<PAGE>   1

                                  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

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



FOR QUARTER ENDED SEPTEMBER 30, 1998


Commission File No.  333-52673



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


          NEW YORK                                      13-1894567
--------------------------------                   -----------------------
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                      Identification Number)



1420 NEW YORK AVENUE, N.W., SUITE 550 WASHINGTON D.C.    20005
-----------------------------------------------------------------
(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 6, 1998 there were 14,747,576 shares of Registrant's Common Stock
outstanding.


<PAGE>   2
                                      INDEX

<TABLE>
<CAPTION>
                                                                         Page
                                                                         No.
                                                                         ---

<S>         <C>                                                         <C>
PART I.     FINANCIAL INFORMATION........................................3


Item 1.     Financial Statements(unaudited)..............................3

                General Information......................................3

                Condensed Consolidated Balance Sheets as of
                September 30, 1998, and December 31, 1997................4

                Condensed Consolidated Statements of Operations
                For the Three and Nine months Ended September 30,
                1998 and 1997............................................5

                Pro Forma Condensed Consolidated Statements
                Of Operations for the Three and Nine months
                Ended September 30, 1998 and 1997........................6

                Condensed Consolidated Statement of Changes
                In Shareholders' Equity for the Nine months
                Ended September 30, 1998.................................7

                Condensed Consolidated Statements of Cash
                Flows for the Nine months Ended September 30,
                1998and 1997.............................................8

                Notes to Condensed Consolidated Financial
                Statements...............................................9


Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations..........................16

                Results of Operations....................................18
                Liquidity and Capital Resources..........................22


PART II.    OTHER INFORMATION............................................26

Item 4.     Submission of Matters to a Vote of Security Holders..........26

Item 6.     Exhibits and Reports on Form 8-K.............................26
</TABLE>



                                       2
<PAGE>   3

ITEM  1.          FINANCIAL STATEMENTS

GENERAL INFORMATION


The condensed consolidated financial statements included herein should be read
in conjunction with the Financial Statements of the Company and the related
notes thereto, the Pro Forma Combined Financial Statements of the Company and
the related notes thereto, the Financial Statements of Haddon Holidays Inc.,
Classic Custom Vacations Inc., Globetrotters Inc., and MTI Vacations Inc.,
(together, the "Acquired Businesses") and related notes thereto, all of which
are included in the Company's Registration Statement on Form S-1, File No.
333-52673 (the "Registration Statement"), which was declared effective on July
30, 1998 by the Securities and Exchange Commission (the "SEC"). The Registration
Statement was filed in connection with the initial public offering of the
Company's common stock, which was completed on August 5, 1998 (the "Offering").





                                       3
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                                           September 30,
                                                                               1998                December 31,
                                   ASSETS                                   (unaudited)               1997
                                                                          ----------------       ---------------

<S>                                                                       <C>                    <C>           
Current assets:

Cash and cash equivalents                                                 $        35,975        $        7,074
Short-term investments                                                             16,757                   835
Accounts receivable, net of allowance of $882 and $861, respectively               21,232                10,637
Loans receivable from shareholders                                                    169                   103
Other current assets                                                                6,175                   290
                                                                          ----------------       ---------------
                     Total current assets                                          80,308                18,939
                                                                          ----------------       ---------------

Property and equipment, net                                                         4,345                   386
Related party and other long-term receivables                                       2,509                     -
Intangible assets, net                                                             65,533                     -
Other assets                                                                        7,096                    50
                                                                          ----------------       ---------------
                     Total assets                                         $       159,791        $       19,375
                                                                          ================       ===============

                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses                                     $        66,332        $       15,759
Customer deposits                                                                  41,430                 1,541
Loans payable to shareholders                                                           -                 1,717
Current portion of long-term debt                                                     250                     -
                                                                          ----------------       ---------------

                     Total current liabilities                                    108,012                19,017

Long-term debt, net of current portion                                              1,265                     -
                                                                          ----------------       ---------------

                     Total liabilities                                            109,277                19,017

Commitments and Contingencies (Notes 4 and 5)                                           -                     -
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,
    14,747,576 and 5,291,262 shares issed and outstanding, respectively.              147                    53
  Deferred compensation                                                              (463)                    -
  Additional paid-in capital                                                       95,177                     -
  Retained earnings (deficit)                                                     (44,347)                  305
                                                                          ----------------       ---------------

                     Total shareholders' equity                                    50,514                   358
                                                                          ----------------       ---------------
Total liabilities and shareholders' equity                                $       159,791        $       19,375
                                                                          ================       ===============
</TABLE>

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


                                       4
<PAGE>   5

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

<TABLE>
<CAPTION>
                                                              Three Months Ended                       Nine Months Ended
                                                    ---------------------------------------  ---------------------------------------
                                                                 September 30,                            September 30,
                                                          1998                 1997                 1998                1997
                                                    ------------------  -------------------  ------------------- -------------------

<S>                                                          <C>                  <C>                  <C>                 <C>
Net revenues                                                 $ 40,803             $ 11,198             $ 62,789            $ 19,534
Operating expenses                                             29,656                6,889               47,652              14,298
                                                    ------------------  -------------------  ------------------- -------------------

                    Gross profit                               11,147                4,309               15,137               5,236

General and administrative expenses                             3,224                3,007                6,977               6,181
Depreciation and amortization expense                             992                   41                1,733                 123
                                                    ------------------  -------------------  ------------------- -------------------
  Income (loss) from operations                                 6,931                1,261                6,427              (1,068)
                                                    ------------------  -------------------  ------------------- -------------------

Other income (expense)
         Interest income                                          922                  153                1,793                 286
         Interest expense                                        (512)                   -               (1,426)                  -
         Other                                                     (2)                  18                   20                  40
                                                    ------------------  -------------------  ------------------- -------------------
                                                                  408                  171                  387                 326
                                                    ------------------  -------------------  ------------------- -------------------

Income (loss) before provision for income taxes                 7,339                1,432                6,814                (742)

Provision for income taxes                                     (2,916)                 (70)              (3,075)                (65)
                                                    ------------------  -------------------  ------------------- -------------------

 Income (loss) before extraordinary item                        4,423                1,362                3,739                (807)

Extraordinary item, net of income tax benefit                    (379)                   -                 (379)                  -
                                                    ------------------  -------------------  ------------------- -------------------

  Net income (loss)                                          $  4,044             $  1,362             $  3,360            $   (807)

Dividends on Class A Convertible
  Preferred Stock                                                (696)                   -               (2,519)                  -
                                                    ------------------  -------------------  ------------------- -------------------
 Net income (loss) available to common
  shareholders                                               $  3,348             $  1,362             $    841            $   (807)
                                                    ==================  ===================  =================== ===================

Basic net income (loss) per common share:

 Income (loss) per share before
   extraordinary item                                        $   0.31             $   0.26             $   0.15            $  (0.15)

 Extraordinary item per share                                $  (0.03)                -                $  (0.05)               -
                                                    ------------------  -------------------  ------------------- -------------------

 Basic net income(loss)per share                             $   0.28             $   0.26             $   0.10            $  (0.15)
                                                    ==================  ===================  =================== ===================

Diluted net income (loss)per common share:

 Income (loss) per share before                              $   0.31             $   0.26             $   0.15            $  (0.15)
   extraordinary item

 Extraordinary item per share                                $  (0.03)            $   -                $  (0.05)           $   -
                                                    ------------------  -------------------  ------------------- -------------------

 Diluted net income(loss)per share                           $   0.28             $   0.26             $   0.10            $  (0.15)
                                                    ==================  ===================  =================== ===================

Basic weighted average shares outstanding                      12,075                5,291                8,304               5,291
                                                    ==================  ===================  =================== ===================

Diluted weighted average shares outstanding                    12,154                5,291                8,383               5,291
                                                    ==================  ===================  =================== ===================

PRO FORMA INCOME DATA:
Historical income (loss) before income                       $  7,339             $  1,432             $  6,814            $   (742)
  taxes, as reported
Pro forma (provision for) benefit from
  income taxes                                                 (2,916)                (573)              (3,075)                297

Extraordinary item, net of income tax benefit                    (379)                   -                 (379)                  -

Dividends on Class A Convertible
  Preferred Stock                                                (696)                   -               (2,519)                  -
                                                    ------------------  -------------------  ------------------- -------------------

Pro forma net income (loss)                                  $  3,348             $    859             $    841            $   (445)
                                                    ==================  ===================  =================== ===================
Pro forma net income (loss) per share
              Basic                                          $   0.28             $   0.16             $   0.10            $  (0.08)
                                                    ==================  ===================  =================== ===================
              Diluted                                        $   0.28             $   0.16             $   0.10            $  (0.08)
                                                    ==================  ===================  =================== ===================
Pro forma weighted average
   shares outstanding:
              Basic                                            12,075                5,291                8,304               5,291
                                                    ==================  ===================  =================== ===================
              Diluted                                          12,154                5,291                8,383               5,291
                                                    ==================  ===================  =================== ===================
</TABLE>
See Notes to condensed consolidated financial statements.

                                       5
<PAGE>   6

                           GLOBAL VACATION GROUP, INC.
            PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        Three Months Ended                  Nine Months Ended
                                                           September 30,                       September 30,
                                                       1998            1997               1998              1997
                                                   ---------------------------         --------------------------

<S>                                                  <C>             <C>                 <C>            <C>
Net revenues                                         $ 40,803        $ 37,133            $ 95,869       $ 89,318
Operating expenses                                     29,622          27,865              78,731         75,435
                                                   ---------------------------         --------------------------

              Gross profit                             11,181           9,268              17,138         13,883

General and administrative expenses                     3,224           2,807               8,812          7,736
Depreciation and amortization expense                     992             875               2,774          2,561
Settlement agreement legal expense                          -             301                   -          1,157
                                                   ---------------------------         --------------------------

Income from operations                                  6,965           5,285               5,552          2,429

Other income (expense):

Interest income                                           922           1,180               2,971          2,979
Interest expense                                          (76)           (233)               (508)          (547)
Other income (expense), net                                 1               5                  16            123
                                                   ---------------------------         --------------------------

                                                          847             952               2,479          2,555
                                                   ---------------------------         --------------------------

Income before provision for income taxes                7,812           6,237               8,031          4,984

Provision for income taxes                             (3,095)         (2,495)             (3,238)        (1,994)
                                                   ---------------------------         --------------------------

Net income                                           $  4,717        $  3,742            $  4,793       $  2,990
                                                   ===========================         ==========================

Pro forma net income per basic
  and diluted share                                  $   0.32        $   0.25            $   0.32       $   0.20
                                                   ===========================         ==========================

Pro forma weighted average shares
  outstanding - basic                                  14,748          14,748              14,748         14,748
                                                   ===========================         ==========================
Pro forma weighted average shares
  outstanding - diluted                                14,827          14,827              14,827         14,827
                                                   ===========================         ==========================
</TABLE>

See Notes to condensed consolidated financial statements


                                       6
<PAGE>   7

                           GLOBAL VACATION GROUP, INC.
  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                        (in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                           REDEEMABLE              SHAREHOLDERS' EQUITY (DEFICIT)
                                                                                   -----------------------------
                                                           CONVERTIBLE
                                                          PREFERRED STOCK                 COMMON STOCK
                                                  ------------------------------   -----------------------------
                                                      SHARES          AMOUNT           SHARES          AMOUNT
                                                  ------------------------------   -----------------------------

<S>                                                     <C>           <C>              <C>              <C>
Balance, December 31, 1997                                  -         $   -              5,291,262       $  53
          Redemption of common stock........                -             -             (1,799,025)        (18)
          Class A Convertible
               Preferred stock dividend.......           25,762         25,762                 -           -
          Issuance of common and
               Class A Convertible
               Preferred stock................           27,014         27,014           4,305,689          43
          Accrued dividend on
               Class A Convertible
               Preferred stock................              -            2,519                 -           -
          Fair value adjustment for
               securities available for
               sale, net.......................             -             -                    -           -
          Issuance of common stock
               from Initial Public Offering....             -             -              3,000,000          30
          Conversion of  Class A
               Convertible Preferred Stock.....         (52,776)       (55,295)          3,949,650          39
          Deferred compensation...............              -             -                    -           -
          Amortization of deferred
               compensation....................             -             -                    -           -
          Net income..........................              -             -                    -           -
          Distributions......................               -             -                    -           -
                                                  ---------------  -------------   ----------------  -----------
Balance, September 30, 1998..................               -         $   -             14,747,576       $ 147
                                                  ==============================   =============================
</TABLE>

<TABLE>
<CAPTION>
                                                                    SHAREHOLDERS' EQUITY (DEFICIT)
                                                  --------------------------------------------------------------------
                                                     ADDITIONAL
                                                      PAID-IN        DEFERRED             RETAINED
                                                      CAPITAL       COMPENSATION          EARNINGS          TOTAL
                                                  ------------- -------------------      ------------   --------------

<S>                                                   <C>                 <C>              <C>             <C>
Balance, December 31, 1997                            $    -               $  -            $     305        $    358
          Redemption of common stock........               -                  -              (14,728)        (14,746)
          Class A Convertible
               Preferred stock dividend.......             -                  -              (25,762)        (25,762)
          Issuance of common and
               Class A Convertible
               Preferred stock................           3,486                -                  -             3,529
          Accrued dividend on
               Class A Convertible
               Preferred stock................             -                  -               (2,519)         (2,519)
          Fair value adjustment for
               securities available for
               sale, net.......................            -                  -                   (8)             (8)
          Issuance of common stock
               from Initial Public Offering....         35,955                -                  -            35,985
          Conversion of  Class A
               Convertible Preferred Stock.....         55,256                -                  -            55,295
          Deferred compensation...............             480               (480)               -               -
          Amortization of deferred
               compensation....................            -                   17                -                17
          Net income..........................             -                  -                3,360           3,360
          Distributions......................              -                  -               (4,995)         (4,995)
                                                  ------------- -------------------     ---------------  -------------
Balance, September 30, 1998..................         $ 95,177             $ (463)         $ (44,347)       $ 50,514
                                                  ============= ===================     =============   ==============
</TABLE>

                     See Notes to condensed consolidated financial statements.


                                       7
<PAGE>   8

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

<TABLE>
<CAPTION>
                                                                                              Nine Months Ended
                                                                                ---------------------------------------------
                                                                                  September 30, 1998     September 30, 1997
                                                                                ---------------------------------------------

<S>                                                                             <C>                      <C>
Cash flows from operating activities:

     Net loss                                                                   $               3,360    $              (807)
     Adjustments to reconcile net loss to net cash provided by
      operating activites:
        Write-off of deferred financing costs                                                     623                      -
        Depreciation and amortization                                                           1,733                    123
        Amortization of deferred financing costs                                                   74                      -
        Amortization of deferred compensation                                                      17                      -
        Changes in assets and liabilities, excluding effect of acquisitions
                       Accounts receivable                                                       (478)                (9,108)
                       Other assets                                                            (6,712)                   (36)
                       Accounts payable and accrued liabilities                                19,193                 18,330
                       Customer deposits                                                      (10,321)                     5
                       Other liabilities                                                        2,567                      -
                                                                                ----------------------   --------------------
     Net cash provided by operating activities                                                 10,056                  8,507
                                                                                ----------------------   --------------------

     Cash flows from investing activities:

        Purchases of property and equipment                                                      (883)                  (151)
        Net sales (purchases) of investments                                                    5,759                (12,300)
        Acquisitions, net of cash acquired                                                    (29,629)                     -
                                                                                ----------------------   --------------------

     Net cash used in investing activities                                                    (24,753)               (12,451)
                                                                                ----------------------   --------------------

     Cash flows from financing activities:

        Net (repayments) borrowings on loans to/from  shareholders                             (3,595)                   328
        Distributions to shareholders                                                          (4,995)                   (17)
        Proceeds from borrowings under credit agreement                                        41,488                      -
        Repayment of borrowings from credit agreement                                         (40,007)                     -
        Repayment of promissory note                                                           (4,000)                     -
        Deferred financing costs                                                               (1,075)                     -
        Redemption of common stock                                                            (10,746)                     -
        Net proceeds from Initial Public Offering                                              35,985                      -
        Proceeds from issuance of common and Class A Convertible Preferred Stock               30,543                      -
                                                                                ----------------------   --------------------

   Net cash provided by financing activities                                                   43,598                    311
                                                                                ----------------------   --------------------
   Net increase (decrease) in cash and cash equivalents                                        28,901                 (3,633)
   Cash and cash equivalents  beginning of period                                               7,074                  5,677
                                                                                ----------------------   --------------------

   Cash and cash equivalents end of period                                      $              35,975    $             2,044
                                                                                ======================   ====================

Supplemental disclosures of cash flow information:                                      1998                   1997
                                                                                ---------------------------------------------
                                                 Cash paid for:                                                                
                                                                 Taxes          $                 360                     43
                                                                 Interest       $                 472                      -  
                                                                                                                               
Supplmental disclosures of non cash investing and financing activities:                                                        
                                                                                                                               
Issuance of promissory note in connection with the redemption of common stock   $               4,000                      -  
Class A Convertible Preferred stock dividend                                    $              25,762                      -  
Dividend accretion on Class A Convertible Preferred stock                       $               2,519                      -  
-----------------------------------------------------------------------------------------------------------------------------
 See Notes to condensed consolidated financial statements.
</TABLE>


                                       8
<PAGE>   9

                           GLOBAL VACATION GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

1.  General

  Global Vacation Group, Inc. ("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. In March
1998 the Company was recapitalized and between March 1998 and May 1998 acquired
the stock or assets of four other vacation providers. Through the acquisitions,
GVG acquired the outstanding capital stock of Haddon Holidays Inc.,("Haddon"),
Classic Custom Vacations, ("Classic") and Globetrotters Inc. ("Globetrotters")
and substantially all the assets of MTI Vacations, Inc. ("MTI") (collectively,
the "Acquisitions"). The consideration for the Acquisitions consisted of cash.
Each acquisition has been accounted for under the purchase method of accounting.
The accompanying financial statements as of September 30, 1998 and for the
three-month and nine-month periods ended September 30, 1997 and 1998 include the
results of operations for each of the Acquisitions from their respective
acquisition dates in 1998.


In March 1998, the Company changed its name from Allied Bus Corp. to Global
Vacation Group, Inc. The Company had previously operated under the trade name
"Allied Tours." The name change was concurrent with a recapitalization of the
Company (the "Recapitalization").

  Because of the significance of the Acquisitions in 1998, pro forma combined
statements of operations have been prepared for the three and nine month periods
ended each of September 30, 1998 and 1997. The pro forma financial statements
give effect to the results of the Company combined with the Acquisitions as if
the Acquisitions and the Company's initial public offering had occurred as of
January 1, 1997, with certain adjustments associated with the Acquisitions and
the initial public offering. These adjustments (the "Pro Forma Adjustments")
include amortization of goodwill resulting from the Acquisitions, adjustments to
salaries and bonuses to prior owners and key executives, the application of net
proceeds from the initial public offering to repay certain indebtedness, the
conversion of Class A Convertible Preferred Stock into shares of common stock,
and the provision for income taxes as a C corporation. The pro forma combined
statements of operations have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which actually would
have been if



                                       9
<PAGE>   10

such transactions had occurred on these dates and are not necessarily
representative of the Company's results of operations for any future period.
Because the Acquisitions were not under a common control arrangement, the pro
forma combined results may not be comparable to, or indicative of, future
performance.


2.  Summary of Significant Accounting Policies

  The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
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 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 generally accepted accounting principles 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 financial statements should be read in conjunction with the financial
statements and notes thereto included in the Registration Statement. The results
of operations for the three and nine-month periods ended each of September 30,
1998 and 1997 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 Registration Statement.

Initial Public Offering

  In August 1998, the Company completed an initial public offering of its common
stock. The offering placed 3,000,000 shares of the Company's common stock at a
price of $14.00 per share, yielding net proceeds (after underwriting discounts,
commissions and other professional fees) to the Company of approximately $36.0
million. The Company used all of the net proceeds to repay borrowings under its
credit facility. In connection with the offering, the Company's outstanding
Class A Convertible Preferred Stock (the "Convertible Preferred") automatically
converted into shares of the Company's common stock at $14.00 per share.


                                       10
<PAGE>   11

Increase in Authorized Shares, Stock Split, and Conversion

  In connection with the Company's initial public offering, the Company amended
and restated its certificate of incorporation to increase the number of
authorized shares of common stock to 60,000,000, par value $0.01 per share, and
authorized 6,000,000 shares of undesignated preferred stock, par value $0.01 per
share. The Company effected a 12.2-for-one stock split of the common stock. All
share and per share amounts have been retroactively adjusted to give effect to
these events. In addition, effective as of the closing date of the offering, all
shares of the Convertible Preferred outstanding, plus any accrued and unpaid
dividends on such shares as of the closing date of the offering, were converted
into shares of common stock at the initial public offering price.

Net Revenues

  Net revenues consist primarily of markups on travel packages. The Company
recognizes net revenue when earned on the date of travel. The Company estimates
and records accruals for cancellations and changes to reservations booked. For
the three months ended each of September 30, 1998 and 1997, net revenues are
derived from sale of travel products and services with a value of $172.2
million, and $53.7 million, respectively, net of $131.4 million, and $42.5
million, respectively, in direct costs to suppliers. For the nine months ended
each of September 30, 1998 and 1997, net revenues are derived from sale of
travel products and services with a value of $295.0 million and $102.3 million,
respectively, net of $232.2 million and $82.8 million, respectively, in direct
costs to suppliers.

Net Income (Loss) per Common Share

  The Company has implemented Statement of Financial Accounting Standard
("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation
of basic and diluted earnings 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 1.5 million shares of common
stock outstanding at September 30, 1998 have been included in the computation of
diluted income per share for the three- and nine-months ended September 30,
1998. The effect of the Convertible Preferred Stock outstanding during the
three- and nine-months ended September 30, 1998 has not been included in the
computation of diluted income per share as such effect would be anti-dilutive.
The following table sets forth the calculation of basic and diluted weighted
average shares outstanding for the three- and nine-month periods ended September
30, 1998 and 1997.


                                       11
<PAGE>   12

<TABLE>
<CAPTION>
                                                                        (in thousands)
                                                 ----------------------------------------------------------
                                                      Three Months Ended            Nine Months Ended
                                                         September 30,                September 30,
                                                 ---------------------------   ----------------------------
                                                    1998            1997           1998            1997
                                                 ------------   ------------   -------------  -------------

<S>                                                <C>              <C>           <C>                <C>
Basic weighted average shares outstanding          12,075           5,291         8,304              5,291

Effect of dilutive securities:

  Treasury stock effect of outstanding
    stock options                                      79               -            79                  -
                                                 ------------   ------------   -------------  -------------

  Diluted weighted average shares
    outstanding                                    12,154           5,291         8,383              5,291
                                                 ============   ============   =============  =============
</TABLE>

The pro forma as adjusted basic and diluted weighted average common shares
outstanding for all periods presented give effect to the Recapitalization,
Initial Public Offering and the conversion of the outstanding Convertible
Preferred stock into common stock as if they had occurred as of January 1, 1997
and assumes that the Company was a C Corporation for the entire period. For all
periods presented, diluted weighted average shares outstanding includes the
dilutive effect of stock options outstanding as follows (in thousands):

<TABLE>
<S>                                                                             <C>   
  Pro forma weighted average shares outstanding - Basic                         14,748
  Dilutive effect of stock options                                                  79
                                                                     ------------------
  Pro forma weighted average shares outstanding - Diluted                       14,827
                                                                     ==================
</TABLE>


New Accounting Standards

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The adoption of SFAS No. 130 will
have no impact on the Company's results of operations, financial position, or
cash flows.

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for financial statements beginning after
December 15, 1997. Financial statement disclosures for prior periods are
required to be restated. The adoption of SFAS No. 131 will have no impact on the
Company's results of operations, financial position, or cash flow.


                                       12
<PAGE>   13

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 133 is
effective for fiscal years beginning after June 15, 1999. Management believes
the impact of adopting this statement will not have a material impact upon the
Company's results of operations or financial position.

3. Acquisitions

      Since March 1998, the Company has acquired Haddon, Classic and
Globetrotters and substantially all of the assets of MTI. Each of these
acquisitions was acquired for cash. The Company financed these acquisitions with
proceeds from the issuance of additional shares of Convertible Preferred and
common stock and from borrowings under its credit facility. 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 tangible assets acquired primarily to goodwill. The
Company amortizes` amounts allocated to goodwill over 35 years for financial
reporting purposes.

Haddon

  On March 30, 1998, the Company purchased all of the outstanding capital stock
of Haddon, a packaged vacation provider that historically has provided air,
hotel and ground transportation packages for travelers to Hawaii. The Company
paid a purchase price of approximately $7.5 million. In addition, the Company
incurred direct acquisition costs of approximately $268,000. The Company
financed the cash purchase price and the direct acquisition costs with $4.9
million in proceeds from the issuance of common stock and Convertible Preferred,
and $2.4 million in borrowings under its credit facility. In connection with the
acquisition of Haddon, the Company sold 61,000 shares of common stock, valued at
$0.82 per share and 450 shares of Convertible Preferred, valued at $1,000 per
share, to the former shareholders of Haddon.

Classic

  In April 1998, the Company purchased all of the outstanding capital stock of
Classic, a packaged vacation provider. The Company paid a purchase price of
$17.1 million, all of which was paid in cash. In addition, the Company incurred
direct acquisition costs of approximately $2.0 million. The Company financed the
cash purchase price and the direct acquisition costs with proceeds from the
issuance of $6.7 million of


                                       13
<PAGE>   14

Convertible Preferred and $13.1 million in borrowings under its credit facility.
The proceeds from this sale and borrowing also provided approximately $700,000
in working capital.

MTI

  In May 1998, the Company acquired substantially all of the assets of MTI, a
packaged vacation provider that (i) provides vacation packages for travelers to
Hawaii (ii) provides packages for Amtrak-sponsored vacations (iii) operates the
reservation system associated with packaged vacations sponsored by Hyatt and
(iv) provides credit card reward fulfillment programs. The Company paid a
purchase price of $26.4 million. In addition, the Company incurred direct
acquisition costs of approximately $881,000. The Company financed the cash
purchase price and direct acquisition costs with proceeds from the issuance of
$15.5 million of Convertible Preferred and $11.1 million in borrowings under its
credit facility. The proceeds from this sale and borrowing also provided
approximately $1.7 million in working capital. In connection with the
acquisition of substantially all of the assets of MTI, the Company sold 292,800
shares of common stock, valued at $0.82 per share, and 2,160 shares of
Convertible Preferred, valued at $1,000 per share, to an affiliate of the
seller.

  The Company entered into an agreement with a former affiliate of MTI, whereby
the affiliate will provide the Company with management information system
("MIS") support relating to MTI's computer reservation system and related
functions. See Note 5.


Globetrotters

  In May 1998, the Company purchased all of the outstanding capital stock of
Globetrotters, a packaged vacation provider that historically has provided
vacation packages, primarily for the Florida, Mexico and Caribbean markets. The
Company paid a purchase price of $5.4 million, of which $3.4 million was paid in
cash, with the remaining $2.0 million paid through the forgiveness of
related-party debt. In addition, the Company incurred direct acquisition costs
of approximately $232,000. The Company financed the cash purchase price and the
direct acquisition costs with proceeds from the issuance of $551,000 of
Convertible Preferred, $1.9 million in borrowings under its credit facility and
$1.3 million from working capital.



                                       14
<PAGE>   15

  The purchase price has been allocated on a preliminary basis as follows for
each of the Acquisitions (in thousands):


<TABLE>
<CAPTION>
                                                         Haddon         Classic           MTI        Globetrotters            Total
                                                         ------         -------           ---        -------------            -----
<S>                                                  <C>             <C>            <C>              <C>              <C>         
 Cash and investments..............................  $      3,475    $     25,642   $     19,913     $      2,663     $     51,693
 Accounts receivable...............................         1,041           8,108          3,920            2,907           15,976
 Fixed assets and other assets.....................            90           2,426          1,696            1,065            5,277
 Goodwill..........................................         9,471          18,872         30,705            6,888           65,936
 Liabilities assumed and direct acquisition costs..        (6,359)        (35,988)       (28,953)          (7,941)         (79,241)
                                                     ------------    ------------   ------------     ------------     ------------
           Total...................................  $      7,718    $     19,060   $     27,281     $      5,582     $     59,641
                                                     ============    ============   ============     ============     ============
</TABLE>


4. Commitments and Contingencies

  The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolutions 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.

5. Trase-Miller Agreement

  In connection with the acquisition of MTI, the Company entered into an
information and business systems outsourcing arrangement with Trase-Miller
Solutions, Inc. ("Trase-Miller Solutions"), a former affiliate of MTI. On August
14, 1998, the Company, Trase-Miller Solutions and the majority shareholder of
Trase-Miller Solutions entered into an agreement with a term ending on April 30,
2006 (the "Outsourcing Agreement") to expand this outsourcing agreement to
provide a common platform system for all the Company's businesses (other than
the business systems associated with the Company's in-bound business). During
the term of the Outsourcing Agreement, Trase-Miller Solutions will provide to
the Company information systems and related services, including operating
services, system maintenance, general management and support and implementation
and migration services. From April 1, 1999 through April 30, 2006, The Company
will pay Trase-Miller Solutions for the services provided under the Outsourcing
Agreement on a cost-plus 20% basis and will pay royalty fees of $17.5 million in
the aggregate. In connection with the Outsourcing Agreement, the Company also
paid $6.75 million to acquire an option, exercisable through January 10, 1999,
to purchase all of the outstanding stock of Trase-Miller Solutions. In the event
the Company exercises this option, the purchase price will be $18.8 million,
subject to certain adjustments and to a credit for the amount paid by the
Company to acquire the option. If the Company does not exercise the option, the
amounts paid to acquire the option will be credited over three years beginning
April 1, 1999 against payments owing to Trase-Miller Solutions under the
Outsourcing Agreement.

6. Extraordinary Item

  During the three months ended September 30, 1998, the Company recognized an
extraordinary charge of $379,000, net of income tax effect of $244,000, related
to the early extinguishment of certain term loans



                                       15
<PAGE>   16

outstanding under its credit facility. The effect on earnings per share for the
three- and nine-month periods ended September 30, 1998 were ($0.03) and ($0.05)
respectively.

7. Subsequent Event

      On November 4, 1998, the Company announced that its Board of Directors had
authorized the repurchase, at management's discretion, of up to 250,000 shares
of GVG Common Stock from the public market. The Board also authorized the
purchase of up to 100,000 shares of the Company's common stock over a one-year
period for use in matching employee contributions in the Company's new 401(k)
plan.


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 above under the caption "Risk Factors" in the Company's
Registration Statement on Form S-1 (File No. 333-52673) (the "Registration
Statement") which hereby is incorporated by reference, 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
and growth strategies (including the ability to integrate acquisitions into
Company operations, the ability of acquired companies to achieve satisfactory
operating results and the ability of the Company to manage the transition to an
integrated information platform). Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.


Overview

  Global Vacation Group, Inc. ("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. In March
1998 the Company was recapitalized and between March 1998 and May 1998 acquired
the stock or assets of four 



                                       16
<PAGE>   17

other vacation providers. Through the acquisitions, GVG acquired the outstanding
capital stock of Haddon Holidays Inc.,("Haddon"), Classic Custom Vacations, Inc.
("Classic") and Globetrotters Inc. ("Globetrotters") and substantially all the
assets of MTI Vacations, Inc. ("MTI") (collectively, the "Acquisitions"). The
consideration for the Acquisitions consisted of cash. Each acquisition has been
accounted for under the purchase method of accounting. The accompanying
financial statements as of September 30, 1998 and for the three-month and
nine-month periods ended September 30, 1997 and 1998 include the results of
operations for each of the Acquisitions from their respective acquisition dates
in 1998.

  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 insurance premiums and are recognized upon the
commencement of travel. For the three and nine months ended September 30, 1998,
the Company had net revenues of $40.8 million and $62.8 million, respectively,
and net income (before dividends on Class A preferred stock and extraordinary
charge), of $4.4 million and $3.7 million, respectively, derived from a total
dollar value of travel products and services of $172.2 million and $295.0
million, respectively. For the three- and nine-month periods ended September 30,
1997, the Company had net revenues of $11.2 million and $19.5 million,
respectively, and net income (loss) of $1.4 million and ($807,000),
respectively, derived from a total dollar value of travel products and services
of $53.7 million and $102.3 million, respectively.

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

  In connection with the Recapitalization and the Acquisitions, the Company is 
restructuring certain operations of the companies acquired in the Acquisitions
(the "Acquired Businesses"). The Company's objective is to realize certain
savings from the combination of the Acquired Businesses as a result of
consolidating certain operating expenses such as telecommunications, advertising
and promotional programs and from consolidating or outsourcing certain
administrative functions, including technology and software development,
insurance, employee benefits and other administrative expenses. The Company has
accrued certain costs of restructuring the Acquired Businesses totaling
approximately $3.4 million related to closing redundant acquired facilities and
making severance payments to terminated employees following the Acquisitions.
The Company 


                                       17
<PAGE>   18

anticipates that the annual savings associated with the closing of these
redundant acquired facilities will be approximately $3.2 million before
provision for income taxes (the "Facility Savings"), of which approximately 80%
are expected to be realized in 1999 and 100% are expected to be realized in
subsequent years; however, these anticipated savings have not been reflected in
the Unaudited Pro Forma Condensed Combined Statements of Operations.

  The Company derives a significant portion of its pre-tax income 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. For 1997 on a pro forma as adjusted basis, the Company had
interest income of $4.3 million (or 60.6% of income before income taxes),
substantially all of which was derived from interest on customer deposits and
advance payments. For the three- and nine-month periods ending September 30,
1998, the Company had interest income of $922,000 (12.6% of income before tax
provision and extraordinary item) and $1.8 million (26.3% of income before tax
provision and extraordinary item), respectively.

Pro Forma Results of Operations for the Three Months Ended September 30, 1998

  Management believes that period-to-period comparisons of the Company's
historical financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance given the impact of the
Acquired Businesses on the Company's financial results.



                                       18
<PAGE>   19

  The following table summarizes the Company's historical and pro forma as
adjusted results of operations as a percentage of net revenues for the three
months ended each of September 30, 1998 and September 30, 1997.


<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED                         THREE MONTHS ENDED
                                                                 SEPTEMBER 30, 1998                         SEPTEMBER 30, 1997
                                                            ------------------------------            -----------------------------
                                                                                 PRO FORMA                               PRO FORMA
                                                            ACTUAL              AS ADJUSTED            ACTUAL           AS ADJUSTED
                                                           ---------            -----------           --------          -----------
<S>                                                           <C>                  <C>                  <C>                 <C>   
Net revenues.........................................         100.0%               100.0%               100.0%              100.0%
Operating expenses...................................          72.7                 72.6                 61.5                75.0
                                                           --------              -------              -------             -------
     Gross profit ...................................          27.3                 27.4                 38.5                25.0
                                                           --------              -------              -------             -------
General and administrative expenses                             7.9                  7.9                 26.9                 7.6
Depreciation and amortization........................           2.4                  2.4                  0.4                 2.4
Settlement agreement legal expense...................            --                   --                   --                 0.8
                                                            -------              -------              -------             -------
     Income from operations..........................          17.0                 17.1                 11.2                14.2
                                                            -------              -------             --------             -------
Interest income......................................           2.3                  2.3                  1.4                 3.2
Interest expense.....................................          (1.3)                (0.2)                  -                 (0.6)
Other income (expense)...............................             -                    -                  0.2                  -
                                                            -------              -------             --------             -------
Income before tax provision and extraordinary item...          18.0                 19.2                 12.8                16.8
Provision for income taxes...........................          (7.1)                (7.6)                (0.6)               (6.7)
Extraordinary item.................                            (0.9)                   -                   -                   -
                                                             ------              -------             --------             -------
     Net income .....................................          10.0%                11.6%                12.2%               10.1%
                                                             ======              =======             ========             =======
</TABLE>

  Pro forma as adjusted net revenues for the three months ended September 30,
1998 and 1997, were $40.8 million and $37.1 million, respectively, which
reflects the combined net revenues of the Company and the Acquired Businesses
for such period, less $672,000 in 1997 of historical net revenues for product
lines discontinued by MTI prior to its acquisition. The increase of
approximately 10.0% is primarily due to increases in revenue generated per
passenger traveled.

  The Company's net revenues generally are highest in the second and third
quarters of the year, while its expenses generally are highest in the first and
fourth quarters. The impact of seasonality is more pronounced with respect to
the Company's in-bound U.S. business than with respect to the Company's other
business because international travel to the United States is heavily
concentrated in the summer months.

Pro forma as adjusted operating expenses for the three months ended September
30, 1998 and 1997, were $29.6 million and $27.9 million, respectively, or 72.6%
and 75.0%, respectively, of pro forma net revenues. The resulting improvement in
pro forma as adjusted gross profit is due primarily to the increase in revenue
generated per passenger traveled.

Pro forma as adjusted general and administrative expenses for the three months
ended September 30, 1998 and 1997 were $3.2 million and $2.8



                                       19
<PAGE>   20

million, respectively, or 7.9% and 7.6%, respectively, of pro forma as adjusted
net revenues. As a percentage of net revenues, pro forma general and
administrative expenses were lower than the Company's historical general and
administrative expenses primarily due to the pro forma elimination of $2.2
million for the three months ended September 30, 1997, respectively,
representing the difference between contracted reductions in compensation to
previous owners and management and contracted compensation for the Company's new
management team.

  Pro forma as adjusted depreciation and amortization for the three months ended
September 30, 1998 and 1997 was $992,000 and $875,000, respectively, or 2.4% and
2.4%, respectively, of pro forma as adjusted net revenues.

  Pro forma as adjusted results for the three months ended September 30, 1997
were impacted by a non-recurring expense of $301,000 related to a law suit at
one of the acquired companies. Excluding the effect of the non-recurring
expense, pro forma as adjusted net income for the three months ended September
30, 1997 would have been $3.9 million.

  Pro forma as adjusted interest income for the three months ended September 30,
1998 and 1997 was $992,000 and $1.2 million respectively, or 2.3% and 3.2%,
respectively, of pro forma as adjusted net revenues.

  Pro forma as adjusted interest expense for the three months ended September
30, 1998 and 1997 was $76,000 and $233,000, respectively.

  The pro forma as adjusted provision for income taxes for the three months
ended September 30, 1998 and 1997 would have been $3.1 million and $2.5 million,
respectively, at an assumed tax rate of 40.0%, reflecting a termination of the
Company's S Corporation status.

  Pro forma as adjusted net income for the three months ended September 30, 1998
and 1997 was $4.7 million and $3.7 million, respectively, or 11.6%, and 10.1%,
respectively, of pro forma as adjusted net revenue. The increase is primarily
due to the improved gross profit percentage, lower interest expense in 1998 and
the settlement agreement legal expenses related to 1997.



                                       20
<PAGE>   21

Pro Forma Results of Operations for the Nine Months Ended September 30, 1998

<TABLE>
<CAPTION>

                                                         NINE MONTHS ENDED                    NINE MONTHS ENDED
                                                         SEPTEMBER 30, 1998                   SEPTEMBER 30, 1997
                                                   ------------------------------       -----------------------------
                                                                       PRO FORMA                          PRO FORMA
                                                    ACTUAL            AS ADJUSTED         ACTUAL          AS ADJUSTED
                                                   ---------          -----------       ----------        -----------
<S>                                                 <C>               <C>                <C>               <C>   
Net revenues....................................... 100.0%            100.0%             100.0%            100.0%
Operating expenses.................................  75.9              82.1               73.2              84.5
                                                    -----             -----              -----             -----
     Gross profit..................................  24.1              17.9               26.8              15.5
                                                    -----             -----              -----             -----
General and administrative expenses................  11.1               9.2               31.7               8.6
Depreciation and amortization......................   2.8               2.9                0.6               2.9
Settlement agreement legal expense.................    --                --                 --               1.3
                                                    -----             -----              -----             -----
     Income (loss) from operations.................  10.2               5.8               (5.5)              2.7
                                                    -----             -----              -----             -----
Interest income....................................   2.9               3.1                1.5               3.3
Interest expense...................................  (2.2)             (0.5)                --              (0.6)
Other income.......................................    --                --                0.2               0.1
                                                    -----             -----              -----             -----
Income (loss) before provision for income taxes and
     extraordinary item............................  10.9               8.4               (3.8)              5.5
Provision for income taxes.........................  (4.9)             (3.4)              (0.3)             (2.2)
Extraordinary item                                   (0.6)               --                 --                --
                                                    -----             -----              -----             -----
     Net income (loss).............................   5.4%              5.0%              (4.1%)             3.3%
                                                    =====             =====              =====             =====
</TABLE>

  Pro forma as adjusted net revenues for the nine months ended September 30,
1998 and 1997, respectively, were $95.9 million and $89.3 million, respectively,
which reflects the combined net revenues of the Company and the Acquired
Businesses for each period, less $1.7 million in 1997 of historical net revenues
for product lines discontinued by MTI prior to its acquisition. The increase of
approximately 7.4% is primarily due to increases in revenue generated per
passenger traveled.

  Pro forma as adjusted operating expenses for the nine months ended September
30, 1998 and 1997, were $78.7 million and $75.4 million, respectively, or 82.1%
and 84.5%, respectively, of pro forma net revenues. The resulting improvement in
pro forma as adjusted gross profit is due primarily to the increase in revenue
generated per passenger traveled.

  Pro forma as adjusted general and administrative expenses for the nine months
ended September 30, 1998 and 1997 were $8.8 million and $7.7 million,
respectively, or 9.2% and 8.6%, respectively, of pro forma net revenues. As a
percentage of net revenues, pro forma general and administrative expenses were
lower than the Company's historical general and administrative expenses due to
the pro forma elimination of $1.7 million and $4.0 million for the nine months
ended September 30, 1998 and 1997, respectively, representing the difference
between contracted reductions in compensation to previous owners and management
and contracted compensation for the Company's new management team, as well as



                                       21
<PAGE>   22

the $1.0 million in expenses incurred in the first three months of 1998 in
connection with the Recapitalization.


  Pro forma as adjusted depreciation and amortization for the nine months ended
September 30, 1998 and 1997 was $2.8 million and $2.6 million, respectively, or
2.9% and 2.9%, respectively, of pro forma as adjusted net revenues.

  Pro forma as adjusted results for the nine months ended September 30, 1997
were impacted by a non-recurring expense of $1.2 million related to a law suit
at one of the acquired companies. Excluding the effect of the non-recurring
expense, pro forma as adjusted net income for the nine months ended September
30, 1997 would have been $3.7 million.

  Pro forma as adjusted interest income for the nine months ended September 30,
1998 and 1997 was $3.0 million and $3.0 million, respectively, or 3.1% and 3.3%,
respectively, of pro forma as adjusted net revenues.

  Pro forma as adjusted interest expense for the nine months ended September 30,
1998 and 1997 was $508,000 and $547,000, respectively.

  The pro forma as adjusted provision for income taxes for the nine months ended
September 30, 1998 and 1997 were $3.2 million and $2.0 million, respectively, at
an assumed tax rate of approximately 40.0%, reflecting a termination of the
Company's S Corporation status.

  Pro forma as adjusted net income for the nine months ended September 30, 1998
and 1997 was $4.8 million and 3.0 million, respectively, or 5.0%, and 3.3%,
respectively, of pro forma as adjusted net revenue. The increase in pro forma as
adjusted net income is primarily due to the improved gross profit percentage in
1998 and the settlement agreement legal expenses in 1997.


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 management of customer deposits made
in advance of travel. The Company believes it is in compliance with all
applicable regulations relating to customer deposits. Although each of the
Acquired Businesses has operated with different investment strategies, the
Company manages cash and investments on a centralized basis. The Company's
investment policy and the Credit Facility restrict investments to
investment-grade securities.

  In March 1998, the Company entered into the Credit Facility with a commercial
bank. Under the Credit Facility, the Company may borrow up to $65.0 million. Of
this amount, up to $10.0 million may be in the form of



                                       22
<PAGE>   23

revolving loans, including letters of credit of up to $5.0 million, and the
remaining $55.0 million may be in the form of term loans which may not be
reborrowed once repaid. The Company's obligations under the Credit Facility are
secured by substantially all of the Company's assets and the Company is subject
to certain restrictive covenants. The Company completed its initial public
offering August 5, 1998. After deducting expenses, the Company received
approximately $36.0 million in proceeds from the initial public offering. The
Company paid all of the net proceeds to the Bank of New York to repay borrowings
under the Company's credit facility. As of September 30, 1998, the Company had
outstanding term loans of $1.5 million under its credit facility. The Company
currently has a total of $23.5 million available under its credit facility with
$10.0 million available as revolving loans and $13.5 available as term loans.

  Net cash provided by operating activities for the nine months ended September
30, 1998 was $10.1 million as compared to $8.5 million in net cash provided by
operating activities in the first nine months of 1997. The increase of
approximately $1.6 million in operating cash flows reflects primarily the
increase in the net income in the first nine months of 1998 in relation to the
same time period in 1997.

  The Company made capital expenditures of $883,000 in the first nine months of
1998 and $151,000 in the nine months ended September 30, 1997. The Company used
$29.6 million of cash, net of cash acquired, for acquisitions in the nine months
ended September 30, 1998.

  The Company intends to pursue attractive acquisition opportunities. The
timing, size or success of any acquisition effort and the associated potential
capital commitments cannot be predicted. The Company expects to fund future
acquisitions primarily through a combination of issuance of equity or debt, cash
flow from operations and borrowings under the Credit Facility.

  The Company anticipates its cash flows from operations combined with available
borrowings under the Credit Facility are adequate to meet the Company's capital
needs for at least the next 12 months.


                                       23
<PAGE>   24

YEAR 2000

     The Company's business is dependent upon a number of different information
and telecommunications systems to access information, manage reservation data,
and process a high volume of telephone calls on a daily basis. In addressing the
Year 2000 (Y2K) issues relating to the systems that support these processes,
senior management initiated a due diligence review of all internal and external
systems and vendors to ascertain their Y2K compliance readiness. As part of this
process, certain third party vendors on which the Company is heavily dependent
for access to certain reservation information and for the electronic
distribution of vacation products to travel agents and other intermediaries,
including Sabre Group Holdings, Inc. ("SABRE"), Galileo International Inc.
("Galileo"), and WORLDSPAN, L.P. ("WORLDSPAN") have advised the Company that
they are in the final stages of Y2K compliance testing and they expect to be
fully compliant by the first quarter 1999. However, the Company does not control
these vendors, and no assurance can be given that all of the Company's
significant vendors will be Y2K compliant. In addition, there are very few
comparable vendors available who could provide similar services to the Company
on a contingency basis in the event of a failure by these vendors to achieve Y2K
compliance. As a result, any failure on the part of these significant vendors to
be Y2K compliant may have a material adverse effect on the business, financial
condition, and results of operations for the Company.

Trase-Miller Solutions, Inc., another third party vendor, upon which the Company
is dependent to provide a reservation system to all its subsidiary companies
(other than the business systems associated with the Company's in-bound
business), has advised the Company that it has completed all of its regression
testing and that its system, "TripsPro" will be Y2K compliant by December 31,
1998. The Company plans to finish migrating its reservation system needs to the
TripsPro system by August 1999, and the Company does not anticipate material Y2K
problems arising with these reservation systems prior to completing the
migration to the TripsPro system. In addition, the Company is in the process of
establishing contingency plans in the unlikely event that the TripsPro system is
not Y2K compliant.

     As part of the due diligence review, the Company ascertained that one of
its accounting systems is not Y2K compliant, and the Company is taking steps to
convert the non-compliant system used by one of its operating units to the
"FLEXI" system used by the other operating companies. The Company has completed
its testing of FLEXI and ascertained that it is Y2K compliant.

      While the Company's due diligence has helped to identify and correct many
potential Y2K problems, the review is by no means complete, and additional steps
must be taken on an accelerated basis to resolve all the issues given the
Company's dependence upon information and telecommunications technology. The
Company believes it will be able to determine whether all of its own systems,
including "imbedded technology" within individual systems and components, are
Y2K compliant and to 



                                       24
<PAGE>   25

correct any Y2K problems, that exist prior to any material difficulties arising
within these systems. However, no assurance can be given that the Company will
be successful in this regard, and unforeseen difficulties or delays in
implementing solutions may have a material adverse effect on the business,
financial condition, and results of operations of the Company.

      Finally, travelers who use the Company's products and services may be
exposed to disruptions in their travel as a result of failures of travel
suppliers or other travel businesses to correct Y2K problems in their
information and computer systems, and such disruptions could adversely affect
demand for vacation travel generally and may have a material adverse effect on
the business, financial condition, and results of operations of the Company.

      The Company estimates that the total cost of its Y2K program, including
auditing and monitoring its vendors, inspecting its own systems and, where
necessary, migrating or converting its existing systems to new systems, will be
approximately $2.6 million.


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<PAGE>   26

PART II. OTHER INFORMATION net

ITEM 4.   Submission of Matters to a Vote of Security Holders


       (a)   On July 7, 1998, shareholders holding 504,040.4
             shares of Common Stock (out of 639,174.4 shares of
             Common Stock then outstanding, unadjusted for the
             12.2-for-1 stock split undertaken by the Registrant
             in connection with its initial public offering) took
             action by written consent as provided in the Company's
             Restated Certificate of Incorporation to approve
             the form, terms and provisions of a Restated
             Certificate of Incorporation.

       (b)   On July 31, 1998, shareholders holding 462,352.85
             shares of Common Stock (out of 586,310.35 shares of
             Common Stock then outstanding, adjusted for
             12.2/13.3-for-1 share combination but not for the
             subsequent 13.3-for-1 stock split, which, together
             with the share combination, effected the 12.2-for-1
             stock split undertaken by the Registrant in connection
             with its intial public offering) took action by
             written consent as provided in the Company's Restated
             Certificate of Incorporation to approve the form,
             terms and provisions of a Restated Certificate of
             Incorporation.

ITEM 6.   Exhibits and Reports on Form 8-K

(a)  Exhibits

     27.1 Financial Data Schedule

(b)  The Registrant filed no reports on Form 8-K during the quarter ended 
     September 30, 1998.



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<PAGE>   27

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 6, 1998


                            GLOBAL VACATION GROUP, INC.



                            By:/s/ WALTER S. BERMAN
                               -------------------------
                               Walter S. Berman,
                               Executive Vice President,
                               & Chief Financial Officer











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<PAGE>   28

                                  Exhibit Index


Exhibits:


27.1 Financial Data Schedule






                                       28