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 September 30, 2000
|-------------------------------------------------

Commission File No. 001-14353

Global Vacation Group, Inc.
(Exact name of Registrant as specified in its charter)

|                                                     |  |                       
|---------------------------------------------------- |  | ----------------------
|New York                                             |  | 13-1894567            
|                                                     |  |                       
|                                                    
|                                                    
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|                                                    
|(State or other jurisdiction of                      |  | (I.R.S. Employer      
|                                                    
|                                                    
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|                                                    
|incorporation or organization)                       |  | Identification Number)
|                                                    
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|1420 New York Avenue, N.W., Suite 550 Washington D.C |  | 20005                 
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|                                                    
|(Address of principal executive offices)             |  | (Zip Code)            

Registrants telephone number, including area code: (202) 347-1800

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 November 14, 2000 there were 14,392,825 shares of Registrants Common
Stock outstanding.





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INDEX

|        |  |                                                                 |  |          |    | 
|------- |  | --------------------------------------------------------------- |  | -------- | -- | 
|        |  |                                                                 |  | Page No.
|        |  |                                                                 |  |         
|PART I  |  | FINANCIAL INFORMATION                                           |  |          | 3  | 
|       
|       
|       
|       
|       
|Item 1. |  | Financial Statements (unaudited)                                |  |          | 3  | 
|       
|       
|       
|       
|       
|        |  | Condensed Consolidated Balance Sheets as of                    
|       
|       
|       
|       
|        |  | September 30, 2000 and December 31, 1999                        |  |          | 4  | 
|       
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Operations                
|       
|       
|       
|       
|        |  | For the Three and Nine Months Ended September 30, 2000 and 1999 |  |          | 5  | 
|       
|       
|       
|       
|       
|        |  | Condensed Consolidated Statements of Cash                      
|       
|       
|       
|       
|        |  | Flows for the Nine Months Ended September 30, 2000 and 1999     |  |          | 6  | 
|       
|       
|       
|       
|       
|        |  | Notes to Condensed Consolidated Financial Statements            |  |          | 7  | 
|       
|       
|       
|       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial              
|       
|       
|       
|       
|        |  | Condition and Results of Operations                             |  |          | 12 | 
|       
|       
|       
|       
|       
|        |  | Results of Operations                                           |  |          | 15 | 
|       
|       
|       
|       
|       
|        |  | Liquidity and Capital Resources                                 |  |          | 18 | 
|       
|       
|       
|       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk      |  |          | 20 | 
|       
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                               |  |          | 21 | 
|       
|       
|       
|       
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                |  |          | 21 | 

2



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|        |  |                      |  |  |  | 
|------- |  | -------------------- |  |  |  | 
|ITEM 1. |  | FINANCIAL STATEMENTS |  |  |  | 

3



---



CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |         |   |         | 
|------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ------------------------------------ | -------------------------- | ------- | ------------- | ------- | ------------ | ------- | - | ------- | 
|                                                                                                  |                                                                                                                          |                                      |                            |         | September 30, |         | December 31,
|ASSETS                                                                                            |                                                                                                                          | 2000                                 |                            | 1999   
|                                                                                                  |                                                                                                                          |                                      |                            |        
|                                                                                                  |                                                                                                                          |                                      |                            |         | (unaudited)  
|Current assets:                                                                                  
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Cash and cash equivalents (includes $7,416 and
        $1,219   of restricted cash, respectively) |                                                                                                                          | $                                    | 46,929                     |         |               | $       | 24,152       |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Short-term investments                                                                            |                                                                                                                          |                                      |                           |         |               |         | 103          |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Accounts receivable, net of allowance of $1,507 and $1,222, respectively                          |                                                                                                                          |                                      | 32,516                     |         |               |         | 20,068       |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Loans receivable from shareholders                                                                |                                                                                                                          |                                      | 87                         |         |               |         | 105          |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Other current assets                                                                              |                                                                                                                          |                                      | 4,900                      |         |               |         | 10,718       |        
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|                                                                                                  |                                                                                                                          |                                      | Total current assets       |         |               | 84,432  |              |         |   | 55,146  | 
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|Property and equipment, net                                                                       |                                                                                                                          |                                      | 5,132                      |         |               |         | 22,615       |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Related party and other long-term receivables                                                     |                                                                                                                          |                                      |                           |         |               |         | 963          |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Intangible assets, net                                                                            |                                                                                                                          |                                      | 79,053                     |         |               |         | 97,754       |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Other assets                                                                                      |                                                                                                                          |                                      | 140                        |         |               |         | 2,197        |        
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|                                                                                                  |                                                                                                                          |                                      | Total assets               |         | $             | 168,757 |              |         | $ | 178,675 | 
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|                                                                                                  |                                                                                                                          | LIABILITIES AND SHAREHOLDERS EQUITY
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Current liabilities:                                                                             
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Accounts payable and accrued expenses                                                             |                                                                                                                          | $                                    | 84,400                     |         |               | $       | 62,873       |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Customer deposits                                                                                 |                                                                                                                          |                                      | 49,892                     |         |               |         | 36,704       |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Current portion of long-term debt                                                                 |                                                                                                                          |                                      |                           |         |               |         | 5,082        |        
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|                                                                                                  |                                                                                                                          |                                      | Total current liabilities  |         |               | 134,292 |              |         |   | 104,659 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Long-term debt, net of current portion                                                            |                                                                                                                          |                                      |                           |         |               |         | 24,431       |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Other long-term liabilities                                                                       |                                                                                                                          |                                      | 1,106                      |         |               |         | 621          |        
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|Convertible note                                                                                  |                                                                                                                          |                                      | 27,500                     |         |               |         |             |        
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|                                                                                                  |                                                                                                                          |                                      | Total liabilities          |         |               | 162,898 |              |         |   | 129,711 | 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|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     |  
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Deferred compensation                                                                                                    |                                      |                            | (20     | )             |         |              | (28     | )
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Additional paid-in capital                                                                                               |                                      |                            | 95,771  |               |         |              | 95,771  |  
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Retained deficit                                                                                                         |                                      |                            | (87,724 | )             |         |              | (44,611 | )
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                 
|                                                                                                  | Treasury stock, 382,991 shares at cost                                                                                   |                                      |                            | (2,316  | )             |         |              | (2,316  | )
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|                                                                                                  |                                                                                                                          |                                      | Total shareholders equity |         |               | 5,859   |              |         |   | 48,964  | 
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        
|Total liabilities and shareholders equity                                                        |                                                                                                                          | $                                    | 168,757                    |         |               | $       | 178,675      |        
|                                                                                                  |                                                                                                                          |                                      |                            |         |               |         |              |        



---

|See Notes to condensed consolidated financial statements. |  | 
|--------------------------------------------------------- |  | 

4



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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 |       | Nine Months Ended
|                                                         |                                                   |                  |                              |         |                    |       |                  
|                                                         |                                                   |                  |                              |         | September 30,      |       | September 30,    
|                                                         |                                                   |                  |                              |         | 2000               |       | 1999              |      | 2000 |       | 1999   
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |        
|Net revenues                                             |                                                   | $                | 40,620                       |         |                    | $     | 41,557            |      |      | $     | 104,366 |         |        | $     | 98,727 |       
|                                                        
|                                                        
|                                                        
|                                                        
|Operating expenses                                       |                                                   |                  | 35,664                       |         |                    |       | 35,375            |      |      |       | 94,939  |         |        |       | 86,125 |       
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|                                                         |                                                   |                  | Gross profit                 |         |                    | 4,956 |                   |      |      | 6,182 |         |         |        | 9,427 |        |        |        | 12,602 | 
|                                                        
|                                                        
|                                                        
|                                                        
|General and administrative expenses                      |                                                   |                  | 3,198                        |         |                    |       | 3,610             |      |      |       | 8,041   |         |        |       | 10,196 |       
|                                                        
|                                                        
|                                                        
|                                                        
|Depreciation and amortization                            |                                                   |                  | 1,488                        |         |                    |       | 1,799             |      |      |       | 5,232   |         |        |       | 4,223  |       
|                                                        
|                                                        
|                                                        
|                                                        
|Restructuring and impairment charge                      |                                                   |                  | 38,382                       |         |                    |       |                  |      |      |       | 38,382  |         |        |       |       |       
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|                                                         | Income (loss) from operations                     |                  |                              | (38,112 | )                  |       |                   | 773  |      |       |         | (42,228 | )      |       |        | (1,817 | )     
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|Other income (expense)
Interest income                   |                                                   |                  | 953                          |         |                    |       | 668               |      |      |       | 2,303   |         |        |       | 1,724  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                   | Interest expense |                              |         | (834               | )     |                   |      | (668 | )     |         |         | (3,127 | )     |        |        | (1,242 | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                   | Other            |                              |         |                   |       |                   |      | (7   | )     |         |         | (1     | )     |        |        | 50     |       
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|                                                         |                                                   |                  | Total other income (expense) |         |                    | 119   |                   |      |      | (7    | )       |         |        | (825  | )      |        |        | 532    | 
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|Income (loss) before income taxes and extraordinary item |                                                   |                  | (37,993                      | )       |                    |       | 766               |      |      |       | (43,053 | )       |        |       | (1,285 | )     
|                                                        
|                                                        
|                                                        
|                                                        
|Income tax benefit (expense)                             |                                                   |                  | (60                          | )       |                    |       | (396              | )    |      |       | (60     | )       |        |       | 386    |       
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|Income (loss) before extraordinary item                  |                                                   |                  | (38,053                      | )       |                    |       | 370               |      |      |       | (43,113 | )       |        |       | (899   | )     
|                                                        
|                                                        
|                                                        
|                                                        
|Extraordinary item, net of income tax benefit of $144    |                                                   |                  |                             |         |                    |       |                  |      |      |       |        |         |        |       | (257   | )     
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|                                                         | Net income (loss)                                 |                  | $                            | (38,053 | )                  |       | $                 | 370  |      |       | $       | (43,113 | )      |       | $      | (1,156 | )     
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|Basic and diluted net income (loss) per common share:   
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Income (loss) per share before extraordinary item |                  | $                            | (2.64   | )                  |       | $                 | 0.03 |      |       | $       | (3.00   | )      |       | $      | (0.06  | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Extraordinary item per share                      |                  | $                            |        |                    |       | $                 |     |      |       | $       |        |        |       | $      | (0.02  | )     
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|                                                         | Basic and diluted net income (loss) per share     |                  | $                            | (2.64   | )                  |       | $                 | 0.03 |      |       | $       | (3.00   | )      |       | $      | (0.08  | )     
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       
|Basic and diluted weighted average
shares outstanding    |                                                   |                  | 14,393                       |         |                    |       | 14,473            |      |      |       | 14,393  |         |        |       | 14,550 |       
|                                                         |                                                   |                  |                              |         |                    |       |                   |      |      |       |         |         |        |       |        |       



---

|See Notes to condensed consolidated financial statements. |  | 
|--------------------------------------------------------- |  | 

5



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

|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |         |         |  
|-------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------- | ------- | ------------------ | ------- | ------------------ | ------- | ------- | ------- | -
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         | Nine Months Ended 
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                   
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         | September 30, 2000 |         | September 30, 1999
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                   
|Cash flows from operating activities:             
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     | Net loss                                                                        |                                                                     | $                                     | (43,113 | )                  |         | $                  | (1,156  | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     | Adjustments to reconcile net loss to net cash provided by operating activities:
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Depreciation and amortization                                       |                                       |         | 5,232              |         |                    |         | 4,223   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Amortization of deferred financing costs                            |                                       |         | 336                |         |                    |         | 51      |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Amortization of deferred compensation                               |                                       |         | 8                  |         |                    |         | 50      |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Write-off of deferred financing costs                               |                                       |         | 213                |         |                    |         | 401     |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Non-cash portion of restructuring and impairment charge             |                                       |         | 35,034             |         |                    |         |        |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Changes in assets and liabilities, excluding effect of acquisitions |                                       |         | (12,448            | )       |                    |         | (13,697 | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     | Accounts receivable                   |         |                    | (12,448 | )                  |         |         | (13,697 | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     | Other assets                          |         |                    | 7,597   |                    |         |         | 3,016   |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     | Accounts payable and accrued expenses |         |                    | 21,970  |                    |         |         | 26,537  |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     | Customer deposits                     |         |                    | 13,188  |                    |         |         | 10,326  |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     | Other liabilities                     |         |                    | 698     |                    |         |         | (843    | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|                                                   |                                                     | Net cash provided by operating activities                                       |                                                                     |                                       | 28,715  |                    |         |                    | 28,908  |        
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|Cash flows from investing activities:             
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Purchases of property and equipment                                 |                                       |         | (2,460             | )       |                    |         | (4,624  | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Net sales of investments                                            |                                       |         | 103                |         |                    |         | 1,869   |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Acquisitions, net of cash acquired                                  |                                       |         |                   |         |                    |         | (30,974 | )      
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|                                                   |                                                     | Net cash used in investing activities                                           |                                                                     |                                       | (2,357  | )                  |         |                    | (33,729 | )      
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|Cash flows from financing activities:             
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Payments on capital lease obligations                               |                                       |         | (264               | )       |                    |         |        |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Proceeds from borrowings under credit agreement                     |                                       |         |                   |         |                    |         | 33,625  |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Repayment of borrowings from credit agreement                       |                                       |         | (29,431            | )       |                    |         | (5,370  | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Proceeds from convertible notes                                     |                                       |         | 27,500             |         |                    |         |        |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Deferred financing costs                                            |                                       |         | (1,386             | )       |                    |         | (353    | )      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Net proceeds from issuance of common stock                          |                                       |         |                   |         |                    |         | 23      |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 | Purchase of treasury stock                                          |                                       |         |                   |         |                    |         | (1,947  | )      
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|                                                   | Net cash (used in) provided by financing activities |                                                                                 |                                                                     | (3,581                                | )       |                    |         | 25,978             |        
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|                                                   | Net increase in cash and cash equivalents           |                                                                                 |                                                                     | 22,777                                |         |                    |         | 21,157             |        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Cash and cash equivalents beginning of period       |                                                                                 |                                                                     | 24,152                                |         |                    |         | 30,317             |        
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|                                                   | Cash and cash equivalents end of period             |                                                                                 | $                                                                   | 46,929                                |         |                    | $       | 51,474             |        
|                                                   |                                                     |                                                                                 |                                                                     |                                       |         |                    |         |                    |         |        
|Supplemental disclosures of cash flow information:
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     | Income taxes (refunded) paid, net     |         | $                  | (2,397  | )                  |         | $       | 177     |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                     |                                                                                 |                                                                     | Interest paid                         |         | $                  | 2,251   |                    |         | $       | 1,041   |  



---

|See Notes to condensed consolidated financial statements. |  | 
|--------------------------------------------------------- |  | 

6



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GLOBAL VACATION GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)

1.  Business Description and Organization

Global Vacation Group, Inc. and subsidiaries (the Company or GVG) 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 through retail travel distributors,
such as travel agents, and other distribution channels, including the Internet
and affinity groups. The Companys operations are primarily concentrated in one
market segment, leisure travel. Global Vacation Group, Inc.s common stock is
traded on the New York Stock Exchange (NYSE) under the symbol GVG.

Headquartered in Washington D.C., the Company markets its major products
under the brand names Classic Custom Vacations, Allied Tours and previously
under Vacations by Globetrotters. 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.

Risks and Other Important Factors

For the twelve months ended December 31, 1999, and for the nine months
ended September 30, 2000, the Company incurred a net loss of $3.5 million and
$43.1 million (inclusive of a restructuring and impairment charge of $38.4
million), respectively. To address these results, management announced plans in
July 2000 to restructure and consolidate certain aspects of its business
related primarily to its Vacations by Globetrotters operations including the
systems acquired in the Trase Miller acquisition. The Company recorded a $38.4
million restructuring and impairment charge in the three months ended September
30, 2000 (see Note 3). The Company notified 100 employees of their termination
during the quarter. The Company believes that the actions planned in the
restructuring are on target; however, there can be no assurances that the steps
taken will result in the fully anticipated improvement in the performance of
the Company as a whole or its operating results.

In October 2000, the Company amended its working capital credit facility
with its banks. In exchange for relief from certain financial covenants for
periods through March 31, 2001, the terms of its facility were modified to
require that all stand-by letters of credit issued under the facility be cash
collateralized, and that future cash borrowings under the facility be based
upon eligible receivables. The borrowing capacity under the facility was also
permanently reduced to $17.5 million. As of September 30, 2000 there were no
cash borrowings outstanding under the facility and $7.1 million of stand-by
letters of credit were issued. There can be no assurance that the Company will
continue to meet these revised financial covenants, or that there will be
sufficient eligible receivables should the Company need to draw on the credit
facility. The Company believes that its existing cash balances and cash
generated from operations will be sufficient to fund operations throughout
2001. Other than the $27.5 million convertible subordinated note raised in
June 2000, the Company has no long-term debt.

In April 2000, the NYSE notified the Company that it had fallen below
continued listing standards. The Company submitted a business plan with the
NYSE demonstrating how it expected to return to compliance within the required
eighteen months. The NYSE approved that plan in June 2000; however, the
Company is subject to continued monitoring by the NYSE. If the Company is
unsuccessful in implementing its business plan, the Companys common stock
could be delisted from the NYSE.

7



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The Company receives advance payments and deposits prior to commencement
of travel. Accordingly, the Companys current liabilities exceed its current
assets. As of September 30, 2000, current liabilities exceed current assets by
approximately $49.9 million.

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.

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 financial statements and
notes thereto included in the Companys 1999 Form 10-K. The results of
operations for the three and nine month periods ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year.

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 1999 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 nine
months ended September 30, 2000 and 1999, the Company had net revenues of
$104.4 million and $98.7 million, respectively, derived from total dollar value
of travel products and services of $464.8 million and $424.0 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

8



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portion or all of the net deferred tax asset will not be realized. Due to net
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. As part of the $38.4 million
restructuring and impairment charge incurred during the three months ended
September 30, 2000, the Company recognized an impairment charge of $35.0
million against long-lived assets. After taking into account the restructuring
and impairment charge, 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 or 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 1,038,792 and 1,374,058
shares of common stock outstanding at September 30, 2000 and 1999,
respectively, has not been included in the computations of diluted loss per
share for the three and nine months ended September 30, 2000 or the nine months
ended September 30, 1999, as such effect would be anti-dilutive. The treasury
stock effect of options outstanding at September 30, 1999 has been included in
the computation of diluted income per share for the three months ended
September 30, 1999. The effect of the convertible notes has not been included
in the computation of diluted loss per share for the three and nine months
ended September 30, 2000, as such effect would be anti-dilutive.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) 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. SFAS No. 133 was initially proposed to be
effective for all fiscal years beginning after June 15, 1999, however the FASB
issued SFAS No. 137 Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB Statement No. 133, and the
effective date of this SFAS has been deferred until issuance by the FASB.
Management has not yet determined the impact of adopting this statement, but
believes it will not have a material impact upon the Companys results of
operations or financial position.

In January 2000, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition. The

9



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Bulletin provides guidance for applying accounting principles generally
accepted in the United States to revenue recognition, presentation and
disclosure in financial statements filed with the SEC. SAB No. 101 is effective
no later than the fourth quarter for fiscal years beginning after December 15,
1999. Management has not yet determined the impact of adopting this statement.

3.  Restructuring and Impairment Charge

On July 31, 2000 the Company announced a planned restructuring and
consolidation of its Vacations by Globetrotters branded operations into its
Classic Custom Vacations brand. As part of this consolidation, the Company
will migrate its Globetrotters domestic products to the Classic technology
platform by the end of December 2000. Additionally, the Company decided to
close its Washington, DC headquarters office and change its principal executive
office to Classics office in San Jose, California. As part of the
restructuring, the Company notified 100 employees of their termination during
the three months ended September 30, 2000. Upon completion of these employee
terminations by the second quarter of 2001, the Company expects to reduce its
office facility requirements in its Chicago operations. The restructuring and
impairment charge of $38.4 million includes $18.5 million related to the
impairment of intangible assets, $16.5 million related to the impairment of
systems and related property, $2.3 million related to anticipated employee
severance payments including benefits, and $1.1 million related to lease
obligations and other restructuring costs. Of the total $3.4 million of cash
payments expected to be made as part of the restructuring, approximately
$514,000 was paid during the three months ended September 30, 2000 including
$289,000 for employee severance, and $225,000 for lease obligations and other
restructuring costs. As of September 30, 2000 approximately $2.9 million of
the accrual remains unpaid, substantially all of which is expected to be paid
over the next twelve months.

As part of the restructuring, the Company reviewed the carrying values of
its long-lived assets, including systems, property and equipment, identifiable
intangibles, and goodwill related to its Downers Grove operations. As the
technology platform and operating systems at Downers Grove are now used only to
support the private label operations, the undiscounted future cash flows of
those operations are substantially less than the carrying value of the related
long-lived assets including goodwill. The fair value of the related long-lived
assets including goodwill was determined based upon the discounted cash flows
to be derived from the private label operations. Management believes that the
private label operations will generate negative cash flows over the next couple
of years because of the administrative costs required to support the projected
revenue stream. Accordingly, the Company recorded an impairment charge of
approximately $35 million, including $18.5 million of goodwill and $16.5
million representing substantially all of the related technology platform and
other property.

4.  Acquisitions

Between March and June 1999 the Company acquired the outstanding stock of
Friendly Holidays, Inc., International Travel & Resorts, Inc., Island Resort
Tours, Inc., and substantially all of the assets of Trase Miller Solutions,
Inc. Each of these acquisitions was acquired with cash. The Company financed
the acquisitions with borrowings under its credit facility and working capital
from operations. The acquisition of each of these businesses has been accounted
for as a purchase for financial reporting purposes. The Company allocated the
excess of the purchase price over the fair value of net assets acquired to
goodwill. The Company amortizes goodwill over 35 years.

In connection with the above acquisitions, as well as acquisitions the
Company completed in 1998, the Company recognized approximately $5.3 million in
liabilities as the cost of closing redundant facilities and terminating certain
employees. As of December 31, 1999, approximately $3.2 million of the accrual
remained. During the nine months ended September 30, 2000, the Company charged
approximately $1.4 million against the accrual for amounts paid during this
period. Additionally, during the three months ended September 30, 2000, the
Company reduced approximately $1.9 million of the accrual and related goodwill,

10



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due to lower than estimated costs associated with exiting certain
contractual obligations, fewer than planned terminations and higher than
planned attrition. The remaining accrual of $158,000 relates primarily to lease
costs, substantially all of which are expected to be paid within one year.

5.  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.

6.  Credit Agreement

The Company maintains a revolving line of credit with a group of lenders
with a total borrowing capacity at September 30, 2000 of $20.5 million. The
line allows for cash borrowings for working capital purposes and is also used
to secure stand by letters of credit of up to $10 million. At September 30,
2000 there were no cash borrowings outstanding and $7.1 million of standby
letters of credit issued and secured by the facility, leaving up to $13.4
million available for cash borrowings. The facility matures on January 31,
2002.

In June 2000, the Company further amended its credit facility in
conjunction with raising $27.5 million in convertible debt from a private
investment group (see Note 7). In exchange for a permanent reduction in the
borrowing capacity of the facility, the Lenders agreed to amendments that
altered and replaced certain of the credit facilitys prescribed financial
covenants and ratios, including replacing minimum EBITDA coverage with a
leverage ratio. The amendment also provided a reduction in certain of the
applicable margins on borrowings and fees under the credit facility.

In October 2000, the Company again amended its credit facility. In
exchange for relief on certain of the credit facilitys prescribed financial
covenants and ratios for periods through March 31, 2001, the Company agreed to
permanently reduce the total borrowing capacity of the facility to $17.5
million. Under the amended terms and conditions, the Company will be required
to maintain cash collateral equal to 103% of all standby-letters of credit
issued under the facility. Cash borrowings for working capital purposes will be
based upon eligible receivables.

7.  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.

11



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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
1999 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.

Introduction

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 through retail travel distributors,
such as travel agents, and other distribution channels including the Internet
and affinity groups. 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s consolidated financial statements include the results of
operations for three companies acquired in business combinations in 1999
accounted for under the purchase method (the Acquired Businesses) from their
respective dates of acquisition.

In June 2000, the Company raised $27.5 million from the issuance of
subordinated convertible note (the Subordinated 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 Subordinated Note may be
converted, at any time, in total or partial to common stock. The Company used
the proceeds of the Subordinated Note to repay its then outstanding bank debt,
and for general working capital purposes.

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 nine months ended
September 30, 2000 and 1999, the Company had net revenues of $104.4 million and
$98.7 million, respectively, derived from total dollar values of travel
products and services of $464.8 million and $424.0 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

12



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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 three
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
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 nine-month periods ending
September 30, 2000 and 1999, the Company had interest income of $2.3 million
(2.2 % of net revenues) and $1.7 million (1.7% of net revenues), respectively.

Restructuring and Consolidation

For the twelve months ended December 31, 1999, and for the nine months ended
September 30, 2000, the Company incurred a net loss of $3.5 million and $43.1
million (inclusive of a restructuring and impairment charge of $38.4 million),
respectively. These losses, exclusive of the restructuring and impairment
charge are primarily the result of significant shortfalls in revenues at the
Companys Vacations by Globetrotters (Globetrotters) brand, together with
high levels of fixed costs associated with operating multiple brands with
similar products, including the high cost of maintaining the technology
platform used to operate the Globetrotters branded products. The Company
failed to achieve its anticipated revenue growth in the Globetrotters products,
and accordingly did not achieve economies of scale necessary to profitably
support the Globetrotters cost structure. At the same time the Companys
Globetrotters brand was falling short of expectations, its Classic Custom
Vacations (Classic) brand experienced strong revenue growth, particularly as
it expanded its product offering to include new destinations that overlap with
the Globetrotters brand such as the Caribbean islands and Mexico.

In July 2000 the Company announced plans to restructure and consolidate
its Globetrotters branded products into its Classic brand. During the three
months ended September 30, 2000 the Company also decided to close its
Washington, D.C. headquarters office, and relocate its corporate headquarters
to its Classic facility in San Jose, California. In the third quarter the
Company stopped marketing products under the Globetrotters brand and began to
transfer existing advance reservations to Classics technology platform and
operating infrastructure. As part of the consolidation, Classic opened a
satellite reservations center in Globetrotters Downers Grove, Illinois
facility and will occupy a portion of the space leased by Globetrotters.
Classic began to market its products to customers who previously purchased
Globetrotters products. The Companys private label operations, also located
in Downers Grove, will continue to operate in a portion of the Downers Grove
facility. At the completion of the restructuring, a portion of the Downers
Grove facility is expected to be unused, and leased to a third party. The
difference between the estimated sub-lease income and the contractual lease
cost that the Company is required to pay for this and other facilities that the

13



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Company plans to exit has been included in the restructuring and
impairment charge recorded in the third quarter of 2000.

As part of the restructuring the Company notified 100 employees of their
termination during the three months ended September 30, 2000. Most of the
positions eliminated were administrative and support positions that became
redundant with the consolidation of the Classic and Globetrotters brands. Also
eliminated were administrative positions at the Companys Washington, D.C.
headquarters. Of the 100 employees affected, 42 were terminated in the third
quarter. Termination dates of the remaining employees are planned over the next
two fiscal quarters.

As part of the restructuring, the Company reviewed the carrying values of
its long-lived assets, including systems, property and equipment, identifiable
intangibles, and goodwill related to its Downers Grove operations. As the
technology platform and operating systems at Downers Grove are now used only to
support the private label operations, the undiscounted future cash flows of
those operations are substantially less than the carrying value of the related
long-lived assets including goodwill. The fair value of the related long-lived
assets including goodwill was determined based upon the discounted cash flows
to be derived from the private label operations. Management believes that the
private label operations will generate negative cash flows over the next couple
of years because of the administrative costs required to support the projected
revenue stream. Accordingly, the Company recorded an impairment charge of
approximately $35.0 million, including $18.5 million of goodwill and $16.5
million representing substantially all of the related technology platform and
other property. Management is continuing to evaluate the merits of continuing
the private label operation.

The $38.4 million restructuring and impairment charge has been separately
presented as a component of the Companys loss from operations and includes
$35.0 million for impairment of long-lived assets, and expected cash
expenditures of $3.4 million including $2.3 million for employee severance and
related benefits, and $1.1 million for costs related to lease obligations and
other restructuring costs. In addition to the $38.4 million restructuring and
impairment charge, the Company incurred approximately $1.6 million of
non-recurring charges related to the restructuring that are classified as
operating expenses. These expenses primarily included charges for
uncollectable receivables and other unrealizable current assets, resulting from
the discontinuance of certain products and brands pursuant to the
restructuring.

14



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Results of Operations (unaudited)

The following table summarizes the Companys historical results of
operations as a percentage of net revenues for the nine months ended September
30, 2000 and 1999.

|                                                      |                      |   |                                 |         |      |  |        |       |   |   |        |        |   |  |       |      |  
|----------------------------------------------------- | -------------------- | - | ------------------------------- | ------- | ---- |  | ------ | ----- | - | - | ------ | ------ | - |  | ----- | ---- | -
|                                                      |                      |   | Nine Months Ended September 30,
|                                                      |                      |   | 2000                            |         | 1999
|                                                      |                      |   | Amount                          |         | %    |  | Amount |       | %
|                                                      |                      |   |                                
|Net revenues                                          |                      | $ | 104,366                         |         |      |  | 100.0  | %     |   | $ | 98,727 |        |   |  | 100.0 | %   
|                                                     
|                                                     
|                                                     
|                                                     
|Operating expenses                                    |                      |   | 94,939                          |         |      |  | 91.0   |       |   |   | 86,125 |        |   |  | 87.2  |     
|                                                      |                      |  
|                                                      | Gross profit         |   |                                 | 9,427   |      |  |        | 9.0   |   |   |        | 12,602 |   |  |       | 12.8 |  
|                                                     
|                                                     
|                                                     
|                                                     
|General and administrative
expenses                   |                      |   | 8,041                           |         |      |  | 7.7    |       |   |   | 10,196 |        |   |  | 10.3  |     
|                                                     
|                                                     
|                                                     
|                                                     
|Depreciation and amortization                         |                      |   | 5,232                           |         |      |  | 5.0    |       |   |   | 4,223  |        |   |  | 4.3   |     
|                                                     
|                                                     
|                                                     
|                                                     
|Restructuring and impairment
charge                   |                      |   | 38,382                          |         |      |  | 36.8   |       |   |   |       |        |   |  |      |     
|                                                      |                      |  
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Loss from operations |   |                                 | (42,228 | )    |  |        | (40.5 | ) |   |        | (1,817 | ) |  |       | (1.8 | )
|                                                      |                      |  
|Interest income                                       |                      |   | 2,303                           |         |      |  | 2.2    |       |   |   | 1,724  |        |   |  | 1.7   |     
|                                                     
|                                                     
|                                                     
|                                                     
|Interest expense                                      |                      |   | (3,127                          | )       |      |  | (3.0   | )     |   |   | (1,242 | )      |   |  | (1.3  | )   
|                                                     
|                                                     
|                                                     
|                                                     
|Other, net                                            |                      |   | (1                              | )       |      |  | (0.0   | )     |   |   | 50     |        |   |  | 0.1   |     
|                                                      |                      |  
|Loss before income taxes and
extraordinary item       |                      |   | (43,053                         | )       |      |  | (41.3  | )     |   |   | (1,285 | )      |   |  | (1.3  | )   
|                                                     
|                                                     
|                                                     
|                                                     
|Income tax (provision) benefit                        |                      |   | (60                             | )       |      |  | (0.1   | )     |   |   | 386    |        |   |  | 0.4   |     
|                                                      |                      |  
|Loss before extraordinary item                        |                      |   | (43,113                         | )       |      |  | (41.3  | )     |   |   | (899   | )      |   |  | (0.9  | )   
|                                                     
|                                                     
|                                                     
|                                                     
|Extraordinary item, net of
income tax benefit of $144 |                      |   |                                |         |      |  |       |       |   |   | (257   | )      |   |  | (0.3  | )   
|                                                      |                      |  
|Net loss                                              |                      | $ | (43,113                         | )       |      |  | (41.3  | )%    |   | $ | (1,156 | )      |   |  | (1.2  | )%  
|                                                      |                      |  

Net revenues for the nine months ended September 30, 2000 and 1999, were
$104.4 million and $98.7 million, respectively, which reflects the consolidated
net revenues of the Company and the Acquired Businesses from their respective
acquisition dates. The increase in net revenues of 5.7% for the nine months
ended September 30, 2000 was primarily due to growth at the Classic Custom
Vacations brand and the effect of the Acquired Businesses partially offset by
significant revenue decreases at the Vacations by Globetrotters brand.

Operating expenses for the nine months ended September 30, 2000 and 1999,
were $94.9 million and $86.1 million, respectively, or 91.0% and 87.2%,
respectively, of net revenues. Operating expenses increased as a percentage of
net revenues principally because operating expenses related to the Companys
Vacations by Globetrotters brand did not decrease in proportion to decreases in
revenues due to the fixed nature of certain expenses. The increase in operating
expense is also due to $1.6 million of non-recurring charges related to the
Companys restructuring plans. Accordingly, this resulted in a decrease in
gross profit percentage of 3.8% in the nine months ended September 30, 2000 as
compared to the nine months ended September 30, 1999.

General and administrative expenses for the nine months ended September
30, 2000 and 1999 were $8.0 million and $10.2 million, respectively, or 7.7%
and 10.3%, respectively, of net revenues. The decrease in general and
administrative expenses by 21.6% is primarily due to decreases in headcount,
professional fees and outside services as well as the integration of certain
operations of the Acquired Businesses into other brands.

15



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Depreciation and amortization for the nine months ended September 30, 2000
and 1999 was $5.2 million and $4.2 million or 5.0% and 4.3%, respectively, of
net revenues. The increase is due to the amortization of goodwill and certain
intangible assets and depreciation of the technology platform related to the
Acquired Businesses.

The restructuring and impairment charge for the nine months ended
September 30, 2000 of $38.4 million, includes write-downs related to the
impairment of intangible assets, systems and related property, as well as
severance costs, lease obligations and other restructuring costs related to the
Companys announced plans to restructure and consolidate its Vacations by
Globetrotters brand into its Classic Custom Vacations brand, as well as to
close its Washington, D.C. headquarters office. Of this total, $35.0 million
was related to non-cash charges.

Interest income for the nine months ended September 30, 2000 and 1999 was
$2.3 million and $1.7 million, respectively, or 2.2% and 1.7%, respectively, of
net revenues. The increase in interest income is principally due to increased
rates of returns from more favorable interest rates.

Interest expense for the nine months ended September 30, 2000 and 1999 was
$3.1 million and $1.2 million, respectively, reflecting increased average
levels of borrowings, higher interest rates and fees related to credit facility
amendments and market conditions, and the accelerated write-off of certain
deferred finance costs due to the early paydown of bank debt.

The Company has recorded a valuation reserve against its deferred tax
assets due to the significance of historical losses including the loss related
to the restructuring of the Companys operations. The provision for income
taxes for the nine months ended September 30, 2000 was $60,000 and represents
estimated state and local income taxes due. The benefit for income taxes for
the nine months ended September 30, 1999 was $386,000 at an effective tax rate
of 30.0%.

Net loss for the nine months ended September 30, 2000 and 1999 was $43.1
million and $1.2 million, respectively, or 41.3%, and 1.2%, respectively, of
net revenues. Net loss for the nine months ended September 30, 2000 includes
restructuring and impairment charge of $38.4 million. Net loss for the nine
months ended September 30, 1999 includes an extraordinary charge of $257,000,
net of tax benefit of $144,000, related to the write-off of deferred financing
costs associated with the restructuring of the Companys credit facility.

16



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The following table summarizes the Companys historical results of
operations as a percentage of net revenues for the three months ended each of
September 30, 2000 and 1999.

|                                    |                   |                        |         |                                  |         |      |       |        |       |   |        |     |       |  |       |     |      | 
|----------------------------------- | ----------------- | ---------------------- | ------- | -------------------------------- | ------- | ---- | ----- | ------ | ----- | - | ------ | --- | ----- |  | ----- | --- | ---- | 
|                                    |                   |                        |         | Three Months Ended September 30,
|                                    |                   |                        |         | 2000                             |         | 1999
|                                    |                   |                        |         | Amount                           |         | %    |       | Amount |       | %
|                                    |                   |                        |         |                                 
|Net revenues                        |                   | $                      | 40,620  |                                  |         |      | 100.0 | %      |       | $ | 41,557 |     |       |  | 100.0 | %  
|                                   
|                                   
|                                   
|                                   
|Operating expenses                  |                   |                        | 35,664  |                                  |         |      | 87.8  |        |       |   | 35,375 |     |       |  | 85.1  |    
|                                    |                   |                        |         |                                 
|                                    |                   | Gross profit           |         |                                  | 4,956   |      |       |        | 12.2  |   |        |     | 6,182 |  |       |     | 14.9 | 
|                                   
|                                   
|                                   
|                                   
|General and administrative expenses |                   |                        | 3,198   |                                  |         |      | 7.9   |        |       |   | 3,610  |     |       |  | 8.7   |    
|                                   
|                                   
|                                   
|                                   
|Depreciation and amortization       |                   |                        | 1,488   |                                  |         |      | 3.7   |        |       |   | 1,799  |     |       |  | 4.3   |    
|                                   
|                                   
|                                   
|                                   
|Restructuring and impairment charge |                   |                        | 38,382  |                                  |         |      | 94.5  |        |       |   |       |     |       |  |      |    
|                                    |                   |                        |         |                                 
|                                    |                   | Income from operations |         |                                  | (38,112 | )    |       |        | (93.8 | ) |        |     | 773   |  |       |     | 1.9  | 
|                                    |                   |                        |         |                                 
|Interest income                     |                   |                        | 953     |                                  |         |      | 2.3   |        |       |   | 668    |     |       |  | 1.6   |    
|                                   
|                                   
|                                   
|                                   
|Interest expense                    |                   |                        | (834    | )                                |         |      | (2.1  | )      |       |   | (668   | )   |       |  | (1.6  | )  
|                                   
|                                   
|                                   
|                                   
|Other, net                          |                   |                        |        |                                  |         |      |      |        |       |   | (7     | )   |       |  | 0.0   |    
|                                    |                   |                        |         |                                 
|Income (loss) before income taxes   |                   |                        | (37,993 | )                                |         |      | (93.5 | )      |       |   | 766    |     |       |  | 1.8   |    
|                                   
|                                   
|                                   
|                                   
|Income tax expense                  |                   |                        | (60     | )                                |         |      | (0.1  | )      |       |   | (396   | )   |       |  | (1.0  | )  
|                                    |                   |                        |         |                                 
|                                    | Net income (loss) |                        | $       | (38,053                          | )       |      |       | (93.7  | )%    |   | $      | 370 |       |  |       | 0.9 | %   
|                                    |                   |                        |         |                                 

Net revenues for the three months ended September 30, 2000 and 1999, were
$40.6 million and $41.6 million, respectively. The decrease in net revenues of
2.3% for the three months ended September 30, 2000 was primarily due to
significant revenue decreases in the Companys Vacations by Globetrotters
branded products and a decrease in travelers inbound to North America from
Europe due to the strength of the U.S. dollar as compared to European
currencies, offset in part by increased sales of Classic Custom Vacations
branded products.

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 September 30, 2000 and 1999,
were $35.7 million and $35.4 million, respectively, or 87.8% and 85.1%,
respectively, of net revenues. The increase in operating expenses is due to
charges of $1.6 million incurred during three months ended September 30, 2000
related to the announced restructuring of the Companys Globetrotters branded
products. Excluding these non-recurring charges, operating expenses decreased
to 84.0% of net revenues. This improvement is due primarily to reductions in
headcount related to the execution of the Companys restructuring plans.

General and administrative expenses for the three months ended September
30, 2000 and 1999 were $3.2 million and $3.6 million, respectively, or 7.9% and
8.7%, respectively, of net revenues. The decrease in general and administrative
expenses of 11.4% is primarily due to decreases in headcount and outside
services related to the Companys restructuring plans.

Depreciation and amortization for the three months ended September 30,
2000 and 1999 was $1.5 million and $1.8 million, or 3.7% and 4.3%,
respectively, of net revenues. The decrease is principally due to the effects
of impairment of intangible assets, systems and related property as part of the
Companys announced restructuring. On a prospective basis, the restructuring
related impairment reduces annualized depreciation and amortization expense by
approximately $2.4 million.

17



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The restructuring and impairment charge for the three months ended
September 30, 2000 of $38.4 million, includes write-downs related to the
impairment of intangible assets, systems and related property, as well as
severance costs, lease obligations and other restructuring costs related to the
Companys announced plans to restructure and consolidate its Vacations by
Globetrotters brand into its Classic Custom Vacations brand, as well as to
close its Washington, D.C. headquarters office. Of this total, $35.0 million
was related to non-cash charges.

Interest income for the three months ended September 30, 2000 and 1999 was
$2.3 million and $1.7 million, respectively, or 2.2% and 1.7%, respectively, of
net revenues. The increase in interest income is principally due to increased
rates of returns from more favorable interest rates.

Interest expense for the three months ended September 30, 2000 and 1999
was $834,000 and $668,000, respectively. The 9% fixed rate of interest accruing
on the Subordinated Note outstanding for the three months ended September 30,
2000 is higher than the variable rate of interest the Company paid during the
three months ended September 30, 1999 on its then outstanding bank credit
facility. The increase in interest expense is also attributed to increased
amortization of deferred financing charges related to the Subordinated Note and
the Companys Second Amended and Restated Credit Facility executed in October
1999.

The provision for income taxes for the three months ended September 30,
2000 and 1999 was $60,000 and $396,000, respectively. Due to the extent of
continuing operating losses, the September 2000 amount reflects a valuation
allowance provided against the deferred tax assets attributable to the
Companys current year losses.

Net loss for the three months ended September 30, 2000 was $38.1 million
or $2.64 per share compared to net income for the three months ended September
30, 1999 of $370,000 or $0.03 per share. The loss for the three months ended
September 30, 2000 is due primarily to restructuring and impairment charges of
$38.4 million and other related charges of $1.6 million.

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 its credit facility restrict investments to
investment-grade securities.

At September 30, 2000, the Company had cash and cash equivalents of $39.5
million, excluding restricted cash, and had no cash borrowings outstanding on
its revolving line of credit. The Company had $7.1 million of standby letters
of credit issued and secured by its revolving line of credit. The credit
facility allows for letters of credit of up to $10 million. The Company had
$27.5 million outstanding under its convertible subordinated note raised in
June 2000.

During the nine months ended September 30, 2000, net cash provided by
operations was $28.7 million. Net cash used in investing activities was $2.4
million including $2.5 million for additions to property and equipment. Net
cash used in financing activities was $3.6 million principally represented by
$29.4 million used to repay borrowings on the Companys revolving line of
credit and $1.4 million in costs incurred related to the Subordinated Note,
offset in part by the $27.5 million proceeds from the Subordinated Note.

18



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During the nine months ended September 30, 1999 net cash provided by
operations was $28.9 million. Net cash used in investing activities was $33.7
million principally related to cash used to purchase the Acquired Businesses of
$31.0 million, and $4.6 million for additions to property and equipment
including internally developed software. Net cash provided by financing
activities was $26.0 million, which was principally comprised of $33.6 million
of borrowings on the Companys bank credit facility to fund acquisitions,
offset, in part, by the repayment of bank borrowings of $5.4 million, and $1.9
million used to repurchase treasury stock.

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 $28.7 million of
cash provided by operations for the nine months ended September 30, 2000 is not
necessarily indicative of the results to be expected for the full year. Cash
provided by operations for the comparable period in the prior year was $28.9
million. Cash provided by operations for the full year ended December 31, 1999
was $8.0 million. The decease in cash used for property and equipment for the
nine months ended September 30, 2000 as compared to the same period for the
prior year was principally due to reduced spending for computer systems and
internally developed software.

The Company has renegotiated the terms of its credit facility on a number
of occasions. In October 1999 due to shortfalls in operating results, the
Company entered in an amended agreement (the Second Amended Agreement) with
its lenders. In exchange for revised financial ratios and covenants, the
nature of the previously established acquisition line of credit was changed to
a working capital line of credit. The size of the facility was reduced from
$45.0 million to $41.0 million, and the maturity of the facility was
accelerated by two years to January 31, 2002. The Company pays variable
interest based on alternate base rate advances (ABR Advances) or eurodollar
advances (Eurodollar Advances) plus an applicable margin.

The Company made a scheduled mandatory $5.0 million repayment and
permanent reduction in December 1999, and a voluntary repayment of $10.0
million in May 2000, both out of cash generated from operations. The Company
also made a voluntary permanent reduction to the credit facility in May 2000 of
$5.0 million in an effort to reduce ongoing commitment fees.

In conjunction with the raising of $27.5 million from a private investment
group in the form of a convertible subordinated note in June 2000, the Company
again amended its credit facility. In exchange for a permanent reduction in
the credit facility of $10.0 million to $20.5 million, the Company received a
reduction in certain of the applicable margins on borrowings, and relief from
certain fees provided in the Second Amended Agreement. Certain financial
covenants and ratios were also modified to reflect the Subordinated Note
transaction.

In October 2000 the Company further amended the Second Amended Agreement.
In exchange for relief on certain of the credit facilitys prescribed financial
covenants and ratios for periods through March 31, 2001 the Company agreed to
permanently reduce the total capacity of the facility to $17.5 million. Under
the amended terms and conditions, the Company will be required to maintain cash
collateral equal to 103% of all standby letters of credit issued under the
facility. The amendment does allow the Company to secure standby letters of
credit from other parties outside the facility and collateralize the same if
required, provided that total standby letters of credits outstanding do not
exceed $10.0 million. Cash borrowings for working capital purposes will be
limited to certain eligible receivables. Until April 2001 the Company will be
restricted from electing to make Eurodollar Advances. If the Company elects to
borrow under the facility during the next two fiscal quarters, it will be
required to pay interest at higher rates prescribed by ABR Advances.

The Company anticipates that its existing cash, working capital line of
credit, and cash flow from operations will provide sufficient cash to enable
the Company to meet its working capital needs, restructuring

19



---



plans, letter of credit requirements, and planned capital expenditures for
property and equipment through at least fiscal 2001.

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 fiscal quarters.
Independent of the Companys shortfalls of its Globetrotters brand, 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 quarter 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 and Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
The Statement 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. SFAS No. 133 was initially proposed to be
effective for all fiscal years beginning after June 15, 1999, however the FASB
issued SFAS No. 137 Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB Statement No. 133, and the
effective date of this SFAS has been deferred until issuance by the FASB.
Management has not yet determined the impact of adopting this statement, but
believes it will not have a material impact upon the Companys results of
operations or financial position.

In January 2000, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition. The Bulletin provides guidance for applying generally
accepted accounting principles to revenue recognition, presentation and
disclosure in financial statements filed with the SEC. SAB No. 101 is effective
no later than the fourth quarter for fiscal years beginning after December 15,
1999. Management has not yet determined the impact of adopting this statement.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk from changes in interest rates. The
Company prices its products and services, in part, based upon the interest
income expected to be received from investing customer deposits and advance
payments. The Companys investment policy and the terms of the Companys credit
facility provide that the Company may only invest these deposits and advance
payments in investment-grade securities. A failure of these investment
securities to perform at their historical levels could reduce the interest
income realized by the Company, which could have a material adverse effect on
the business, financial condition and results of operations of the Company.

Borrowings under the Companys credit facility are also sensitive to
changes in interest rates. The fair value of any fixed rate debt is subject to
change as a result of movements in interest rates. Such changes could have
material adverse effect on the Companys financial position, and results of
operations.

20



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PART II. OTHER INFORMATION

ITEM 6.           Exhibits and Reports on Form 8-K

|    |  |                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits                                                                                                                                                 
|   
|   
|   
|   
|    |  | 1)   10.43   Resignation Agreement between the Registrant and Roger H. Ballou                                                                            
|   
|   
|   
|   
|    |  | 2)   10.44   Resignation Agreement between the Registrant and Jay G. Stuart                                                                              
|   
|   
|   
|   
|    |  | 3)   27.1   Financial Data Schedule                                                                                                                      
|   
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K during the quarter ended September 30, 2000.                                                                                         
|   
|   
|   
|   
|   
|   
|   
|   
|    |  | The Company filed a Form 8-K on August 8, 2000 making an Item 5 disclosure
of a press statement regarding the restructuring of certain of its
operations.





21



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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: November 14, 2000



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



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

22