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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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



FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

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For the year ended December 31, 1999                 Commission File No. 0-25581



priceline.com Incorporated

(Exact name of registrant as specified in its charter)



Delaware                    0-25581                     06-1528493

(State or other Jurisdiction  (Commission File Number)          (IRS Employer

of Incorporation)                                       Identification No.)



800 Connecticut Avenue, Norwalk, Connecticut                         06854

(Address of Principal Office)                                 (Zip Code)



Registrant's telephone number, including area code:

(203) 299-8000



Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock, par value $0.008 per share



Securities Registered Pursuant to Section 12(g) of the Act:

None



Indicate by check mark whether the registrant (1) has filed all reports

required to be filed by Section 13 or 15(d) of the Securities Exchange Act of

1934 during the preceding 12 months (or for such shorter period that the

registrant was required to file such reports), and (2) has been subject to such

filing requirements for the past 90 days. Yes [X] No [ ]



Indicate by check mark if disclosure of delinquent filers pursuant to Item

405 of Regulation S-K is not contained herein, and will not be contained, to the

best of registrant's knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K. Yes [X] No [ ]



Aggregate market value of voting stock held by non-affiliates

of the registrant as of March 10, 2000................$5,664,836,331



Number of shares of common stock outstanding as of

March 10, 2000...........................................170,115,752

DOCUMENTS INCORPORATED BY REFERENCE



The information required by Part III of this Annual Report on Form 10-K,

to the extent not set forth herein, is incorporated herein by reference from the

registrant's definitive proxy statement relating to the annual meeting of

stockholders to be held on April 24, 2000, which definitive proxy statement was

filed on March 27, 2000 with the Securities and Exchange Commission.



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priceline.com Incorporated



Form 10-K

For the Year Ended December 31, 1999



INDEX



PAGE

PART I

Item 1.   Business............................................................ 1

Item 2.   Properties..........................................................22

Item 3.   Legal Proceedings...................................................22

Item 4.   Submission of Matters to a Vote of Security Holders. ...............23



PART II

Item 5.   Market for the Registrant's Common Stock and Related

Stockholder Matters................................................23

Item 6.   Selected Financial Data.............................................24

Item 7.   Management's Discussion and Analysis of Financial Condition and

Results of Operations..............................................24

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk...........35

Item 8.   Financial Statements and Supplementary Data. .......................35

Item 9.   Changes in and Disagreements With Accountants on Accounting and

Financial Disclosure...............................................35



PART III

Item 10.  Directors and Executive Officers of the Registrant..................35

Item 11.  Executive Compensation..............................................35

Item 12.  Security Ownership of Certain Beneficial Owners and Management......35

Item 13.  Certain Relationships and Related Transactions......................35



PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.....36



Signatures....................................................................39



Financial Statements..........................................................41

PART I



Item 1. Business



General



Priceline.com Incorporated ("priceline.com," the "Company," "we," "us" or

"our") has pioneered a unique e-commerce pricing system known as a "demand

collection system" that enables consumers to use the Internet to save money on a

wide range of products and services while enabling sellers to generate

incremental revenue. Using a simple and compelling consumer proposition - Name

Your Own Price(sm) - priceline.com collects consumer demand, in the form of

individual customer offers guaranteed by a credit card, for a particular product

or service at a price set by the customer. Priceline.com then either

communicates that demand directly to participating sellers or accesses

participating sellers' private databases to determine whether priceline.com can

fulfill the customer's offer. Consumers agree to hold their offers open for a

specified period of time and, once fulfilled, offers cannot be canceled.

Priceline.com benefits consumers by enabling them to save money, while at the

same time benefitting sellers by providing them with an effective revenue

management tool capable of identifying and capturing incremental revenues. By

requiring consumers to be flexible with respect to brands, sellers and product

features, priceline.com enables sellers to generate incremental revenue without

disrupting their existing distribution channels or retail pricing structures.



Priceline.com believes that its unique business model can be applied to a

broad range of products and services. The Company believes that this broad

applicability of its business model, its first mover advantage, the strength of

the priceline.com brand, its network of seller participants, its proprietary

software systems and its intellectual property strategies provide it with

significant competitive advantages. Priceline.com's strategy is to increase its

revenues in existing products and services by improving product offerings,

expand its Name Your Own Price(sm) service to new products and services and

offer its services in international markets through investments in independent

licensee companies.



Priceline.com commenced its service on April 6, 1998 with the sale of

leisure airline tickets and at December 31, 1999 offered services for leisure

airline tickets, hotel rooms, mortgages and new automobiles. In December 1999

and February 2000, the Company launched two different rental car offerings. In

the near term, the Company intends to launch a Name Your Own Price(sm) service

for international and domestic long distance service. In addition, the Company's

licensee, Priceline WebHouse Club, Inc., launched a Name Your Own Price(sm)

service for groceries in the fourth quarter of 1999. Another licensee,

Priceline Perfect Yard Sale, Inc., launched on a test basis in the first quarter

of 2000 a consumer-to-consumer based Name Your Own Price(sm) service for the

sale of quality used goods over the Internet.



For the year ended December 31, 1999, priceline.com had revenues of $482.4

million. The revenues for the year ended December 31, 1999 were comprised

primarily of: (1) transaction revenues representing the selling price of airline

tickets and hotel rooms; (2) fee income from adaptive marketing programs offered

in connection with priceline.com's product offerings; (3) ancillary revenues

consisting primarily of reservation booking fees and customer processing fees;

and (4) fee income from priceline.com's home financing and auto programs.



Priceline.com was formed as a Delaware limited liability company in 1997

and was converted into a Delaware corporation in July 1998. The Company

completed its initial public offering in April 1999, and its comon stock is

listed on the Nasdaq National Market under the symbol "PCLN." Priceline.com

recently completed the relocation of its principal corporate offices from

Stamford, Connecticut to Norwalk, Connecticut.



The priceline.com Business Model



Priceline.com has developed a unique pricing system known as a "demand

collection system" that uses the information sharing and communications power of

the Internet to create a new way of pricing products and services. Priceline.com

creates a new balance between the interests of buyers, who are willing to accept

trade-offs in order to save money, and sellers, who are prepared to generate

incremental revenue by selling products at below

retail prices, provided that they can do so without disrupting their existing

distribution channels or retail pricing structures. Priceline.com's demand

collection system allows consumers to specify the price they are prepared to pay

when submitting an offer for a particular product or service within a specified

range of substitutability. Priceline.com then either communicates these offers

to participating sellers or accesses participating sellers' private databases to

determine whether it can fulfill the customer's offer. Consumers agree to hold

their offers open for a specified period of time to enable priceline.com to

fulfill their offers from inventory provided by participating sellers. Once

fulfilled, offers generally cannot be canceled. This system uses the flexibility

of buyers to enable sellers to accept a lower price in order to sell excess

inventory or capacity or increase sales velocity. Priceline.com believes that

its demand collection system addresses limitations inherent in traditional

seller-driven pricing mechanisms in a manner that offers substantial benefits to

both buyers and sellers. The principal advantages of the priceline.com system

include the following:



o     Cost Savings and Preferred Method Of Purchasing For Consumers.

Priceline.com's Name Your Own Price(sm) demand collection system

allows consumers to save money in a simple and compelling way.

Buyers effectively trade off flexibility about brands, product

features and/or sellers in return for prices that are lower than

those that can be obtained at that time through traditional retail

distribution channels. Priceline.com believes that in many cases,

such as purchasing a new car or obtaining a home mortgage, the

Internet represents a preferred method to traditional retail

channels.



o     Incremental Revenue For Sellers. Sellers use priceline.com as a

revenue management tool to generate incremental revenue without

disrupting their existing distribution channels or retail pricing

structures. Priceline.com requires consumers to be flexible with

respect to brands and product features. As a result, sellers' brands

are not revealed to customers prior to the consummation of a

transaction, thereby protecting their brand integrity. This

shielding of brand identity enables sellers to sell products and

services at discounted prices without cannibalizing their own retail

sales by publicly announcing discount prices and without competing

against their own distributors.



o     Proprietary Seller Networks. Priceline.com assembles proprietary

networks of industry leading sellers that represent high quality

brands. By establishing attractive networks of seller participants

with reputations for quality, scale and national presence,

priceline.com fosters increased participation by both buyers and

sellers.



o     Guaranteed Consumer Demand For Sellers. Each customer who makes an

offer through priceline.com must guarantee his or her offer with a

major credit card. The guaranteed aspect of the demand is attractive

to sellers because they know that priceline.com offers them a

confirmed sale.



o     Broad Applications Across Multiple Markets. In contrast to many

e-commerce companies that are building brands in vertical categories

or groups of related categories, priceline.com believes that its

e-commerce business model has horizontal application to products and

services in a wide range of industries. Priceline.com further

believes that the broad applicability of the priceline.com service

and the strength of the priceline.com brand afford it the

opportunity to obtain substantial economies of scale and offer the

potential for priceline.com to become a major new channel of

distribution.



The priceline.com Strategy



Priceline.com's objective is to continue to expand the priceline.com

business and to operate priceline.com's demand collection system as a leading

source for the purchase of products and services on the Internet. The key

elements of priceline.com's strategy are as follows:





2

o     Strengthen the priceline.com Brand. The Company intends to expand

consumer recognition of priceline.com as the leading consumer brand

for buyer-driven commerce over the Internet. To achieve this

objective, priceline.com intends to continue to pursue an aggressive

brand development strategy through mass market and targeted

advertising and promotions, press coverage and strong word-of-mouth

support. While priceline.com is already one of the most recognized

e-commerce brands among adult Americans, priceline.com believes that

it can expand the public's association with the priceline.com Name

Your Own Price(sm) proposition to a broad range of products and

services. See "- Marketing and Brand Awareness."



o     Leverage the priceline.com Brand Over Numerous Products and

Services. Priceline.com intends to continue to leverage the

priceline.com brand across numerous products and services to achieve

significant revenue scale and growth. In contrast to most e-commerce

businesses that operate in one or two "vertical" markets,

priceline.com is a "horizontal" commerce system that can benefit

both buyers and sellers across a broad range of products and

services. Priceline.com's strategy is to make available multiple

product and service offerings at a single Web site under a common

brand to take advantage of these market opportunities. Priceline.com

intends to expand directly in certain vertical markets and license

its business model and name to independent licensees in other

markets. Priceline.com and its licensees have launched or expanded

offerings in several new categories over the past twelve months and

these efforts will continue. See "- Products and Services."



o     Enhance Site Functionality and Increase Consumer Usage.

Priceline.com intends to continue to frequently update and enhance

the features of the priceline.com service. Priceline.com continually

monitors feedback from consumers and frequently adds new features to

further refine and simplify the buying process. Priceline.com also

receives offers by telephone and provides customer service by

telephone and e-mail to assist consumers in the offer process. By

continuing to increase the functionality of the service and enhance

the consumer experience, priceline.com believes that it will

continue to increase customer usage and loyalty.



o     Pursue International Expansion. Priceline.com believes that the

international scope of the Internet and the global demand for the

types of products and services available through priceline.com

presents opportunities to expand its service internationally.

Priceline has announced initiatives in Australia/New Zealand and

Asia and intends to pursue additional overseas opportunities. See "-

Products and Services - International Expansion."



Products and Services



Priceline.com launched the priceline.com service on April 6, 1998 with the

sale of leisure airline tickets. The priceline.com service now includes the sale

of new automobiles, hotel room reservations, rental cars and home financing

services. Priceline.com also intends to expand its product offerings to include:

other leisure travel products such as cruises; time shares and vacation

packages; pre-paid long distance and other telecommunications services; credit

cards; and automobile, personal insurance and other financial services products.

In addition, priceline.com has announced initiatives to expand the priceline.com

service internationally.





3

Travel Services



Leisure Airline Tickets. Priceline.com commenced its service with the sale

of leisure airline tickets. The number of airlines participating in

priceline.com's airline ticket service has increased to a total of 10 domestic

airlines and 20 international airlines.



Consumers can make offers to purchase airline tickets through the

priceline.com Web site or the 1-800-PRICELINE(sm) call center. The vast majority

of all airline ticket requests are made through priceline.com's Web site. To

make an offer, a customer specifies (1) the origin and destination of the trip,

(2) the dates on which the customer wishes to depart and return, (3) the price

the customer is willing to pay and (4) the customer's valid credit card to

guarantee the offer. When making an offer, consumers must agree to:



o     fly on any major full-service airline;



o     leave at any time of day between 6 a.m. and 10 p.m.on their

desired dates of departure and return;



o     purchase only round trip economy class tickets between the

same two points of departure and return;



o     accept at least one stop or connection;



o     receive no frequent flier miles or upgrades; and



o     accept tickets that cannot be refunded or changed.



When priceline.com receives an offer, it determines whether to fulfill the

offer based upon the available fares, rules and inventory provided to

priceline.com by its participating airlines. A customer is notified whether his

or her offer has been accepted within one hour. If priceline.com is able to

obtain an airline ticket within the parameters specified by the customer, the

customer's offer is accepted and his or her credit card is charged the offer

price, plus applicable taxes, surcharges and standard processing fees, and the

ticket is delivered to the customer by the delivery method specified by the

customer. As with pricelines.com's other travel products, once a customer's

offer for airline tickets is accepted, that offer cannot be withdrawn or

cancelled.



Hotels. In October 1998, priceline.com launched its Name Your Own

Price(sm) travel service for hotel room reservations. Priceline.com's hotel room

reservation service currently is available in substantially all major cities and

metropolitan areas in the United States. Seller participants in the hotel room

reservation service include several of the most significant national hotel

chains as well as several important real estate investment trusts and

independent property owners. Hotels participate by filing private discounted

rates with related inventory control rules in priceline.com's private database

in a central reservation system for hotel rooms. These rates generally are not

available to the general public or to consolidators and other discount

distributors who sell to the public.



Priceline.com's hotel room reservation service operates in a manner

similar to its airline ticket service. Consumers are required to accept certain

trade-offs with respect to brands or product features in return for saving

money. For example, consumers are required to accept a reservation in any hotel

within a specified geographic





4

area within a designated "class" of service (1, 2, 3, 4 or 5-star) and must

accept limitations on changes and cancellations. As with the airline ticket

service, the target market for priceline.com's hotel room reservation service is

the leisure travel market.



Rental Cars. Priceline.com offers two different rental car services. In

December 1999, priceline.com launched its Insiders Rates(sm) service and, in

February 2000, priceline.com launched its Name Your Own Price(sm) service.

Priceline.com's rental car services are currently available in substantially all

major United States markets. Three of the top five brand name rental car

companies in the United States are seller participants in priceline.com's rental

car program.



Under priceline.com's Insiders Rates(sm) service, participating car rental

companies offer priceline.com customers who have successfully purchased an

airline ticket from priceline.com rates on car rentals in connection

with a customer's planned travel arrangements. An offer is provided to a

customer by e-mail and on priceline.com's Web site when a customer checks the

status of his or her request.



Priceline.com's Name Your Own Price(sm) rental car service operates in a

manner similar to its airline ticket and hotel reservation services. Consumers

can access priceline.com's Web site and select where and when they want to rent

a car, what kind of car they want to rent (i.e., economy, compact, mid-size,

SUV) and the price they want to pay per-day, excluding taxes, fees and

surcharges. When priceline.com receives an offer, it determines whether to

fulfill the offer based upon the available rates, rules and inventory. A

customer is notified whether his or her offer has been accepted within one hour.

If a customer's offer is accepted, priceline.com will immediately reserve the

rental car, charge the customer's credit card and notify the customer of the car

rental company and location providing the rental car.



Other Travel Services. Priceline.com intends to expand its products and

services within the leisure travel industry over the next two years to encompass

cruises, all-inclusive resorts, time share and vacation packages.



Home Financing Services. Priceline.com introduced its home financing

service in January 1999. Under the terms of separate agreements with Alliance

Partners, L.P. and LendingTree, priceline.com's financing service allows

consumers to name their interest rate and points for mortgages of a specified

term, including, purchase money mortgages, refinancings and home equity loans.



Alliance relationship. Under the terms of priceline.com's agreement with

Alliance Partners, which was entered into on March 17, 2000, priceline.com

provides advertising and marketing support and a license of certain

priceline.com intellectual property to a newly formed indirect subsidiary of

Alliance Partners. This Subsidiary conducts business as a broker and/or lender

of residential mortgage loans under the name "pricelinemortgage." Pursuant to an

intellectual property license from priceline.com, pricelinemortgage utilizes the

priceline.com Name Your Own Price(sm) business model. Pricelinemortgage is

controlled by First Alliance Bank, a federally chartered savings association

supervised by the Office of Thrift Supervision and a wholly owned subsidiary of

Alliance Partners. Pricelinemortgage has access to the management resources and

expertise of Alliance Partners and its affiliates, including Alliance Mortgage

Company, a residential mortgage lender since 1962. Alliance Partners provides

management services to pricelinemortgage, including the procurement of personnel

and office space and assistance in obtaining regulatory approvals.

Pricelinemortgage is operating in all 50 states.





5

LendingTree relationship. Under priceline.com's agreement with

LendingTree, priceline.com is responsible for maintaining the home financing

service on the priceline.com Web site and for consumer marketing. LendingTree

serves as the back-end processing system, which presents offers received

through the priceline.com Web site to multiple mortgage lending institutions for

consideration. There are currently more than 30 lenders participating in the

home financing services through LendingTree.



To obtain a home mortgage, refinancing or home equity loan, consumers

access the priceline.com Web site and specify the amount of the loan, the term,

the interest rate and the points that they are willing to pay. Customers

complete a simplified loan application as part of the process of making an

offer. In connection with making an offer, customers are required to guarantee

with a major credit card the payment of a good-faith deposit of $200 that is

applied towards closing costs. Priceline.com notifies a customer within six

hours whether his or her offer has been accepted by a participating lender.

Participating lenders may submit counteroffers through Priceline.com for up to

one business day following the customer's offer.



Other Financial Services Products



Priceline.com intends to expand its products and services within the

financial services industry over the next two years to include unsecured

personal loans, automobile loans, credit cards and credit card balance

consolidations and automobile and life insurance policies. As with its other

products and services, priceline.com may expand its financial services products

by entering into licensing transactions or strategic relationships with leading

industry participants.



New Car Sales



Priceline.com introduced its new car sales service on a test basis in the

New York metropolitan area in July 1998. Since that time, priceline's new

automobile service has been expanded to include 26 states and the Company

intends to continue domestic expansion, subject to resolution of any regulatory

issues.





6

Priceline.com's new car sales service accepts offers for every major brand

of automobile. To purchase a new car through the priceline.com service, the

customer identifies the exact vehicle desired to be purchased or leased,

including the make, model and specified options, the geographic area in which

the customer is willing to pick up the vehicle and the purchase price or lease

price the customer is willing to pay. All sales are made through

factory-authorized dealers.



Upon receiving an offer for a new car, priceline.com transmits the

customer's offer to factory authorized dealers within the specified geographic

radius, without disclosing the identity of the customer. Priceline.com directs

the sale to the first dealer that notifies the Company that it is willing to

accept the customer's offer. Priceline.com then notifies the customer to pick up

the vehicle from that dealer and the transaction is closed directly between

them.



Due to the numerous features and options on a new automobile, the range of

product substitutability that consumers will accept is lower in the case of new

cars than with airline tickets or hotels. As a result, a dealer that may not be

able to precisely fulfill a customer's offer is permitted to make a counteroffer

through priceline.com. The counteroffer may specify a different product package

or price. The customer is free to accept or reject such a counteroffer. The

customer also is permitted to submit an additional offer through priceline.com.

Priceline.com facilitates the exchange of customer offers and dealer acceptances

or counteroffers. Priceline.com does not negotiate on behalf of customers or

dealers and does not represent to its customers or dealers that it is acting as

an agent or broker on behalf of either party.



Once an offer for a new car is accepted by a dealer, the consumer

completes the transaction directly with the dealer and receives the same

standard manufacturer's warranty and other terms that are available with respect

to any new car purchased from that dealer. In most states, when a sale is

completed, priceline.com is paid a $50 fee from the customer and a $200 fee from

the selling dealer. In other states, the Company does not currently receive

compensation from the customer or dealer as a result of regulatory restrictions.

If the customer fails to consummate the transaction within a specified time

period after being notified that an offer is accepted, the customer is charged a

cancellation fee.



The priceline.com new car sales service is differentiated from other

Internet car sales services, which serve as lead generators for participating

car dealers. Under such services, multiple dealers may contact the customer in

response to the customer's inquiry to the Internet service. By contrast,

priceline.com's new car sales service does not reveal the identity of the

customer to the auto dealer until the dealer has accepted the customer's offer.

Furthermore, in contrast to other Internet car sales services, dealers are not

currently required to pay a participation fee to review offers from the

priceline.com service.



Long Distance Service. In the near term, the Company intends to launch a

Name Your Own Price(sm) service for international and domestic long distance

calls. The Company intends to allow consumers to name their own price for

phone-to-phone international and domestic long distance calls.



Licensees



WebHouse Club. The Company has licensed its patented Name Your Own

Price(sm) business model and affiliated trademarks and software systems to

Priceline WebHouse Club, Inc., which operates an Internet-based service for

groceries and other retail products. Walker Digital Corporation owns 34.1% of

the outstanding capital stock of WebHouse Club and the balance is owned by

certain institutional and individual investors. Priceline.com owns a warrant

that entitles it to purchase up to 137.5 million shares of common stock of

WebHouse Club, or 77.5% of the fully diluted equity of WebHouse Club, at an

exercise price of $3.00 per share, upon the satisfaction of certain conditions.

Unless and until that warrant is exercised, WebHouse Club and its financial

results will not be included in priceline.com's financial statements. In

connection with the WebHouse Club transaction, Walker Digital, granted to

priceline.com an exclusive (in the field of retail commerce other than vending

machines or restaurants) worldwide license to certain intellectual property,

including patent and patent applications, useful in WebHouse Club's business.

The Company exclusively sublicensed these intellectual property rights to

WebHouse Club and granted to WebHouse Club an exclusive worldwide license to its

buyer-driven commerce patent rights and other intellectual property for use in

the sale of groceries, health and beauty items and household supplies by

retailers, as well as a non-exclusive worldwide license to such intellectual

property for use in Internet-based,



- --------





7

buyer-driven commerce for the sale, by retailers, of other products or services.

WebHouse Club pays priceline.com a sliding scale royalty descending from 1.0% of

net revenues. In addition to the patent and technology license, priceline.com

and WebHouse Club share certain information technology infrastructure, and

priceline.com provides WebHouse Club with marketing and information technology

services.



Perfect Yard Sale. Priceline.com also has licensed its patented Name Your

Own Price(sm) business model and affiliated trademarks to Priceline Perfect Yard

Sale, Inc., a subsidiary of Walker Digital which operates a consumer-to-consumer

service for the sale of quality used goods over the Internet. Walker Digital has

agreed to grant priceline.com an exclusive, worldwide license to certain

intellectual property including patents useful in Perfect Yard Sale's business.

Under the terms of a preliminary agreement between priceline.com and Perfect

Yard Sale, priceline.com granted to Perfect Yard Sale an exclusive royalty-free

license to certain intellectual property licensed by Walker Digital to

priceline.com, as well as to the priceline.com buyer-driven commerce patent

rights and related intellectual property, and the Priceline name and associated

trademarks for use in Perfect Yard Sale's business, and agreed to provide

related services on a royalty-free basis pending execution of definitive

documentation. Under the terms of the Perfect Yard Sale preliminary agreement,

priceline.com has the right to receive a warrant to purchase a majority of the

outstanding voting equity of Perfect Yard Sale on mutually agreed upon terms.

Until that warrant is exercised, Perfect Yard Sale and its financial results

will not be included in priceline.com's financial statements.



International Expansion



On February 29, 2000, priceline.com announced that it had entered into

definitive agreements, to introduce priceline.com's buyer-driven e-commerce

system to the residents of Australia and New Zealand. This service will be

offered by a newly formed entity, MyPrice PTY Ltd ACN. Upon consummation of the

transactions contemplated by the definitive agreements, which is subject to

receipt of required Australian regulatory approvals, the outstanding equity of

MyPrice will be owned by a consortium of Australian and international business

executives and investors. MyPrice initially will offer leisure airline tickets

and intends to expand into other areas, including hotels, rental cars, financial

services (including credit cards, loans and insurance), telecommunications and

automotive sales. Upon consummation of the transactions, priceline.com will

license its business model to MyPrice and will receive an annual licensing

payment from MyPrice. Priceline.com will purchase a convertible note allowing it

to take a 50% interest in MyPrice under certain conditions. Unless and until

that note is converted, MyPrice and its financial results will not be included

in priceline.com's financial statements. MyPrice expects to launch two web sites

later this year - MyPrice.com.au and MyPrice.com.nz (both powered by

priceline.com).



On January 26, 2000, the Company announced that it had entered into an

agreement in principle to form an alliance with Hutchison Whampoa Limited to

introduce priceline.com's buyer-driven e-commerce system to 2.6 billion

consumers in China (and Hong Kong), India, Taiwan, Indonesia, Singapore,

Thailand, Korea, Malaysia, the Philippines, Vietnam and certain other Asian

countries. Under the terms of the agreement in principle between priceline.com

and a subsidiary of Hutchison, upon execution of mutually acceptable definitive

agreements, a new company will be created to launch and manage the Name Your Own

Price(sm) service in Asia. The Company will license its business model to the

newly created company and provide technology, marketing and operations support.

Hutchison will contribute its strong brand and leverage its extensive customer

base and retail network in Asia. The new company will pay priceline.com an

annual licensing fee in respect of priceline.com's intellectual property and

technology marketing and operation services fees. In addition, Priceline.com

will purchase a convertible note allowing it to take up to a 50% interest in the

new company under certain conditions. Unless and until that note is converted,

the new company and its financial results will not be included in

priceline.com's financial statements. Hutchison will also purchase equity

securities in the new company and is also providing management services. The new

company is expected to launch its first service for leisure airline tickets

later this year completion of the transaction is subject to negotiation and

execution of definitive agreements and certain other conditions.



Priceline.com is continuing to pursue additional opportunities to expand

its service internationally.



Adaptive Marketing Programs





8

Priceline.com has developed adaptive marketing programs to help bridge the

gap between consumer offers and seller prices, provide users of the

priceline.com service with other desired products, and generate additional

revenue for the Company. These programs also serve as an integral part of

priceline.com's strategy of building customer loyalty.



Priceline.com's adaptive marketing programs presently include two distinct

initiatives. The first, which it refers to as "adaptive promotions," allows

consumers to increase the amount of their offers, and thus their likelihood of

success, at no additional cost by participating in sponsor promotions during the

process of making a priceline.com offer. For example, a customer making an offer

to buy a round-trip airline ticket can immediately have the amount of his or her

offer increased (and thereby increase his or her likelihood of success) by

applying online for a credit card.



The second type of adaptive marketing program is referred to as "adaptive

cross selling" and utilizes cross selling of multiple products to increase the

number of successful transactions. For example, a customer whose offer for an

airline ticket was marginally below acceptable levels could be offered a second

related product such as a hotel room reservation or a rental car day at a

combined price that provided an acceptable margin for priceline.com.



During 1999, priceline.com added adaptive marketing partners and, as a

result, reduced its dependence on any one partner. Priceline.com intends to

continue to add adaptive marketing programs so that consumers have a variety of

programs from which to choose and priceline.com has a diversified source of

adaptive marketing revenues.



Walker Digital owns the intellectual property rights underlying the

technology associated with the Company's adaptive marketing programs. Walker

Digital has licensed to the Company the right to use these intellectual property

rights under a perpetual, exclusive, royalty-free license agreement. Walker

Digital has pending several United States patent applications directed to

different aspects of the processes and technology supporting the Company's

adaptive marketing programs.



Marketing and Brand Awareness



Priceline.com has established itself as a leading e-commerce brand through

an aggressive marketing and promotion campaign. During fiscal year 1999,

priceline.com incurred $79.6 million for sales and marketing expense. It intends

to continue to pursue an aggressive marketing strategy designed to promote brand

awareness and the concept that consumers can save money on a wide range of

products and services through priceline.com. Underlying priceline.com's

marketing strategy is the Company's belief that its target market is all

consumers, not just Internet-savvy consumers. Substantially all of such spending

has been for television, radio and newspaper advertising. Priceline.com's

campaign features the actor William Shatner as its spokesperson.



Priceline.com supplements its paid advertising and promotion with targeted

media coverage. Priceline.com has been featured in hundreds of news stories in

national publications such as The New York Times, The Wall Street Journal and

USA Today, reflecting the intuitive appeal of the priceline.com business model

and its strong word-of-mouth support. In addition, priceline.com engages in

grass roots marketing such as promotional events on college campuses and

co-promotions with popular media such as MTV.



Competition



Priceline.com competes with both online and traditional sellers of the

products and services offered on priceline.com. The market for selling products

and services over the Internet is new, rapidly evolving and intensely

competitive. Current and new competitors can launch new sites at a relatively

low cost. In addition, the traditional retail industry for the products and

services priceline.com offers is intensely competitive.



Priceline.com currently or potentially competes with a variety of

companies with respect to each product or service it offers. With respect to

travel products, these competitors include:



o     Internet travel agents such as Microsoft's Expedia;



o     traditional travel agencies;





9

o     consolidators and wholesalers of airline tickets and other

travel products, including online consolidators such as

Cheaptickets.com;



o     individual or groups of airlines, hotels, rental car

companies, cruise operators and other travel service

providers; and



o     operators of travel industry reservation databases such as

Worldspan and Sabre.



Priceline.com's current or potential competitors with respect to new

automobiles include traditional and online auto dealers, including newly

developing auto super stores such as AutoNation, Auto-by-Tel and Microsoft's

CarPoint.



With respect to financial service products, priceline.com's competitors

include:



o     banks and other financial institutions;



o     online and traditional mortgage and insurance brokers,

including mortgage.com, Quicken Mortgage, E-Loan and iOwn,

Inc.; and



o     insurance companies.



Priceline.com's current or potential competitors with respect to rental

cars include, among others, rental car companies and traditional and online

travel agencies and travel service providers.



With respect to long distance services, priceline.com's potential

competitors include long distance providers, local exchange providers that may

be entering the long distance market and Internet Protocol telephone services.



Priceline.com potentially faces competition from a number of large

Internet companies and services that have expertise in developing online

commerce and in facilitating Internet traffic, including Amazon.com, America

Online, Microsoft and Yahoo!, who could choose to compete with priceline.com

either directly or indirectly through affiliations with other e-commerce or

offline companies. Other large companies with strong brand recognition,

technical expertise and experience in Internet commerce could also seek to

compete with priceline.com. The Company also believes that a number of airlines

intend to invest in and offer discount airfares and travel services through a

site or sites to be established and similar steps may be under consideration by

certain hotel companies and travel service providers. Competition from these and

other sources could have a material adverse effect on priceline.com's business,

results of operations and financial condition.



Priceline.com believes that the principal competitive factors in its

markets are brand recognition, price, Web site accessibility, ability to fulfill

offers, customer service, reliability of delivery, ease of use, and technical

expertise and capabilities. Many of priceline.com's current and potential

competitors, including Internet directories and search engines and large

traditional retailers, have longer operating histories, larger customer bases,

greater brand recognition and significantly greater financial, marketing,

technical and other resources than priceline.com. Some of these competitors may

be able to secure products and services on more favorable terms than

priceline.com. In addition, many of these competitors may be able to devote

significantly greater resources to: (1) marketing and promotional campaigns, (2)

attracting traffic to their Web sites, (3) attracting and retaining key

employees, (4) securing vendors and inventory and (5) Web site and systems

development.





Increased competition could result in reduced operating margins and loss

of market share and could damage priceline.com's brand. There can be no

assurance that priceline.com will be able to compete successfully against

current and future competitors or that competition will not have a material

adverse effect on priceline.com's business, results of operations and financial

condition.





10

Operations and Technology



Priceline.com's business is supported by a state of the art systems

platform, which was designed with an emphasis on scalability, performance and

reliability. Priceline.com's core demand collection and offer processing systems

are proprietary to priceline.com. The software platform and architecture are

built on server-side Java, C++, and ISO standard SQL scripts integrated with an

Oracle relational database system. This internal platform was designed to

include open application protocol interfaces that can provide real-time

connectivity to vendors in the range of industries in which priceline.com

operates. These include large global inventory systems, such as airline and

hotel room reservation systems and financial service providers, as well as

individual inventory suppliers, such as auto dealers, individual hotels and hard

goods merchants. Priceline.com's Internet servers utilize Verisign digital

certificates to help it conduct secure communications and transactions.



Priceline.com out-sources most of its call center and customer service

functions, and uses a real-time interactive voice response system with transfer

capabilities to its call centers and customer service centers in Norwalk,

Connecticut, Boston, Massachusetts, Columbus, Ohio, and Salt Lake City, Utah.



Priceline.com's systems infrastructure, Web and database servers are

hosted at Exodus Communications, Inc. in Jersey City, New Jersey, which provides

communication lines from multiple providers including UUNet and AT&T, as well as

24-hour monitoring and engineering support. Exodus has its own generator and

multiple back-up systems in Jersey City. Priceline.com also maintains an

uninterruptible power supply system and generator and redundant servers at its

Stamford, Connecticut site to provide service capability if the Exodus site

fails.



Priceline.com also offers phone service through its toll-free number,

1-800-PRICELINE(sm), which allows consumers who do not have access to a computer

to phone in their orders. In addition, consumers who choose not to transmit

their credit card information via the Internet have the option of submitting

their credit card information through the phone service. Priceline.com also uses

its toll-free number to provide customer service. Because priceline.com is an

Internet business, it intends to phase out its telephone ordering and credit

card submission services over time and, in the future, will use its toll-free

number only to provide customer service.



Intellectual Property



Priceline.com currently holds four issued United States patents, Nos.

5,794,207, 5,797,127, 5,897,620 and 6,041,308, over 25 pending United States

patent applications and corresponding pending international patent applications.

Priceline.com files additional patent applications on new inventions, as

appropriate.



While priceline.com believes that its issued patents and pending patent

applications help to protect the priceline.com business, there can be no

assurance that



o     any patent can be successfully defended against challenges by

third parties;



- --------





11

o     the pending patent applications will result in the issuance of

patents;



o     competitors or potential competitors of priceline.com will not

devise new methods of competing with the Company that are not

covered by priceline.com's patents or patent applications;



o     because of variations in the application of our business model

to each of our products and services, our patents will be

effective in preventing one or more third parties from

utilizing a copycat business model to offer the same product

or service in one or more categories;



o     new prior art will not be discovered which may diminish the

value of or invalidate an issued patent; or



o     a third party will not have or obtain one or more patents that

prevent priceline.com from practicing features of its business

or will require priceline.com to pay for a license to use

those features.



There has been recent discussion in the press regarding the examination

and issuance of so called "business-method" patents. As a result, the United

States Patent and Trademark Office has indicated that it intends to intensify

the review process applicable to such patent applications. The new procedures

are not expected to have a direct effect on patents already granted.

Priceline.com can not anticipate what affect, if any, the new process will have

on the Company's pending patent applications.



Priceline.com has been notified that a third-party patent applicant has

challenged its U.S. Patent No. 5,794,207 patent by attempting to provoke an

interference action in the United States Patent and Trademark Office. See "-

Legal Proceedings."



Walker Digital owns certain intellectual property rights associated with

the business of WebHouse Club that have been licensed exclusively to

priceline.com in the field of buyer-driven commerce (other than vending machines

or restaurants) which, in turn, sublicensed such rights to WebHouse Club for use

in its business. Walker Digital also owns certain intellectual property rights

associated with the business of Perfect Yard Sale. In a preliminary agreement,

Walker Digital has agreed to license such rights exclusively to priceline.com in

the field of buyer-driven commerce which, in turn, will be sublicensed to

Perfect Yard Sale for use in its business. See "- Products and Services -

Licensees."



Walker Digital owns the intellectual property rights underlying the

technology associated with priceline.com's adaptive marketing programs. Walker

Digital has licensed to priceline.com the right to use these intellectual

property rights. Walker Digital has several pending United States patent

applications directed to different aspects of the processes and technology

supporting adaptive marketing programs.



Priceline.com seeks to protect its copyrights, service marks, trademarks,

trade dress and trade secrets through a combination of laws and contractual

restrictions, such as confidentiality agreements. For example, priceline.com

attempts to register its trademarks and service marks in the United States and

internationally. However, effective trademark, service mark, copyright and trade

secret protection may not be available in every country in which priceline.com's

services are made available online. See "- Additional Factors That May Affect

Future Results -Our Success Depends on Our Ability to Protect Our Intellectual

Property." A third party has sued priceline.com for, among other things,

misappropriation of trade secrets. See "Legal Proceedings."



Priceline.com currently owns the Internet domain name "priceline.com" in

the United States. Domain names are generally regulated by Internet regulatory

bodies. The relationship between trademark and similar laws and domain name

registration is evolving, including passage during 1999 of the

Anti-Cybersquatting Consumer Protection Act, which significantly enhances the

ability to prevent incorporation by third parties of trademarks into domain

names. Priceline.com actively pursues infringers who improperly incorporate its

trademarks into domain names, as appropriate, to maintain and enhance the

strength of its trademarks. See "- Additional Factors That May Affect Future

Results - Our Success Depends On Our Ability To Protect Our Intellectual

Property."





12

Governmental Regulation



The products and services provided by the Company are subject to various

federal, state and local regulations. For example, the Company's travel service

is subject to laws governing the offer and/or sale of travel services as well as

laws requiring the Company to register as a "seller of travel." With respect to

the Company's new car sales service, the Company is subject to regulations

governing the registration and conduct of automobile dealers and brokers. In

connection with the Company's plans to expand its new car sales service

domestically, the Company may be required to register as an automobile

dealer/broker in each applicable jurisdiction. However, the Company may be

unable to expand to those jurisdictions that require dealer/brokers to maintain

a dealer lot zoned for automobiles, obtain a franchise agreement with automobile

manufacturers, or other related requirements. The Company will consider

variations to its business model to address regulatory issues or offer its

services without compensation pending resolution of any regulatory issues.



The Company is also subject to laws governing the licensing and conduct of

persons providing mortgage brokerage services. Such laws typically require

certain consumer protection disclosures and loan solicitation procedures. For

example, the Real Estate Settlement Procedures Act prohibits the payment and

receipt of mortgage loan referral fees, and permit persons to be compensated

only for the fair market value of non-referral services. Accordingly, the

Company has structured its home financing services such that it provides

non-referral services such as Web site development and advertising to a licensed

mortgage broker who, in turn, provides the back-end processing of the loan

referrals. Although the mortgage broker compensates the Company only for the

fair market value of its non-referral services, it is possible that governmental

authorities could scrutinize the compensation agreement under the Real Estate

Settlement Procedures Act or enact new legislation that might limit or prohibit

the Company's present arrangement.



All of the Company's services are subject to federal and state consumer

protection laws and regulations prohibiting unfair and deceptive trade

practices. The Company is also subject to regulations applicable to businesses

conducting online commerce. Today there are relatively few laws specifically

directed toward online services. However, due to the increasing popularity and

use of the Internet and online services, it is possible that laws and

regulations will be adopted with respect to the Internet or online services.

These laws and regulations could cover issues such as online contracts, user

privacy, freedom of expression, pricing, fraud, content and quality of products

and services, taxation, advertising, intellectual property rights and

information security. Applicability to the Internet of existing laws governing

issues such as property ownership, copyrights and other intellectual property

issues, taxation, libel, obscenity and personal privacy is uncertain, but any

such new legislation could have a material adverse effect on the Company's

business, operating results and financial condition. In addition, some states

may require the Company to qualify in that state to do business as a foreign

corporation because the Company's service is available in that state over the

Internet. Although the Company is qualified to do business in a number of

states, failure to meet the qualifications of certain states could subject the

Company to taxes and penalties.



As the Company expands its international presence, it will also be subject

to various foreign regulations and governing bodies that might limit the

Company's products and services. Likewise, the Company may be subject to

unexpected changes in regulatory requirements and various tariffs and trade

barriers in connection with online commerce. While the Company's licensees will

generally be responsible for complying with applicable regulations, any failure

on their part to comply may have an adverse effect on the Company.



Employees



As of March 10, 2000, the Company employed approximately 373 full-time

employees. Priceline.com also employs independent contractors to support its

customer service and system support functions.



- --------





13

Priceline.com has never had a work stoppage and its employees are not

represented by any collective bargaining unit. It considers its relations with

its employees to be good. Priceline.com's future success will depend, in part,

on its ability to continue to attract, integrate, retain and motivate highly

qualified technical and managerial personnel, for whom competition is intense.



Additional Factors That May Affect Future Results



Our Limited Operating History Makes Evaluating Our Business Difficult



Priceline.com was formed in July 1997 and began operations on April 6,

1998. As a result, we have only a limited operating history on which you can

base an evaluation of our business and prospects. Our prospects must be

considered in the light of the risks, uncertainties, expenses and difficulties

frequently encountered by companies in their early stages of development,

particularly companies in new and rapidly evolving markets, such as online

commerce, using new and unproven business models. To address these risks and

uncertainties, we must, among other things:



o     attract leading sellers and consumers to the priceline.com

service;



o     maintain and enhance our brand, and expand our product and

service offerings;



o     attract, integrate, retain and motivate qualified personnel;

and



o     adapt to meet changes in our markets and competitive

developments.



We may not be successful in accomplishing these objectives.



We Are Not Profitable and Expect to Continue to Incur Losses



As of December 31, 1999, we had an accumulated deficit of $1.18 billion,

of which $1.07 billion related to certain non-cash charges arising from equity

issuances to a number of participating airlines, our chief executive officer and

other parties, which was partially offset by $188.8 million of income

representing the amount of estimated fair value of warrants received by us in

connection with our relationship with our licensee WebHouse Club. We have not

achieved profitability and expect to continue to incur losses. The principal

causes of our losses are likely to continue to be significant brand development

costs, marketing, personnel and promotion costs and technology and systems

development costs.



Almost all of our revenues to date have been derived from airline ticket

sales, hotel room reservations and related adaptive marketing programs. As our

business model evolves, we have introduced and expect to continue to introduce a

number of new products and services. With respect to both current and future

product and service offerings, we expect to increase significantly our operating

expenses in order to increase our customer base, enhance our brand image and

support our growing infrastructure. For us to make a profit, our revenues and

gross profit margins will need to increase sufficiently to cover these and other

future costs. Otherwise, we may never achieve profitability.



We Are Dependent on Adaptive Marketing Programs



Our adaptive marketing programs permit consumers to increase the amount of

their offers at no additional cost by participating in sponsor promotions during

the process of making an offer through the priceline.com service. The fees paid

to us by sponsors offering the promotions generate significant revenues. Since

these fees historically have involved no direct costs, they have had a

disproportionately positive impact on our gross profit margins. A significant

reduction in consumer acceptance of our adaptive marketing programs,

significantly increased costs that we may incur in connection with adaptive

marketing programs, reductions in fees paid to us





14

in connection with such programs or any material decline in such programs could

result in a material reduction in our revenues and our gross profit. We may not

be able to replace such revenues through other programs or through product

sales.



We cannot guarantee that any of our adaptive marketing programs will

continue beyond their initial terms or, even if continued, that they will be

successful, or if additional adaptive marketing programs will be initiated. If

such programs are not successful, our gross profit and results of operations

could be adversely affected.



Potential Fluctuations in Our Financial Results Makes Financial

Forecasting Difficult



We expect our revenues and operating results to vary significantly from

quarter to quarter. As a result, quarter to quarter comparisons of our revenues

and operating results may not be meaningful. In addition, due to our limited

operating history and our new and relatively unproven business model, we cannot

predict our future revenues or results of operations accurately. It is likely

that in one or more future quarters our operating results will fall below the

expectations of securities analysts and investors. If this happens, the trading

price of our common stock would almost certainly be materially and adversely

affected.



Our business has no backlog and almost all of our revenues for a

particular quarter are derived from transactions that are both initiated and

completed during that quarter. Our current and future expense levels are based

largely on our investment plans and estimates of future revenues and are, to a

large extent, fixed. Accordingly, we may be unable to adjust spending in a

timely manner to compensate for any unexpected revenue shortfall, and any

significant shortfall in revenues relative to our planned expenditures could

have an immediate adverse effect on our business and results of operations.



Our limited operating history and rapid growth makes it difficult for us

to assess the impact of seasonal factors on our business. Nevertheless, we

expect our business to be subject to seasonal fluctuations, reflecting a

combination of seasonality trends for the products and services offered by the

priceline.com service and seasonality patterns affecting Internet use. For

example, with regard to our travel products, demand for leisure travel may

increase over summer vacations and holiday periods, while Internet usage may

decline during the summer months. Our results also may be affected by seasonal

fluctuations in the inventory made available to the priceline.com service by

participating sellers. Airlines, for example, typically enjoy high demand for

tickets through traditional distribution channels for travel during Thanksgiving

and the year-end holiday period. As a result, during those periods, less excess

airline ticket inventory would be available to priceline.com. Our business also

may be subject to cyclical variations for the products and services offered; for

example, leisure travel and home mortgage financing tend to decrease in economic

downturns.



We Are Dependent On the Airline Industry and Certain Airlines



Our near term, and possibly long term, prospects are significantly

dependent upon our sale of leisure airline tickets. Sales of leisure airline

tickets represented a substantial majority of total revenue for the year ended

December 31, 1999. Leisure travel, including the sale of leisure airline

tickets, is dependent on personal discretionary spending levels. As a result,

sales of leisure airline tickets and other leisure travel products tend to

decline during general economic downturns and recessions. Unforeseen events,

such as political instability, regional hostilities, increases in fuel prices,

travel-related accidents and unusual weather patterns also may adversely affect

the leisure travel industry. As a result, our business also is likely to be

affected by those events. Significantly reducing our dependence on the airline

and travel industries is likely to take a long time and there can be no

guarantee that we will succeed in reducing that dependence.



Sales of airline tickets from priceline.com's six largest airline

suppliers accounted for approximately 93% of airline ticket revenue for

the year ended December 31, 1999. As a result, currently we are substantially



- --------





15

dependent upon the continued participation of these airlines in the

priceline.com service in order to maintain and continue to grow our total

airline ticket revenues. We currently have 30 participating airlines. However,

our airline participation agreements:



o     do not require the airlines to make tickets available for any

particular routes;



o     do not require the airlines to provide any specific quantity

of airline tickets;



o     do not require the airlines to provide particular prices or

levels of discount;



o     do not require the airlines to deal exclusively with us in the

public sale of discounted airline tickets; and



o     generally, can be terminated upon relatively short notice.



These agreements also outline the terms and conditions under which ticket

inventory provided by the airlines may be sold.



Our agreement with Delta contains certain restrictions relating to the

terms of participation in our service by other carriers and the circumstances

under which we may transfer or license our intellectual property to other travel

providers. It is possible that, as the priceline.com service grows and becomes a

significant channel of distribution for airline tickets and as other carriers

seek participation in the priceline.com service, these competitively restrictive

provisions of the Delta agreement could raise issues under federal and state

antitrust laws. If that happened, either a federal or state government agency or

private party could initiate litigation seeking to enjoin us and Delta from

enforcing these provisions or seeking to collect treble damages. The outcome of

any such litigation would be uncertain. If, however, such a lawsuit resulted in

an injunction or subjected us to damages, our business and financial condition

could suffer.



Due to our dependence on the airline industry, we could be severely

affected by changes in that industry, and, in many cases, we will have no

control over such changes or their timing. For example, if the Federal Aviation

Administration grounded a popular aircraft model, excess seat capacity could be

dramatically reduced and, as a result, our source of inventory could be

significantly curtailed. In addition, given the concentration of the airline

industry, particularly in the domestic market, major airlines that are not

participating in the priceline.com service could exert pressure on other

airlines not to supply us with tickets. Alternatively, the airlines could

attempt to establish their own buyer-driven commerce service or other similar

service to compete with us. We also could be materially adversely affected by

the bankruptcy, insolvency or other material adverse change in the business or

financial condition of one or more of our airline participants.



Our Business Model is Novel and Relatively Unproven



The priceline.com service is based on a novel and relatively unproven

business model. We will be successful only if consumers and sellers actively use

the priceline.com service. Prior to the launch of the priceline.com service,

consumers and sellers had never bought and sold products and services through a

demand





16

collection system over the Internet. Therefore, it is impossible to predict the

degree to which consumers and sellers will use the priceline.com service.



Many of the factors influencing consumers' and sellers' willingness to use

the priceline.com service are outside our control. For example, a labor dispute

that disrupts airline service or an airline accident could make consumers

unwilling to use a service like priceline.com that does not permit the customer

to designate the airline on which the customer purchases a ticket. In addition,

a breach of security on the Internet, even if we were not involved, could make

consumers unwilling to guarantee orders online with a credit card. Consequently,

it is possible that consumers and sellers will never utilize the priceline.com

service to the degree necessary for us to achieve profitability.



We Need to Sell New Products and Services



We are unlikely to make significant profits unless we continue to make new

or complementary products and services and a broader range of existing products

and services available through the priceline.com service or through services

provided by our licensees. We will incur substantial expenses and use

significant resources in trying to continue to expand the type and range of the

products and services that we offer. However, we may not be able to attract

sellers, other participants and licensees to provide such products and services

or consumers to purchase such products and services through the priceline.com

service. In addition, if we or our licensees launch new products or services

that are not favorably received by consumers, our reputation and the value of

the priceline.com brand could be damaged.



The great majority of our experience to date is in the travel industry.

The travel industry is characterized by "expiring" inventories. For example, if

not used by a specific date, an airline ticket, hotel room reservation or rental

car reservation has no value. The expiring nature of the inventory creates

incentives for airlines, hotels and rental car companies to sell seats, hotel

room reservations or rental car reservations at reduced rates. Because we have

only limited experience in selling "non- expiring" inventories on the

priceline.com service, such as new cars or financial services, we cannot predict

whether the priceline.com business model can be successfully applied to such

products and services.



New Businesses We Are Evaluating May Not Be Successful



We intend to expand our current Name Your Own Price(sm) business model

into other areas of e-commerce and to other regions, directly and through

licensees. We recently licensed our name and business model to WebHouse Club, a

privately held independent start-up company affiliated with Walker Digital for

use in a business that enables consumers to use the Internet to identify the

purchase terms for groceries and other retail merchandise which they would

subsequently pick up from participating retailers. We also recently entered into

a similar preliminary licensing arrangement with Perfect Yard Sale, another

privately held independent start-up company affiliated with Walker Digital for

use in a consumer-to-consumer business in which buyers would make conditional

purchase offers to acquire goods from other consumers. In addition, we have

licensed our name and business model to Alliance Partners in connection with our

home financing services. We also have entered into, and intend to continue to

enter into, similar licensing arrangements with third parties in connection with

international expansion of the priceline.com service. These new businesses

typically incur start-up costs and operating losses and, may not be successful.

If these new businesses are not favorably received by consumers, the association

of our brand name and business model with these new entities may adversely

affect our business and reputation and may dilute the value of our brand name.

In addition, to the extent that we need to service these licensees, our core

business may suffer. Moreover, expansion of our core business model will expose

us to additional risks not currently applicable to our existing operations. The

additional risks associated with the expansion of our core business could have a

material adverse effect on our business generally. In addition, as we expand our

business model to other areas of e-commerce, these new businesses will face

competition from established providers in those areas.



We May Be Unable to Effectively Manage Our Rapid Growth





17

We have rapidly and significantly expanded our operations and anticipate

that further expansion will be required to realize our growth strategy. Our

rapid growth has placed significant demands on our management and other

resources which, given our expected future growth rate, is likely to continue.

To manage our future growth, we will need to attract, hire and retain highly

skilled and motivated officers and employees and improve existing systems and/or

implement new systems for: (1) transaction processing; (2) operational and

financial management; and (3) training, integrating and managing our growing

employee base.



If We Lose Our Key Personnel or Cannot Recruit Additional Personnel, Our

Business May Suffer



Competition for personnel with experience in Internet commerce is intense.

If we do not succeed in attracting new employees or retaining and motivating our

current and future employees, our business could suffer significantly.



Since our formation in July 1997, we have expanded from 10 to 373

full-time employees as of March 10, 2000. We also have employed many key

personnel since our launch in April 1998, including our Chairman and Chief

Executive Officer, our President and Chief Operating Officer, our Senior

Executive Vice President Stategy, Planning and Administration and Chief

Financial Officer, our Executive Vice President and General Counsel, our

Executive Vice President and Chief Marketing Officer, and a number of key

managerial, marketing, planning, financial, technical and operations personnel.

We expect to continue to add additional key personnel in the near future. We do

not have "key person" life insurance policies on any of our key personnel.



We believe our performance is substantially dependent on:



o     our ability to retain and motivate our senior management and

other key employees; and



o     our ability to identify, attract, hire, train, retain and

motivate other highly skilled technical, managerial, marketing

and customer service personnel.



We Rely on Third-Party Systems



We rely on certain third-party computer systems or third-party service

providers, including the computerized central reservation systems of the airline

and hotel industries to satisfy demand for airline tickets and hotel room

reservations. Any interruption in these third-party services, or a deterioration

in their performance, could be disruptive to our business. Our agreements with

third-party service providers are terminable upon short notice. In the event our

arrangement with any of such third parties is terminated, we may not be able to

find an alternative source of systems support on a timely basis or on

commercially reasonable terms.



Intense Competition Could Reduce Our Market Share and Harm Our Financial

Performance



The markets for the products and services offered on the priceline.com

service are intensely competitive. We compete with both traditional distribution

channels and online services. Increased competition could diminish our ability

to become profitable or result in loss of market share and damage the

priceline.com brand. See "- Competition."



Our Success Depends on Our Ability to Protect Our Intellectual Property





18

We have developed what we believe is a comprehensive program for securing

and protecting rights in patentable inventions, trademarks, trade secrets and

copyrightable materials. If we are not successful in protecting our intellectual

property, there could be a material adverse effect on our business. See "-

Intellectual Property" and "Legal Proceedings."



Legal Proceedings



We have received a copy of a Petition for Interference that requests the

United States Patent and Trademark Office to declare an "interference" between a

patent filed by a third party describing an electronic market for used and

collectible goods and our U.S. Patent No. 5,794,207. We also are a party to

other legal proceedings described in Item 3 - "Legal Proceedings." An adverse

outcome in any of the actions described in Item 3 could have a material adverse

effect on our business. See "Legal Proceedings."



The Success of Our Business Will Depend on Continued Growth of Internet

Commerce



The market for the purchase of products and services over the Internet is

a new and emerging market. As an Internet commerce business, our future revenues

and profits are substantially dependent upon the widespread acceptance and use

of the Internet and other online services as a medium for commerce by consumers

and sellers. If widespread acceptance and growth of Internet use does not occur,

our business and financial performance will suffer. Rapid growth in the use of

and interest in the Internet and other online services is a recent phenomenon.

This growth may not continue. A sufficiently broad base of consumers may not

adopt, or continue to use, the Internet as a medium of commerce. Demand for and

market acceptance of recently introduced products and services over the Internet

are subject to a high level of uncertainty, and there are few proven products

and services. For us to grow, consumers who historically have purchased through

traditional means of commerce, such as a travel agent for airline tickets or a

branch of a bank for home financings, will need to elect to purchase online

products and services. Sellers of products and services will need to adopt or

expand use of the Internet as a channel of distribution.



The Internet has experienced, and is expected to continue to experience,

significant growth in the number of users and amount of traffic. Our success

will depend upon the development and maintenance of the Internet's

infrastructure to cope with this increased traffic. This will require a reliable

network backbone with the necessary speed, data capacity and security, and the

timely development of complementary products, such as high-speed modems, for

providing reliable Internet access and services.



The Internet has experienced a variety of outages and other delays as a

result of damage to portions of its infrastructure and could face such outages

and delays in the future. Outages and delays are likely to affect the level of

Internet usage generally, as well as the processing of transactions on the

priceline.com Web site. It is unlikely that the level of orders lost in those

circumstances could be made up by increased phone orders. In addition, the

Internet could lose its viability due to delays in the development or adoption

of new standards to handle increased levels of activity or due to increased

government regulation. The adoption of new standards or government regulation

may, however, require us to incur substantial compliance costs.



Capacity Constraints and System Failures Could Harm Our Business



If our systems cannot be expanded to cope with increased demand or fail to

perform, we could experience:



o     unanticipated disruptions in service;



o     slower response times;



o     decreased customer service and customer satisfaction; or



o     delays in the introduction of new products and services;



any of which could impair our reputation, damage the priceline.com brand and

materially and adversely affect our revenues. Publicity about a service

disruption also could cause a material decline in our stock price.



We use internally developed systems to operate the priceline.com service,

including transaction processing and order management systems that were designed

to be scalable. However, if the number of users of the priceline.com service

increases substantially, we will need to significantly expand and upgrade our

technology, transaction processing systems and network infrastructure. We do not

know whether we will be able to accurately project the rate or timing of any

such increases, or expand and upgrade our systems and infrastructure to

accommodate such increases in a timely manner.



Our ability to facilitate transactions successfully and provide high

quality customer service also depends on the efficient and uninterrupted

operation of our computer and communications hardware systems. The priceline.com

service has experienced periodic system interruptions, which we believe will

continue to occur from time to time. Our systems and operations also are

vulnerable to damage or interruption from human error, natural disasters, power

loss, telecommunication failures, break-ins, sabotage, computer viruses,

intentional acts of vandalism and similar events. While we currently maintain

redundant servers at our Stamford, Connecticut premises to provide limited

service during system disruptions at our production, we do not have fully

redundant systems, a formal disaster recovery plan or alternative providers of

hosting services. In addition, we do not carry sufficient business interruption

insurance to compensate for losses that could occur. Any system failure that

causes an interruption in service or decreases the responsiveness of the

priceline.com service could impair our reputation, damage our brand name and

materially adversely affect our revenues.



We May Not Be Able to Keep Up with Rapid Technological and Other Changes



The markets in which we compete are characterized by rapidly changing

technology, evolving industry standards, frequent new service and product

announcements, introductions and enhancements and changing consumer demands. We

may not be able to keep up with these rapid changes. In addition, these market

characteristics are heightened by the emerging nature of the Internet and the

apparent need of companies from many industries to offer Internet-based products

and services. As a result, our future success will depend on our ability to

adapt to rapidly changing technologies, to adapt our services to evolving

industry standards and to continually improve the performance, features and

reliability of our service in response to competitive service and product

offerings and the evolving demands of the marketplace. In addition, the

widespread adoption of new Internet,





19

networking or telecommunications technologies or other technological changes

could require us to incur substantial expenditures to modify or adapt our

services or infrastructure.



Online Security Breaches Could Harm Our Business



The secure transmission of confidential information over the Internet is

essential in maintaining consumer and supplier confidence in the priceline.com

service. Substantial or ongoing security breaches on our system or other

Internet-based systems could significantly harm our business. We currently

require buyers to guarantee their offers with their credit card, either online

or through our toll-free telephone service. We rely on licensed encryption and

authentication technology to effect secure transmission of confidential

information, including credit card numbers. It is possible that advances in

computer capabilities, new discoveries or other developments could result in a

compromise or breach of the technology used by us to protect customer

transaction data.



We incur substantial expense to protect against and remedy security

breaches and their consequences. However, we cannot guarantee that our security

measures will prevent security breaches. A party that is able to circumvent our

security systems could steal proprietary information or cause significant

interruptions in our operations. For instance, several major Web sites recently

experienced significant interruptions as a result of improper direction of

excess traffic to those sites. Security breaches also could damage our

reputation and expose us to a risk of loss or litigation and possible liability.

Our insurance policies carry low coverage limits, which may not be adequate to

reimburse us for losses caused by security breaches.



We also face risks associated with security breaches affecting third

parties conducting business over the Internet. Consumers generally are concerned

with security and privacy on the Internet and any publicized security problems

could inhibit the growth of the Internet and, therefore, the priceline.com

service as a means of conducting commercial transactions.



Our Stock Price is Highly Volatile



The market price of our common stock is highly volatile and is likely to

continue to be subject to wide fluctuations in response to factors such as the

following, some of which are beyond our control:



o     quarterly variations in our operating results;



o     operating results that vary from the expectations of securities

analysis and investors;



o     changes in expectations as to our future financial performance,

including financial estimates by securities analysts and investors;



o     changes in market valuations of other Internet or online service

companies;



o     announcements of technological innovations or new services by us or

our competitors;



o     announcements by us or our competitors of significant contracts,

acquisitions, strategic partnerships, joint ventures or capital

commitments;



o     loss of a major seller participant, such as an airline or hotel

chain;



o     changes in the status of our intellectual property rights;



o     lack of success in the expansion of our business model horizontally

or geographically;



o     announcements by third parties of significant claims or proceedings

against us or adverse developments in pending proceedings;





20

o     additions or departures of key personnel; and



o     stock market price and volume fluctuations.



Sales of a substantial number of shares of our common stock could

adversely affect the market price of our common stock by introducing a large

number of sellers to the market. Given the volatility that exists for our

shares, such sales could cause the market price of our common stock to decline.



In addition, the trading prices of Internet stocks in general, including

ours, have experienced extreme price and volume fluctuations. These fluctuations

often have been unrelated or disproportionate to the operating performance of

these companies. The valuations of many Internet stocks, including ours, are

extremely high based on conventional valuation standards, such as price to

earnings and price to sales ratios. The trading price of our common stock has

increased significantly from the initial public offering price. These trading

prices and valuations may not be sustained. Any negative change in the public's

perception of the prospects of Internet or e-commerce companies could depress

our stock price regardless of our results. Other broad market and industry

factors may decrease the market price of our common stock, regardless of our

operating performance. Market fluctuations, as well as general political and

economic conditions, such as a recession or interest rate or currency rate

fluctuations, also may decrease the market price of our common stock.



In the past, securities class action litigation often has been brought

against a company following periods of volatility in the market price of their

securities. We may in the future be the target of similar litigation. Securities

litigation could result in substantial costs and divert management's attention

and resources.



Our Business is Subject to Tax Uncertainties



Potential Federal Air Transportation Tax on Airline Ticket Sales. A

Federal transportation tax is imposed upon the sale of airline tickets. The tax

is based on a percentage of the cost of transportation, which was 9% for periods

prior to October 1, 1998, 8% for the period October 1, 1998 through September

30, 1999 and 7.5% thereafter. The Company has historically interpreted the tax

regulations as requiring that the tax be computed based on the amount charged by

the airline to the Company for the airline ticket and the Company's

participating airlines have collected and remitted the tax based on this amount.

The Company applied for a ruling from the Internal Revenue Service confirming

this interpretation. In December 1999, the Internal Revenue Service indicated to

the Company that it was unlikely that a favorable ruling would be issued. The

Company subsequently withdrew its ruling request because of the uncertainty of

the outcome. Because the Company anticipated the possibility of an adverse

ruling on this issue, the Company accrued approximately $1.9 million relating to

the balance of the tax liability for tickets sold prior to that date. The

Company believes this accrual to be adequate, but there can be no assurance as

to the final outcome because a formal ruling has not been issued by the Internal

Revenue Service.



State Taxes. We file tax returns in such states as required by law based

on principles applicable to traditional businesses. In addition, we do not

collect sales or other similar taxes in respect of transactions conducted

through the priceline.com service (other than the federal air transportation tax

referred to above). However, one or more states could seek to impose additional

income tax obligations or sales tax collection obligations on out-of-state

companies, such as ours, which engage in or facilitate online commerce. A number

of proposals have been made at state and local levels that could impose such

taxes on the sale of products and services through the Internet or the income

derived from such sales. Such proposals, if adopted, could substantially impair

the growth of e-commerce and adversely affect our opportunity to become

profitable.



Legislation limiting the ability of the states to impose taxes on

Internet-based transactions has been enacted by the United States Congress.

However, this legislation, known as the Internet Tax Freedom Act, imposes only a

three-year moratorium, which commenced October 1, 1998 and ends on October 21,

2001, on state and local taxes on (1) electronic commerce where such taxes are

discriminatory and (2) Internet access unless such taxes were generally imposed

and actually enforced prior to October 1, 1998. It is possible that the tax

moratorium could fail to be renewed prior to October 21, 2001. Failure to renew

this legislation would allow various states to impose





21

taxes on Internet-based commerce. The imposition of such taxes could adversely

affect our ability to become profitable.



Regulatory and Legal Uncertainties Could Harm Our Business



The products and services we offer through the priceline.com service are

regulated by federal and state governments. Our ability to provide such products

and services is and will continue to be affected by such regulations. The

implementation of unfavorable regulations or unfavorable interpretations of

existing regulations by courts or regulatory bodies, could require us to incur

significant compliance costs, cause the development of the affected markets to

become impractical and otherwise adversely affect our financial performance. See

"-Government Regulation."



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



Sections of this Annual Report on Form 10-K, including the "Management's

Discussion and Analysis of Financial Condition and Results of Operations", and

the descriptions of the Company's business, contain forward- looking statements.

In some cases, readers can identify forward-looking statements by terminology

such as "may," "will," "should," "could," "expects," "plans," "anticipates,"

"believes," "estimates," "predicts," "potential," or "continue," or the negative

of such terms or other comparable terminology. These statements involve known

and unknown risks, uncertainties and other factors that may cause our actual

results, levels of activity, performance or achievements to be materially

different from any future results, levels of activity, performance or

achievements expressed or implied by such forward-looking statements. Such

factors include, among other things, the factors described in "- Additional

Factors That May Affect Future Results." We undertake no duty to update any of

the forward-looking statements, whether as a result of new information, future

events or otherwise.



Item 2. Properties



Priceline.com's executive, administrative and operating offices are

located in approximately 140,510 square feet of leased office space located in

Norwalk, Connecticut and 10,000 square feet of leased office space located in

Stamford, Connecticut. Priceline.com is subleasing the Stamford office space

from Walker Digital on a month-to-month basis. Priceline.com also has guaranteed

Walker Digital's obligations under a lease of office space in New York City that

is used by both companies. Priceline.com anticipates that it will require

additional space within the next 12 months to accommodate its anticipated

growth.



The Company did not own any real estate as of March 31, 2000.



Item 3. Legal Proceedings



Legal Proceedings



On January 6, 1999, priceline.com received notice that a third-party

patent applicant and patent attorney, Thomas G. Woolston, purportedly had filed

in December 1998 with the United States Patent and Trademark Office a request to

declare an interference between a patent application filed by Woolston and

priceline.com's U.S. Patent No. 5,794,207. Priceline.com currently is awaiting

information from the Patent Office regarding whether it will initiate an

interference proceeding.



On January 19, 1999, Marketel International Inc., a California

corporation, filed a lawsuit against priceline.com, among others. On February

22, 1999, Marketel filed an amended and supplemental complaint. The amended

complaint filed by Marketel alleges causes of action for, among other things,

misappropriation of trade secrets, breach of contract, conversion, breach of

confidential relationship, copyright infringement, fraud, unfair competition and

false advertising, and seeks injunctive relief and damages in an unspecified

amount. In its amended complaint, Marketel alleges, among other things, that the

defendants conspired to misappropriate Marketel's business model, which

allegedly was provided in confidence approximately ten years ago. The amended

complaint also alleges that four former Marketel employees are the actual sole

inventors or co-inventors of U.S. Patent No. 5,794,207 which was issued on

August 11, 1998 and has been assigned to priceline.com. Marketel asks that the

patent's inventorship be corrected accordingly.



- --------





22

On February 5 and February 10, 1999, the Company filed its answer and

amended answer, respectively, to the amended complaint, in which it denied the

material allegations of liability in the complaint. The cause of action is

currently pending against priceline.com and Priceline Travel, Inc. under the

caption Marketel International, Inc. v. Priceline.com, et al., No. C-99-1061

(N.D. Cal. 1999). Priceline.com and all other defendants strongly dispute the

material legal and factual allegations contained in Marketel's amended complaint

and believe that the amended complaint is without merit. Priceline.com intends

to defend vigorously against the action. Pursuant to the indemnification

obligations contained in the Purchase and Intercompany Services Agreement with

Walker Digital, Walker Digital has agreed to indemnify, defend and hold harmless

priceline.com for damages, liabilities and legal expenses incurred in connection

with the Marketel litigation.



On October 13, 1999, priceline.com filed a complaint in the United States

District Court for the District of Connecticut under the caption Priceline.com

Incorporated v. Microsoft Corporation and Expedia, Inc., No. 399CV1991 (AWT)

alleging that Microsoft Corporation and Expedia, Inc., a subsidiary of Microsoft

Corporation, infringe priceline.com's U.S. Patent No. 5,794,207 by operating the

defendants' "Hotel Price Matcher" service, and that the defendants' conduct

toward priceline.com violated the Connecticut Unfair Trade Practices Act. On

December 20, 1999, defendants moved the Court to dismiss the complaint for

failure to name a necessary party, Marketel. On March 21, 2000, the presiding

judge stated that he intends to deny defendants' motion to dismiss, and that a

decision will be forthcoming. On December 23, 1999, the Court granted

priceline.com's motion to supplement the complaint to expressly include

defendants' "Flight Price Matcher" service. In the lawsuit, priceline.com is

seeking declaratory relief, permanent injunctive relief and actual and punitive

damages.



From time to time the Company has been and expects to continue to be

subject to legal proceedings and claims in the ordinary course of business,

including claims of alleged infringement of third-party intellectual property

rights by the Company. Such claims, even if not meritorious, could result in the

expenditure of significant financial and managerial resources.



The Company is unable to predict the outcome of the legal proceedings

referred to above.



Item 4. Submission of Matters to a Vote of Security Holders



No matters were submitted for a vote of stockholders of the Company during

the fourth quarter of the year ended December 31, 1999.



PART II



Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters



Price Range of Common Stock



Priceline.com's common stock has been quoted on the Nasdaq National Market

under the symbol "PCLN" since priceline.com's initial public offering on March

29, 1999. Prior to such time, there was no public market for the common stock of

priceline.com. The following table sets forth, for the periods indicated, the

high and low closing sales prices per share of the common stock as reported on

the Nasdaq National Market:



1999                                                         High         Low



First Quarter (from March 29, 1999) ..................     $ 82.875     $ 69.00



Second Quarter .......................................      162.375       59.875



Third Quarter ........................................      112.00        55.625





23

Fourth Quarter .......................................       76.875       46.750



Dividend Policy



Priceline.com has not declared or paid any cash dividends on its capital

stock since its inception and does not expect to pay any cash dividends for the

foreseeable future. Priceline.com currently intends to retain future earnings,

if any, to finance the expansion of its business.



Holders



As of March 17, 2000, there were approximately 476 stockholders of record

of priceline.com's common stock, although the Company believes that there is a

significantly larger number of beneficial owners.



Use of Proceeds of Initial Public Offering



On April 1, 1999, priceline.com completed an initial public offering in

which it sold 10,000,000 shares of its common stock. The managing underwriters

in the offering were Morgan Stanley & Co., Incorporated, Merrill Lynch, Pierce,

Fenner & Smith Incorporated, BancBoston Stephens Inc. and Donaldson Lufkin &

Jenrette Securities Corporation. The shares of common stock sold in the offering

were registered under the Securities Act of 1933, as amended, on a Registration

Statement on Form S-1 (the "Registration Statement") (Reg. No. 333-69657) that

was declared effective by the Securities and Exchange Commission on March 29,

1999. All 10,000,000 shares of common stock registered under the Registration

Statement were sold at a price of $16.00 per share for gross proceeds of $160.0

million. Offering proceeds to priceline.com, net of approximately $11.2 million

in aggregate underwriter discounts and commissions and $4.5 million in other

related expenses, were approximately $144.3 million.



Net offering proceeds received on April 1, 1999 from the initial public

offering were used for general corporate purposes, including working capital to

fund anticipated operating losses, expenses associated with its advertising

campaigns, brand-name promotions and other marketing efforts and capital

expenditures. Priceline.com also may use a portion of the net proceeds,

currently intended for general corporate purposes, to acquire or invest in

businesses, technologies, products or services, although no specific

acquisitions are planned and no portion of the net proceeds has been allocated

for any acquisition. None of the net offering proceeds of priceline.com have

been paid directly or indirectly to any director, officer, general partner of

priceline.com or their associates, persons owning 10% or more of any class of

priceline.com's equity securities, or an affiliate of priceline.com other than

compensation to and other related arrangements with officers of priceline.com in

the ordinary course of business and payments that were made in the ordinary

course of business to Walker Digital Corporation pursuant to a reciprocal

services arrangement.



Item 6. Selected Financial Data



SELECTED FINANCIAL DATA



The selected financial data presented below are derived from the financial

statements of the Company, and should be read in connection with those

statements, which are included herein. All share and per share amounts have been

retroactively adjusted to reflect the 1.25:1 stock split during 1999.



<TABLE>

<CAPTION>

July 18,

Year Ended December 31,                (inception) to

----------------------------------            December 31,

1999                  1998                    1997

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

(In thousands, except per share amounts)

<S>                                                                       <C>                    <C>                    <C>

Statement of Operations Data:

Revenues ......................................................           $   482,410            $    35,237

Cost of revenues:

Product costs ...............................................               423,056                 33,496

Supplier warrant costs ......................................                 1,523                  3,029

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

Total cost of revenues ..................................               424,579                 36,525

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

Gross profit ..................................................                57,831                 (1,288)

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

Operating expenses:

Warrant costs, net ..........................................               998,832                 57,979

Sales and marketing .........................................                79,577                 24,388            $       441

General and administrative (including $1,812 of

option payroll taxes in 1999) .............................                27,609                 18,004                  1,012

Systems and business development ............................                14,023                 11,132                  1,060

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

Total operating expenses ................................             1,120,041                111,503                  2,513

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

Operating loss ..............................................            (1,062,210)              (112,791)                (2,513)

Other income (expense) ......................................                 7,120                    548

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

Net loss ....................................................            (1,055,090)              (112,243)                (2,513)

Accretion on preferred stock ................................                (8,354)                (2,183)

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

Net loss applicable to common shareholders ..................           $(1,063,444)           $  (114,426)           $    (2,513)

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

Net loss applicable to common shareholders per

basic and diluted common share ............................           $     (7.90)           $     (1.41)           $      (.05)

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

Weighted average number of basic and diluted

common shares outstanding .................................               134,622                 81,231                 50,834

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



<CAPTION>

As of December 31,

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

1999                  1998                    1997

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

(In thousands)

<S>                                                                       <C>                    <C>                    <C>

Cash and cash equivalents and short-term

investments .................................................           $   171,943            $    53,593            $        16

Working capital ...............................................               172,489                 49,922                 (2,389)

Total assets ..................................................               441,886                 66,572                  1,449

Long-term obligations .........................................                                        1,015                     51

Total liabilities .............................................                39,250                 11,296                  2,706

Total stockholders' equity ....................................               402,636                 55,276                 (1,257)

</TABLE>



Item 7. Management's Discussion and Analysis of Financial Condition and Results

of Operations



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



Overview



Priceline.com has pioneered a unique e-commerce pricing system known as a

"demand collection system" that enables consumers to use the Internet to save

money on a wide range of products and services while enabling sellers to

generate incremental revenue. Using a simple and compelling consumer

proposition--Name Your Own Price(SM)--we collect consumer demand, in the form of

individual customer offers guaranteed by a credit card, for a particular product

or service at a price set by the customer. We then either communicate that

demand directly to participating sellers or access participating sellers'

private databases to determine whether we can fulfill the customer's offer.

Consumers agree to hold their offers open for a specified period of time and,

once fulfilled, offers cannot be canceled. We benefit consumers by enabling them

to save money, while at the same time benefiting sellers by providing them with

an effective revenue management tool capable of identifying and capturing

incremental revenues. By requiring consumers to be flexible with respect to

brands, sellers and product features, we enable sellers to generate incremental

revenue without disrupting their existing distribution channels or retail

pricing structures.



Priceline.com was formed in July 1997 and our primary activities during

the period prior to launch consisted of recruiting and training employees,

developing our business model, implementing systems to support our business

model, developing relationships with seller participants and developing the

priceline.com brand. We commenced operations in April 1998 with the sale of

leisure airline tickets. Since that time, our business has grown significantly

and the priceline.com service includes the following products and services:



o     leisure airline tickets, provided by ten domestic and 20

international airline participants;



o     hotel rooms, which was launched in October 1998, in substantially

all major United States markets with more than 15 leading national

hotel chains as participants;



o     rental cars, which was launched in December 1999, in substantially

all major United States markets with three leading rental car chains

as participants;



o     new automobiles, which was launched on a test basis in the New York

Metropolitan Area in July 1998 and is now offered in 26 states;





o     home financing services, which was launched in January 1999 with

home mortgage services and now also includes home equity loans and

refinancing services.



Priceline.com also is currently planning an expansion of its core Name

Your Own Price(SM) business model to other areas of e-commerce, including long

distance telephone service, cruises and vacation packages.



Through the innovative use of "adaptive marketing programs," priceline.com

also markets customer acquisition programs for third parties. These programs

facilitate the completion of a higher percentage of successful transactions

through the priceline.com service, while generating fee income for the Company.

During 1999, the Company increased its number of adaptive marketing partners

from one to ten, thus reducing its dependence on any one partner. Priceline.com

intends to continue to add adaptive marketing programs so that consumers have a

variety of programs from which to choose and priceline.com has a diversified

source of adaptive marketing revenues.



Priceline.com has announced several transactions pursuant to which third

parties ("Licensees") license the priceline.com name and demand collection

system for offering a particular product or service or for offering a number of

products or services in a distinct international region. Pursuant to the

Licensee transactions, priceline.com generally receives a royalty under the

license and may also receive fees for services and reimbursement of certain





24

expenses. Priceline.com also holds convertible debt or warrants entitling it to

acquire a significant percentage of such Licensee's equity securities upon the

occurrence of certain events. Unless such equity securities are converted, the

results of Licensees will not be included in priceline.com's financial results.



In 1999, priceline.com licensed its name and demand collection system to

Priceline WebHouse Club, Inc. and agreed to provide certain services to WebHouse

Club. WebHouse Club offers a Name Your Own Price(SM) service for groceries and

has announced the planned offering of a service for gasoline. Under the

negotiated agreements, priceline.com receives a royalty based on a percentage of

WebHouse Club revenues and compensation at fair value for certain services

rendered. As an inducement to enter into a relationship with WebHouse Club,

priceline.com received a warrant to purchase a majority of the shares of

WebHouse Club common stock. The warrants are non-forfeitable, fully vested upon

grant, exercisable in five years or earlier upon the occurrence of certain

events, and do not require the performance of any additional services. Upon

receipt of the warrant in the fourth quarter, priceline.com recognized $188.8

million of income representing the amount of the estimated fair value of the

warrants, based on an independent valuation.



In March 2000, the Company entered into an agreement with Alliance

Partners, LP, pursuant to which Alliance has formed an operating subsidiary,

Priceline Mortgage, for the primary purpose of acting as a broker and/or lender

of residential mortgage loans in connection with the priceline.com mortgage

service. Priceline.com has agreed to provide $3.62 million of financing to an

affiliate of Alliance in the form of a convertible secured note and has agreed

to license the "priceline" name and business model for use by Priceline

Mortgage. Alliance has agreed to provide management services to Priceline

Mortgage, including the procurement of personnel and office space and assistance

in obtaining regulatory approvals. A pilot program was launched in early October

1999 and currently is operating in all 50 states.



Because the priceline.com system does not set minimum offer thresholds,

and consumers are not charged to make offers for its products, it is expected

that we will receive a significant number of unreasonable or "fantasy offers".

Accordingly, in addition to analyzing our actual fulfillment rates, we also

analyze the percentage of "reasonable" offers that we are able to fill. We

consider an offer for an airline ticket, hotel room or rental car to be

"reasonable" when it is no more than 30% lower than the lowest generally

available advance-purchase fare for the same product. Using this standard, the

overall percentage of offers considered reasonable for the year ended December

31, 1999 was approximately 57.0%. The Company measures its "bind" rate as the

percentage of reasonable offers that the Company ultimately fulfills. The

Company's bind rate for 1999 was 43.6% for all reasonable airline ticket, hotel

room and rental car offers.



When making offers for airline tickets through the priceline.com service,

consumers are permitted to make only one offer within a seven day period unless

they change some feature of their itinerary, such as the date on which or the

airport from which they are willing to fly. As a result of the Company's

"checkstatus" feature, introduced in April 1999, consumers whose initial

requests are not satisfied are permitted to resubmit revised offers that reflect

at least one change to their itinerary. Effective with this change, each initial

offer and any resubmitted offers are treated as a single offer for purposes of

measuring our total offer volume and our offer fulfillment rates. Previously,

each had been counted as a separate offer. Therefore, comparisons with prior

periods may not be meaningful.



As of December 31, 1999, the Company had an accumulated deficit of $1.18

billion, of which $1.07 billion related to certain non-cash charges arising from

equity issuances to a number of participating airlines, its chief executive

officer and other parties, as more fully described below, partially offset by

the WebHouse Club warrant income described above. Priceline.com believes that

its continued growth will depend in large part on its ability to continue to

promote the priceline.com brand and to apply the priceline.com business model to

a wide range of products and services.





25

Priceline.com intends to continue to invest heavily in marketing and promotion,

technology and personnel. As a result, it expects to incur additional losses.

However, the Company's plans call for reduction of operating losses and

improvement in its gross margins in an effort to achieve profitability.

Priceline.com's limited operating history makes the prediction of future results

of operations difficult, and accordingly, there can be no assurance that it will

achieve or sustain revenue growth or profitability.



As of December 31, 1999, the Company had outstanding non-qualified stock

options to purchase 27,024,740 shares issued to various employees, consultants

and directors pursuant to the Company's 1997 Omnibus Plan and 1999 Omnibus Plan.

The options entitle the holders to purchase common stock at a weighted average

exercise price of approximately $13.93 per share, subject to adjustment in

accordance with the 1997 Omnibus Plan and the 1999 Omnibus Plan. Upon exercise

of an option, priceline.com will be required to make payments on behalf of the

option holders for certain payroll taxes such as Social Security and Medicare.

These payroll taxes will appear as a general and administrative expense on

priceline.com's statement of operations and will amount to approximately 1.5% to

2.0% of the difference between the exercise price and the then fair market value

of the common stock at the time of exercise. However, upon exercise of

outstanding options, priceline.com will be paid the exercise price of the

options that are exercised. The total exercise price of the options outstanding

at December 31, 1999 is $376.5 million. Priceline.com also will be entitled to

an income tax deduction equal to the sum of (1) the difference between the

exercise price of the option and the then fair market value of the common stock

at the time of exercise and (2) the total amount of payroll tax payments. Such

deduction would be utilized to the extent that the Company generates taxable

income. The calculation of the payroll tax expense and income tax deduction, and

the timing of those events and the receipt of the related cash inflow, is

directly dependent upon the exercise of options and the value of shares of

priceline.com Common Stock at the time of exercise. As the decision to exercise

options is at the sole discretion of the holder of the options, the timing and

amount of the expense, income tax deduction and timing of the cash inflows

cannot be estimated.



During July 1999, priceline.com issued to Continental Airlines a warrant

to purchase common stock that will become exercisable upon the earlier of July

2004 or upon the achievement of certain performance thresholds. However, the

agreement does not require Continental to make any performance commitments.

Accordingly, priceline.com incurred a non-cash charge of approximately $88.4

million during the third quarter of 1999 representing the fair value of the

warrant on the grant date. In November 1999, the Company amended the Continental

warrant to allow the exercise price to fall within the range of the warrants

issued to other airlines discussed below. Priceline.com incurred a non-cash

charge of approximately $3.5 million during the fourth quarter as a result of

the warrant amendment.



In August 1998, priceline.com entered into a warrant agreement granting

Delta Airlines ("Delta") the right to purchase up to 18,892,603 shares of common

stock at an exercise price of approximately $0.93 per share. Vesting was

contingent upon achievement of certain predetermined performance thresholds.

However, there was no penalty for failure to provide ticket inventory to satisfy

these performance thresholds. Accordingly, no expense was recorded when the

warrant was issued. On December 31, 1998, priceline.com amended its agreement

with Delta to eliminate the vesting contingencies and fix the number of shares

subject to the warrant at 18,619,402. The amended warrant issued to Delta became

exercisable at the earlier of seven years or upon the achievement of certain

performance thresholds. However, the agreement did not require Delta to make any

performance commitments, is non-exclusive and allows Delta to participate in

other programs similar to the priceline.com service. Therefore, the Company

recorded a non-cash charge of approximately $58.7 million, reflecting the fair

value of the Delta warrant on December 31, 1998.



In November 1999, the Company further amended the Delta warrant to provide

Delta with a cashless exercise right. Upon the exercise of the warrant, Delta

acquired a total of 16,525,834 shares of





26

Common Stock of priceline.com. In conjunction with that transaction, Delta sold

2,085,767 shares of priceline.com Common Stock to priceline.com's founder and

Vice Chairman Jay S. Walker for an aggregate purchase price of $125 million. The

Company further gave Delta the right to exchange six million shares of

priceline.com Common Stock for six million shares of newly issued convertible

preferred stock that may be converted into priceline.com Common Stock on a

one-for-one basis. To date, Delta has not elected to exercise the conversion

right.



In November 1999, the Company entered into separate Participation Warrant

Agreements with each of eight major domestic airlines relating to their

inclusion in the Company's leisure airline ticket service. Under the

Participation Warrant Agreements, the airlines were granted warrants to purchase

a total of 20 million shares of priceline.com Common Stock at exercise prices

ranging from $52.625 to $59.933 per share. All warrants were fully vested on the

date of grant, but generally are not exercisable until November 2005, subject to

acceleration under certain circumstances. Priceline.com incurred additional

warrant costs of approximately $1.1 billion during the fourth quarter as a

result of the issuance of the warrants.



Results of Operations



Priceline.com did not commence operations until April 1998. Accordingly,

discussion of comparisons with the prior year is not meaningful.



Year Ended December 31, 1999



Revenues



Year Ended

December 31,

($000)

-------------------       %

1999        1998     Change

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

Revenues.......................................   $482,410    $35,237     1,269%



Revenues for the year ended December 31, 1999 were comprised primarily of:

(1) transaction revenues representing the selling price of airline tickets,

hotel rooms and rental cars; (2) fee income from adaptive marketing programs

offered in connection with our product offerings; (3) ancillary revenues

consisting primarily of Worldspan reservation booking fees and customer

processing fees; and (4) fee income from our home financing and auto programs.



Revenues increased during 1999 as a result of the substantial development

of our unique customer base, repeat purchases by existing customers and the

inclusion of the hotel room, rental car, automobile, and home financing services

and adaptive marketing programs. The Company has launched certain of its

services in select geographic markets and then expanded to other regions. During

1999, the Company's hotel room reservation service expanded from 25 cities to

nationwide coverage. The Company's auto program was launched in the New York

City area and expanded to cover 26 states at December 31, 1999. The Company's

rental car service was launched nationally during the fourth quarter. The

Company currently plans to launch its products for long distance telephone

services, cruises and vacation packages during 2000. The Company believes each

of these products has the potential to increase revenues in 2000.



As of December 31, 1999 priceline.com had a base of approximately 3.8

million unique customers. A unique customer is defined as someone who has made a

guaranteed offer for at least one of priceline.com's products. Of the total

unique customer base, approximately 3.0 million made their first offer on

priceline.com during 1999. During 1999, priceline.com customers made

approximately 4.3 million offers for services.





27

Ancillary revenues for the year ended December 31, 1999 increased as a

result of volume driven increases in Worldspan reservation booking fees and the

introduction of a customer processing fee in the airline and hotel services.

Fee-based income and ancillary revenues represented 8.4% of total revenues for

the year ended December 31, 1999.



Product Costs and Gross Profit



Year Ended

December 31,

($000)

-------------------       %

1999        1998     Change

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

Product Costs..................................   $424,579    $36,525     1,062%

% of Revenues..................................        88%       104%

Gross Profit...................................    $57,831   $(1,288)     4,590%

Gross Margin...................................      12.0%     (4.0)%



For the year ended December 31, 1999, product costs were comprised of (1)

the cost of airline tickets from our suppliers, net of the federal air

transportation tax, segment fees and passenger facility charges imposed in

connection with the sale of airline tickets; (2) the cost of hotel rooms from

our suppliers, net of hotel tax; and (3) supplier warrant costs that represent a

non-cash expense related to the issuance of common stock warrants to one of our

airline program participants in January 1999. We anticipate that we will

recognize additional non-cash supplier warrant costs in the amount of

approximately $381,000 in each of the next four fiscal quarters.



Gross profit is comprised of revenues less cost of revenues. Excluding the

effect of non-cash supplier warrant costs for the year ended December 31, 1999,

the Company had gross profit of $59.4 million. During 1999, gross profit was

positive as a result of the transactional sales volumes that were sold at

positive margins, and the launch of products generating fee-based revenues.

Because fee-based and ancillary revenues generally do not involve separate

costs, these revenues had a disproportionately positive impact on total gross

profit and made a substantial contribution to gross profit for the year ended

December 31, 1999.



For the year ended December 31, 1999, gross margin increased each quarter

as a result of increased sales volume, increased fee-based revenue and decreased

sales of tickets that were sold below cost. Fee-based revenues, such as adaptive

marketing revenues, ancillary revenues and revenues from financial services and

automobiles generate higher margins than transaction revenues, on which the

gross margin generated is derived from the spread between customer payments and

product costs.



The Company expects that gross profit and gross margin will improve in the

first quarter of 2000 as a result of anticipated consumer demand sufficient to

allow the Company to increase revenues while selling its products at increasing

positive margins. As a result of this anticipated growth, the Company expects

the proportion of its gross profit and gross margin attributable to adaptive

marketing revenues to decline.



Operating Expenses



Warrant Costs, Net



Year Ended

December 31,

($000)

-------------------       %

1999        1998     Change

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

Warrant Costs, Net.............................   $998,832    $57,979     1,623%





28

Warrant costs, net consist of the fair value of warrants issued to airline

suppliers during 1999, as discussed above. Such costs were partially offset by

warrant income of $188.8 million recognized in the fourth quarter as a result of

the receipt of warrants to purchase common stock of WebHouse.



Sales and Marketing



Year Ended

December 31,

($000)

-------------------       %

1999        1998     Change

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

Sales & Marketing..................................$79,577    $24,388    226.3%

% of Revenues......................................  16.5%      69.2%



Sales and marketing expenses for the year ended December 31, 1999

consisted primarily of: (1) advertising and promotions; (2) credit card

processing fees; (3) fees payable to a third party service provider that

operates priceline.com's call center; (4) compensation for priceline.com's sales

and marketing personnel; and (5) provisions for customer charge-backs (based

upon a percentage reflecting priceline.com's historical experience). The Company

plans to continue to invest heavily in advertising and other marketing programs

and expects that all marketing costs will increase. However, with the exception

of processing fees and provisions for customer accommodations and charge-backs,

which the Company anticipates will grow proportionately with transaction based

revenue, the Company anticipates that the other marketing costs will decrease as

a percentage of revenues as the result of anticipated revenue growth.



General and Administrative



Year Ended

December 31,

($000)

-------------------       %

1999        1998     Change

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

General & Administrative.......................    $27,609    $18,004      53.3%

% of Revenues..................................       5.7%      51.1%



General and administrative expenses for the year ended December 31, 1999

were comprised primarily of compensation for personnel, fees for outside

professionals, telecommunications and other overhead costs, including occupancy

expense. The year ended December 31, 1999 included a charge of $1,812 relating

to option payroll taxes resulting from the exercise of employee stock options.

Excluding this expense, general and administrative expense was 5.3% of sales for

the year ended December 31, 1999. Excluding this charge, general and

administrative expenses increased as a result of increased payroll and overhead

costs associated with the expansion of our product offerings and increases in

our revenue base.



Systems and Business Development



Year Ended

December 31,

($000)

-------------------       %

1999        1998     Change

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

Systems & Business Development................     $14,023    $11,132     26.0%

% of Revenues.................................        2.9%      31.6%



Systems and business development expenses for the year ended December 31,

1999 were comprised primarily of: (1) compensation to our information technology

and product development staff; (2) payments to outside contractors; (3) data

communications and other expenses associated with operating priceline.com's Web

site; and (4) depreciation and amortization on computer hardware and software.

During 1999, systems and business development expenses increased due to

increased payroll costs, increased depreciation and amortization resulting from

increased capital expenditures and





29

increased development costs associated with the expansion of priceline.com's

product offerings and technological infrastructure. As the Company depends on

its web site and internal systems to operate, it expects to continue to invest

significantly on the systems and business development area.



In March 1998, the American Institute of Certified Public Accountants

issued Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer

Software Developed or Obtained for Internal Use." This SOP requires

capitalization of certain costs of computer software developed or obtained for

internal use. Priceline.com adopted this SOP on January 1, 1999 and, during the

year ended December 31, 1999, priceline.com capitalized approximately $13.9

million of computer software developed or obtained for internal use.

Amortization of such costs aggregated approximately $1.1 million during the year

ended December 31, 1999.



Other Income, Net



Year Ended

December 31,

($000)

-------------------       %

1999        1998     Change

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

Other Income (Net)...........................       $7,120       $548     1,199%



Other income, net, for the year ended December 31, 1999 was primarily

comprised of interest income. Interest income on cash and marketable securities

increased due to higher cash and cash equivalent balances resulting from our

initial public offering of common stock in April of 1999 and our secondary

public offering of common stock in August of 1999.



Year Ended December 31, 1998



Priceline.com was formed in July 1997, but did not commence operations

until April 1998. Accordingly, comparisons with prior periods are not

meaningful.



Revenues



Total revenues for the year ended December 31, 1998 were $35.2 million.

Since commencement of operations in April 1998, essentially all revenues

consisted of airline ticket sales, hotel room reservations and related adaptive

marketing programs. Priceline.com's automobile sales service, which was launched

on a test basis in the New York metropolitan area in July 1998, did not

contribute materially to revenues during the period.



Product Costs and Gross Profit (Loss)



Cost of revenues for the year ended December 31, 1998 totaled $36.5

million, consisting of product costs of $33.5 million and supplier warrant costs

of $3.0 million. Product costs represent the cost of airline tickets from

priceline.com's suppliers, net of the federal air transportation tax, segment

fees and passenger facility charges imposed in connection with the sale of

airline tickets. Supplier warrant costs represent a non-cash expense related to

the pro-rata amount of the Delta warrant earned prior to December 31, 1998, the

date on which the Delta warrant was amended.



Gross profit (loss), which is comprised of revenues less cost of revenues,

was $(1.3) million for the year ended December 31, 1998. Excluding the effect of

the non-cash supplier warrant costs, priceline.com would have had gross profit

of $1.7 million for the year ended December 31, 1998. In 1998, priceline.com

sold a substantial number of tickets below its cost in order to increase airline

and adaptive marketing revenues, build a record of successful transactions, and

enhance the priceline.com brand. Because the fees generated by adaptive

marketing programs have historically involved no separate costs, adaptive

marketing revenues had a disproportionately positive impact on priceline.com's

total gross margin. The Capital One adaptive marketing program accounted for all

of priceline.com's adaptive marketing revenues in 1998.





30

Operating Expenses



Warrant Cost, net. Warrant costs, net for the year ended December 31, 1998

totaled $58.0 million, or 164.5% of revenues. Supplier start up warrant costs

consist of a non-cash charge representing the fair value of warrants issued to

certain participating airlines in the priceline.com service in connection with

securing the airline's participation in the priceline.com service.



Sales and Marketing. Sales and marketing expenses for the year ended

December 31, 1998 totaled $24.4 million, or 69.2% of revenues. The expenses were

comprised of: (1) advertising and promotional items; (2) fees payable to a third

party service provider, which operates priceline.com's call center; (3) credit

card processing fees; (4) provisions for customer credit card charge-backs

(based upon a percentage reflecting priceline.com's historical experience); and

(5) compensation for priceline.com's sales and marketing personnel.



General and Administrative. General and administrative expenses for the

year ended December 31, 1998 totaled $18.0 million or 51.1% of revenues. General

and administrative expenses consist primarily of compensation for personnel,

fees for outside professionals, telecommunications and other overhead costs,

including occupancy expense. In July 1998, priceline.com issued 8,125,000 shares

of Common Stock, to the Chairman and Chief Executive Officer that resulted in

the recognition of a charge of $6.5 million with respect to these shares. The

shares were issued as compensation for agreeing to accept the position.



Systems and Business Development. Systems and business development

expenses for the year ended December 31, 1998 totaled $11.1 million, or 31.6% of

revenues. Systems and business development expenses are comprised primarily of

compensation to priceline.com's information technology and product development

staff and payments to outside contractors, data communications and other

expenses associated with operating priceline.com's Web site and, to a lesser

extent, depreciation on computer hardware and licensing fees for computer

software.



Other Income, Net



Other income, net for the year ended December 31, 1998 totaled $548,374,

reflecting approximately $633,000 of interest income earned by priceline.com on

its cash balances, net of interest expense for the period.



Period Ended December 31, 1997



During the period from its formation in July 1997 through December 31,

1997, priceline.com was engaged in start-up activities and incurred $2.5 million

of operating expenses. These operating expenses primarily consisted of

investments in technology and personnel related expenses. No revenues were

earned during the period.



Liquidity and Capital Resources



At December 31, 1999, the Company had approximately $171.9 million in cash

and cash equivalants, and short-term investments.



Net cash used in operating activities was $63.0 million, $40.9 million and

$774,000 for the years ended December 31, 1999 and 1998 and for the period July

18 (inception) through December 31, 1997, respectively. Net cash used in

operating activities was primarily attributable to net losses.



Net cash used in investing activities was $68.2 million, $6.6 million and

$1.3 million for the years ended December 31, 1999 and 1998 and for the period

July 18 (inception) through December 31, 1997, respectively. Net cash used in

investing activities was primarily related to purchases of property and

equipment, and in 1999 for investments in marketable securities.





31

Priceline.com has certain commitments for capital expenditures as part of

its ongoing business cycle. None of these commitments are material to the

financial statements either individually or in the aggregate. Capital

expenditures, primarily for computer equipment and software, were $27.4 million

for the year ended December 31, 1999. As a result of its rapid growth,

priceline.com expects to increase capital expenditures for purchased computer

hardware, internally developed software, other equipment and leasehold

improvements.



Net cash provided by financing activities was $210.8 million, $101.1

million and $2.1 million for the years ended December 31, 1999 and 1998 and for

the period July 18 (inception) through December 31, 1997, respectively. Net cash

provided by financing activities resulted primarily from the issuance of equity

securities referred to below.



In April 1999, priceline.com completed its initial public offering in

which it sold 10,000,000 shares of its Common Stock at a price of $16.00 per

share. Offering proceeds to priceline.com, net of approximately $11.2 million in

aggregate underwriters' discounts and commissions and $4.5 million in related

expenses, were approximately $144.3 million. In August 1999, priceline.com

completed a public offering in which it sold 1,000,000 shares of its Common

Stock at a price of $67.00 per share. Offering proceeds to priceline.com, net of

approximately $2.5 million in aggregate underwriters' discounts and commissions

and $2.0 million in related expenses, were approximately $62.5 million.



During 1997, priceline.com's initial equity capital of approximately $27.0

million was provided by Mr. Jay S. Walker, other high net worth individuals and

a partnership affiliated with General Atlantic Partners, LLC, a private equity

firm that invests worldwide in software and information technology companies. An

additional $20.0 million was invested by two partnerships affiliated with

General Atlantic in July 1998. In December 1998, priceline.com sold equity

securities in a private offering to a group of corporate and institutional

investors and high net worth individuals for approximately $54.4 million.

Included in that group were two partnerships affiliated with General Atlantic;

Vulcan Ventures, Incorporated; Liberty PL, Inc., a wholly owned subsidiary of

Liberty Media Corporation; Quantum Industrial Partners LDC, a fund managed by

Soros Fund Management, LLC and Allen & Company Incorporated. Allen & Company

Incorporated also has served as priceline.com's financial advisor.



In April 1999, priceline.com made a $3.3 million loan to Mr. Richard S.

Braddock for the payment of taxes related to the issuance to Mr. Braddock of

8,125,000 shares of common stock in August 1998. The loan bears interest at

5.28% per annum. Interest is payable annually and principal is payable in

January 2004.



In July 1999, priceline.com made a $6.0 million loan to an executive of

the Company, pursuant to the terms of his employment agreement dated June 14,

1999. The loan bears interest annually at 5.82% per annum. In the first quarter

of 2000, priceline.com made loans to two executives aggregating $5.0 million,

which bear interest at 6.56%. Subject to certain prepayment obligations and to

forgiveness in the event of certain changes of control, death, or termination

without cause, pursuant to the terms of these loans, accrued interest and

principal are payable after five years, but are forgiven under certain

circumstances if the executive remains employed by the Company at that time.

Upon any forgiveness of the loans, the Company would recognize as compensation

expense an amount up to the amount of principal and interest forgiven.



Priceline.com believes that its existing cash balances and liquid

resources will be sufficient to fund its operating activities, capital

expenditures and other obligations through at least the next twelve months.

However, if during that period or thereafter, priceline.com is not successful in

generating sufficient cash flow from operations or in raising additional capital

when required in sufficient amounts and on terms acceptable to priceline.com,

these failures could have a material adverse effect on priceline.com's business,

results of operations and financial condition. If additional funds were raised





32

through the issuance of equity securities, the percentage ownership of its

then-current stockholders would be diluted.



Market-related Risks



Priceline.com currently has no floating rate indebtedness, holds no

derivative instruments other than through investments in licensees discussed

above, and does not earn significant foreign-sourced income. Accordingly,

changes in interest rates or currency exchange rates do not generally have a

direct effect on priceline.com's financial position. However, changes in

currency exchange rates may affect the cost of international airline tickets and

international hotel room reservations offered through the priceline.com service,

and so indirectly affect consumer demand for such products and priceline.com's

revenue. In addition, to the extent that changes in interest rates and currency

exchange rates affect general economic conditions, priceline.com would also be

affected by such changes.



Recent Accounting Pronouncements



In July 1999, the FASB issued Statement No. 137, "Accounting for

Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB

No. 133". The Statement defers for one year the effective date of FASB Statement

No. 133, "Accounting for Derivative Instruments and Hedging Activities". The

rule now will apply to fiscal quarters of fiscal years beginning after June 15,

2000. In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and

Hedging Activities" was issued. The statement will require the recognition of

all derivatives as either assets or liabilities in the balance sheet and the

measurement of those instruments at fair value. Derivatives that are not hedges

must be adjusted to fair value through income. If the derivative is a hedge,

depending on the nature of the hedge, changes in the fair value of derivatives

will either be offset against the change in fair value of the hedged assets,

liabilities, or firm commitments through earnings or recognized in other

comprehensive income until the hedged item is recognized in earnings. The

ineffective portion of the derivative's change in fair value will be immediately

recognized in earnings. The Company has not yet determined the effect of SFAS

No. 133 will have on the earnings and financial position of the Company.



In 1999, the Company adopted Statement of Position (SOP) 98-1, "Accounting

for the Costs of Computer Software Developed or Obtained for Internal Use." This

standard requires certain direct development costs associated with internal-use

software to be capitalized including external direct costs of material and

services and payroll costs for employees devoting time to the software projects.

These costs are included in software and are amortized over a period not to

exceed three years beginning when the asset is substantially ready for use.

Costs incurred during the preliminary project stage, as well as maintenance and

training costs, are expensed as incurred.



Tax Matters



Federal Air Transportation Tax on Airline Ticket Sales



A Federal transportation tax is imposed upon the sale of airline tickets.

The tax is based on a percentage of the cost of transportation, which was 9% for

periods prior to October 1, 1998, 8% for the period October 1, 1998 through

September 30, 1999 and 7.5% thereafter. The Company has historically interpreted

the tax regulations as requiring that the tax be computed based on the amount

charged by the airline to priceline.com for the airline ticket and the Company's

participating airlines have collected and remitted the tax based on this

amounts. The Company applied for a ruling from the Internal Revenue Service (the

"Service") confirming this interpretation. In December 1999, the Service

indicated to the Company that it was unlikely that a favorable ruling would be

issued. The Company subsequently withdrew its ruling request because of the

uncertainty of the outcome. Because the Company anticipated the possibility of

an adverse ruling on this issue, the Company accrued





33

approximately $1.9 million relating to the balance of the tax liability for

tickets sold prior to that date. The Company believes this accrual to be

adequate but there can be no assurance as to the final outcome because a formal

ruling has not been issued by the service.



Non-Qualified Stock Options



As of December 31, 1999, we had outstanding non-qualified stock options to

purchase 27,024,740 shares issued to various employees, consultants and

directors pursuant to the 1997 Omnibus Plan and the 1999 Omnibus Plan. The

options entitle holders to purchase common stock at a weighted average exercise

price of approximately $13.93 per share, subject to adjustment in accordance

with the 1997 Omnibus Plan and the 1999 Omnibus Plan.



Year 2000 Readiness Disclosure



The following disclosure may be deemed "Year 2000 Readiness Disclosure"

pursuant to the Year 2000 Information and Readiness Disclosure Act.



Since inception, the Company has dedicated substantial resources to

address the potential issues related to Year 2000 programming and related

concerns. As a result of these efforts, the Company has not experienced to date

any material disruption in its operations in connection with, or following, the

transition of Year 2000.



Since the Company was cognizant of Year 2000 issues during the development

of its systems and products since inception, specific costs related to Year 2000

issues can not be quantified. There were no material additional costs incurred

to make any previously existing product or services Year 2000 compliant.



Information Regarding Forward Looking Statements



See "Special Note Regarding Forward Looking Statements."



- --------





34

Item 7A. Quantitative and Qualitative Disclosure About Market Risk



Priceline.com currently has no floating rate indebtedness, holds no

derivative instruments other than through investments in licensees described in

this Annual Report on Form 10-K and does not earn significant foreign-sourced

income. Accordingly, changes in interest rates or currency exchange rates do not

generally have a direct effect on priceline.com's financial position. However,

changes in currency exchange rates may affect the cost of international airline

tickets and international hotel reservations offered through the priceline.com

service, and so indirectly affect consumer demand for such products and

priceline.com's revenue. In addition, to the extent that changes in interest

rates and currency exchange rates affect general economic conditions,

priceline.com would also be affected by such changes.



Item 8. Financial Statements and Supplementary Data



The following financial statements of the Company and the independent

auditors' report are filed as part of this Annual Report on Form 10-K (See Item

14):



Balance Sheets as of December 31, 1999 and December 31, 1998; Statements

of Operations , Changes in Stockholders' Equity and Cash Flows for the years

ended December 31, 1999, December 31, 1998 and the period July 18, 1997

(inception) to December 31, 1997; Notes to Financial Statements; Independent

Auditors' Report.



Item 9. Changes and Disagreements with Accountants on Accounting and Financial

Disclosure



None.



PART III



Item 10. Directors and Executive Officers of the Registrant



Information regarding the Company's directors and executive officers and

compliance with Section 16(a) of the Securities Exchange Act of 1934, as

amended, required by Part III, Item 10, is included in the Company's Proxy

Statement relating to the Company's annual meeting of stockholders to be held on

April 24, 2000, and is incorporated herein by reference.



Item 11. Executive Compensation



Information required by Part III, Item 11, is included in the Company's

Proxy Statement relating to the Company's annual meeting of stockholders to be

held on April 24, 2000, and is incorporated herein by reference.



Item 12. Security Ownership of Certain Beneficial Owners and Management



Information required by Part III, Item 12, is included in the Company's

Proxy Statement relating to the Company's annual meeting of stockholders to be

held on April 24, 2000, and is incorporated herein by reference.



Item 13. Certain Relationships and Related Transactions



- ----------





35

Information regarding certain of the Company's relationships and related

transactions is included in the Company's Proxy Statement relating to the

Company's annual meeting of stockholders to be held on April 24, 2000, and is

incorporated herein by reference.



PART IV



Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K



(a)   List of Documents Filed as a Part of this Annual Report on Form 10-K:



The following financial statements of the Company and the independent

auditors' report are filed as part of this Annual Report on Form 10-K.



Balance Sheets as of December 31, 1999 and December 31, 1998; and the

related Statements of Operations , Changes in Stockholders' Equity and

Cash Flows for the years ended December 31, 1999, December 31, 1998 and

the period July 18, 1997 (inception) to December 31, 1997; Notes to

Financial Statements; Independent Auditors' Report.



(b)   Reports on Form 8-K:



On October 14, 1999, the Company filed a report on Form 8-K announcing

that the Company filed a suit in U.S. District Court against Microsoft

Corporation and its Expedia Inc. subsidiary, claiming that Expedia.com's

hotel service infringes on the Company's U.S. Patent No. 5,794,207. The

suit also charges that Microsoft's conduct is in violation of the

Connecticut Unfair Trade Practices Act.



On November 18, 1999, the Company filed a report on Form 8-K announcing

that United Airlines, American Airlines and US Airways had agreed to

become participating carriers in the priceline.com Name Your Own Price(sm)

airline ticket service.



(c)   Exhibits



The exhibits listed below are filed as a part of this Annual Report on

Form 10-K.



Exhibit Number                          Description

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

2.1*              Agreement of Merger, dated as of July 31, 1998, between

priceline.com LLC and the Registrant.

3.1*              Form of Amended and Restated Certificate of Incorporation of

the Registrant.

3.2*              Form of By-Laws of the Registrant.

4.1               Reference is hereby made to Exhibits 3.1 and 3.2.

4.2*              Specimen Certificate for Registrant's Common Stock.

4.3*              Amended and Restated Registration Rights Agreement, dated as

of December 8, 1998, among the Registrant and certain

stockholders of the Registrant.

10.1.1*           1997 Omnibus Plan of the Registrant.

10.1.2*           1999 Omnibus Plan of the Registrant.

10.2*             Stock Purchase Agreement, dated July 31, 1998, among the

Registrant and the investors named therein, as amended.

10.3*             Stock Purchase Agreement, dated as of December 8, 1998, among

the Registrant and the investors named therein, as amended.

10.4              Reference is hereby made to Exhibit 4.3.

10.5*             Purchase and Intercompany Services Agreement, dated April 6,

1998, among the Registrant, Walker Asset Management Limited

Partnership, Walker Digital





36

Exhibit Number                          Description

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

Corporation and Priceline Travel, Inc.

10.6.1*           Employment Agreement, dated as of January 1, 1998, between Jay

S. Walker, Walker Digital Corporation, the Registrant and

Jesse M. Fink.

10.6.2*           Amendment No. 1 to Employment Agreement, dated November 16,

1998 between the Registrant and Jesse M. Fink.

10.7.1*           Employment Agreement, dated as of July 23, 1998, between the

Registrant and Timothy G. Brier.

10.7.2*           Amendment No. 1 to Employment Agreement, dated November 16,

1998, between the Registrant and Timothy G. Brier.

10.8*             Amended and Restated Employment Agreement, dated as of August

15, 1998, by and between the Registrant and Richard S.

Braddock.

10.9*             Airline Participation Agreement, dated April 1998, by and

among the Registrant, Priceline Travel, Inc. and Trans World

Airlines, Inc.

10.10*+           Airline Participation Agreement, dated October 2, 1998, by and

among the Registrant, Priceline Travel, Inc. and Northwest

Airlines, Inc.

10.11.1*+         General Agreement, dated August 31, 1998, by and among the

Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.

10.11.2*+         Airline Participation Agreement, dated August 31, 1998, by and

among the Registrant, Priceline Travel, Inc. and Delta Air

Lines, Inc.

10.11.3*+         Amendment to the Airline Participation Agreement and the

General Agreement, dated December 31, 1998, between and among

the Registrant, Priceline Travel, Inc. and Delta Air Lines,

Inc.

10.11.4***        Letter Agreement, dated July 16, 1999, between the Registrant

and Delta Air Lines, Inc.

10.11.5           Master Agreement, dated November 17, 1999, between the

Registrant and Delta Air Lines, Inc.

10.11.6           Amendment to the Airline Participation Agreement and the

General Agreement, dated November 17, 1999, by and among the

Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.

10.11.7+          Participation Warrant Agreement, dated as of November 17,

1999, between the Registrant and Delta Air Lines, Inc.

10.12*+           Airline Participation Agreement, dated December 31, 1998, by

and among the Registrant, Priceline Travel, Inc. and America

West Airlines.

10.13*+           Internet Marketing and Licensing Agreement, as of August 1,

1998, between the Registrant and LendingTree, Inc.

10.14*            Systems Access Agreement, dated as of August 4, 1997, between

the Registrant and WORLDPAN, L.P.

10.15*            Master Agreement for Outsourcing Call Center Support, dated as

of April 6, 1998, between the Registrant and CALLTECH

Communications, Incorporated.

10.16*            Form of Participation Warrant Agreement.

10.17.1*+         Participation Warrant Agreement, dated as of December 31,

1998.

10.17.2*+         Amendment No. 1, dated as of February 4, 1999, to Warrant

Participation Agreement, dated as of December 31, 1999.

10.17.3*+         Amendment No. 2, dated as of March 3, 1999, to Participation

Warrant Agreement, dated as of December 31, 1998, as

previously amended to Amendment No. 1 to Warrant Participation

Agreement, dated as of February 4, 1999.

10.18***          Employment Agreement, dated as of June 14, 1999, between the

Registrant and Daniel H. Schulman.

10.19.1***        Airline Participation Agreement, dated July 16, 1999, between

the Registrant and Continental Airlines, Inc.

10.19.2***        Participation Warrant Agreement, dated July 16, 1999, between

the Registrant and Continental Airlines, Inc.

10.19.3           First Amendment to Participation Warrant Agreement, dated as

of November 17, 1999, by and between the Registrant and

Continental Airlines, Inc.

10.19.4+          Participation Warrant Agreement, dated November 17, 1999,

between the Registrant and Continental Airlines, Inc.

10.20****         License Agreement, dated July 20, 1999 between Walker Digital

Corporation and the Registrant.

10.21             Sublease, dated October 1999, between Oxford Health Plans,

Inc., as Sub-Landlord and the





37

Exhibit Number                          Description

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

Registrant, as Sub-Tenant, and Agreement of Lease, dated June

16, 1993, as amended, between Prudential Insurance Company of

America, as Landlord, and Oxford Health Plans, Inc., as

Tenant.

10.22.1           Securityholders' Agreement, dated as of October 26, 1999,

among the Registrant, Priceline WebHouse Club, Inc., Walker

Digital, LLC and the Investors signatory thereto.

10.22.2+          Intellectual Property License Agreement, dated as of October

26, 1999, between the Registrant and Priceline WebHouse Club,

Inc.

10.22.3+          Marketing and Technical Services Agreement, dated as of

October 26, 1999, between the Registrant and Priceline

WebHouse Club, Inc.

10.22.4+          Warrant Agreement, dated as of October 26, 1999, between the

Registrant and Priceline WebHouse Club, Inc.

10.22.5+          Services Agreement, dated as of October 26, 1999, between the

Registrant and Priceline WebHouse Club, Inc.

10.23.1+          Airline Participation Agreement, dated as of November 15,

1999, by and between the Registrant and United Air Lines, Inc.

10.23.2+          Participation Warrant Agreement, dated as of November 15,

1999, by and between the Registrant and United Air Lines, Inc.

10.24.1+          Airline Participation Agreement, dated as of November 17,

1999, by and between the Registrant and US Airways, Inc.

10.24.2+          Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and US Airways, Inc.

10.25.1+          Airline Participation Agreement, dated as of November 17,

1999, by and between the Registrant and American Airlines,

Inc.

10.25.2+          Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and American Airlines,

Inc.

10.26+            Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and Trans World Airlines,

Inc.

10.27+            Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and Northwest Airlines,

Inc.

10.28+            Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and America West Airlines

10.29             Continuing Employment Agreement, dated as of December 16,

1999, between the Registrant and Melissa M. Taub.

12.1              Computation of Ratio of Earnings to Fixed Charges.

23.1              Consent of Deloitte & Touche LLP.

27.1              Financial Data Schedule.



*     Previously filed as an exhibit to the Form S-1 (Registration No.

333-69657) filed in connection with priceline.com's initial public

offering and incorporated herein by reference.



**    Previously filed as an exhibit to the Form 10-Q filed on May 17, 1999 and

incorporated herein by reference.



***   Previously filed as an exhibit to the Form S-1 (Registration No.

333-83513) filed in connection with priceline.com's secondary public

offering and incorporated herein by reference.



****  Previously filed as an exhibit to the Form 10-Q filed on November 15, 1999



+     Certain portions of this document have been omitted pursuant to a

confidential treatment request.





38

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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.



PRICELINE.COM INCORPORATED

Date

----



By: /s/ Richard S. Braddock                                 March 30, 2000

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

Richard S. Braddock

Chairman of the Board

Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this

report has been signed below by the following persons on behalf of the

registrant and in the capacities and on the dates indicated.



By: /s/ Richard S. Braddock                                 March 30, 2000

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

Richard S. Braddock

Chairman of the Board

Chief Executive Officer



By: /s/ Thomas P. D'Angelo                                  March 30, 2000

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

Thomas P. D'Angelo

Principal Financial Officer

Principal Accounting Officer



By: /s/ Paul A. Allaire                                     March 30, 2000

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

Paul A. Allaire

Director



By: /s/ Ralph M. Bahna                                      March 30, 2000

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

Ralph M. Bahna

Director





39

By: /s/ Paul J. Blackney                                    March 30, 2000

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

Paul J. Blackney

Director





By: /s/ William E. Ford                                     March 30, 2000

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

William E. Ford

Director





By: /s/ Marshall Loeb                                       March 30, 2000

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

Marshall Loeb

Director





By: /s/ Nicholas J. Nicholas, Jr.                           March 30, 2000

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

Nicholas J. Nicholas, Jr.

Director





By: /s/ Nancy B. Peretsman                                  March 30, 2000

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

Nancy B. Peretsman

Director



By: /s/Daniel H. Schulman                                   March 30, 2000

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

Daniel H. Schulman

President and Chief Operating Officer

Director



By: /s/Jay S. Walker                                        March 30, 2000

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

Jay S. Walker

Vice Chairman, Director





40

PRICELINE.COM INCORPORATED

INDEX TO FINANCIAL STATEMENTS



Page No.

--------



Independent Auditor's Report.......................................  42



Balance Sheets for the fiscal years ended December 31, 1999 and

December 31, 1998.............................................  43



Statements of Operations for the fiscal years ended December 31,

1999 and December 31, 1998 and for the period July 18, 1997

(Inception) to December 31, 1997..............................  44



Statements of Changes in Stockholders' Equity for the fiscal

years ended December 31, 1999 and December 31, 1998

and for the period July 18, 1997 (Inception) to

December 31, 1997.............................................  45



Statements of Cash Flows for the fiscal years ended December 31,

1999 and December 31, 1998 and for the period July 18, 1997

(Inception) to December 31, 1997..............................  46



Notes to Financial Statements......................................  47





41

INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of

priceline.com Incorporated



We have audited the accompanying balance sheets of priceline.com

Incorporated (the "Company") as of December 31, 1999 and 1998, and the related

statements of operations, changes in stockholders' equity, and cash flows for

the years ended December 31, 1999 and 1998 and the period July 18, 1997

(inception) to December 31, 1997. These financial statements are the

responsibility of the Company's management. Our responsibility is to express an

opinion on these financial statements based on our audits.



We conducted our audits in accordance with generally accepted auditing

standards. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.



In our opinion, such financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 1999 and

1998, and the results of its operations and its cash flows for the years ended

December 31, 1999 and 1998 and the period July 18, 1997 (inception) to December

31, 1997 in conformity with generally accepted accounting principles.



Stamford, Connecticut

January 27, 2000

(March 17, 2000 as to Note 15)





42

priceline.com Incorporated

BALANCE SHEETS

(In thousands)



<TABLE>

<CAPTION>

December 31,

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

1999                  1998

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

<S>                                                                                               <C>                   <C>

ASSETS

Current assets:

Cash and cash equivalents ............................................................          $   133,172           $    53,593

Short-term investments ...............................................................               38,771

Accounts receivable, net of allowance for doubtful accounts of

$1,961 and $291 ....................................................................               21,289                 4,177

Related party receivables ............................................................                  508

Prepaid expenses and other current assets ............................................               17,999                 2,433

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

Total current assets ...............................................................              211,739                60,203

Property and equipment, net ............................................................               28,006                 5,927

Related party receivable ...............................................................                8,838

Warrants to purchase common stock of Priceline WebHouse Club, Inc. .....................              189,000

Other assets ...........................................................................                4,303                   442

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

Total assets .......................................................................          $   441,886           $    66,572

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

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable .....................................................................          $    24,302           $     5,268

Related party payable ................................................................                                         32

Accrued expenses .....................................................................               13,695                 4,259

Other current liabilities ............................................................                1,253                   722

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

Total current liabilities ..........................................................               39,250                10,281

Long term obligations ..................................................................                                      1,015

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

Total liabilities ..................................................................               39,250                11,296

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

Stockholders' equity:

Common stock, $0.008 par value authorized 1,000,000 and 300,000 shares,

respectively; issued and outstanding, 163,867 and

93,225 shares, respectively ..........................................................                1,311                   746

Convertible preferred stock, $0.01 par value; authorized 150,000 shares:

Series A $1.16 liquidation value per share; issued and

outstanding 17,289 shares at December 31, 1998 .......................................                                        173

Series B $4.00 liquidation value per share; issued and

outstanding, 13,837 shares at December 31, 1998 ......................................                                        138

Additional paid-in capital .............................................................            1,581,708               171,158

Accumulated deficit ....................................................................           (1,180,383)             (116,939)

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

Total stockholders' equity .............................................................              402,636                55,276

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

Total liabilities and stockholders' equity .........................................          $   441,886           $    66,572

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

</TABLE>



See notes to financial statements.





43

priceline.com Incorporated

STATEMENTS OF OPERATIONS

(In thousands, except per share data)



<TABLE>

<CAPTION>

July 18, 1997

Year Ended December 31,                (Inception)

----------------------------------         to December 31,

1999                   1998                  1997

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

<S>                                                                       <C>                    <C>                   <C>

Revenues ......................................................           $   482,410            $    35,237

Cost of revenues:

Product costs ...............................................               423,056                 33,496

Supplier warrant costs ......................................                 1,523                  3,029

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

Total costs of revenues ...................................               424,579                 36,525

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

Gross profit (loss) ...........................................                57,831                 (1,288)

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

Operating expenses:

Warrant costs, net ..........................................               998,832                 57,979

Sales and marketing .........................................                79,577                 24,388           $       441

General and administrative (including $1,812 of

option payroll taxes in 1999) .............................                27,609                 18,004                 1,012

Systems and business development ............................                14,023                 11,132                 1,060

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

Total operating expenses ..................................             1,120,041                111,503                 2,513

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

Operating loss ................................................            (1,062,210)              (112,791)               (2,513)

Interest income ...............................................                 7,501                    548

Other expense .................................................                  (381)

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

Total other income (expense) ..............................                 7,120                    548

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

Net loss ......................................................            (1,055,090)              (112,243)               (2,513)

Accretion on preferred stock ..................................                (8,354)                (2,183)

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

Net loss applicable to common stockholders ....................           $(1,063,444)           $  (114,426)          $    (2,513)

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

Net loss applicable to common stockholders per

basic and diluted common share ..............................           $     (7.90)           $     (1.41)          $      (.05)

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

Weighted average number of basic and diluted

common shares outstanding ...................................               134,622                 81,231                50,834

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

</TABLE>



See notes to financial statements.





44

priceline.com Incorporated

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND FOR THE

PERIOD JULY 18, 1997 (INCEPTION) TO DECEMBER 31, 1997

(In thousands)



<TABLE>

<CAPTION>

Preferred Stock                  Common Stock            Additional

---------------------------     --------------------------       Paid-in      Accumulated

Shares          Amount          Shares         Amount         Capital         Deficit

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

<S>                                   <C>             <C>             <C>            <C>             <C>             <C>

Issuance of common stock and

common stock subscriptions .....                                         51,670    $       413     $       843

Net loss .........................                                                                                   $    (2,513)

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

Balance, December 31, 1997 .......                                         51,670            413             843          (2,513)

Issuance of common stock and

common stock subscriptions .....                                         41,555            333          32,663

Issuance of Series A convertible

preferred stock ................         17,289     $       173                                         19,827

Issuance of Series B convertible

preferred stock ................         13,837             138                                         54,276

Accretion on preferred stock .....                                                                         2,183          (2,183)

Issuance of options to purchase

common stock ...................                                                                           245

Issuance of warrants to purchase

common stock ...................                                                                        61,121

Net loss .........................                                                                                      (112,243)

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

Balance, December 31, 1998 .......         31,126     $       311          93,225    $       746     $   171,158     $  (116,939)

Conversion of Series A convertible

preferred stock ................        (17,289)           (173)         21,611            173

Conversion of Series B convertible

preferred stock ................        (13,837)           (138)         17,297            138

Accretion on preferred stock .....                                                                         8,354          (8,354)

Issuance of common stock .........                                         11,000             88         208,329

Exercise of warrants to purchase

common stock ...................                                         19,121            153           1,579

Exercise of options to purchase

common stock ...................                                          1,613             13           1,654

Issuance of warrants to purchase

common stock ...................                                                                     1,190,634

Net loss .........................                                                                                    (1,055,090)

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

Balance, December 31, 1999 .......                                        163,867    $     1,311     $ 1,581,708     $(1,180,383)

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



<CAPTION>





Total

-----------

<S>                                   <C>

Issuance of common stock and

common stock subscriptions .....    $     1,256

Net loss .........................         (2,513)

-----------

Balance, December 31, 1997 .......         (1,257)

Issuance of common stock and

common stock subscriptions .....         32,996

Issuance of Series A convertible

preferred stock ................         20,000

Issuance of Series B convertible

preferred stock ................         54,414

Accretion on preferred stock .....

Issuance of options to purchase

common stock ...................            245

Issuance of warrants to purchase

common stock ...................         61,121

Net loss .........................       (112,243)

-----------

Balance, December 31, 1998 .......    $    55,276

Conversion of Series A convertible

preferred stock ................

Conversion of Series B convertible

preferred stock ................

Accretion on preferred stock .....

Issuance of common stock .........        208,417

Exercise of warrants to purchase

common stock ...................          1,732

Exercise of options to purchase

common stock ...................          1,667

Issuance of warrants to purchase

common stock ...................      1,190,634

Net loss .........................     (1,055,090)

-----------

Balance, December 31, 1999 .......    $   402,636

===========

</TABLE>



See notes to financial statements.





45

priceline.com Incorporated

STATEMENTS OF CASH FLOWS

(In thousands)



<TABLE>

<CAPTION>

July 18, 1997

Year Ended      Year Ended      (Inception)

December 31,    December 31,   to December 31,

1999            1998            1997

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

<S>                                                      <C>             <C>             <C>

OPERATING ACTIVITIES:

Net loss ............................................    $(1,055,090)    $  (112,243)    $    (2,513)

Adjustments to reconcile net loss to net cash used in

operating activities:

Depreciation and amortization .....................          5,348           1,860             212

Provision for uncollectible accounts ..............          3,127             581

Warrant costs, net ................................      1,189,111

Warrant income ....................................       (189,000)

Equity based compensation .........................                         67,866

Changes in assets and liabilities:

Accounts receivable .............................        (29,617)         (4,757)

Prepaid expenses and other current assets .......        (12,043)         (1,922)

Restricted bank deposit and bank certificate

of deposit ....................................                           (680)

Accounts payable and accrued expenses ...........         28,470           8,300           1,227

Other ...........................................         (3,331)            112             300

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

Net cash used in operating activities .............        (63,025)        (40,883)           (774)

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

INVESTING ACTIVITIES:

Additions to property and equipment ...............        (27,416)         (6,607)         (1,317)

Minority equity investment ........................         (2,000)

Investment in marketable securities ...............        (38,771)

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

Net cash used in investing activities .............        (68,187)         (6,607)         (1,317)

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

FINANCING ACTIVITIES:

Related party payable .............................                         (1,072)          1,104

Issuance of long-term debt ........................                          1,000

Payment of long-term debt .........................         (1,000)

Principal payments under capital lease

obligations .....................................            (25)            (22)             (2)

Issuance of common stock and subscription units ...        211,816          26,495           1,006

Payment received on stockholder note ..............                            250

Issuance of Series A convertible preferred

stock ...........................................                         20,000

Issuance of Series B convertible preferred

stock ...........................................                         54,415

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

Net cash provided by financing activities .........        210,791         101,066           2,108

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

NET INCREASE IN CASH AND CASH EQUIVALENTS ...........         79,579          53,576              17

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......         53,593              17

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

CASH AND CASH EQUIVALENTS, END OF PERIOD ............    $   133,172     $    53,593     $        17

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

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the period for interest ..........    $        37     $        61     $         1

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

</TABLE>



See notes to financial statements.





46

NOTES TO FINANCIAL STATEMENTS



1. BUSINESS DESCRIPTION



Priceline.com Incorporated ("priceline.com", or the "Company") has

pioneered a unique e-commerce pricing system known as a "demand collection

system" that enables consumers to use the Internet to save money on a wide range

of products and services while enabling sellers to generate incremental revenue.

Using a simple and compelling consumer proposition-Name Your Own

Price(SM)-priceline.com collects consumer demand, in the form of individual

customer offers guaranteed by a credit card, for a particular product or service

at a price set by the customer. The Company then accesses a database of

inventory available to the Company for purchase to determine whether

priceline.com can fulfill the customer's offer. Consumers agree to hold their

offers open for a specified period of time and, once fulfilled, offers generally

cannot be canceled. The Company benefits consumers by enabling them to save

money, while at the same time benefiting sellers by providing them with an

effective revenue management tool capable of identifying and capturing

incremental revenues. By requiring consumers to be flexible with respect to

brands, sellers and product features, priceline.com enables sellers to generate

incremental revenue without disrupting their existing distribution channels or

retail pricing structures.



Walker Digital Corporation ("Walker Digital"), a research and development

company, developed the priceline.com service and the business model and related

intellectual property rights underlying the priceline.com service, the rights

for which were transferred to the Company. Walker Digital had no operations and

no revenues related to the assets transferred to priceline.com. Walker Digital

was founded and is controlled by the founding stockholder and Vice Chairman of

priceline.com. During the years ended December 31, 1999 and 1998, Walker Digital

provided the Company with a variety of services including subleasing office

facilities to the Company. Charges to the Company for such services aggregated

approximately $1,411,000 and $706,000, respectively. In addition, the Company

charged Walker Digital $1,800,000 and $384,831 for the years ended December 31,

1999 and 1998, respectively, for certain services, including legal and

accounting services and IT infrastructure. Such amounts have been offset against

general and administrative expenses in the accompanying statements of

operations.



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation--The financial statements for all periods presented

include the financial statements of priceline.com and Priceline Travel. On March

24, 1999, priceline.com exercised its call option to purchase Priceline Travel

for nominal consideration and Priceline Travel was merged into priceline.com.

All significant inter-company transactions have been eliminated.



Use of Estimates--The preparation of financial statements in conformity

with generally accepted accounting principles requires management to make

estimates and assumptions that affect the reported amounts of assets and

liabilities, and disclosure of contingent assets and liabilities at the date of

the financial statements and reported amount of revenues and expenses during the

reporting period. Actual results could differ from those estimates.



Fair Value of Financial Instruments--The Company's financial instruments,

including cash and cash equivalents, accounts receivable-net and accounts

payable, are carried at cost which approximates their fair value because of the

short-term maturity of these financial instruments. The Company's investment in

Lending Tree, Inc. was valued at cost as there was no market for its securities

at December 31, 1999. The Company recognized income for the warrant to purchase

common stock of Priceline WebHouse Club, Inc. at estimated fair market value, as

determined by an independent valuation firm. The carrying value of the capital

lease obligations and long-term debt approximates fair value because the

interest





47

NOTES TO FINANCIAL STATEMENTS (Continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



rates on these obligations are comparable to the interest rates that could have

been obtained at the dates of the respective balance sheets.



Cash and Cash Equivalents, and Short-term Investments--The Company invests

excess cash primarily in money market accounts, certificates of deposits, and

short-term commercial paper. All highly liquid instruments with an original

maturity of three months or less are considered cash equivalents. Marketable

securities are considered "trading securities" and valued at fair value.



Property and Equipment--Property and equipment are stated at historical

cost. Depreciation and amortization of property and equipment is computed on a

straight-line basis, generally over the estimated useful lives of the assets or,

when applicable, the life of the lease, whichever is shorter.



Impairment of Long-Lived Assets--The Company evaluates the recoverability

of its long-lived assets in accordance with Statement of Financial Accounting

Standards "SFAS" No. 121, "Accounting for the Impairment of Long-Lived Assets

and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires recognition

of impairment of long-lived assets in the event the net book value of such

assets exceeds the future undiscounted cash flows attributable to such assets.



Software Capitalization--In 1999, the Company adopted Statement of

Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or

Obtained for Internal Use." This standard requires certain direct development

costs associated with internal-use software to be capitalized including external

direct costs of material and services and payroll costs for employees devoting

time to the software projects. These costs are included in software and are

amortized over a period not to exceed three years beginning when the asset is

substantially ready for use. Costs incurred during the preliminary project

stage, as well as maintenance and training costs, are expensed as incurred.



Revenues and Cost of Revenues--The Company recognizes and records revenues

in a variety of ways depending on the product or service sold. With respect to

airline ticket, hotel room and rental car services, the Company recognizes as

revenue the amount received from the customer, net of taxes, and records as the

cost of revenue the amount that the Company pays the respective airline or

hotel. With respect to its automobile service, the Company earns a fixed fee

from both the customer and the seller after the transaction is consummated. With

respect to its home financing service, during 1999 the Company received a

percentage of the fees earned by third parties in connection with the closing of

mortgage loans. Going forward, the mortgage product will be offered through

National Mortgage Center LLC (doing business as pricelinemortgage (

"pricelinemortgage"), a Company that has been licensed to use the priceline.com

demand collection system. The Company also generates revenues through adaptive

marketing programs with third parties that pay the Company fees for marketing

their customer acquisition programs. Additionally, the Company generates

revenues from third party sources, including a customer processing fee for

airline, hotel and rental car services, and ancillary reservation booking fees

from the Worldspan reservation system for booking of airline flight segments and

hotel reservations through the Worldspan system. Consumer processing fees are

payable to the Company and recognized as revenue only upon completion of

successful transactions.



The manner in which and time at which revenues are recognized differs

depending on the product or service sold through the priceline.com service. With

respect to airline ticket, hotel room and rental car services, revenues are

generated by transactions with customers who make offers to purchase airline

tickets and reserve hotel rooms and rental cars supplied to priceline.com by

participating sellers. Revenues and related costs are recognized if, and when,

the Company accepts and fulfills the





48

NOTES TO FINANCIAL STATEMENTS (Continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



customer's offer. Because priceline.com is the merchant of record in these

transactions, revenue for these services includes the offer price paid by the

customer, net of certain taxes and fees. Airline, hotel and rental car revenues

also may include fees from third parties for adaptive marketing programs. With

respect to automobile services, fees or other payments payable by the seller and

/or the customer are recognized as revenue. With respect to home financing

services, the Company receives no fees from consumers. The Company recognizes

revenue from fees paid directly by its strategic partner through the operation

of its home financing services. Because the Company acts as an intermediary

between the customer and the seller in auto and home financing transactions,

revenues for these products and services are recorded at the amount of the fee

received, and not on the value of the underlying transaction, when the

transaction is completed. Automobile and home financing services revenues also

may include fees from third parties for adaptive marketing programs.



Priceline.com expressly permits only credit cards as an acceptable form of

payment from its consumers. On rare occasions, the Company provides refunds and

makes certain customer accommodations to individual customers to satisfy

disputes and complaints. The Company accrues for such expected losses and

classifies the resulting expense as an addition to the allowance for doubtful

accounts. The Company extends customary payment terms to corporate customers

such as automobile dealers and adaptive marketing sponsors.



Sales and Marketing--Sales and marketing expenses are comprised primarily

of costs of radio and newspaper advertising, costs of the third-party

offer-taking call center, credit card processing fees, provisions for customer

accommodations and charge-backs, and compensation for the Company's sales and

marketing personnel. All sales and marketing costs are expensed as incurred.



Systems and Business Development--Systems and business development

expenses are comprised primarily of compensation to the Company's information

systems and product development staff and payments to outside contractors, data

communications and other expenses associated with operating the Company's Web

site, depreciation on computer hardware and licensing fees for computer

software. Such costs are expensed as incurred.



Equity-Based Compensation--The Company accounts for stock-based employee

compensation arrangements in accordance with provisions of Accounting Principles

Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and

complies with the disclosure provisions of SFAS No. 123, "Accounting for

Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is

based on the difference, if any, on the date of grant, between the fair value of

priceline.com's stock and the exercise price of the option.



The Company accounts for equity instruments issued to non-employees in

accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force

("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to

Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or

Services." All transactions in which goods or services are the consideration

received for the issuance of equity instruments are accounted for based on the

fair value of the consideration received or the fair value of the equity

instrument issued, whichever is more reliably measurable. The measurement date

of the fair value of the equity instrument issued is the earlier of the date on

which the counterparty's performance is complete or the date on which it is

probable that performance will occur.



Income Taxes--The Company accounts for income taxes in accordance with

SFAS No. 109, "Accounting for Income Taxes," which requires recognition of

deferred tax liabilities and assets for the





49

NOTES TO FINANCIAL STATEMENTS (Continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



expected future tax consequences of events that have been included in the

financial statements or tax returns. Under this method, deferred tax liabilities

and assets are determined based on the temporary difference between the

financial statement and tax basis of assets and liabilities using presently

enacted tax rates in effect. Valuation allowances are established when necessary

to reduce deferred tax assets to the amounts expected to be realized.



During the period that priceline.com operated as an LLC, it was treated

substantially as a partnership for tax purposes and, accordingly, the tax effect

of its activities accrued to its members through July 1998.



Net Loss Per Share--The Company computes basic and diluted earnings per

share in accordance with Statement of Financial Accounting Standards No. 128

("SFAS 128"), "Earnings per Share". SFAS 128 requires the Company to report both

basic earnings per share, which is based on the weighted average number of

common shares outstanding, and diluted earnings per share, which is based on the

weighted average number of common shares outstanding and all dilutive potential

common shares outstanding. Since the Company incurred losses for all periods

presented, the inclusion of options in the calculation of weighted average

common shares is anti-dilutive; and therefore there is no difference between

basic and diluted earnings per share.



Business Risk--Business risks include the following:



Competition--The markets for the products and services offered on the

priceline.com service are intensely competitive. The Company competes with both

traditional distribution channels and online services. The Company currently or

potentially competes with a variety of companies with respect to each product or

services offered. The Company potentially faces competition from a number of

large online services that have expertise in developing online commerce and in

facilitating Internet traffic. Many competitors have significant competitive

advantages. For example, airlines, hotels and other suppliers also sell their

products and services directly to consumers and have established Web sites.

Internet directories, search engines and large traditional retailers have

significantly greater operating histories, customer bases, technical expertise,

brand recognition and/or online commerce experience than the Company. In

addition, certain competitors may be able to devote significantly greater

resources to furthering their business.



Dependence on Airline Industry and Certain Carriers--The Company's near

term, and possibly long term, prospects are significantly dependent upon the

sale of leisure airline tickets. Sales of leisure airline tickets represented

approximately 85% and 86% of total revenues for the years ended December 31,

1999 and 1998, respectively. As a result, currently the Company is substantially

dependent upon the continued participation of the airlines in the priceline.com

service in order to maintain and continue to grow its total revenues.

Significantly reducing the Company's dependence on the airlines is likely to

take a long period of time and there can be no guarantee that the Company will

succeed in reducing that dependence.



Concentration of Credit Risk--Financial instruments, which potentially

subject the Company to concentrations of credit risk, are principally bank

deposits and accounts receivable. Cash and cash equivalents and marketable

securities are deposited with high credit quality financial institutions.

Accounts receivable are derived from the revenues earned from customers in the

U.S. and are denominated in U.S. dollars. The Company maintains an allowance for

uncollectible accounts based upon the expected collectibility of accounts

receivable.





50

NOTES TO FINANCIAL STATEMENTS (Continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Barter Transaction--In 1999, the Company entered into one barter

transaction to exchange services for advertising. The transaction was recorded

at the estimated fair value of the services expected to be received. Revenue of

$375,000 from this transaction was recognized in 1999, when the service was

provided and will be expensed during 2000, when the advertising is provided to

priceline.com.



Segment Reporting--The Company operates as a single segment and will

evaluate additional segment disclosure requirements as it expands its

operations. All of the operations and identifiable assets are in the United

States.



Reclassification--Certain amounts in prior years' financial statements

have been reclassified to conform to the current year presentation.



Recent Accounting Pronouncements



In July 1999, the FASB issued Statement No. 137, "Accounting for

Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB

No. 133". The Statement defers for one year the effective date of FASB Statement

No. 133, "Accounting for Derivative Instruments and Hedging Activities". The

rule now will apply to fiscal quarters of fiscal years beginning after June 15,

2000. In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and

Hedging Activities" was issued. The statement will require the recognition of

all derivatives as either assets or liabilities in the balance sheet and the

measurement of those instruments at fair value. Derivatives that are not hedges

must be adjusted to fair value through income. If the derivative is a hedge,

depending on the nature of the hedge, changes in the fair value of derivatives

will either be offset against the change in fair value of the hedged assets,

liabilities, or firm commitments through earnings or recognized in other

comprehensive income until the hedged item is recognized in earnings. The

ineffective portion of the derivative's change in fair value will be immediately

recognized in earnings. The Company has not yet determined the effect of SFAS

No. 133 will have on the earnings and financial position of the Company.



3. SHORT-TERM INVESTMENTS



At December 31, 1999, the Company held short term instruments which were

classified as trading securities; accordingly, they are carried at fair value on

the balance sheet. Net unrealized gains (losses) of $13,000 have been recognized

in the financial statements. Marketable securities at December 31, 1999 include

the following (in thousands):





December 31, 1999

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

Fair

Value

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

Discounted commercial paper.............................           $22,578

Asset backed securities.................................             3,443

Municipal bonds and notes...............................            12,750

-------

$38,771

=======



Included in other assets is a $2.0 million equity investment in Lending

Tree, Inc., an internet-based home financing service provider. Since the Company

owns less than 20% of Lending Tree and does not exert significant influence over

the investee, the Company accounts for the investment on the cost basis. In

accordance with SFAS No. 115, the Company deems these securities as available

for sale. Because there was no readily determinable value for shares of Lending

Tree at December 31, 1999, the Company has valued its investment at cost. The

Company's home financing service is offered through a joint marketing

arrangement with Lending Tree.





51

NOTES TO FINANCIAL STATEMENTS (Continued)



4. ACCOUNTS RECEIVABLE



A summary of the activity in the allowance for uncollectible accounts for

the years ended December 31, 1999 and 1998 is as follows (in thousands):



1999    1998

------  -----

Balance, beginning of year...............................    $  291   $ --

Provision charged to expense.............................     3,127    581

Charge-offs..............................................    (1,457)  (290)

------   ----

Balance, end of year.....................................    $1,961   $291

======   ====



5. PROPERTY AND EQUIPMENT



Property and equipment at December 31, 1999 and 1998 consists of the

following (in thousands):



Estimated

Useful Lives

(years)        1999      1998

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

Computer equipment and software............       3         $33,242    $7,034

Office equipment, furniture & fixtures and

leasehold improvements...................    3 to 7         2,173       965

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

Total......................................                  35,415     7,999

Less accumulated depreciation and

amortization.............................                  (7,409)   (2,072)

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

Property and equipment, net................                 $28,006    $5,927

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



Depreciation and amortization expense was approximately $5,337,000,

$1,860,000 and $212,000 for the years ended December 31, 1999 and 1998, and for

the period July 18, 1997 to December 31, 1997, respectively.



6. LONG TERM DEBT



In April 1998, priceline.com issued a promissory note to an investor for

$1,000,000. The promissory note bore interest at a rate of 6% per annum. In

connection with the promissory note, priceline.com issued detachable warrants to

purchase 62,500 shares of common stock at $0.80 per share. The note was repaid

in 1999.



7. STOCKHOLDERS' EQUITY



In March 1999, the Company effected a 1.25:1 stock split. All share and

per share amounts have been retroactively adjusted to reflect the stock split.



On July 18, 1997, priceline.com issued 42,990,211 shares of Common Stock

for the initial contributed services of the founders. No compensation expense

was recognized for the contributed services as priceline.com was in the earliest

phases of development. Such services included conceiving the priceline.com

business model, developing business strategies and operating plans, initiating

contact with airline suppliers and raising capital. There were no employment

agreements related to the services initially contributed and/or the shares

issued in respect of such shares.



Also, on July 18, 1997, priceline.com issued 6,895,833 shares of Common

Stock to Walker Digital in exchange for the transfer by Walker Digital to

priceline.com of all the rights, title, and interest in certain patents and

patent applications relating to buyer driven commerce.





52

NOTES TO FINANCIAL STATEMENTS (Continued)



7. STOCKHOLDERS' EQUITY (Continued)



In April 1998, priceline.com issued warrants to purchase 125,000 shares of

Common Stock, at a zero exercise price, to a non-employee in exchange for

services rendered to the Company. The estimated fair value of the warrants at

the date of grant of $100,000 was based on the value of the equivalent shares as

of the grant date, that is 125,000 shares at $0.80 per share, and has been

reflected as sales and marketing expense and additional paid-in-capital.



In July 1998, priceline.com issued 8,125,000 shares of Common Stock, to

the Chairman and Chief Executive Officer that resulted in the recognition of a

charge of $6,500,000 with respect to these shares. The shares were issued as

compensation for agreeing to accept the position.



In April 1999, the Company completed an initial public offering in which

it sold 10,000,000 shares of its Common Stock, $0.008 par value. Offering

proceeds to the Company, net of underwriter discounts and commissions and other

related expenses, were approximately $144.3 million. At the time of the

offering, shares of the Series A and Series B Preferred Stock were automatically

converted, subject to anti-dilution adjustment, into an equal number of shares

of Common Stock.



In August 1999, the Company completed a public offering in which it sold

1,000,000 shares of its Common Stock and certain stockholders of the Company

sold 3,500,000 shares of common stock at a price of $67.00 per share. Offering

proceeds to priceline.com, net of underwriters discounts and commissions and

related expenses, were approximately $62.5 million.



8. WARRANTS TO PURCHASE COMMON STOCK



In August 1998, priceline.com entered into a warrant agreement with Delta

Air Lines ("Delta") to purchase up to 18,892,603 shares of Common Stock at an

exercise price of approximately $0.93 per share (the "Delta Warrant") for

agreeing to participate in the priceline.com service. Vesting was contingent

upon achievement of certain predetermined performance thresholds. However, there

was no penalty for failure to provide ticket inventory to satisfy these

performance thresholds. Accordingly, no expense was recorded when the warrant

was issued. On December 31, 1998, the Company amended its agreement with Delta

to eliminate the vesting contingencies and fix the number of shares subject to

the warrant at 18,619,402. The warrants were immediately vested on the date of

grant, in that they are not subject to any forfeiture for any reason. The

amended Delta Warrant was to become exercisable at the earlier of seven years or

over three years upon the achievement of certain performance thresholds. The

agreement does not require Delta to make any performance commitments, is

non-exclusive and allows Delta to participate in other programs similar to the

priceline.com service. Accordingly, the Company recognized approximately $58.7

million of expense based upon the fair value of the warrant on December 31,

1998, of which $3.0 million is included in cost of revenues-supplier warrant

costs and $55.7 million is included in expenses-warrant costs, net in the

accompanying statements of operations.



In November 1999, the Company further amended the Delta warrant to provide

Delta with a cashless exercise right. Upon the exercise of the warrant, Delta

acquired a total of 16,525,834 shares of Common Stock of priceline.com. In

conjunction with that transaction, Delta sold 2,085,767 shares of priceline.com

Common Stock to priceline.com's founder and Vice Chairman Jay S. Walker for an

aggregate purchase price of $125 million. The Company further gave Delta the

right to exchange six million shares of priceline.com common stock for six

million shares of newly issued convertible preferred stock that may be converted

into priceline.com stock on a one-for-one basis. To date, Delta has not elected

to exercise the conversion right.





53

NOTES TO FINANCIAL STATEMENTS (Continued)



8. WARRANTS TO PURCHASE COMMON STOCK (Continued)



On December 31, 1998, priceline.com issued warrants to purchase 937,500

shares of Common Stock, at an exercise price of $3.20 per share, to three

airlines in recognition of their being among the original participants in the

priceline.com service. Because there are no requirements as to the nature or

length of that participation, and the warrants are not subject to forfeiture for

any reason, the Company recognized approximately $2.3 million of expense based

upon the fair value of the warrants at December 31, 1998. That amount is

included in expenses- warrant costs, net in the accompanying statements of

operations.



On January 29, 1999, priceline.com issued warrants to an airline to

purchase 1,250,000 shares of Common Stock at an exercise price of $6.40 per

share. The warrants become exercisable as follows, 50% on January 29, 2000 and

50% on January 29, 2001. The agreement requires the airline to make available to

priceline.com airline ticket inventory on certain specified terms and conditions

for two years. If the airline does not provide the specified airline ticket

inventory, the unexercised warrants are returnable and a substantial penalty

will be imposed. The fair value of the warrant of $3.1 million at the grant date

was capitalized and will be amortized over the two year period during which

services are expected to be provided to the Company.



During July 1999, priceline.com issued to Continental Airlines a warrant

to purchase common stock that will become exercisable upon the earlier of July

2004 or upon the achievement of certain performance thresholds. However, the

agreement does not require Continental to make any performance commitments.

Accordingly, priceline.com incurred a non-cash charge of approximately $88.4

million during the third quarter of 1999 representing the fair value of the

warrant on the grant date. In November 1999, the Company amended the Continental

warrant to allow the exercise price to fall within the range of the warrants

issued to other airlines discussed below. Priceline.com incurred a non-cash

charge of approximately $3.5 million during the fourth quarter as a result of

the warrant amendment.



In November 1999, the Company entered into separate Participation Warrant

Agreements with each of eight major domestic airlines relating to their

inclusion in the Company's leisure airline ticket service. Under the

Participation Warrant Agreements, the airlines were granted warrants to purchase

a total of 20 million shares of priceline.com Common Stock at exercise prices

ranging from $52.625 to $59.933 per share. All warrants were fully vested on the

date of grant, but generally are not exercisable until November 2005, subject to

acceleration under certain circumstances. Priceline.com incurred additional

warrant costs of approximately $1.1 billion during the fourth quarter of 1999 as

a result of the issuance of these warrants.



9. STOCK OPTION PLANS



In February 1999, the Company adopted the 1999 Omnibus Plan (the "1999

Plan"), which provides for grants of options as incentives and rewards to

encourage employees, officers, consultants and directors in the long term

success of the Company. In addition, the Company had previously adopted the 1997

Omnibus Plan (the "1997 Plan"). The 1999 Plan and 1997 Plan provide for grants

of options to purchase up to 9,375,000 and 23,875,000 shares of Common Stock,

respectively, at a purchase price equal to the fair market value on the date of

grant. Generally, options from both plans vest over three years from the date of

grant. Compensation expense for options granted to non-employees, included in





54

NOTES TO FINANCIAL STATEMENTS (Continued)



9. STOCK OPTION PLANS (Continued)



general and administrative, aggregated $0 and $245,063, during the years ended

December 31, 1999 and 1998, respectively.



The following summarizes the transactions pursuant to the Plan:



<TABLE>

<CAPTION>

Weighted

Average       Option Price

Shares       Option Price       Range

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

<S>                                             <C>                <C>       <C>

Granted during 1998...........................  23,449,219         $0.93       $0.80-3.20

Forfeited.....................................    (189,374)         0.80             0.80

Cancelled.....................................    (815,625)         0.80             0.80

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

Balance at December 31, 1998..................  22,444,220         $0.94       $0.80-3.20

Granted during 1999...........................   6,481,833         55.99      3.20-139.25

Exercised.....................................  (1,614,697)         1.02        0.80-8.00

Forfeited.....................................    (286,616)        20.74      0.80-139.25

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

Balance at December 31, 1999..................  27,024,740        $13.93     $0.80-139.25

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

Exercisable at December 31, 1999..............  16,708,585

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

Exercisable at December 31, 1998..............        None

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

Available for grant at December 31, 1999......   4,610,563

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

Available for grant at December 31, 1998......   1,430,780

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

</TABLE>



No options were granted during 1997.



The following table summarizes information about stock options outstanding

at December 31, 1999:



OPTIONS OUTSTANDING           OPTIONS EXERCISABLE

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

NUMBER        WEIGHTED    WEIGHTED      NUMBER     WEIGHTED

RANGE OF       OUTSTANDING     AVERAGE     AVERAGE    EXERCISABLE   AVERAGE

EXERCISE         AS OF        REMAINING    EXERCISE      AS OF      EXERCISE

PRICES         12/31/99         LIFE       PRICE       12/31/99     PRICE

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

$ .80-$   .93    19,532,282        8.53       $  .81     16,171,502     $0.80

3.20-  13.00     2,835,458        9.12         5.99        537,083      3.42

46.75- 139.25     4,657,000        9.68        73.83             --        --

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

$ .80-$139.25    27,024,740        9.07       $13.93     16,708,585     $0.88

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



Had compensation costs been determined based upon the fair value at grant

date, the Company's pro forma net loss and pro forma net loss per share for the

years ended December 31, 1999 and 1998 would have been reported as follows (in

thousands, except per share amounts):



1999:                                                 Reported     Pro Forma

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

Net loss...........................................  $1,055,090   $1,295,758

Net loss applicable to common shareholders.........   1,063,444    1,304,112

Basic and diluted loss per common share............        7.90         9.69





55

NOTES TO FINANCIAL STATEMENTS (Continued)



9. STOCK OPTION PLANS (Continued)



1998:                                                 Reported     Pro Forma

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

Net loss...........................................    $112,243     $114,613

Net loss applicable to common shareholders.........     114,426      116,797

Basic and diluted loss per common share............        1.41         1.44



The fair value of options granted during 1999 was determined on the date

of grant using the Black-Scholes method. The weighted average fair value of

options granted during 1999 was estimated to be approximately $52.45, based on

the following assumptions: volatility of 107%, risk free interest rate of 5.9%,

an expected life of 3 years, and no dividends.



The fair value of options granted during 1998 was determined on the date

of grant using the minimum value method. The weighted average fair value of

options granted during 1998 was estimated to be approximately $0.15, based on

the following assumptions: volatility of 0%, risk free interest rate of 6.0%, an

expected life of 3 years, and no dividends.



10. TAXES



Income Taxes Through July 31, 1998, priceline.com operated as a limited

liability company and income taxes (benefits) accrued to the members.

Accordingly, no income taxes (benefits) were reflected in the accompanying

financial statements as of December 31, 1997 and for the period then ended.

Since converting from an LLC to a corporation in July 1998, the Company has

incurred net operating losses of approximately $1.1 billion, and accordingly, no

provision for income taxes is reflected in the accompanying statements of

operations.



The tax effects of temporary differences that give rise to significant

portions of deferred tax assets at December 31, 1999 and 1998 are as follows (in

thousands):



1999             1998

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

Warrant costs ................................       $ 488,989        $  25,267

Net operating loss carryforwards .............         459,455            9,348

Start-up costs ...............................           2,300            2,988

Other ........................................          (2,801)             382

Less valuation allowance .....................        (947,943)         (37,985)

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

Deferred tax asset, net ......................       $      --        $      --

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



A valuation allowance for the full amount of the net deferred tax asset

was recorded at December 31, 1999 and 1998 and represents the portion of tax

operating loss carryforwards and other items for which it is more likely than

not that the benefit of such items will not be realized. The





56

NOTES TO FINANCIAL STATEMENTS (Continued)



10. TAXES (Continued)



income tax benefit is different from the amount computed using applicable

statutory federal rates for the following reasons (in thousands):



1999           1998

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

Income tax benefit at federal statutory rate .....     $ 369,281      $  39,285

Adjustment due to:

LLC status through July 31, 1998 ...............                       (7,090)

State taxes and other ..........................        64,605          5,790

Increase in valuation allowance ................      (433,886)       (37,985)

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

Income tax benefit ...............................     $      --      $      --

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



Federal Air Transportation Tax--A Federal transportation tax is imposed

upon the sale of airline tickets. The tax is based on a percentage of the cost

of transportation, which was 9% for periods prior to October 1, 1998, 8% for the

period October 1, 1998 through September 30, 1999 and 7.5% thereafter. The

Company has historically interpreted the tax regulations as requiring that the

tax be computed based on the amount charged by the airline to priceline.com for

the airline ticket and the Company's participating airlines have collected and

remitted the tax based on this amount. The Company applied for a ruling from the

Internal Revenue Service (the "Service") confirming this interpretation. In

December 1999, the Service indicated to the Company that it was unlikely that a

favorable ruling would be issued. The Company subsequently withdrew its ruling

request because of the uncertainty of the outcome. Because the Company

anticipated the possibility of an adverse ruling on this issue, the Company

accrued approximately $1.9 million relating to the balance of the tax liability

for tickets sold prior to that date. The Company believes this accrual to be

adequate, but there can be no assurance as to the final outcome because a formal

ruling has not been issued by the service.



11. LICENSING, MARKETING and TECHNOLOGY AGREEMENTS



In 1999, priceline.com licensed its name and demand collection system to

Priceline WebHouse Club, Inc. ("WebHouse") and agreed to provide certain

services to WebHouse. WebHouse is an independent company. Under the negotiated

agreements, priceline.com receives a royalty based on a percentage of WebHouse

revenues and payments for services at estimated fair value. The Company realized

$33,777 of royalty revenue in 1999. As an inducement to enter into a

relationship with WebHouse, priceline.com received a warrant to purchase a

majority of the shares of WebHouse common stock. The warrants are

non-forfeitable, fully vested upon grant, exercisable in five years or earlier

upon the occurrence of certain events, and do not require the performance of any

additional services. Upon receipt of the warrant in the fourth quarter,

priceline.com recognized $188.8 million of income representing the amount of the

estimated fair value of the warrants, based on an independent valuation.

Priceline.com is negotiating a similar arrangement with another independent

Licensee, Priceline Perfect Yardsale, Inc. ("Yardsale").



Additionally, priceline.com and WebHouse entered into an Intellectual

Property License Agreement, Marketing and Technical Services Agreement and a

Services Agreement pursuant to which priceline.com provides certain marketing,

technology and other services to WebHouse and receives compensation at fair

value for services rendered. Accordingly, WebHouse paid the Company $1.65

million during 1999 under these agreements.





57

NOTES TO FINANCIAL STATEMENTS (Continued)



11. LICENSING, MARKETING and TECHNOLOGY AGREEMENTS (Continued)



Priceline.com and Yardsale also entered into a preliminary agreement

pursuant to which priceline.com licenses its name and demand collection system

and provides certain marketing, technology and other services to Yardsale and

receives compensation at fair value for services rendered. The agreements with

Yardsale were not in effect until after January 1, 2000.



12. COMMITMENTS AND CONTINGENCIES



Legal Proceedings On January 6, 1999, priceline.com received notice that a

third party patent applicant and patent attorney, Thomas G. Woolston,

purportedly had filed in December 1998 with the United States Patent and

Trademark Office a request to declare an interference between a patent

application filed by Woolston and priceline.com's U.S. Patent 5,794,207.

Priceline.com currently is awaiting information from the Patent Office regarding

whether it will initiate an interference proceeding.



On January 19, 1999, Marketel International Inc. (Marketel), a California

corporation, filed a lawsuit against priceline.com, among others. On February

22, 1999, Marketel filed an amended and supplemental complaint. The amended

complaint filed by Marketel alleges causes of action for, among other things,

misappropriation of trade secrets, breach of contract, conversion, breach of

confidential relationship, copyright infringement, fraud, unfair competition and

false advertising, and seeks injunctive relief and damages in an unspecified

amount. In its amended complaint, Marketel alleges, among other things, that the

defendants conspired to misappropriate Marketel's business model, which

allegedly was provided in confidence approximately ten years ago. The amended

complaint also alleges that four former Marketel employees are the actual sole

inventors or co-inventors of U.S. Patent 5,794,207, which was issued on August

11, 1998 and has been assigned to priceline.com. Marketel asks that the patent's

inventorship be corrected accordingly.



On February 5, and February 10, 1999, the Company filed their answer and

amended answer, respectively, to the amended complaint, in which they denied the

material allegations of liability in the complaint. Priceline.com strongly

dispute the material legal and factual allegations contained in Marketel's

amended complaint and believes that the amended complaint is without merit.

Priceline.com intends to defend vigorously against the action. Pursuant to the

indemnification obligations contained in the Purchase and Intercompany Services

Agreement with Walker Digital, Walker Digital has agreed to indemnify, defend

and hold harmless priceline.com for damages, liabilities and legal expenses

incurred in connection with the Marketel litigation.



On October 13, 1999, priceline.com filed a complaint in the United States

District Court for the District of Connecticut under the caption Priceline.com

Incorporated v. Microsoft Corporation and Expedia, Inc., No. 399CV1991 (AWT)

alleging that Microsoft Corporation and Expedia, Inc., a subsidiary of Microsoft

Corporation, infringe priceline.com's U.S. Patent 5,794,207 by operating the

defendants' "Hotel Price Matcher" service, and that the defendants' conduct

toward priceline.com violated the Connecticut Unfair Trade Practices Act. On

December 20, 1999 defendants moved the Court to dismiss the complaint for

failure to name a necessary party, Marketel. On March 21, 2000, the presiding

judge stated that he intends to deny defendant's motion to dismiss, and that a

decision will be forthcoming. On December 23, 1999 the Court granted

priceline.com's motion to supplement the complaint to expressly include

defendant's "Flight Price Matcher" service. In the lawsuit, priceline.com is

seeking declaratory relief, permanent injunctive relief and actual and punitive

damages.



From time to time the Company has been and expects to continue to be

subject to legal proceedings and claims in the ordinary course of business, and

including claims of alleged infringement





58

NOTES TO FINANCIAL STATEMENTS (Continued)



12. COMMITMENTS AND CONTINGENCIES (Continued)



of third party intellectual property rights by the Company. Such claims, even if

not meritorious, could result in the expenditure of significant financial and

managerial resources.



The Company is unable to predict the outcome of the legal proceedings

referred to above.



Airline Alliances and Relationships Priceline.com has entered into Airline

Participation Agreements with twenty-eight airlines for the supply of airline

tickets. The Airline Participation Agreements do not commit the airlines to

provide tickets for any particular routes or at a discount to their retail

prices, but outline the terms and conditions under which tickets may be sold

pursuant to fares, rules and availability that the airlines may provide from

time to time. The Airline Participation Agreements are generally subject to

termination upon 30 days notice by priceline.com or the airline.



Employment Contracts At December 31, 1999, priceline.com had entered into

employment agreements with certain members of senior management that provide for

minimum annual compensation of approximately $2.4 million in the aggregate. The

agreements provide for periods of employment of up to five years. Generally, the

agreements provide for the grant of stock options under the 1999 and 1997

Omnibus Plans.



13. BENEFIT PLAN



Priceline.com adopted a defined contribution 401(k) savings plan (the

Plan) during 1998 covering all employees who are at least 21 years old and have

completed 6 months of service. The Plan allows eligible employees to contribute

up to 20% of their eligible earnings, subject to a statutorily prescribed annual

limit. The Company may make matching contributions on a discretionary basis to

the Plan. All participants are fully vested in their contributions and

investment earnings. During the years ended December 31, 1999 and 1998, the

Company did not make any matching contributions to the Plan.



14. OTHER RELATED PARTY TRANSACTIONS



The Founder and Vice Chairman of priceline.com also serves as

non-executive Chairman of NewSub Services, Inc. ("NewSub"), a direct marketing

company co-founded by him. The Company participates in certain adaptive

marketing programs with NewSub. During the years ended December 31, 1999 and

1998, the Company recognized revenue of $202,322 and $0, respectively, and sales

and marketing expense of $579,338 and $80,799, respectively, related to these

programs.



In June 1998, priceline.com issued a promissory note to a Walker Digital

for $1,000,000. The promissory note bore interest at a rate of 6% per annum and

was due June 30, 1999. The note has been repaid.



In December 1998, priceline.com completed a private placement of Series B

Convertible Preferred Stock with several investors, including GAP and Vulcan

Ventures Incorporated. Fees of $850,000 have been paid to a company, in which a

director a priceline.com is a director and stockholder, in connection with this

transaction.



In April 1999, priceline.com made a $3.3 million loan to Mr. Richard S.

Braddock for the payment of taxes related to the issuance to Mr. Braddock of

8,125,000 shares of common stock in August 1998. The loan bears interest at

5.28% per annum. Interest is payable annually and principal is payable in

January 2004.





59

NOTES TO FINANCIAL STATEMENTS (Continued)



14. OTHER RELATED PARTY TRANSACTIONS (Continued)



In July 1999, priceline.com made a $6.0 million loan to an executive of

the Company, pursuant to the terms of his employment agreement dated June 14,

1999. The loan bears interest annually at 5.82% per annum. Subject to certain

prepayment obligations and to forgiveness in the event of certain changes of

control, death, or termination without cause, pursuant to the terms of this

loan, accrued interest and principal are payable after five years, but are

forgiven under certain circumstances if the executive remains employed by the

Company at that time. Upon any forgiveness of the loan, the Company would

recognize as compensation expense an amount up to the amount of principal and

interest forgiven.



15. SUBSEQUENT EVENTS



In March 2000, the Company entered into an agreement with Alliance Capital

Partners, pursuant to which Alliance has formed an operating subsidiary,

pricelinemortgage, for the primary purpose of acting as a broker and/or lender

of residential mortgage loans in connection with the priceline.com mortgage

service. Priceline.com has agreed to provide $3.62 million of financing to an

affiliate of Alliance in the form of a convertible secured note and has agreed

to license the "priceline" name and business model for use by pricelinemortgage.

Alliance has agreed to provide management services to pricelinemortgage,

including the procurement of personnel and office space and assistance in

obtaining regulatory approvals.



In February 2000, the Company announced the resignation of Paul Francis,

Executive Vice President and Chief Financial Officer and the hiring of Heidi

Miller as Senior Executive Vice President, Chief Financial Officer, Strategy,

Planning and Administration.



In the first quarter 2000, priceline.com made loans to two executives

aggregating $5.0 million, which bear interest at 6.56%. Subject to certain

prepayment obligations and to forgiveness in the event of certain changes of

control, death, or termination without cause, pursuant to the terms of these

loans, accrued interest and principal are payable after five years, but are

forgiven under certain circumstances if the executive remains employed by the

Company at that time. Upon any forgiveness of the loans, the Company would

recognize as compensation expense an amount up to the amount of principal and

interest forgiven.





60

NOTES TO FINANCIAL STATEMENTS (Continued)



16.  SELECTED QUARTERLY FINANCIAL DATA (Unaudited)



The follow table sets forth certain key interim financial information for

the years ended December 31, 1999 and 1998.



<TABLE>

<CAPTION>

First            Second             Third             Fourth

Quarter           Quarter           Quarter           Quarter

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

(In thousands, except per share amounts)

<S>                                                                 <C>               <C>               <C>               <C>

1999:

Revenues ...................................................        $  49,411         $ 111,564         $ 152,222         $ 169,213

Cost of revenue:

Product costs ............................................           43,659           100,664           133,628           145,104

Supplier warrant costs ...................................              381               381               381               381

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

Total cost of revenues .....................................           44,040           101,045           134,009           145,485

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

Gross profit ...............................................            5,371            10,519            18,213            23,728

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

Operating expenses:

Warrant costs, net .......................................                                               88,389           910,443

Sales and marketing ......................................           17,138            17,733            21,413            23,293

General and administrative ...............................            3,667             5,503             8,390            10,049

Systems and business development .........................            2,184             3,469             4,593             3,777

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

Total expenses .............................................           22,989            26,705           122,785           947,562

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

Operating loss .............................................          (17,618)          (16,186)         (104,572)         (923,834)

Other income (expense) .....................................              458             1,929             2,356             2,377

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

Net loss ...................................................          (17,160)          (14,257)         (102,216)         (921,457)

Accretion on preferred stock ...............................           (8,354)

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

Net loss applicable to common stockholders .................        $ (25,514)        $ (14,257)        $(102,216)        $(921,457)

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

Net loss per basic and diluted common share ................        $   (0.27)        $   (0.10)        $   (0.71)        $   (5.91)

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

Weighted average common shares outstanding .................           94,939           142,320           144,501           156,032

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



1998:

Revenues ...................................................                          $   7,022         $   9,222         $  18,993

Cost of revenue:

Product costs ............................................                              7,943             8,851            16,702

Supplier warrant costs ...................................                                                                  3,029

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

Total cost of revenues .....................................                              7,943             8,851            19,731

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

Gross profit ...............................................                               (921)              371              (738)

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

Operating expenses:

Warrant costs, net .......................................                                                                 57,979

Sales and marketing ......................................        $   1,130             6,635             8,160             8,463

General and administrative ...............................            1,697             3,102             9,400             3,806

Systems and business development .........................            1,926             3,442             2,801             2,962

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

Total expenses .............................................            4,753            13,179            20,361            73,210

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

Operating loss .............................................           (4,753)          (14,100)          (19,990)          (73,948)

Other income (expense) .....................................               50               113               142               244

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

Net loss ...................................................           (4,703)          (13,987)          (19,848)          (73,704)

Accretion on preferred stock ...............................                                                                 (2,183)

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

Net loss applicable to common stockholders .................        $  (4,703)        $ (13,987)        $ (19,848)        $ (75,887)

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

Net loss per basic and diluted common share ................        $   (0.08)        $   (0.17)        $   (0.19)        $   (0.81)

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

Weighted average common shares outstanding .................           55,487            81,297           105,411            93,168

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

</TABLE>





61

INDEX TO EXHIBITS



Exhibit Number                          Description

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

2.1*              Agreement of Merger, dated as of July 31, 1998, between

priceline.com LLC and the Registrant.

3.1*              Form of Amended and Restated Certificate of Incorporation of

the Registrant.

3.2*              Form of By-Laws of the Registrant.

4.1               Reference is hereby made to Exhibits 3.1 and 3.2.

4.2*              Specimen Certificate for Registrant's Common Stock.

4.3*              Amended and Restated Registration Rights Agreement, dated as

of December 8, 1998, among the Registrant and certain

stockholders of the Registrant.

10.1.1*           1997 Omnibus Plan of the Registrant.

10.1.2*           1999 Omnibus Plan of the Registrant.

10.2*             Stock Purchase Agreement, dated July 31, 1998, among the

Registrant and the investors named therein, as amended.

10.3*             Stock Purchase Agreement, dated as of December 8, 1998, among

the Registrant and the investors named therein, as amended.

10.4              Reference is hereby made to Exhibit 4.3.

10.5*             Purchase and Intercompany Services Agreement, dated April 6,

1998, among the Registrant, Walker Asset Management Limited

Partnership, Walker Digital Corporation and Priceline Travel,

Inc.

10.6.1*           Employment Agreement, dated as of January 1, 1998, between Jay

S. Walker, Walker Digital Corporation, the Registrant and

Jesse M. Fink.

10.6.2*           Amendment No. 1 to Employment Agreement, dated November 16,

1998 between the Registrant and Jesse M. Fink.

10.7.1*           Employment Agreement, dated as of July 23, 1998, between the

Registrant and Timothy G. Brier.

10.7.2*           Amendment No. 1 to Employment Agreement, dated November 16,

1998, between the Registrant and Timothy G. Brier.

10.8*             Amended and Restated Employment Agreement, dated as of August

15, 1998, by and between the Registrant and Richard S.

Braddock.

10.9*             Airline Participation Agreement, dated April 1998, by and

among the Registrant, Priceline Travel, Inc. and Trans World

Airlines, Inc.

10.10*+           Airline Participation Agreement, dated October 2, 1998, by and

among the Registrant, Priceline Travel, Inc. and Northwest

Airlines, Inc.

10.11.1*+         General Agreement, dated August 31, 1998, by and among the

Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.

10.11.2*+         Airline Participation Agreement, dated August 31, 1998, by and

among the Registrant, Priceline Travel, Inc. and Delta Air

Lines, Inc.

10.11.3*+         Amendment to the Airline Participation Agreement and the

General Agreement, dated December 31, 1998, between and among

the Registrant, Priceline Travel, Inc. and Delta Air Lines,

Inc.

10.11.4***        Letter Agreement, dated July 16, 1999, between the Registrant

and Delta Air Lines, Inc.

10.11.5           Master Agreement, dated November 17, 1999, between the

Registrant and Delta Air Lines, Inc.

10.11.6           Amendment to the Airline Participation Agreement and the

General Agreement, dated November 17, 1999, by and among the

Registrant, Priceline Travel, Inc. and Delta Air Lines, Inc.

10.11.7+          Participation Warrant Agreement, dated as of November 17,

1999, between the Registrant and Delta Air Lines, Inc.

10.12*+           Airline Participation Agreement, dated December 31, 1998, by

and among the Registrant, Priceline Travel, Inc. and America

West Airlines.

10.13*+           Internet Marketing and Licensing Agreement, as of August 1,

1998, between the Registrant and LendingTree, Inc.

10.14*            Systems Access Agreement, dated as of August 4, 1997, between

the Registrant and WORLDPAN, L.P.

Exhibit Number                          Description

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

10.15*            Master Agreement for Outsourcing Call Center Support, dated as

of April 6, 1998, between the Registrant and CALLTECH

Communications, Incorporated.

10.16*            Form of Participation Warrant Agreement.

10.17.1*+         Participation Warrant Agreement, dated as of December 31,

1998.

10.17.2*+         Amendment No. 1, dated as of February 4, 1999, to Warrant

Participation Agreement, dated as of December 31, 1999.

10.17.3*+         Amendment No. 2, dated as of March 3, 1999, to Participation

Warrant Agreement, dated as of December 31, 1998, as

previously amended to Amendment No. 1 to Warrant Participation

Agreement, dated as of February 4, 1999.

10.18***          Employment Agreement, dated as of June 14, 1999, between the

Registrant and Daniel H. Schulman.

10.19.1***        Airline Participation Agreement, dated July 16, 1999, between

the Registrant and Continental Airlines, Inc.

10.19.2***        Participation Warrant Agreement, dated July 16, 1999, between

the Registrant and Continental Airlines, Inc.

10.19.3           First Amendment to Participation Warrant Agreement, dated as

of November 17, 1999, by and between the Registrant and

Continental Airlines, Inc.

10.19.4+          Participation Warrant Agreement, dated November 17, 1999,

between the Registrant and Continental Airlines, Inc.

10.20****         License Agreement, dated July 20, 1999 between Walker Digital

Corporation and the Registrant.

10.21             Sublease, dated October 1999, between Oxford Health Plans,

Inc., as Sub-Landlord and the Registrant, as Sub-Tenant, and

Agreement of Lease, dated June 16, 1993, as amended, between

Prudential Insurance Company of America, as Landlord, and

Oxford Health Plans, Inc., as Tenant.

10.22.1           Securityholders' Agreement, dated as of October 26, 1999,

among the Registrant, Priceline WebHouse Club, Inc., Walker

Digital, LLC and the Investors signatory thereto.

10.22.2+          Intellectual Property License Agreement, dated as of October

26, 1999, between the Registrant and Priceline WebHouse Club,

Inc.

10.22.3+          Marketing and Technical Services Agreement, dated as of

October 26, 1999, between the Registrant and Priceline

WebHouse Club, Inc.

10.22.4+          Warrant Agreement, dated as of October 26, 1999, between the

Registrant and Priceline WebHouse Club, Inc.

10.22.5+          Services Agreement, dated as of October 26, 1999, between the

Registrant and Priceline WebHouse Club, Inc.

10.23.1+          Airline Participation Agreement, dated as of November 15,

1999, by and between the Registrant and United Air Lines, Inc.

10.23.2+          Participation Warrant Agreement, dated as of November 15,

1999, by and between the Registrant and United Air Lines, Inc.

10.24.1+          Airline Participation Agreement, dated as of November 17,

1999, by and between the Registrant and US Airways, Inc.

10.24.2+          Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and US Airways, Inc.

10.25.1+          Airline Participation Agreement, dated as of November 17,

1999, by and between the Registrant and American Airlines,

Inc.

10.25.2+          Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and American Airlines,

Inc.

10.26+            Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and Trans World Airlines,

Inc.

10.27+            Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and Northwest Airlines,

Inc.

10.28+            Participation Warrant Agreement, dated as of November 17,

1999, by and between the Registrant and America West Airlines

10.29             Continuing Employment Agreement, dated as of December 16,

1999, between the Registrant and Melissa M. Taub.

12.1              Computation of Ratio of Earnings to Fixed Charges.

23.1              Consent of Deloitte & Touche LLP.

27.1              Financial Data Schedule.

*     Previously filed as an exhibit to the Form S-1 (Registration No.

333-69657) filed in connection with priceline.com's initial public

offering and incorporated herein by reference.



**    Previously filed as an exhibit to the Form 10-Q filed on May 17, 1999 and

incorporated herein by reference.



***   Previously filed as an exhibit to the Form S-1 (Registration No.

333-83513) filed in connection with priceline.com's secondary public

offering and incorporated herein by reference.



****  Previously filed as an exhibit to the Form 10-Q filed on November 15, 1999



+     Certain portions of this document have been omitted pursuant to a

confidential treatment request.