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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION




FORM 10-K

















GLOBAL VACATION GROUP, INC.


(Exact name of registrant as specified in its
charter)


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|                                                     
|New York                                              |  | 13-1894567                       
|(State of Incorporation)                              |  | (IRS Employer Identification No.)
|                                                     
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|1420 New York Avenue, N.W., Suite 550                 |  | 20005                            
|Washington, DC                                        |  | (Zip Code)                       
|(Address of registrants principal executive offices) |  |                                  

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





|                    |                                          
|------------------- | -----------------------------------------
|Title of Each Class | Name of Each Exchange on which Registered

|Common Stock (par value $.01 per share) | The New York Stock Exchange, Inc.
|--------------------------------------- | ---------------------------------



NONE


Indicate by check mark whether the Registrant (1) has filed
 all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject
 to such filing requirements for the past 90 days. Yes X
  No

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     [X]

The aggregate market value of voting stock held by non-affiliates
 of the Company as of the 1st day of March 2000, was
approximately $16,740,657 based on the $3  13/16 closing
sale price for the Common Stock on the Stock Market on such date.
 For purposes of this computation, all executive officers,
directors and persons beneficially owning more than five percent
of the Company have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such
directors and officers are, in fact, affiliates of the
Registrant.

The number of shares of Common Stock of the Registrant
outstanding as of the 1st day of March, 2000, was 14,392,825.



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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|ITEM 1. BUSINESS                                                                             
|ITEM 2. PROPERTIES                                                                           
|ITEM 3. LEGAL PROCEEDINGS                                                                    
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS             
|ITEM 6. SELECTED FINANCIAL DATA                                                              
|ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                      
|ITEM 11. EXECUTIVE COMPENSATION                                                              
|ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    



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DOCUMENTS INCORPORATED BY REFERENCE

Part of the Registrants Proxy Statement for the Annual
Meeting of Shareholders to be held on May 18, 2000 are
incorporated by reference into Part III of this Form 10-K
Report. (The Compensation Committee Report and the stock
performance graph of the Registrants Proxy Statement are
expressly not incorporated by reference herein.)

PART I






ITEM 1.  BUSINESS


THE COMPANY

The Company is one of the largest U.S. providers of value-added
vacation products and services targeted to higher-income
travelers. The Company assembles air, hotel, rental car and other
 travel components in bulk and provides complete vacations to
travelers through retail travel distributors, such as travel
agents, and other distribution channels, including the Internet
and affinity groups. The Company primarily provides flexible
independent travel programs for individuals, as well as escorted
tours and group packages.

The Companys strategy is to achieve the leading market
position in selected high-volume, high-margin travel
destinations, focusing on the following sales areas:
(i) Hawaii; (ii) in-bound vacations to the United
States for international travelers; (iii) Florida, the
Caribbean and Mexico; (iv) other U.S. destinations such as
California and New York; and (v) out-bound travel by U.S.
travelers to Europe. The Company concentrates its marketing
efforts on travelers who typically spend more than $750 per
person for a vacation. The Company also provides certain services
 to travel suppliers, including outsourced vacation packaging and
 affinity group marketing and awards program fulfillment.

The Company primarily markets its products and services to U.S.
customers under two specific proprietary brands: one for
up-scale, customized vacations (Classic Custom Vacations) and
another for popular-priced vacation packages (Vacations by
Globetrotters). In 1999, the Company acquired two other popular
priced brands: Friendly Holidays and Island Resort Tours, which
both market primarily to the Caribbean and Mexico. In addition,
the Company in 1999 also acquired International Travel &
Resorts, a hotel representation company for properties primarily
located in the Caribbean. The Company believes providing
expertise and competitive pricing in multiple destinations
through two separate brands targeted to different consumer groups
 distinguishes its products and services and provides the Company
 with a significant competitive advantage. In addition to serving
 multiple destinations, the Company also has achieved a diverse
domestic and international customer base. The Company uses its
international scope to create cross-selling opportunities and
expand its relationships with suppliers of quality travel
products and services, primarily airlines, hotel companies and
rental car companies.

Industry Overview

Tourism is one of the worlds largest industries. The
Company participates in two segments of the tourism industry:
(i) in-bound vacation travel to North American destinations
by foreign travelers and (ii) vacation travel by U.S.
travelers both inside and outside the country. According to the
Travel Industry Association of America (TIA) baseline
 travel forecast, Americans spent a total of $447.7 billion
on all types of domestic travel in 1999. Also according to TIA,
during the past decade approximately 60% of the domestic trips
taken by U.S. travelers were for personal or vacation travel, and
 management believes that approximately 70% of the trips taken by
 U.S. travelers to Europe were for personal or vacation travel.
In addition, TIA, in conjunction with the Tourism Industries,
estimates that there were 47.0 million international
visitors to the United States in 1999 who spent an aggregate of
$94.0 billion on such trips. Also according to TIA, the
total amount spent by international travelers to the United
States grew by 100% between 1989 and 1999.

Travel suppliers use package vacation providers such as the
Company to sell their capacity more efficiently and support their
 yield management. At the same time, management believes that
purchasing travel products and services from package vacation
providers can lower costs, simplify booking and result in higher

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The U.S. package vacation industry is fragmented, with more than
an estimated 1,600 package vacation providers. The Company
believes many of these businesses generally have made only small
investments in technology to improve operating efficiency and may
 face significant investment requirements to meet current
information technology demands. Furthermore, most of these
companies lack the scale necessary to obtain preferential pricing
 and capacity from travel suppliers and to establish a nationally
 recognized brand name.

Operating Strategy

In providing value-added vacation products and services targeted
to higher-income travelers, the Company pursues an operating
strategy that includes the following elements:

Creating Value-added Vacation Products and Services.The
Company focuses on creating vacation packages that provide added
value to higher-income travelers. The Company believes that,
because of its size and expertise in certain destinations, it can
 (i) generally provide better prices and inventory
availability than can be obtained by an individual travel agency
or traveler, (ii) enhance and simplify access to travel
information across multiple destinations and (iii) assemble
vacation travel components into convenient packages for ease of
planning and booking.

Establishing National Brand Name Recognition.The Company
believes it can leverage its presence in leading origination and
destination cities to develop nationally recognized proprietary
brand names in the package vacation industry. The Company
believes offering expertise and competitive pricing through
common brands across multiple destinations will insure greater
confidence among travelers making their vacation choices and
engender consumer loyalty and a pattern of repeat purchases.

Leveraging Strength in Selected Travel Destinations.The
Company believes it has a leading position in the package
vacation sales areas for westbound travel to Hawaii and for
in-bound travel to the United States and intends to achieve the
leading position in other high-volume, high-margin vacation
destinations. The Company believes having scale and expertise in
selected destinations gives it access to pricing and inventory
that provides the Company with a significant competitive
advantage.

Pursuing Revenue Enhancing Opportunities.The
Companys revenue enhancing strategies include
(i) improving yield management by obtaining greater access
to high-margin products and services, (ii) expanding
ancillary products and services, such as city tours and travel
protection, (iii) securing favorable pricing and inventory
availability through strategic purchasing relationships and
(iv) improving cash management, particularly management of
traveler deposits and advance payments.

Improving Operating Efficiencies.The Company has begun
and continues to seek ways to reduce its operating expenses by
(i) capitalizing on enhanced purchasing efficiencies,
(ii) implementing a more effective utilization program of
its physical and other assets, (iii) implementing best
practices in its management and business systems,
(iv) enhancing marketing relationships with travel suppliers
 and other related parties and (v) outsourcing certain
functions where appropriate.

Implementing Integrated Information Systems.The Company
is integrating its information systems into one common platform
to improve its ability to offer travelers value-added vacation
products and services and to leverage maintenance and development
 costs across a broader customer base. Integrated systems and a
common operating platform are expected to reduce the cost and
time requirements of developing external interfaces and
accelerate the integration of subsequent acquisitions.

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Growth Strategy

To complement its operating strategy, the Company has developed a
 multi-faceted growth strategy that includes the following
elements:

Build Strong Brands.Traditionally, vacation package
products have not achieved brand awareness, which in most cases
has reduced consumers perception of value and credibility.
Building strong vacation package brands not only enhances
consumer confidence and perception of value, it creates an
opportunity to more easily introduce new products. The Company
intends to generate internal growth and strengthen brand
awareness by (i) implementing an integrated national brand
marketing program, (ii) increasing its presence in
under-penetrated origination markets and (iii) implementing
loyalty programs that stimulate repeat purchases.

Leverage Traditional Distribution Channels.The
Companys products currently are sold through more than
14,200 travel agents, but approximately 10,000 market only one of
 its brands. This creates exceptional opportunities to cross-sell
 both brands in an integrated sales and marketing program. The
Company has established national contracts with major agency
chains and consortia.

Expand Marketplace Coverage and Introduce Product Extensions. The Company has a number of initiatives under way to
increase leisure travel sales. The Classic Custom Vacations
brand, already a major vacation package provider to Hawaii,
launched in 1999 Caribbean and Mexico product offerings and is
expanding its upscale product offerings into new European and
U.S. destinations. The Companys 1999 acquisitions of
Friendly Holidays, Island Resort Tours and International Travel
& Resorts, along with the Companys existing products,
make Global Vacation Group a major vacation package provider to
the Caribbean and Mexico.

The Company is the exclusive provider of certain private label
vacation products and services for Amtrak and Hyatt. The Hyatt
relationship has been expanded in 2000 to include full marketing
as well as product fulfillment responsibilities under a unique
outsourcing arrangement between the companies. In late fall 1999,
 the Company entered into a trademark licensing agreement with
Meredith Publishing to test market vacation products under the
brand name, Better Homes and Gardens Vacations. The Company
believes there are significant opportunities to expand its
business by assembling package vacations on behalf of other
companies which seek to leverage their brand names. The benefits
of capitalizing on such opportunities include (i) access to
customers, (ii) enhanced visibility in the marketplace through
association with other well-recognized brands and
(iii) reduced advertising and marketing costs through
sharing agreements.

Make Accretive Acquisitions.The vacation industry is
highly fragmented with approximately 1,600 companies. No company
has more than a 5 percent share of sales. A number of
converging elements point toward accelerating consolidation. Many
 of todays owners are approaching retirement and find
selling an attractive exit strategy. Rapid changes in the
industry, including the impact of technology and the Internet,
also are major factors. The Company generally will seek to
acquire companies that (i) have desirable destination
concentrations, (ii) have demonstrated growth and
profitability, (iii) have an emphasis on customer service,
(iv) have an experienced management team and (v) are likely
to add some other strategic value to the Company.

In 1999, the Company acquired three branded leisure travel
companies and acquired one technology company. The Company
acquired Friendly Holidays and Island Resort Tours, which
primarily market package vacations to the Caribbean and Mexico.
The Company acquired International Travel & Resorts, a hotel
representation company for properties primarily located in the
Caribbean. In addition, the Company acquired Trase Miller
Solutions in 1999 to ensure continued access to well-designed
travel-related software.

Enhance Supplier Relationships. The Company continues to
establish deeper preferred supplier relationships to improve the
value equation for both parties by generating greater operating
efficiencies, developing more unique products and optimizing
marketing efforts. These efforts add value to its brands and
attract more customers.

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Penetrate Direct Marketing Channels.The Company seeks to
capitalize on the opportunities presented by the direct marketing
 of vacation products and services to travelers and the emergence
 of alternative distribution channels while still supporting and
leveraging its strong relationships with existing retail travel
agents. Only about half of all vacations in the Companys
target markets are sold by travel agents. While travel agents are
 its most important customer and primary distribution channel,
the Company sees a tremendous opportunity to reach out to those
consumers who do not use travel agents. The Company intends to
provide these potential new customers, a $50 billion
marketplace, with the products and distribution channels that
best meet their needs.

Key Destinations

Hawaii.Westbound travel was up 7% in 1999 after having
been relatively flat the preceding three years, according to the
Hawaii Visitor and Convention Bureau.

The Company is one of the leading providers of vacations to
Hawaii for travelers from the continental United States and has
more than 15 years of experience in the Hawaii travel
marketplace. The Company has relationships with major airlines,
such as United, Delta, American, Continental and Hawaiian for
travel to Hawaii, and Hawaiian and Aloha for air travel within
Hawaii, all of which provide the Company with access to prices
that generally are better than published fares and to capacity
for air travel to Hawaii, as well as marketing support. In
addition, the Company utilizes a staff of over 100 on location in
 Hawaii to provide destination management support for its Hawaii
package vacation products and services. The Company believes its
extensive experience and established reputation in Hawaii as well
 as its airline relationships are significant competitive
advantages. The Company believes the Hawaii travel marketplace
will continue to present growth opportunities in the future and
to represent a significant portion of its revenues.

In-bound to the United States.According to TIA, in
conjunction with the Tourism Industries, 47.0 million
in-bound travelers to the United States spent $94.0 billion
on travel to and within the United States in 1999, making the
United States the most popular tourist destination worldwide.
Also according to TIA, the total amount spent by international
travelers to the United States grew by 100% between 1989 and
1999.

The Company is among the largest package vacation providers for
in-bound travelers to the United States. The Companys
customers for these products and services primarily are
international travel distributors who send travelers to the
United States. The Company believes its broad customer base among
 European and other international travel distributors and its
status as one of a limited number of designated providers of
vacations for in-bound travelers to the various Disney properties
 in Florida and California represents a significant competitive
advantage.

Florida, the Caribbean and Mexico.In 1998, according to
the Florida Tourism Industry Marketing Corporation, approximately
 48.7 million visitors traveled to Florida and approximately
 8% of these travelers booked their travel in package form. TIA
has reported that approximately 3.6 million U.S. travelers
visited Caribbean destinations during 1998 and approximately
18.3 million U.S. travelers visited Mexico during 1998.

The Company has established a strong presence in the markets for
travel to Florida, the Caribbean and Mexico. The Company has more
 than 30 years of experience in these destinations and has
established key strategic relationships, including being one of a
 limited number of designated wholesalers for American Airlines
in the Caribbean. The Company also acts as one of a limited
number of designated wholesalers for Disney World. The Company
believes its three acquisitions in 1999 that serve these markets
significantly enhanced its expertise and capabilities to the
region. The Company believes its extensive experience and
established reputation in these markets as well as its supplier
relationships give it a significant competitive advantage over
other providers of vacations to these destinations.

Other U.S. Destinations.The Company offers products and
services to a number of other destinations in the United States
in addition to Hawaii and Florida. The Company is the exclusive
provider of vacation products and services for Amtrak. The
Company believes it has significant buying efficiencies for
destinations throughout the United States due to the volume of
U.S. travel products and services it purchases for both in-

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Europe.According to a survey by the U.S. Department of
Commerce, there were 11.1 million U.S. tourists visiting
Europe in 1998, a 13.3% increase from 1997. The Company has an
established presence in the marketplace for travel by U.S.
residents to Europe. The Company intends to increase its presence
 in this sales marketplace by cross-selling within its existing
customer base, by building on its relationships with travel
distributors to create demand for the Companys brand name
products and services and by leveraging its existing
relationships with suppliers to obtain preferential pricing and
access to capacity for European destinations.

Products and Services

The Company focuses on specific destinations in order to become a
 leading provider of value-added vacation products and services
while at the same time providing travel suppliers with efficient
and cost effective distribution of their capacity. The Company
has expertise in and access to the products and services of a
broad range of travel suppliers. Based on customer research, the
Company designs its products and services to offer travelers a
wider choice than that of an individual supplier. The Company
assembles travel products and services in bulk and combines them
to create customized vacations for individual travelers. The
Company creates demand for its products through integrated
marketing programs and handles all reservations, payment
processing and supplier processing interfaces. The Company has
developed the in-depth knowledge of these products and services
that a retail travel agent, which acts as a broker or reseller of
 the entire spectrum of travel products and services, is unlikely
 to acquire.

The Company focuses on ensuring customer satisfaction and
cultivating consumer loyalty to its products and services. The
Company has quality control mechanisms, such as destination
management programs, in place to provide customer support and
monitor the quality of the individual travel components and
overall customer satisfaction.

The Company also manages bank card reward and other affinity
group marketing programs for several companies including The
Chase Manhattan Bank, U.S. Bank, and Bank of America. The Company
 has certain proprietary software and extensive operating
experience it believes provides a significant opportunity to
capitalize on this capability.

The Company intends to increase sales by proactively marketing
its services to affinity group sponsors. The Company believes
access to affinity groups provides unique opportunities for the
direct marketing of its products and services to targeted
travelers while enhancing their relationship with their affinity
organizations.

Sales and Marketing

The Company pursues a fully integrated sales and marketing effort
 in support of its proprietary travel products and services, as
well as the private label products and services the Company
manages and markets for other companies. The Company directs its
marketing toward retail distributors and other intermediaries as
well as to travelers directly. By employing a multi-faceted
marketing approach targeted both to travel distributors and to
individual travelers, the Company believes it increases the
demand for its products and services. In addition, the Company
will integrate its own marketing efforts with the marketing
support it receives from certain travel suppliers with whom the
Company has an established relationship. The Company believes it
leverages its national presence and established marketing and
sales experience and strength into a competitive advantage. The
Company seeks to identify and cultivate new customers and create
cross-selling opportunities within its existing customer base.

A substantial majority of the Companys products and
services are sold through a broad network of retail travel
agencies, including independent firms and agencies affiliated
with travel consortia or national accounts. The Company typically
 offers retail travel agencies a base commission on the sale of
Company products with the opportunity to earn additional override
 commissions on sales above negotiated threshold amounts. In

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The Companys marketing focuses on domestic and foreign
travel distributors who market vacation products and services
directly to travelers. The Company has developed numerous
important relationships with major travel distributors in Europe
and in certain other key international origination areas. The
Companys marketing efforts with these distributors include
direct sales efforts, brochures, trade advertising and trade
shows in addition to effective account management of existing,
long-standing relationships.

The Company pursues marketing opportunities in other distribution
 channels as well. The Company intends to develop marketing
programs aimed at travelers who purchase travel products and
services through affinity groups, and the Company will pursue
strategic relationships with the owners of non-travel-related
consumer brands that represent a consumer base the Company wishes
 to target. Finally, to reach travelers who prefer to purchase
leisure and travel products and services on the Internet, the
Company currently is developing relationships with Internet
companies to market the Companys products and services on
their web sites or provide links to the Companys existing
web sites (gvg.com, classiccustomvacations.com and
globetrottervacations.com), as well as offering an Internet
booking capability.

Business and Information Systems

The Company believes the successful application of common
business and information systems will be important to its ability
 to create operating efficiencies and establish a competitive
advantage. The ongoing migration of systems for all of the
Companys domestic wholesale products to a shared system
will enable the Company to spread maintenance and development
costs across a broader customer base, facilitate the use of
common operating platforms, reduce the costs and time
requirements of developing external interfaces, and provide us
with better inventory control, yield management and customer
service capability. In addition, it is likely that application of
 system solutions will become increasingly important to enable
the Company to integrate customer identification and profiling
capabilities with reservation and operational business systems.
This combination will enable the Company to leverage each
customer encounter into a basis for generating repeat business
and establishing a long-term relationship.

Recognizing the importance of the rapid integration of
information systems to its strategy, the Company in 1999 acquired
 Trase Miller Solutions, an organization that had a proprietary
travel-related technology platform and experienced technology
staff. Trase Millers technology and operating platform is
expected to be integrated with the best aspects of the
Companys other domestic wholesale brands operating
platforms into one common technology by 2001.

In 1999, the Company added three new Global Distribution Systems
(GDS) channels, Worldspans Tour Source, Amadeus Tour
Source, and Sabres Tour Guide/ Sabre Tours, to its existing
 channel, Apollo/ Galileos LeisureShopper, which provide
the Company with important distribution links to its travel agent
 community. GDS channels are considered the fastest, most
convenient, and most cost effective means for travel agents to
book the Companys products.

Competition

The Company competes with a variety of other providers of travel
and travel-related products and services. Its principal
competitors are other vacation providers, travel agencies and
other retail and wholesale distributors of travel products and
services. The Company also competes with travel suppliers,
including some of the Companys travel suppliers, that sell
directly to individual travelers. The Company believes it
competes for customers based upon the quality of the travel
products and services delivered, price, specialized knowledge,
reputation and convenience. The Company believes it is
well-positioned to compete on these basis.

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Employees

The Company employs approximately 1,000 people, a majority of
whom are located at the Companys principal offices in San
Jose, CA, New York, NY, Downers Grove, IL, Lake Success, NY and
on location in Hawaii. Approximately 450 of the Companys
employees serve as reservations staff and the remainder serve in
customer service and operations, sales and marketing, information
 systems and management and administration. The Company believes
it enjoys good relations with its employees, none of whom are
covered by any collective bargaining agreements.

QUALIFICATION OF FORWARD-LOOKING STATEMENTS

The statements contained in this Report that are not purely
historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934,
including without limitation statements regarding the
Companys expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in
this document are based on information available to the Company
on the date hereof, and the Company assumes no obligation to
update any such forward-looking statements. The forward-looking
statements involve known and unknown risks, uncertainties and
other factors which may cause actual results, experience and the
performance or achievements of the Company to be materially
different from those anticipated, expressed or implied by the
forward-looking statements. In evaluating the Companys
business, the following factors, in addition to the Risk Factors
set forth below and other information set forth herein, should be
 carefully considered: successful integration of systems; factors
 affecting internal growth and management of growth; dependence
on travel providers; success of the acquisition strategy and
availability of acquisition financing; success in entering new
segments of the travel market and new geographic areas;
dependence on technology; labor and technology costs; advertising
 and promotional efforts; risks associated with the travel
industry generally; seasonality and quarterly fluctuations;
competition; and general economic conditions. In addition, the
Companys business strategy and growth strategy involve a
number of risks and challenges, and there can be no assurance
that these risks and other factors will not have a material
adverse effect on the Company.

RISK FACTORS

The following factors should be considered in addition to
other information included in this Form 10-K.

Substantial Competition

The package vacation industry is highly competitive and has
relatively low barriers to entry. The Company competes primarily
with other vacation providers, travel agencies and other retail
and wholesale distributors of travel products and services, some
of which are larger and have greater brand name recognition and
financial resources than the Company. Competition within the
package vacation industry is increasing as certain of the
Companys competitors are expanding their size and financial
 resources through consolidation. Certain package vacation
providers that compete with the Company may have relationships
with travel suppliers that give them preferred access to capacity
 or more competitive pricing than is available to the Company.
Furthermore, some travel providers have a strong presence in
particular geographic areas, which may make it difficult for the
Company to attract customers in those areas. The Company also
competes with travel suppliers, including some of the
Companys travel suppliers, that sell directly to individual
 travelers. These suppliers may restrict the availability of
travel products or services or the ability of the Company to
offer such products or services at preferential prices.
Consolidation among travel suppliers has left the remaining
suppliers in a stronger position relative to providers of travel
products and services, such as the Company. As a result of
competitive pressures, the Companys revenues and margins
may decline. There can be no assurance that the Company will be
able to compete successfully, and the failure to compete
successfully may have a material adverse effect on the business,
financial condition and results of operations of the Company.

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Changing Industry Dynamics; New Methods of Distribution

Innovations in on-line technology such as the Internet have
increased the ability of travel suppliers to distribute their
travel products and services directly to travelers. Travelers can
 now use the Internet to access information about travel products
 and services and to purchase such products and services directly
 from suppliers, thereby bypassing both vacation providers such
as the Company and retail travel agents through whom the Company
receives a substantial majority of its revenues. In addition,
recent erosion of commissions paid by travel suppliers,
particularly airlines, to travel distributors has weakened the
financial condition of many travel agents. Because the Company
currently relies to a large extent on retail travel agencies for
access to travelers and revenues, a shift in consumer purchasing
away from travel agencies and toward direct purchasing from
travel suppliers could have an adverse impact on the Company.
Also, although the Company has a strategy to capitalize on the
emergence of the Internet as an alternative distribution channel,
 there can be no assurance that such strategy will be successful
or will not negatively impact the Companys relationship
with retail travel agents.

Dependence on Travel Suppliers

The Company is dependent upon travel suppliers for access to
their products and services. Certain travel suppliers, such as
American Airlines, Inc. (American Airlines), Delta
Air Lines, Inc. (Delta), Hawaiian Airlines, Inc.
(Hawaiian Airlines), United Air Lines, Inc.
(United), Four Seasons Hotels Inc., Hilton Hotels
Corporation, Hyatt Hotels Corporation (Hyatt),
Starwood Hotels & Resorts Worldwide, Inc., National Railroad
Passenger Corporation (Amtrak), Alamo Rent A Car,
LLC, and Avis Rent A Car, Inc., offer the Company
(i) non-exclusive pricing that is preferential to published
rates, enabling the Company to offer complete vacations at prices
 lower than generally would be available to individual travelers
and retail travel agents, (ii) non-exclusive preferential
access to inventory of their travel products and services,
enabling the Company to assemble more desirable vacations for
travelers, or (iii) in the case of certain travel suppliers,
 both non-exclusive preferential pricing and access to inventory.
 The Companys travel suppliers generally can cancel or
modify their agreements with the Company upon relatively short
notice. In addition, any decline in the quality of travel
products and services provided by these suppliers, or a
perception by travelers of such a decline, could adversely affect
 the Companys reputation. The loss of contracts, changes in
 the Companys pricing agreements, commission schedules or
incentive override commission arrangements, more restricted
access to travel suppliers products and services or less
favorable public opinion of certain travel suppliers and
resulting low demand for the products and services of such travel
 suppliers could have a material adverse effect on the business,
financial condition and results of operations of the Company.

Concentration in Hawaiian Marketplace

In 1999, the Company derived approximately 47% of its gross
revenues from products and services associated with vacations to
Hawaii. Westbound travel was up 7% in 1999 after having been
relatively flat the preceding three years, according to the
Hawaii Visitor and Convention Bureau. A downturn in the market
for vacations to Hawaii could have a material adverse effect on
the business, financial condition and results of operations of
the Company.

Management of Growth; Integration of Operations

The Company has grown since March 1998 through internal
expansion, new product introductions and extensions, as well as
Acquisitions, and the Company expects to continue to grow in part
 through additional acquisitions. There can be no assurance that
the executive management group will be able to manage effectively
 the combined entity or implement the Companys operating
and growth strategies. In addition, acquisitions have, and will
continue to, put pressure on the Companys personnel,
computer systems and other corporate support systems. Any
inadequacy of such systems to manage the increased size and scope
 of operations resulting from growth or the inability of the
Company to integrate successfully future acquisitions could have
a material adverse effect on the business, financial condition
and results of operations of the Company.

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The Company will continue to improve its profitability by various
 means, including a continued reduction of redundant operating
and overhead costs, increased asset utilization and enhanced
purchasing power. The Companys ability to sustain
profitability improvements will be affected by various factors,
such as the costs associated with centralizing its administrative
 functions and its ability to benefit from enhanced purchasing
power, many of which are beyond the control of the Company. In
addition, the Companys ability to achieve its operating and
 growth goals will depend in large part on its ability to
continue to consolidate and integrate certain administrative
functions common to the Company. Such consolidation and
integration has required substantial attention from senior
management and may disrupt the operations of the Company, as
management attention is diverted from other tasks, and as
technological, practical or personnel issues arise. In addition,
although some material capital expenditures currently are
anticipated in connection with such consolidation and
integration, there can be no assurance that such consolidation
and integration will not result in the requirement to make
material unanticipated capital expenditures. There can be no
assurance that such consolidation and integration will be
completed or that, if completed, the Company will recognize any
economic benefit.

Dependence on Acquisitions for Future Growth

One of the Companys strategies is to increase its revenues
and the markets it serves through acquisitions. Currently, the
company intends to rely less on acquisitions and more on internal
 growth.

There can be no assurance that suitable candidates for
acquisitions can be found or, if suitable candidates are
identified, that acquisitions can be completed on acceptable
terms. In this regard, the Company faces competition from other
package vacation providers as well as from travel suppliers and
vertically integrated travel companies in its efforts to identify
 acquisition targets and complete acquisitions. In addition, as
consolidation in the industry continues, the prices for
attractive acquisition candidates may be bid up to higher levels,
 and there can be no assurance that businesses acquired in the
future will achieve sales and profitability that justify the
investment therein. The failure of the Company to acquire
additional travel businesses may limit the Companys ability
 to grow in the future.

Future acquisitions may involve a number of risks that could
adversely affect the business, results of operations and
financial condition of the Company. These could include adverse
short-term effects on the Companys reported operating
results such as those caused by severance payments to employees
of acquired companies, difficulties in eliminating duplicative
costs, restructuring charges associated with the acquisitions and
 other expenses associated with a change of control, as well as
non-recurring acquisition costs. Acquisitions also may divert
managements attention, create difficulties with retention,
hiring and training of key personnel, raise risks associated with
 unanticipated problems or legal liabilities and require non-cash
 accounting charges associated with the amortization of acquired
intangible assets. Furthermore, although the Company conducts due
 diligence and generally requires representations, warranties and
 indemnifications from the former owners of acquired companies,
there can be no assurance that such owners will have accurately
represented the financial and operating conditions of their
companies or will have the means to satisfy their indemnification
 obligations. If an acquired companys financial or
operating results were misrepresented, the acquisition could have
 a material adverse effect on the business, financial condition
and results of operations of the Company.

Integration of Information and Business Systems

The Company purchased Trase Miller Solutions in 1999 in order to
obtain its technology and certain key personnel. The Company is
currently exploring how to best combine our two primary operating
 platforms into one seamless system. Upon completion of this
step, which is not expected to occur before 2001, we expect to
further reduce our operating costs while achieving better
inventory control, yield management and customer service.

The Company believes that the combined existing and Trase Miller
Solutions systems will provide adequately for the Companys
information and business system requirements, but there can be no
 assurance that the new combined system will in fact meet the
Companys needs. Prior to the company-wide implementation of
 the new combined system, the operation of multiple separate
systems, including the

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Dependence on Technology

The Companys business is dependent upon a number of
different information and telecommunications technologies to
access information and manage reservation systems, including
handling a high volume of telephone calls on a daily basis. Rapid
 changes in these technologies may require greater than
anticipated capital expenditures to improve or upgrade the level
of customer service. In addition, the Company is dependent upon
certain third-party vendors, including central reservation system
 operators such as SABRE Group Holdings, Inc.
(SABRE), Galileo International, Inc.
(Galileo) and WORLDSPAN, L.P. (WORLDSPAN)
 for access to certain information and will depend on such
vendors in the future for electronic distribution of vacation
products to retail travel agents and other travel intermediaries.
 Any failure of these systems could have a material adverse
effect on the business, financial condition and results of
operations of the Company.

Dependence on Customer Deposits and Advance Payments

The Company derives substantial income from interest on customer
deposits and advance payments. For 1999, the Company had interest
 income of $2.5 million, substantially all of which was derived
from interest on customer deposits and advance payments. In
addition, the Companys pricing of its products and services
 is based, in part, upon the interest income expected to be
received from investing these deposits and advance payments. The
Companys investment policy and the terms of the
Companys credit facility restrict the Company to investing
these deposits and advance payments only in investment-grade
securities. A failure of these investment securities to perform
at their historical levels could reduce the interest income
realized by the Company, which could have a material adverse
effect on the business, financial condition and results of
operations of the Company. See Managements Discussion
 and Analysis of Financial Condition and Results of
Operations.

Quarterly Fluctuations; Seasonality

The Companys operating results have fluctuated from period
to period and likely will continue to fluctuate in the future.
The travel industry in general and the Companys operations
in particular are highly seasonal. The Companys net
revenues generally are highest in the second and third quarters
of the year, while its expenses, as a percentage of gross
revenues, generally are highest in the first and fourth quarters.
 The Companys quarterly results of operations also may be
subject to fluctuations as a result of the timing and cost of
acquisitions, fare wars by travel suppliers, changes in
relationships with certain travel suppliers, changes in the mix
of services offered by the Company, extreme weather conditions,
general economic conditions or other factors affecting travel
generally. As a result of these and other factors, the
Companys quarterly operating results are subject to
fluctuation, and the Company believes quarter-to-quarter
comparisons of its operating results are not necessarily
meaningful and should not be relied upon as an indication of
future performance. In addition, due to all of the foregoing
factors, the Companys operating results in future periods
may be below the expectations of securities analysts and
investors. In such event, the market price of the Common Stock
could be materially adversely affected.

Reliance on Key Personnel

The Companys success will depend, in part, on the continued
 efforts of Roger H. Ballou, its Chairman, President and Chief
Executive Officer, and Jay G. Stuart, its Executive Vice
President and Chief Financial Officer, and the senior management
of its Business Units. Furthermore, the Companys operations
 likely will depend on the senior management of companies that
may be acquired in the future. If any of these individuals
becomes unwilling or unable to continue in his or her present
role, or if the Company is unable to attract and

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Government Regulation and Taxation

Many travel suppliers, particularly airlines, are subject to
extensive regulation by federal, state and foreign governments.
In addition, the travel industry is subject to certain special
taxes by federal, state, local and foreign governments, including
 hotel bed taxes, car rental taxes, airline excise taxes and
airport taxes and fees. New or different regulatory schemes or
changes in tax policy could have an adverse impact on the travel
industry in general and could have a material adverse effect on
the business, financial condition and results of operations of
the Company.

Acquisition Financing; Additional Dilution

The Company currently intends to finance future acquisitions by
using shares of Common Stock, cash, borrowed funds or a
combination thereof. Existing shareholders will suffer ownership
dilution if the Company uses Common Stock as consideration for
future acquisitions. Moreover, the issuance of additional shares
of Common Stock may negatively affect earnings per share and the
market price of the Common Stock. If the Common Stock does not
maintain a sufficient market value, if the price of Common Stock
is highly volatile or if potential acquisition candidates are
otherwise unwilling to accept Common Stock as part of the
consideration for the sale of their businesses, the Company may
be required to use more of its cash resources or more borrowed
funds in order to execute its acquisition program. If the Company
 does not have sufficient cash resources, its growth could be
limited unless it is able to obtain additional capital through
debt or equity offerings. The Company has entered into a credit
facility that will provide a limited source of funds which may be
 used in connection with future acquisitions. There can be no
assurance that this credit facility will be sufficient to meet
all of the Companys capital requirements to fund
acquisitions or that the Company will be able to obtain
additional financing if and when it is needed or that any such
additional financing will be available on terms it deems
acceptable.

Accounting Charges; Significant Intangible Assets

Many business acquisitions must be accounted for under the
purchase method of accounting, and the Company expects that,
under current accounting rules, it will be required for the
foreseeable future to account for all acquisitions under the
purchase method. Acquisitions accounted for under the purchase
method are likely to generate goodwill (which, generally,
represents the difference between the purchase price and the fair
 value of the tangible and separately measurable intangible net
assets) or other intangible assets. Consequently, acquisitions of
 new businesses typically would result in substantial
amortization charges to the Company, which, although non-cash in
nature, could have a significant impact on the Companys
reported operating results. Acquisitions also may involve
significant one-time acquisition-related charges.

Generally accepted accounting principles require that goodwill
and all other intangible assets be amortized over the period
benefited, and the Companys management has determined that
period to be at least 35 years for the goodwill recorded in
connection with the Acquisitions. There can be no assurance that
the Companys management accurately determined the
amortization period for the goodwill recorded in connection with
the Acquisitions. If the Company failed to recognize a separate,
material intangible asset having an actual benefit period of less
 than 35 years, or if the Company did not give effect to any
 accrued shorter benefit periods for certain material portions of
 the goodwill recorded in connection with the Acquisitions, then
earnings reported in periods immediately following the
Acquisitions will be overstated, and, in later years, the Company
 will be burdened by a continuing charge against earnings without
 an associated benefit to income which generally would have been
factored into the price paid for the business acquired. Earnings
in later years also will be significantly affected if management
determined that the remaining balance of goodwill at any time was
 impaired. See Managements Discussion and Analysis of
 Financial Condition and Results of Operations and
Business  Growth Strategy.

12



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Vacation Travel Industry; General Economic Conditions

The Companys results of operations will depend upon factors
 affecting the vacation travel industry generally. The
Companys revenues and earnings are especially sensitive to
events that affect domestic and international air travel and the
level of car rentals and hotel reservations. A number of factors,
 including political instability, armed hostilities,
international terrorism, labor disturbances, a rise in fuel
prices or other travel costs, excessive inflation, currency
fluctuations, extreme weather conditions and concerns about
passenger safety could result in a temporary or longer-term
overall decline in demand for package vacations. The Company
believes price-based competition will continue for the
foreseeable future. The continuation of such competition and the
occurrence of any of the events described above could have a
material adverse effect on the business, financial condition and
results of operations of the Company. In addition, demand for the
 Companys products and services may be significantly
affected by the general level of economic activity and employment
 in the United States and key international markets. Therefore,
any significant economic downturn or recession in the United
States or these other markets could have a material adverse
effect on the business, financial condition and results of
operations of the Company.

Voting Control by Existing Management and Shareholders

Thayer Equity Investors III, L.P. (Thayer) and its
affiliates own and control a substantial majority of the Common
Stock of the Company. As of December 31, 1999, Thayer and
its affiliates own beneficially 64.6% of the outstanding shares
of Common Stock. As a result, Thayer and its affiliates are able
to exercise control over the Companys affairs and are able
to elect the entire Board of Directors and control the
disposition of any matter submitted to a vote of shareholders. In
 addition, the Companys executive officers and directors,
and entities affiliated with them, including Thayer and its
affiliates, as of December 31, 1999, own beneficially shares
 of Common Stock representing 70.3% of the total voting power of
the Common Stock.

Possible Volatility of Trading Price

Prior to the initial public offering, there was no public market
for the Common Stock and, although a public market has now been
developed, there can be no assurance that the public market for
the Common Stock will be active or continue. The market price of
the Common Stock may be subject to significant fluctuations in
response to numerous factors, including variations of the annual
or quarterly results of the Company or its competitors, changes
by financial research analysts in their estimates of the earnings
 of the Company or the failure of the Company to meet such
estimates, conditions of the economy in general or in the travel
industry in particular, unfavorable publicity or changes in
applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the travel
service industry. From time to time, the stock market experiences
 significant price and volume volatility, which may affect the
market price of the Common Stock for reasons unrelated to the
Companys performance. In the past, following periods of
volatility in the market price of a companys securities,
securities class action litigation has often been instituted
against such a company. Any such litigation instigated against
the Company could result in substantial costs and a diversion of
managements attention and resources, which could have a
material adverse effect on the business, results of operations
and financial condition of the Company.

Shares Eligible for Future Sale; Registration Rights Agreement

Sales of substantial amounts of Common Stock in the public market
 following the initial public offering could adversely affect the
 prevailing market price of the Common Stock and the
Companys ability to raise capital in the future. Upon
completion of the initial public offering (IPO), the
Company had a total of 14,747,576 shares of Common Stock
outstanding, of which the 3,000,000 shares offered were freely
tradable without restriction under the Securities Act of 1933, as
 amended (the Securities Act), by persons other than
affiliates of the Company, as defined under the
Securities Act. The remaining 11,747,576 shares of Common Stock
outstanding were restricted securities as that term
is defined by Rule 144 promulgated under the Securities Act.
 Of these shares, approximately 740,238 shares are eligible for
sale in the public market pursuant to Rule 144(k) under the
Securities Act and the remaining 11,007,338 shares are eligible
for sale in the public market from time to time.

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On January 14, 1999, the Company registered on Form S-8
 under the Securities Act the shares of Common Stock issuable
under the Stock Option Plan. Of the 2,000,000 shares to be
issuable under this Stock Option Plan, approximately 1,372,186
shares were subject to outstanding options as of
December 31,1999. At any time a number of shares equal to
12% of the then outstanding shares of Common Stock will be
reserved for issuance under the Stock Option Plan.

Holders of approximately 11,747,576 shares of Common Stock are
entitled to certain registration rights with respect to such
shares. If such holders, by exercising their registration rights,
 cause a large number of shares to be registered and sold in the
public market, such sales could have an adverse effect on the
trading price of the Common Stock. In addition, if the Company is
 required, pursuant to such registration rights, to include
shares held by such persons in a registration statement that the
Company files to raise additional capital, the inclusion of such
shares could have an adverse effect on the Companys ability
 to raise needed capital.

No Dividends

The Company does not expect to pay cash dividends on Common Stock
 in the foreseeable future. In addition, under its credit
agreement, the Company is prohibited from paying dividends on its
 shares of capital stock other than dividends payable solely in
shares of Common Stock.




ITEM 2.  PROPERTIES

The Companys headquarters are located in Washington, D.C.
As of December 31, 1999, the Companys other principal
facilities consist of leased offices, of which the largest are
located in New York, NY, Downers Grove, IL and San Jose, CA. The
Company believes these facilities are adequate to meet its
anticipated needs. As the Company continues to implement its
growth strategy, certain changes are expected, such as
combinations of facilities, expansion of other facilities, and
the implementation of new call centers or shared services
centers.




ITEM 3.  LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings other than
various legal actions arising in the ordinary course of business.
 The Company believes none of these actions will have a material
adverse effect on its business, financial condition and results
of operations.




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

NONE

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PART II






|        |                                                                                 
|------- | --------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
        STOCKHOLDER MATTERS

The Companys Common Stock has been traded on The New York
Stock Exchange under the symbol GVG since its initial
 public offering in July 1998. The following table sets
forth the high and low closing prices for each period shown, as
quoted on The New York Stock Exchange:

|                                   |  |      |    |      |  |   |   |     
|---------------------------------- |  | ---- | -- | ---- |  | - | - | ----
|1998                               |  | HIGH |    | LOW 
|                                   |  |      |    |     
|Third Quarter (from July 31, 1998) |  | $    | 15 |      |  | $ | 7 | 1/4 
|                                  
|                                  
|                                  
|                                  
|Fourth Quarter                     |  | $    | 11 | 1/4  |  | $ | 5 | 7/16
|                                  
|                                  
|                                  
|                                  
|1999                               |  |      |    |      |  |   |   |     
|                                   |  |      |    |      |  |   |   |     
|First Quarter                      |  | $    | 14 | 1/4  |  | $ | 8 | 3/8 
|                                  
|                                  
|                                  
|                                  
|Second Quarter                     |  | $    | 13 | 5/16 |  | $ | 4 | 3/16
|                                  
|                                  
|                                  
|                                  
|Third Quarter                      |  | $    | 6  | 1/8  |  | $ | 4 | 3/8 
|                                  
|                                  
|                                  
|                                  
|Fourth Quarter                     |  | $    | 4  | 1/2  |  | $ | 2 | 3/4 

The closing price of the Companys Common Stock, as reported
 by The New York Stock Exchange, on March 1st, 2000 was $3 
13/16. The approximate number of record holders of the Common
Stock as of March 1, 2000 was 56.

The Company has not paid any cash dividends during the last two
years. The Company intends to retain all of its earnings, if any,
 to finance the expansion of its business and for general
corporate purposes, including future acquisitions, and does not
anticipate paying any cash dividends on its Common Stock for the
foreseeable future. In addition, the Companys line of
credit includes restrictions on the ability of the Company to pay
 cash dividends without the consent of the lender.




ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data was derived from the consolidated
financial statements of the Company audited by Arthur Andersen
LLP, except for the balance sheet data as of December 31,
1995 which was not audited. The results of operations for the
year ended December 31, 1999, are not necessarily indicative
 of the results to be expected for any future period. The
information in this table should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and accompanying notes thereto included
elsewhere in this Form 10-K.

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|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |       |     | 
|---------------------------------------------------------------------------------------- | ----------------- | ------------------------------------- | ------- | ------ | --- | ---- | ------ | ------ | ----- | ---- | ------ | ----- | --- | - | ------ | ----- | --- | - | ------ | ----- | --- | 
|                                                                                         |                   |                                      
|                                                                                         |                   | Years Ended December 31,             
|                                                                                         |                   |                                      
|                                                                                         |                   | 1999                                  |         | 1998   |     | 1997 |        | 1996   |       | 1995
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |     
|                                                                                         |                   |                                      
|                                                                                         |                   | (in thousands, except per share data)
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Statement of Operations Data:                                                            |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Net revenues                                                                             |                   | $                                     | 126,000 |        |     | $    | 90,421 |        |       | $    | 24,255 |       |     | $ | 22,259 |       |     | $ | 18,464 |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating expenses                                                                       |                   |                                       | 111,688 |        |     |      | 69,386 |        |       |      | 17,852 |       |     |   | 16,025 |       |     |   | 13,316 |      
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|                                                                                         | Gross profit      |                                       |         | 14,312 |     |      |        | 21,035 |       |      |        | 6,403 |     |   |        | 6,234 |     |   |        | 5,148 |    
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|General and administrative expenses(1)                                                   |                   |                                       | 13,269  |        |     |      | 10,248 |        |       |      | 7,797  |       |     |   | 6,905  |       |     |   | 5,702  |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Depreciation and amortization                                                            |                   |                                       | 5,929   |        |     |      | 2,779  |        |       |      | 182    |       |     |   | 154    |       |     |   | 131    |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Income (loss) from operations                                                            |                   |                                       | (4,886  | )      |     |      | 8,008  |        |       |      | (1,576 | )     |     |   | (825   | )     |     |   | (685   | )    
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|Other income (expense):                                                                  |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Interest income   |                                       |         | 2,529  |     |      |        | 2,480  |       |      |        | 556   |     |   |        | 581   |     |   |        | 521   |    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Interest expense  |                                       |         | (2,331 | )   |      |        | (1,504 | )     |      |        |      |     |   |        |      |     |   |        |      |    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other, net        |                                       |         | 47     |     |      |        | 26     |       |      |        | 41    |     |   |        | (4    | )   |   |        | 67    |    
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|                                                                                         |                   | Total other income                    |         |        | 245 |      |        |        | 1,002 |      |        |       | 597 |   |        |       | 577 |   |        |       | 588 | 
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|Income (loss) before income taxes and extraordinary item                                 |                   |                                       | (4,641  | )      |     |      | 9,010  |        |       |      | (979   | )     |     |   | (248   | )     |     |   | (97    | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Income tax benefit (expense)                                                             |                   |                                       | 1,416   |        |     |      | (3,908 | )      |       |      | (124   | )     |     |   | (122   | )     |     |   | (106   | )    
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|Income (loss) before extraordinary item                                                  |                   |                                       | (3,225  | )      |     |      | 5,102  |        |       |      | (1,103 | )     |     |   | (370   | )     |     |   | (203   | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Extraordinary item, net of income tax benefit of $144 for 1999
        and $244 for 1998 |                   |                                       | (257    | )      |     |      | (379   | )      |       |      |       |       |     |   |       |       |     |   |       |      
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|Net income (loss)                                                                        |                   |                                       | (3,482  | )      |     |      | 4,723  |        |       |      | (1,103 | )     |     |   | (370   | )     |     |   | (203   | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Preferred dividend                                                                       |                   |                                       |        |        |     |      | (2,519 | )      |       |      |       |       |     |   |       |       |     |   |       |      
|                                                                                         |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|Net income (loss) available to common shareholders                                       |                   | $                                     | (3,482  | )      |     | $    | 2,204  |        |       | $    | (1,103 | )     |     | $ | (370   | )     |     | $ | (203   | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Net income (loss) per share:                                                             |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Basic and Diluted |                                       | $       | (0.24  | )   |      | $      | 0.22   |       |      | $      | (0.21 | )   |   |        |       |     |   |        |       |    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Weighted average shares outstanding:                                                     |                   |                                       |         |        |     |      |        |        |       |      |        |       |     |   |        |       |     |   |        |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Basic             |                                       |         | 14,555 |     |      |        | 9,931  |       |      |        | 5,291 |     |   |        |       |     |   |        |       |    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Diluted           |                                       |         | 14,555 |     |      |        | 9,990  |       |      |        | 5,291 |     |   |        |       |     |   |        |       |    

|                                                          |  |                |         |      |  |      |         |      |  |      |        |   |  |   |        |  |  |   |        | 
|--------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------ |  |  | - | ------ | 
|                                                          |  |               
|                                                          |  | December 31,  
|                                                          |  |               
|                                                          |  | 1999           |         | 1998 |  | 1997 |         | 1996 |  | 1995
|                                                          |  |                |         |      |  |      |         |      |  |     
|                                                          |  |               
|                                                          |  | (in thousands)
|                                                         
|                                                         
|                                                         
|                                                         
|Balance Sheet Data:                                       |  |                |         |      |  |      |         |      |  |      |        |   |  |   |        |  |  |   |        | 
|                                                         
|                                                         
|                                                         
|                                                         
|Cash, cash equivalents and short-term
        investments |  | $              | 24,255  |      |  | $    | 32,663  |      |  | $    | 7,909  |   |  | $ | 8,256  |  |  | $ | 7,896  | 
|                                                         
|                                                         
|                                                         
|                                                         
|Working capital (deficit)                                 |  |                | (49,513 | )    |  |      | (24,867 | )    |  |      | (78    | ) |  |   | 1,256  |  |  |   | 2,710  | 
|                                                         
|                                                         
|                                                         
|                                                         
|Total assets                                              |  |                | 178,675 |      |  |      | 134,060 |      |  |      | 19,375 |   |  |   | 19,677 |  |  |   | 17,713 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Total debt                                                |  |                | 29,513  |      |  |      | 6,663   |      |  |      |       |   |  |   |       |  |  |   |       | 
|                                                         
|                                                         
|                                                         
|                                                         
|Shareholders equity                                      |  |                | 48,964  |      |  |      | 53,585  |      |  |      | 358    |   |  |   | 1,673  |  |  |   | 3,151  | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | General and administrative expenses for the years ended
        December 31, 1997, 1996 and 1995 include salary and bonuses
        to the prior owners and certain key employees of the Company of
        $5.8  million, $4.8 million and $3.8 million,
        respectively. General and administrative expenses for the year
        ended December 31, 1998 include approximately
        $1.1 million of expenses incurred in connection with the
        Recapitalization.

16



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##### Table of Contents








|        |                                                                    
|------- | -------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION

AND RESULTS OF OPERATIONS


Overview

Global Vacation Group, Inc. (GVG or the
Company) assembles air, hotel, rental car and other
travel components in bulk and provides complete vacations to
travelers through retail travel distributors, such as travel
agents, and other distribution channels including the Internet
and affinity groups. In March 1998, the Company was
recapitalized and between March 1998 and June 1999
acquired the stock or assets of seven other vacation providers
and one information system provider. Through these acquisitions,
GVG acquired the outstanding capital stock of Haddon Holidays,
Inc. (Haddon), Classic Custom Vacations
(Classic), Globetrotters, Inc.
(Globetrotters), Friendly Holidays, Inc.
(Friendly), Island Resort Tours, Inc.
(Island), International Travel & Resorts, Inc.
(ITR), substantially all the assets of MTI Vacations,
 Inc. (MTI), and Trase Miller Solutions, Inc.
(Trase Miller) (collectively, the
Acquisitions or the Acquired Businesses).
 The consideration for the Acquisitions consisted primarily of
cash. Each acquisition has been accounted for under the purchase
method of accounting. The accompanying financial statements for
the years ended December 31, 1999 and 1998 include the
results of operations for each of the Acquisitions from their
respective acquisition dates.

Net revenues include commissions and markups on travel products
and services, volume bonuses received from travel suppliers,
cancellation fees and other ancillary fees such as travel waiver
premiums and are generally recognized upon the commencement of
travel. For the years ended December 31, 1999 and 1998, the
Company had net revenues of $126.0 million and $90.4
million, respectively, and net income (loss), before
extraordinary charges, of ($3.2) million and $5.1 million,
respectively, derived from a total dollar value of travel
products and services of $543.6 million and
$410.2 million, respectively.

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

The Company derives a significant portion of its pre-tax income
from interest earned on funds related to customer deposits and
prepayments for vacation products. Generally, the Company
requires a deposit within one week of making a travel
reservation. Reservations are typically made two to three months
prior to departure. Additionally, for packaged tours, the Company
 generally requires that the entire cost of the vacation be paid
in full 45 to 60 days before departure, unless reservations
are made closer to departure. While terms vary, the Company
generally pays for all non-air components of the vacation after
the customers departure. In the period between receipt of a
 deposit or prepayment and the payment of related expenses, these
 funds are generally invested in cash and investment-grade
securities. This cycle is typical in the packaged tour industry,
and earnings generated on deposits and prepayments are integral
to the Companys operating model and pricing strategies. For
 the years ended December 31, 1999 and 1998, the Company had
 interest income of $2.5 million and $2.5 million,
respectively.

The lower than expected operating results for the year ended
December 31, 1999 reflect primarily the previously announced
 revenue and margin shortfalls at the Companys
Globetrotters brand. These problems were discovered to be greater
 than originally anticipated and were compounded by the negative
earnings effect of the Companys long-term investment in
technology. The underlying causes of the shortfalls at the
Globetrotters brand were a series of business integration driven
operating problems and a lack of sufficient management controls.
Management believes it has identified the operating problems and
has put measures in place to respond to them. Due to the long
lead times, however, the Company doesnt expect to see any
material benefit from these efforts until the year 2000 operating
 results are complete.

17



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##### Table of Contents



Results of Operations

The Company

The following table sets forth certain historical operating data
for the Company as a percentage of net revenues (in thousands).

|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |      |   
|---------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------ | ------- | ------ | - | ------ | ----- | ---- | -- | ------ | ------ | ------ |  |  | ----- | ---- | - | - | ------ | ------ | - |  | ----- | ---- | --
|                                                                                         |                                                    |                         
|                                                                                         |                                                    | Years Ended December 31,
|                                                                                         |                                                    |                         
|                                                                                         |                                                    |                          |         |        |   |       
|                                                                                         |                                                    | 1999                     |         | 1998   |   | 1997  
|                                                                                         |                                                    |                          |         |        |   |       
|                                                                                         |                                                    | Amount                   |         | %      |   | Amount |       | %    |    | Amount |        | %     
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |       
|Net revenues                                                                             |                                                    | $                        | 126,000 |        |   |        | 100.0 | %    |    | $      | 90,421 |        |  |  | 100.0 | %    |   | $ | 24,255 |        |   |  | 100.0 | %   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating expenses                                                                       |                                                    |                          | 111,688 |        |   |        | 88.6  |      |    |        | 69,386 |        |  |  | 76.7  |      |   |   | 17,852 |        |   |  | 73.6  |     
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     
|                                                                                         | Gross profit                                       |                          |         | 14,312 |   |        |       | 11.4 |    |        |        | 21,035 |  |  |       | 23.3 |   |   |        | 6,403  |   |  |       | 26.4 |   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|General and administrative expenses                                                      |                                                    |                          | 13,269  |        |   |        | 10.5  |      |    |        | 10,248 |        |  |  | 11.3  |      |   |   | 7,797  |        |   |  | 32.1  |     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Depreciation and amortization                                                            |                                                    |                          | 5,929   |        |   |        | 4.7   |      |    |        | 2,779  |        |  |  | 3.1   |      |   |   | 182    |        |   |  | 0.8   |     
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     
|                                                                                         | Income (loss) from operations                      |                          |         | (4,886 | ) |        |       | (3.8 | )  |        |        | 8,008  |  |  |       | 8.9  |   |   |        | (1,576 | ) |  |       | (6.5 | ) 
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     
|Interest income                                                                          |                                                    |                          | 2,529   |        |   |        | 2.0   |      |    |        | 2,480  |        |  |  | 2.7   |      |   |   | 556    |        |   |  | 2.3   |     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Interest expense                                                                         |                                                    |                          | (2,331  | )      |   |        | (1.9  | )    |    |        | (1,504 | )      |  |  | (1.7  | )    |   |   |       |        |   |  |      |     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Other, net                                                                               |                                                    |                          | 47      |        |   |        |      |      |    |        | 26     |        |  |  |      |      |   |   | 41     |        |   |  | 0.2   |     
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     
|Income (loss) before income taxes, and extraordinary item                                |                                                    |                          | (4,641  | )      |   |        | (3.7  | )    |    |        | 9,010  |        |  |  | 9.9   |      |   |   | (979   | )      |   |  | (4.0  | )   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Income tax benefit (expense)                                                             |                                                    |                          | 1,416   |        |   |        | 1.1   |      |    |        | (3,908 | )      |  |  | (4.3  | )    |   |   | (124   | )      |   |  | (0.5  | )   
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     
|Income (loss) before extraordinary item                                                  |                                                    |                          | (3,225  | )      |   |        | (2.6  | )    |    |        | 5,102  |        |  |  | 5.6   |      |   |   | (1,103 | )      |   |  | (4.5  | )   
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Extraordinary item, net of income tax benefit of $144 for 1999
        and $244 for 1998 |                                                    |                          | (257    | )      |   |        | (0.2  | )    |    |        | (379   | )      |  |  | (0.4  | )    |   |   |       |        |   |  |      |     
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     
|                                                                                         | Net Income (loss)                                  |                          |         | (3,482 | ) |        |       | (2.8 | )  |        |        | 4,723  |  |  |       | 5.2  |   |   |        | (1,103 | ) |  |       | (4.5 | ) 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Dividends on Class A Convertible Preferred Stock                                         |                                                    |                          |        |        |   |        |      |      |    |        | (2,519 | )      |  |  | (2.8  | )    |   |   |       |        |   |  |      |     
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     
|                                                                                         | Net income (loss) available to common shareholders |                          | $       | (3,482 | ) |        |       | (2.8 | )% |        | $      | 2,204  |  |  |       | 2.4  | % |   | $      | (1,103 | ) |  |       | (4.5 | )%
|                                                                                         |                                                    |                          |         |        |   |        |       |      |    |        |        |        |  |  |       |      |   |   |        |        |   |  |       |     

1999 COMPARED TO 1998

Net revenues for the years ended December 31, 1999 and 1998,
 were $126.0 million and $90.4 million, respectively, which
reflects the combined net revenues of the Company and the
Acquired Businesses for such periods. The increase in net
revenues of 39.3% for the year ended December 31, 1999 was
due to the effect of the Acquired Businesses, partially offset by
 revenue shortfalls at the Globetrotters brands and lower than
expected Millennium-related travel.

Operating expenses for the year ended December 31, 1999 and
1998, were $111.7 million and $69.4 million,
respectively, or 88.6% and 76.7%, respectively, of net revenues.
The increase in operating expense as a percentage of net revenues
 is primarily due to the higher operating expense ratios of the
Acquired Businesses. The higher operating expenses, combined with
 the net revenue shortfall at Globetrotters, resulted in a
decrease of gross profit percentage of 11.9% for the year ended
December 31, 1999 from the prior year.

General and administrative expenses for the year ended
December 31, 1999 and 1998 were $13.3 million and
$10.2 million, respectively, or 10.5% and 11.3%,
respectively, of net revenues. After excluding the effect of $1.1
 million in recapitalization expenses for the year ended
December 31, 1998, general and administrative expense, as a
percentage of net revenues, increased slightly to 10.5% from
10.1% for the year ended December 31, 1999 compared to the
same period in 1998. This increase was due to the effect of the
Acquired Business.

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##### Table of Contents



Depreciation and amortization for the years ended
December 31, 1999 and 1998 was $5.9 million and
$2.8 million or 4.7% and 3.1%, respectively, of net
revenues. The increase is due to the additional amortization of
intangible assets resulting from the Acquisitions made in 1999,
the full year effect of the 1998 acquisitions and
$6.0 million of capital expenditures in 1999 primarily for
computer hardware and software including internally developed
software.

Interest income for the years ended December 31, 1999 and
1998 was $2.5 million and $2.5 million, respectively, or
2.0% and 2.7%, respectively, of net revenues. The decrease in
interest income as a percent of net revenues is due to the use of
 cash to support acquisitions and to support higher operating
costs in 1999 as well as lower interest rates earned as the
Company transitioned maturing short-term investments from the
Acquired Businesses to investment grade securities to comply with
 the Companys investment policies.

Interest expense for the years ended December 31, 1999 and
1998 was $2.3 million and $1.5 million, respectively. The
increase is due to higher borrowing levels and increased bank
interest rates in 1999.

The benefit for income taxes for the year ended December 31,
 1999 was $1.4 million at an effective tax rate of 30.5%. The
provision for income taxes for the year ended December 31,
1998 was $3.9 million at an effective tax rate of 43.4%. The
 decrease in the effective tax rate is due to the effect of
certain non-deductible expenses and the termination of the
Companys S corporation status in 1998.

Net loss for the year ended December 31, 1999 includes an
extraordinary charge of $257,000, net of a tax benefit of
$144,000, related to the write-off of deferred financing costs
associated with the restructuring of the Companys credit
facility.

Net loss available to common shareholders for the year ended
December 31, 1999 was $3.5 million or 2.8% of net
revenues compared net income available to common shareholders for
 the year ended December 31, 1998 of $2.2 million, or
2.4% of net revenues, after dividends on convertible preferred
stock of $2.5 million.

1998 COMPARED TO 1997

Net Revenues.Net revenues for the years ended
December 31, 1998 and 1997, increased to $90.4 million
from $24.3 million, respectively, representing an increase
of 272.0%. The increase is due to net revenues generated by the
businesses acquired in 1998.

Operating expenses.Operating expenses increased to
$69.4 million for the year ended December 31, 1998,
from $17.9 million for the year ended December 31, 1997,
representing an increase of 287.7%. The increase is a result of
additional operating expenses from the Acquired Businesses. As a
percentage of net revenues, operating expenses increased to 76.7%
 for the year ended December 31, 1998, from 73.6% for the year
ended December 31, 1997. The increase in operating expenses
as a percent of net revenues was primarily due to the combination
 of the various gross margins the businesses acquired in 1998.

General and administrative expenses.General and
administrative expenses increased to $10.2 million for the
year ended December 31, 1998, from $7.8 million for the year
 ended December 31, 1997, representing an increase of 30.8%.
 As a percent of net revenues, general and administrative
expenses decreased to 11.3% for the year ended December 31,
1998, from 32.1% in 1997. For the year ended December 31,
1997, general and administrative expenses included salary and
bonuses paid to shareholders totaling $5.8 million. General
and administrative expenses for the year ended December 31,
1998, also included approximately $1.1 million of
transaction expenses related to the Recapitalization. Excluding
compensation and bonuses paid to shareholders and
Recapitalization transaction expenses, general and administrative
 expenses would have been $9.1 million for the year ended
December 31, 1998, and $2.0 million for the year ended
December 31, 1997.

Net Income.Net income increased to $4.7 million for
the year ended December 31, 1998, as compared to a net loss
of $1.1 million for the year ended December 31, 1997,
or 5.2% and (4.5%) of net revenues, respectively, was
attributable largely to the net income of the businesses acquired
 in 1998 and $1.1 million in transaction expenses related to
 the Recapitalization in 1998 and the reduction of compensation
paid to shareholders in 1997.

19



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##### Table of Contents



Liquidity and Capital Resources

The Company receives advance payments and deposits prior to
commencement of travel. The Companys pricing of its
products and services is determined, in part, based upon the
amount and timing of advance payments received. A number of
states have regulations with respect to the financial security
and handling of customer deposits made in advance of travel. The
Company believes it is in compliance with all applicable
regulations relating to customer deposits. Although each of the
Acquired Businesses has operated with different investment
strategies, the Company oversees cash and investments on a
centralized basis. The Companys investment policy and its
credit facility restrict investments to investment-grade
securities.

On October 28, 1999 the Company was required to amend and
restate its credit agreement (the Second Amended
Agreement) with the Lenders. The Second Amended Agreement
changes the previously established acquisition line of credit
into a revolving line and adjusts the total capacity of the
facility to $41 million, which matures on January 31, 2002.
The commitment allows for borrowings for working capital purposes
 up to $35 million, and if available under the
$41 million total commitment up to $10 million to
standby letters of credit. The total commitment calls for
scheduled reductions of $5 million on January 14, 2000,
 December 31, 2000 and December 31, 2001 with the final
 commitment reduction of $26 million at maturity. The
Company made a voluntary permanent reducing payment of
$5 million in December 1999 satisfying the scheduled
reduction due January 14, 2000. As of December 31,
1999, the Company had $29.4 million outstanding as advances
for working capital purposes and $5.7 million in standby letters
of credit secured by the facility with availability of up to
$0.6 million for additional borrowings or up to
$0.9 million to secure standby letters of credit. The
Lenders have agreed to issue additional standby letters of credit
 up to a total of $10 million provided that the Company
secures standby letters of credit not secured by the Facility
with cash deposits. Under the Second Amended Agreement, the
Company will continue to pay interest at ABR Advance or
Eurodollar Advance rates plus an applicable margin.

The Second Amended Agreement also altered certain of the
requirements of the Company to meet certain financial ratios and
covenants, including minimum EBITDA, minimum customer deposit
coverage, interest coverage, and limitations on capital
expenditures. The Company received relief from the fixed charge
ratio and leverage ratio until October 1, 2000. In exchange
for these waivers, the Company agreed to a fee equal to 1.5% of
the outstanding credit facility. If the Company is not profitable
 commencing in the second quarter of 2000 and for the year ending
 December 31, 2000, it is unlikely that the Company would
remain in compliance with the financial covenants of its credit
agreement. Although there can be no assurance that the Company
will meet its financial covenants, management believes that the
Company will be able to operate under the amended credit
agreement for at least the coming year. If the Company is unable
to meet its financial ratios and covenants, the Lenders could
require the Company to repay the entire outstanding loan. In that
 event, the Company would be required to generate additional
equity or cash from sources other than operations. Although the
Company believes it has the ability to generate additional
equity, such actions may be dilutive and there can be no
assurances that adequate funds will be available, or available on
 terms that are reasonable or acceptable to the Company.

The Second Amended Agreement also contains an additional fee
provision of up to 1.5% of the amount of the total facility
commitment if the Company does not raise a minimum of
$25 million in equity. The additional fee is earned by the
Lenders in 0.25% increments of 90, 120, 150, 180, 240,
300 days after the date of the Second Amended Agreement.
Management currently expects that the Company will be subject to
the additional fees under the Second Amended Agreement for part
or all of the coming year.

Net cash provided by operating activities for the year ended
December 31, 1999 was $8.0 million as compared to
$15.5 million in net cash used by operating activities in
the year ended December 31, 1998. The increase of
approximately $23.5 million in operating cash flows relates
primarily to the increase in customer deposits and accounts
payable/accrued expenses, partially offset by lower profitability
 and higher accounts receivables, for the year ended
December 31, 1999 in comparison to the same period in 1998.

The Company made capital expenditures of $6.0 million for
the year ended December 31, 1999 and $2.3 million for
the year ended December 31, 1998. The Company used
$31.0 million of cash, net of cash acquired, for
acquisitions for the year ended December 31, 1999 and
$29.6 million for the year ended

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##### Table of Contents





Management has seen strong advance bookings for year 2000. The
advance bookings currently are up in the mid to high teens,
compared to the same time last year. The positive trend in year
2000 booking patterns is a result of strong advance bookings at
Classic Custom Vacations from existing products, the recent
introduction of a Mexico vacation product line and expansion of
Caribbean, U.S. and European destination products. The
Companys in-bound travel brand, Allied Tours, also
continues to post slow growth as a result of continued softness
in the Latin American and Asian economies while the corrections
at the Globetrotters brand will take time to stabilize and result
 in positive sales improvement.

The success and future of the Company is dependent on its ability
 to maximize revenue growth and profitability from its Classic
Custom Vacations and Allied Tours brands, while turning around
the performance of its Globetrotters brand. Management believes
that it has addressed the integration driven operating problems
at Globetrotters. If, however, management is unsuccessful in its
efforts at Globetrotters, then the Company may be required to
restructure some of its operations. If the Company is required to
 restructure or sell certain of its operations, there can be no
assurances that the carrying value of the Companys assets
will be fully realized.

YEAR 2000

During the year ended December 31, 1999, the Company
completed a coordinated Company-wide review of each business unit
 to identify dependent systems and to evaluate the potential
exposure to the Y2K issue prior to year end. The Company
completed the upgrade and replacement of systems potentially
exposed to the Y2K issue. The Company did not experience an
immediate adverse impact from the transition to the Year 2000.
However, we cannot provide assurance that we or our suppliers and
 customers have not been affected in a manner that is not yet
apparent. In addition, some computer programs that were date
sensitive to the Year 2000 may not have been programmed to
process the Year 2000 as a leap year, and any negative
consequential effects remain unknown. As a result, we will
continue to monitor our Year 2000 compliance and the Year 2000
compliance of our suppliers and customers.

The Company estimates that the total cost of its Y2K program,
including auditing and monitoring its vendors, inspecting its own
 systems and, where necessary, migrating or converting its
existing systems to new systems, has been approximately
$2.8 million.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The
Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded
in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 requires that changes in the
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after
June 15, 2000. Management has considered the impact of this
statement, and believes it does not have a material impact upon
the Companys results of operations or financial position.

In March 1998, the American Institute of Certified Public
Accountants (the AICPA) issued Statement of Position
98-1 (SOP 98-1) Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
SOP 98-1 requires the Company to capitalize internal computer
software costs once the capitalization criteria are met. SOP 98-1
 was effective January 1, 1999, and is applied to all
projects in progress upon initial application. Based on the
adoption of SOP 98-1, the Company capitalized approximately
$2.1 million related to the Companys internal systems
during the year ended December 31, 1999.

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##### Table of Contents






ITEM 7A.  Quantitative and Qualitative Disclosures
About Market Risk

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

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

22



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##### Table of Contents






ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                        |  |          |    | 
|----------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                                                        |  | Page No.
|                                                                                                                        |  |         
|Report of Independent Public Accountants                                                                                |  |          | 24 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Consolidated Balance Sheets as of December 31, 1999 and 1998                                                            |  |          | 25 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Consolidated Statements of Operations for the Years Ended
        December 31, 1999, 1998 and 1997                      |  |          | 26 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Consolidated Statements of Changes in Shareholders Equity
        for the Years Ended December 31, 1999, 1998 and 1997 |  |          | 27 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Consolidated Statements of Cash Flows for the Years Ended
        December 31, 1999, 1998 and 1997                      |  |          | 28 | 
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|Notes to Consolidated Financial Statements                                                                              |  |          | 29 | 

23



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Global Vacation Group, Inc.:

We have audited the accompanying consolidated balance sheets of
Global Vacation Group, Inc., (a New York corporation) and
subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in
shareholders equity and cash flows for each of the three
years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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 financial statements referred to above
present fairly, in all material respects, the financial position
of Global Vacation Group, Inc., and subsidiaries as of
December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Vienna, Virginia



24



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##### Table of Contents



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |     |         | 
|----------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------ | ------- | - | ------- | --- | ------- | 
|                                                                                                |                                                                                                                            | December 31,               |         | December 31,
|                                                                                                |                                                                                                                            | 1999                       |         | 1998        
|                                                                                                |                                                                                                                            |                            |         |             
|ASSETS                                                                                          |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Current assets:                                                                                 |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cash and cash equivalents (includes $1,219 and $3,248 of
        restricted cash, respectively) |                                                                                                                            | $                          | 24,152  |              |         | $ | 30,317  |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Short-term investments                                                                          |                                                                                                                            |                            | 103     |              |         |   | 2,346   |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Accounts receivable, net of allowance of $1,222, and $982,
        respectively                 |                                                                                                                            |                            | 20,068  |              |         |   | 14,884  |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Loans receivable from shareholders                                                              |                                                                                                                            |                            | 105     |              |         |   | 151     |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other current assets                                                                            |                                                                                                                            |                            | 10,718  |              |         |   | 6,547   |    
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                                |                                                                                                                            | Total current assets       |         |              | 55,146  |   |         |     | 54,245  | 
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|Property and equipment, net                                                                     |                                                                                                                            |                            | 22,615  |              |         |   | 5,158   |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Related party and other long-term receivables                                                   |                                                                                                                            |                            | 963     |              |         |   | 2,490   |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Intangible assets, net                                                                          |                                                                                                                            |                            | 97,754  |              |         |   | 65,131  |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other assets                                                                                    |                                                                                                                            |                            | 2,197   |              |         |   | 7,036   |    
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                                |                                                                                                                            | Total assets               |         | $            | 178,675 |   |         | $   | 134,060 | 
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|LIABILITIES AND SHAREHOLDERS EQUITY                                                            |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Current liabilities:                                                                            |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Accounts payable and accrued expenses                                                           |                                                                                                                            | $                          | 62,873  |              |         | $ | 39,869  |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Customer deposits                                                                               |                                                                                                                            |                            | 36,704  |              |         |   | 33,943  |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Current portion of long-term debt                                                               |                                                                                                                            |                            | 5,082   |              |         |   | 5,300   |    
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                                |                                                                                                                            | Total current liabilities  |         |              | 104,659 |   |         |     | 79,112  | 
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Long-term debt, net of current portion                                                          |                                                                                                                            |                            | 24,431  |              |         |   | 1,363   |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other long-term liabilities                                                                     |                                                                                                                            |                            | 621     |              |         |   |        |    
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                                |                                                                                                                            | Total liabilities          |         |              | 129,711 |   |         |     | 80,475  | 
|Commitments and Contingencies                                                                   |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Shareholders equity:                                                                           |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Preferred Stock, $.01 par value, 6,000,000 shares authorized, no
        shares issued and outstanding                     |                            |         |             |         |   |         |    |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Common Stock, $.01 par value, 60,000,000 shares authorized,
        14,775,816, and 14,747,576 shares issued, respectively |                            |         | 148          |         |   |         | 147 |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Deferred compensation                                                                           |                                                                                                                            |                            | (28     | )            |         |   | (430    | )  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Additional paid-in capital                                                                      |                                                                                                                            |                            | 95,771  |              |         |   | 95,122  |    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Retained deficit                                                                                |                                                                                                                            |                            | (44,611 | )            |         |   | (41,129 | )  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Treasury stock, 382,991 and 12,000 shares at cost, respectively                                 |                                                                                                                            |                            | (2,316  | )            |         |   | (125    | )  
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|                                                                                                |                                                                                                                            | Total shareholders equity |         |              | 48,964  |   |         |     | 53,585  | 
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    
|Total liabilities and shareholders equity                                                      |                                                                                                                            | $                          | 178,675 |              |         | $ | 134,060 |    
|                                                                                                |                                                                                                                            |                            |         |              |         |   |         |    

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

25



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##### Table of Contents



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |        |     |       | 
|---------------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------- | ------------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | --- | ----- | 
|                                                                                         |                                                    |                                 
|                                                                                         |                                                    | For The Years Ended December 31,
|                                                                                         |                                                    |                                 
|                                                                                         |                                                    | 1999                             |              | 1998   |        | 1997  
|                                                                                         |                                                    |                                  |              |        |        |       
|Net revenues                                                                             |                                                    | $                                | 126,000      |        |        | $      | 90,421 |        |        | $      | 24,255 |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating expenses                                                                       |                                                    |                                  | 111,688      |        |        |        | 69,386 |        |        |        | 17,852 |       
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         |                                                    |                                  | Gross profit |        |        | 14,312 |        |        |        | 21,035 |        |        |     | 6,403 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|General and administrative expenses                                                      |                                                    |                                  | 13,269       |        |        |        | 10,248 |        |        |        | 7,797  |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Depreciation and amortization                                                            |                                                    |                                  | 5,929        |        |        |        | 2,779  |        |        |        | 182    |       
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         | Income (loss) from operations                      |                                  |              | (4,886 | )      |        |        | 8,008  |        |        |        | (1,576 | )  
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Other income (expense)                                                                   |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                    | Interest income                  |              |        | 2,529  |        |        |        | 2,480  |        |        |        | 556 |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                    | Interest expense                 |              |        | (2,331 | )      |        |        | (1,504 | )      |        |        |    |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                    | Other                            |              |        | 47     |        |        |        | 26     |        |        |        | 41  |      
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         |                                                    |                                  | Total        |        |        | 245    |        |        |        | 1,002  |        |        |     | 597   | 
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Income (loss) before income taxes and extraordinary item                                 |                                                    |                                  | (4,641       | )      |        |        | 9,010  |        |        |        | (979   | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Income tax benefit (expense)                                                             |                                                    |                                  | 1,416        |        |        |        | (3,908 | )      |        |        | (124   | )     
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Income (loss) before extraordinary item                                                  |                                                    | $                                | (3,225       | )      |        | $      | 5,102  |        |        | $      | (1,103 | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Extraordinary item, net of income tax benefit of $144 for 1999
        and $244 for 1998 |                                                    |                                  | (257         | )      |        |        | (379   | )      |        |        |       |       
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Net income (loss)                                                                        |                                                    |                                  | (3,482       | )      |        |        | 4,723  |        |        |        | (1,103 | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Dividends on Class A Convertible Preferred Stock                                         |                                                    |                                  |             |        |        |        | (2,519 | )      |        |        |       |       
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         | Net income (loss) available to common shareholders |                                  | $            | (3,482 | )      |        | $      | 2,204  |        |        | $      | (1,103 | )  
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Basic income (loss) per share:                                                           |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Income (loss) per share before extraordinary item  |                                  | $            | (0 .22 | )      |        | $      | 0 .26  |        |        | $      | (0.21  | )  
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         | Extraordinary item per share                       |                                  | $            | (0 .02 | )      |        | $      | (0 .04 | )      |        | $      |       |    
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         | Basic income (loss) per share                      |                                  | $            | (0 .24 | )      |        | $      | 0 .22  |        |        | $      | (0.21  | )  
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Diluted income (loss)per share:                                                          |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Income (loss) per share before extraordinary item  |                                  | $            | (0 .22 | )      |        | $      | 0 .26  |        |        | $      | (0.21  | )  
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         | Extraordinary item per share                       |                                  | $            | (0 .02 | )      |        | $      | (0 .04 | )      |        | $      |       |    
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                         | Diluted income (loss) per share                    |                                  | $            | (0 .24 | )      |        | $      | 0 .22  |        |        | $      | (0.21  | )  
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Weighted average shares outstanding:                                                     |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Basic                                              |                                  |              | 14,555 |        |        |        | 9,931  |        |        |        | 5,291  |    
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|Weighted average shares outstanding:                                                     |                                                    |                                  |              |        |        |        |        |        |        |        |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Diluted                                            |                                  |              | 14,555 |        |        |        | 9,990  |        |        |        | 5,291  |    
|                                                                                         |                                                    |                                  |              |        |        |        |        |        |        |        |        |       

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

26



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##### Table of Contents



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY

(in thousands, except share data)


|                           |                                                              |                             |   |                                |         |            |   |          |         |         |            |              |           |   |     |     |    |   |        |        |        |   |      |      |   | 
|-------------------------- | ------------------------------------------------------------ | --------------------------- | - | ------------------------------ | ------- | ---------- | - | -------- | ------- | ------- | ---------- | ------------ | --------- | - | --- | --- | -- | - | ------ | ------ | ------ | - | ---- | ---- | - | 
|                           |                                                              |                             |   |                                |         |           
|                           |                                                              |                             |   | Shareholders Equity (Deficit)
|                           |                                                              | Redeemable                  |   |                               
|                           |                                                              | Convertible                 |   |                                |         |           
|                           |                                                              | Preferred Stock             |   | Common Stock                   |         | Additional |   |         
|                           |                                                              |                             |   |                                |         | Paid-In    |   | Deferred
|                           |                                                              | Shares                      |   | Amount                         |         | Shares     |   | Amount   |         | Capital |            | Compensation
|                           |                                                              |                             |   |                                |         |            |   |          |         |         |            |             
|Balance, December 31, 1996 |                                                              |                             |  |                                |         | $          |  |          |         |         | 5,291,262  |              |           | $ | 53  |     |    | $ |       |        |        | $ |     |     
|                          
|                          
|                          
|                          
|                           | Net loss                                                     |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Distributions                                                |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                           |                                                              |                             |   |                                |         |            |   |          |         |         |            |              |           |   |     |     |    |   |        |        |        |   |      |     
|Balance, December 31, 1997 |                                                              |                             |  |                                |         |            |  |          |         |         | 5,291,262  |              |           |   | 53  |     |    |   |       |        |        |   |     |     
|                          
|                          
|                          
|                          
|                           | Redemption of common stock                                   |                             |   |                               |         |            |   |         |         |         |            | (1,799,025   | )         |   |     | (18 | )  |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Class A Convertible Preferred stock dividend                 |                             |   | 25,762                         |         |            |   | 25,762   |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Issuance of common and Class A Convertible Preferred stock   |                             |   | 27,014                         |         |            |   | 27,014   |         |         |            | 4,305,689    |           |   |     | 43  |    |   |        | 3,486  |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Accrued dividend on Class A Convertible Preferred stock      |                             |   |                               |         |            |   | 2,519    |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Fair value adjustment for securities available for sale, net |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Issuance of common stock from Initial Public Offering        |                             |   |                               |         |            |   |         |         |         |            | 3,000,000    |           |   |     | 30  |    |   |        | 35,900 |        |   |      |     |  
|                           | Conversion of Class A                                        |                             |   |                                |         |            |   |          |         |         |            |              |           |   |     |     |    |   |        |        |        |   |      |      |  
|                          
|                          
|                          
|                          
|                           |                                                              | Convertible Preferred Stock |   |                                | (52,776 | )          |   |          | (55,295 | )       |            |              | 3,949,650 |   |     |     | 39 |   |        |        | 55,256 |   |      |      |  | 
|                          
|                          
|                          
|                          
|                           | Deferred compensation                                        |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        | 480    |        |   |      | (480 | )
|                          
|                          
|                          
|                          
|                           | Amortization of deferred compensation                        |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      | 50   |  
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock                                   |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Net income                                                   |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Distributions                                                |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                           |                                                              |                             |   |                                |         |            |   |          |         |         |            |              |           |   |     |     |    |   |        |        |        |   |      |     
|Balance, December 31, 1998 |                                                              |                             |  |                                |         |            |  |          |         |         | 14,747,576 |              |           |   | 147 |     |    |   | 95,122 |        |        |   | (430 | )   
|                          
|                          
|                          
|                          
|                           | Exercise of options                                          |                             |   |                               |         |            |   |         |         |         |            | 28,240       |           |   |     | 1   |    |   |        | 22     |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Amortization of deferred compensation                        |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      | 52   |  
|                          
|                          
|                          
|                          
|                           | Deferred compensation                                        |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        | (350   | )      |   |      | 350  |  
|                          
|                          
|                          
|                          
|                           | Escrow settlement proceeds                                   |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        | 977    |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock                                   |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                          
|                          
|                          
|                          
|                           | Net loss                                                     |                             |   |                               |         |            |   |         |         |         |            |             |           |   |     |    |    |   |        |       |        |   |      |     |  
|                           |                                                              |                             |   |                                |         |            |   |          |         |         |            |              |           |   |     |     |    |   |        |        |        |   |      |     
|Balance, December 31, 1999 |                                                              |                             |  |                                |         | $          |  |          |         |         | 14,775,816 |              |           | $ | 148 |     |    | $ | 95,771 |        |        | $ | (28  | )   
|                           |                                                              |                             |   |                                |         |            |   |          |         |         |            |              |           |   |     |     |    |   |        |        |        |   |      |     

|                           |                                                              |                                |         |          |   |       |        |        |   |   |        |         |        | 
|-------------------------- | ------------------------------------------------------------ | ------------------------------ | ------- | -------- | - | ----- | ------ | ------ | - | - | ------ | ------- | ------ | 
|                           |                                                              |                               
|                           |                                                              | Shareholders Equity (Deficit)
|                           |                                                              |                               
|                           |                                                              | Retained                       |         |         
|                           |                                                              | Earnings                       |         | Treasury |   |      
|                           |                                                              | (Deficit)                      |         | Stock    |   | Total
|                           |                                                              |                                |         |          |   |      
|Balance, December 31, 1996 |                                                              | $                              | 1,620   |          |   | $     |       |        |   | $ | 1,673  |        
|                          
|                          
|                          
|                          
|                           | Net loss                                                     |                                |         | (1,103   | ) |       |        |       |   |   |        | (1,103  | )     
|                          
|                          
|                          
|                          
|                           | Distributions                                                |                                |         | (212     | ) |       |        |       |   |   |        | (212    | )     
|                           |                                                              |                                |         |          |   |       |        |        |   |   |        |        
|Balance, December 31, 1997 |                                                              |                                | 305     |          |   |       |       |        |   |   | 358    |        
|                          
|                          
|                          
|                          
|                           | Redemption of common stock                                   |                                |         | (12,873  | ) |       |        |       |   |   |        | (12,891 | )     
|                          
|                          
|                          
|                          
|                           | Class A Convertible Preferred stock dividend                 |                                |         | (25,762  | ) |       |        |       |   |   |        | (25,762 | )     
|                          
|                          
|                          
|                          
|                           | Issuance of common and Class A Convertible Preferred stock   |                                |         |         |   |       |        |       |   |   |        | 3,529   |       
|                          
|                          
|                          
|                          
|                           | Accrued dividend on Class A Convertible Preferred stock      |                                |         | (2,519   | ) |       |        |       |   |   |        | (2,519  | )     
|                          
|                          
|                          
|                          
|                           | Fair value adjustment for securities available for sale, net |                                |         | (8       | ) |       |        |       |   |   |        | (8      | )     
|                          
|                          
|                          
|                          
|                           | Issuance of common stock from Initial Public Offering        |                                |         |         |   |       |        |       |   |   |        | 35,930  |       
|                           | Conversion of Class A                                        |                                |         |          |   |       |        |        |   |   |        |         |       
|                          
|                          
|                          
|                          
|                           |                                                              | Convertible Preferred Stock    |         |          |  |       |        |        |  |   |        |         | 55,295 | 
|                          
|                          
|                          
|                          
|                           | Deferred compensation                                        |                                |         |         |   |       |        |       |   |   |        |        |       
|                          
|                          
|                          
|                          
|                           | Amortization of deferred compensation                        |                                |         |         |   |       |        |       |   |   |        | 50      |       
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock                                   |                                |         |         |   |       |        | (125   | ) |   |        | (125    | )     
|                          
|                          
|                          
|                          
|                           | Net income                                                   |                                |         | 4,723    |   |       |        |       |   |   |        | 4,723   |       
|                          
|                          
|                          
|                          
|                           | Distributions                                                |                                |         | (4,995   | ) |       |        |       |   |   |        | (4,995  | )     
|                           |                                                              |                                |         |          |   |       |        |        |   |   |        |        
|Balance, December 31, 1998 |                                                              |                                | (41,129 | )        |   |       | (125   | )      |   |   | 53,585 |        
|                          
|                          
|                          
|                          
|                           | Exercise of options                                          |                                |         |         |   |       |        |       |   |   |        | 23      |       
|                          
|                          
|                          
|                          
|                           | Amortization of deferred compensation                        |                                |         |         |   |       |        |       |   |   |        | 52      |       
|                          
|                          
|                          
|                          
|                           | Deferred compensation                                        |                                |         |         |   |       |        |       |   |   |        |        |       
|                          
|                          
|                          
|                          
|                           | Escrow settlement proceeds                                   |                                |         |         |   |       |        |       |   |   |        | 977     |       
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock                                   |                                |         |         |   |       |        | (2,191 | ) |   |        | (2,191  | )     
|                          
|                          
|                          
|                          
|                           | Net loss                                                     |                                |         | (3,482   | ) |       |        |       |   |   |        | (3,482  | )     
|                           |                                                              |                                |         |          |   |       |        |        |   |   |        |        
|Balance, December 31, 1999 |                                                              | $                              | (44,611 | )        |   | $     | (2,316 | )      |   | $ | 48,964 |        
|                           |                                                              |                                |         |          |   |       |        |        |   |   |        |        

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

27



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##### Table of Contents



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |        |       |      |  
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------- | ------- | ------- | ------ | ------ | ------- | ------- | ------- | - | ------ | ----- | ---- | -
|                                                                               |                                                                                                     |                                                                     
|                                                                               |                                                                                                     | For the Years Ended December 31,                                    
|                                                                               |                                                                                                     |                                                                     
|                                                                               |                                                                                                     | 1999                                                                 |                                       | 1998    |         | 1997  
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |       
|Cash flows from operating activities:                                          |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Net (loss) income                                                                                   |                                                                      | $                                     | (3,482  | )       |        | $      | 4,723   |         |         | $ | (1,103 | )    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Adjustments to reconcile net (loss) income to net cash
	provided by (used in) operating activities: |                                                                      |                                       |         |         |        |        |         |         |         |   |        |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Depreciation and amortization                                        |                                       |         | 5,929   |        |        |         | 2,779   |         |   |        | 182   |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Write-off of deferred financing costs                                |                                       |         | 401     |        |        |         | 623     |         |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Amortization of deferred financing costs                             |                                       |         | 248     |        |        |         | 95      |         |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Amortization of deferred compensation                                |                                       |         | 52      |        |        |         | 50      |         |   |        |      |     
|                                                                               |                                                                                                     | Changes in assets and liabilities, excluding effect of
	acquisitions |                                       |         |         |        |        |         |         |         |   |        |       |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Accounts receivable                   |         |         | (3,954 | )      |         |         | 5,870   |   |        |       | (470 | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Other assets                          |         |         | (653   | )      |         |         | (7,024  | ) |        |       | (74  | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Accounts payable and accrued expenses |         |         | 10,264 |        |         |         | (4,467  | ) |        |       | (606 | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Customer deposits                     |         |         | (3,248 | )      |         |         | (17,808 | ) |        |       | (98  | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Other liabilities                     |         |         | 2,465  |        |         |         | (308    | ) |        |       |     |  
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                               | Net cash provided (used) by operating activities                                                    |                                                                      |                                       | 8,022   |         |        |        | (15,467 | )       |         |   | (2,169 | )    
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|Cash flows from investing activities:                                          |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Purchases of property and equipment                                  |                                       |         | (5,986  | )      |        |         | (2,272  | )       |   |        | (170  | )   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Net proceeds from short-term investments                             |                                       |         | 2,243   |        |        |         | 20,170  |         |   |        | 1,744 |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Acquisitions, net of cash acquired                                   |                                       |         | (30,975 | )      |        |         | (29,629 | )       |   |        |      |     
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                               | Net cash provided by (used in) investing activities                                                 |                                                                      |                                       | (34,718 | )       |        |        | (11,731 | )       |         |   | 1,574  |      
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|Cash flows from financing activities:                                          |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Net payments on loans to/from related parties                        |                                       |         |        |        |        |         | (3,558  | )       |   |        | 2,204 |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Distributions to shareholders                                        |                                       |         |        |        |        |         | (4,995  | )       |   |        | (212  | )   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Proceeds from borrowings under credit agreement                      |                                       |         | 33,625  |        |        |         | 46,688  |         |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Repayment of borrowings under credit agreement                       |                                       |         | (10,776 | )      |        |         | (40,025 | )       |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Repayment of promissory note                                         |                                       |         |        |        |        |         | (4,000  | )       |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Deferred financing costs                                             |                                       |         | (1,127  | )      |        |         | (1,126  | )       |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Proceeds from settlement of escrow                                   |                                       |         | 977     |        |        |         |        |         |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Redemption of common stock                                           |                                       |         |        |        |        |         | (8,891  | )       |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Net proceeds from Initial Public Offering                            |                                       |         |        |        |        |         | 35,930  |         |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Net proceeds from issuance of common and preferred stock             |                                       |         | 23      |        |        |         | 30,543  |         |   |        |      |     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     | Purchases of treasury stock                                          |                                       |         | (2,191  | )      |        |         | (125    | )       |   |        |      |     
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                               | Net cash provided by financing activities                                                           |                                                                      |                                       | 20,531  |         |        |        | 50,441  |         |         |   | 1,992  |      
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                               | Net increase (decrease) in cash and cash equivalents                                                |                                                                      |                                       | (6,165  | )       |        |        | 23,243  |         |         |   | 1,397  |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Cash and cash equivalents beginning of period                                                       |                                                                      |                                       | 30,317  |         |        |        | 7,074   |         |         |   | 5,677  |      
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                               | Cash and cash equivalents end of period                                                             |                                                                      | $                                     | 24,152  |         |        | $      | 30,317  |         |         | $ | 7,074  |      
|                                                                               |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|Supplemental disclosures of cash flow information:                             |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Cash paid for:                        |         |         |        |        |         |         |         |   |        |       |      |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Interest                              |         | $       | 1,501  |        |         |         | 1,937   |   |        |       |     |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               |                                                                                                     |                                                                      | Income taxes                          |         | $       | 177    |        |         |         | 3,289   |   |        |       | 48   |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Supplemental disclosures of non cash investing and financing
	activities:      |                                                                                                     |                                                                      |                                       |         |         |        |        |         |         |         |   |       
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Issuance of promissory note in connection with the redemption of
	common stock |                                                                                                     | $                                                                    |                                      |         |         |        | 4,000  |         |         |         |  |       
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Class A Convertible Preferred stock dividend                                   |                                                                                                     | $                                                                    |                                      |         |         |        | 25,762 |         |         |         |  |       
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Dividend accretion on Class A Convertible Preferred stock                      |                                                                                                     | $                                                                    |                                      |         |         |        | 2,519  |         |         |         |  |       

The accompanying notes are an integral part of these consolidated
 financials statements

28



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##### Table of Contents



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Business Description and Organization

Global Vacation Group, Inc. (the Company or
GVG) is one of the largest U.S. providers of
value-added vacation products and services targeted to
higher-income travelers. The Company assembles air, hotel, rental
 car and other travel components in bulk and provides complete
vacations to travelers through retail travel distributors, such
as travel agents, and other distribution channels, including the
Internet and affinity groups. The Company provides flexible
independent travel programs for individuals as well as escorted
tours and group packages. Global Vacation Group, Inc.s
common stock is traded on the New York Stock Exchange under the
symbol GVG.

Headquartered in Washington D.C., the Company markets its major
products under the brand names Classic Custom Vacations,
Vacations By Globetrotters, and Allied Tours. Classic Custom
Vacations creates customized vacation packages for U.S. travelers
 seeking an individualized vacation. The Globetrotters brand is
targeted to the popular priced vacation buyer. The Allied Tours
brand creates packages for international travelers visiting the
U.S.

In March 1998, the Company was recapitalized and between
March 1998 and June 1999 acquired the stock or assets
of seven other vacation providers and one information system
provider. Through these acquisitions, GVG acquired the
outstanding capital stock of Haddon Holidays, Inc.
(Haddon), Classic Custom Vacations
(Classic), Globetrotters, Inc.
(Globetrotters), Friendly Holidays, Inc.
(Friendly), Island Resort Tours, Inc.
(Island), International Travel & Resorts, Inc.
(ITR), and substantially all the assets of MTI
Vacations, Inc. (MTI), and Trase Miller Solutions,
Inc. (Trase Miller) (collectively, the
Acquisitions or the Acquired Businesses).

Risks and Other Important Factors

For the year ended December 31, 1999, the Company incurred a
 net loss of $3.5 million stemming in part from a decrease
in gross profit of approximately $6.7 million from 1998. As
a result of these losses, the Company was required in
October 1999 to amend and restate its credit agreement (see
Note 6). The credit agreement, as amended, requires the Company
to meet certain financial ratios and covenants. If the Company is
 not profitable commencing in the second quarter of 2000 and for
the year ended December 31, 2000, it is unlikely that the
Company would remain in compliance with the financial covenants
of its credit agreement. Although there can be no assurance that
the Company will meet its financial covenants, management
believes that the Company will be able to operate under the
amended credit agreement for at least the coming year.

If the Company is unable to meet its financial ratios and
covenants, the Lenders could require the Company to repay the
entire outstanding loan. In that event, the Company would be
required to generate additional equity or cash other than from
operations. Although the Company believes it has the ability to
generate additional equity, these actions may be dilutive and
there can be no assurances that adequate funds will be available,
 or available on terms that are reasonable or acceptable to the
Company.

The success and future of the Company is dependent on its ability
 to maximize revenue growth and profitability from its Classic
Custom Vacations and Allied Tours brands, while turning around
the performance of its Vacations By Globetrotters brand.
Management believes that it has addressed the integration driven
operating problems at Globetrotters. If, however, management is
unsuccessful in its efforts at Globetrotters, then the Company
may be required to restructure its operations. If the Company is
required to restructure or sell certain of its operations, there
can be no assurances that the carrying value of the
Companys assets will be fully realized.

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

29



---



##### Table of Contents



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

personnel, international political and economic conditions
impacting travel patterns, and dependence on travel suppliers.

2.  Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
 liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
 Cash and cash equivalents consist primarily of money market
investments. At December 31, 1999, approximately
$1.2 million of cash is restricted pursuant to contracts
between the Company and one of its private label partners that
require customer payments for future travel be deposited to an
escrow account. Prior to departure, funds may be expended only
for certain direct costs.

Short-Term Investments

Short-term investments consist of bank certificates of deposit
with original maturities in excess of three months. The bank
certificates of deposit are primarily used as pledged collateral
for letters of credit. The Company classifies its certificates of
 deposit as held-to-maturity. These are securities with
determinable fair values that the Company intends to hold for an
indefinite period. These securities are carried at cost which
approximates market value.

Revenue Recognition

Net revenues consist primarily of markups on travel packages. The
 Company generally recognizes net revenue when earned on the date
 of travel net of all cancellations and changes to reservations
booked. For the years ended December 31, 1999, 1998 and 1997, net
 revenues are derived from sale of travel products and services
with a value of $543.6 million, $410.2 million and
$125.8 million, respectively, net of $417.6 million,
$319.8 million and $101.5 million, respectively, in
direct costs to suppliers.

Operating Expenses

Operating expenses include commissions, salaries, benefits and
payroll tax expenses, communications, facilities and other costs
associated with the selling and processing of tour packages.

Long-lived Assets

The Company reviews its long-lived assets, including property and
 equipment, identifiable intangibles, and goodwill whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. To determine
recoverability of its long-lived assets, the Company evaluates
the probability that future undiscounted net cash flows will be
less than the carrying amount of the assets.

After considering the Companys 1999 performance, management
 evaluated the carrying value of its Acquired Businesses and
related intangible assets including goodwill. This evaluation was
 made at each of the Companys operating brands. Given that
the Acquisitions were all consummated in either 1998 or 1999 and

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

that managements cash flow forecast supports the carrying
value of the respective assets, management concluded that no
adjustment to the carrying value of long-lived assets was needed
at this time.

The Companys estimates of anticipated net revenues, gross
profits, the remaining estimated lives of tangible and intangible
 assets, or both, could be reduced significantly in the future
due to changes in technology, regulation, or competitive
pressures in any of the Companys individual operating
brands. As a result, the carrying amount of long-lived assets and
 intangibles including goodwill could be reduced materially in
the future.

Property and Equipment

Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are
recorded using the straight-line method for leasehold
improvements. The Company uses accelerated and straight-line
methods for recording depreciation on furniture and fixtures and
equipment and software with lives that range from 3 to
10 years. The acquired technology platform is being
depreciated on a straight-line basis over 25 years.
Leasehold improvements are depreciated over the shorter of the
lease term or the estimated useful life of the asset.

Property and equipment consist of the following (in thousands):

|                                          |                             |              |        |        |  |   |         |       | 
|----------------------------------------- | --------------------------- | ------------ | ------ | ------ |  | - | ------- | ----- | 
|                                          |                             |             
|                                          |                             | December 31,
|                                          |                             |             
|                                          |                             | 1999         |        | 1998  
|                                          |                             |              |        |       
|Equipment and software                    |                             | $            | 13,458 |        |  | $ | 12,365  |      
|                                         
|                                         
|                                         
|                                         
|Acquired technology platform              |                             |              | 12,380 |        |  |   |        |      
|                                         
|                                         
|                                         
|                                         
|Furniture and fixtures                    |                             |              | 2,033  |        |  |   | 2,228   |      
|                                         
|                                         
|                                         
|                                         
|Leasehold improvements                    |                             |              | 1,181  |        |  |   | 895     |      
|                                          |                             |              |        |        |  |   |         |      
|                                          |                             |              | 29,052 |        |  |   | 15,488  |      
|                                         
|                                         
|                                         
|                                         
|Accumulated depreciation and amortization |                             |              | (6,437 | )      |  |   | (10,330 | )    
|                                          |                             |              |        |        |  |   |         |      
|                                          | Property and equipment, net |              | $      | 22,615 |  |   | $       | 5,158 | 
|                                          |                             |              |        |        |  |   |         |      

Intangible Assets

Intangible assets consist of goodwill from acquisitions and
deferred financing costs incurred in connection with the
Companys credit agreement. Goodwill is amortized over
35 years. Deferred financing costs are charged to interest
expense over the life of the debt using the effective interest
method. Intangible assets as of December 31, 1999 and 1998
consist of the following (in thousands):

|                         |  |      |         |      |  |   |        |  
|------------------------ |  | ---- | ------- | ---- |  | - | ------ | -
|                         |  | 1999 |         | 1998
|                         |  |      |         |     
|Goodwill                 |  | $    | 100,712 |      |  | $ | 66,008 |  
|                        
|                        
|                        
|                        
|Deferred financing costs |  |      | 866     |      |  |   | 408    |  
|                        
|                        
|                        
|                        
|Accumulated amortization |  |      | (3,824  | )    |  |   | (1,285 | )
|                         |  |      |         |      |  |   |        |  
|                         |  | $    | 97,754  |      |  | $ | 65,131 |  
|                         |  |      |         |      |  |   |        |  

Fair Value of Financial Instruments

Statement of Financial Accounting Standards (SFAS)
No. 107, Disclosures about Fair Value of Financial
Instruments, and SFAS No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments, require the disclosure of the fair value of
financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. The
carrying value of the Companys financial instruments
approximates fair value due to the relatively short maturities of
 these

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

instruments. The fair value of the Companys long-term debt
is estimated using a discounted cash flow analysis based on the
Companys borrowing cost for similar credit facilities. The
Company estimated that as of December 31, 1999, the fair
value of its long-term debt does not differ materially from its
carrying value.

In the normal course of business, the Company is a party to
letters of credit which are not reflected in the accompanying
balance sheets. Such financial instruments are valued based on
the amount of exposure under the instrument and the likelihood of
 performance being required. Based on the Companys past
experience, management does not expect any material losses to
result from these off-balance-sheet instruments and, therefore,
is of the opinion that the fair value of these instruments is
zero.

Concentrations

For 1999, 1998 and 1997, no individual customer represented more
than 10 percent of net revenues or accounts receivable. Prior to
the Acquisitions, the Companys revenues and accounts
receivable were principally with customers outside the United
States. For the year ended December 31, 1999, gross revenues
 from customers located in Europe and South America/ South
Pacific represented approximately 17 percent and
2 percent of the total gross revenues, respectively. For the
 year ended December 31, 1998, gross revenues from customers
 located in Europe and South America/ South Pacific represented
approximately 22 percent and 7 percent of the total
gross revenues, respectively. In addition, vacation products and
services related to Hawaiian destinations accounted for
approximately 47 and 50 percent of gross revenues for the
year ended December 31, 1999 and 1998, respectively.

Income Taxes

Until March 1998, the Company elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under
those provisions, the Company did not pay corporate income taxes
on its taxable income. Instead, the shareholders were liable for
individual income taxes on their respective shares of the
Companys taxable income. Accordingly, there is no provision
 for Federal income taxes in the accompanying financial
statements for periods prior to March 1998. The Company was
taxable in certain states and other jurisdictions that did not
recognize S Corporation status. In March 1998, the Company
terminated its S Corporation election and, accordingly, has since
 been subject to Federal and state income taxes.

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

Basic and Diluted Net Income (Loss) per Common Share

SFAS No. 128, Earnings Per Share, requires dual
presentation of basic and diluted earnings per share. Basic
income or loss per share is computed by dividing net income or
loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted
income or loss per share includes the potential dilution that
could occur if securities or other contracts to issue common
stock were exercised or converted into common stock.

The treasury stock effect of options to purchase 1,372,186 shares
 of common stock outstanding at December 31, 1999 have not
been included in the computation of diluted income per share for
the year ended December 31, 1999 as such effect would be
anti-dilutive. The effect of the Convertible Preferred Stock
outstanding during the year ended December 31, 1998 has not
been included in the computation of diluted

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

income per share as such effect would be anti-dilutive. The
following table sets forth the calculation of basic and diluted
weighted average shares outstanding (in thousands).

|                                          |                                                    |                          |        |        |  |      |       |       |  |  |       |       | 
|----------------------------------------- | -------------------------------------------------- | ------------------------ | ------ | ------ |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                                          |                                                    |                         
|                                          |                                                    | Years Ended December 31,
|                                          |                                                    |                         
|                                          |                                                    | 1999                     |        | 1998   |  | 1997
|                                          |                                                    |                          |        |        |  |     
|Basic weighted average shares outstanding |                                                    |                          | 14,555 |        |  |      | 9,931 |       |  |  | 5,291 |      
|                                         
|                                         
|                                         
|                                         
|Effect of dilutive securities:            |                                                    |                          |        |        |  |      |       |       |  |  |       |      
|                                         
|                                         
|                                         
|                                         
|                                          | Treasury stock effect of outstanding stock options |                          |        |       |  |      |       | 59    |  |  |       |      | 
|                                          |                                                    |                          |        |        |  |      |       |       |  |  |       |      
|                                          | Diluted weighted average shares outstanding        |                          |        | 14,555 |  |      |       | 9,990 |  |  |       | 5,291 | 
|                                          |                                                    |                          |        |        |  |      |       |       |  |  |       |      

Segment Reporting

The Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the way that public
business enterprises report information about operating segments
in annual financial statements and requires that those
enterprises report selected information about operating segments
in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. After evaluation,
 senior management concluded that operations occur primarily in
one segment only.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The
Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded
in the balance sheet as either an asset or liability measured at
its fair value. SFAS No. 133 requires that changes in the
derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999.
Management has considered the impact of this statement, and
believes it does not have a material impact upon the
Companys results of operations or financial position.

In March 1998, the American Institute of Certified Public
Accountants (the AICPA) issued Statement of Position
98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, (SOP
98-1). SOP 98-1 requires the Company to capitalize internal
 computer software costs once the capitalization criteria are
met. SOP 98-1 is effective January 1, 1999, and is applied
to all projects in progress upon initial application. Based on
the adoption of SOP 98-1, the Company capitalized approximately
$2.1 million related to the Companys internal systems
during the year ended December 31, 1999. Capitalized
software is amortized on a straight-line basis over a five year
period.

3.  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following
(in thousands):

|                 |  |              |        |      |  |   |        | 
|---------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                 |  |             
|                 |  | December 31,
|                 |  |             
|                 |  | 1999         |        | 1998
|                 |  |              |        |     
|Accounts payable |  | $            | 34,499 |      |  | $ | 23,756 | 
|                
|                
|                
|                
|Accrued expenses |  |              | 23,431 |      |  |   | 14,036 | 
|                
|                
|                
|                
|Bank overdraft   |  |              | 4,943  |      |  |   | 2,077  | 
|                 |  |              |        |      |  |   |        | 
|                 |  | $            | 62,873 |      |  | $ | 39,869 | 
|                 |  |              |        |      |  |   |        | 

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4.  Shareholders Equity

Recapitalization

In March 1998, the Company was recapitalized pursuant to an
agreement between the Company, its existing shareholders, Allied
Tours Holding Corp. (Allied Holding), the
shareholders of Allied Holding and a new investor (the
Investor). Prior to the Recapitalization, the Company
 had 100 shares of issued and outstanding common stock, all of
which were owned by Allied Holding. Pursuant to the
Recapitalization, the Company redeemed an aggregate of 34 shares
of common stock for $12.9 million from Allied Holding and
the Investor purchased 57 shares from Allied Holding for
$24.7 million. The redemption price was paid in cash of
$10.7 million and $4.0 million in a 120-day promissory
note bearing interest at 8 percent. The redemption was
financed, in part, with $13.0 million in borrowings under
the Companys credit agreement.

Following the redemption, the Company amended and restated its
certificate of incorporation to authorize two classes of capital
stock: common stock with a par value of $.01 per share and
preferred stock with a par value of $1,000 per share. At that
time, the 66 shares outstanding were converted into 3,492,237
shares of common stock and 25,762 shares of Convertible
Preferred. The conversion into the Convertible Preferred was
accounted for as a noncash dividend and the conversion into
common stock was accounted for as a stock split. All share and
per share amounts have been restated to reflect this common stock
 split.

Initial Public Offering

In August 1998, the Company completed an initial public
offering (the Offering) of its common stock. The
Company sold 3,000,000 shares of common stock at a price of
$14.00 per share, yielding net proceeds (after underwriting
discounts, commissions and other professional fees) of
approximately $35.9 million. The Company used the net proceeds to
 repay borrowings under its credit facility. In connection with
the Offering, the Companys outstanding Class A
Convertible Preferred Stock (the Convertible
Preferred) automatically converted into shares of the
Companys common stock at $14.00 per share.

Increase in Authorized Shares, Stock Split, and Conversion

In connection with the Offering, the Company amended and restated
 its certificate of incorporation to increase the number of
authorized shares of common stock to 60,000,000, par value $0.01
per share, and authorized 6,000,000 shares of undesignated
preferred stock, par value $0.01 per share. The Company effected
a 12.2-for-one stock split of the common stock. All share and per
 share amounts have been retroactively adjusted to give effect to
 these events.

Equity Purchase Agreement

In March 1998, the Company entered into a purchase agreement
 with the Investor and certain other parties in which the Company
 agreed to sell 22,751 shares of Convertible Preferred and
3,083,977 shares of common stock to the Investor and an aggregate
 of 1,228 shares of Convertible Preferred and an aggregate of
166,412 shares of common stock to such other parties at a price
of $1,000 per Convertible Preferred share and $0.82 per common
share. These shares were issued between March and May 1998
to fund, in part, the cash component of the Companys
purchase price for certain of the Acquisitions.

Preferred Stock

Holders of Convertible Preferred were entitled to dividends to be
 paid in additional shares of Convertible Preferred at a rate of
15 percent per annum. Upon completion of the Offering, the
Convertible Preferred converted into common stock at a rate equal
 to the Liquidation Value plus any accrued but unpaid dividends
divided by the per share offering price of $14.00 per share.

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Treasury Stock

On June 23, 1999 the Companys Board of Directors
authorized an increase in the Companys Stock Repurchase
Plan from 250,000 shares to 500,000. As of December 31,
1999, the Company has repurchased 270,800 shares of its common
stock on the open market for an aggregate purchase price of
$2.0 million.

5.  Stock Option Plan

The Company adopted a Stock Option Plan (the Stock Option
Plan) to assist the Company in attracting and retaining
qualified employees, directors, consultants and advisors. The
Stock Option Plan provides that at any time a number of shares
equal to 12 percent of the number of then outstanding shares
 of common stock will be reserved for issuance pursuant to grants
 of stock options. Unless sooner terminated by the Companys
 Board of Directors, the Stock Option Plan will terminate on
March 29, 2008. Options granted under the Stock Option Plan
may be either incentive stock options (ISOs), or
nonstatutory stock options (NSOs). No option granted
under the Stock Option Plan is exercisable after the tenth
anniversary of the options date of grant.

The following table sets forth stock option activity for the year
 ended December 31, 1999.

|                                            |  |         |           |              |  |                  |              |  |  |   |       | 
|------------------------------------------- |  | ------- | --------- | ------------ |  | ---------------- | ------------ |  |  | - | ----- | 
|                                            |  |         |           | Option Price |  | Weighted Average
|                                            |  | Options |           | Per Share    |  | Exercise Price  
|                                            |  |         |           |              |  |                 
|Options outstanding at December 31, 1997    |  |         |          |              |  |                  |             |  |  |   |      | 
|                                           
|                                           
|                                           
|                                           
|Granted                                     |  |         | 1,637,819 |              |  | $                | 0.82  14.00 |  |  | $ | 13.21 | 
|                                           
|                                           
|                                           
|                                           
|Canceled                                    |  |         | (20,000   | )            |  | $                | 14.00        |  |  | $ | 14.00 | 
|                                            |  |         |           |              |  |                  |              |  |  |   |       | 
|Options outstanding at December 31, 1998.   |  |         | 1,617,819 |              |  | $                | 0.82  14.00 |  |  | $ | 13.22 | 
|                                           
|                                           
|                                           
|                                           
|Granted                                     |  |         | 626,500   |              |  | $                | 2.94  14.00 |  |  | $ | 6.33  | 
|                                           
|                                           
|                                           
|                                           
|Exercised                                   |  |         | (28,240   | )            |  | $                | 0.82   0.82 |  |  | $ | 0.82  | 
|                                           
|                                           
|                                           
|                                           
|Canceled                                    |  |         | (843,893  | )            |  | $                | 0.82  14.00 |  |  | $ | 12.98 | 
|                                            |  |         |           |              |  |                  |              |  |  |   |       | 
|Options outstanding as of December 31, 1999 |  |         | 1,372,186 |              |  | $                | 2.94  14.00 |  |  | $ | 10.40 | 
|                                            |  |         |           |              |  |                  |              |  |  |   |       | 

The outstanding options generally vest ratably over a four-year
period from the date of grant.

The following table summarizes information about stock options
outstanding at December 31, 1999.

|               |  |                     |           |                     |  |                  |      |                   |  |                  |       |  |  |  |         |  |  |   |       | 
|-------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ----------------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|               |  |                     |           |                    
|               |  | Options Outstanding |           | Options Exercisable
|               |  |                     |           |                    
|               |  |                     |           | Weighted Average    |  |                  |      |                  
|               |  | Number              |           | Remaining           |  |                  |      | Number            |  |                 
|Range of       |  | Outstanding at      |           | Contractual Life    |  | Weighted Average |      | Exercisable at    |  | Weighted Average
|Exercise Price |  | December 31, 1999   |           | (Years)             |  | Exercise Price   |      | December 31, 1999 |  | Exercise Price  
|               |  |                     |           |                     |  |                  |      |                   |  |                 
|$ 2.94   2.94 |  |                     | 300,000   |                     |  |                  | 9.97 |                   |  | $                | 2.94  |  |  |  |        |  |  | $ |      | 
|              
|              
|              
|              
|$ 6.00   8.00 |  |                     | 180,000   |                     |  |                  | 9.44 |                   |  | $                | 6.22  |  |  |  | 6,250   |  |  | $ | 7.45  | 
|              
|              
|              
|              
|$ 9.25  11.63 |  |                     | 57,500    |                     |  |                  | 9.28 |                   |  | $                | 10.30 |  |  |  |        |  |  | $ |      | 
|              
|              
|              
|              
|$13.63  13.63 |  |                     | 40,000    |                     |  |                  | 9.12 |                   |  | $                | 13.63 |  |  |  |        |  |  | $ |      | 
|              
|              
|              
|              
|$14.00  14.00 |  |                     | 794,686   |                     |  |                  | 8.59 |                   |  | $                | 14.00 |  |  |  | 268,396 |  |  | $ | 14.00 | 
|               |  |                     |           |                     |  |                  |      |                   |  |                  |       |  |  |  |         |  |  |   |       | 
|               |  |                     | 1,372,186 |                     |  |                  | 9.05 |                   |  | $                | 10.40 |  |  |  | 274,646 |  |  | $ | 13.85 | 
|               |  |                     |           |                     |  |                  |      |                   |  |                  |       |  |  |  |         |  |  |   |       | 

In October 1995, the FASB issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS
No. 123 defines a fair value based method of
accounting for stock-based compensation. Under the fair value
based method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the
service period. Prior to the issuance of SFAS No. 123,
stock-based compensation was accounted for under the
intrinsic value method as defined by Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Under the
intrinsic value method, compensa-

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

tion is the excess, if any, of the market price of the stock at
grant date or other measurement date over the amount an employee
must pay to acquire the stock.

SFAS No. 123 allows an entity to continue to use the
intrinsic value method for stock-based compensation to employees.
 However, entities electing the accounting in APB Opinion
No. 25 must make pro forma disclosures as if the fair value
based method of accounting had been applied. The Company applies
APB Opinion No. 25 and the related interpretations in
accounting for its stock-based compensation to employees. Under
APB Opinion No. 25, no compensation expense has been
recognized in the accompanying financial statements related to
stock option grants to employees in 1999 or 1998 as the exercise
price for such options was equal to the fair value of the
Companys common stock on the date of the grant. In 1998,
the Company granted options to certain consultants of the
Company. As a result, the Company recorded deferred compensation
related to these non-employee options, pursuant to the fair-value
 based method. In 1999, certain of these consulting relationships
 ended and the unvested compensation was reversed.

Had compensation expense for stock-based compensation to
employees been determined based on the fair value of the options
at the grant dates consistent with the method of accounting under
 SFAS No. 123, the Companys net income (loss) and
 net income (loss) per share would have been decreased to
the pro forma amounts indicated below for the years ended
December 31, 1999 and 1998 (in thousands, except per share
amounts):

Net income (loss) available to common shareholders (in
thousands, except per share amounts):

|            |  |      |        |      |  |   |       | 
|----------- |  | ---- | ------ | ---- |  | - | ----- | 
|            |  | 1999 |        | 1998
|            |  |      |        |     
|As reported |  | $    | (3,482 | )    |  | $ | 2,204 | 
|           
|           
|           
|           
|Pro forma   |  | $    | (6,053 | )    |  | $ | 763   | 

Basic and Diluted Loss Per Share:

|            |  |   |       |   |  |   |      | 
|----------- |  | - | ----- | - |  | - | ---- | 
|           
|           
|           
|           
|As reported |  | $ | (0.24 | ) |  | $ | 0.22 | 
|           
|           
|           
|           
|Pro forma   |  | $ | (0.42 | ) |  | $ | 0.08 | 

The fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants during the year ended
December 31, 1999: no dividend yield, expected volatility
from zero to 77%, risk-free interest rates from 4.7% to 5.1% and
an expected term of 5 years. The following assumptions were
made using the Black-Scholes option-pricing model for grants
during the year ended December 31, 1998: no dividend yield,
expected volatility from zero to 80%, risk-free interest rates
from 4.2% to 5.7% and an expected term of 5 years.

6.  Credit Agreement

Amended Credit Facility

On February 19, 1999, the Company amended and restated its
credit agreement (the Amended Agreement). The Amended
 Agreement was entered into with three participating banks (the
Lenders) and provided for a $45 million
revolving credit facility with a five-year maturity. The Amended
Agreement consisted of a $10 million working capital
revolving credit facility (Working Capital Facility)
with a maximum of $5 million available for issuing standby
letters of credit and a $35 million revolving credit
facility for use in financing acquisitions (Acquisition
Facility).

Borrowings under the revolving credit facility may be designated
by the Company as alternate base rate advances (ABR
Advances) or eurodollar advances (Eurodollar
Advances). ABR Advances generally bear interest at a base
rate plus an applicable margin. The base rate is equal to the
higher of the prime rate or the federal funds rate plus
0.5 percent. Eurodollar Advances generally bear interest at
the eurodollar rate plus

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

an applicable margin. The eurodollar rate is the rate of interest
 obtained by dividing (i) the rate quoted by the bank to
leading banks in the London interbank eurodollar market as the
rate at which the bank is offering dollar deposits in an amount
approximately equal to the advance and having a period to
maturity approximately equal to the interest period applicable to
 the eurodollar advance by (ii) a number equal to one minus
the aggregate of the then stated maximum rates during such
interest period of all reserve requirements established in
respect of eurocurrency funding. The interest period is the
period commencing on the borrowing date and ending one, two, or
three months thereafter as selected by the Company. Interest on
Eurodollar Advances is due at the end of each month. An annual
commitment fee is due on the unused portion of the aggregate
facility.

All borrowings under the Amended Agreement were collateralized by
 all of the stock, tangible and intangible assets of subsidiaries
 or businesses of the Company. The Amended Agreement also
required the Company to meet certain financial ratios and
covenants, including minimum net worth, fixed charge coverage,
interest coverage, leverage ratios and limitations on capital
expenditures.

Subsequent to the effective date of the Amended Agreement, the
Company made certain other amendments to its credit facility. On
July 21, 1999, the Company amended the terms of the Working
Capital Facility to allow a maximum of $6 million available
for standby letters of credit. On August 13, 1999, the
Company further amended its credit agreement with its lenders to
revise certain financial covenants, subject to certain
limitations, for the period April 1, 1999 to
September 29, 1999, in exchange for a waiver fee and an
increase of 0.25% in the applicable margin of the Amended
Agreement.

Second Amended Credit Facility

The Companys operating results during the three months
ended September 30, 1999 required the Company to restructure its
credit facility agreement (the Second Amended
Agreement) on October 28, 1999 with the Lenders. The
Second Amended Agreement changes the previously established
acquisition line of credit into a revolving line and adjusts the
total capacity of the facility to $41 million with maturity on
January 31, 2002. The facility allows for cash borrowings of
 up to $35 million and for the issuance of standby letters
of credit up to a total of $10 million. The total commitment
 and amount available for cash borrowings are scheduled to reduce
 by $5 million on January 14, 2000, December 31,
2000 and December 31, 2001 with the final $26 million
at maturity. In December 1999, the Company made a voluntary
permanent prepayment of $5 million satisfying the
January 14, 2000 scheduled reduction. Under the Second
Amended Agreement, the Company will continue to pay interest at
ABR Advance or Eurodollar Advance rates plus an applicable
margin. Through October 1, 2000 the applicable ABR and
Eurodollar Advance Margins are 2.25 and 3.50 percent,
respectively.

The Second Amended Agreement also alters certain of the
requirements of the Company to meet certain financial ratios and
covenants, including minimum EBITDA, minimum customer deposit
coverage, interest coverage, and limitations on capital
expenditures. The Company received relief from the fixed charge
ratio and leverage ratio until October 1, 2000. In exchange
for these waivers, the Company agreed to a fee equal to 1.5% of
the outstanding credit facility. The Second Amended Agreement
also contains an additional fee provision of up to 1.5% of
outstanding borrowings if the Company does not raise a minimum of
 $25 million in equity. The additional fee is earned by the
Lenders in 0.25% increments at 90, 120, 150, 180, 240, and
300 days from the date of the second restatement.

As of December 31, 1999, of the total facility commitment of
 $36 million and maximum available for cash borrowings of
$30 million, the Company had $29.4 million of outstanding
borrowings and has issued $5.7 million in standby letters of
 credit leaving $0.6 million available for cash borrowings
or up to $0.9 million available to secure standby letters of
 credit. The facility allows for additional letters of credit up
to a total of $10 million provided that such additional
letters of credit are secured by cash deposited with the Lenders.
 As

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of December 31, 1999, the Companys average interest
rate on outstanding borrowings was approximately 9.60% excluding
the effects of amortization of deferred financing costs.

Extraordinary Item

During the year ended December 31, 1999, the Company
recognized an extraordinary charge of $257,000, net of income tax
 effect of $144,000, related to the February 1999 amendment
of the Companys credit facility. During the year ended
December 31, 1998, the Company recognized an extraordinary
charge of $379,000, net of income tax effect of $244,000, related
 to the early extinguishment of certain term loans outstanding
under its credit facility.

7.  Income Taxes

Prior to March 1998, the provision for income taxes
represents amounts owed in states and other jurisdictions that
did not recognize S Corporation status.

For the years ended December 31, 1999, 1998 and 1997, the
components of the (provision for) benefit from income taxes
consist of the following (in thousands):

|         |  |                          |        |      |  |      |        |   |  |   |      |  
|-------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  | - | ---- | -
|         |  |                         
|         |  | Years Ended December 31,
|         |  |                         
|         |  | 1999                     |        | 1998 |  | 1997
|         |  |                          |        |      |  |     
|Current  |  | $                        | 3,788  |      |  | $    | (3,970 | ) |  | $ | (136 | )
|        
|        
|        
|        
|Deferred |  |                          | (2,372 | )    |  |      | 62     |   |  |   | 12   |  
|         |  |                          |        |      |  |      |        |   |  |   |      |  
|         |  | $                        | 1,416  |      |  | $    | (3,908 | ) |  | $ | (124 | )
|         |  |                          |        |      |  |      |        |   |  |   |      |  

The components of the Companys net deferred tax asset
(liability) are as follows (in thousands):

|                                |  |              |        |      |  |      |      |   |  |   |    |  
|------------------------------- |  | ------------ | ------ | ---- |  | ---- | ---- | - |  | - | -- | -
|                                |  |             
|                                |  | December 31,
|                                |  |             
|                                |  | 1999         |        | 1998 |  | 1997
|                                |  |              |        |      |  |     
|Allowance for doubtful accounts |  | $            | 523    |      |  | $    | 405  |   |  | $ | 24 |  
|                               
|                               
|                               
|                               
|Accrued expenses and other      |  |              | 463    |      |  |      | 426  |   |  |   | 6  |  
|                               
|                               
|                               
|                               
|Depreciation and amortization   |  |              | (2,108 | )    |  |      | (571 | ) |  |   |   |  
|                               
|                               
|                               
|                               
|Capitalized software            |  |              | (989   | )    |  |      |     |   |  |   |   |  
|                               
|                               
|                               
|                               
|Acquired book/tax difference    |  |              | 3,202  |      |  |      |     |   |  |   |   |  
|                               
|                               
|                               
|                               
|Other                           |  |              |       |      |  |      |     |   |  |   | (9 | )
|                                |  |              |        |      |  |      |      |   |  |   |    |  
|                                |  | $            | 1,091  |      |  | $    | 260  |   |  | $ | 21 |  
|                                |  |              |        |      |  |      |      |   |  |   |    |  

The net deferred tax asset is included in other assets on the
accompanying balance sheet and is believed to be fully realizable
 by carry back to 1998 if it is not used to offset taxable income
 in 2000.

For the year ended December 31, 1997 the provision for
income taxes reflects effective rates that differ from the
statutory Federal rate as a result of the effect of income taxed
directly to shareholders and the effect

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of state and local income taxes. A reconciliation of the tax
benefit (provision) from the U.S. Federal statutory tax rate to
the Companys effective tax rate is as follows for the years
 ended December 31, 1999 and 1998:

|                                                         |  |      |      |      |  |  |       |   
|-------------------------------------------------------- |  | ---- | ---- | ---- |  |  | ----- | --
|                                                         |  | 1999 |      | 1998
|                                                         |  |      |      |     
|Taxes at the statutory Federal rate                      |  |      | 35.0 | %    |  |  | (35.0 | )%
|                                                        
|                                                        
|                                                        
|                                                        
|Effect of graduated rates                                |  |      | (1.0 | )    |  |  | 1.0   |   
|                                                        
|                                                        
|                                                        
|                                                        
|S corporation loss attributable directly to shareholders |  |      |     |      |  |  | (3.4  | ) 
|                                                        
|                                                        
|                                                        
|                                                        
|State and other income taxes, net of Federal tax benefit |  |      | 5.0  |      |  |  | (4.0  | ) 
|                                                        
|                                                        
|                                                        
|                                                        
|Nondeductible expenses                                   |  |      | (8.5 | )    |  |  | (2.0  | ) 
|                                                         |  |      |      |      |  |  |       |   
|Tax benefit (provision) at effective rates               |  |      | 30.5 | %    |  |  | (43.4 | )%
|                                                         |  |      |      |      |  |  |       |   

8.  Commitments and Contingencies

Senior Management Agreements

In March 1998, the Company has entered into employment
agreements with certain executives. The agreements prescribe
salary and bonus compensation and provide for severance payments
in certain circumstances. The agreements also contain various
non-compete and non-solicitation provisions. The agreements
extend to April 2001 with one-year renewals thereafter.

Under the terms of the agreements, the Company sold an aggregate
of 701,500 shares of common stock at a price of $0.82 per share
and an aggregate of 425 shares of Convertible Preferred at a
price of $1,000 per share to three executives in March 1998.
 All of the shares of Convertible Preferred are Non-Vesting
 Preferred Stock. Of the shares of common stock sold,
643,879 shares are Vesting Stock and 57,621 shares
are Non-Vesting Common Stock. In 1999, the Company
fully vested senior management in the Vesting Stock. The
Non-Vesting Common Stock and the Non-Vesting Preferred Stock
vested immediately upon purchase. The vesting and non-vesting
common stock are subject to repurchase under certain
circumstances.

In April 1999, the Company extended loans totaling
approximately $1.3 million to two members of senior management.
These loans bear interest at 6% per year and must be repaid upon
the earlier of March 16, 2003 or termination of employment.
The Company has agreed, however, to waive approximately 42% of
the principal of each loan over time if the executives remain
employed through March 2003 and the Company meets certain
performance criteria. As of December 31, 1999 the balance of
 these loans was approximately $1.2 million.

In October 1999, the Companys president and chief
operating officer resigned from the Company. The separation
agreement provides for severance payments for a term of up to one
 year and contains a covenant not to compete. In consideration
for forgiveness of the former president and chief operating
officers senior management loan, the officer returned
shares of the Companys common stock previously purchased,
among other considerations. The Company recorded an immaterial
loss on the transaction.

Consulting and Employment Agreements

The Company has entered into employment agreements with various
individuals. The agreements prescribe salary and bonus
compensation based upon the performance of the Company and, in
certain circumstances, provide for severance payments. The
agreements also contain various non-compete and non-solicitation
provisions.

Trase Miller Agreement

In connection with the acquisition of MTI, the Company entered
into an information and business systems outsourcing arrangement
with Trase Miller Solutions, Inc. (Trase Miller
Solutions), a former

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

affiliate of MTI. On August 14, 1998, the Company, Trase
Miller Solutions and the majority shareholder of Trase Miller
Solutions entered into an agreement (the Outsourcing
Agreement) to expand this outsourcing agreement to provide
a common platform system for all the Companys businesses
(other than the business systems associated with the
Companys in-bound business). During the term of the
Outsourcing Agreement, Trase Miller Solutions was to provide the
Company information systems and related services, including
operating services, system maintenance, general management and
support and implementation and migration services. In connection
with the Outsourcing Agreement, the Company also paid
$6.8 million to acquire an option, exercisable through
January 10, 1999, to purchase all of the outstanding stock
of Trase Miller Solutions. In January 1999, the Company paid
 approximately $2.3 million to extend the option. The
$6.8 million consideration paid for the option has been
included in other assets in the accompanying balance sheet as of
December 31, 1998. On June 1, 1999, the Company
exercised its option to acquire substantially all the assets of
Trase Miller for approximately $30.1 million (see Note 10).

Leases

The Company leases its facilities, automobiles and certain
equipment under noncancellable operating leases. The following is
 a schedule by years of future minimum rental payments, required
under these leases expiring through 2004, as of December 31,
 1999 (in thousands):

|           |       |        |        
|---------- | ----- | ------ | -------
|          
|          
|          
|          
|2000       |       | $3,114
|          
|          
|          
|          
|2001       |       | 2,810 
|          
|          
|          
|          
|2002       |       | 2,381 
|          
|          
|          
|          
|2003       |       | 1,686 
|          
|          
|          
|          
|2004       |       | 1,312 
|          
|          
|          
|          
|Thereafter |       | 851   
|           |       |       
|           | Total |        | $12,154
|           |       |       

Total facilities rent expense for the years ended
December 31, 1999, 1998 and 1997 was approximately
$3.0 million, $2.1 million and $454,000, respectively.

Letters of Credit

As of December 31, 1999 and 1998, the Company had issued
letters of credit totaling $5.7 million and
$2.3 million, respectively, in favor of certain vendors.
Certain certificates of deposit of similar amount and maturity
have been pledged as collateral and are included in the
accompanying balance sheet as cash and cash equivalents or
short-term investments, depending on their maturity.

Litigation

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

9.  Related Party Transactions

Loans receivable from/loans payable to shareholders are related
to borrowings from and advances to shareholders prior to the
Recapitalization. In addition, as of December 31, 1999 and
1998, the Company had a $1.3 million and $2.5 million,
respectively, note receivable balance from a former principal
shareholder of one of the acquired companies. The note is secured
 by certain investments and is due on April 15, 2000.
Interest

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

accrues daily on the unpaid principal at the rate of 9% per annum
 and is to be paid on the last day of each calendar quarter
during the term of the note.

During 1998, the Company had an agreement with an affiliate of
the Investor to provide investment banking and support services.
Total fees and expense reimbursements paid under this agreement
in 1998 totaled $2.1 million. The agreement terminated at
the completion of the Companys Offering on August 5, 1998.

10.  Acquisitions

Since March 1998, the Company has acquired Haddon, Classic,
Globetrotters, Friendly Holidays, ITR, Island and substantially
all of the assets of MTI and Trase Miller. Each of these
acquisitions was acquired with cash and certain assets. The
Company financed the Acquisitions with proceeds from the issuance
 of additional shares of Convertible Preferred and common stock
and from borrowings under its Credit Facility. The acquisition of
 each of these businesses has been accounted for as a purchase
for financial reporting purposes. The Company allocated the
excess of the purchase price over the fair value of net assets
acquired to goodwill. The Company amortizes goodwill over
35 years.

Haddon

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

|                                                 |       |   |        |       | 
|------------------------------------------------ | ----- | - | ------ | ----- | 
|                                                
|                                                
|                                                
|                                                
|Cash and investments                             |       | $ | 3,475  |      
|                                                
|                                                
|                                                
|                                                
|A/ R and prepaid assets                          |       |   | 1,041  |      
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 90     |      
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 9,476  |      
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (6,364 | )    
|                                                 |       |   |        |      
|                                                 | Total |   | $      | 7,718 | 
|                                                 |       |   |        |      

Classic

In April 1998, the Company purchased all of the outstanding
capital stock of Classic, a package vacation provider. The
Company paid a purchase price of $17.1 million, all of which
 was paid in cash. In addition, the Company incurred direct
acquisition costs of approximately $2.0 million. The Company
 financed the cash purchase price and the direct acquisition
costs with proceeds from the issuance of $6.7 million of
Convertible Preferred and $13.1 million in borrowings under
the Credit Facility. The proceeds from this sale and

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

borrowing also provided approximately $700,000 in working
capital. The purchase price has been allocated as follows (in
thousands):

|                                                 |       |   |         |        | 
|------------------------------------------------ | ----- | - | ------- | ------ | 
|                                                
|                                                
|                                                
|                                                
|Cash and investments                             |       | $ | 25,642  |       
|                                                
|                                                
|                                                
|                                                
|A/ R and prepaid assets                          |       |   | 8,108   |       
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 2,426   |       
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 18,892  |       
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (36,008 | )     
|                                                 |       |   |         |       
|                                                 | Total |   | $       | 19,060 | 
|                                                 |       |   |         |       

MTI

In May 1998, the Company acquired substantially all of the
assets of MTI, a package vacation provider that (i) provides
 vacation packages for travelers to Hawaii (ii) provides
packages for Amtrak-sponsored vacations (iii) operates the
reservation system associated with package vacations sponsored by
 Hyatt and (iv) provides credit card reward fulfillment
programs. The Company paid a purchase price of $26.4 million. In
addition, the Company incurred direct acquisition costs of
approximately $881,000. The Company financed the cash purchase
price and direct acquisition costs with proceeds from the
issuance of $15.5 million of Convertible Preferred and
$11.1 million in borrowings under the Credit Facility. The
proceeds from this sale and borrowing also provided approximately
 $1.7 million in working capital. In connection with the
acquisition of substantially all of the assets of MTI, the
Company sold 292,800 shares of common stock, valued at $0.82 per
share, and 2,160 shares of Convertible Preferred, valued at
$1,000 per share, to an affiliate of the seller. The Company also
 entered into the Outsourcing Agreement with a former affiliate
of MTI, whereby the affiliate provided the Company with
management information system support relating to MTIs
computer reservation system and related functions The purchase
price has been allocated as follows (in thousands):

|                                                 |       |   |         |        | 
|------------------------------------------------ | ----- | - | ------- | ------ | 
|                                                
|                                                
|                                                
|                                                
|Cash and investments                             |       | $ | 19,913  |       
|                                                
|                                                
|                                                
|                                                
|A/ R and prepaid assets                          |       |   | 3,920   |       
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 1,696   |       
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 30,732  |       
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (28,980 | )     
|                                                 |       |   |         |       
|                                                 | Total |   | $       | 27,281 | 
|                                                 |       |   |         |       

Globetrotters

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

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Preferred, $1.9 million in borrowings under the Credit
Facility and $1.3 million from working capital. The purchase
 price has been allocated as follows (in thousands):

|                                                 |       |   |        |       | 
|------------------------------------------------ | ----- | - | ------ | ----- | 
|                                                
|                                                
|                                                
|                                                
|Cash and investments                             |       | $ | 2,663  |      
|                                                
|                                                
|                                                
|                                                
|A/ R and prepaid assets                          |       |   | 2,907  |      
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 1,065  |      
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 6,908  |      
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (7,961 | )    
|                                                 |       |   |        |      
|                                                 | Total |   | $      | 5,582 | 
|                                                 |       |   |        |      

Friendly Holidays

On March 17, 1999, the Company acquired all the outstanding
stock of Friendly, a wholesale package tour operator that
principally serves travelers to Mexico, Central America, and
Caribbean destinations. The terms of the purchase include cash
consideration of $10.3 million and additional payments of up
 to $2.8 million contingent on future operating results. The
 Company incurred direct acquisition costs of $225,000. The
acquisition was accounted for as a purchase for financial
reporting purposes. The purchase price has been allocated on a
preliminary basis as follows (in thousands):

|                                                 |       |   |         |        | 
|------------------------------------------------ | ----- | - | ------- | ------ | 
|                                                
|                                                
|                                                
|                                                
|Cash and investments                             |       | $ | 8,105   |       
|                                                
|                                                
|                                                
|                                                
|A/ R and prepaid assets                          |       |   | 2,119   |       
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 3,025   |       
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 10,404  |       
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (13,251 | )     
|                                                 |       |   |         |       
|                                                 | Total |   | $       | 10,402 | 
|                                                 |       |   |         |       

ITR and Island

On April 1, 1999, the Company acquired all the outstanding
stock of ITR, a hotel representative company, and Island, a
wholesale package tour operator that principally sells
popular-priced vacation packages to Caribbean destinations. The
terms of the purchase include cash consideration of $5.0 million
and additional payments of up to $1.25 million contingent on
 future operating results. The Company incurred direct
acquisition costs of $204,000. The acquisition was accounted for
as a purchase for financial reporting purposes. The purchase
price has been allocated on a preliminary basis as follows (in
thousands):

|                                                 |       |   |        |       | 
|------------------------------------------------ | ----- | - | ------ | ----- | 
|                                                
|                                                
|                                                
|                                                
|Cash and investments                             |       | $ | 444    |      
|                                                
|                                                
|                                                
|                                                
|Accounts receivable                              |       |   | 391    |      
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 135    |      
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 6,072  |      
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (1,838 | )    
|                                                 |       |   |        |      
|                                                 | Total |   | $      | 5,204 | 
|                                                 |       |   |        |      

Trase Miller

On June 1, 1999, the Company acquired substantially all of
the assets of Trase Miller, the designer and maintenance provider
 for certain of Global Vacation Groups information systems
including reservation systems for cash consideration of
$30.1 million. The purchase price included $6.8 million
 previously paid to acquire an option to purchase Trase Miller,
$2.3 million paid to extend the purchase option, and an
additional $21.0 million. The Company also incurred direct
acquisition costs of $297,000. The acquisition was accounted

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GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

for as a purchase for financial reporting purposes. The purchase
price has been allocated on a preliminary basis as follows (in
thousands):

|                                                 |       |   |        |        | 
|------------------------------------------------ | ----- | - | ------ | ------ | 
|                                                
|                                                
|                                                
|                                                
|Accounts receivable                              |       | $ | 187    |       
|                                                
|                                                
|                                                
|                                                
|Fixed and other assets                           |       |   | 1,912  |       
|                                                
|                                                
|                                                
|                                                
|Covenant not-to-compete                          |       |   | 100    |       
|                                                
|                                                
|                                                
|                                                
|Technology platform                              |       |   | 12,380 |       
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 17,685 |       
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (1,877 | )     
|                                                 |       |   |        |       
|                                                 | Total |   | $      | 30,387 | 
|                                                 |       |   |        |       

Goodwill, for each acquisition, is amortized over a period of
35 years. The Trase Miller covenant not-to-compete is
amortized over a period of 3.5 years. The Trase Miller
technology platform is depreciated over a period of
25 years.

The unaudited pro forma information presented below (in
thousands) reflects the Acquisitions as if they had occurred on
January 1, 1998. These results are not necessarily
indicative of future operating results or what would have
occurred had the Acquisitions been consummated at that date.

|                                                   |  |                         |         |      |  |   |         | 
|-------------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | 
|                                                   |  |                        
|                                                   |  | Year Ended December 31,
|                                                   |  | (unaudited)            
|                                                   |  |                        
|                                                   |  | 1999                    |         | 1998
|                                                   |  |                         |         |     
|Net revenues                                       |  | $                       | 125,203 |      |  | $ | 125,165 | 
|                                                  
|                                                  
|                                                  
|                                                  
|Net income (loss) available to common shareholders |  |                         | (7,033  | )    |  |   | 1,923   | 
|                                                  
|                                                  
|                                                  
|                                                  
|Basic and diluted income (loss) per share          |  | $                       | (0.48   | )    |  | $ | 0.13    | 

In connection with the 1998 acquisitions, the Company recognized
approximately $2.0 million in liabilities as the cost of
closing redundant facilities and terminating certain employees.
The accrual included lease and facility costs of $795,000,
severance and other employee termination costs of $907,000, and
costs of $300,000 related to other contractual obligations
associated with the Companys consolidation plan. During
1998, the Company closed redundant reservation centers and
consolidated Haddon and Globetrotters into Classic and MTI,
respectively. These activities resulted in a reduction of
approximately 90 employees in connection with the facility
closures, the elimination of duplicate positions and the
restructuring of certain operations.

In connection with the 1999 acquisitions, the Company recognized
approximately $3.3 million in liabilities related to the
cost of the Companys consolidation plans. The accrual
included lease and facility costs of $1,414,000, severance and
other employee termination costs of $978,000, and other
contractual obligations of $943,000 associated with the
Companys consolidation plan. During 1999, the Company
streamlined the operations of Friendly and Trase Miller. These
activities resulted in a reduction of approximately 40 employees
in connection with the elimination of duplicate positions and the
 restructuring of certain operations.

For the years ended December 31, 1999 and 1998, the Company
charged $1,343,000 and $859,000, respectively against the
accruals for amounts paid during these periods. The remaining
accrual relates primarily to lease and severance costs,
substantially all of which are expected to be paid in 2000.

44



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##### Table of Contents










|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURES

None.

PART III

Certain information required by Part III is omitted from this
Report in that the Registrant will file a definitive proxy
statement with the Securities and Exchange Commission (the
Commission) within 120 days after the end of its
 fiscal year pursuant to Regulation 14A, as promulgated by
the Commission, for its Annual Meeting of Stockholders to be held
 May 18, 2000 (the Proxy Statement), and certain
 information included therein is incorporated herein by
reference. (The Compensation Committee Report and the stock
performance graph of the Registrants Proxy Statement are
expressly not incorporated by reference herein.)




ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF
REGISTRANT

The information required by this Item is incorporated by
reference to the Companys Proxy Statement under the heading
 Election of Directors, which information is
incorporated herein by this reference.

Executive Officers

Set forth below is certain information concerning the executive
officers of the Company.

Roger H. Ballou, 48, has served as Chairman and Chief
Executive Officer of the Company since March 1998, adding
the duties and title of President in November 1999.
Immediately prior to joining the Company, Mr. Ballou served
as a Senior Advisor to Thayer Capital Partners. Between
May 1995 and September 1997, Mr. Ballou served as Vice
Chairman and Chief Marketing Officer, and then as President and
Chief Operating Officer of Alamo Rent A Car, LLC (Alamo). For
more than 16 years prior to joining Alamo, Mr. Ballou
held several executive positions with American Express Travel,
serving most recently as President  Travel Services
Group. Mr. Ballou currently serves as a member (and past
Chairman) of the Board of Directors of TIA and as a member of the
 Board of Directors of the National Academy Foundation. From 1995
 through 1997, he served as Chairman of the Government Affairs
Council, the leading travel industry federal government lobbying
arm. Mr. Ballou also is a member of the Board of Directors
of American Medical Security, Inc.

Jay G. Stuart,51, has served as Executive Vice President
and Chief Financial Officer of the Company since May 1999.
From September 1998 until April 1999, Mr. Stuart
served as an outside consultant to American Express for general
acquisitions, primarily hotel and travel companies. Between 1971
and 1997, Mr. Stuart held several positions with American
Express, most recently as Senior Vice President and Chief
Financial Officer of the Travel Services Group.

The Companys executive officers are appointed annually by,
and serve at the discretion of, the Board of Directors. Each
executive officer is a full-time employee of the Company. There
are no family relationships between any of the executive officers
 of the Company.




ITEM 11.  EXECUTIVE COMPENSATION

The information required by this Item is incorporated by
reference to the Companys Proxy Statement under the heading
 Executive Compensation and Other Information.




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The information required by this Item is incorporated by
reference to the Companys Proxy Statement under the
headings Election of Directors and Security
Ownership of Certain Beneficial Owners and Management.




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

The information required by this Item is incorporated by
reference to the Companys Proxy Statement under the heading
 Transactions with Related Parties.

45



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##### Table of Contents



PART IV




ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K

(a)  1.  INDEX TO FINANCIAL STATEMENTS

Reference is made to the index set forth on page 25 of this
Report.

2.  FINANCIAL STATEMENT SCHEDULES:

|                                              |  |          |    | 
|--------------------------------------------- |  | -------- | -- | 
|                                              |  | Page No.
|                                              |  |         
|Schedule II Valuation and Qualifying Accounts |  |          | 49 | 

3.  EXHIBITS

|                                                                                |  |  |    | 
|------------------------------------------------------------------------------- |  |  | -- | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|a) Exhibit Index                                                                |  |  | 50 | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|b) Resignation Agreement between the Registrant and
              Mr. Ray Lewis |  |  |    | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|c) Second Amended and Restated Credit Facility Dated
        October 28, 1999   |  |  |    | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|d) Amendment No.1 to the Second Amended and Restated Credit
        Facility    |  |  |    | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|e) Consent of Arthur Andersen LLP                                               |  |  |    | 
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|f) Exhibit 27.1 Financial Data Schedule                                         |  |  |    | 

46



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned,
 thereunto duly authorized.



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



| |     |                    
| | --- | -------------------
| | By: | /s/ ROGER H. BALLOU

| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Roger H. Ballou 
	 Chairman, President and Chief Executive Officer 
	 (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.

|                                               |  |                                                                                                    |  |                |  | 
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Name                                           |  | Title                                                                                              |  | Date          
|                                               |  |                                                                                                    |  |               
|/s/ ROGER H. BALLOURoger H. Ballou             |  | Chief Executive Officer and Chairman
	(Principal Executive Officer)                                |  | March 14, 2000
|                                              
|/s/ JAY G. STUARTJay G. Stuart                 |  | Executive Vice President and Chief Financial Officer (Principal
	Financial and Accounting Officer) |  | March 14, 2000
|                                              
|/s/ KENNETH M. DUBERSTEINKenneth M. Duberstein |  | Director                                                                                           |  | March 14, 2000
|                                              
|/s/ FREDERIC V. MALEKFrederic V. Malek         |  | Director                                                                                           |  | March 14, 2000
|                                              
|/s/ CARL J. RICKERTSENCarl J. Rickertsen       |  | Director                                                                                           |  | March 14, 2000
|                                              
|/s/ JAMES M. SULLIVANJames M. Sullivan         |  | Director                                                                                           |  | March 14, 2000

47



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Global Vacation Group, Inc.:

We have audited in accordance with auditing standards generally
accepted in the United States the financial statements of Global
Vacation Group, Inc., (a New York corporation) and subsidiaries
and have issued our report thereon dated February 9, 2000).
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed
in Item 14, Valuation and Qualifying Accounts, is the
responsibility of the Companys management and is presented
for purposes of complying with the Securities and Exchange
Commissions rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements
 and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Vienna, Virginia 
 February 9, 2000

48



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##### Table of Contents



Schedule II

Valuation and Qualifying Accounts

Years Ended December 31, 1999, 1998 and 1997


(in thousands)


|     |  |                                 |  |            |       |            |  |                 |       |             |  |   |       |  |  |   |       | 
|---- |  | ------------------------------- |  | ---------- | ----- | ---------- |  | --------------- | ----- | ----------- |  | - | ----- |  |  | - | ----- | 
|     |  |                                 |  |            |       |            |  | Deductions From |       |            
|     |  |                                 |  |            |       | Additions  |  | Reserve for     |       |            
|     |  |                                 |  | Balance at |       | Charged    |  | Purposes for    |       |            
|     |  |                                 |  | Beginning  |       | To Cost or |  | Which Reserve   |       | Balance at 
|     |  | Description                     |  | of Year    |       | Expenses   |  | Was Created     |       | End of Year
|     |  |                                 |  |            |       |            |  |                 |       |            
|1999 |  | Allowance for doubtful accounts |  | $          | 982   |            |  | $               | 1,106 |             |  | $ | 866   |  |  | $ | 1,222 | 
|     |  | Restructuring reserve           |  |            | 1,143 |            |  |                 | 3,335 |             |  |   | 1,343 |  |  |   | 3,155 | 
|1998 |  | Allowance for doubtful accounts |  |            | 861   |            |  |                 | 121   |             |  |   |      |  |  |   | 982   | 
|     |  | Restructuring reserve           |  |            |      |            |  |                 | 2,002 |             |  |   | 859   |  |  |   | 1,143 | 
|1997 |  | Allowance for doubtful accounts |  |            | 448   |            |  |                 | 771   |             |  |   | 358   |  |  |   | 861   | 

49



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##### Table of Contents



a) Exhibit Index

| |       |      |  |                                                                                                                                                                                                                
| | ----- | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1  |      |  | Restated Certificate of Incorporation of the Registrant                                                                                                                                                        
| | 3.2  |      |  | Amended and Restated By-laws of the Registrant                                                                                                                                                                 
| | 4.1  |      |  | Form of Specimen Stock Certificate                                                                                                                                                                             
| | 10.1 |      |  | Recapitalization Agreement dated as of March 18, 1998 among
	the Registrant, Thayer, Allied Holding and the shareholders of
	Allied Holding                                                                    
| | 10.2 |      |  | Equity Purchase Agreement dated as of March 30, 1998 between
	 the Registrant and Thayer and certain other purchasers.                                                                                         
| | 10.3 |      |  | Equity Subscription Agreement dated as of March 30, 1998 by
	and among the Registrant, Ralph M. Caliri and William W. Webber.                                                                                  
| | 10.4 |      |  | Equity Subscription Agreement dated as of April 30, 1998
	between the Registrant and James F. Miller.                                                                                                          
| | 10.5 |      |  | Registration Rights Agreement dated as of June 12, 1998 by
	and among the Registrant, Thayer and certain shareholders of the
	Registrant                                                                       
| | 10.6 |      |  | Stock Purchase Agreement dated as of March 30, 1998 by and
	among the Registrant, Haddon and the shareholders of Haddon.                                                                                       
| | 10.7 |      |  | Stock Purchase Agreement dated as of April 20, 1998 by and
	among the Registrant, Classic Custom Vacations, Inc.
	(Classic) and the shareholders of Classic.                                                 
| | 10.8 |      |  | Asset Purchase Agreement dated as of April 30, 1998 by and
	among the Registrant, MTI and James F. Miller.                                                                                                     
| | 10.9 |      |  | Stock Purchase Agreement dated as of May 4, 1998 by and
	among the Registrant, Globetrotters, Inc. and Robert A. Grinberg.                                                                                     
| | 10.10 | (a) |  | Professional Services Agreement dated as of March 30, 1998
	between the Registrant and TC Management Partners, LLC.                                                                                            
| | 10.11 | (a) |  | Credit Agreement dated as of March 27, 1998 by and among the
	 Registrant, the lenders party thereto and The Bank of New York,
	as administrative agent                                                        
| | 10.12 | (a) |  | Amendment No. 1 and Consent dated as of April 8, 1998
	to Credit Agreement dated as of March 27, 1998 by and among
	the Registrant, the lenders party thereto and The Bank of New
	York as administrative agent
| | 10.13 | (a) |  | Amendment No. 2 dated as of May 5, 1998 to Credit
	Agreement dated as of March 27, 1998 by and among the
	Registrant, the lenders party thereto and The Bank of New York as
	 administrative agent             
| | 10.14 | (a) |  | Registrants 1998 Stock Option Plan                                                                                                                                                                            
| | 10.15 | (a) |  | Senior Management Agreement dated as of March 30, 1998
	between the Registrant and Roger H. Ballou.                                                                                                            
| | 10.16 | (a) |  | Senior Management Agreement dated as of March 30, 1998
	between the Registrant and J. Raymond Lewis, Jr.                                                                                                       
| | 10.17 | (a) |  | Senior Management Agreement dated as of March 30, 1998
	between the Registrant and Walter S. Berman.                                                                                                           
| | 10.18 | (a) |  | Consulting Agreement dated as of March 27, 1998 by and
	between the Registrant and Stanley Fisher.                                                                                                             
| | 10.19 | (a) |  | Employment Agreement dated as of March 18, 1998 by and
	between the Registrant and Michael Fisher.                                                                                                             
| | 10.20 | (a) |  | Employment Agreement dated as of March 18, 1998 by and
	between the Registrant and Gregory Fisher.                                                                                                             
| | 10.21 | (a) |  | Amendment No. 1 dated as of June 24, 1998 to Senior
	Management Agreement dated as of March 30, 1998 between the
	Registrant and Mr. Ballou.                                                                   
| | 10.22 | (a) |  | Amendment No. 1 dated as of June 24, 1998 to Senior
	Management Agreement dated as of March 30, 1998 between the
	Registrant and Mr. Lewis.                                                                    
| | 10.23 | (a) |  | Amendment No. 1 dated as of June 24, 1998 to Senior
	Management Agreement dated as of March 30, 1998 between the
	Registrant and Mr. Berman.                                                                   
| | 10.24 | *    |  | Agreement dated as of August 14, 1998 between the Company
	and Trase Miller Solutions                                                                                                                          

51



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##### Table of Contents



| |       |        |  |                                                                                                                                                                                      
| | ----- | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.25 | (b)    |  | Restated and Amended Credit Agreement dated as of February 
	19, 1999 by and among the Registrant, the lenders party thereto
	and The Bank of New York, as administrative agent.     
| | 10.26 | (b)    |  | Amendment No. 1 to the Amended and Restated Credit Agreement                                                                                                                         
| | 10.27 | (b)    |  | Amendment No. 2 to the Amended and Restated Credit Agreement                                                                                                                         
| | 10.28 | (b)    |  | Amendment No. 2 dated as of March 16, 1999 to Senior
	Management Agreement dated as of March 30, 1998 between the
	Registrant and Mr. Ballou                                         
| | 10.29 | (b)    |  | Amendment No. 2 dated as of March 16, 1999 to Senior
	Management Agreement dated as of March 30, 1998 between the
	Registrant and Mr. Lewis                                          
| | 10.30 | (b)    |  | Amendment No. 2 dated as of March 16, 1999 to Senior
	Management Agreement dated as of March 30, 1998 between the
	Registrant and Mr. Berman                                         
| | 10.31 | (b)    |  | Resignation Agreement between the Registrant and Mr. Walter
	S. Berman                                                                                                               
| | 10.32 | (c)    |  | Amendment No. 3 to the Amended and Restated Credit Agreement                                                                                                                         
| | 10.33 | (c)    |  | Amendment No. 4 to the Amended and Restated Credit Agreement                                                                                                                         
| | 10.34 | (a)(c) |  | Employment Agreement between the Registrant and Jay G. Stuart                                                                                                                        
| | 10.35 |        |  | Resignation Agreement between the Registrant and Mr. 
	Raymond Lewis, Jr.                                                                                                            
| | 10.36 |        |  | Second Restated and Amended Credit Agreement dated as of
	October 28, 1999 by and among the Registrant, the lenders
	party thereto and The Bank of New York, as administrative agent.
| | 10.37 |        |  | Amendment No. 1 to the Second Restated and Amended Credit
	Agreement                                                                                                                 
| | 21.1 |        |  | Subsidiaries of the Registrant                                                                                                                                                       
| | 23.1  |        |  | Consent of Arthur Andersen LLP                                                                                                                                                       
| | 24.1 |        |  | Power of Attorney                                                                                                                                                                    
| | 27.1  |        |  | Financial Data Schedule                                                                                                                                                              








|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
| | Previously filed as the same exhibit number under a Registration
	Statement on Form S-1 (file no 333-52673)
| 
| | Previously filed as the same exhibit number on September 14,
	 1998 under a Form  10-Q (file no 333-52673) 



|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|*   | Previously filed as the exhibit number 10.1 on September 14,
	 1998 under a Form  10-Q (file no 333-52673)
|   
|(a) | Management Compensation related agreements.                                                               
|   
|(b) | Previously filed as the same exhibit number on May 14, 1999
	under a Form 10-Q (file no 333-52673)        
|   
|(c) | Previously filed as the same exhibit number on November 14,
	1999 under a Form 10-Q (file no 333-52673    

b)  Reports on Form 8-K

The Company filed a Form 8-K/ A on June 16, 1999
disclosing the acquisition of the assets of Trase Miller
Solutions, Inc.

The Company filed a Form 8-K/ A on August 16, 1999
making an Item 7 disclosure to report the financial
statements and pro forma information of the acquisition of the
assets of Trase Miller Solutions, Inc. initially disclosed in the
 company Form 8-K filed June 16,1999.

The Company filed a Form 8-K/ A on September 14, 1999
further amending the Item 7 disclosure of financial statements
and pro forma information of the acquisition of the assets of
Trase Miller Solutions.

52