<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q

              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTER ENDED MARCH 31, 1998            COMMISSION FILE NUMBER 000-23177

================================================================================
                             PREVIEW TRAVEL, INC.

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

                   747 FRONT STREET, SAN FRANCISCO, CA 94111
 
                                (415) 439-1200

================================================================================

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes [X]   No [_]

     As of March 31, 1998, there were 11,362,927 shares of the registrant's
Common Stock outstanding.
<PAGE>
 
<TABLE> 
<CAPTION> 
                                     INDEX
                                     -----
                                                                            Page
                                                                            ----
<S>                                                                         <C> 
PART I.   FINANCIAL INFORMATION

     ITEM 1.   FINANCIAL STATEMENTS.

               Condensed consolidated balance sheets at December 31, 1997
               and March 31, 1998                                              3
 
               Condensed consolidated statements of operations for the
               three months ended March 31, 1997 and 1998                      4
 
               Condensed consolidated statements of cash flows for the
               three months ended March 31, 1997 and 1998                      5
 
               Notes to condensed consolidated financial statements            6

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS.                                      8

PART II.  OTHER INFORMATION

     ITEM 1.   LEGAL PROCEEDINGS.                                             29

     ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.                     29

     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.                               29

     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.           29

     ITEM 5.   OTHER INFORMATION.                                             29

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.                              29
</TABLE> 

SIGNATURES                                                                    30

                                       2
<PAGE>
 
PART I.   FINANCIAL INFORMATION
ITEM 1.        FINANCIAL STATEMENTS.


                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)
                                        
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,                  MARCH 31,
                                                                     1997                         1998
                                                                     ----                         ----
                                                                                              (unaudited)
<S>                                                                <C>                        <C>
                    ASSETS
Cash and cash equivalents..........................                $ 27,912                     $ 12,477
Marketable securities..............................                     750                       11,407
Accounts receivable, net...........................                   1,990                        2,700
Other assets.......................................                   6,087                        5,878
                                                                   --------                     --------
  Total current assets.............................                  36,739                       32,462
Film library, net..................................                   2,402                        2,291
Property and equipment, net........................                   3,644                        3,651
                                                                   --------                     --------
  Total assets.....................................                $ 42,785                     $ 38,404
                                                                   ========                     ========


     LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...................................                $  2,189                     $  1,127
Accrued liabilities................................                   2,480                        3,381
Deferred revenues..................................                     255                          227
Current portion of capital lease obligations.......                     882                        1,110
                                                                   --------                     --------
  Total current liabilities........................                   5,806                        5,845
Capital lease obligations, less current portion....                   1,614                        1,858
                                                                   --------                     --------
  Total liabilities................................                   7,420                        7,703
                                                                   --------                     --------

Stockholders' equity:
  Common stock.....................................                      11                            11
  Additional paid-in capital.......................                  61,676                        61,700
  Other stockholders' equity.......................                    (539)                         (539)
  Accumulated deficit..............................                 (25,783)                      (30,471)
                                                                   --------                      --------
  Total stockholders' equity.......................                  35,365                        30,701
                                                                   --------                      --------
Total liabilities and stockholders' equity.........                $ 42,785                      $ 38,404
                                                                   ========                      ========
</TABLE>

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

                                       3
<PAGE>
 
                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            FOR THE THREE MONTHS
                                                                               ENDED MARCH 31,
                                                               --------------------------------------------
                                                                        1997                     1998
                                                                        ----                     ----
<S>                                                                    <C>                      <C>
Revenues:
  Online.................................................              $ 1,496                  $ 2,332
  Television.............................................                2,023                    1,683
                                                                       -------                  -------
       Total revenues....................................                3,519                    4,015

Cost of revenues:
  Online.................................................                  910                    1,201
  Television.............................................                1,386                    1,242
                                                                       -------                  -------
       Total cost of revenues............................                2,296                    2,443

Gross profit.............................................                1,223                    1,572

Operating expenses:
  Marketing and sales....................................                1,335                    4,393
  Research and development...............................                  405                      738
  General and administrative.............................                1,009                    1,400
                                                                       -------                  -------
       Total operating expenses..........................                2,749                    6,531

  Loss from operations...................................               (1,526)                  (4,959)
Interest income (expense), net...........................                   21                      278
                                                                       -------                  -------
  Loss before income taxes...............................               (1,505)                  (4,681)
Income tax expense.......................................                   --                       (7)
                                                                       -------                  -------
Net loss.................................................              $(1,505)                 $(4,688)
                                                                       =======                  =======

Basic and diluted net loss per share.....................              $ (0.88)                 $ (0.41)
                                                                       =======                  =======
Weighted average shares outstanding
  used in per share calculations.........................                1,702                   11,353

SUPPLEMENTAL INFORMATION (UNAUDITED)
Gross bookings                                                         $14,117                  $35,890
                                                                       =======                  =======
</TABLE>

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

                                       4
<PAGE>
 
                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                 FOR THE THREE MONTHS
                                                                                   ENDED MARCH 31,
                                                                    -------------------------------------------
                                                                         1997                    1998
                                                                         ----                    ----
<S>                                                                     <C>                   <C>
Cash flows from operating activities:
 Net loss......................................................          $(1,505)             $ (4,688)
 Adjustments to reconcile net loss to net cash used
      in operating activities:
      Depreciation and amortization............................              214                   384
      Amortization of film library.............................              321                   274
      Unearned compensation....................................               --                    36
      Changes in operating assets and liabilities..............             (314)                 (140)
                                                                         -------              --------
          Net cash used in operating activities................           (1,284)               (4,134)
                                                                         -------              --------

Cash flows from investing activities:
 Acquisition of property and equipment.........................             (136)                 (201)
 Purchase of marketable securities.............................               --               (10,657)
 Additions to film library.....................................             (155)                 (163)
                                                                         -------              --------
      Net cash used in investing activities....................             (291)              (11,021)
                                                                         -------              --------

Cash flows from financing activities:
 Payment of long-term debt.....................................           (2,000)                   --
 Payments on equipment note....................................              (34)                   --
 Payments on obligations under capital leases..................              (86)                 (268)
 Proceeds from issuance of common stock........................              309                    27
 Proceeds from issuance of common stock-IPO, net...............               --                   (39)
 Proceeds from issuance of preferred stock.....................               85                    --
                                                                         -------              --------
      Net cash used by financing activities....................           (1,726)                 (280)
                                                                         -------              --------
          Net decrease in cash.................................           (3,301)              (15,435)
Cash and cash equivalents at beginning of period...............            6,016                27,912
                                                                         -------              --------

Cash and cash equivalents at end of the period.................          $ 2,715              $ 12,477
                                                                         =======              ========

Supplemental Schedule of Noncash Transactions:
 Property and equipment obtained through capital leases........          $   339              $    190
                                                                         =======              ========

 Common stock issued for notes and interest receivable.........          $     5              $     36
                                                                         =======              ========
</TABLE>

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

                                       5
<PAGE>
 
                     PREVIEW TRAVEL, INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION

     Preview Travel, Inc. (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 co-branded travel Web sites with Excite, Inc.
(City.Net) and with Lycos, Inc. Through its News Travel Network, Inc.
subsidiary, the Company produces entertainment programming for broadcast and
cable television and the in-flight markets. In addition to its reservation and
ticketing service, the Company offers vacation packages, discount and
promotional fares, travel news and destination content, including content
licensed from Fodor's Travel Publications, Inc. Preview Travel, Inc. (formerly
Preview Media, Inc.) was incorporated in California in March 1985 and was
reincorporated in Delaware in November 1997.

     The accompanying unaudited condensed consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results for the period shown. The results of operations
for such periods are not necessarily indicative of the results expected for the
full fiscal year or for any future period.

     These financial statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1997.


NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS

     The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", effective January 1, 1998.
This statement requires the disclosure of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is defined as net income plus revenues, expenses, gains and losses that,
under generally accepted accounting principles, are excluded from net income.
The components of comprehensive income, which are excluded from net income, are
not significant individually or in the aggregate, and therefore, no separate
statement of comprehensive income has been presented.

     In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 131, "Disclosure About Segments of an Enterprise and
Required Information," which is effective for the year ending December 31,
1998. The Company is considering additional disclosures, if any, which will be
required by this pronouncement.

NOTE 3 - COMMITMENTS

     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 made aggregate payments to AOL and Excite totaling $8.5
million in 1997, and is obligated to make aggregate payments to AOL and Excite
totaling $4.1 million in 1998, $10.9 million in 1999, $12.4 million in 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. To retain
the right to be the primary provider of travel services on AOL, the Company must
achieve specified levels of annual travel service bookings.

     In March 1998, the Company entered into an agreement with Lycos, 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
pay minimum amounts totaling $4.25 million, as well as a portion of commissions
earned by the Company in excess of certain thresholds under the agreement.  In
addition, the Company has committed to purchase approximately $500,000 in
advertising on Lycos' sites, which the Company may resell to third parties.
<PAGE>
 
NOTE 4 - NET INCOME (LOSS) PER SHARE

     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>
                                                                    THREE MONTHS ENDED
                                                                         MARCH 31,
                                                                         ---------                 
                                                                        (unaudited)
                                                               1997                     1998
                                                               ----                     ----       
<S>                                                         <C>                      <C>
Numerator--Basic and diluted EPS
Net loss                                                    $(1,505)                 $(4,688)
                                                            =======                  =======
Denominator--Basic and diluted EPS
Weighted average common stock outstanding                     1,702                   11,353
                                                            =======                  =======
Basic and diluted earnings per share                        $(0 .88)                 $(0 .41)
                                                            =======                  =======
</TABLE>

NOTE 5 - SUBSEQUENT EVENT

     In May 1998, the Company completed a secondary offering of 3,519,000 shares
of common stock to the public at a price of $28.50 per share. Of these shares,
1,959,000 shares were sold by the Company and the remaining 1,560,000 shares
were sold by certain selling stockholders. The Company received approximately
$52.5 million in cash, net of the underwriting discount and offering expenses.

                                       7
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

        This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
expressed or forecasted. Factors that might cause such a difference include, but
are not limited to, those discussed in the section entitled "Risk Factors" and
those appearing elsewhere in this Form 10-Q. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company assumes no obligation to update
these forward-looking statements to reflect actual results or changes in factors
or assumptions affecting such forward-looking statements.

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. In
February 1998, the Company launched its Destinations Guides feature created with
content licensed from Fodor's. In March 1998, the Company entered into an
agreement with Lycos, under which the Company serves as the exclusive
multiservice provider of travel reservation services for Lycos' Travel Web Guide
and Travel Network.

        Overview of Television Operations. From inception through 1994, the
Company derived all of its revenues from its television operations. In 1995,
1996, 1997 and the three months ended March 31, 1998, the Company's television
operations accounted for approximately 94%, 79%, 56% and 42% of the Company's
total revenues, respectively. Television revenues are derived primarily from
fees associated with sales of advertising time and the licensing of travel-
related news and entertainment programming. 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, primarily for Northwest Airlines. In 1996, the Company

                                       8
<PAGE>
 
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 7% of the Company's
total television revenues for the year ended December 31, 1997 and the three
months ended March 31, 1998, respectively. Because the Company does not expect
to receive any additional revenues from MCI for television sponsorships, the
Company expects revenues attributable to MCI in 1998 to decrease significantly
from that in 1997. The Company currently anticipates that Best Buy Co., Inc.
("Best Buy") will account for an increasing percentage of the Company's
television advertising revenues in future periods. Revenues attributable to Best
Buy, which began advertising with the Company in March 1998, comprised 9% of the
Company's total television revenues for the three months ended March 31, 1998.
As is common in the television industry, the Company does not have a long-term
contract or arrangement with Best Buy that guarantees advertising revenues from
Best Buy. As a result, if advertising revenues from Best Buy do not materialize
to the extent anticipated by the Company or if such advertising revenues
materialize and Best Buy then phases out its sponsorship of the Company's
television programming, overall revenues from the Company's television
operations would be materially and adversely affected, which could adversely
affect the Company's business operating results and financial condition. See
"Risk Factors--Risks Associated with Advertising Revenues" and "--Risks
Associated with Television Operations."

        Although the Company's television operations have had positive operating
cash flow in the past, the Company experienced negative operating cash flow from
television operations in 1997 and in the first three months of 1998 and expects
to experience negative operating 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 in the first three months
of 1998 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--Limited Operating History of
Online Business; History of Net Operating Losses; Accumulated Deficit," "--
Anticipated Losses and Negative Cash Flow," "--Dependence on the Travel
Industry," "--Uncertain Acceptance of the Preview Travel Brand; Dependence on
Increased Bookings," "-- Dependence on Continued Growth of Online Commerce," "--
Risks Associated with Advertising Revenues," "--Management of Potential Growth,"
"--Risks Associated with Television Operations" and "--Risks Associated with
International Expansion."

        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, segment fees received from GDS
suppliers and the sale of advertisements on the Company's online sites. In
addition, certain travel suppliers pay performance-based compensation known as
"override commissions." Commission revenues for air travel, hotel rooms, car
rentals and vacation packages, net of allowances for cancellations, are
recognized upon the confirmation of the reservation. Overrides are recognized on
an accrual basis once the amount has been confirmed with the travel supplier,
which generally reflects the performance for a prior quarterly period.

        The Company commenced its online airline reservation service in May 1996
and enhanced the service to include hotels and car rentals in the first half of
1997. 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 $35.9 million in the first quarter of
1998, which resulted in online revenues of approximately $424,000 and $2.3
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

                                       9
<PAGE>
 
base commission rates paid by travel suppliers have been approximately 10% for
hotel reservations, 5% to 10% for car rentals and 10% to 15% for cruises and
vacation packages. During the quarter ended June 30, 1997, the commissions paid
by most of the major airlines for online reservations was changed from a typical
base rate of approximately 8% to approximately 5% (excluding overrides). In
addition, in a continuation of this trend, in the first half of 1998, one major
airline reduced its fixed rate commission structure for online roundtrip ticket
sales to ten dollars and a second major airline further reduced its cap (the
maximum amount of commissions paid per ticket) on per-roundtrip ticket
commissions payable for online ticket sales to ten dollars. These reductions
were followed by similar reductions made by other smaller airlines. The Company
expects that its weighted average commission on online transaction revenue will
decline as a result of these reductions. In addition, during the first quarter
of 1998, a major hotel chain eliminated commissions paid to the Company and
other online travel service providers for online bookings. There can be no
assurance that other hotel chains or other travel suppliers will not reduce
current industry commission rates or eliminate such commissions entirely, which
could, individually or in the aggregate, have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk 
Factors--Reliance on Travel Suppliers; Potential Adverse Changes in Commission
Payments."

        Travel services sold through AOL accounted for 77%, 67%, 62% and 52%
of the Company's online revenues for the three months ended June 30, 1997,
September 30, 1997, December 31, 1997 and March 31, 1998, respectively. Travel
services sold through Excite accounted for 8%, 13%, 15% and 16% of the Company's
online revenues for the three months ended June 30, 1997, September 30, 1997,
December 31, 1997 and March 31, 1998, respectively. The Company's arrangements
with AOL and Excite are expected to continue to represent significant
distribution channels for the Company's travel services, and the Lycos agreement
is expected to represent a significant distribution channel in the future. Any
termination of any or all of the Company's agreements with AOL, Excite or Lycos
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, Excite
and Lycos require minimum aggregate payments of approximately $60.3 million
during the terms of such agreements in exchange for their providing
distribution, marketing and other services. There can be no assurance that the
Company will achieve sufficient online traffic, travel bookings or commissions
to realize economies of scale that justify the Company's significant fixed
financial obligations to AOL, Excite and Lycos. Further, there can be no
assurance that the Company will satisfy the minimum levels of travel services
bookings, or provide satisfactory content on the specified time schedule,
required to maintain the AOL and Excite agreements. Failure to do either of the
foregoing would likely have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors--Reliance on
Distribution Agreements with America Online, Excite and Lycos" 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--
Unpredictability of Future Revenues; Fluctuations in Quarterly Results."

        Anticipated Losses. The Company has incurred significant operating
losses and, as of March 31, 1998, had an accumulated deficit of $30.5 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 stockholders'
equity. In particular, the Company's operating expenses

                                       10
<PAGE>
 
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
and 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 stockholders' equity. See "Risk
Factors--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 condensed
consolidated statement of operations to total revenues, except as indicated:

<TABLE>
<CAPTION>
                                                                      THREE MONTHS
                                                                     ENDED MARCH 31,
                                                            --------------------------------
Revenues                                                         1997               1998
                                                                 ----               ----  
                                                                       (unaudited)
<S>                                                         <C>            <C> 
  Online                                                         42.5%               58.1%
  Television                                                     57.5                41.9
                                                            ------------   -----------------
     Total revenues                                             100.0               100.0
Cost of revenues
  Online                                                         25.9                29.9
  Television                                                     39.4                30.9
                                                            ------------   -----------------
     Total cost of revenues                                      65.3                60.8
     Gross profit                                                34.7                39.2
Operating expenses:
  Marketing and sales                                            37.9               109.4
  Research and development                                       11.5                18.4
  General and administrative                                     28.7                34.9
                                                            ------------   -----------------
    Total operating expenses                                     78.1               162.7
                                                            ------------   -----------------

Loss from operations                                            (43.4)             (123.5)
Interest income (expense), net                                    0.6                 6.9
                                                            ------------   -----------------
Loss before income taxes                                        (42.8)             (116.6)
Income taxes                                                        -                 0.2
                                                            ------------   -----------------
Net loss                                                        (42.8)%            (116.8)%
                                                            ============   =================

AS A PERCENTAGE OF RELATED REVENUES:
Cost of online revenues                                          60.8%               51.5%
Cost of television revenues                                      68.5%               73.8%
</TABLE>

                                       11
<PAGE>
 
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1998

 Revenues

     Online Revenues. Online revenues increased from approximately $1.5 million
in the first three months of 1997 to $2.3 million in the first three months of
1998 due primarily to an increase in the Company's customer base and an increase
in paid advertising on the Company's Web site, partially offset by lower
commissions paid to online travel services by certain airlines. As a result of
the recent reductions in commissions paid on online sales of round trip tickets
by certain airlines, the Company anticipates that the average commissions paid
to the Company for airline tickets will decline in future periods. Online
advertising revenues increased from $92,000 in the first three months of 1997 to
$284,000 in the first three months of 1998. Gross bookings increased from $14.1
million in the first three months of 1997 to $35.9 million in the first three
months of 1998 as a result of the expansion of the Company's travel service
offerings, strategic relationships and customer base, as well as repeat
purchases by existing customers. Visits to the Company's online areas increased
from 3.8 million in the first quarter of 1997 to 18.9 million in the first
quarter of 1998. During the three months ended March 31, 1998, the percentage of
online revenues derived from airline commissions, nonairline commissions and the
sale of advertising on the Company's online sites was 67%, 21% and 12%,
respectively, as compared to 80%, 4% and 6%, respectively, during the three
months ended March 31, 1997. In addition, during the three months ended March
31, 1997, 10% of online revenues were derived from fees paid by AOL to the
Company for AOL connect time. The Company's database of customer profiles grew
from approximately 1.2 million profiles as of March 31, 1997 to over 3.4 million
profiles as of March 31, 1998.

     In 1996, the Company marketed its travel services primarily through AOL.
During 1997, the Company expanded its online presence beyond AOL by marketing
its own Web site and by entering into a strategic relationship with Excite. The
Company's gross bookings from Excite and the Web comprised approximately 44% of
the Company's total gross bookings for the first three months of 1998.

     Television Revenues. Television revenues decreased 16.8% from $2.0 million
for the first three months of 1997 to $1.7 million for the first three months of
1998, due primarily to the phase-out of MCI as an advertising sponsor for the
Company's television programming in 1997. As a result, the Company expects
television revenues to continue to decline in the second quarter of 1998 as
compared to the same period for the previous year and to decline in future
periods. Advertising revenues constitute a majority of the Company's television
revenues and comprised 63% and 66% of television revenues in the first three
months of 1997 and 1998, respectively.

 Cost of Revenues

     Cost of Online Revenues. Cost of online revenues includes equipment and
staffing costs associated with operating the Company's transaction system and
customer reservation center, GDS charges, printing and delivery costs for
tickets and costs associated with errors in ticket fulfillment. Cost of online
revenues increased from $910,000 in the first three months of 1997 to $1.2
million in the first three months of 1998 due to the increased volume of
transactions in the first three months of 1998. As a percentage of online
revenues, cost of online revenues declined from 60.8% in the first three months
of 1997 to 51.5% in the first three months of 1998, primarily due to economies
of scale resulting from increased transaction volume. The Company's average cost
per transaction declined from approximately $23.50 in the first three months of
1997 to approximately $10.70 in the first three months of 1998 due to both
economies of scale resulting from increased transaction volumes and the addition
in the second quarter of 1997 of car and hotel reservation booking capabilities,
each of which has a lower per transaction fulfillment cost compared to that for
airline transactions.

     Cost of Television Revenues. Cost of television revenues includes
advertising agency commissions, staffing costs, costs of custom productions that
have a limited useful life, amortization costs relating to the Company's film
library and the costs of purchasing commercial advertising time to fulfill
advertiser requirements. Cost of television revenues decreased from $1.4 million
in the first three months of 1997 to $1.2 million in the first three months of
1998 as a result of reduced production activity and cost reductions implemented
at the end of 1997. As a percentage of television revenues, cost of television
revenues increased from 68.5% in the first three months 

                                       12
<PAGE>
 
of 1997 to 73.8% in the first three months of 1998 due to the allocation of
fixed costs over a smaller revenue base. Film library amortization was $321,000
and $274,000 in the first three months of 1997 and 1998, respectively.

 Operating Expenses

     Marketing and Sales. Marketing and sales expenses consist primarily of
payroll and related expenses, consulting fees, advertising, public relations and
promotional expenditures and costs relating to the development and acquisition
of content and distribution for the Company's online sites. Marketing and sales
expenses increased 229.1% from $1.3 million in the first three months of 1997 to
$4.4 million in the first three months of 1998. As a percentage of total
revenues, marketing and sales expenses increased from 37.9% in the first three
months of 1997 to 109.4% in the first three months of 1998. The increase in
marketing and sales expenses was attributable primarily to expenses associated
with the Company's online operations, including the hiring of additional
personnel for development of online content, expenditures related to the
Company's strategic agreements with AOL and Excite and increased advertising
expenditures. The Company continues to pursue an aggressive branding and
marketing campaign, including significant advertising expenditures. In addition,
the Company is obligated to make minimum payments totaling $56 million to AOL
and Excite over the term of its agreements with AOL and Excite, and $4.3 million
to Lycos over the two-year term of its agreement with Lycos, 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 consist
principally of personnel and equipment expenses and consulting fees for
development and enhancement of the Company's transaction processing system and
online services such as its Destinations Guides with Fodor's, costs of content
development in connection with the Company's strategic relationships with
Excite, AOL and Lycos, and costs associated with network operations, systems and
telecommunications infrastructure. Research and development expenses increased
82.2% from $405,000 in the first three months of 1997 to $738,000 in the first
three months of 1998. As a percentage of total revenues, research and
development expenses rose from 11.5% in the first three months of 1997 to 18.4%
in the first three months of 1998. The increase in research and development
expenses was attributable primarily to increased staffing and consulting fees,
as well as increased costs related to enhancing the capacity, 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 consist of
payroll and related expenses for management, accounting and administrative
personnel, recruiting, professional services, facilities, director and officer
insurance, investor relations and other general corporate expenses. General and
administrative expenses increased 38.8% from $1.0 million in the first three
months of 1997 to $1.4 million in the first three months of 1998. As a
percentage of total revenues, general and administrative expenses rose from
28.7% in the first three months of 1997 to 34.9% in the first three months of
1998. The increase in general and administrative expenses was due primarily to
increased salaries and expenses associated with the hiring of personnel related
to the expansion of the Company's online operations and expenses associated with
being a public company. The Company expects general and administrative expenses
to increase in absolute dollars in future periods as the Company expands its
staff and incurs additional costs related to the growth of its business.

     Deferred Compensation. The Company grants stock options to hire and retain
employees. With respect to the grant of certain stock options to employees in
1997, the Company recorded aggregate deferred compensation of $570,000 in 1997,
none of which was recorded during the first three months of 1997. Deferred
compensation is recorded as a reduction of stockholders' equity and is amortized
ratably over the vesting period of the applicable options, generally four years.
Amortization of deferred compensation in the first three months of 1998 for
options granted was $36,000. The Company currently expects to record
amortization of deferred compensation for options granted of approximately
$143,000, $143,000, $143,000 and $71,000 for 1998 (including the amount for the
first three months of 1998 set forth above), 1999, 2000 and 2001, respectively.
The amortization of deferred compensation will be recorded as general and
administrative expenses in such periods.

                                       13
<PAGE>
 
 Interest Income (Expense)

     Interest income, net of interest expense, was approximately $21,000 and
$278,000 in the first three months of 1997 and 1998, respectively. Interest
expense is comprised primarily of interest on capital lease obligations. The
increase in net interest income was attributable primarily to a reduction on
borrowings under the Company's line of credit and interest income earned on
higher cash balances in the first three months of 1998, primarily from an equity
financing completed in September 1997 and net proceeds from the Company's
initial public offering in November 1997.

 Income Taxes

     The provision for income taxes recorded in the first three months of 1998
represents minimum state tax expense. The Company expects to incur a net loss
for 1998; therefore, no provision for federal income taxes has been recorded for
the first three months of 1998.

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. Additionally, in May 1998, the Company completed a secondary public
offering of its common stock, resulting in net proceeds to the Company of
approximately $52.5 million. Prior to the two public offerings, the Company had
financed its operations primarily through private sales of common stock,
convertible preferred stock and convertible notes, which totaled $34.7 million
in aggregate net proceeds through 1997. As of March 31, 1998, the Company also
had a $2.0 million line of credit, of which approximately $1.2 million was
available at March 31, 1998, based on 80% of the Company's accounts receivable.

     Cash used in operating activities in the first three months of 1998 of $4.1
million was attributable primarily to a net loss of $4.7 million, increases in
accounts receivable and a decrease in accounts payable and accrued liabilities,
partly offset by depreciation of $384,000 and film library amortization of
$274,000, as well as a decrease in other assets. Cash used in operating
activities in the first three months of 1997 of $1.3 million was attributable
primarily to a net loss of $1.5 million, increases in accounts receivables and
other assets and decreases in accounts payable and accrued liabilities and
deferred revenue, partly offset by depreciation of $214,000 and film library
amortization of $321,000.

     Cash used in investing activities in the first three months of 1998
primarily consisted of $10.7 million for the purchase of marketable securities.
For the same period in 1997, cash used in investing activities totaled $291,000
and consisted of the acquisition of property and equipment and additions to the
film library.

     Cash used by financing activities in the first three months of 1998 of
$280,000 consisted primarily of payments on capital lease obligations of
$268,000. For the same period in 1997, cash used by financing activities of
approximately $1.7 million primarily consisted of payment of long-term debt of
$2.0 million, partially offset by proceeds from the issuance of common stock of
$309,000 and proceeds from the issuance of preferred stock of $85,000.

     As of March 31, 1998, the Company had $12.5 million of cash and cash
equivalents and $11.4 million of marketable securities. As of that date, the
Company's principal commitments consisted of obligations outstanding under the
agreements with AOL, Excite, Lycos and Fodor's and lease obligations. 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, of which $7.5 million has been paid as of March 31, 1998,
and to pay a percentage of commissions earned by the Company in excess of
certain thresholds. Pursuant to its arrangement with Excite, the Company is
obligated to make minimum payments totaling $24

                                       14
<PAGE>
 
million, of which $500,000 has been paid as of March 31, 1998, and to pay a
percentage of commissions earned by the Company in excess of certain thresholds.
Pursuant to its arrangement with Lycos, the Company is obligated to make minimum
payments totaling $4.25 million, and to pay a percentage of commissions earned
by the Company in excess of certain thresholds. In addition, the Company is
required to develop content areas featured on AOL, Excite and Lycos sponsored
primarily by advertising revenues, of which the Company 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. See "Risk Factors--
Reliance on Distribution Agreements with America Online, Excite and Lycos" and 
"--Risk of Termination of Distribution Agreement with AOL."

     The Company believes that its current cash, cash equivalents and marketable
securities together with the net proceeds of the secondary offering completed in
May 1998, will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures through 2000. 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 stockholders. There can be no
assurance that financing will be available in sufficient amounts or on terms
acceptable to the Company, if at all. See "Risk Factors--Need for Additional
Capital."

RECENTLY ISSUED ACCOUNTING STANDARDS

     In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," was issued and was effective for the Company's year
ended 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, SFAS No. 130 
"Reporting Comprehensive Income" was issued and was adopted by the Company
effective January 1, 1998. The adoption of SFAS No. 130 will have no impact on
the Company's consolidated results of operations, financial position or cash
flows. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise." The Company is required to adopt this statement effective for
1998. The Company is considering additional disclosures, if any, which will be
required by this pronouncement.

RISK FACTORS

     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, $10.2 million and $4.7 million in 1995, 1996 and 1997 and the
three months ended March 31, 1998, respectively. As of March 31, 1998, the
Company had an accumulated deficit of approximately $30.5 million. The Company's
television programming operations, which represented 56% and 42% of its revenues
for 1997 and the three months ended March 31, 1998, respectively, 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

                                       15
<PAGE>
 
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 advertising customers. Accordingly, the
Company intends to expend significant financial and management resources on
brand development, marketing and promotion, site and content development,
strategic relationships and technology and operating infrastructure. As a
result, the Company expects to incur additional losses and continued negative
cash flow from operations for the foreseeable future, and such losses are
anticipated to increase significantly from current levels. There can be no
assurance that the Company's revenues will increase or even continue at their
current level or that the Company will achieve or maintain profitability or
generate cash from operations in future periods. In view of the rapidly evolving
nature of the Company's business and its limited operating history in the online
business, the Company believes that period-to-period comparisons of its
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance.

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

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

                                       16
<PAGE>
 
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 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 designed to accomplish these
objectives, including its relationships with AOL, Excite, Lycos and Fodor's, and
advertising the Company's services in online and traditional media, there can be
no assurance that these strategies will be effective in increasing the dollar
volume of transactions booked through its online sites, increasing traffic to
its online sites, increasing the percentage of visitors who purchase travel
services, increasing the number of repeat purchasers or increasing its
advertising revenues. The failure to do one or more of the foregoing would
likely have a material adverse effect on the Company's business, operating
results and financial condition.

                                       17
<PAGE>
 
     Reliance on Distribution Agreements with America Online, Excite and Lycos.
The Company has entered into agreements with AOL, Excite and Lycos establishing
the Company as the primary and preferred provider of travel services on AOL, the
exclusive provider of travel reservations services on Excite's Travel Channel
(City.Net) until September 2002 and the exclusive multiservice provider of
travel reservations on Lycos' Travel Web Guide and Travel Network until March
2001. Under these agreements, AOL, Excite and Lycos are obligated to promote the
Company and to deliver minimum numbers of annual page views or impressions to
the online areas featuring the Company's travel services. In addition, the
Company is eligible to receive payments from Excite and Lycos representing a
share of advertising revenues received by Excite and Lycos in connection with
the online areas featuring the Company's travel services; however, there can be
no assurance that such payments, if any, will be significant. During the terms
of these agreements, the Company is obligated to make minimum payments totaling
$60.3 million to AOL, Excite and Lycos as well as pay to AOL, Excite and Lycos 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, Excite and Lycos, 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, Excite and Lycos or that the
Company will satisfy the minimum levels of travel services bookings required to
maintain the AOL agreement, and failure to do so would likely have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, the agreements with AOL, Excite and Lycos do not provide
the Company with renewal rights upon expiration of their respective terms. The
AOL agreement provides AOL with the right to renew the AOL agreement for
successive one-year terms on a non-exclusive basis during which period AOL would
continue to receive a percentage of commissions and share in advertising
revenues, but the Company would not be obligated to make any additional minimum
payments. There can be no assurance that such agreements will be renewed on
commercially acceptable terms, or at all.

     In addition, the Company is a party to a database services agreement with
AOL to develop and manage a travel-related destinations database for AOL with
content that is reasonably satisfactory to AOL. The Company has committed to an
aggressive schedule to develop and maintain the destinations database which will
require significant efforts and resources on the Company's part. There can be no
assurance that the Company will be able to fulfill its commitments to AOL on the
agreed upon schedule, and failure to do so could result in a breach of the
distribution 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, Excite and
Lycos relationships is based on the continued positive market presence,
reputation and anticipated growth of AOL, Excite and Lycos, as well as the
commitment by each of AOL, Excite and Lycos to deliver specified numbers of
annual page views or impressions. Any decline in the significant market
presence, business or reputation of AOL, Excite or Lycos, or the failure of AOL,
Excite or Lycos 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 both Lycos and
Excite have agreed to cooperate on advertising, AOL and the Company have the
right to separately pursue and sell advertising in the Company's content areas
distributed through AOL. There can be no assurance that the Company and AOL will
not compete for limited travel supplier advertising revenues. Travel services
sold through the AOL Network accounted for 77%, 67%, 62% and 52% of the
Company's online revenues for the three months ended June 30, 1997, September
30, 1997, and December 31, 1997 and March 31, 1998, respectively. Travel
services sold through Excite accounted for 8%, 13%, 15% and 16% of the Company's
online revenues for the three months ended June 30, 1997, September 30, 1997 and
December 31, 1997 and March 31, 1998, respectively. The Company's arrangements
with AOL and Excite are expected to continue to represent significant
distribution channels for the Company's travel services, and the Lycos
arrangement is expected to represent a significant distribution channel in the
future. Any termination of any or all of the Company's agreements with AOL,
Excite and Lycos would likely have a material adverse effect on the Company's
business, operating results and financial condition.

                                       18
<PAGE>
 
     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 must achieve specified annual
levels of travel services bookings, 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. For example, during the first quarter of 1998, a major hotel chain
eliminated commissions paid to the Company and other online travel service
providers for online bookings. There can be no assurance that other hotel chains
or other travel suppliers will not reduce current industry commission rates or
eliminate such commissions entirely, which could, individually or in the
aggregate, have a material adverse effect on the Company's business, operating
results and financial condition. For example, in 1995, most of the major
airlines placed a cap on per-ticket commissions payable to all travel agencies
for domestic airline travel. In September 1997, the major U.S. airlines reduced
the commission rate payable to traditional travel agencies from 10% to 8%.

     In 1997, the major U.S. airlines reduced the commission rate payable for
online reservations from approximately 8% to approximately 5%, which had a
material adverse effect on the Company's results of operations for the three
months ended June 30, 1997, September 30, 1997, December 31, 1997 and March 31,
1998. In addition, in the first half of 1998 one major airline reduced its fixed
rate commission structure for online roundtrip ticket sales to ten dollars and a
second major airline further reduced its cap (the maximum amount of commissions
paid per ticket) on per-roundtrip ticket commissions payable for online ticket
sales to ten dollars. These reductions were followed by similar reductions made
by other smaller airlines. The Company expects that its weighted average
commission on online transaction revenue will decline as a result of these
reductions. There

                                       19
<PAGE>
 
can be no assurance that airlines or other of the Company's travel suppliers
will not further reduce the amount of compensation payable to the Company and
other online service providers.

     In addition, certain travel suppliers have initiated direct online
distribution channels and, in some cases, have offered negotiated rates directly
to major corporate customers. Further, the Company's travel service offerings
are limited to those travel suppliers whose services and products are available
through the global distribution services ("GDS") systems accessed by the
Company, namely, the Apollo GDS system ("Apollo") operated by 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 WorldCom, Inc.'s ANS Communications subsidiary (which was acquired by
WorldCom, Inc. from AOL in February 1998), which provides 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; Galileo,
which provides the Company with access to the Apollo GDS system; and AT&T, which
provides the Company with data connectivity to the Apollo GDS System.

     The Company is dependent on these third party providers to continue to
offer and maintain these services. Any discontinuation of such services, or any
reduction in performance that requires the Company to replace such services,
would be disruptive to the Company's business. In particular, if the Company
were required to replace services provided by the Apollo GDS system, the Company
believes it could take up to one year and require substantial expenditures to
fully transition the Company's travel services to an alternative service
provider. In the past, these third party providers have experienced
interruptions or failures in their systems or services, which have temporarily
prevented the Company's customers from accessing or purchasing certain travel
services through the Company's online sites. Any reduction in performance,
disruption in Internet or online access or discontinuation of services provided
by AOL, 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. See "--Year 2000 Compliance."

     Competition. The online travel services market is new, rapidly evolving and
intensely competitive, and the Company expects such competition to intensify in
the future. The Company competes primarily with traditional travel agency and
online travel reservation services. In the online travel services market, the
Company competes with other entities that maintain similar commercial Web sites,
such as Expedia (operated by Microsoft

                                       20
<PAGE>
 
Corporation), Travelocity (operated by SABREGroup Holdings Inc., a majority-
owned subsidiary of American Airlines), Cendant Corporation, TravelWeb (operated
by Pegasus), Internet Travel Network, Biztravel.com, and TheTrip.com, among
others. Several traditional travel agencies, including larger travel agencies
such as American Express Travel Related Services Co. Inc., Uniglobe Travel and
Carlson Wagonlit Travel, have established, or may establish in the future,
commercial Web sites offering online travel services. Additionally,
Priceline.com LLC operates a Web site that allows users to bid on air tickets.

     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, such as United Airlines, offer
travel services directly through their own Web sites, including travel services
from other travel suppliers, eliminating the need to pay commissions to third
parties such as the Company. The Company is unable to anticipate which other
companies are likely to offer competitive services in the future. There can be
no assurance that the Company's online operations will compete successfully with
any current or future competitors.

     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.

                                       21
<PAGE>
 
     Risks Associated with Advertising Revenues. During 1996 and 1997 and the
three months ended March 31, 1998, approximately 58%, 39% and 35%, respectively,
of the Company's total revenues were derived from the sale of advertising in
connection with its television programming and, to a lesser extent, its online
sites. The Company expects that revenues derived from the sale of advertising on
its online sites may increase in future periods in terms of absolute dollars.
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 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. In
particular, the Company currently anticipates that Best Buy Co., Inc. ("Best
Buy") will account for an increasing percentage of the Company's television
advertising revenues in future periods. As is common in the television industry,
the Company does not have a long-term contract or arrangement with Best Buy that
guarantees advertising revenues from Best Buy. As a result, if advertising
revenues from Best Buy do not materialize to the extent anticipated by the
Company or if such advertising revenues materialize and Best Buy then phases out
its sponsorship of the Company's television programming, overall revenues from
the Company's television operations would be materially and adversely affected,
which could adversely affect the Company's business operating results and
financial condition.

     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.

                                       22
<PAGE>
 
     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 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

                                       23
<PAGE>
 
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 experienced negative cash flow from
television operations in 1997 and in the first quarter of 1998 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 to advertise in the Company's in-flight
programming. Revenues attributable to MCI comprised 30% and 7% of the Company's
total television revenues for 1997 and the three months ended March 31, 1998,
respectively. Because the Company does not expect to receive any additional
revenues from MCI for television sponsorships, the Company expects revenues
attributable to MCI in 1998 to decrease significantly from that in 1997. 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. The Company currently anticipates that Best Buy Co., Inc.
("Best Buy") will account for an increasing percentage of the Company's
television advertising revenues in future periods. Revenues attributable to Best
Buy, which began advertising with the Company in March 1998, comprised 9% of the
Company's total television revenues for the three months ended March 31, 1998.
As is common in the television industry, the Company does not have a long-term
contract or arrangement with Best Buy that guarantees advertising revenues from
Best Buy.
     
     As a result, if advertising revenues from Best Buy do not materialize to
the extent anticipated by the Company or if such advertising revenues
materialize and Best Buy then phases out its sponsorship of the Company's
television programming, overall revenues from the Company's television
operations would be materially and adversely affected, which could adversely
affect the Company's business, operating results and financial condition. The
Company expects revenues from its television operations to decline in 1998
relative to 1997. 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

                                       24
<PAGE>
 
other reasons, to adapt in a timely manner in response to changing market
conditions or customer requirements, its business, operating results and
financial condition could be materially adversely affected.

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

     Need for Additional Capital. The Company requires substantial working
capital to fund its business and expects to use a portion of the net proceeds of
its initial public offering and secondary offering to fund its operating losses.
In the last 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 its initial public offering and secondary offering,
together with its existing capital resources, will be sufficient to meet the
Company's capital requirements through the year 2000. Thereafter, the Company
may be required to raise additional funds, in part to fund its financial
obligations to AOL, Excite and Lycos. 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

                                       25
<PAGE>
 
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 continue to strategically license certain
content for its online sites from third parties, such as it did with Fodor's,
including content which is integrated with internally developed content and used
on the Company's online sites to provide key services. There can be no assurance
that these third party content licenses will be available to the Company on
commercially reasonable terms or that the Company will be able to successfully
integrate such third party content. Such content licenses may expose the Company
to increased risks, including risks associated with the assimilation of new
content, the diversion of resources from the development of the Company's
content, the inability to generate revenues from new content sufficient to
offset associated acquisition costs and the maintenance of uniform, appealing
content. The inability to obtain any of these licenses could result in delays in
site development or services until equivalent content can be identified,
licensed and integrated. Any such delays in site development or services could
have a material adverse effect on the Company's business, operating results and
financial condition.

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

     The Company is also subject to regulations applicable to businesses
generally and laws or regulations directly applicable to access to online
commerce. Although there are currently few laws and regulations directly
applicable to the Internet and commercial online services, it is possible that a
number of laws and regulations may

                                       26
<PAGE>
 
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
Company's future international operations and, consequently, on its business,
operating results and financial condition.

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

     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 remedy 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

                                       27
<PAGE>
 
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.

     Volatility of Stock Price. The market price of the Common Stock of the
Company could be subject to significant fluctuations in response to quarter-to-
quarter variations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors, and
other events or factors. For example, a shortfall in revenue or net income, or
increase in losses from levels expected by securities analysts, could have an
immediate and significant adverse effect on the market price of the Company's
Common Stock. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many high technology companies and that have often been unrelated or
disproportionate to the operating performance of companies. These fluctuations,
as well as general economic and market conditions, may adversely affect the
market price for the Common Stock. Furthermore, a substantial portion of the
Company's outstanding Common Stock will be eligible for sale in the public
market upon the expiration of certain lock-up agreements, subject in some cases
to the volume and other restrictions of Rule 144 and Rule 701 under the
Securities Act of 1933 (the "Securities Act"). These lock-up agreements were
entered into between the representatives of the underwriters and certain
stockholders in connection with the Company's initial public offering in
November 1997, which agreements expire on May 19, 1998, and between the
underwriters and the Company's officers and directors and selling stockholders
in the Company's secondary offering in April 1998, which agreements expire on
July 29, 1998. There can be no assurance that sales of Common Stock by such
stockholders upon expiration of the lock-up agreements will not adversely affect
the market price of 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.

                                       28
<PAGE>
 
PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS - NOT APPLICABLE.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

     On November 19, 1997, in connection with the Company's initial public
offering, a Registration Statement on Form S-1 (No. 333-37183) was declared
effective by the Securities and Exchange Commission, pursuant to which 2,500,000
shares of the Company's Common Stock were offered and sold for the account of
the Company at a price of $11.00 per share, generating gross offering proceeds
of $27.5 million. The managing underwriters were Hambrecht & Quist LLC and
NationsBanc Montgomery Securities, Inc. After deducting approximately $1.9
million in underwriting discounts and $1.0 million in other related expenses,
the net proceeds of the offering were approximately $24.6 million. The Company
has used $6.4 million of the net proceeds of the offering for a payment to AOL
under the distribution agreement with AOL and $500,000 for a payment to Excite
under the distribution agreement with Excite. The remaining $17.7 million has
been invested in investment grade, interest bearing securities. The Company
intends to use such remaining proceeds for capital expenditures, including the
acquisition of redundant computer and communication systems, for payment of its
obligations to AOL, Excite and Lycos pursuant to its agreements with AOL, Excite
and Lycos, and for general corporate purposes, including working capital to fund
anticipated operating losses.

 
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NOT APPLICABLE.

ITEM 5.   OTHER INFORMATION - NOT APPLICABLE.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.
          (a)  Exhibits:

               Exhibit 27.1 - Financial Data Schedule

          (b)  Reports on Form 8-K - None

                                       29
<PAGE>
 
                                  SIGNATURES

                                        
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

 
                              PREVIEW TRAVEL, INC.

 
                              By:  /s/   KENNETH R. PELOWSKI
                                   --------------------------------------
                                   Kenneth R. Pelowski
                                   Executive Vice president, Finance and
                                   Administration, and Chief Financial Officer
                                   (Principal Financial Officer)

Date:  May 14, 1998









                                      30
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------


27.1 Financial Data Schedule