excite require minimum aggregate payments
of approximately $56 million over the next five years 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 agreements. Failure to do either of the foregoing
would likely have a material adverse effect on the Company's business,

                                      -22-
<PAGE>

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."

     Gross Margins. Gross margins may be impacted by a number of different
factors, including the mix of television revenues versus online revenues, the
mix of online commission revenues versus online 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 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. 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, 1997, had an accumulated deficit of $25.8 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. 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 shareholders'
equity. In particular, the Company's operating expenses are expected to increase
substantially in 1998 as compared to 1997, primarily due to commencement of the
Company's payment obligations to AOL, Excite, Lycos, Fodor's and promotional 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 shareholders' 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:

                                      -23-
<PAGE>

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                         ----------------------------------------------
                                                              1995            1996            1997
                                                         --------------  --------------  --------------
<S>                                                      <C>             <C>             <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
  Online...............................................            5.7%           20.8%           44.0%
  Television...........................................           94.3            79.2            56.0
                                                                ------          ------          ------
     Total Revenues....................................          100.0           100.0           100.0

Cost of Revenues:
  Online...............................................           10.6            18.7            26.7
  Television...........................................           82.8            56.6            42.2
                                                                ------          ------          ------
     Total Cost of Revenues............................           93.4            75.3            68.9
                                                                ------          ------          ------
Gross Profit...........................................            6.6            24.7            31.1

Operating Expenses:
  Marketing and Sales..................................           26.4            35.3            63.5
  Research and Development.............................            6.2            10.6            13.4
  General and Administrative...........................           20.0            23.3            30.7
                                                                ------          ------          ------
     Total Operating Expenses..........................           52.6            69.2           107.6
Loss from Operations...................................          (46.0)          (44.5)          (76.5)
                                                                ------          ------          ------
Interest income (expense), net.........................           (2.6)           (0.7)            2.0
                                                                ------          ------          ------
Loss before Income taxes...............................          (48.6)          (45.2)          (74.5)
Income tax.............................................             --              --              --
                                                                ------          ------          ------
Net Loss...............................................         (48.6)%         (45.2)%         (74.5)%
                                                                ======          ======          ======

AS A PERCENTAGE OF RELATED REVENUES:
Cost of Online Revenues................................          186.2%           89.7%           60.7%
Cost of Television Revenues............................           87.8%           71.4%           75.3%
</TABLE>

COMPARISON OF YEARS ENDED DECEMBER  31, 1995, 1996 AND 1997

Revenues

     Online Revenues. In 1995, online 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 online revenues for the year. Online revenues
increased from $579,000 in 1995 to $2.6 million in 1996 due to the introduction
of online airline reservations. In 1996, the Company's online gross bookings
were $20.3 million. In 1997, online revenues increased from $2.6 million in 1996
to $6.0 million with online gross bookings of $80.4 million.

     Television Revenues. From 1995 to 1996 television revenues increased 3% to
$9.8 million.  In 1997, revenues decreased 22% to $7.6 million due to the loss
of a major advertiser lower international revenue and price reductions for
programs licensed to cable networks. As a result of the foregoing factors, the
Company expects television revenues to continue to decline in 1998 relative to
1997. Advertising revenues constitute a majority of the Company's television
revenues and comprised 75%, 73%, and 63% of television revenues in 1995, 1996
and 1997, respectively.

Cost of Revenues

     Cost of Online Revenues. Cost of online revenues increased from $1.1
million in 1995 to $2.3 million in 1996, due to the increased volume of
transactions in 1996. As a percentage of online revenues, cost of online
revenues fell from 186% in 1995 to 90% in 1996, due to start-up costs incurred
in 1995 and efficiencies associated

                                      -24-
<PAGE>

with the increased transaction volume in 1996. In 1997, cost of online revenues
increased to $3.6 million and 61% of online revenues. The reduction in 1997, as
a percentage of cost of revenue, is a continuation of efficiencies with
increased transactions and allocation of fixed costs over a larger revenue base.

     Cost of Television Revenues. Cost of television revenues decreased from
$8.4 million in 1995 to $7.0 million in 1996. In 1997, television revenues
decreased from $7.0 million in 1996 to $5.8 million in 1997.  As a percentage of
television revenues, cost of television revenues fell from 88% in 1995 to 71% in
1996, and increased to 75% in 1997. From 1995 to 1996, the decrease in the cost
of television revenues was a result of lower film library amortization in 1996
and decreased purchases of media advertisement time in 1995. Film library
amortization was $1.7 million, $1.5 million and $1.3 million in 1995, 1996 and
1997, respectively. The increase in the cost of revenue in 1997 as a percentage
of revenue was due to fixed personnel cost being covered by lower revenues.

Operating Expenses

     Marketing and Sales. Marketing and sales expenses increased 63% from $2.7
million to $4.4 million in 1996. In 1997 the increase was 98% to $8.7 million.
As a percentage of total revenues, marketing and sales expenses rose from 26% in
1995 to 35% in 1996, and rose to 64% in 1997. The increase in marketing and
sales expenses from 1995 to 1997 was attributable primarily to expenses
associated with the Company's online operations, including the hiring of
additional personnel for development of online content and expenditures related
to the Company's strategic agreements with AOL and Excite. The Company intends
to pursue an aggressive branding and marketing campaign, including significant
advertising expenditures. In addition, the Company is obligated to make
minimum payments totalling $56 million to AOL and Excite over the next five
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 110%
from $626,000 in 1995 to $1.3 million in 1996. In 1997, expenses increased 39%
to $1.8 million.  As a percentage of total revenues, research and development
expenses rose from 6% in 1995 to 11% in 1996, and 13% in 1997. The increases in
1996 and 1997 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
42% from $2.0 million in 1995 to $2.9 million in 1996, and increased 45% from
$2.9 million in 1996 to $4.2 million in 1997. As a percentage of total revenues,
general and administrative expenses rose from 20% in 1995 to 23% in 1996 to 31%
in 1997. The increases in general and administrative expenses in 1996 and 1997
were due primarily to increased salaries and expenses associated with the hiring
of personnel related to the Company's online operations. 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 and being a public company.

     Deferred Compensation. The Company grants stock options to hire and
retain employees. With respect to the grant of certain stock options to
employees in 1997, 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 currently expects to
record amortization of deferred compensation for options granted of
approximately $62,000, $143,000, $143,000, $143,000 and $80,000 for 1997,
1998, 1999, 2000 and 2001, respectively. The amortization of deferred
compensation will be recorded as operating expenses in such periods.

Interest Income (Expense)

     Interest expense, net of interest income, was approximately $264,000 and
$89,000 in 1995 and 1996 respectively. The decrease in net interest expense
from 1995 to 1996 was attributable to a reduction in borrowings under the
Company's line of credit and interest income earned on higher cash balances in
1996, primarily from an equity financing completed in June 1996. For 1997,
interest income, net of expense, was approximately $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.

VARIABILITY OF RESULTS

     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 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

                                      -25-
<PAGE>

Company anticipates that travel bookings will typically increase during the
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. In addition, advertising sales in traditional media, such as broadcast
and cable television, generally decline in the first and third quarters of each
year. 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 of its
common stock, resulting in net proceeds to the Company of approximately $24.6
million. Previously, the Company has 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. As of
December 31, 1997, the Company also had a $2.0 million line of credit, of which
approximately $1.0 million was available at December 31, 1997, based on 80% of
the Company's accounts receivable.

     Cash used in operating activities in 1995 of $2.3 million was attributable
primarily to a net loss of $4.9 million and a decrease in accounts payable and
accrued liabilities, partly offset by decreases in accounts receivable, travel
inventory and other assets and deferred revenues associated with normal
operating activities, as well as depreciation of $671,000 and amortization of
film library of $1.7 million. For 1996, cash used in operating activities of
$1.3 million was primarily attributable to a net loss of $5.6 million and
increases in accounts receivable associated with increased revenue, partly
offset by an increase in accounts payable and accrued liabilities associated
with expansion of the Company's business and decreases in other assets and
travel inventory as the Company terminated acquisition of travel inventory, as
well as depreciation of $828,000 and amortization of film library of $1.5
million. Net cash used by operating activities in 1997 was attributable
primarily to a net loss of $10.2 million, increases in accounts receivables and
other assets and a decrease in accounts payable, partly offset by depreciation
of $1.0 million and film library amortization of $1.3 million.

     Cash used in investing activities was $1.9 million in 1995, $977,000 in
1996 and $3.4 million in 1997. Cash used in investing activities in all periods
was primarily for acquisition of equipment and additions to the film library.

     In 1995, cash provided by financing activities of $5.1 million consisted
primarily of proceeds from the issuance of preferred stock, warrants and
equipment financing notes, as well as proceeds from the exercise of stock
options, partly offset by repayment of long-term debt and payments under capital
leases. 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 $38.9
million consisted primarily of proceeds from the issuance of common stock
through an IPO and preferred stock, partly offset by repayment of an equipment
lease line and payment of obligations under capital leases.

     As of December 31, 1997, the Company had $28.7 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 and Fodor's and lease obligations. See Note 7 of Notes to Consolidated
Financial

                                      -26-
<PAGE>

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. The Company may
establish additional operations as it expands globally. In addition, pursuant to
its arrangement with AOL, 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. Pursuant to its arrangement with
Excite, the Company is obligated to make minimum payments totaling $24 million
to Excite, as well as 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 and Excite, sponsored primarily by advertising
revenues, of which the Company will be entitled to receive a share. However,
there can be no assurance that the Company will receive significant revenues, if
any, from such payments.

     The Company believes that its current cash and cash equivalents, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least twelve months. If cash generated from operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
seek to sell additional equity or debt securities or to obtain additional credit
facilities. The sale of additional equity or convertible debt securities could
result in additional dilution to the Company's shareholders. 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."

RECENTLY ISSUED ACCOUNTING STANDARDS

     In February 1997, SFAS No. 128, "Earnings Per Share," was issued and is
effective for the Company's year ending December 31, 1997. As a result, the
Company's earnings per share ("EPS") data for prior periods have been restated
in the accompanying financial statements to conform with SFAS No. 128. In March
1997, SFAS No. 129, "Disclosure of Information About Capital Structure," was
issued and is effective for the Company's year ending December 31, 1998. In June
1997, the FASB issued SFAS No. 130, " Comprehensive Income," and SFAS No. 131,
"Disclosures About Segments of an Enterprise". The company is required to adopt
these statements effective for 1998. The Company has not completed the process
of evaluating the impact that will result from adopting SFAS No. 130 or 131.

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 $4.9 million,
$5.6 million and $10.2 million in 1995, 1996 and 1997, respectively. As of
December 31, 1997, the Company had an accumulated deficit of approximately $25.8
million. The Company's television programming operations, which represented 56%
of its revenues for 1997, have incurred net operating losses in each of the last
three years, and the Company anticipates that its television programming
operations will continue to incur net operating losses for the foreseeable
future. As a result, 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 online operations in 1994, first recognized revenues from
its online 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
generate sufficient sales volume to achieve profitability and effectively
maintain existing relationships and develop new relationships with travel
suppliers, strategic partners and

                                      -27-
<PAGE>

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 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 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 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. In addition,
advertising sales in traditional media, such as broadcast and cable television,
generally decline in the first and third quarters of each year. 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 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 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 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 television revenues versus online revenues, the mix of online
commission revenues versus online 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

                                      -28-
<PAGE>

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 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, increase 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, including its relationships
with AOL, Excite, Lycos and Fodor's designed to accomplish these objectives,
there can be no assurance that the Company will be able to increase the dollar
volume of transactions booked through its online sites, increase traffic to its
online sites, increase the percentage of visitors who purchase travel services,
increase the number of repeat purchasers or increase 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 or financial
condition.

     Reliance on Distribution Agreements with America Online, Excite and Lycos.
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, both AOL and Excite are
obligated to promote the Company and to deliver minimum numbers of annual page
views 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

                                      -29-
<PAGE>

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 next five years, the Company is obligated to make
minimum payments totaling $56 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, neither the AOL agreement nor the
Excite agreement provides the Company with renewal rights upon expiration of
their respective five-year 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 entered into 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 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. Any decline in the
significant market presence, business or reputation of AOL or Excite, or the
failure of either or both of AOL and 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 AOL accounted for 89%, 77%, 67% and 62%
of the Company's online revenues for the three months ended March 31, 1997, June
30, 1997, September 30, 1997, and December 31, 1997, respectively. Travel
services sold through Excite accounted for 8%, 13% and 15% of the Company's
online revenues for the three months ended June 30, 1997, September 30, 1997 and
December 31, 1997, respectively. The Company's arrangements with AOL and Excite
are expected to continue to represent significant distribution channels for the
Company's travel services, and any termination of either or both of the
Company's agreements with AOL and Excite would likely have a material adverse
effect on the Company's business, operating results and financial condition.

     In March 1998, the Company entered into an agreement with Lycos, under
which Preview Travel will be the exclusive multiservice provider of travel
reservation services for Lycos' Travel Web Guide and Travel Network.  In
addition, Preview Travel and Lycos will create a co-branded Web site that will
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. The Lycos arrangement is expected to
represent a significant distribution channel for the Company's travel services,
and any termination of the

                                      -30-
<PAGE>

Company's agreement with Lycos would likely have a material adverse affect on
the Company's business, operating results and financial condition.

     Except for its arrangements with AOL, Excite and Lycos, the Company has no
other 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, Excite or Lycos, 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's ability to achieve such specified
annual levels of travel services bookings will require the Company to
significantly increase such bookings from current levels, 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.

     In addition, a substantial majority of the Company's online 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. Accordingly, travel suppliers can reduce current industry commission rates
or eliminate such commissions entirely, which would likely 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 the
first nine months of 1997, the major U.S. airlines reduced the commission rate
from 10% to 5% and maximum per-ticket commissions payable for online
reservations, which had a material adverse affect on the Company's results of
operations for the three months ended June 30, 1997, September 30, 1997 and
December 31, 1997. In September 1997, the major U.S. airlines reduced the
commission rate payable to traditional travel agencies from 10% to 8%. There can
be no assurance that airlines or other of the Company's travel suppliers will
not further reduce the amount of commissions payable to the Company.  In March
1998, one large domestic airline announced that it was further reducing online
commissions for domestic tickets. There can be no assurance that other carriers
will not also reduce their online commissions accordingly.

                                      -31-
<PAGE>

     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 AOL's ANS Communications subsidiary (which AOL has agreed to sell to
WorldCom, Inc.), which provide AOL customers with access to the Company's online
services; GeoNet Communications, which provides the Company with a T3 data
communication line for Internet access; Pegasus, which provides the Company with
access to a global hotel reservation system and which operates an online travel
service competitive with the Company; and Galileo, which provides the Company
with access 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, ANS Communications, GeoNet 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. 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, and its agreements with ANS Communications and
GeoNet Communications are currently on a month-to-month basis. 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.

     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) and Internet Travel
Network, 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.

                                      -32-
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     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. Many airlines and hotels offer travel services directly
through their own Web sites, 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.

     In the television and in-flight programming markets, the Company's News
Travel Network division competes for airtime for its programs with news and
entertainment programming produced by local stations, broadcast and cable
networks, infomercial producers and third party syndicators. NTN competes for
national advertising sales with networks, national advertising firms and
syndicators.

     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 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, 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 and 1997,
approximately 58% and 36%, respectively, of the Company's total revenues were
derived from the sale of advertising in connection with its television
programming and, to a much lesser extent, 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 television programs 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. In particular, to support its television operations, which are
substantially dependent

                                      -33-
<PAGE>

on advertising revenues that historically have been derived from a very limited
customer base, the Company must overcome significant competition from national
syndicators and broadcast stations and cable networks to obtain advertising
commitments. 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. 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.

     Although none of the Company's employees is represented by a labor union,
it is common for employees in the television industry to belong to a union, and
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

                                      -34-
<PAGE>

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 and does 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 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.

     Risks Associated with Television Operations. The Company's ability to
generate revenues from its television operations, as well as its ability to use
its television and in-flight programming to promote and enhance its online
services and brand recognition, depends upon its ability to reflect in its
programming the changing tastes of consumers, news directors and program
directors, and to secure and maintain distribution for its television and in-
flight programming on acceptable commercial terms through local stations,
domestic and international cable and broadcast networks and airlines. These
syndication agreements typically have durations of one year or less, and there
can be no assurance that such stations, networks and airlines will continue to
renew syndication agreements for the Company's programs. In addition, the
Company's ability to cost effectively update and expand its film library is
essential to its ability to continue to offer compelling content.

     Although the Company maintains a back-up of its film library in offsite
storage, both the film library and the back-up library are vulnerable to damage
from fire, flood, break-ins, earthquake and similar events. Loss of access to
the Company's film library for an extended period of time could have a material
adverse effect on the Company's business, operating results and financial
condition.

     Although the Company's television operations have had positive cash flow
from operations in the past, the Company has experienced negative cash flow from
television operations in 1997 and expects to experience negative cash flow from
television operations for the foreseeable future. The Company must generate
substantial revenues from sales of its television programs, and, in particular,
advertising sales for such programs, in order to offset the significant fixed
costs associated with its television operations. The Company historically has
derived advertising revenues from a limited customer base. In particular, a
single customer, MCI Telecommunications Corporation ("MCI"), accounted for 49%
and 58% of the Company's television advertising revenues in 1995 and 1996,
respectively. Commencing in the first quarter of 1997, MCI began to phase out
its sponsorship of the Company's television programming, which phase-out was
completed in the quarter ended September 30, 1997. MCI continues

                                      -35-
<PAGE>

to advertise in the Company's in flight programming. Revenues attributable to
MCI comprised 30% and 10% of the Company's total television revenues for the
year and the quarter, respectively, ended December 31, 1997. However, because
the Company does not expect to receive any additional revenues from MCI for
television sponsorships, the Company expects revenues attributable to MCI to
decrease significantly from historical periods. In addition, the Company faces
significant competition from national syndicators and broadcast and cable
networks in its efforts to replace MCI's sponsorship, expand its customer base
and obtain sufficient levels of advertising sales to achieve profitability in
its television operations. In certain market conditions, the Company could be
required to substantially lower its advertising rates in order to sell its
available inventory of television time and Web advertising space. There can be
no assurance that the Company will generate sufficient revenues from the
licensing of its television programs and sale of advertising to achieve
profitability, and the failure to do so 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 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 in November 1997 to fund its operating losses. In
the last two 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 the Company's initial public offering, together with
its existing capital

                                      -36-
<PAGE>

resources, will be sufficient to meet the Company's capital requirements through
at least the year 1998. Thereafter, the Company may be required to raise
additional funds, in part to fund its financial obligations to AOL and Excite.
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, travel
financing services and travel-related merchandise. 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 and Television Content. As a publisher and
distributor of online and television 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 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 strategically license certain content for its
online sites from third parties, 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

                                      -37-
<PAGE>

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 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 key component of the
Company's strategy is to expand its operations into international markets. The
Company anticipates that it will expend significant financial and management
resources to establish local 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

                                      -38-
<PAGE>

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. Although no such acquisitions are currently being negotiated, 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.

     Lack of Prior Market and Possible Volatility of Stock Price. 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.

     Antitakeover Effect of Certain Charter Provisions. 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.

     Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market or the anticipation of such sales could have a
material adverse effect on then-prevailing market prices. All of the 2,500,000
shares sold in the Company's initial public offering in November 1997, as well
as approximately 119,500 additional shares are currently eligible to be resold
immediately in the public market. Beginning in May 1998, 180 days after the
completion date of the Company's initial public offering, upon expiration of
pre-existing lock-up agreements and lock-up agreements between the
representatives of the underwriters in the initial public offering and officers,
directors and certain stockholders of the Company, substantially all of the
unregistered shares of the Company's Common Stock will be eligible for resale
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), subject in some cases to compliance with the volume
limitations and other restrictions under Rule 144 and, under certain
circumstances, Rule 701 under the Securities Act.  Any early release of the
lock-up agreement by the Underwriters, which, if granted, could permit sales of
a substantial number of shares and could adversely affect the trading price of
the Company's shares, may not be accompanied by an advance public

                                      -39-
<PAGE>

announcement by the Company. In addition, certain holders of Common Stock have
the right to include their shares in any future registration of securities
effected by the Company and to require the Company to register their shares for
future sale, subject to certain exceptions.

     Year 2000 Compliance.  The Company believes that its internal computer
systems are Year 2000 compliant and does not anticipate that it will incur
significant expenditures to ensure that such systems will function properly with
respect to dates in the Year 2000 and beyond.  The Company is in the early
stages of conducting an audit of its significant suppliers and other third
parties to ensure that those parties have appropriate plans to remediate Year
2000 issues where their systems interface with the Company's systems or
otherwise impact its operations.  There can be no assurance that a failure of
systems of third parties on which the Company's systems and operations rely to
be Year 2000 compliant will not have a material adverse affect on the Company's
business, financial condition or operating results.

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.

                                      -40-
<PAGE>

                                    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

          None

     (d)  Exhibits
<TABLE>
<CAPTION>
Exhibit
Number  Description
------  -----------
<S>     <C>
2.1*    Form of Agreement and Plan of Merger between the Company and Preview
         Travel, Inc., a Delaware corporation.
3.1*    Certificate of Incorporation of the Company.
3.2*    Form of Bylaws of the Company.
3.3*    Form of Amended and Restated Certificate of Incorporation of the Company.
4.1*    Form of the Company's Common Stock Certificate.
10.1*   Form of Indemnification Agreement.
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.
</TABLE>

                                      -41-
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>
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.
10.17++ Restated and Amended Excite Agreement, dated as of March 12, 1998,
        between the Company and Excite, Inc.
21.1*   Subsidiaries of the Company.
23.1    Consent of Independent Accountants.
24.1    Power of Attorney (see page 44).
27.1    Financial Data Schedule.
__________
</TABLE>

*  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.
++ Confidential treatment requested.

                                      -42-
<PAGE>

                                   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/ KENNETH J. ORTON
                                 --------------------
                                 Kenneth J. Orton
                                 President, Chief Executive Officer
                                 and Director

Date:  March 30, 1998

                                      -43-
<PAGE>

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kenneth J. Orton and Kenneth R. Pelowski,
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.

<TABLE>
<CAPTION>
            Signature                                       Title                                    Date
---------------------------------  -------------------------------------------------------  -----------------------
<S>                                <C>                                                      <C>

/s/ KENNETH J. ORTON               President, Chief Executive Officer and Director              March  30, 1998
---------------------------------
  (Kenneth J. Orton)

/s/ KENNETH R. PELOWSKI            Executive Vice President, Finance and Administration,        March  30, 1998
---------------------------------  and Chief Financial Officer (Principal Financial
  (Kenneth R. Pelowski)            Officer)

/s/ BRUCE CARMEDELLE               Vice President and Corporate Controller (Principal           March  30, 1998
---------------------------------  Accounting Officer)
 (Bruce Carmedelle)

/s/ JAMES J. HORNTHAL              Chairman and Director                                        March  30, 1998
---------------------------------
  (James J. Hornthal)

/s/ THOMAS W. CARDY                Director                                                     March  30, 1998
---------------------------------
  (Thomas W. Cardy)

/s/ THOMAS A. CULLEN               Director                                                     March  30, 1998
---------------------------------
  (Thomas A. Cullen)

/s/ WILLIAM R. HEARST, III         Director                                                     March  30, 1998
---------------------------------
  (William R. Hearst, III)

/s/ DOUGLAS J. MACKENZIE           Director                                                     March  30, 1998
---------------------------------
  (Douglas J. Mackenzie)

/s/ DAVID S. POTTRUCK              Director                                                     March  30, 1998
---------------------------------
  (David S. Pottruck)

/s/ JAMES E. NOYES                 Director                                                     March  30, 1998
---------------------------------
  (James E. Noyes)

/s/ THEODORE J. LEONSIS            Director                                                     March  30, 1998
---------------------------------
  (Theodore J. Leonsis)
</TABLE>

                                      -44-
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                <C>
Report of Independent Accountants................  F-2
Consolidated Balance Sheets......................  F-3
Consolidated Statements of Operations............  F-4
Consolidated Statements of Shareholders' Equity..  F-5
Consolidated Statements of Cash Flows............  F-6
Notes to Consolidated Financial Statements.......  F-7
</TABLE>

                                      F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Preview Travel, Inc.:

     We have audited the accompanying consolidated balance sheets of Preview
Travel, Inc. and Subsidiaries (the Company) as of December 31, 1996 and 1997
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Preview Travel, Inc. and Subsidiaries as of December 31, 1996 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.

                                    /s/ COOPERS & LYBRAND L.L.P.

San Francisco, California
January 28, 1998

                                      F-2
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                             ----------------------------
                                                                                 1996           1997
                                                                             -------------  -------------
<S>                                                                          <C>            <C>
ASSETS

Cash and cash equivalents..................................................      $  6,016       $ 27,912
Marketable securities......................................................            --            750
Accounts receivable, net of allowance for doubtful accounts of $25 and
 $40, respectively.........................................................         1,259          1,990
Other assets...............................................................           212          6,087
                                                                                 --------       --------
          Total current assets.............................................         7,487         36,739

Film library, net of accumulated amortization of $4,823 and $3,428,
 respectively..............................................................         2,967          2,402

Property and equipment, net of accumulated depreciation of $2,095
 and $2,039, respectively..................................................         2,100          3,644
                                                                                 --------       --------
          Total assets.....................................................      $ 12,554       $ 42,785
                                                                                 ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable...........................................................      $    938       $  2,189
Accrued liabilities........................................................         1,951          2,480
Deferred revenues..........................................................           598            255
Convertible notes payable..................................................           750             --
Current portion of notes payable and line of credit........................         2,136             --
Current portion of capital lease obligations...............................           722            882
                                                                                 --------       --------
                     Total current liabilities.............................         7,095          5,806
Capital lease obligations, less current portion............................           776          1,614
Notes payable, long term...................................................           272             --
                                                                                 --------       --------
                     Total liabilities.....................................         8,143          7,420
                                                                                 --------       --------
Commitments (Notes 7 and 16)
Shareholders' equity:
  Preferred Stock:  1996; $0.001 par value: 6,134,563 shares authorized,
     4,322,666 shares issued and outstanding, 1997; 5,000,000 shares
     authorized, no shares issued and outstanding..........................             5             --
  Common Stock, $0.001 par value:
     Authorized: 10,000,000 shares in 1996, and 50,000,000 in
     1997. Issued and outstanding:  1,701,731 shares in 1996,
     and 11,337,205 shares in 1997.........................................             2             11
Additional paid-in capital.................................................        19,796         61,676
Other shareholders' equity.................................................           223           (539)
Accumulated deficit........................................................       (15,615)       (25,783)
                                                                                 --------       --------
          Total shareholders' equity.......................................         4,411         35,365
                                                                                 --------       --------
          Total liabilities and shareholders' equity.......................      $ 12,554       $ 42,785
                                                                                 ========       ========
</TABLE>

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

                                      F-3
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                    (in thousands, except per share amounts)



<TABLE>
<CAPTION>
                                                                      FOR THE YEARS ENDED DECEMBER 31,
                                                         ----------------------------------------------------------
                                                                1995                1996                1997
                                                         ------------------  ------------------  ------------------
<S>                                                      <C>                 <C>                 <C>
Revenues:
  Online...............................................            $   579             $ 2,573            $  6,010
  Television...........................................              9,564               9,801               7,634
                                                                   -------             -------            --------
         Total revenues................................             10,143              12,374              13,644
Costs of revenues:
  Online...............................................              1,078               2,308               3,648
  Television...........................................              8,393               7,000               5,751
                                                                   -------             -------            --------
     Total cost of revenues............................              9,471               9,308               9,399

          Gross profit.................................                672               3,066               4,245
Operating expenses:
  Marketing and sales..................................              2,687               4,373               8,668
  Research and development.............................                626               1,314               1,825
  General and administrative...........................              2,026               2,880               4,184
                                                                   -------             -------            --------
Total operating expenses...............................              5,339               8,567              14,677

  Loss from operations.................................             (4,667)             (5,501)            (10,432)
Interest income (expense), net.........................               (264)                (89)                266
                                                                   -------             -------            --------
  Loss before income taxes.............................             (4,931)             (5,590)            (10,166)
Income tax expense.....................................                 (2)                 (2)                 (2)
                                                                   -------             -------            --------
Net loss...............................................            $(4,933)            $(5,592)           $(10,168)
                                                                   =======             =======            ========

Basic and diluted net loss per share...................             $(4.02)             $(3.43)             $(3.54)
                                                                   =======             =======            ========

Weighted average shares outstanding used in per share
 calculation...........................................              1,228               1,631               2,869
                                                                   -------             -------            --------


SUPPLEMENTAL INFORMATION (UNAUDITED) (NOTE 1)
  Gross bookings.......................................            $ 2,043             $20,263            $ 80,389
                                                                   =======             =======            ========
</TABLE>

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

                                      F-4
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                (in thousands)

<TABLE>
<CAPTION>
                                              CONVERTIBLE                                                                TOTAL
                                            PREFERRED STOCK      COMMON STOCK   ADDITIONAL   OTHER                    SHAREHOLDERS'
                                          ------------------    --------------    PAID-IN  SHAREHOLDERS' ACCUMULATED    EQUITY
                                             SHARES   AMOUNT    SHARES  AMOUNT    CAPITAL    EQUITY        DEFICIT    (DEFICIT)
                                          ---------  -------    ------  ------  -----------  -------     -----------  ------------
<S>                                       <C>        <C>        <C>     <C>     <C>          <C>         <C>          <C>
Balance, January 1, 1995                      1,874     $ 2     1,197   $ 1     $ 4,141      $ (81)       $ (5,090)     $ (1,027)
   Issuance of common stock..............                         367               692                                      692
   Repayment of note.....................                                                       77                            77
   Issuance of Series D preferred stock..     1,492       2                       6,158                                    6,160
   Issuance of common stock warrants.....                                                        1                             1
   Issuance of Series D preferred
     stock warrants......................                                                      279                           279
   Net loss..............................                                                                   (4,933)       (4,933)
                                             ------   -----    ------   ---     -------      -----        --------      --------
Balance, December 31, 1995...............     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, 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 - IPO........                       2,500     3      24,616                                   24,619
   Exercise of preferred stock 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
   Unearned compensation in connection
    with issuance of stock options (net
    of amortization of $70)..............                                           570       (500)
   Repayment of notes receivable.........                                                      255                           255
   Issuance of notes receivable..........                                                     (127)                         (127)
   Net loss..............................                                                                  (10,168)      (10,168)
                                             ------   -----    ------   ---     -------      -----        --------      --------
Balance, December 31, 1997...............        --   $  --    11,337   $11     $61,676      $(539)       $(25,783)     $ 35,365
                                             ======   =====    ======   ===     =======      =====        ========      ========
</TABLE>
 The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-5
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (in thousands)

<TABLE>
<CAPTION>
                                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                              ----------------------------------------------
                                                                   1995            1996            1997
                                                              --------------  --------------  --------------
<S>                                                           <C>             <C>             <C>
Cash flows from operating activities:
  Net loss..................................................        $(4,933)        $(5,592)       $(10,168)
  Adjustments to reconcile net  loss to net cash
     used in operating activities:
     Depreciation and amortization..........................            671             828           1,013
     Amortization of film library...........................          1,724           1,527           1,281
     Loss on disposal of property and equipment.............             --             188              --
     Unearned compensation..................................             --              --              70
     Charges related to issuance of warrants................             --             172             130
     Changes in operating assets and liabilities:
       Accounts receivable..................................            486            (330)           (731)
       Travel inventory.....................................            191             602              --
       Other assets.........................................            215             664          (5,875)
       Accounts payable and accrued liabilities.............         (1,090)            886           1,780
       Deferred revenue.....................................            457            (222)           (343)
                                                                    -------         -------        --------
       Net cash used in operating activities................         (2,279)         (1,277)        (12,843)
                                                                    -------         -------        --------
Cash flows from investing activities:
  Acquisition of property and equipment.....................           (841)           (239)           (776)
  Purchase of marketable securities.........................             --              --            (750)
  Additions to film library.................................         (1,072)           (738)           (716)
                                                                    -------         -------        --------
     Net cash used in investing activities..................         (1,913)           (977)         (2,242)
                                                                    -------         -------        --------
Cash flows from financing activities:
  Proceeds from borrowings on long-term debt................          1,318             100           1,350
  Payment of long-term debt.................................         (2,700)           (718)         (3,350)
  Proceeds from equipment note..............................            543              --              --
  Payments on equipment note................................             --            (135)           (408)
  Payments on obligations under capital leases..............           (596)           (623)           (725)
  Proceeds from repayment of shareholder notes..............             77               8             254
  Proceeds from issuance of convertible bridge loans........             --           1,000              --
  Proceeds from issuance of common stock....................             37              11              72
  Proceeds from issuance of common stock - IPO..............             --              --          24,619
  Proceeds from issuance of preferred stock.................          6,160           7,562          14,487
  Proceeds from stock warrant exercises.....................            279               1             682
                                                                    -------         -------        --------
       Net cash provided by financing activities............          5,118           7,206          36,981
                                                                    -------         -------        --------
       Net increase in cash.................................            926           4,952          21,896
Cash and cash equivalents, beginning of year................            138           1,064           6,016
                                                                    -------         -------        --------
Cash and cash equivalents, end of the year..................        $ 1,064         $ 6,016        $ 27,912
                                                                    =======         =======        ========
</TABLE>

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

                                      F-6
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   COMPANY BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     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 travel service on America
Online, Inc. ("AOL") (AOL keyword: previewtravel) and a co-branded travel Web
site with Excite, Inc. ("Excite") (City.Net). Through its News Travel Network,
Inc. ("NTN"), Preview Travel produces entertainment programming for broadcast
and cable television and the in-flight markets.

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.

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.

Principles of Consolidation:

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

Revenue Recognition:

     Online Revenues:

     Commission revenues for air travel, hotel rooms, car rentals and vacation
packages, net of allowances for cancellations, are recognized upon 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.

     Television Revenues:

     Program license revenues are recognized when all of the following
conditions are met: 1) the license period begins, 2) the license fee and the
production costs are known, and 3) the program has been accepted by the licensee
and is available for telecast.

     Advertising Revenues:

     Advertising revenues are recognized when all the terms of the advertising
agreement are met and advertising is shown on various media as designated by the
agreement.

Cash and Cash Equivalents:

     The Company invests certain of its excess cash in debt instruments of the
U.S. Government, its agencies, and high-quality corporate issuers as well as
money market funds. All highly liquid instruments with an original

                                      F-7
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


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 marketable securities.

Marketable Securities:

  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
shareholders' 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.

Film Library and Prepaid Production Costs:

     Direct costs of producing travel programs and travel film are capitalized.
These costs are amortized on the basis of management's estimate of the program's
or film's useful life in generating future revenue. Such estimates are revised
periodically, and adjustments, if any, are recorded. Based on the Company's past
experience and estimates for future projects, such costs are currently being
amortized over a period of  five years. Expenditures relating to custom travel
programs which have a limited useful life are charged to expense in the same
period as revenues are recognized. It is reasonably possible that these
estimates of anticipated gross revenues, remaining economic life, or both, could
be reduced.

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. Any gains or losses on the disposal of property and
equipment are recorded in the year of disposition.

Long-lived Assets:

     The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. No such impairments have
been identified to date. The Company assesses the impairment of long-lived
assets when events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable.

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.

Deferred Revenues:

     Deferred revenues primarily represents prepayments by vendors for
television or online advertising.

Supplemental Information:

                                      F-8
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

     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 ("GAAP"). 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 online
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.

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 primarily of temporary cash investments
(including money market accounts) and accounts receivable. The Company places
its temporary cash investments with two major financial institutions.

     The majority of the Company's customers for travel programs and related
productions are located across the United States and are primarily in travel-
related industries and television broadcast businesses. The Company performs
ongoing credit evaluations of customers and generally does not require
collateral. Allowances are maintained for potential credit losses, and such
losses have been within management's expectations. In 1996 and 1997, revenues
from one customer approximated $5.7 million and $2.3 million, respectively, and
accounted for approximately 46% and 17% of total Company revenues, respectively,
and 33% and 9% of accounts receivable as of December 31, 1996 and 1997,
respectively. The majority of contracts with this customer have subsequently
been terminated.

     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.

Recently Issued Accounting Pronouncements:

     In 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information About Capital Structure," No. 130, "Reporting
Comprehensive Income," and No. 131, "Disclosure About Segments of an Enterprise
and Required Information," (which are effective for the year ending December 31,
1998). The Company has not determined the impact of the implementation of the
pronouncements effective for the year ending December 31, 1998.

2. OTHER ASSETS:

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

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                  --------------------------------------
                                                          1996               1997
                                                    -----------------  -----------------
<S>                                                 <C>                <C>
Prepaid online distribution expense                            $  --              $5,533
Other                                                             212                554
                                                                -----             ------
                                                                $ 212             $6,087
                                                                =====             ======
</TABLE>

                                      F-9
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


3.   PROPERTY AND EQUIPMENT:

     Property and equipment are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                  ---------------------------------------
                                                           1996                1997
                                                    ------------------  ------------------
<S>                                                 <C>                 <C>
Furniture and fixtures............................            $   311             $   661
Production equipment..............................              1,782               2,255
Leasehold improvements............................                275                 497
Computer equipment................................              1,827               2,270
                                                              -------             -------
                                                                4,195               5,683
Less accumulated depreciation and amortization....             (2,095)             (2,039)
                                                              -------             -------
Property and equipment, net.......................            $ 2,100             $ 3,644
                                                              =======             =======
</TABLE>

     Equipment under capital leases included in property and equipment amounted
to $1,264,000 (net of $1,104,000 accumulated amortization) and $2,328,000 (net
of $1,143,000 accumulated amortization) at December 31, 1996 and 1997,
respectively.

4.  ACCRUED LIABILITIES:

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

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                    ------------------------------------
                                                          1996               1997
                                                    -----------------  -----------------
<S>                                                 <C>                <C>
Accrued rent expense                                           $  350             $  394
Accrued employee compensation                                     605              1,024
Accrued sales commissions                                         115                175
Accrued trade payables                                            390                557
Commission revenue share                                          173                 56
Other                                                             318                274
                                                               ------             ------
                                                               $1,951             $2,480
                                                               ======             ======
</TABLE>

5.    INCOME TAXES:

      For the years ended December 31, 1996 and 1997, the provision for income
taxes comprised minimum state tax expense.

     Deferred tax assets (liabilities) as of December 31, 1996 and 1997 comprise
the following (in thousands):

                                      F-10
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                               ----------------------------------------
                                                      1996                 1997
                                               -------------------  -------------------
<S>                                            <C>                  <C>
 Film Library................................             $  (264)            $   (149)
 Property and Equipment......................                  86                  373
 Other.......................................                  55                  105
 Warrants....................................                 179                   27
 Deferred Rent...............................                 140                  157
 Net Operating Loss carryforwards............               5,382               11,502
                                                          -------             --------
                                                            5,578               12,015
 Less valuation allowance....................              (5,578)             (12,015)
                                                          -------             --------
                                                               --                   --
                                                          =======             ========
</TABLE>

     Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets.  The valuation allowance has increased by
$2,130,000 and $6,437,000 during 1996 and 1997, respectively.

     The difference between the statutory rate of approximately 37% (34% federal
and 3% state, net of federal benefits) 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, 1997, the Company had available net operating loss
carryforwards for federal and state income tax purposes of approximately
$31,156,000 and $15,587,000, respectively.  These carryforwards expire from 2002
to 2012. Due to changes in the Company's ownership in 1996 and 1997, future
utilization of these net operating loss carryforwards will be subject to certain
limitations on annual utilization as defined by the Tax Reform Act of 1986.

6.   NOTES PAYABLE AND LINE OF CREDIT:

     Notes payable and line of credit consist of (in thousands):

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                     ------------------------------
                                                                          1996            1997
                                                                     --------------  --------------
<S>                                                                  <C>             <C>
Line of credit (1)                                                       $     --        $       --
Subordinated convertible shareholder notes payable (2).............            750               --
Subordinated notes payable (3).....................................          2,000               --
Bank equipment note (4)............................................            407               --
                                                                           -------   --------------
                                                                           $ 3,157       $       --

Less current portion...............................................         (2,885)              --
                                                                           -------   --------------
                                                                           $   272       $       --
                                                                           =======   ==============
</TABLE>
_________________________________
(1) The Company has a bank line of credit collateralized by accounts receivable,
    equipment and inventories. The line requires monthly payments of interest
    only at prime plus 1.5% (9.75% and 8.50% at December 31, 1996 and 1997,
    respectively, and any unpaid principal and interest will be due on May 5,
    1998. The line has a maximum amount available of $2,000,000 and limits
    borrowing to 80% of qualified receivables (as defined). The bank credit
    agreement requires the Company's compliance with certain financial covenants
    related to tangible net worth and quarterly profitability and disallows the
    payment of dividends without prior approval from the bank. As of December
    31, 1996 and 1997, the Company was in compliance with these financial
    covenants.
(2) In November 1997 the notes to shareholders were converted into 340,909
    shares of common stock at a rate of one share per $2.20 of principal amount
    of such notes with the closing of the Company's initial public

                                      F-11
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


    offering. The notes bore interest at the rate of 8% per annum payable semi-
    annually on June 30 and December 31, starting June 30, 1995.
(3) Subordinated notes payable to various shareholders, trusts and partnerships
    at December 31, 1996 required semiannual interest payments at a rate of 8%
    per annum  beginning July 14, 1993. The entire principal and remaining
    interest due on the notes was paid on March 1, 1997. The notes were
    collateralized by all Company assets excluding equipment. The notes were
    subordinated to the bank line of credit and bank   equipment note, capital
    lease obligations and the debt described in (2) above, in an amount not to
    exceed $5,000,000.
(4) The bank equipment note was payable in equal monthly payments of $11,300
    plus interest at 2% over bank's prime rate (8.25% and 8.50% at December 31,
    1996 and 1997, respectively) through December 1999.  The note was paid in
    full October 1997.

7.  COMMITMENTS AND CONTINGENCIES:

    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. The Company also leases certain
production and office equipment and computers under capital leases expiring
through 2001.

     Future minimum annual lease payments for both operating and capital leases
are as follows:

<TABLE>
<CAPTION>
12 months ending December 31:                                           OPERATING           CAPITAL
                                                                    -----------------  -----------------
<S>                                                                 <C>                <C>
1998..............................................................             $  473             $1,107
1999..............................................................                536                969
2000..............................................................                580                645
2001..............................................................                300                181
                                                                               ------             ------
Total minimum lease payments......................................             $1,889              2,902
                                                                               ======

Less amounts representing interest................................                                   406
                                                                                                  ------
Present value of minimum lease payments...........................                                $2,496
                                                                                                  ======
</TABLE>

     Total rent expense for office space was $479,000 and $457,000 for the years
ended December 31, 1996 and 1997, respectively.

     In September 1997 the Company entered into agreements with AOL, a related
party, and Excite, Inc. ("Excite") under which these companies are obligated to
deliver minimum numbers of annual page views to the Company through the online
areas featuring the Company's travel services. In connection with those
services, the Company is obligated to make aggregate payments to AOL and Excite
totaling $8.5 million in 1997, $4.1 million in 1998, $10.9 million in 1999,
$12.4 million in each of 2000 and 2001 and $7.7 million in 2002. 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 November 1997 the Company entered into an agreement with Fodor's Travel
Publications ("Fodor's") to license content from Fodor's guidebooks and to
promote the Company's online travel services. The Company is obligated to pay
Fodor's a total of $675,000 over the five year term of the agreement.

8.  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.

                                      F-12
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


     In November 1997 the shareholders of the Company approved an amendment to
the Company's certificate of incorporation, authorizing 5,000,000 shares of
undesignated preferred stock of which the Board of Directors has the authority
to issue and to determine the rights, preferences and privileges.

9.  STOCK WARRANTS:

     At December 31, 1997, warrants to purchase 31,666 shares of common stock of
the Company were outstanding at an aggregate exercise price of $188,994,
expiring in November 2002 and in December 2005.

10.  OTHER SHAREHOLDERS' EQUITY:

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

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                           ----------------------------
                                               1996           1997
                                           -------------  -------------
<S>                                        <C>            <C>
Unearned compensation....................        $   --          $(500)
Shareholder notes receivable.............          (234)          (106)
Stock warrants...........................           457             67
                                                  -----          -----
                                                  $ 223          $(539)
                                                  =====          =====
</TABLE>

     Shareholder notes receivable represent the amounts due from shareholders in
exchange for the issuance of common stock together with accrued interest. The
notes bear interest at rates from 6%-8% and are due five years from the date of
issuance, but may be repaid earlier. The receivables are collateralized by a
pledge of a portion of the underlying common stock issued.

11.  STOCK OPTION PLAN:

     In 1988, the shareholders 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 generally become exercisable over four years.

     In November 1997, the shareholders 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.

     In November 1997, the shareholders 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. 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.

     At December 31, 1996 and 1997, 1,306,750 and 2,382,330 shares of common
stock, respectively, were reserved for the exercise of stock options.

     The following table summarizes activity under the Company's stock option
plans for the years ended December 31, 1995, 1996 and 1997:

                                      F-13
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


<TABLE>
<CAPTION>
                                                 NUMBER                                                         WEIGHTED
                                               OF SHARES         OPTION PRICE PER      AGGREGATE PRICE           AVERAGE
                                              (THOUSANDS)              SHARE             (THOUSANDS)         EXERCISE PRICE
                                           ---------------     -------------------   -----------------     -----------------
<S>                                          <C>                 <C>                   <C>                   <C>
Options outstanding at
January 1, 1995........................                196          $0.50 - $ 2.20              $  242                 $1.22
                     Granted...........                586          $2.20                        1,290                  2.20
                     Exercised.........                (70)         $0.50 - $ 2.20                 (37)                 0.54
                     Terminated........                (35)         $0.50 - $ 2.20                 (73)                 2.04
                                           ---------------     -------------------   -----------------     -----------------
Options outstanding at
December 31, 1995......................                677          $0.50 - $ 2.20               1,422                  2.10
                     Granted...........                277          $2.20 - $ 2.60                 701                  2.52
                     Exercised.........               (137)         $0.50 - $ 2.20                (246)                 1.78
                     Terminated........                (82)         $0.50 - $ 2.60                (211)                 2.56
                                           ---------------     -------------------   -----------------     -----------------
Options outstanding at
December 31, 1996......................                735          $1.20 - $ 2.60               1,666                  2.28
                     Granted...........                658          $2.60 - $ 9.94               3,978                  6.05
                     Exercised.........                (65)         $1.20 - $ 2.60                (140)                 2.15
                     Terminated........                (27)         $1.20 - $ 2.60                 (64)                 2.37
                                           ---------------     -------------------   -----------------     -----------------
Options outstanding at
December 31, 1997......................              1,301          $2.00 - $ 9.94              $5,440                 $4.18
                                           ===============     ===================   =================     =================
</TABLE>

     At December 31, 1997, options to purchase 465,504 shares of common stock
were exercisable. At December 31, 1996 and 1997, 212,698 shares and 706,620
shares, respectively, remain available for issuance.

     The following table summarizes information with respect to stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
                     ------------------------------------------------------------    -------------------------------------------
                                             WEIGHTED AVERAGE
                            NUMBER               REMAINING            WEIGHTED          NUMBER EXERCISABLE          WEIGHTED
                        OUTSTANDING AT       CONTRACTUAL LIFE          AVERAGE             AT 12/31/97               AVERAGE
     RANGE OF              12/31/97               (YEARS)             EXERCISE             (THOUSANDS)              EXERCISE
 EXERCISE PRICES         (THOUSANDS)                                    PRICE                                         PRICE
 ------------------   -----------------     -------------------    ---------------    ---------------------     -----------------
<S>                    <C>                   <C>                    <C>                <C>                       <C>
$  2.00  -  $ 2.40                 368                    7.46              $2.24                      244                 $2.22
$  2.42  -  $ 2.60                 495                    8.30              $2.53                      222                 $2.45
$  6.50  -  $ 9.94                 438                    9.76              $7.77                       --                    --
                                 -----                                                                 ---
                                 1,301                                                                 466
                                 =====                                                                 ===
</TABLE>

     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 1997 with the following weighted average assumptions used for grants in
1996 and 1997:

                                      F-14
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                           ------------------------------
                                                1996            1997
                                           --------------  --------------
<S>                                        <C>             <C>
Risk-free interest rate..................           6.15%           7.00%
Expected volatility......................              0%             50%
Expected life............................         5 years         5 years
Dividends                                              0               0
</TABLE>

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

     The following pro forma net loss and 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):

<TABLE>
<CAPTION>
                                                    December 31,
                                           ------------------------------
                                                1996            1997
                                           --------------  --------------
<S>                                        <C>             <C>
Net loss:
As reported..............................        $(5,592)       $(10,168)
Pro forma................................        $(5,732)       $(10,901)

Basic and diluted net loss per share:
As reported..............................        $ (3.43)       $  (3.54)
Pro forma................................        $ (3.51)       $  (3.80)
</TABLE>

     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, $70,000 has been charged to operations in
the year ended December 31, 1997 and $500,000 will be charged to operations over
the remaining period to 2001.

     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.

12.  EMPLOYEE BENEFIT PLAN:

     The Company sponsors a defined contribution 401(k) plan which covers
substantially all employees. Employer contributions are made at the discretion
of the Company. The Company made no contributions to the plan during 1995, 1996
or 1997.

13.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

     During the years ended December 31, 1996 and 1997, the Company made cash
payments for interest of approximately $260,000 and $168,000, respectively, and
state franchise taxes of $2,400 for both years.

     The following noncash investing and financing transactions occurred during
the years ended December 31, 1996 and 1997 (in thousands):

                                      F-15
<PAGE>

                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


<TABLE>
<CAPTION>
                                                                             1996             1997
                                                                        ---------------  ---------------

<S>                                                                     <C>              <C>
Property and equipment obtained through capital leases................           $1,039           $1,721
                                                                                 ======           ======

Common stock issued for notes and interest receivable.................           $  234           $  128
                                                                                 ======           ======

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

Series E preferred stock issued upon conversion
of bridge loans.......................................................           $1,000           $   --
                                                                                 ======           ======

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

Unearned compensation in connection
with the issuance of stock options....................................           $  --            $  570
                                                                                 ======           ======
</TABLE>

14.  RELATED PARTY TRANSACTION:

     During the years ended December 31, 1996 and 1997, the Company recorded
$2,143,000 and $3,595,000, respectively, of online revenues pursuant to an
agreement with America Online, Inc. (AOL), a shareholder of the Company. The
Company also recorded marketing expenses of $108,000 and $2,631,000 for services
in connection with the agreement during 1996 and 1997, respectively.

15. 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).
<TABLE>
<CAPTION>

                                                          YEAR ENDED DECEMBER 31,
                                                        ----------------------------
                                                          1995      1996      1997
                                                        --------  --------  --------
<S>                                                     <C>       <C>       <C>
Numerator - Basic and Diluted EPS
   Net loss                                             $(4,933)  $(5,592)  $(10,168)
                                                        =======   =======   ========

Denominator - Basic and Diluted EPS
   Weighted average common stock outstanding              1,228     1,631      2,869
                                                        =======   =======   ========

Basic and diluted earnings per share                    $ (4.02)  $ (3.43)  $  (3.54)
                                                        =======   =======   ========
</TABLE>

16.  SUBSEQUENT EVENTS (UNAUDITED):

     In March 1998, the Company entered into an agreement with a search engine
provider for distribution and promotion of the Company's online travel services.
Over the two-year term of the agreement, the Company is obligated to make
minimum payments totaling $4.25 million, as well as well as a portion of
commissions earned by the Company under the agreement in excess of certain
thresholds.

                                      F-16