<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-KSB

                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                        COMMISSION FILE NUMBER 33-4734-D
                                               ---------

              GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
                       (FORMERLY RILEY INVESTMENTS, INC.)
                       ----------------------------------
 
               (Exact name of registrant as specified in charter)

          OREGON                                                93-0950786
          ------                                                ----------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

211 EAST 7TH STREET, 11TH FLOOR, AUSTIN, TEXAS                    78701
----------------------------------------------                    -----
   (Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code               (512) 391-2000
                                                                 --------------

Securities registered pursuant to section 12(b) of the Act:

   TITLE OF CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
       NONE                                               NONE
       ----                                               ----

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE
                                      ----

                                (TITLE OF CLASS)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
    ---    ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part 10-KSB or any amendment to this
Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $16,356,675.

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: As of March 24, 1999, the aggregate market price of the voting stock held
by non-affiliates was approximately $5,476,310.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 24, 1999, the Company had
outstanding 3,024,883 shares of its common stock, par value $0.0001.

                     Transitional Small Business Disclosure
                        Format (Check one): Yes     No  X
                                                ---    ---

                   Page 1 of 43 consecutively numbered pages.
                       Exhibit index appears on page 42.

                                       1

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<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

        ITEM NUMBER AND CAPTION                                                         PAGE
        -----------------------                                                         ----
        <S>          <C>                                                                <C>
        PART I                                                                             

          ITEM 1.    DESCRIPTION OF BUSINESS                                              3
          ITEM 2.    DESCRIPTION OF PROPERTY                                             10
          ITEM 3.    LEGAL PROCEEDINGS                                                   10
          ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF                                 
                     SECURITY HOLDERS                                                    10

        PART II                                                                             

          ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY AND                           
                     RELATED STOCKHOLDER MATTERS                                         11
          ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF                            
                     FINANCIAL CONDITION OR PLAN OF OPERATION                            13
          ITEM 7.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                         19
          ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS                      
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE                              37

        PART III                                                                           

          ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND                       
                     CONTROL PERSONS: COMPLIANCE WITH SECTION 16(a)                     
                     OF THE EXCHANGE ACT                                                 37
         ITEM 10.    EXECUTIVE COMPENSATION                                              38
         ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL                           
                     OWNERS AND MANAGEMENT                                               40
         ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                      41
         ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K                                    42
</TABLE>

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<PAGE>   3


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

    THE OFFERING

    The Company completed a public offering (the "Offering") of 1,200,000 shares
of its common stock on February 5, 1998 at an offering price of $5.00 per share.
The net proceeds to the Company were $5,230,000. The Company filed a
Registration Statement on Form SB-2 under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission (the "Commission") with
respect to the Offering. For further information, reference is made to the
Registration Statement and amendments thereof and to the exhibits thereto, which
are available for inspection without charge at the office of the Commission at
450 Fifth Street, N.W, Washington, D.C. 20549. Copies of the Registration
Statement may be obtained from the Commission at prescribed rates.

    The Company is publicly held and traded and files annual and other periodic
reports pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, and such reports and other information filed by the Company may be
inspected and copied at the public reference facilities of the Commission in
Washington, D.C., and can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a website that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission at http://www.sec.gov.

    The mailing address of the Company's principal executive offices is 211 East
7th Street, 11th Floor, Austin, Texas 78701, and its investor relations
telephone number is (512) 391-2031.

    BUSINESS OF ISSUER

    The Company serves a portion of the travel industry known as "interliners".
Interliners are the active employees and retirees of the airline industry, who
may fly on many carriers for free or at a very significantly reduced fare, along
with their families and the friends to whom they pass along their allotments of
no-cost or low-cost flying privileges. One division (the "Publishing Division")
publishes a magazine and other promotional material directed at the interline
market, see "THE BUSINESS -- The Publishing Division," infra, and the other (the
"Marketing Division") offers travel accommodations to interliners. See "THE
BUSINESS -- The Marketing Division," infra. Primarily because interliners have a
high propensity to travel at the last minute or during off-peak periods when
"stand-by" space is available at hotels and resorts and on cruise ships,
interliners are generally able to procure hotel or resort accommodations in
destination locations, cabins on cruise ships and other travel products at rates
representing a courtesy discount of up to 50% off of established rates. The
discount is available because the travel industry views interline bookings as
incremental or marginal revenue that supplements normal marketing revenue. A
principal characteristic of the interline travel industry is that interliners
are generally unaware of the many opportunities, discounts and specials that are
available to them at any given time. The industry that exists to service the
interline market is highly fragmented, generally consisting of small operators
serving the market either as an adjunct to a retail tour operation or by
concentrating on an extremely narrow segment.

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<PAGE>   4

    THE PUBLISHING DIVISION

The Products

    The Publishing Division produces, publishes and distributes "Interline
Adventures", a 28- year-old, 4-color, bi-monthly magazine. Interline Adventures
(the "Magazine") provides general travel editorial coverage and, in a section
known as the Interline Vacation Guide, a significant focus on hotel, resorts,
cruise and tour opportunities for interliners. The Publishing Division attempts
to supplement and update the Magazine's information on product availability via
a smaller, 4-color, publication called "Interline Update," which is published
monthly. The Magazine, the Update and all other Company market material are
hereinafter referred to as the "Publications."

    The Publications serve as the primary marketing channel for the Marketing
Division, which advertises its products and services therein. In addition, the
Magazine and Interline Update provide an advertising outlet for the cruise
lines, hotels and resorts frequented by the Company's clients.

    The Publishing Division currently sends in excess of 100,000 copies of the
Magazine to subscribers, past customers, and airline representatives. Copies of
the Magazine not delivered directly to subscribers, as well as updates and other
Company publications are placed in airport areas and rooms reserved for and
frequented by airline employees (hereinafter referred to as "Employee Areas").
Among these areas and rooms are employee break rooms, reservation and office
areas, and "pass bureaus." "Pass bureaus" are offices maintained by each airline
in an attempt to facilitate employee travel on other airlines -- i.e., a
Continental employee wishing to make travel arrangements on American Airlines
may utilize the services of Continental's pass bureau. Airlines generally
establish a pass bureau in their "hub airports."

Marketing

    The Magazine derives revenue from sales of subscriptions to interliners and
sales of advertising to hotels, resorts, cruise lines and other service
providers.

    The Magazine is marketed to potential subscribers and to existing
subscribers by subscription renewals and through advertising and promotions.
Advertising and subscription cards are placed within the brochures distributed
by the Marketing Division to Employee Areas. Complimentary copies of the
Magazine are mailed to selected interliners who have previously made purchases
from the Marketing Division. Additionally, groups of individuals are being
invited to subscribe to the magazine on a complementary basis. These groups are
being invited in cooperation with the airlines and with organizations affiliated
with the airlines. This effort is one of the measures the Company has undertaken
in an attempt to shift its distribution strategy to that of substantially a
"controlled circulation" publication.

    The Company anticipates that an increase in the size of the Company's
mailing distribution will increase both the rates the Publishing Division can
charge for advertising within the Magazine and the number of customers within
the Marketing Division's customer base.

    Advertising space within the Magazine is marketed to hotels, resorts, cruise
lines and tour operators through direct telemarketing and distribution of media
kits to the advertisers and, on a selective basis, to agencies representing the
advertisers. Although many advertisers are hotels, resorts, cruise lines, and
tour operators who have rate agreements with the Marketing Division, and their
advertisements display the phone number of the Marketing Division, the Magazine
also sells advertising space to interline operators which have no agreement or
arrangement with the Marketing Division. The Company offers many advertisers the
opportunity to purchase advertising space within the Magazine in exchange for
rooms in hotels, resort accommodations and cruise cabins, which it then
re-markets for cash at an additional profit. See "The Marketing Division,"
infra.

    Advertisers generally, and in particular advertisers who do not have rate
agreements with the Marketing Division, focus on subscriber base and total
distribution of publications in determining both in which publications to place
advertising and how much to pay for advertising space. To date the subscription
base and total distribution



                                       4
<PAGE>   5

of the Magazine has been too small to attract significant advertising sales.
However, the Company's new "controlled circulation" subscription policy should
provide the Company with a sufficient circulation basis for effective sales of
advertising to non-travel related entities.

Competition

    The Magazine competes with other publications for readership and for
advertisers' patronage. Most information available to interline travelers
consists of brochures distributed by other interline companies, hotel and resort
operators, cruise lines and escorted tour operators. The Magazine is the only
four-color publication available which is updated and published six times
annually. Within the interline segment, the Magazine has one primary competitor,
the ASU Travel Guide -- a 400-page guide, published quarterly, with the look and
feel of a paperback novel. It competes with the Magazine for advertisements
targeting interliners. The ASU Travel Guide has been published successfully for
a number of years and enjoys widespread circulation. The Company hopes to
compete for advertising sales by increasing distribution and offering to accept
room nights or other travel accommodations as payment from some advertisers.

Sources of Materials

    The Magazine is printed and distributed by a contract printing operation at
prices negotiated from time to time between the Company and printers. There are
a number of printers who could print and distribute the Magazine. Chief among
the factors influencing the Company's expenses in printing and distributing the
Magazine is the price of paper. Paper prices are volatile and, although
currently higher than historical averages and, in the belief of the Company's
management, not likely to rise significantly in the foreseeable future, the
possibility that paper prices will rise further cannot be completely discounted.
Significant increases in paper prices could have a materially adverse effect on
the printing expenses of the Magazine and the profitability of the Company.

    THE MARKETING DIVISION

The Products

    The Marketing Division, under the name "Interline TravelReps," provides
hotel and resort accommodations (comprised of rooms or vacation packages
consisting of some combination of rooms, meals and services) and cabins on
cruises and seats on escorted tours. The hotel and resort accommodations offered
by the Marketing Division are located in North and South America and Europe,
with access to properties throughout the world and a particular focus on
accommodations in Mexico and the Caribbean. The Marketing Division offers space
on cruises and escorted tours and offers cruises on over 30 lines with over 100
ships in various worldwide destinations and a wide variety of escorted tours,
primarily to England, Europe and Africa. Cruise lines and escorted tour
operators typically limit the interline companies that market their products or
commodities to those which have a demonstrated ability to effectively serve
interline travelers. The Company is permitted to market all of the major cruise
lines serving the interline market. The Company maintains an office in Boca
Raton, Florida, in order to facilitate its relations with the substantial number
of cruise lines that are located in that area. Retention of the ability to sell
cruise cabins to the interline market is key to the continued success of the
Company's and is subject to the continued satisfaction of the cruise lines with
the Company's service.

    The Marketing Division markets its hotel and resort rooms and packages,
cruises, and escorted tour products through advertisements within the Magazine,
but also advertises in the magazines and newsletters published by or for a given
airline's employees and distributes brochures and flyers into airline Employee
Areas. The Marketing Division has a network of more than 1,500 current and
former airline employees who distribute the Publications in airport Employee
Areas throughout the United States, Canada, the United Kingdom and western
Europe. The Marketing Division's other significant marketing tools are its
reservation center and the reservation agents there who answer phone calls
placed by interliners in response to the Marketing Division's promotional
activities.

    The amount charged to the interline customer is established and published in
the Magazine and the other Publications and is quoted over the phone by the
Marketing Division's reservation specialists. The Company 



                                       5
<PAGE>   6

believes that the market for interline products is very price sensitive and
attempts to determine prices with an awareness to this price sensitivity.

Seasonality

    As already noted, when airlines operate at nearly full capacity, interline
travel decreases -- as a consequence of the airlines having fewer open seats for
airline travelers to occupy, airline employees having less time for leisure
travel and, possibly, full occupancy rates at destinations frequented by retail
travelers during these traditional holiday periods. While the most dramatic
events that lead to full capacities (labor issues, airline failures and similar
occurrences) have happened infrequently, airlines usually operate at high
capacities during the holiday season -- from the middle of November through the
middle of January. The Marketing Division and the rest of the interline industry
has found that very few of its interline customers travel during this period
and, since the Company does not recognize income until a customer travels, the
Company's income during this eight-week period is substantially lower than the
income during the remainder of the year.

    The Company has found that, although actual travel is reduced during the
holiday season, reservation activity is not reduced -- presumably the airline
employees recognize the demands on their time during the holiday season and plan
to vacation after it. Management has taken a number of steps in an attempt to
address this seasonality, including the implementation of special promotional
campaigns and the procurement of a substantial supply of travel accommodations
at locations not traditionally frequented by holiday travelers. The promotional
campaigns have met with mixed success and management believes that further
refinement of this strategy will produce more uniform success. There can be no
assurance that this seasonality will not have a material adverse effect on the
Company or the Company's financial condition.

Sources of Supply

    The Marketing Division primarily procures its supply of hotel and resort
accommodations, cruise ship cabins, and tour reservations directly from the
operators of those businesses. The Marketing Division negotiates the prices,
terms and, in some cases, availability of hotel and resort accommodations over
the telephone or via facsimile machines and at industry conferences where hotel
and resort operators within a given region meet with both interline companies
and travel wholesalers (which typically buy blocks of hotel rooms or resort
accommodations and resell them to travel agencies). With the exception of
instances where the Company is able to procure a more favorable rate as a result
of volume guaranties or aggressive negotiations, the Marketing Division usually
procures the interline rate quoted by a given hotel or resort operator to all
interline operators. In contrast to hotel and resort operators, most cruise
lines and tour operators pay a commission based on a pre-determined price to the
interline customer.

    On a limited basis, the Marketing Division may also acquire access to travel
accommodations through dollar denominated non-cash arrangements. Most typically,
the Company provides advertising in the Magazine for room nights and such room
nights are then marketed to interline customers. No assurances can be given that
such non-cash transactions will yield a significant supply of travel products
for sale by the Marketing Division. 

    The Company's supply of travel products within a given travel destination,
whether offered by a given service provider or offered by a number of providers,
is often contingent upon the availability of excess supply of such
accommodations. Travel providers who cannot anticipate the existence of future
excess capacity, and therefore unwilling to surrender the possibility of selling
rooms at retail prices, are typically unwilling to provide interline companies
with commitments for available space more than two-to-three weeks in advance of
a given travel date. Some travel providers, who are able to anticipate the
existence of future excess capacity, are able and desire to provide the Company
with committed availability for a given number of room nights or cruise berths
in an attempt 



                                       6
<PAGE>   7

to maximize their occupancy rates and marginal revenues. Management of the
Company believes that hotels operate at occupancy rates of approximately 70%,
although hotels in certain markets, and hotels within almost any market over a
given period, can experience higher occupancy rates, thereby limiting the space
available for sale by interline companies. Although the Company has encountered
a shortage of travel accommodations in a given market only infrequently, the
Company is aware of the possibility that a substantial growth in its interline
customer base may produce a demand for interline travel accommodations in excess
of the Company's available supply. Cruise lines operate at substantially higher
occupancy rates and attain these rates by offering discounts on cruises where a
lack of demand, and therefore the existence of excess capacity, is anticipated.
The Company is offered these discounts with other retail and interline cruise
marketers. The Company believes that there is substantial excess capacity, both
in the market for interline products generally and in particular destinations,
which is not currently made available to the Company for inclusion within its
product line and that, as the Company's interline customer base grows, the
Company will be positioned to augment its product offerings to satisfy any
increase in demand or, alternatively, to offer products which are reasonable
substitutes for products which are not available. The Company's future success
and ability to meet its growth objectives may depend on its ability to procure
additional and more certain supplies of travel products in sufficient quantities
to satisfy the demands of its customer base.

Competition

    Management of the Company believes that competition within the interline
industry is based on price, market visibility and the nature and variety of
products and services offered. As most interline companies are quoted the same
price by hotels, resorts, cruise lines and tour operators, price is not usually
the basis for a competitive advantage. There are several competitors in the
interline travel industry. None are publicly held so reliable sales information
is not available. The Company's competition is largely made up of smaller
organizations formed by former airline employees and retail travel operators
which view the interline market as merely a portion of their business. Most
interline companies tend to focus on a specific destination (Mexico and the
Caribbean, Ski Trips, etc.) or specific airline (e.g., only Continental).
Others, like the Company, offer a more complete range of interline products and
services.


    RISK FACTORS

    RECENT OPERATING LOSSES

    The Company had net operating losses for each of the last 4 fiscal years
(since its inception). See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." Management believes that the capital
infusion represented by the successful completion of the Offering will permit
the Company to fully implement its business plan and achieve ongoing
profitability, but there can be no assurances in this regard.



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<PAGE>   8

    BUSINESS SEASONALITY

    As most travel by interliners takes place during times when there are both
empty seats on airlines and accommodations available at a given travel location,
travel volume for the interline industry tends to decrease when the leisure
travel industry generally, and airlines and cruise lines in particular,
experience high traffic volume. Accordingly, generally high traffic volumes,
together with a lack of available travel accommodations at traditionally popular
travel destinations, have generally resulted in low interline traffic volumes
from the middle of November through the middle of January. Management has taken
a number of steps in an attempt to address the seasonality which confronts the
Company, including the implementation of special promotional campaigns and the
procurement of a substantial supply of travel accommodations at locations not
traditionally frequented by holiday travelers. There can be no assurance that
this seasonality will not have a material adverse effect on the Company or the
Company's financial condition. See, "THE BUSINESS -- The Marketing Division --
Seasonality" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."

    COMPETITION

    The Company is aware of several small competitors in the interline travel
industry, all of which are privately-held and for which no reliable sales
information is available. In providing travel services, the Company believes
that competition in the interline industry is based on price, market visibility
and the nature and variety of products and services offered. The Company
believes that it benefits from being able to offer a broad variety of products
in a variety of destinations. The Company generally offers the prevailing
interline discount rate. See "THE BUSINESS -- The Marketing Division --
Competition." In publishing the Magazine, the Company competes with the ASU
Travel Guide, an approximately 400-page quarterly listing with a significant
readership. The ASU Travel Guide is not affiliated with any reservation or
travel firm providing the types of support services offered by the Company.
Although the Company has designed its products and services and its expansion
strategy with a view to operating in this competitive environment, there can be
no assurance that the Company will be able to compete effectively or profitably.

    RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS

    The Company's results of operations will be dependent upon factors affecting
the travel industry. The Company's revenues and earnings are especially
sensitive to events that affect domestic and international air travel, cruise
travel and resort hotels in Mexico and the Caribbean. A number of factors, most
notably labor disturbances, but including political instability, armed
hostilities, international terrorism, extreme weather conditions, a rise in fuel
prices, a decline in the value of the U.S. dollar and excessive inflation, could
result in an overall decline in demand for interline travel. These types of
events could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, demand for the Company's
travel services may be significantly related to the general level of economic
activity and employment in the U.S. Therefore, any significant economic downturn
or recession in the U.S. could have a material adverse effect on the Company's
business, financial condition and results of operations.

    RELIANCE ON SUPPLIERS

    Although the Company sells all of the major cruise lines serving the
interline market, many of the cruise lines are part of holding company
structures. Should one of these holding companies fail, the possible adverse
effects on the Company would be twofold. First, the Company would be denied a
significant supply of cruise berths to be sold to its interline travel
customers. Second, the amount of overall supply in the cruise industry would be
reduced, which would also reduce the amount of usual or "marginal" capacity
available for sale to interlines. To date, during the Company's operations
within the interline industry, no major cruise line operator has failed, making
it difficult to estimate with precision the impact such failure would have on
the Company's operation.



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    DEPENDENCE UPON TECHNOLOGY

    The Company's business is dependent upon a number of different
state-of-the-art information and telecommunication technologies to facilitate
its access to information and manage a high volume of inbound and outbound
calls. Any failure of this technology would have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company is dependent upon certain third party vendors, including central
reservation systems operators such as the SABRE Group, for access to certain
information. Any failure of these systems or restricted access by the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. See, "ITEM 2. DESCRIPTION OF PROPERTY."

    POTENTIAL CONFLICTS OF INTEREST

    Certain of the officers and directors of the Company are also officers,
directors and shareholders of BEI Holdings, Inc. ("BEI"). Until January 31,
1998, the Company and Airfair were parties to a Marketing Agreement pursuant to
which the Company was permitted (i) to market travel accommodations held by a
BEI subsidiary to its customers and (ii) to retain a portion of each sale of
such accommodations as a commission. To date, the amount of such sales and such
commissions have been immaterial and, although the Company believes that the
commission to be retained by the Company was not less than the commission which
would have been received from a third party, the Company has not obtained an
independent appraisal of the fairness of such agreement. The Company has
undertaken to not engage in transactions with affiliates on terms less favorable
to the Company than might be received from independent third parties. See,
"CERTAIN RELATIONSHIPS AND MATERIAL TRANSACTIONS."

    SHARES ELIGIBLE FOR FUTURE SALE

    Future sales of shares of Common Stock by the Company or its existing
stockholders, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock. Approximately 3,024,900 shares of
Common Stock are outstanding. Of the outstanding shares, approximately 2,197,000
shares held by existing stockholders are tradeable without restriction. The
remaining shares of Common Stock are "restricted securities" (the "Restricted
Securities") within the meaning of Rule 144 under the Securities Act and may not
be publicly resold, except in compliance with the registration requirements of
the Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144 promulgated under the Securities Act. Approximately 27% of
the outstanding shares of Common Stock, in addition to being Restricted
Securities, are subject to agreements to not sell such Restricted Shares for a
48-month period beginning on February 5, 1998, except under agreed upon limited
restrictions. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect the prevailing market price
of the Common Stock.

    In addition to the outstanding shares of Common Stock, there are 159,932
shares subject to outstanding warrants and options at a weighted average
exercise price of $6.49 per share. See, "MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS." There are also 450,000 shares of Common Stock reserved
for issuance under the Company's stock option plans, of which 277,984 shares are
subject to outstanding options at a weighted average exercise price of $5.59 per
share. See "EXECUTIVE COMPENSATION--Long-Term Incentive Plan." During the year,
the Company issued 140,000 non-qualified stock options to directors, one member
of management and one outside consultant. These options vest over two years with
an exercise price of $5.00 per share. These options expire July 1, 2008.
Registration statements are expected to be filed to permit the resale of shares
issuable upon exercise and, the resale of the shares acquired upon exercise
could adversely affect the prevailing market price of the Common Stock.

    VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

    The Company's executive officers and directors, entities affiliated with
them and employees of the Company and holders of at least 5% of the outstanding
Common Stock affiliated with the executive officers and directors beneficially
own shares of Common Stock representing more than 29% of the total voting power
of the Common 



                                       9
<PAGE>   10

Stock. These persons, if acting in concert, will be able to exercise control
over the Company's affairs and are likely to be able to control the Board of
Directors and the disposition of any matter submitted to a vote of stockholders.

ITEM 2. DESCRIPTION OF PROPERTY

    The Company maintains an extensive phone and computer system with which it
handles the calls generated by its advertisements and completes the reservation
process through its reservation centers. The phone system and computer system
maintained by the Company are critical elements in the Marketing Division's
marketing efforts. The Company has installed an extensive phone system and
computer network which the Company believes is capable of handling the Marketing
Division's needs for the foreseeable future. However, the Company is constantly
evaluating new technologies, upgrades or product enhancements which would serve
to enhance the Company's operations. The Marketing Division's ability to service
interliners will be dramatically reduced should either the phone or computer
system become inoperable. The Company believes that it has taken appropriate
steps to assure that the phone and computer system are as reliable and well
protected as electronic equipment can reasonably be expected to be. There can be
no assurances, however, that the Company's electronic equipment will at all
times be usable by the Marketing Division in its efforts to service interline
customers.

    The Company occupies approximately 10,500 square feet of office space at 211
East Seventh Street, Suite 1100, Austin, Texas 78701, its main office, and 630
square feet of office space at 1499 West Palmetto Park Road, Suite 222, Boca
Raton, Florida 33486. The Company's phone number is (512) 391-2000. The Company
owns no property other than office furniture, equipment and software.

    The Company currently employs 92 full time people. It is anticipated that up
to 200 additional personnel will be required to meet the demands of the
projected market over the next five years. Most of these positions will be in
the areas of reservations and operations processing and servicing the Company's
projected volume increases. None of the Company's employees are members of a
labor union and, since the date of the Merger, the Company has not suffered any
work stoppages or labor unrest.

ITEM 3. LEGAL PROCEEDINGS

    The Company is not a party to any material legal proceedings, and no
material legal proceedings have been threatened by or, to the best of the
Company's knowledge, against the Company.

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

a. The annual Shareholders' meeting was held at the Company's corporate offices
in Austin, Texas on July 8, 1998. 

The number of qualified shareholder votes attending the meeting either in person
or by proxy totaled 1,264,552 shares. The total outstanding number of common
shares of the Company as of April 9, 1998, the date of record for the
Shareholder meeting totaled 3,024,883 shares. Therefore, a quorum was present.

b. The Shareholders elected the following individuals to the Board of Directors
to serve until the next annual meeting:

  Matthew O'Hayer, Chairman of the Board
  Robert Sandner, Director
  Robert G. Rader, Director
  Duane K. Boyd, Director

Mr. O'Hayer received 1,262,552 votes for, 2,000 votes abstaining, and no votes
against

Mr. Sandner received 1,262,552 votes for, 2,000 votes abstaining, and no votes
against

Mr. Rader received 1,262,552 votes for, 2,000 votes abstaining, and no votes
against

Mr. Boyd received 1,262,552 votes for, 2,000 votes abstaining, and no votes
against

There being no further business, the Shareholder meeting was adjourned.

                                       10

<PAGE>   11


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

The Common Stock is currently traded in the NASDAQ SmallCap(R) Market under the
symbol "GATT." Prior to the Offering and the inclusion of the Common Stock in
the NASDAQ SmallCap(R) Market, the Common Stock was traded irregularly and
infrequently in the over-the-counter market and quoted on OTC EBB under the same
symbol and quoted in the pink sheets published by the National Quotations
Bureau. Since May 1995, from time to time, a very small number of securities
broker-dealers published only intermittent quotations for the Common Stock, and
there was no continuous, consistent trading market. During the above period
(prior to Offering in February 1998), the limited nature of the trading market
created the potential for significant changes in the trading price for the
Common Stock as a result of relatively minor changes in the supply and demand
for Common Stock and perhaps without regard to the Company's business
activities. The following table sets forth, for each of the Company last eight
fiscal quarters, the high and low bid and ask prices for the Common Stock. All
of the 1997 transactions were effected prior to the 1-for-7 reverse stock split
effected in December, 1997:

<TABLE>
<CAPTION>
                                                                                BID                 ASK
                                                                        ------------------   -----------------
                         QUARTER ENDED                                    HIGH       LOW      HIGH       LOW
----------------------------------------------------------------        -------    -------   -------   -------
<S>                                                                     <C>        <C>       <C>       <C> 
December 31, 1998...............................................        2 15/16    1 1/4     3         1 9/16
September 30, 1998..............................................        3 5/8      1 9/16    3 7/8     1 3/4
June 30, 1998...................................................        4 7/8      3 1/4     5 1/8     3 1/2
March 31, 1998..................................................        4 13/16    3 5/16    4 15/16   3 7/16
December 31, 1997...............................................          3/4        7/16    1 3/8       11/16
September 30, 1997..............................................        1 3/4        11/16   1 3/4     1
June 30, 1997...................................................        2 1/2      1 3/4     2 1/2     1
March 31, 1997..................................................        2 1/2      1 1/8     2 1/2     1 7/8
</TABLE>


Because of the lack of specific transaction information for 1997 and the
Company's belief that quotations during that period were particularly sensitive
to actual or anticipated volume of supply and demand, the Company does not
believe that such quotations during this period are reliable indicators of a
trading market for the Common Stock. Such prices are without retail mark-up,
mark-down, or commissions.

SHARES ELIGIBLE FOR FUTURE SALE

    Prior to the Offering, the Common Stock was traded on the National
Association of Security Dealers, Inc.'s electronic bulletin board. Trading
actively was very infrequent. Sales of substantial amounts of Common Stock in
the public market could adversely affect the market price of the Common Stock.

    As of March 31, 1999, the Company had approximately 3,024,900 shares of
Common Stock outstanding. Of these shares, approximately 2,197,000 shares are
transferable without restriction or further registration under the Securities
Act, unless they are held by "affiliates" of the Company within the meaning of
Rule 144 promulgated under the Securities Act. All of the remaining shares,
which total approximately 829,000 shares are Restricted Securities and, as such,
may not be sold in the absence of registration under the Securities Act or an
exemption therefrom under Rule 144, and are subject to 48-month "lock-up"
agreements. Small portions of these 48-month Lock-up Shares may be sold by the
holders thereof after the second and third anniversaries of the Offering and the
remainder may be sold after the fourth anniversary.

    In addition to the outstanding shares of Common Stock, and exclusive of
options granted pursuant to the Company's employee stock option plan, there are
159,932 shares of Common Stock subject to outstanding warrants and options at a
weighted average exercise price of $6.49 per share (as adjusted for the Reverse
Stock Split). Such warrants are exercisable for periods expiring at various
dates between 1999 and 2002. The Company has granted

                                       11

<PAGE>   12
the holders of such warrants certain registration rights relating to the Common
Stock purchasable upon the exercise of such warrants. The Company has agreed
with the Boston Stock Exchange that it will not issue or grant warrants, options
or other securities convertible or exercisable into shares of the Common Stock
at a conversion or exercise price less than 85% of the market price of the
Common Stock as of the time of such issuance or grant.

    The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of Common Stock,
as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities. Prior to the Offering, there was no
viable trading market for the Common Stock. The Company anticipates that the
trading market in the Common Stock, if any, will be limited based upon the
number of shares currently outstanding.

    The Company has reserved an aggregate of 450,000 shares of Common Stock for
issuance pursuant to the Company's stock option plan and options to purchase
277,984 shares at an average exercise price of $5.59 per share were outstanding
on December 31, 1998. The Company also issued non-qualified stock options to
acquire 140,000 shares of common stock to members of the Board of Directors, one
member of management and one outside consultant as of July 1, 1998 at an
exercise price of $5.00 per share. These options expire July 1, 2008. The
Company intends to file a registration statement under the Securities Act to
register shares of Common Stock reserved for issuance under such plans in the
near future . See "EXECUTIVE COMPENSATION -- LONG-TERM INCENTIVE PLAN."

                                       12

<PAGE>   13


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

    The financial information set forth in the following discussion should be
read in conjunction with, and qualified in its entirety by, the financial
statements of the Company included elsewhere herein.

GENERAL

The Company successfully completed a public offering (the "OFFERING") in the
first quarter of 1998, which permitted the Company to aggressively expand the
following critical areas: marketing, publication circulation, technology and
product development. In the area of marketing, the Company increased the number
of field representatives distributing the Company's marketing materials to
professional airline personnel around the world, as well as the number of
publications distributed. As a result of this increased distribution of
publications, the Company applied for a circulation audit of its magazine
distribution list. Upon completion of the audit, the Company anticipates having
controlled circulation of its magazine, which should, in turn, enhance its
ability to sell advertising to business other than hotels and cruise lines,
which historically have been the Company's primary sources of advertising
revenues. In the area of technology, the Company installed a state-of-the-art
phone system and enhanced its Internet capabilities by beginning development of
a new multi-functional web-site with on-line reservation processing. In the area
of product development, the Company significantly improved the product line
available to the Company's customers by establishing a presence in new
destinations and by increasing the number of or by upgrading properties within
existing destinations. In an effort to accommodate the increased phone volume
generated from the expansion in marketing, publishing and product development
discussed above, the Company recruited, hired and trained additional qualified
sales representatives and other support personnel. Full-time employment at the
Company increased 109%, from 44 on January 1, 1998 to 92 at March 24, 1999.

The marketing expansion over the last year has resulted in a substantial
increase in: (a) the number of properties and destinations offered to
interliners (from approximately 500 properties at the beginning of 1998 to
almost 1,300 as of March 1999), (b) the number of field representatives
distributing marketing material (from approximately 550 a year ago to over 1,550
as of March 1999), and (c) an increase in the number of magazines being
distributed ( from approximately 15,000 in January 1998 to over 100,000 as of
March 1999). In addition, the Company's Update was changed from a bi-monthly
publication to monthly (with approximately 300,000 copies being distributed on a
monthly basis). Though this expansion was steadily increasing throughout 1998
the Company did not reap all of the anticipated benefits in that year. However,
the first quarter of 1999 is realizing some of the delayed effects of the
expansion through a substantial increase in travel booking and advertising
revenue.

Because of the funding associated with expansion of the Company's business in
all of these areas, the Company sustained a loss of $1.6 million for the year.
However, the Company realized revenue increases in cruise and tour sales, as
well as a significant increase in magazine advertising revenue.

During the last quarter of 1998, the Company acquired certain assets and assumed
certain liabilities of three interline related competitors. The Company believes
this to be a significant step in consolidating the highly fragmented competition
in the interline market. A brief description of these acquisitions follows.

On November 5, 1998, the Company acquired the interline related assets of
Exclusively Cruises, Atlanta, Inc. a privately held travel company offering
cruises and tours to the retail and interline markets. The purchase
consideration was paid in cash and a note and accounted for using the purchase
method of accounting. This acquisition is expected to generate in excess of $1
million in annual revenues with no material increase in related operating
expenses. Among the assets acquired included the trade name "Exclusively
Interline" and client list with over 14,000 airline employee names that has been
be integrated into the Company's client base for distribution of marketing
materials.

On December 11, 1998, the Company acquired certain assets and assumed certain
liabilities of Sun Central Reservations, Inc. and The Pass Bureau, Inc. which
had just recently been acquired by Sun Central. Sun Central was also a privately
held travel company offering hotel and resort packages as well as cruises to the
interline market. The purchase consideration was paid in cash and accounted for
using the purchase method of accounting. 

                                       13

<PAGE>   14


The acquired companies generated approximately $3.8 million in resort revenue in
1998. The Pass Bureau pioneered interline travel sales on the Internet and among
the assets acquired include several thousand email addresses, two web sites and
seven web addresses including www.sun-central.com, www.passbureau.com,
www.pass-bureau.com, www.nonrev.com, www.non-rev.com, www.airline-employee.com,
and www.interline-travel.com. Sun Central Reservations was a provider of
interline travel services primarily competing on price.


THE PUBLIC OFFERING

    On February 5, 1998, the Company completed an underwritten public offering
("Offering") for 1,200,000 shares of its Common Stock, $.0001 par value at $5.00
per share through an underwriting syndicate led by Capital West Securities, Inc.
The gross proceeds of the offering were $6,000,000. After underwriting discount
and commissions, the net proceeds to the Company were $5,230,000. From February
through December, 1998, the Company utilized a portion of these proceeds to: (a)
pay off all notes payable that did not convert to common stock in an amount of
approximately $821,000; (b) to pay offering expenses of $442,000; (c) to
purchase computer and telephone equipment and furniture of $400,000; (d) to pay
past due vendor payables and operating and publishing expenses of $690,000; (e)
the funding of the acquisitions; and (f) the funding of operations since the
Offering. The remaining funds are being used for implementing the Company's
business plan, which focuses primarily on building the marketing and publishing
areas of the Company.

FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION

    The Company had a positive working capital of $1.4 million as of December
31, 1998, as compared to a negative working capital of $621,000 at December 31,
1997. The cause for this increase in working capital between years was the cash
infusion from the Offering. Total current assets increased 223% between years
to $3.1 million with the largest increase being in cash. Current liabilities
increased 7% between years. This increase in current liabilities was primarily
a result of the Company's borrowing funds during December 1998 on margin
against the invested funds in order to pay assumed liabilities incurred in the
acquisition of Sun Central as well as the funding of publications that were
distributed in December. The travel revenue to be generated from the
distribution of these publications will not be recognized as revenue until
1999.

    Deferred revenue liabilities for hotels and cruises represent the moneys
received from passengers that are deferred for revenue recognition purposes
until the passenger has completed travel. These deferred liabilities are
short-term in nature due to the short time frame between booking date and travel
date. Deferred subscription revenue represents subscription moneys received but
not earned at quarter end. Magazine subscriptions are normally paid in full in
advance for the one- or two-year subscription period. Subscription revenue is
earned on a prorata basis as the magazines are printed and shipped to the
subscribers. It is anticipated that subscription revenue will continue to
decrease as the Company focuses on controlled (free) distribution of the
magazine that will put more emphasis on advertising revenue as opposed to a
subscription base.

    The Company retired all of the notes payable and convertible debentures that
existed at December 31, 1997. Subsequent to the Offering, holders of $863,000 of
convertible debt elected to convert their debt into approximately 389,554 shares
of Common Stock. All of the remaining 1997 debt was repaid in cash subsequent to
the Offering. During the last quarter of 1998, the Company borrowed funds
against its investment accounts on a short-term basis in order to fund the
acquisition and the publications mentioned above.

    Total assets increased 294% to $4.2 million at December 31, 1998. Of these
assets, cash and cash equivalents amounted to $2.1 million at the end of the
1998. The restricted cash balance of $175 thousand represents a portion of the
Company's certificates of deposit pledged as a reserve for charge backs against
the Company's Visa/MasterCard credit card processing and also pledged against
various letters of credit to hotel/cruise vendors. The letters of credit serve
as security for the vendors to allow the Company to make last minute bookings
with these vendors without having to pay in advance of travel. None of these
letters of credit have been drawn on to date.

                                       14

<PAGE>   15

    The accounts receivable balance is comprised primarily of advertising
revenue due from vendors that advertised in the Magazine and Updates. Prepaid
tour cost and prepaid cruise cost represents funds paid to hotels and cruise
lines as of December 31, 1998, for travel dates that occur after that date.
These prepaid items relate directly to the previously discussed deferred
revenues and are also very short-term in nature. Room/Cabins held for sale
arises out of advertising agreements where hotels allot rooms in exchange for
advertising in the Company's publications. There was also a balance due from
affiliates (BEI/IMS) which is secured by a short term promissory note bearing
interest and collateralized by shares in a publicly traded company. The
agreement calls for the shares to be sold on the open market over time with the
proceeds being used to pay off the balance due the Company. The Company set up a
reserve for uncollectible accounts of $128 thousand at December 31, 1998 against
this affiliate balance based on the approximate fair market value of the
collateral.

RESULTS OF OPERATIONS

Overall Operating Results

The Company had a net loss for the year ended December 31, 1998 of $1.6 million,
as compared to a loss of $598 thousand for the prior year. The current year loss
is primarily a result of increased expenses associated with the aggressive
expansion of its marketing distributions and the addition of travel sales
representatives, product and publishing personnel and technical personnel in
information services. The 1998 marketing expansion: (a) more than doubled the
number of properties and destinations offered to interliners (from approximately
500 properties at the beginning of 1998 to almost 1,300 as of March 1999), (b)
more than doubled the number of field representatives distributing marketing
material (from approximately 550 a year ago to over 1,550 as of March 1999), and
(c) increased the number of magazines being distributed more than six times over
prior levels (from approximately 15,000 in January 1998 to over 100,000 as of
March 1999). In addition, the Company's Update was changed from a bi-monthly
publication to monthly (with approximately 300,000 copies now being distributed
on a monthly basis, effectively doubling the number of Updates printed and
distributed). The Company believes that the benefits of this expansion were not
fully realized in 1998, and will be realized in subsequent periods as well. For
example, travel and advertising revenues for the first quarter of 1999, and
bookings which lead to travel revenues, are substantially in excess of
comparable periods in the first quarter of 1998.

Revenue

    Gross revenue for the year ended December 31, 1998 increased 28% over 1997
levels. Hotel and resort sales increased 32% while cruises/tours increased 24%
over 1997. Advertising and subscription revenues increased 31% over this same
time frame. Since the Offering, the Company has increased the quantity,
distribution and frequency in the production of its publications and has
utilized a portion of the proceeds of the Offering in this effort. Management
anticipates that both travel and advertising sales should continue to grow with
the aid of a stronger distribution network for its publications and a consistent
and increased publishing schedule. Management believes that the revenues from
the publishing and travel portions of its business are integrally tied to one
another - improved hotel sales, for example, facilitate sales of advertising to
hotels and increased hotel advertising improves the likelihood of sales of rooms
within the advertising hotels.

    The Company recognizes hotel and cruise revenues on a "booked, paid,
traveled" basis (i.e. revenue is not earned until the passenger has traveled).
The Company sells advertising over a given number of issues and advertising
revenues are recognized as the applicable publications are printed and
distributed.

Cost of Goods Sold

The typical gross margins for hotel and resort sales range from 22% to 23%.
Typical cruise and tour gross margins range from 11% to 13%. Margins for both
hotels and cruises can fluctuate depending on a number of factors relative to
the properties being sold (competition, location, availability of supply and
others). Publishing cost increased due to a large increase in the number of
publications being distributed. The Company anticipates that the number of
Magazines and Updates issued in the future will continue to increase as the
Company increases its

                                       15

<PAGE>   16


airline employee database through its marketing efforts as well as possible
future acquisitions of interline related companies.

Operating Expenses

    Operating expenses for the year increased 55%. The primary increases in
expenses relate to increased staffing at both the support and reservation
personnel levels. The Company added reservation, marketing, accounting, and
management information services personnel in order to service both the increase
in telephone and Web site inquiries.

    The Company installed an interactive, searchable web site (http://perx.com)
containing information and rates for most of the properties it sells. There were
also increases in depreciation and goodwill amortization due to the
aforementioned furniture and equipment purchases and acquisitions.

    Because of the increase in new bookings, the Company also experienced a
significant increase in credit card fees, telephone and postage and delivery
charges. The revenue associated with these expenditures will be recognized when
travel has occurred which may or may not be in the same quarter as the expense.
Subsequent to the end of 1998, the Company re-negotiated its long distance rate
with its current telephone services provider which should result in a
substantial monthly savings in that area. The Company is also currently
undergoing a postal rate audit on the distribution of the magazine which, if
successful, should result in substantial on-going savings in that area as well.

    As already noted, the Company anticipates experiencing increased travel and
advertising sales in 1999. The Company believes that the following types of
operating expenses will vary with travel sales and generally increase as travel
sales increase: reservation personnel costs, credit card fees, telephone expense
and postage and delivery expenses. The actual levels of these expenses will be a
function of numerous factors including but not limited to the experience,
closing capabilities and product knowledge of the reservation staff. The Company
believes that advertising sales can increase substantially without proportionate
increases in operating expenses.


LIQUIDITY AND CAPITAL RESOURCES

    The Company has an accumulated deficit of $4.1 million ($544,000 of this
deficit is attributable to periods prior to the Company's commencement of
operations within the interline travel industry and $357,000 is attributable to
a one-time non-cash charge incurred December 1997 in connection with the
Offering).

     The Company continues to hold a substantial cash reserve in order to
implement the future plans of the Company. The Company does not currently
foresee any liquidity problems in funding its future growth with these cash
reserves and funds generated from operations.

NEW ACCOUNTING PRONOUNCEMENTS

    The Company has adopted FASB Statement 128, a recently issued accounting
standard. It is not expected that the Company will be impacted by other recently
issued standards. FASB Statement 128 presents new standards for computing and
presenting earnings per share (EPS). The Statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997.

    FASB Statement 131 presents news standards for disclosures about segment
reporting. The Company does not believe that this accounting standard applies to
the Company as all operations of the Company are integrated for financial
reporting and decision making purposes.

                                       16

<PAGE>   17


YEAR 2000 PREPAREDNESS

    The Company recognizes that computer systems and all forms of electronic
technology, information technologies and non-information technologies, could be
adversely affected by the year 2000 date. This is because many systems and
technology components use a two-digit field to represent the year in dates
(e.g., "98" rather than "1998"). With the advent of year 2000, systems and
programs may fail or produce incorrect data believing it is the year 1900,
causing not just information technology problems but also business and
operations problems.

    The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company's accounting and
reservation systems have been upgraded to accommodate the Year 2000 and beyond.
The Company currently does not expect that the cost of its Year 2000 compliance
program will be material to its financial condition or results of operations or
that its business will be adversely affected by the Year 2000 issue in any
material respect. Nevertheless, achieving Year 2000 compliance is dependent on
many factors, some of which are not completely within the Company's control.
Should either the Company's internal systems or the internal systems of one or
more significant vendors or suppliers fail to achieve Year 2000 compliance, the
Company's business and its results of operations could be adversely affected.

INFLATION

    The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future because of the short time frame between reservation
bookings and the dates of travel.

FOREIGN CURRENCY RISK

    The Company has recently entered into contracts with certain hotels/resorts
located primarily in Europe which stipulate conversion of U.S. dollars into
different European currencies at time of travel. The Company is currently
evaluating its foreign currency risk in regard to these contracts. To date, the
amount of Company sales of these properties has been immaterial to the
Company's financial operations and the Company has not experienced any erosion
of margins on sales of these properties due to currency conversion rates.

FORWARD-LOOKING INFORMATION

    From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange
Commission. Words or phases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project or projected", or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). The Company wishes to ensure that such statements are accompanied by
meaningful cautionary statements, so as to maximize to the fullest extent
possible the protections of the safe harbor established in the Reform Act.
Accordingly, such statements are qualified in their entirety by reference to
and are accompanied by the following discussion of certain important factors
that could cause actual results to differ materially from such forward-looking
statements.

    Management is currently unaware of any trends or conditions other than those
previously mentioned in this management's discussion and analysis that could
have a material adverse effect on the Company's consolidated financial position,
future results of operations, or liquidity. However, investors should also be
aware of factors that could have a negative impact on the Company's prospects
and the consistency of progress in the areas of revenue generation, liquidity,
and generation of capital resources. These include: (i) variations in the mix of
hotel, cruise, and magazine revenues, (ii) possible inability to attract
investors for its equity securities or otherwise raise adequate funds from any
source should the Company seek to do so, (iii) increased governmental
regulation, (iv) increased competition, (v) unfavorable outcomes to litigation
involving the Company or to which the Company may become a party in the future
and, (vi) a very competitive and rapidly changing operating environment.
Furthermore, reference is also made to other sections of this report that
include factors that could adversely impact the Company's business and financial
performance.

                                       17

<PAGE>   18

The risks identified here are not all inclusive. New risk factors emerge from
time to time and it is not possible for Management to predict all of such risk
factors, nor can it assess the impact of all such risk factors on the Company's
business or the extent to which any factor or combination of factors may cause
actual results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.

                                       18

<PAGE>   19


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA







                                       19

<PAGE>   20

                    GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY

                              FINANCIAL STATEMENTS
                            AND REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

                           DECEMBER 31, 1998 AND 1997








                                       20

<PAGE>   21


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                 PAGE
<S>                                                                                              <C>
Report of Andersen, Andersen & Strong, Independent Certified Public Accountants                  F-2

Consolidated Balance Sheets                                                                      F-3

Consolidated Statements of Operations                                                            F-4

Consolidated Statements of Changes in Stockholders' Equity                                       F-5

Consolidated Statements of Cash Flows                                                            F-6

Notes to Consolidated Financial Statements                                                       F-8
</TABLE>










                                       21

<PAGE>   22

To The Board of Directors
 of Grand Adventures Tour & Travel Publishing Corporation and Subsidiary
Austin, Texas

We have audited the accompanying consolidated balance sheets of Grand Adventures
Tour & Travel Publishing Corporation (formerly Riley Investments, Inc.) and its
subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Grand
Adventures Tour & Travel Publishing Corporation and subsidiary as of December
31, 1998 and 1997, and the results of their consolidated operations and their
consolidated cash flows for the years referred to above, in conformity with
generally accepted accounting principles.


ANDERSEN ANDERSEN & STRONG, L.C.

March 29, 1999
Salt Lake City, Utah




                                      F-2

<PAGE>   23


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,     DECEMBER 31,
                                                                                   1998              1997
ASSETS                                                                          ------------     ------------
CURRENT ASSETS
<S>                                                                             <C>              <C>           
     Cash and cash equivalents                                                  $   236,452               --
     Available for sale securities (Note 2)                                       1,868,469               --
     Cash - restricted (Note 2)                                                     175,500          181,375
     Accounts receivable, net of allowance for doubtful accounts
              of $43,163 in 1998 and $12,020 in 1997 (Note 2)                       191,226          103,310
     Due from affiliate, net of allowance for reserve for
              Impairment of $128,046 in 1998 (Note 6)                                80,065          255,361
     Accrued investment income                                                       17,850               --
     Other prepaid expenses                                                          96,613               --
     Rooms/Cabins held for sale (Note 2)                                            253,901          182,978
     Prepaid offering expenses  (Note 2)                                                 --          113,508
     Prepaid hotel cost (Note 2)                                                    135,252           53,027
     Prepaid cruise and tour cost (Note 2)                                           78,943           80,482
                                                                                -----------      -----------
             Total Current Assets                                                 3,134,271          970,041
PROPERTY AND EQUIPMENT, AT COST, NET OF
     Accumulated depreciation (Notes 2 and 3)                                       410,505           58,851
OTHER ASSETS
     Other assets                                                                    11,680           37,179
     Intangible assets, net of accumulated
              Amortization (Notes 2 and 5)                                          680,543          375,919
                                                                                -----------      -----------
                                                                                $ 4,236,999      $ 1,441,990
                                                                                ===========      ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable                                                           $   277,802      $   420,303
     Cash overdraft                                                                      --           26,095
     Other current liabilities                                                      196,908          335,294
     Current portion of long-term debt (Note 7)                                     616,500          290,562
     Deferred hotel revenue (Note 2)                                                471,034          284,939
     Deferred cruise and tour revenue (Note 2)                                       92,209          153,056
     Deferred subscription revenue (Note 2)                                          48,706           80,641
                                                                                -----------      -----------
             Total Current Liabilities                                            1,703,159        1,590,890
OTHER LIABILITIES
     Long-term debt (Note 7)                                                             --        1,282,812
                                                                                -----------      -----------
             Total Other Liabilities                                                     --        1,282,812
STOCKHOLDERS' EQUITY (DEFICIT)
     Preferred stock, no par value; authorized
             10,000,000 shares; none issued and outstanding                              --               --
     Common stock $.0001 par value; authorized
             30,000,000 shares; issued and outstanding
             3,024,883 and 1,431,858 shares in 1998 and 1997,
             Respectively (Note 9)                                                      302              143
     Additional paid-in capital (deficit)                                         6,610,474          959,447
     Accumulated deficit                                                         (4,076,936)      (2,391,302)
                                                                                -----------      -----------
             Total Stockholders' Equity (Deficit)                                 2,533,840       (1,431,712)
                                                                                -----------      -----------
                                                                                $ 4,236,999      $ 1,441,990
                                                                                ===========      ===========
</TABLE>

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



                                      F-3
<PAGE>   24


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                            DECEMBER 31,       DECEMBER 31,
                                                                1998              1997
                                                            ------------      -------------
<S>                                                         <C>               <C>         
REVENUES
     Hotel revenue                                          $  5,675,904      $  4,294,918
     Cruise and tour revenue                                   9,752,847         7,878,461
     Magazine subscription and advertising revenue               765,579           581,176
     Investment and other revenue                                162,344            17,640
                                                            ------------      ------------
             Total Revenues                                   16,356,674        12,772,196
COST OF SALES
     Hotel cost                                                4,405,837         3,158,938
     Cruise and tour cost                                      8,629,259         7,000,289
     Magazine publishing cost                                  1,109,238           695,884
     Merchandise cost                                                 --             1,410
                                                            ------------      ------------
             Total Cost of Sales                              14,144,334        10,856,521

             GROSS PROFIT                                      2,212,340         1,915,674

OPERATING EXPENSES
     Selling, general and administrative expenses              1,605,349         1,008,437
     Wages                                                     2,202,622         1,108,745
     Depreciation and amortization                                90,004            39,857
     Bridge loan financing charge                                     --           357,130
                                                            ------------      ------------
             Total Operating Expenses                          3,897,975         2,514,169
                                                            ------------      ------------
Net Income (Loss) Before Income Taxes                       ($ 1,685,635)     ($   598,495)
Income Tax Expense                                                    --                --
NET INCOME (LOSS)                                           ($ 1,685,635)     ($   598,495)
                                                            ============      ============
Net Income (Loss) Per Common Share (Note 2)                 ($      0.58)     ($      0.44)
                                                            ============      ============
Weighted Average Common Shares Outstanding                     2,892,131         1,371,289
                                                            ============      ============
</TABLE>

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

                                      F-4

<PAGE>   25


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>
                                                                                       ADDITIONAL
                                                             COMMON STOCK               PAID IN         RETAINED
                                                       SHARES            AMOUNT         CAPITAL         DEFICIT            TOTAL
<S>                                                    <C>           <C>              <C>              <C>              <C>         
All share transactions are adjusted for
  1-for-7 reverse stock split (Note 9)

Balance at December 31, 1996                           1,358,432     $       136      $   599,024      $(1,792,807)     $(1,193,647)
     Issuance of shares for services
       ($1.75 per share)                                   1,857              --            3,250               --            3,250
     Issuance of shares in connection with
       Promissory note ($5.00 per share)                  71,436               7          357,173               --          357,180
     Issuance of shares for reverse stock split              133              --               --               --               --
     Net loss                                                                                  --         (598,495)        (598,495)
                                                      -----------    -----------      -----------      -----------      -----------
Balance at December 31, 1997                           1,431,858             143          959,447       (2,391,302)      (1,431,712)
     Issuance of common shares
       ($5.00 per share less offering costs)           1,200,000             120        4,787,678               --        4,787,798
     Conversion of notes payable into
       Common shares ($2.20 per share)                   393,025              39          863,349               --          863,388
     Net loss                                                 --              --               --       (1,685,635)      (1,685,635)
                                                      -----------    -----------      -----------      -----------      -----------
Balance at December 31, 1998                           3,024,883     $       302      $ 6,610,474      $(4,076,936)     $ 2,533,840
                                                     ===========     ===========      ===========      ===========      ===========
</TABLE>

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

                                      F-5

<PAGE>   26


                  GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      December 31,     December 31,
                                                                         1998              1997
                                                                      ------------     ------------
<S>                                                                   <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                              ($1,685,635)     ($  598,495)
Adjustments to reconcile net loss to cash provided by
     Operating activities:
              Depreciation and amortization                                90,004           39,857
              Provision for losses on accounts receivable                 159,189            3,210
              Promissory note financing charge                                 --          357,130
              Changes in operating assets and liabilities:
              Restricted Cash                                               5,875         (138,135)
              Accounts receivable                                        (119,059)         (86,609)
              Rooms/Cabins held for sale                                  (70,923)        (182,978)
              Prepaid offering expenses                                   113,508         (113,508)
              Other prepaid expenses                                      (17,850)              --
              Accrued investment income                                   (96,613)              --
              Prepaid hotel cost                                          (82,225)         199,317
              Prepaid cruise and tour cost                                  1,539          388,228
              Other assets                                                 25,499          (37,179)
              Accounts payable                                           (142,501)        (158,685)
              Accrued expenses                                           (138,386)         206,149
              Receivable from affiliates and other                         47,250         (343,574)
              Deferred hotel revenue                                      186,095         (100,913)
              Deferred cruise and tour revenue                            (60,847)        (360,454)
              Deferred subscription revenue                               (31,935)         (24,419)
              Deferred discount                                                --          (54,644)
                                                                      -----------      -----------
                   Net Cash Used by Operating Activities               (1,817,015)      (1,005,702)
                                                                      -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of marketable short-term investments                     (1,868,469)              --
     Business acquisitions                                               (329,731)              --
     Purchase of property and equipment                                  (416,550)         (14,510)
                                                                      -----------      -----------
                   Net Cash Used by Investing Activities               (2,614,750)         (14,510)
                                                                      -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from sale of common stock                                 5,651,186            3,300
     Proceeds from notes payable                                          636,500        1,377,956
     Repayments of notes payable                                       (1,593,374)        (336,416)
                                                                      -----------      -----------
                   Net Cash Provided by Financing Activities            4,694,312        1,044,840
                                                                      -----------      -----------
     Net Increase in Cash                                                 262,547           24,628
     Cash at Beginning of Period                                          (26,095)         (50,723)
                                                                      -----------      -----------
     Cash at End of Period                                            $   236,452      ($   26,095)
                                                                      ===========      ===========
SUPPLEMENTAL CASH FLOW INFORMATION
     Cash paid during the year for interest                           $    53,892      $    83,171
                                                                      ===========      ===========
</TABLE>


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

                                      F-6

<PAGE>   27


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)



       SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

<TABLE>
<CAPTION>
                                                                           1998         1997
                                                                         --------     --------
<S>                                                                      <C>          <C>     
Conversion of notes payable into 389,554 shares of common stock          $863,349     $     --

Cancellation of indebtedness and reduction of intangibles                      --      224,963

Recognition of promissory note financing charge in connection
  with issuance of common shares                                               --      357,130

Issuance of common shares in payment of interest expense                       --        3,250

Acquisition of net room credits in exchange for advertising                70,923      182,978
</TABLE>

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

                                      F-7

<PAGE>   28


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

1.       BUSINESS ACTIVITIES

The Company serves a portion of the travel industry known as "interliners".
Interliners are the active employees and retirees of the airline industry, who
may fly on many carriers for free or at a very significantly reduced fare, along
with their families and the friends to whom they pass along their allotments of
no-cost or low-cost flying privileges. Interliners are generally able to procure
hotel or resort accommodations in destination locations, berths on cruise ships
and other travel products at rates representing a courtesy of up to 50% off of
established rates, primarily because interliners have a high propensity to
travel and tend to travel during off-peak periods when "stand-by" space is
available at hotels and resorts and on cruise ships. These factors have led the
travel industry to view interline bookings as incremental revenue that
supplements normal marketing revenue.

The Company serves both interline travelers and operators (hotels, resort,
cruise lines and others) segments of the interline industry through two distinct
business units: Interline Adventures, a publication formerly titled Airfair
Magazine and Interline TravelReps, which markets hotel-resort and cruise space
and escorted tour packages to interliners.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Travel revenue is recognized on a "booked, paid, traveled" basis. This means
that all client funds received and all funds paid to travel suppliers prior to
the travel date are deferred for income recognition until such time as the
client has traveled and the Company has completed its commitment to the client
and the travel suppliers. Subscription sales are deferred for income recognition
until magazines are delivered to subscribers.

Subscription sales are deferred as unearned income at the time of sale. Magazine
customers normally pay for a one-year or two-year subscription in advance. As
magazines are delivered to subscribers, the proportionate share of the
subscription price is taken into revenue. Magazine subscription selling expenses
are charged to operations as incurred.

The assets "Prepaid Hotel Cost", "Prepaid Cruise and Tour Cost" and
"Rooms/Cabins Held for Sale" represent expenses paid for tours and cruises which
have been booked but not yet taken by the customer. The liabilities "Deferred
Hotel Revenue" and "Deferred Cruise and Tour Revenue" represent payments
received for tours and cruises booked but not recognized as revenue until the
customer completes the tour or cruise.

Cash and Cash Equivalents

Substantially all of the balances in the cash and short-term investment accounts
consist of operating accounts and investments in commercial paper funds.
Restricted cash represents certificates of deposits pledged against as a reserve
for credit card processing and against letters of credit issued to various
hotels and cruise lines which allows the Company to process last minute
bookings.

The Company considers all highly liquid instruments purchased with a maturity at
the time of purchase of less than three months to be cash equivalents.

Allowance for Uncollectible Accounts

The Company provides an allowance for accounts receivable which are doubtful of
collection. The allowance is based upon management's periodic analysis of
receivables, evaluation of current economic conditions, and other pertinent
factors. Ultimate losses may vary from the current estimates and, as additions
to the allowance become necessary, they are charged against earnings in the
period in which they become known. Losses are charged and recoveries are
credited to the allowance.

                                      F-8

<PAGE>   29


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Income (Loss) Per Share

During the year ended December 31, 1997, the Company adopted FASB Statement No.
128, Earnings Per Share. Statement 128 requires presentation of basic earnings
per share and diluted earnings per share. Basic earnings per share excludes
potential dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted earnings per share is
computed similarly to fully diluted earnings per share under previous generally
accepted accounting principles in the United States. Prior year earnings (loss)
per share data are restated to conform with Statement 128 for consistent
presentation of all periods. During the years ended December 31 1998 and 1997,
diluted loss per share has not been presented due to the antidilutive effect of
including options in the weighted-average number of shares outstanding.

Depreciation and Amortization

Property and equipment are stated at cost. Depreciation is computed on the
straight-line method for financial statement purposes. Estimated useful lives
range from 5 to 7 years. Intangibles, consisting of "excess of cost over net
assets acquired" and non-compete covenants are stated at cost and are being
amortized over 40- year, 5-year, and 3-year periods.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All inter-company transactions have been
eliminated.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of certain assets and
liabilities for financial and tax reporting. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No.123, Accounting for Stock-Based Compensation.
The Company currently accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Since the Company is not required to adopt the
fair value based recognition provisions prescribed under SFAS No. 123, it has
elected to comply with the disclosure requirements set forth in the Statement,
which includes disclosing pro forma net income as if the fair value based method
of accounting had been applied. (See Note 11.)

Estimates and Assumptions

Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.



                                       29
<PAGE>   30


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Impairment of Long-Lived Assets

Intangible assets represent the excess of the purchase price over the fair value
of the net assets of acquired companies. The Company carries its intangible
assets at their purchase prices, less amortized amounts, but subject to annual
review for impairment. In performing an evaluation, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to market value is required. The
Company intends to annually assess the carrying value of its long-lived assets
using the analysis described above.

Marketing and Advertising Costs

All costs relating to marketing and advertising are expensed in the year
incurred.

Prepaid Offering Costs

Professional fees, filing fees, registration and other costs of a Public
Offering (Offering) of the Company's common stock (see Note 10) were recorded as
a reduction of additional paid-in capital upon the successful completion of the
Offering on February 5, 1998.

Investments

The Company classifies its marketable debt securities as "held to maturity" if
it has the positive intent and ability to hold the securities to maturity. All
other marketable securities are classified as "available for sale." Securities
classified as "available for sale" are carried in the financial statements at
fair value. Realized gains and losses, determined using the first-in, first-out
(FIFO) method, are included in earnings; unrealized holding gains and losses are
reported in other comprehensive income. Securities classified as held to
maturity are carried at amortized cost. Unrealized gains were immaterial for the
years ended December 31, 1998 and 1997.

Concentrations of Credit Risk Arising from Cash Deposits in Excess of Insured
Limits

The Company maintains cash balances at several financial institutions located in
Texas. Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1998, the Company's uninsured cash
balances total $8,746.

3.       PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                       1998          1997     
                                    ---------     ---------
<S>                                 <C>           <C>      
Property and equipment              $ 524,856     $ 108,306
Less accumulated depreciation        (114,351)      (59,455)
                                    ---------      --------
Net property and equipment          $ 410,505     $  58,851
                                    =========     =========
</TABLE>

Depreciation expense for the years ending December 31, 1998 and 1997 was $64,896
and $18,730, respectively.

4.       ACQUISITIONS

On November 5, 1998, the Company acquired the interline related assets of
Exclusively Cruises, Atlanta Inc. a privately held travel company offering
cruises and tours to the interline market. The purchase consideration was in the
form of cash of $12,500 and a non-interest bearing note payable with a balloon
payment of $20,000 due December 4, 1999. The assets acquired included the trade
name "Exclusively Interline," client lists and telephone numbers. No liabilities
were assumed in the acquisition.

Assets acquired from Exclusively Interline consist of the following:

<TABLE>
<S>                                                  <C>    
Excess of cost over net assets acquired              $32,836
                                                     -------
Total assets acquired                                $32,836
                                                     =======
</TABLE>

The purchase method of accounting was used to account for the above transaction
and the excess of cost over net assets acquired is being amortized over 5 years.

On December 11, 1998, the Company acquired certain assets and liabilities of Sun
Central Reservations, Inc. and The Pass Bureau, Inc., two privately held travel
companies offering hotel, resorts and cruises to the interline market. The
purchase consideration was in the form of cash. In addition to assets listed
below, the Company acquired intangible assets in the form of customer names,
addresses, phone numbers, e-mail addresses, fax numbers, company telephone
numbers, 800 sales numbers, existing vendor contracts, distribution addresses,
non-compete agreements and all internet web addresses and the trade names "The
Pass Bureau" and "Sun Central Reservations."

                                      30

<PAGE>   31


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

4.       ACQUISITIONS (Continued)

Assets acquired from Sun Central/Pass Bureau consist of the following:

<TABLE>
<S>                                                                    <C>    
Certificate of deposit                                                 $21,079
Furniture and equipment                                                 35,277
Receivables due from hotels and clients                                 81,882
Excess of cost over net assets acquired                                296,896
                                                                      --------
Total assets acquired                                                 $435,134
                                                                      ========
</TABLE>


Liabilities assumed from Sun Central/Pass Bureau consist of the following:

<TABLE>
<S>                                                                    <C>    
Client refunds due                                                    $ 39,072
Client credit vouchers                                                  23,903
Payables due hotels                                                     81,012
Payables due trade vendors and payroll                                  274147
Note payable                                                            17,000
                                                                      --------
Total liabilities assumed                                             $435,134
                                                                      ========
</TABLE>

The purchase method of accounting was used to account for the above transaction
and the excess of cost over net assets acquired is being amortized over 5 years.

5.       INTANGIBLE ASSETS

Intangible assets at December 31, 1998 and 1997 are as follows:

In April of 1997, promissory notes related to the acquisition of intangibles
were renegotiated, resulting in a reduction of intangible assets of
approximately $225,000.

At December 31, 1998 and 1997, the unamortized cost consists of the following:

<TABLE>
<CAPTION>
                                                    1998               1997
                                                  --------           --------
<S>                                               <C>                <C>     
Cost                                              $754,175           $424,443
Less accumulated depreciation                      (73,632)           (48,524)
                                                  --------           --------
Net                                               $680,543           $375,919
                                                  ========           ========
</TABLE>


Amortization expense for the years ended December 31, 1998 and 1997, was $25,108
and $21,127, respectively.

                                       31

<PAGE>   32



                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


6.       DUE TO AFFILIATE

The Company entered into a Management Services Agreement with BEI and IMS
whereby BEI agreed to permit the Company to use office space and certain
computer and telephone equipment leased by the Company, BEI and IMS agreed to
provide to the Company certain services including accounting, payroll, services,
and the services of certain executive officers and personnel who perform
services for Airfair, BEI, and IMS. The Company agreed to pay to BEI and IMS,
collectively, a cash sum equal to 1/2% of the Company's gross cash receipts
during any month in which the Agreement remains in effect. This agreement was
cancelled as of January 1, 1998.

The Company and IMS have also entered into an Inventory Marketing Agreement
whereby the Company sells certain IMS inventories. The Company is required to
make monthly payments to IMS equaling (I) the cash value of the inventory sold
plus (ii) 25% of the collected revenue generated from such sales less such cash
value. This agreement was cancelled as of January 31, 1998.

At December 31, 1998 and 1997, BEI owed the Company $208,111 and $255,361,
respectively. The receivable at December 31, 1998 is collateralized by
investment securities held by BEI. The terms of the note receivable dated
December 31, 1997 are 10% annual interest with principle and interest due on
demand. The Company has not included any accrued interest in the financial
statements. The Company set up a reserve for impairment of $128,046 at December
31, 1998, based upon the fair market value of collateralized securities.

                                       32

<PAGE>   33


                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

7.       LONG-TERM DEBT

At December 31, 1998 and 1997, long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                           1998             1997
                                                                       -----------      -----------
<S>                                                                   <C>               <C> 
Notes payable to shareholders, due April 30, 2000
including interest at 12% per annum payable in
monthly installments, convertible into common stock
at a conversion price of $.50 principal amount for each share          $        --      $   333,017

Note payable at $1,163 per month, including interest
at 14% per annum, convertible into common stock
at the conversion price of $1.00 principal amount for
each common share, subordinated to senior indebtedness                          --           43,234

Convertible debentures due April 2000, 7% interest only
due on each anniversary with principal due at maturity,
interest may be paid in shares of common stock at the
option of the Company at the rate one share for each
$.50 of interest due, unpaid principal is convertible into
common stock at a conversion price of $.25 per share                            --          500,000

Note payable at $1,000 per month for six months beginning
April 25, 1997, then $1,500 per month for six months,
then $2,000 per month until paid in full, with interest
at 8% per annum                                                                 --           44,002

Note payable at $4,246 per month beginning April 1997,
with interest at 6% per annum                                                   --           10,283

Note payable at $1,154 per month beginning April 1997,
with interest at 10% per annum, maturity date of March 1999,
unpaid balance can be converted into common stock at $.50 per share             --           16,203

Note payable at $1,000 per month beginning May 15, 1997,
remaining unpaid balance due June 15, 1998, interest at
9% per Annum                                                                    --           21,508

Note payable at $556 per month beginning August 5, 1997,
with interest at 8% per annum, maturity date of August 5, 1998                  --            3,797

Note payable at $300 per month beginning June 15, 1997
for 35 months at 10% interest per annum                                         --            7,330

Note payable to be paid out of proceeds of offering or
any receipts on pledged advertising accounts receivable with
interest at 10% per annum, maturity date of March 23, 1998                      --           70,000

Note payable with interest payable quarterly beginning January
1, 1998, interest rate of 10% per annum, principal due
September 30, 1999                                                              --           24,000

Promissory notes payable with interest payable quarterly
beginning January 1, 1998, bearing interest at 10% per annum,
principal due September 30, 1999                                                --          500,000

Margin loan, 8% annual interest, secured by marketable securities          250,000               --

Norwest Line of Credit, interest at prime + 1% payable monthly                                     
Secured by certificates of deposit                                         346,500               --

Exclusively Interline acquisition (Note 4)                                  20,000               --

                                                                           616,500        1,573,374

Less current portion                                                      (616,500)        (290,562)
                                                                       -----------      -----------
 Total                                                                 $         0      $ 1,282,812
                                                                       ===========      ===========
</TABLE>

                                       33

<PAGE>   34


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

8.       INCOME TAXES

The components of the provision for income taxes at December 31, 1998 and 1997
are as follows:

<TABLE>
<CAPTION>
                           1998     1997
                          ------    -----
<S>                       <C>       <C>  
Current tax expense       $  --     $  --
Deferred tax expense              
                             --        --
                          -----     -----
Income tax expense        $  --     $  --
                          =====     =====
</TABLE>

The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:

<TABLE>
<CAPTION>
                                                1998           1997
                                             ---------      ---------
<S>                                          <C>            <C>      
Deferred tax assets:
   Accounts receivable                       $  14,674      $   4,087
   Net operating loss carryforward             770,136        507,108
                                             ---------      ---------

Gross deferred tax assets                      784,810        511,195
   Valuation allowance                        (762,058)      (492,516)
                                             ---------      ---------
Total deferred tax assets                       22,752         18,679
                                             ---------      ---------
Deferred tax liabilities:
   Fixed assets                                  6,217          3,914
   Intangible assets                            16,535         14,765
                                             ---------      ---------
Total deferred tax liabilities                  22,752         18,679
                                             ---------      ---------
Net deferred tax asset (liability)           $      --      $      --
                                             =========      =========
</TABLE>


There are no significant reconciling items between the statutory U.S. federal
rate and effective rates for the years ended December 31, 1998 and 1997.

At December 31, 1998, the Company has a net operating loss carryforward totaling
approximately $2,200,000 that may be offset against future taxable income. If
not used, $610,000 of the carryforward will expire in 2011 and $1,590,000 will
expire in 2012. Under certain circumstances, Section 382 of the Internal Revenue
Coded of 1986 restricts a corporation's use of its net operating loss
carryforward. Due to the Company's issuance of additional stock, the Company's
use of its existing net operating loss carryforward could be limited. Therefore,
the Company may have to pay federal income taxes sooner than if the use of its
net operating loss carryforward were not restricted.

9.       COMMON STOCK

On July 16, 1997, 1,857 shares of common stock were issued in exchange for
advisory services valued at $3,250. On October 24, 1997, the Company issued
71,436 common shares valued at $5.00 per share to holders of $500,000 promissory
Notes (Notes) in conjunction with an offering whereby, one share (.14 share
adjusted) of common stock was issued for each $1 of indebtedness represented by
the Notes. $50 in cash was received for the shares and $357,130 was recorded as
a financing charge. Also, during 1997, 133 additional shares were issued and
approved by the Board of Directors for fractional shares resulting from the
1-for-7 reverse stock split. During 1997, 541,987 options were granted to
noteholders and shareholders to purchase common shares at option prices ranging
from $3.50 to $7.00 per share.

In February of 1998, the Company issued 1,200,000 shares of its common stock at
$5.00 per share, pursuant to a public offering, for net proceeds (after offering
costs) of $4,787,798. Also, in February of 1998, the Company issued 393,025
common shares valued at $2.20 per share to holders of $863,388 of convertible
debentures.

                                       34

<PAGE>   35


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

10.      LEASING ARRANGEMENTS

On December 1, 1997, the Company entered into a lease agreement for office
space. The terms of the lease agreement call for 10,567 square feet of net
rentable area for a period of five years and three months with an option to
renew for five years. Monthly rent payments over the initial term of the lease
are $12,328 from March 1, 2000 to February 28, 2001 and $12,478 from March 1,
2001 to February 28, 2003. The option year rates will be based on market
conditions upon the renewal date. In 1997, the Company was paying its portion of
rent under a management services agreement which was cancelled on January 1,
1998.

The following is a schedule of future minimum rentals under the lease agreement
at December 31, 1998.

<TABLE>
<CAPTION>
YEAR ENDING                                           
DECEMBER 31:                                          AMOUNT
------------                                        ---------
<S>                                                 <C>      
1999                                                $ 135,614
2000                                                  146,176
2001                                                  149,436
2002                                                  149,736
2003                                                   24,956
                                                    ---------
                                                    $ 606,218
                                                    =========
</TABLE>

11.      STOCK OPTION PLAN

The Company has a qualified long-term stock incentive plan (LTSIP) that
authorizes an aggregate of 450,000 shares (as adjusted for 1-for-7 reverse stock
split) of common stock for future grants. The exercise price of each employee
option ranges as described below (price adjusted for 1-for-7 reverse stock
split). An option's maximum term is five years. Employee options were granted on
August 1, 1996, February 1, 1997, and July 1, 1998 and vest in three to four
years. The Company also granted a total of 140,000 non-qualified stock options
to directors and one consultant on July 1, 1998. These options vest over two
years with an exercise price of $5.00 per share.

A summary of the status of the Company's stock option grants as of December 31,
1998 and 1997, and the changes during the years ending December 31, 1998 and
1997 is presented below: (The fair value of each option grant is estimated on
the grant date using an option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997: risk-free interest rate of 6%, and
expected lives of 4 years for the options.)

<TABLE>
<CAPTION>
                                                    1998                      1997
                                           ----------------------    ----------------------
                                                         WEIGHTED                  WEIGHTED                      
                                                         AVERAGE                   AVERAGE             
                                                         EXERCISE                  EXERCISE      
Fixed Options                               SHARES        PRICE      SHARES         PRICE
-------------                              --------      --------    -------      ---------
<S>                                        <C>          <C>          <C>         <C>   
Balance, Beginning of Year                   98,075      $ 7.00       43,571      $ 7.00

Granted                                     354,000        5.00       60,874        7.00
Exercised                                        --          --           --          --
Forfeited                                   (34,091)       7.00       (6,370)       7.00
                                           --------                  -------

Balance, End of Year                        417,984        5.46       98,075        7.00
                                           ========                  =======

Exercisable at End of Year                  167,998                   38,450
                                           ========                  =======
Weighted-average fair value of options
    granted during the year                $   0.23                  $  2.60
                                           ========                  =======
</TABLE>

                                       35

<PAGE>   36


                   GRAND ADVENTURES TOUR AND TRAVEL PUBLISHING
                           CORPORATION AND SUBSIDIARY
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


    The following table summarizes information about fixed stock options
outstanding at December 31, 1998.


<TABLE>
<CAPTION>
  EXERCISABLE OPTIONS                                              OUTSTANDING OPTIONS
  -------------------                    --------------------------------------------------------------------
                                           WEIGHTED-
                                           AVERAGE
                           NUMBER         REMAINING       WEIGHTED-            NUMBER             WEIGHTED-
      RANGE OF           OUTSTANDING     CONTRACTUAL       AVERAGE           EXERCISABLE           AVERAGE
   EXERCISE PRICES       AT 12/31/98        LIFE       EXERCISE PRICE        AT 12/31/98       EXERCISE PRICE
   ---------------       -----------     -----------   --------------        -----------       --------------
   <S>                   <C>             <C>           <C>                   <C>               <C>
      $ 7.00                81,734        3 years          $ 7.00              127,998             $ 7.00
        5.00               336,250        4 years            5.00               40,000               5.00
                          --------                                            --------
                           417,984                                             167,998         
                          ========                                            ========
</TABLE>

Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under the plan
consistent with FASB Statement 123, compensation cost for the years ended
December 31, 1998 and 1997 would have increased by $35,091 and $64,000,
respectively and the Company's net loss and loss per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                        1998                 1997
                                                                    ------------         -----------
<S>                                                                 <C>                  <C>
  Net (loss)                         As reported                    $(1,685,635)         $ (598,495)
                                     Pro forma                       (1,720,726)           (662,495)
  Net (loss) per common share        As reported                           (.58)               (.44)
                                     Pro forma                             (.59)               (.48)
</TABLE>

12.      FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reflected in the consolidated balance sheets for restricted
cash, accounts receivable, cash overdraft, accounts payable and notes payable
approximate the respective values due the short maturities of those instruments.
The estimated fair values have been determined by the Company using appropriate
valuation methodologies and available market information. Considerable judgement
is necessarily required in interpreting market data to develop the estimates of
fair value, and, accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. A
comparison of the carrying value of those financial instruments, none of which
are held for trading purposes, is as follows:

<TABLE>
<CAPTION>
                           CARRYING      FAIR
                            AMOUNT       VALUE
                         -----------  -----------
<S>                      <C>          <C>        
Assets:                                
Restricted cash          $   175,500  $   175,500
Accounts receivable          191,226      191,226
Due from affiliate            80,065       80,065
Liabilities:                           
Accounts payable             277,802      277,802
Short-term debt              616,500      616,500
</TABLE>

Restricted cash, accounts receivable and accounts payable. The carrying value of
such items approximates their fair value at December 31, 1998.

Short-term debt. Fair value of such debt is based on rates currently available
to the Company for debt of similar terms and remaining maturities. There are no
quoted prices for the debt or similar debt.

                                       36

<PAGE>   37


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

There have been no changes or disagreements with the Company's independent
accountant during the last 2 fiscal years.

No consultations occurred between the Company and Andersen Andersen & Strong,
L.C.'s appointment regarding the application of accounting principles to a
specific completed or contemplated transaction, the type of audit opinion, or
other information considered by the Company in reaching a decision as to an
accounting, auditing, or financial reporting issue.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

    The following table sets forth information concerning the directors and
executive officers of the Company and their age and position with the Company.
Each director holds office until the next annual stockholders' meeting and
thereafter until the individual's successor is elected and qualified. Officers
serve at the pleasure of the board of directors.

<TABLE>
<CAPTION>
              NAME                                         AGE                               POSITION
   --------------------------------                        ---            ---------------------------------------------
   <S>                                                     <C>            <C>                                
   Matthew O'Hayer.................                         42            Chairman, Chief Executive Officer
   Joseph S. ("Jay") Juba..........                         35            President, Chief Operating Officer, Secretary
   Darrell Barker..................                         50            Chief Financial Officer, Treasurer
   Fernando Cruz Silva.............                         38            Senior Vice President of Sales & Marketing
   Patti Macchi....................                         53            Vice President of Cruise Sales & Marketing
   Robert Sandner..................                         44            Director
   Robert G. Rader.................                         63            Director
   Duane K. Boyd, Jr. .............                         53            Director
</TABLE>

    Matthew O'Hayer has served as Chairman and Chief Executive Officer of the
Company since the Merger and of Airfair since its inception. Mr. O'Hayer founded
Barter Exchange, Inc. (now known as BEI Holdings, Inc. "BEI") in 1983, served as
its President and Chief Executive Officer from its founding until 1995 and has
served as its Chairman and Chief Executive Officer since 1995. Mr. O'Hayer also
serves on the boards of several small businesses and non-profit organizations.

    Joseph S. ("Jay") Juba has served as President and Chief Operating Officer
of the Company since the Merger and of Airfair since its inception. He was
elected to the same offices of BEI in January, 1996. Mr. Juba joined BEI in 1991
as Director of Advertising after working for more than five years in the
advertising industry. From May 1994 through December 1995, Mr. Juba served as
Senior Vice President of BEI.

    Darrell Barker, a Certified Public Accountant, has served as Chief Financial
Officer of the Company and BEI since March 1996. Mr. Barker provided consulting
services with respect to accounting from October 1995 through February 1996.
From June 1994 to October 1995, Mr. Barker served as Senior Vice-President of
Finance for USA Health Network of Phoenix, Arizona. From May 1993 until June
1994, Mr. Barker was President and co-owner of Texas Medical Billing
Administrators, Inc., a physician services company located in San Antonio,
Texas. Mr. Barker served as Vice-President of Finance and was a director for
Texas Savings Life Insurance Company in Austin, Texas from October 1987 until
April 1993.

    Fernando Cruz Silva, serves as Senior Vice President of Sales and Marketing.
Prior to joining Airfair in January 1996, Mr. Silva held the same titles at
Inventory Merchandising Services, Inc. ("IMS"), a subsidiary of BEI. Mr. Silva
became employed by IMS in May of 1994 after having worked as Director of Sales
and Marketing at the Fiesta Americana Hotel in Cancun, Mexico, and the Las
Brisas resort in Acapulco, Mexico and served in senior sales capacities at the
Hyatt and Fiesta Americana hotels in Puerto Vallarta, Mexico City, and Cancun.

                                       37

<PAGE>   38
    Patti Macchi is Vice President of Sales for the Company but also contributes
editing and marketing expertise to the magazine. Ms. Macchi joined the Company
in 1990 after working for six years with Norwegian Caribbean Line. Ms. Macchi is
responsible for negotiating rates and maintaining relationships with the 27
cruise lines represented in IRL's product offering.

    Robert Sandner has served as a director of Airfair since February 1996 and
of the Company since the Merger. A co-founder of BEI, Mr. Sander has served as
director of BEI and IMS throughout the last five years. Mr. Sandner served as
President of Cellular Resources, Inc. of South Texas a cellular service provider
based in Uvalde, Texas from its inception in 1991 and until its sale in August
1996. Prior to the organization of Cellular Resources, Inc., Mr. Sandner held
various offices within BEI and operated a barter franchise office in San
Antonio, Texas.

    Robert G. Rader became a director of the Company as of February 3, 1998.
Since the founding of Capital West Securities, Inc. ("Capital West") in 1995,
Mr. Rader has served as its Managing Director of Corporate Finance. Capital West
served as the managing underwriter of the Offering.

    Duane K. Boyd, Jr. became a director of the Company as of July 8, 1998. Mr.
Boyd, a Certified Public Accountant, has served as Senior Vice President of
American Physicians Service Group, Inc. ("APS") since July 1991. APS through its
affiliates and subsidiaries provides health care and financial related services
to individuals and institutions. From 1974 to 1991, Mr. Boyd was with KPMG Peat
Marwick. He was a partner with that firm from 1982.

    Messrs. Boyd, Rader and Sandner serve as Audit Committee members with Mr.
Boyd serving as chairman. These same gentlemen also serve as members of the
Company's Compensation Committee.


ITEM 10. EXECUTIVE COMPENSATION

    The following table reflects compensation paid to the two mostly highly
compensated executive officers of the Company.

<TABLE>
<CAPTION>
                                                                                    LONG TERM COMPENSATION 
                                                                                --------------------------------
                                                                                        AWARDS
                                                                                ----------------------- PAYOUTS          
                                                      ANNUAL COMPENSATION       RESTRICTED  SECURITIES ---------
                                                 ------------------------------   STOCK     UNDERLYING    LTIP      ALL OTHER
                                                  SALARY      BONUS     OTHER      AWARD     OPTIONS     PAYOUTS   COMPENSATION
     NAME AND PRINCIPAL POSITION        YEAR       ($)         ($)       ($)        ($)       SARS(#)     ($)           ($)
-----------------------------------     ----     --------   --------- ---------  --------   ---------  ---------   -------------
<S>                                     <C>      <C>        <C>        <C>       <C>        <C>        <C>          <C>
Matthew O'Hayer ...................     1998     $138,357     $ 0        $ 0       $ 0        100,000      0            $ 0
  Chairman & CEO

Joseph S. ("Jay") Juba, ...........     1998     $ 92,565       0        $ 0       $ 0         50,000      0            $ 0
  President, COO and Secretary
</TABLE>

    The following table reflects option grants issued to the two most highly
compensated executive officers of the Company.


                     OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                              Percentage of                    
                                       Number of            total options/SARS      Exercise or
                                  Securities underlying     granted to employees     base price         Expiration
        Name                      Options/SARS granted         In fiscal year        ($/Share)             date
        ----                      --------------------      --------------------   --------------          ----

<S>                                      <C>                       <C>                  <C>             <C>
QUALIFIED PLAN:

Matthew O'Hayer                          25,000                    11.7%                $5.00           July 1, 2008
   Chairman & CEO

Joseph S. ("Jay") Juba                   20,000                     9.3%                $5.00           July 1, 2008
   President, COO and Secretary

NON-QUALIFIED PLAN:

Matthew O'Hayer  (1)                     75,000                    53.6%                $5.00           July 1, 2008
   Chairman & CEO

Joseph S. ("Jay") Juba (1)               30,000                    21.4%                $5.00           July 1, 2008
   President, COO and Secretary
</TABLE>

                                      38

<PAGE>   39

(1)  These options were issued under the Company's non-qualified stock plan.
     These options are available for issue to directors, consultants and
     persons considered key to the success of the Company. The Company issued
     140,000 total options on July 1, 1998. Half of these options vest on July
     1, 1998 and the remainder on July 1, 1999. The percentage column for these
     grants are the percentage granted to the above individuals to total
     granted under this plan only.

COMPENSATION OF DIRECTORS

    The Company does not currently compensate directors in cash for any
services provided as a director. Directors were granted a total of 135,000 of
non-qualified stock options on July 1, 1998 at an exercise price of $5.00 per
share. These options vest over 2 years with 1/2 of the options vesting on July
1, 1998 and the remaining 1/2 vesting on July 1, 1999.

    Mark T. Waller, a former director of the Company, entered into an advisory
services agreement in October 10, 1996. Mr. Waller was also granted a
non-qualified stock option in August, 1996. See, "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."

EMPLOYMENT CONTRACTS

    Matthew O'Hayer, who serves as the Company's Chairman of the Board and
Chief Executive Officer is not party to an employment agreement with the
Company or any affiliate thereof.

    Joseph S. Juba, the President and Chief Operating Officer of the Company
has signed an employment agreement with BEI Holdings, Inc., together with
Airfair and BEI, the "Employers. The following is a description of the terms
and conditions of Mr. Juba's employment agreement which was entered into March
1, 1995:

    Mr. Juba is paid $84,000 per year with 7% annual increases, commencing with
the first anniversary of the employment agreement, and a bonus equal to 2% of
both BEI's and Airfair's company's Pre-Tax Net Income after allocations of
corporate overhead, based upon audited financial statements. Such bonus to be
calculated on an annual basis, with quarterly draws of up to 50% of bonus due
with respect to each quarter's net income. Mr. Juba was granted shares of
common stock of BEI and Airfair, subject to repurchase rights which lapse over
time. Mr. Juba was paid an auto allowance of $420 per month for two years
commencing in April, 1996. Mr. Juba is subject to three-year prohibitions
(commencing with the date of employment termination) on competition,
non-disclosure and non-use of proprietary information, contact with current or
future customers or interference with the Employers' relationship with any
current or future customers, but if terminated without cause, the prohibitions
on competition and interference are terminated. If the Employers terminate the
agreement without cause or if the Employer materially reduces the
responsibilities of the employee, (i) the employee is to be paid all non-salary
monetary compensation accrued through the date of termination and (ii) the
employee is to receive, for a period of

                                       39

<PAGE>   40

months equal to the number of years of the employee's service to one or more of
the Employers since September 5, 1991, a monthly cash severance payment equal
to the highest monthly salary paid to the employee. The employee is indemnified
against any lawsuits or claims by any third party arising out of any action
taken in good faith by the employee in the performance of his duties.

    The Company also has an Advisory Services Agreement with Mark T. Waller,
one of the Company's former directors, dated October 10, 1996. During the term
of this Agreement, the Company will engage the Consultant to provide advisory
services in connection with designing and implementing a long-term strategic
plan to enhance the Company's ability to attain its goals following the Merger.
The term of the Advisory Services Agreement is for 5 years from October 10,
1996. Compensation for advisory services is $100 per year plus reimbursement
for Company approved actual expenses incurred when performing the above
services. The consultant serves as an independent contractor.

LONG-TERM INCENTIVE PLAN

    The Company has a long-term stock incentive plan (LTSIP) that reserves
450,000 shares of Common Stock for grants to employees and others who are
determined to be key to the future operational success of the Company.

    An option's maximum term is five years. Employee options were granted on
August 1, 1996 and vest in three years. Options were also granted on February
1, 1997 and July 1, 1998 and vest over 4 years. The fair value of each option
grant is estimated on the grant date using an option-pricing model with the
following weighted-average assumptions used for grants in 1996: risk-free
interest rate of 6%, and expected lives of 5 years for the options.

    The Company has a non-qualifying stock incentive plan that reserves 300,000
shares of common stock for grants to officers, directors, consultants and
contractors who are determined to be key to the future operations and success of
the Company (See "Exhibit 10.05 1998 Non-Qualifying Incentive Plan"). An options
maximum term is ten years. Options were granted July 1, 1998 and vest over two
years. This plan has been approved by the Board of Directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    PRINCIPAL STOCKHOLDERS

    The following table sets forth, as of December 31, 1998, the name and
shareholdings, including options to acquire Common Stock, of each person who
owns of record, or was known by the Company to own beneficially, 5% or more of
the shares of the Common Stock currently issued and outstanding; the name and
shareholdings, including options to acquire the Common Stock, of each director;
and the shareholdings of all executive officers and directors as a group. The
address of each of the individuals listed below is the address of the Company.

<TABLE>
<CAPTION>
                                                                                 PERCENTAGE OF
                                               NATURE OF        NUMBER OF          OWNERSHIP
       NAME OF PERSON OR GROUP                 OWNERSHIP       SHARES OWNED      AFTER OFFERING
    ------------------------------            ---------------  ------------      --------------
<S>                                           <C>                  <C>                    <C>  
  Matthew O'Hayer.................            Direct               559,144                18.5%
  Joseph S. "Jay" Juba............            Direct               157,142                 5.2%
  Fernando Cruz Silva.............            Direct                44,286                 1.5%
  Robert Sandner..................            Direct               111,786                  .4%
  Duane K. Boyd, Jr. .............            Direct/Indirect       24,000                  .0%
  

  All executive officers and
   directors as a                             Direct               896,328                29.6%
   group (seven persons)...........                                               
                                              Options              244,286                  .7%
            Total.................                               1,140,614                34.9%
</TABLE>

The Company's executive officers and directors, entities affiliated with them
and employees of the Company and holders of at least 5% of the outstanding
Common Stock affiliated with the executive officers and directors will
beneficially own shares of Common Stock representing more than 29% of the total
voting power of the Common Stock after giving effect to the Offering. These
persons, if acting in concert, will be able to exercise control over the
Company's affairs and are likely to be able to control the Board of Directors
and the disposition of any matter submitted to a vote of stockholders.

                                       40

<PAGE>   41

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Prior to the Offering, the Company had only one disinterested director. The
Company has agreed with the state securities administrators of certain states,
as well as the Boston Stock Exchange and the Nasdaq SmallCap(SM) Market, that
from and after the consummation of the Offering, the Company will have at least
two directors who are independent and capable of exercising independent
judgment. Currently the Company has four directors, three of whom are
independent. The Company represents that (A) all future material affiliated
transactions and loans will be made or entered into on terms that are no less
favorable to the Company than those that can be obtained from unaffiliated third
parties; and (B) all future material affiliated transactions and loans, and any
forgiveness of loans, will be approved by a majority of the Company's
independent directors who (i) do not have an interest in the transactions and
(ii) have access, at the Company's expense, to the Company's or independent
legal counsel. Unless otherwise indicated, the terms of the following
transactions were not the results of arm's length negotiations, but in the
opinion of management of the Company each transaction is on terms as fair to the
Company as could be obtained in arm's length negotiations in similar
circumstances.

    Effective March 1, 1996, the Company entered into a management agreement
with IMS under which it agreed to provide the Company with such executive
services and administrative support for a fee equal to 0.5% of the Company's
gross revenue per month plus a portion of the direct payroll expenses of certain
members of management who serve BEI, IMS, and Airfair. These management fees
amounted to approximately $174,965 for the year ended December 31, 1997. Such
management fees include reimbursement for an allocable portion of the time of
such executives devoted to the business affairs of the Company as follows:
Matthew O'Hayer, approximately 70% of his time at an annual salary of $130,680;
Joseph S. Juba, approximately 80% of his time at an annual salary of $84,000;
and Darrell Barker, approximately 50% of his time at an annual salary of
$60,000. The Management Agreement terminated on December 31, 1997, when the
Company moved to new office space. At the time the Management Agreement was
agreed upon, the Company lacked sufficient disinterested directors to ratify its
terms and conditions. At December 31, 1998, the Company has a gross receivable
from this affiliation in the approximate amount of $208,000. The Company has an
allowance set up for doubtful collections of $128,000. This receivable is
collaterialized with shares of a publicly-traded Company.

    Airfair and IMS have also entered into an inventory marketing agreement
whereby Airfair sells certain IMS inventories. Airfair is required to make
monthly payments to IMS equaling (i) the cash value of IMS's acquisition cost
in the inventory plus (ii) 25% of the collected revenue generated from such
sales less such cash value. The Marketing Agreement has been terminated, by
agreement of Airfair and IMS, as of January 31, 1998. At the time the Marketing
Agreement was agreed upon, the Company lacked sufficient disinterested
directors to ratify its terms and conditions.

                                       41

<PAGE>   42
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

 a)        Exhibits              

           The following exhibits are filed electronically herewith:

   10.05   1998 Non-qualifying Incentive Plan

           Exhibit 27.01 Financial Data Schedule

    The following exhibits are incorporated by reference from Form 8-K filed
October 15, 1996:

    Exhibits

    2.01   Agreement and Plan of Merger entered into effective July 19,1996, by
           and between Riley Investments, Inc, and Airfair Publishing, Inc.

    3.01   Restated Articles of Incorporation of Grand Adventures Tour & Travel
           Publishing, Corporation

   10.01   Advisory Services Agreement effective October 10, 1996 by and
           between Riley Investments, Inc. to Mark Waller

   10.02   Long Term Stock Incentive Option Plan

   10.03   Non-Qualified Stock Option granted effective August 19, 1996 by
           Riley Investments, Inc. to Mark Waller

   10.04   Indemnification and Pledge Agreement


   The following exhibits are incorporated by reference from the Registration
   Statement on Form SB-2 filed October 24, 1997:

    3.02   Bylaws

    21.1   Subsidiaries of the Registrant

    10.05  Employment Agreement with Joseph S. Juba

 b)  Reports on Form 8-K
     
     None


                                      42

<PAGE>   43


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

<TABLE>
<S>                                    <C>
                                       (Registrant) Grand Adventures Tour & Travel Publishing Corporation
                                                    -----------------------------------------------------
                                            By      /s/  Joseph S. Juba
                                                    -------------------
                                                    Joseph S. Juba,  President/ Chief Operating Officer

                                       Date         April 14, 1999
                                                    --------------
</TABLE>
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<S>                                    <C>
                                       By    /s/ Darrell W. Barker
                                             ----------------------
                                             Darrell W. Barker,  Chief Financial Officer

                                       Date  April 14, 1999
                                             --------------


                                       By    /s/ Matthew O'Hayer
                                             --------------------
                                             Matthew O'Hayer, Chairman of the Board and Chief
                                             Executive Officer

                                       Date  April 14, 1999
                                             --------------

                                       By    /s/ Robert Sandner
                                             -------------------
                                             Robert Sandner,  Director

                                       Date  April 14, 1999
                                             --------------

                                       By    /s/ Robert Rader
                                             ----------------
                                             Robert Rader,  Director

                                       Date  April 14, 1999
                                             --------------

                                       By    /s/ Duane K. Boyd, Jr.
                                             ----------------------

                                       Date  April 14, 1999
                                             --------------
</TABLE>

                                       43

<PAGE>   44


                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

<S>                 <C>
27.1                Financial Data Schedule

10.05               1998 Non-qualifying Incentive Plan
</TABLE>