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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2001

Commission File No. 001-14353

GLOBAL VACATION GROUP, INC.
(Exact name of Registrant as specified in its charter)

|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|New York                                                       |  | 13-1894567                             
|                                                               |  |                                        
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)
|                                                               |  |                                        
|                                                               |  |                                        
|One North First Street, Suite 300, San Jose, CA                |  | 95113                                  
|                                                               |  |                                        
|(Address of principal executive offices)                       |  | (Zip Code)                             

Registrants telephone number, including area code: (408) 882-8455

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

YES X                    NO _

As of April 25, 2001 there were 14,392,825 shares of Registrants Common Stock
outstanding.

1



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INDEX

|         |                       |                                                                                                    |  |          |    | 
|-------- | --------------------- | -------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|         |                       |                                                                                                    |  | Page No.
|         |                       |                                                                                                    |  |         
|PART I.  | FINANCIAL INFORMATION |                                                                                                    |  | 3        |   
|        
|Item 1.  |                       | Financial Statements (unaudited)                                                                   |  |          | 3  | 
|        
|         |                       | Condensed Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000                   |  |          | 3  | 
|        
|         |                       | Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2001 and 2000 |  |          | 4  | 
|        
|         |                       | Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 2001 and 2000 |  |          | 5  | 
|        
|         |                       | Notes to Condensed Consolidated Financial Statements                                               |  |          | 6  | 
|        
|Item 2.  |                       | Managements Discussion and Analysis of Financial
Condition and Results of Operations              |  |          | 9  | 
|        
|         |                       | Results of Operations                                                                              |  |          | 10 | 
|        
|         |                       | Liquidity and Capital Resources                                                                    |  |          | 11 | 
|        
|Item 3.  |                       | Quantitative and Qualitative Disclosures About Market Risk                                         |  |          | 12 | 
|        
|PART II. | OTHER INFORMATION     |                                                                                                    |  | 13       |   
|        
|Item 6.  |                       | Exhibits and Reports on Form 8-K                                                                   |  |          | 13 | 

2



---



|         |                       |  |  |  |  | 
|-------- | --------------------- |  |  |  |  | 
|PART 1.  | FINANCIAL INFORMATION
|        
|ITEM  1. | Financial Statements 

GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |         |     |         | 
|----------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------- | ----------- | ------- | ------------ | ------- | --- | ------- | 
|                                                                                          |                                        |                                                                                                                        |                                      |         | March 31,   |         | December 31,
|ASSETS                                                                                    |                                        | 2001                                                                                                                   |                                      | 2000   
|                                                                                          |                                        |                                                                                                                        |                                      |        
|                                                                                          |                                        |                                                                                                                        |                                      |         | (unaudited)
|Current assets:                                                                          
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Cash and cash equivalents (includes $13,915 and $11,633
of restricted cash, respectively) |                                        | $                                                                                                                      | 30,360                               |         |             | $       | 24,432       |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Short-term investments                                                                    |                                        |                                                                                                                        | 5,150                                |         |             |         |             |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Accounts receivable, net of allowance of $2,534 and $2,096, respectively                  |                                        |                                                                                                                        | 15,549                               |         |             |         | 21,224       |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Other current assets                                                                      |                                        |                                                                                                                        | 4,727                                |         |             |         | 4,303        |        
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|                                                                                          |                                        |                                                                                                                        | Total current assets                 |         |             | 55,786  |              |         |     | 49,959  | 
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|Property and equipment, net                                                               |                                        |                                                                                                                        | 4,081                                |         |             |         | 4,588        |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Intangible assets, net                                                                    |                                        |                                                                                                                        | 77,674                               |         |             |         | 78,476       |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Other assets                                                                              |                                        |                                                                                                                        | 122                                  |         |             |         | 124          |        
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|                                                                                          |                                        |                                                                                                                        | Total assets                         |         | $           | 137,663 |              |         | $   | 133,147 | 
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|                                                                                          |                                        |                                                                                                                        | LIABILITIES AND SHAREHOLDERS EQUITY
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Current liabilities:                                                                     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Accounts payable and accrued expenses                                                     |                                        | $                                                                                                                      | 55,365                               |         |             | $       | 62,239       |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Customer deposits                                                                         |                                        |                                                                                                                        | 50,517                               |         |             |         | 37,919       |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Short-term convertible notes payable                                                      |                                        |                                                                                                                        | 1,334                                |         |             |         | 690          |        
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|                                                                                          |                                        |                                                                                                                        | Total current liabilities            |         |             | 107,216 |              |         |     | 100,848 | 
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Other long-term liabilities                                                               |                                        |                                                                                                                        | 710                                  |         |             |         | 480          |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Convertible note                                                                          |                                        |                                                                                                                        | 27,500                               |         |             |         | 27,500       |        
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|                                                                                          |                                        |                                                                                                                        | Total liabilities                    |         |             | 135,426 |              |         |     | 128,828 | 
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Commitments and Contingencies
Shareholders equity:                                      
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          |                                        | Preferred Stock, $.01 par value, 6,000,000 shares authorized,
no shares issued and outstanding                         |                                      |         |            |         |              |         |    |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          |                                        | Common Stock, $.01 par value, 60,000,000 shares authorized, 14,775,816
shares issued and 14,392,825 shares outstanding |                                      |         | 148         |         |              |         | 148 |        
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Additional paid-in capital             |                                                                                                                        |                                      | 95,817  |             |         |              | 95,817  |    
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Deferred compensation                  |                                                                                                                        |                                      |        |             |         |              | (17     | )  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Retained deficit                       |                                                                                                                        |                                      | (91,412 | )           |         |              | (89,313 | )  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Treasury stock, 382,991 shares at cost |                                                                                                                        |                                      | (2,316  | )           |         |              | (2,316  | )  
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|                                                                                          |                                        |                                                                                                                        | Total shareholders equity           |         |             | 2,237   |              |         |     | 4,319   | 
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        
|Total liabilities and shareholders equity                                                |                                        | $                                                                                                                      | 137,663                              |         |             | $       | 133,147      |        
|                                                                                          |                                        |                                                                                                                        |                                      |         |             |         |              |        

The accompanying notes are an integral part of these condensed consolidated balance sheets.

3



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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

|                                                      |                      |                  |              |        |                    |       |        |        |        |      |  
|----------------------------------------------------- | -------------------- | ---------------- | ------------ | ------ | ------------------ | ----- | ------ | ------ | ------ | ---- | -
|                                                      |                      |                  |              |        | Three Months Ended
|                                                      |                      |                  |              |        |                   
|                                                      |                      |                  |              |        | March 31,         
|                                                      |                      |                  |              |        |                   
|                                                      |                      |                  |              |        | 2001               |       | 2000  
|                                                      |                      |                  |              |        |                    |       |       
|Net revenues                                          |                      | $                | 24,467       |        |                    | $     | 27,352 |       
|                                                     
|                                                     
|                                                     
|                                                     
|Operating expenses                                    |                      |                  | 22,833       |        |                    |       | 27,367 |       
|                                                      |                      |                  |              |        |                    |       |        |       
|                                                      |                      |                  | Gross profit |        |                    | 1,634 |        |        |        | (15  | )
|                                                     
|                                                     
|                                                     
|                                                     
|General and administrative expenses                   |                      |                  | 2,025        |        |                    |       | 2,418  |       
|                                                     
|                                                     
|                                                     
|                                                     
|Depreciation and amortization                         |                      |                  | 1,211        |        |                    |       | 1,851  |       
|                                                      |                      |                  |              |        |                    |       |        |       
|                                                      | Loss from operations |                  |              | (1,602 | )                  |       |        | (4,284 | )     
|                                                      |                      |                  |              |        |                    |       |        |       
|Other income (expense):                              
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                      | Interest income  |              |        | 427                |       |        |        | 529    |     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                      | Interest expense |              |        | (943               | )     |        |        | (1,148 | )   
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                      | Other, net       |              |        | 19                 |       |        |        | (12    | )   
|                                                      |                      |                  |              |        |                    |       |        |       
|                                                      |                      |                  | Total        |        |                    | (497  | )      |        |        | (631 | )
|                                                      |                      |                  |              |        |                    |       |        |       
|Loss before income taxes                              |                      |                  | (2,099       | )      |                    |       | (4,915 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|Income tax benefit                                    |                      |                  |             |        |                    |       | 2,018  |       
|                                                      |                      |                  |              |        |                    |       |        |       
|                                                      | Net loss             |                  | $            | (2,099 | )                  |       | $      | (2,897 | )     
|                                                      |                      |                  |              |        |                    |       |        |       
|Basic and diluted net loss per share                  |                      | $                | (0.15        | )      |                    | $     | (0.20  | )     
|                                                      |                      |                  |              |        |                    |       |        |       
|Basic and diluted weighted average
shares outstanding |                      |                  | 14,393       |        |                    |       | 14,393 |       
|                                                      |                      |                  |              |        |                    |       |        |       

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

4



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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |                |      |        |        |  
|------------------------------------------------------------------------ | ------------------------------------- | ---------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------------------------------- | --- | ------------------ | ------ | -------------- | ---- | ------ | ------ | -
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     | Three Months Ended
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                   
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     | March 31, 2001     |        | March 31, 2000
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         | Cash flows from operating activities:
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Net loss                                                                        |     | $                  | (2,099 | )              |      | $      | (2,897 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Adjustments to reconcile net loss to net cash provided by operating activities:
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Depreciation and amortization                                                   |     |                    | 1,211  |                |      |        | 1,851  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Non-cash interest                                                               |     |                    | 644    |                |      |        |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Write-off of deferred financing costs                                           |     |                    | 105    |                |      |        |       |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Amortization of deferred financing costs                                        |     |                    | 106    |                |      |        | 248    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Changes in assets and liabilities:                                             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Accounts receivable                                                             |     |                    | 5,675  |                |      |        | 1,319  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Other assets                                                                    |     |                    | (429   | )              |      |        | 2,139  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Accounts payable and accrued expenses                                           |     |                    | (6,797 | )              |      |        | (1,253 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Customer deposits                                                               |     |                    | 12,598 |                |      |        | 20,628 |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Other liabilities                                                               |     |                    | 230    |                |      |        | 398    |  
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         |                                       |                                                                        |                                               | Net cash provided by operating activities                                       |     |                    | 11,244 |                |      |        | 22,433 |  
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         |                                       |                                                                        |                                               | Cash flows from investing activities:                                          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Purchases of property and equipment                                             |     |                    | (106   | )              |      |        | (909   | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Net (purchases) sales of investments                                            |     |                    | (5,150 | )              |      |        | 78     |  
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         |                                       |                                                                        |                                               | Net cash used in investing activities                                           |     |                    | (5,256 | )              |      |        | (831   | )
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         |                                       |                                                                        |                                               | Cash flows from financing activities:                                          
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        |                                               | Payments on capital lease obligations                                           |     |                    | (60    | )              |      |        | (82    | )
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         |                                       |                                                                        | Net cash used in financing activities         |                                                                                 |     | (60                | )      |                |      | (82    | )     
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         |                                       |                                                                        | Net increase in cash and cash equivalents     |                                                                                 |     | 5,928              |        |                |      | 21,520 |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       |                                                                        | Cash and cash equivalents beginning of period |                                                                                 |     | 24,432             |        |                |      | 24,152 |       
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|                                                                         |                                       |                                                                        | Cash and cash equivalents end of period       |                                                                                 | $   | 30,360             |        |                | $    | 45,672 |       
|                                                                         |                                       |                                                                        |                                               |                                                                                 |     |                    |        |               
|Supplemental disclosures of cash flow information:                      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       | Income taxes refunded, net                                             |                                               | $                                                                               | (75 | )                  |        | $              | (673 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       | Interest paid                                                          |                                               |                                                                                 | 82  |                    |        |                | 638  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Supplemental disclosures of non cash investing and financing activities:
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                       | Issuance of convertible short-term note as payment of interest expense |                                               | $                                                                               | 644 |                    |        | $              |     |       

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

5



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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)

1. Business Description and Organization

Global Vacation Group, Inc., and subsidiaries (GVG or the Company) is
one of the largest U.S. providers of customized vacation products. The Company
assembles air, hotel, rental car and other travel components in bulk and
provides complete vacations to travelers primarily through other resellers of
travel including retail travel agents and international tour wholesalers. The
Company primarily provides flexible independent travel programs for
individuals, as well as escorted tours and group packages. The Companys
operations are primarily concentrated in one market segment, leisure travel.
Until January 8, 2001 Global Vacation Group, Inc.s common stock was traded on
the New York Stock Exchange. On January 9, 2001 the Company transferred the
listing of its common stock to the American Stock Exchange. Trading continues
under the symbol GVG.

Headquartered in San Jose, California, the Company markets its major
products under the brand names Classic Custom Vacations and Allied Tours.
Classic Custom Vacations creates customized vacation packages for U.S.
travelers seeking an individualized vacation. The Allied Tours brand creates
packages for international travelers visiting North America. The Company also
operates Island Resort Tours, a smaller domestic vacation provider;
International Travel & Resorts, a hotel representation company; and the private
label vacation fulfillment operations for Amtrak Vacations and Hyatt Vacations.

Risks and Other Important Factors

The Companys operations are subject to certain risks and uncertainties,
including, among others, current and potential competitors with greater
resources, dependence on effective information systems, changing industry
dynamics related to new methods of distribution within the travel industry,
industry consolidations, seasonal fluctuations in operating results, dependence
on rapidly changing technologies, reliance on key personnel, international
political and economic conditions impacting travel patterns, and dependence on
travel suppliers.

The Company receives advance payments and deposits prior to commencement
of travel. Accordingly, the Companys current liabilities exceed its current
assets. As of March 31, 2001, current liabilities exceed current assets by
approximately $51.4 million. If the float generated by these advance payments
were to shrink, and the Company was required to find an alternative source of
capital, one may not be available at terms acceptable to the Company. Such
event could have a material adverse effect on the business, financial condition
and results of operations of the Company.

If the Company is not profitable for the full year ending December 31,
2001, the Company may be required to obtain additional equity or financing to
meet its obligations, or sell certain of its operations. Although the Company
believes it would have the ability to generate additional financing that might
be necessary, such actions may be dilutive and there can be no assurances that
adequate funds would be available, or available on terms that would be
reasonable or acceptable to the Company. Although there can be no assurance
that the Company will meet its financial objectives, management believes that
the Company will be able to fund its operations with operating cash flow
through at least January 2002.

2. Summary of Significant Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the Unites States, 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

The quarterly condensed consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and include, in
the opinion of the Company, all adjustments, consisting of normal and recurring
adjustments, necessary for a fair presentation of interim period results.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to such rules and
regulations. The Company believes that its disclosures are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto included in the Companys 2000 Form 10-K.
The results of operations for the three-month period ended March 31, 2001 are
not necessarily indicative of the results to be expected for the full year.

6



---



There have been no significant changes in the accounting policies of the
Company during the periods presented. For a description of these policies,
refer to Note 2 to the Consolidated Financial Statements and related Notes
thereto included in the Companys 2000 Form 10-K.

Net Revenues

Net revenues include commissions and markups on travel products and
services, volume bonuses received from travel suppliers, cancellation fees and
other ancillary fees such as travel waiver and insurance products. Net
revenues are generally recognized upon the commencement of travel. For the
three months ended March 31, 2001 and 2000, the Company had net revenues of
$24.5 million and $27.4 million, respectively, derived from total dollar value
of travel products and services of $106.7 million and $120.4 million,
respectively.

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred tax assets and liabilities are computed based on
the difference between the financial statement and income tax bases of assets
and liabilities using the enacted marginal tax rate. SFAS No. 109 requires that
a net deferred tax asset be reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the net deferred tax asset will not be realized. Due to losses incurred
by the Company, the Company has provided for a valuation allowance to fully
reserve its deferred tax assets.

Long-lived Assets

The Company reviews its long-lived assets, including property and
equipment, identifiable intangibles, and goodwill whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows will be less
than the carrying amount of the assets. Management believes that its long-lived
assets are recoverable. The Companys estimates of anticipated net revenues,
gross profits, the remaining estimated lives of tangible and intangible assets,
or both, could be reduced significantly in the future due to changes in
technology, regulation, or competitive pressures in any of the Companys
individual operating brands. As a result, the carrying amount of long-lived
assets and intangibles including goodwill could be materially reduced in the
future.

Net Income (Loss) per Share

Basic income (loss) per share is computed by dividing net income or loss
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted income or loss per share includes
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.

The treasury stock effect of options to purchase 1,327,121 and 1,363,561
shares of common stock outstanding at March 31, 2001 and 2000, respectively,
has not been included in the computations of diluted loss per share for the
three months ended March 31, 2001 and 2000, as such effect would be
anti-dilutive. The effect of the convertible notes has not been included in the
computation of diluted loss per share for the three months ended March 31,
2001, as such effect would also be anti-dilutive.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company adopted SFAS No. 133 for the
fiscal year beginning January 1, 2001 and noted no material impact on the
Companys financial position, or the results of operations.

Reclassifications

Certain reclassifications have been made in the 2000 financial statements
to conform to the 2001 presentation.

7



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3. Commitments and Contingencies

The Company is periodically a party to disputes arising from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect upon the financial position or future
operating results of the Company, and adequate provision for any potential
losses has been made on the accompanying financial statements.

4. Convertible Debt

In June 2000, the Company raised $27.5 million from the issuance of a
subordinated convertible note (the Note). Under terms of the transaction, the
Company issued a 9%; seven-year subordinated note, convertible into common
stock at a price of $5.25 per share. The Note may be converted, at any time, in
total or partial to common stock. Under the terms of the Note, the Company is
required to meet certain financial ratios and covenants including a
debt-to-equity ratio and a fixed charge coverage ratio, among others. In
connection with the issuance of the Note, the Company incurred approximately
$1.4 million in financing costs, which are being amortized over the term of the
Note.

Interest is payable quarterly and may be paid in cash, additional
convertible notes with terms identical to the original Note, or common stock.
Additionally through the quarter ending March 31, 2001 the Company had the
option to pay interest by issuing additional short-term convertible notes
maturing July 1, 2001. At maturity the Company may elect to pay the principal
and interest on these short-term notes in either cash, additional notes with
terms identical to the original Note, or common stock. As of March 31, 2001
the Company has elected to pay all interest related to the Note with
convertible short-term notes for a total of $1.3 million. Subsequent to the
end of the quarter, on April 2, 2001 the Company issued an additional
convertible short-term note for $640,000 representing interest accrued through
April 1, 2001.

5. Bank Credit Facilities

The Company maintains a revolving line of credit with a group of lenders
with a total borrowing capacity at March 31, 2001 of $8.0 million. The
facility matures on January 31, 2002. The line allows for cash borrowings for
working capital purposes and is also used to secure stand-by letters of credit.
At March 31, 2001 there were no cash borrowings outstanding and $4.7 million
of stand-by letters of credit issued and secured by the facility, leaving up to
$3.3 million available. Borrowings under facility may also be limited to
certain eligible receivables. The Company is required to maintain cash
collateral equal to 103% of the outstanding balance of letters of credit. In
March 2001, the Company voluntarily permanently reduced the capacity of the
line to $8.0 million from $17.5 million previously available. In connection
with the reduction, the Company accelerated the amortization of deferred
financing costs by $105,000. The Company continues to be required to meet
certain financial ratios and covenants including a leverage ratio, interest
coverage ratio, and minimum net worth, among others.

In March 2001 the Company entered into a new credit facility (the New
Credit Facility) to secure stand-by letters of credit with a total capacity of
$5.0 million. The New Credit Facility does not allow for cash borrowings. The
New Credit Facility, which expires on May 1, 2004 is secured by a certificate
of deposit in the amount of $5.2 million. No stand-by letters of credit were
issued under the facility at March 31, 2001 with the entire $5.0 million
available.

6. Restructuring Initiated in 2000

In July 2000 the Company initiated a restructuring and consolidation of
its Vacations by Globetrotters (Globetrotters) branded operations into its
Classic Custom Vacations (Classic) brand. As part of this consolidation, the
Company migrated its Globetrotters branded products to the Classic technology
platform. Additionally, the Company closed its Washington, D.C. headquarters
office. As part of the restructuring, the Company terminated 116 employees.
The consolidation of the brands and the termination of employees were
substantially complete at December 31, 2000. The Company continues to review
for opportunities to further reduce costs and create additional efficiencies.
As a result, the Company may incur additional restructuring charges in future
periods. To date there have been no material changes to the Companys
restructuring plans since December 31, 2000.

As part of the restructuring the Company is required to make additional
severance payments to certain terminated employees as well as fund certain
continuing lease obligations for office space no longer in use. The following
summarizes accrued restructuring costs and cash payments for the three months
ended March 31, 2001 (in thousands):

|                                                 |  |                   |       |                     |  |                       |     |  |  |   |       | 
|------------------------------------------------ |  | ----------------- | ----- | ------------------- |  | --------------------- | --- |  |  | - | ----- | 
|                                                 |  |                   |       |                     |  | Lease obligations and
|                                                 |  | Employee          |       | other restructuring
|                                                 |  | termination costs |       | costs               |  | Totals               
|                                                 |  |                   |       |                     |  |                      
|Accrued restructuring costs, December 31, 2001   |  | $                 | 1,502 |                     |  | $                     | 778 |  |  | $ | 2,280 | 
|                                                
|                                                
|                                                
|                                                
|Cash payments, three months ended March 31,
2001 |  |                   | 660   |                     |  |                       | 40  |  |  |   | 700   | 
|                                                 |  |                   |       |                     |  |                       |     |  |  |   |       | 
|Accrued restructuring costs, March 31, 2001      |  | $                 | 842   |                     |  | $                     | 738 |  |  | $ | 1,580 | 
|                                                 |  |                   |       |                     |  |                       |     |  |  |   |       | 

8



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ITEM 2.

Managements Discussion and Analysis of Financial Condition and Results of
Operations

FORWARD-LOOKING INFORMATION

The matters discussed in this Form 10-Q include forward-looking statements
that involve risks or uncertainties. While forward-looking statements are
sometimes presented with numerical specificity, they are based on various
assumptions made by management regarding future circumstances, over many of
which the Company has little or no control. A number of important factors,
including those identified under the caption Risk Factors in the Companys
2000 Form 10-K, as well as factors discussed elsewhere in this Form 10-Q, could
cause the Companys actual results to differ materially from those in
forward-looking statements or financial information. Actual results may differ
from forward-looking results for a number of reasons, including the following:
(i) changes in general economic conditions and other factors that affect demand
for travel products or services; (ii) changes in the vacation travel industry;
(iii) changes in the Companys relationships with travel suppliers; (iv)
competitive factors (including changes in travel distribution methods); and (v)
the success of the Companys operating, integration and growth strategies.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected.

Overview

Global Vacation Group, Inc., and subsidiaries (GVG or the Company)
assembles air, hotel, rental car and other travel components in bulk and
provides complete vacations to travelers primarily through other resellers of
travel including retail travel agents and international tour wholesalers. The
Company markets vacation packages for travelers to resort destinations
including Hawaii, the Caribbean Islands, Mexico and Europe as well as various
continental North American destinations.

The Company markets its products and services under multiple brands
including Classic Custom Vacations (Classic), which markets customized
vacation packages having preferred agreements with the largest leisure travel
agency groups in the U.S and Allied Tours Allied, which creates and
coordinates packages and tours for international travel wholesalers selling
vacations to North America. Additionally, the Companys private label brands
provide outsourced vacation packaging for both Amtrak Vacations and Hyatt
Vacations. The Companys Island Resort Tours brand markets vacation packages
principally to the Caribbean and is operated together with International Travel
& Resorts, a hotel representation company for properties also primarily located
in the Caribbean (collectively Island). The Company also provides affinity
group marketing and awards program fulfillment services.

Sources of Revenue

Net revenues include commissions and markups on travel products and
services, volume bonuses received from travel suppliers, cancellation fees and
other ancillary fees such as travel waiver and insurance products and are
generally recognized upon the commencement of travel. For the three months
ended March 31, 2001 and 2000, the Company had net revenues of $24.5 million
and $27.4 million, respectively, derived from total dollar values of travel
products and services of $106.7 million and $120.4 million, respectively.

Expenses

Operating expenses include travel agent commissions, salaries, credit card
merchant fees, telecommunications, advertising and other costs associated with
the selling and processing of travel reservations, products and services.
Commission payments to travel agents are typically based on a percentage of the
price paid for the travel product or service, but in certain circumstances are
fixed dollar amounts. Reservations agents are compensated either on an hourly
basis, a commission basis or a combination of the two. The Companys telephone
costs primarily relate to the cost of incoming calls on toll-free numbers.
General and administrative expenses consist primarily of compensation and
benefits to administrative and other non-sales personnel, fees for professional
services, and other general office expenses.

Interest Income

The Company derives a significant portion of its pre-tax results from
interest earned on funds related to customer deposits and prepayments for
vacation products. Generally, the Company requires a deposit within one week of
making a travel reservation. Reservations are typically made two to four months
prior to departure. Additionally, for packaged tours, the Company generally
requires that the entire cost of the vacation be paid in full 45 to 60 days
before departure, unless reservations are made closer to departure. While terms
vary, the Company generally pays for the vacation components after the
customers departure. In the period between receipt of a deposit or prepayment
and the payment of related expenses, these funds are invested in cash and
investment-grade securities. This cycle is typical in the packaged tour
industry and earnings generated on deposits and prepayments are integral

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to the Companys operating model and pricing strategies. The Companys
investment policy is to only invest funds in cash equivalents and investment
grade securities (short term securities rated at least A1/P1 or A2/P2 by
Standard & Poors or Moodys, or long term securities rated at least BBB- or
Baa3 by Standard & Poors or Moodys). For the three months ended March 31, 2001
and 2000, the Company had interest income of $427,000 (1.7% of net revenues)
and $529,000 (1.9% of net revenues), respectively.

Restructuring and Consolidation

The Companys restructuring, announced in July 2000, is substantially
complete. A total of 116 employees were terminated as part of the
restructuring. The Company continues to make severance payments to certain
terminated employees. Additionally, the Company is required to fund certain
continuing lease obligations for office space no longer in use. The Company
continues to review for opportunities to further reduce costs and create
additional efficiencies. As a result, the Company may incur additional
restructuring charges in future periods. To date there have been no material
changes in the restructuring plans since December 31, 2000.

Results of Operations (unaudited)

The following table summarizes the Companys historical results of
operations as a percentage of net revenues for the three months ended March 31,
2001 and 2000.

|                                    |                      |   |                              |        |      |  |        |      |   |   |        |        |   |  |       |       |  
|----------------------------------- | -------------------- | - | ---------------------------- | ------ | ---- |  | ------ | ---- | - | - | ------ | ------ | - |  | ----- | ----- | -
|                                    |                      |   | Three Months Ended March 31,
|                                    |                      |   | 2001                         |        | 2000
|                                    |                      |   |                              |        |     
|                                    |                      |   | Amount                       |        | %    |  | Amount |      | %
|                                    |                      |   |                             
|Net revenues                        |                      | $ | 24,467                       |        |      |  | 100.0  |      |   | $ | 27,352 |        |   |  | 100.0 |      
|                                   
|                                   
|                                   
|                                   
|Operating expenses                  |                      |   | 22,833                       |        |      |  | 93.3   |      |   |   | 27,367 |        |   |  | 100.1 |      
|                                    |                      |   |                             
|                                    | Gross profit (loss)  |   |                              | 1,634  |      |  |        | 6.7  |   |   |        | (15    | ) |  |       | (0.1  | )
|                                   
|                                   
|                                   
|                                   
|General and administrative expenses |                      |   | 2,025                        |        |      |  | 8.3    |      |   |   | 2,418  |        |   |  | 8.8   |      
|                                   
|                                   
|                                   
|                                   
|Depreciation and amortization       |                      |   | 1,211                        |        |      |  | 4.9    |      |   |   | 1,851  |        |   |  | 6.8   |      
|                                    |                      |   |                             
|                                    | Loss from operations |   |                              | (1,602 | )    |  |        | (6.5 | ) |   |        | (4,284 | ) |  |       | (15.7 | )
|                                    |                      |   |                             
|Interest income                     |                      |   | 427                          |        |      |  | 1.7    |      |   |   | 529    |        |   |  | 1.9   |      
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |                      |   | (943                         | )      |      |  | (3.9   | )    |   |   | (1,148 | )      |   |  | (4.2  | )    
|                                   
|                                   
|                                   
|                                   
|Other, net                          |                      |   | 19                           |        |      |  | 0.1    |      |   |   | (12    | )      |   |  |      |      
|                                    |                      |   |                             
|Loss before income taxes            |                      |   | (2,099                       | )      |      |  | (8.6   | )    |   |   | (4,915 | )      |   |  | (18.0 | )    
|                                   
|                                   
|                                   
|                                   
|Income tax benefit                  |                      |   |                             |        |      |  |       |      |   |   | 2,018  |        |   |  | 7.4   |      
|                                    |                      |   |                             
|Net loss                            |                      | $ | (2,099                       | )      |      |  | (8.6   | )    |   | $ | (2,897 | )      |   |  | (10.6 | )    
|                                    |                      |   |                             

Net revenues for the three months ended March 31, 2001 and 2000, were
$24.5 million and $27.4 million, respectively. The decrease in net revenues of
10.5% for the three months ended March 31, 2001 was due to restructuring of the
Companys Vacations by Globetrotters brand in which certain unprofitable
products were discontinued. Revenue growth in certain emerging products
(principally the Companys Classic Caribbean and Classic Mexico products)
offset the effect of lower revenues in other more mature products (principally
the Companys Classic Hawaii and Allieds inbound U.S. products) believed to be
attributable to the slowing economy.

The Companys net revenues generally are highest in the second and third
quarters of the year, while its expenses, as a percentage of net revenues,
generally are highest in the first and fourth quarters.

Operating expenses for the three months ended March 31, 2001 and 2000,
were $22.8 million and $27.4 million, respectively, or 93.3% and 100.1%,
respectively, of net revenues. The decrease in operating expenses as a
percentage of net revenues is primarily attributable to cost reductions and the
elimination of certain unprofitable products resulting from the Companys
restructuring. The overall reduction in operating expenses is also
attributable to reductions in certain variable operating expenses as a result
of lower net revenues.

General and administrative expenses for the three months ended March 31,
2001 and 2000 were $2.0 million and $2.4 million, respectively, or 8.3% and
8.8%, respectively, of net revenues. The decrease in general and administrative
expenses of 16.3% is primarily due to decreases in headcount and outside
services related to the Companys restructuring of its Globetrotters brand and
closing of its Washington, D.C. headquarters office.

10



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Depreciation and amortization for the three months ended March 31, 2001
and 2000 was $1.2 million and $1.9 million, or 4.9% and 6.8%, respectively, of
net revenues. The decrease is principally due to the effects of the impairment
charge recorded as part of the Companys restructuring announced in July 2000.

Interest income for the three months ended March 31, 2001 and 2000 was
$427,000 and $529,000, respectively, or 1.7% and 1.9%, respectively, of net
revenues. The lower amount of interest income earned was due to lower levels of
investable funds as a result of the reduction in customer deposits related to
its discontinued products. Reductions in interest rates during the three
months ended March 31, 2001 are expected to have a negative effect on interest
income generated in future periods.

Interest expense for the three months ended March 31, 2001 and 2000 was
$943,000 and $1.1 million, respectively. The decrease in interest expense for
the three months ended March 31, 2001 is principally due to reduced fees and
expenses recorded for the period compared to the prior year, together with
lower levels of borrowings for the comparable periods.

The benefit for income taxes for the three months ended March 31, 2000 was
$2.0 million. Due to the extent of continuing operating losses, the benefit for
income taxes for the three months ended March 31, 2001 was offset by a
valuation allowance provided against the related deferred tax assets.

Net loss for the three months ended March 31, 2001 was $2.1 million and
$2.9 million, respectively, or 8.6% and 10.6%, respectively, of net revenues.
The improvement is principally related to reductions in operating expenses as a
result of the Companys restructuring and consolidation.

Liquidity and Capital Resources

The Company receives advance payments and deposits prior to commencement
of travel. The Companys pricing of its products and services is determined, in
part, based upon the amount and timing of advance payments received. A number
of states have regulations with respect to the financial security and handling
of customer deposits made in advance of travel. The Company believes it is in
compliance with all applicable regulations relating to customer deposits. The
Companys investment policy and one of its credit facilities restricts
investments to investment-grade securities.

At March 31, 2001, the Company had cash and cash equivalents of $16.4
million, excluding $13.9 million of cash restricted pursuant to contracts with
private label partners, and pursuant to the terms of one of the Companys
credit facilities. Contracts with certain of the Companys private label
partners require that certain funds including customer deposits be segregated
from general cash reserves and restrict the disbursement of these funds prior
to the commencement of travel. Additionally, one of the Companys credit
facilities requires that the Company maintain cash collateral to the extent of
103% of the balance of stand-by letters of credit outstanding under the
facility. At March 31, 2001 the Company also had $5.2 million of short-term
investments made up of a certificate of deposit used to secure stand-by letters
of credit to be issued under the Companys new credit facility. At March 31,
2001 the Company had no cash borrowings outstanding under either of its credit
facilities.

In March 2001 the Company entered into a new credit facility with a bank
to secure stand-by letters of credit with a capacity of $5.0 million. The new
facility does not provide for cash borrowings for working capital purposes and
is collateralized with a certificate of deposit of $5.2 million. At March 31,
2001 there were no stand-by letters of credit outstanding under this new
facility. The Company is in the process of transferring its current
outstanding stand-by letters of credit from its other credit facility that
expires on January 31, 2002 to the new credit facility, which is available
until May 1, 2004. The new facility provides stand-by letters of credit at
terms more favorable to the Company and is less restrictive. The Company had a
total of $4.7 million of stand-by letters of credit outstanding at March 31,
2001.

At March 31, 2001 the Company had $27.5 million outstanding under its
convertible subordinated note raised in June 2000 (the Note). The Note
matures on July 1, 2007. To date the Company has elected to make interest
payments required under the Note in the form of additional convertible notes
maturing on July 1, 2001. When these short-term notes mature, the Company may
elect to pay the principal and interest owed in either cash, an additional note
with terms identical to the Note, or in common stock using the quoted market
price at that time. At March 31, 2001 the total short-term convertible notes
outstanding were $1.3 million. The Company issued an additional short-term
convertible note on April 2, 2001 as payment for interest accrued for the first
quarter 2001.

According to the terms of the purchase of Island in 1999, the Company
committed to pay additional acquisition consideration of up to $1.75 million
provided certain financial targets were achieved. The full amount was earned
by the sellers and accrued during the year ended December 31, 2000. Payment is
due April 30, 2001. The Company expects to pay this amount using available
cash on hand.

11



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During the three months ended March 31, 2001, net cash provided by
operations was $11.2 million. Net cash used in investing activities was $5.3
million including $106,000 for additions to property and equipment and $5.2
million for the purchase of a certificate of deposit used to collateralize the
Companys new credit facility. Net cash used in financing activities was
$60,000.

During the three months ended March 31, 2000 net cash provided by
operations was $22.4 million. Net cash used in investing activities was
$831,000 principally related to additions to property and equipment. Net cash
used in financing activities was $82,000.

The decrease in cash provided by operations from $22.4 million to $11.2
million was primarily due to a reduction in the source of funds from customer
deposits. For the three months ended March 31, 2001 customer deposits
increased by $12.4 million providing a source of funds. For the same period
ended March 31, 2000, the source of funds from customer deposits was $20.6
million. The $8.0 million reduction in the increase in customer deposits was
due to the Company discontinuing certain unprofitable products as part of the
Companys restructuring during 2000 and to a lesser extent an overall slowing
in the rate of growth of the Companys overall revenues due to the slowing
economy.

The Companys operations are seasonal in nature. Historically the Company
generates cash from operations during the first and second quarters, and uses
cash in operations during the third and fourth quarters. The $11.2 million of
cash provided by operations for the three months ended March 31, 2001 is not
necessarily indicative of the results to be expected for the full year.

As is typical in the vacation wholesale industry, the receipt of advance
payments and deposits prior to the commencement of travel results in an
expected working capital deficit. The Companys current liabilities exceeded
its current assets at March 31, 2001 by $51.4 million. If the float generated
by these advance payments were to shrink, and the Company was required to find
an alternative source of capital, one may not be available at terms acceptable
to the Company. Such an event could have a material adverse effect on the
business, financial condition and results of the Company.

The Company anticipates that its existing cash and cash from operations
will provide sufficient resources to enable the Company the Company to meet its
working capital needs, debt service, planned capital expenditures and other
obligations through at least the next twelve months.

Fluctuations in Quarterly Results of Operations

The leisure travel industry is seasonal and the Companys results have
fluctuated because of these seasonal variations. Net revenues and gross profit
for the Company are generally higher in the second and third quarters.
Exclusive of the Companys losses attributable to its former Globetrotters
brand that led to the Companys restructuring, the Company has historically
reported net losses in the fourth and first quarters. Due to significant
levels of advance payments and advance booking patterns, the Companys cash
flow from operations has historically been positive in the first two quarters,
and negative in third and fourth quarters of recent years. The timing of when
certain holidays fall (e.g. Easter) can also lead to fluctuations in the
Companys quarterly results. The Company expects this seasonality to continue
in the future. The Companys quarterly results may also be subject to changes
in the mix of services offered by the Company, extreme weather conditions or
other factors affecting leisure travel.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in
the derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company adopted SFAS No. 133 for the
fiscal year beginning January 1, 2001 and noted no material impact on the
Companys financial position, or results of operations.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the market risks faced by the
Company or in how those risks are managed since December 31, 2000. Refer to
the Companys 2000 Form 10-K for a discussion about market risk as well as the
discussion of the effect that recent changes in interest rates may have on the
Companys results of operations as contained in Item 2 above.

12



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PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

1) 10.46 Employment Agreement between the Registrant and Debbie
A. Lundquist

2) 10.47 Business Loan Agreement between the Registrant and Bank
of America, N.A.

(b) Reports on Form 8-K during the quarter ended March 31, 2001.

None.

13



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SIGNATURES

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

Date: April 27, 2001



| | GLOBAL VACATION GROUP, INC.
| | ---------------------------



| | By:/s/ Debbie A. Lundquist
       Debbie A. Lundquist
       Executive Vice President
       & Chief Financial Officer
| | ----------------------------------------------------------------------------------------------------------------------

14