UNITEDTable STATES SECURITIESof AND EXCHANGE COMMISSION Washington, D.C. 20549 Contents

~~FORM~~UNITED ~~10-Q~~STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

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

FORM 10-Q

~~For~~[X] ~~the~~QUARTERLY ~~Quarterly~~REPORT ~~Period~~PURSUANT ~~Ended~~TO ~~June 30,~~SECTION ~~2001~~ 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission File No. 001-14353~~OR

~~CLASSIC~~[ ~~VACATION~~] ~~GROUP,~~TRANSITION ~~INC. (Exact~~REPORT ~~name~~PURSUANT ofTO ~~Registrant~~SECTION as13 ~~specified~~OR in15 ~~its charter~~(d) OF THE SECURITIES EXCHANGE ACT OF 1934

New York		13-1894567
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
One North First Street, Suite 300, San Jose, CA		95113
(Address of principal executive offices)		(Zip Code)
Global Vacation Group, Inc.
(Former name, former address and formerfiscal year, if changed since last report)

For the Quarterly Period Ended September 30, 2001

~~Registrant’s~~Commission ~~telephone~~File ~~number,~~No. ~~including area code: (408) 882~~001-~~8455~~14353

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

YES X NO


New York		13-1894567

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)









One North First Street, Suite 300, San Jose, CA		95113

(Address of principal executive offices)		(Zip Code)

AsRegistrant’s oftelephone ~~August 13~~number, ~~2001~~including ~~there~~area ~~were~~code: ~~14,392,825 shares of Registrant’s Common Stock~~(408) 882-8455 ~~outstanding.~~

~~INDEX~~ 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.

			Page No.
PART I	FINANCIAL INFORMATION			3
Item 1.		Financial Statements (unaudited)		3
		Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000		3
		Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2001 and 2000		4
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000		5
		Notes to Condensed Consolidated Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
		Results of Operations		11
		Liquidity and Capital Resources		13
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		15
PART II	OTHER INFORMATION			16
Item 6.		Exhibits and Reports on Form 8-K		16

YES X NO

2As of November 7, 2001 there were 14,392,825 shares of Registrant’s Common Stock outstanding.

~~PART~~ 1~~. FINANCIAL INFORMATION~~

~~ITEM~~TABLE ~~1. Financial~~OF ~~Statements~~ CONTENTS

CLASSIC VACATION GROUP, INC., AND SUBSIDIARIES (formerly Global Vacation Group, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)


PART 1. FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Results of Operations (unaudited)
		Liquidity and Capital Resources
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
	ITEM 6. Exhibits and Reports on Form 8-K
NOTE PURCHASE AGREEMENT
7.5% CONVERTIBLE SENIOR SUBORDINATED NOTE
7.5% EXCHANGEABLE SENIOR SUB0RDINATED NOTE
AGREEMENT TO TENDER
WAIVER

				June 30,			December 31,
ASSETS				2001			2000
				(unaudited)
Current assets:
Cash and cash equivalents (includes $9,859 and $11,633 of restricted cash, respectively)				$	41,516		$	24,432
Short-term investments					5,150			—
Accounts receivable, net of allowance of $1,479 and $2,096, respectively					16,264			21,224
Other current assets					4,421			4,303
			Total current assets		67,351			49,959
Property and equipment, net					4,367			4,588
Intangible assets, net					76,938			78,476
Other assets					129			124
			Total assets	$	148,785		$	133,147
	LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses				$	59,294		$	62,239
Customer deposits					56,778			37,919
Short-term convertible notes payable					—			690
			Total current liabilities		116,072			100,848
Other long-term liabilities					648			480
Convertible notes					29,474			27,500
			Total liabilities		146,194			128,828
Commitments and Contingencies
Shareholders’ equity:
		Preferred Stock, $.01 par value, 6,000,000 shares authorized, no shares issued and outstanding			—			—
		Common Stock, $.01 par value, 60,000,000 shares authorized, 14,775,816 shares issued and 14,392,825 shares outstanding			148			148
		Additional paid-in capital			95,817			95,817
		Deferred compensation			—			(17	)
		Retained deficit			(91,058	)		(89,313	)
		Treasury stock, 382,991 shares at cost			(2,316	)		(2,316	)
			Total shareholders’ equity		2,591			4,319
Total liabilities and shareholders’ equity				$	148,785		$	133,147

3INDEX

CLASSIC VACATION GROUP, INC., AND SUBSIDIARIES (formerly Global Vacation Group, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)


		Page No.

PART I	FINANCIAL INFORMATION		3









Item 1.	Financial Statements (unaudited)		3









	Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000		3









	Condensed Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2001 and 2000		4









	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000		5









	Notes to Condensed Consolidated Financial Statements		6









Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12









	Results of Operations		15









	Liquidity and Capital Resources		18









Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21









PART II	OTHER INFORMATION		22









Item 6.	Exhibits and Reports on Form 8-K		22

				Three Months Ended						Six Months Ended
				June 30,						June 30,
				2001			2000			2001			2000
Net revenues				$	29,161		$	36,394		$	53,626		$	63,746
Operating expenses					25,073			31,908			47,907			59,275
			Gross profit		4,088			4,486			5,719			4,471
General and administrative expenses					1,531			2,425			3,556			4,843
Depreciation and amortization					1,160			1,893			2,371			3,744
Restructuring charge					642			—			642			—
	Income (loss) from operations				755			168			(850	)		(4,116	)
Other income (expense)
		Interest income			445			821			873			1,350
		Interest expense			(881	)		(1,145	)		(1,824	)		(2,293	)
		Other			66			11			86			(1	)
			Total		(370	)		(313	)		(865	)		(944	)
Income (loss) before income taxes					385			(145	)		(1,715	)		(5,060	)
Income tax provision					(30	)		(2,018	)		(30	)		—
	Net income (loss)			$	355		$	(2,163	)	$	(1,745	)	$	(5,060	)
Basic and diluted net income (loss) per share				$	0.02		$	(0.15	)	$	(0.12	)	$	(0.35	)
Basic and diluted weighted average shares outstanding					14,393			14,393			14,393			14,393

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

4PART 1. FINANCIAL INFORMATION

~~CLASSIC~~ITEM ~~VACATION GROUP, INC~~1., ~~AND~~Financial ~~SUBSIDIARIES (formerly Global Vacation Group, Inc.)~~Statements ~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~ ~~(in thousands)~~ ~~(unaudited)~~

					Six Months Ended
					June 30, 2001			June 30, 2000
	Cash flows from operating activities:
				Net loss	$	(1,745	)	$	(5,060	)
				Adjustments to reconcile net loss to net cash provided by operating activities:
				Depreciation and amortization		2,371			3,744
				Non-cash interest expense		1,284			—
				Amortization of deferred financing costs		356			549
				Changes in operating assets and liabilities:
				Accounts receivable		4,960			(4,657	)
				Other assets		(137	)		1,122
				Accounts payable and accrued expenses		(1,044	)		15,092
				Customer deposits		18,859			28,583
				Other liabilities		168			231
				Net cash provided by operating activities		25,072			39,604
				Cash flows from investing activities:
				Purchases of property and equipment		(954	)		(1,648	)
				Payment of deferred acquisition consideration		(1,750	)		—
				Net (purchases) sales of investments		(5,150	)		78
				Net cash used in investing activities		(7,854	)		(1,570	)
				Cash flows from financing activities:
				Payments on capital lease obligations		(134	)		(746	)
				Repayment of borrowings from credit agreement		—			(29,422	)
				Proceeds from convertible note		—			27,500
				Deferred financing costs		—			(1,309	)
			Net cash used in financing activities			(134	)		(3,977	)
			Net increase in cash and cash equivalents			17,084			34,057
			Cash and cash equivalents beginning of period			24,432			24,152
			Cash and cash equivalents end of period		$	41,516		$	58,209
Supplemental disclosures of cash flow information:
		Income tax refunds received, net of payments			$	235		$	673
		Interest paid				163			2,168
Supplemental disclosures of non-cash investing and financing activities:
		Issuance of convertible notes payable as payment of interest expense			$	1,284		$	—

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


					September 30,			December 31,
ASSETS					2001			2000

					(unaudited)
Current assets:




Cash and cash equivalents (includes $4,223 and $11,633 of restricted cash, respectively)					$	25,935		$	24,432




Restricted short-term investments						5,150			—




Accounts receivable, net of allowance of $2,249 and $2,096, respectively						18,744			21,224




Other current assets						3,811			4,303

				Total current assets		53,640			49,959

Property and equipment, net						4,568			4,588




Goodwill and intangible assets, net						69,942			78,476




Other assets						122			124

				Total assets	$	128,272		$	133,147






			LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY









Current liabilities:




Accounts payable and accrued expenses					$	57,105		$	62,239




Customer deposits						44,065			37,919




Short-term convertible notes payable						—			690

				Total current liabilities		101,170			100,848




Other long-term liabilities						1,255			480




Convertible notes payable						30,136			27,500

				Total liabilities		132,561			128,828




Commitments and Contingencies (Note 3) Shareholders’ (deficit) equity:




		Preferred Stock, $.01 par value, 6,000,000 shares authorized, no shares issued and outstanding				—			—




		Common Stock, $.01 par value, 60,000,000 shares authorized, 14,775,816 shares issued and 14,392,825 shares outstanding				148			148




	Additional paid-in capital					95,873			95,817




	Deferred compensation					—			(17	)




	Retained deficit					(97,994	)		(89,313	)




	Treasury stock, 382,991 shares at cost					(2,316	)		(2,316	)

				Total shareholders’ (deficit) equity		(4,289	)		4,319

Total liabilities and shareholders’ (deficit) equity					$	128,272		$	133,147

~~CLASSIC~~The ~~VACATION~~accompanying ~~GROUP,~~notes ~~INC.,~~are ~~AND~~an ~~SUBSIDIARIES (formerly~~integral ~~Global~~part ~~Vacation~~of ~~Group,~~these ~~Inc.) NOTES~~condensed TOconsolidated ~~CONDENSED~~balance ~~CONSOLIDATED FINANCIAL STATEMENTS~~sheets. ~~June 30, 2001~~ ~~(Unaudited)~~

~~1. Business Description and Organization~~3

ClassicTable Vacation Group, Inc., and subsidiaries, (formerly Global Vacation Group, Inc.), (the “Company”) is one of the largest U.S. providers of customized vacation products. The Company assembles air, hotel, rental car and other travel components in bulk and provides complete vacations to travelers primarily through other resellers of travel including retail travel agents and international tour wholesalers. The Company primarily provides flexible independent travel programs for individuals, as well as escorted tours and group packages. The Company’s operations are primarily concentrated in one market segment, leisure travel. In May 2001 the Company changed its name from Global Vacation Group, Inc. The Company’s common stock trades on the American Stock Exchange under the symbol “CLV”. Contents

~~Headquartered~~CLASSIC inVACATION ~~San Jose~~GROUP, ~~California~~INC., ~~the~~AND ~~Company markets its major~~SUBSIDIARIES ~~products~~CONDENSED ~~under~~CONSOLIDATED ~~the~~STATEMENTS ~~brand~~OF ~~names Classic Custom Vacations (“Classic”) and Allied~~OPERATIONS ~~Tours~~ (~~“Allied”).~~in Classic creates customized vacation packages for U.S. travelers seeking an individualized vacation. The Allied brand creates packages for international travelers visiting North America. The Company also operates Island Resort Toursthousands, aexcept ~~smaller~~per ~~domestic~~share ~~vacation provider; International Travel~~data) ~~& Resorts, a hotel representation company; and the private label vacation~~(unaudited) ~~fulfillment operations for Amtrak Vacations and Hyatt Vacations.~~

Risks and Other Important Factors


				Three Months Ended						Nine Months Ended

				September 30,						September 30,

				2001			2000			2001			2000

Net revenues				$	30,388		$	40,620		$	84,016		$	104,366




Operating expenses					26,731			35,664			74,637			94,939





			Gross profit		3,657			4,956			9,379			9,427




General and administrative expenses					1,653			3,198			5,209			8,041




Depreciation and amortization					1,150			1,488			3,521			5,232




Restructuring and impairment charges					7,378			38,382			8,020			38,382

	Loss from operations				(6,524	)		(38,112	)		(7,371	)		(42,228	)

Other income (expense)
		Interest income			376			953			1,248			2,303




		Interest expense			(764	)		(834	)		(2,588	)		(3,127	)




		Other			(10	)		—			75			(1	)

			Total		(398	)		119			(1,265	)		(825	)

Loss before income taxes					(6,922	)		(37,993	)		(8,636	)		(43,053	)




Income tax provision					(15	)		(60	)		(45	)		(60	)

	Net loss			$	(6,937	)	$	(38,053	)	$	(8,681	)	$	(43,113	)






Basic and diluted net loss per share				$	(0.48	)	$	(2.64	)	$	(0.60	)	$	(3.00	)






Basic and diluted weighted average shares outstanding					14,393			14,393			14,393			14,393

The ~~Company’s~~accompanying ~~operations~~notes are ~~subject~~an tointegral ~~certain~~part 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~~these ~~within~~condensed ~~the~~consolidated ~~travel~~financial industry, industry consolidations, seasonal fluctuations in operating results, dependence on rapidly changing technologies, reliance on key personnel, international political and economic conditions impacting travel patterns, and dependence on travel suppliersstatements.

~~The Company receives advance payments and deposits prior to commencement~~4 ~~of travel. Accordingly, the Company’s current liabilities exceed its current~~ ~~assets. As of June 30, 2001, current liabilities exceed current assets by~~ approximately $48.7 million. If the float generated by these advance payments were to shrink, and the Company was required to find an alternative source of capital, one may not be available at terms acceptable to the Company. Such event could have a material adverse effect on the business, financial condition and results of operations of the Company.

AlthoughTable theof Company may not be profitable for the year ending December 31, 2001, management believes that the Company will be able to fund its operations with operating cash flow through at least January 2002. Management further believes that net revenues and gross profits will not deteriorate in 2002, enabling operations to fund cash flow obligations through at least January 2003. Contents

2CLASSIC VACATION GROUP, INC. ~~Summary~~, ofAND ~~Significant~~SUBSIDIARIES CONDENSED ~~Accounting~~CONSOLIDATED ~~Policies~~STATEMENTS OF CASH FLOWS

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


					Nine Months Ended

					September 30, 2001			September 30, 2000

	Cash flows from operating activities:




				Net loss	$	(8,681	)	$	(43,113	)




				Adjustments to reconcile net loss to net cash provided by operating activities:




				Depreciation and amortization		3,521			5,232




				Non-cash interest expense		1,946			—




				Amortization of deferred financing costs		416			549




				Non-cash compensation expense		73			8




				Non-cash portion of restructuring and impairment charges		6,346			35,034




				Changes in operating assets and liabilities:




				Accounts receivable		2,480			(12,448	)




				Other assets		472			7,597




				Accounts payable and accrued expenses		(3,206	)		21,970




				Customer deposits		6,146			13,188




				Other liabilities		775			698

				Net cash provided by operating activities		10,288			28,715

				Cash flows from investing activities:




				Purchases of property and equipment		(1,707	)		(2,460	)




				Payment of deferred acquisition consideration		(1,750	)		—




				Net (purchases) sales of investments		(5,150	)		103

				Net cash used in investing activities		(8,607	)		(2,357	)

				Cash flows from financing activities:




				Payments on capital lease obligations		(178	)		(264	)




				Repayment of borrowings from credit agreement		—			(29,431	)




				Proceeds from convertible note		—			27,500




				Deferred financing costs		—			(1,386	)

			Net cash used in financing activities			(178	)		(3,581	)

			Net increase in cash and cash equivalents			1,503			22,777




			Cash and cash equivalents beginning of period			24,432			24,152

			Cash and cash equivalents end of period		$	25,935		$	46,929

Supplemental disclosures of cash flow information:




		Income tax refunds received, net of payments			$	231		$	2,397




		Interest paid				174			2,251




Supplemental disclosures of non cash investing and financing activities:




		Issuance of convertible notes payable as payment of interest expense			$	1,946		$	—

The ~~quarterly~~accompanying ~~condensed~~notes ~~consolidated~~are ~~financial~~an ~~statements~~integral ~~included~~part ~~herein have been prepared by the Company, without audit, pursuant to the rules and regulations~~ of ~~the~~these Securities and Exchange Commission (“SEC”) and include, in the opinion of the Company, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed ~~or omitted pursuant to such rules and regulations. The Company believes that its disclosures are adequate to make the information presented not misleading. These condensed~~ consolidated financial ~~statements~~ ~~should be read in conjunction with the Consolidated Financial Statements and related Notes thereto included in the Company’s 2000 Form 10-K~~statements. ~~The results of operations for the three and six month periods ended June 30,~~ ~~2001 are not necessarily indicative of the results to be expected for the full year.~~

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

~~Net~~CLASSIC ~~Revenues~~VACATION GROUP, INC., AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 (Unaudited)

Net revenues include commissions and markups on travel products and services, volume bonuses received from travel suppliers, cancellation fees and other ancillary fees such as travel waiver and insurance products1. ~~Net revenues~~Business ~~are~~Description ~~generally recognized upon the commencement of travel. For the six months ended June 30, 2001~~ and ~~2000, the Company had net revenues of $53.6~~Organization ~~million and $63.7 million, respectively, derived from total dollar value of~~ ~~travel products and services of $238.1 million and $283.0 million,~~ ~~respectively.~~

~~Income~~ Classic ~~Taxes~~Vacation Group, Inc., and subsidiaries, (the “Company”) is one of the largest U.S. providers of customized vacation products. The Company assembles air, hotel, rental car and other travel components in bulk and provides complete vacations to travelers primarily through other resellers of travel including retail travel agents and international tour wholesalers. The Company primarily provides flexible independent travel programs for individuals, as well as escorted tours and group packages. The Company’s operations are primarily concentrated in one market segment, leisure travel. In May 2001 the Company changed its name from Global Vacation Group, Inc. The Company’s common stock trades on the American Stock Exchange under the symbol “CLV”.

~~The~~ Headquartered ~~Company accounts for income taxes~~ in ~~accordance~~San ~~with Statement of Financial Accounting Standard (“SFAS”) No. 109~~Jose, ~~“Accounting for Income Taxes.” Under SFAS No. 109~~California, ~~deferred~~the ~~tax~~Company ~~assets~~markets ~~and~~its ~~liabilities are computed based on~~major ~~the~~products ~~difference~~under ~~between~~ the ~~financial~~brand ~~statement~~names ~~and~~Classic ~~income~~Custom ~~tax~~Vacations ~~bases~~(“Classic”) ofand ~~assets~~Allied ~~and~~Tours ~~liabilities~~(“Allied”). ~~using~~Classic ~~the~~creates ~~enacted~~customized ~~marginal~~vacation ~~tax~~packages ~~rate.~~for ~~SFAS No~~U. ~~109 requires that~~S. atravelers ~~net~~seeking ~~deferred~~an ~~tax~~individualized ~~asset~~vacation. beThe ~~reduced~~Allied bybrand acreates ~~valuation allowance if, based on the~~packages ~~weight~~for ofinternational ~~available~~travelers ~~evidence,~~visiting itNorth isAmerica. ~~more~~The ~~likely~~Company ~~than~~also ~~not that some portion or~~operates ~~all~~Island ofResort ~~the~~Tours ~~net~~(“IRT”), ~~deferred~~a ~~tax~~smaller ~~asset~~domestic ~~will~~vacation ~~not be realized. Due to cumulative net~~provider; ~~losses~~International ~~incurred~~Travel by& ~~the~~Resorts ~~Company~~(“ITR”), ~~the~~a ~~Company~~hotel ~~has~~representation ~~provided~~company; ~~for~~and ~~a valuation~~the ~~allowance~~private tolabel ~~fully~~vacation ~~reserve~~fulfillment ~~its~~operations ~~deferred~~for ~~tax~~Amtrak ~~assets~~Vacations and Hyatt Vacations.

~~Long-lived~~Risks ~~Assets~~and Other Important Factors

The ~~Company~~tragic ~~reviews~~events ~~its~~of ~~long-lived assets~~September 11, ~~including~~2001 ~~property~~had a significant and material ~~equipment,~~adverse ~~identifiable~~impact ~~intangibles,~~upon the travel and ~~goodwill~~hospitality ~~whenever~~industries. These events orhave adversely ~~changes~~impacted inthe Company and have created greater uncertainty with ~~circumstances~~respect ~~indicate~~to the predictability of the Company’s future operating results. The disruption in travel that resulted from the ~~carrying~~terrorist ~~amount~~attacks led to significant cancellations of existing bookings resulting in lower revenues and the ~~assets~~continuing ~~may~~concern ~~not~~about bepossible ~~fully~~additional terrorist attacks has resulted ~~recoverable.~~in Toa ~~determine~~significant ~~recoverability~~slowdown ofin ~~its~~advanced ~~long-lived~~booking ~~assets~~patterns for future travel. In response, the Company has taken certain actions to reduce operating costs and ~~evaluates~~secure additional financing. In September 2001, the ~~probability~~Company ~~that~~reduced ~~future~~its workforce ~~undiscounted~~by ~~net~~220 ~~cash~~employees ~~flows~~or ~~will~~approximately be30 percent ~~less~~and implemented other ~~than~~cost ~~the~~reduction ~~carrying~~measures ~~amount~~(see ofNote 6). In November 2001, the ~~assets~~Company secured approximately $24.25 million Ifin ~~future~~financing ~~estimated~~from ~~undiscounted~~an ~~net~~entity formed and controlled ~~cash~~by ~~flows~~the ~~are~~Company’s ~~more~~principal ~~likely~~note ~~than~~holder ~~not~~and toprincipal beshareholder ~~less~~in ~~than~~connection with a plan by that entity to take the ~~carrying~~Company ~~value~~private (see Note 7). This financing is in the form of notes payable (the ~~long-lived~~ ~~assets~~“Notes”), ~~then~~which ~~such~~require ~~assets~~the Company ~~are~~to ~~written~~meet ~~down~~certain tocovenants ~~their~~and ~~fair~~other ~~value.~~restrictions and is governed by a ~~Management~~note ~~believes~~purchase ~~that~~agreement ~~its~~(the ~~long-lived~~“Note ~~assets~~Purchase asAgreement”). ofAmong ~~June 30~~other covenants and restrictions, ~~2001~~the ~~are~~Notes require the Company to become privately held by ~~recoverable~~October 2002 and to maintain certain customer booking levels. ~~The~~If the Company’s does ~~estimates~~not ofcomply ~~anticipated~~with ~~net~~these ~~revenues~~covenants, ~~gross profits,~~ the ~~remaining~~lenders ~~estimated~~may ~~lives~~demand payment of ~~tangible~~amounts then ~~and~~outstanding ~~intangible~~under ~~assets~~the Notes. Additionally, orshould another terrorist ~~both~~attack occur, ~~could~~as bedefined ~~reduced~~by ~~significantly~~the inNote ~~the~~Purchase ~~future~~Agreement, ~~due~~prior to ~~changes~~the inCompany ~~technology,~~borrowing ~~regulation~~the full $24.25 million, orthe ~~competitive~~Company ~~pressures~~may inbe ~~any~~precluded offrom further borrowings under the ~~Company’s individual~~Note ~~operating~~Purchase ~~brands~~Agreement. AsManagement abelieves ~~result,~~that the reductions ~~carrying~~in ~~amount~~operating ofcosts ~~long-lived~~together with the additional financing will allow ~~assets~~the ~~and~~Company ~~intangibles~~to ~~including~~sustain ~~goodwill~~operations ~~could~~through at least March 2003. However, there can be ~~materially~~no ~~reduced~~assurance inthat the Company will not require additional capital in ~~future~~2002 or will be able to comply with the terms of the Notes.

~~Net~~ The ~~Income~~Company ~~(Loss)~~receives ~~per~~advance ~~Share~~payments and deposits prior to commencement of travel. Accordingly, the Company’s current liabilities exceed its current assets. As of September 30, 2001, current liabilities exceed current assets by approximately $47.5 million. If the float generated by these advance payments were to shrink, and the Company was required to find an alternative source of capital, one may not be available at terms acceptable to the Company. Such event could have a material adverse effect on the business, financial condition and results of operations of the Company.

~~Basic income (loss) per share is computed by dividing net income or loss~~6 ~~available to common shareholders by the weighted average number of common~~ ~~shares outstanding for the period. Diluted income (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.~~

TheTable treasury stock effect of options to purchase 1,290,970 shares of common stock outstanding at June 30, 2001 is zero for purposes of computing diluted income per share for the three months ended June 30, 2001. The treasury stock effect of options to purchase 1,290,970 and 1,346,311 shares of common stock outstanding at June 30, 2001 and 2000, respectively, has not been included in the computations of diluted loss per share for the six months ended June 30, 2001 and the three and six months ended June 30, 2000, as such effect would be anti-dilutive. The effect of the convertible notes has not been included in the computation of diluted income (loss) per share for the three and six months ended June 30, 2001 and June 30, 2000, as such effect would also be anti-dilutive. Contents

~~New~~ The ~~Accounting~~financial ~~Standards~~statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has been advised by its independent public accountants that if the Company cannot achieve sufficient customer booking levels to maintain debt compliance, sustain its customer deposits and related cash flows, or the Company has not restructured itself as a privately held entity prior to the completion of their audit of the Company’s financial statements for the year ending December 31, 2001, their auditors’ report on those financial statements will be modified to reflect this potential going concern contingency.

In The ~~June 1998,~~Company’s ~~the~~operations ~~Financial~~are ~~Accounting~~subject ~~Standards~~to ~~Board~~certain ~~(“FASB”)~~risks ~~issued SFAS~~and ~~No. 133~~uncertainties, including, ~~“Accounting~~among ~~for~~others, ~~Derivative~~domestic ~~Instruments~~ and ~~Hedging~~international ~~Activities.” SFAS~~political ~~No. 133 establishes accounting~~ and ~~reporting standards requiring that~~economic ~~every~~conditions ~~derivative~~impacting ~~instrument~~travel ~~(including~~patterns, ~~certain~~current ~~derivative~~and ~~instruments~~potential ~~embedded~~competitors with ingreater ~~other~~resources, ~~contracts)~~dependence beon ~~recorded~~effective ininformation ~~the~~systems, ~~balance sheet as either an asset or~~changing ~~liability~~industry ~~measured~~dynamics atrelated ~~its~~to ~~fair~~new ~~value.~~methods ~~SFAS~~of ~~No. 133~~distribution ~~requires~~within ~~that~~the ~~changes in~~travel ~~the~~industry, ~~derivative’s~~industry ~~fair~~consolidations, ~~value~~seasonal befluctuations ~~recognized currently~~ in ~~earnings~~operating ~~unless specific~~results, ~~hedge~~dependence ~~accounting~~on ~~criteria~~rapidly ~~are~~changing ~~met.~~technologies, ~~The~~reliance ~~Company~~on ~~adopted~~key ~~SFAS No. 133 for the fiscal year beginning January 1~~personnel, ~~2001~~ and dependence ~~noted no material impact~~ on ~~the Company’s~~travel ~~financial position, or the results of operations~~suppliers.

~~In June 2001, the FASB approved SFAS No~~2. ~~141,~~ ~~“Business~~Summary ~~Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling~~ of ~~interest~~Significant ~~method~~Accounting ~~of accounting for~~Policies ~~business combinations initiated after June 30, 2001. SFAS No. 142 requires~~ ~~companies to cease amortizing goodwill that existed at June 30, 2001. Any~~ goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would

7 The preparation of financial statements in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results including the Company’s ability to collect accounts receivable could differ from those estimates.

~~reduce~~ The ~~the~~quarterly ~~fair~~condensed ~~value~~consolidated offinancial astatements ~~reporting~~included ~~unit~~herein have ~~below~~been ~~its~~prepared ~~carrying~~by ~~value.~~the ~~The~~Company, without audit, pursuant to the rules and ~~adoption~~regulations of ~~SFAS~~the ~~No. 142~~Securities ~~will~~and ~~result~~Exchange Commission (“SEC”) and include, in the opinion of the Company’s, ~~discontinuation~~all adjustments, consisting of normal and recurring ~~amortization~~adjustments, necessary for a fair presentation of ~~its~~interim ~~goodwill;~~period ~~however,~~results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the ~~Company~~United ~~will~~States behave ~~required~~been condensed or omitted pursuant to ~~test~~such ~~its~~rules and ~~goodwill~~regulations. ~~for~~The ~~impairment~~Company ~~under~~believes that its disclosures are adequate to make the information ~~new~~presented ~~standard~~not ~~beginning~~misleading. These condensed consolidated financial statements should be read in conjunction with the ~~first~~Consolidated ~~quarter~~Financial ~~2002,~~Statements ~~which~~and ~~could~~related ~~have~~Notes anthereto ~~adverse~~included ~~effect~~in on the Company’s ~~future~~2000 Form 10-K. The results of operations iffor anthe ~~impairment~~three ~~occurs~~and nine month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year.

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

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

3 Net revenues include commissions and markups on travel products and services, volume bonuses received from travel suppliers, cancellation fees and other ancillary fees such as travel waiver and insurance products. ~~Commitments~~ Net revenues are generally recognized upon the commencement of travel. For the nine months ended September 30, 2001 and ~~Contingencies~~2000, the Company had net revenues of $84.0 million and $104.4 million, respectively, derived from total dollar value of travel products and services of $374.6 million and $464.8 million, respectively.

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

The Company isaccounts afor ~~party~~income totaxes anin ~~agreement~~accordance ~~whereby~~with itStatement isof Financial ~~obligated~~Accounting toStandard ~~fund~~(“SFAS”) aNo. 109, “Accounting for Income Taxes.” ~~portion~~Under ofSFAS ~~the~~No. 109, ~~future~~deferred ~~costs~~tax ofassets aand ~~reward~~liabilities ~~points~~are ~~fulfillment~~computed ~~program~~based ~~under~~on ~~certain~~the ~~conditions.~~difference ~~The~~between ~~Company~~the ~~has~~financial ~~recorded~~statement aand ~~liability~~income intax ~~the~~bases ~~accompanying~~of assets ~~condensed~~and ~~consolidated~~liabilities ~~financial~~using ~~statements~~the ~~for~~enacted ~~its~~marginal ~~estimated~~tax ~~share~~rate. ofSFAS ~~the~~No. 109 ~~cost~~requires that toa ~~fulfill~~net ~~points~~deferred ~~earned~~tax toasset ~~date,~~be ~~but~~reduced ~~not~~by ~~yet~~a ~~redeemed~~valuation allowance if, based ~~upon~~on ~~managements’~~the ~~estimate~~weight of ~~future~~available ~~costs.~~evidence, Ifit ~~actual~~is ~~future~~more ~~costs~~likely ~~per~~than ~~point~~not ~~fulfilled,~~that some portion or all of the ~~total~~ ~~points~~net ~~redeemed~~deferred ~~vary,~~tax ~~the~~asset ~~Company’s~~will ~~actual~~not ~~liability~~be ~~may~~realized. ~~differ~~Due to cumulative net ~~materially~~losses ~~from~~incurred by the ~~amount~~Company, ~~recorded~~the inCompany ~~the~~has ~~accompanying~~provided ~~condensed~~for ~~consolidated~~a valuation ~~financial~~allowance ~~statements~~to fully reserve its deferred tax assets.

~~4. Convertible Debt~~7

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

Interest is payable quarterly. To date the Company has elected to make interest payments required under the Note in the form of additional convertible notes that matured on July 2, 2001 with $2.0 million outstanding at June 30, 2001. On July 2, 2001 the Company satisfied the maturity of these shortLong-~~term notes~~lived ~~as well as additional accrued interest by issuing a convertible note for~~Assets ~~$2.6 million with terms identical to the Note. Through August 1, 2003 the~~ ~~Company can elect to pay quarterly interest due in either cash, additional~~ ~~notes with the same terms as the Note, or common stock.~~

5 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. ~~Bank~~ ~~Credit~~To ~~Facilities~~determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets. As part of the $8.0 million restructuring and impairment charge incurred during the nine months ended September 30, 2001, the Company recognized an impairment charge of approximately $6.3 million against long-lived assets. After taking into account the restructuring and impairment charge, management believes that its long-lived assets are recoverable.

In The ~~March 2001 the~~ Company’s ~~entered~~estimates ~~into~~of aanticipated ~~bank~~net ~~credit~~revenues, ~~facility~~gross ~~for~~profits, the ~~purpose~~remaining ofestimated ~~securing~~lives ~~standby letters~~ of ~~credit~~tangible ~~with~~and aintangible ~~total~~assets, ~~capacity~~or ofboth, ~~$5.0~~could be ~~million,~~reduced ~~“the~~significantly LCin ~~Facility.”~~the ~~The~~future LCdue ~~Facility~~to ~~does~~changes ~~not~~in ~~allow~~technology, ~~for~~domestic ~~cash~~and ~~borrowings.~~international ~~The~~events LCimpacting ~~Facility~~travel, ~~which~~regulation, ~~expires~~or oncompetitive ~~May 1,~~pressures ~~2004~~in any isof ~~secured~~the byCompany’s ~~a certificate~~individual ofoperating ~~deposit~~brands, inor ~~the~~its ~~amount~~ability ofto $5continue as a going concern.~~2 million.~~ AtAs ~~June 30~~a result, ~~2001~~the ~~there were~~carrying ~~$3.5 million~~amount of ~~standby~~long-lived ~~letters~~assets ofand intangibles ~~credit~~including ~~outstanding~~goodwill ~~under~~could ~~the~~be ~~LC Facility~~materially ~~with~~reduced ~~$1.5 million~~in ~~available~~the future.

AtNet ~~June 30,~~Income ~~2001~~(Loss) ~~the~~per ~~Company also maintained a revolving line of credit~~Share ~~with a group of lenders that had been used to secure standby letters of credit~~ ~~and to fund certain acquisitions made by the Company in 1998 and 1999. At June~~ 30, 2001 the Company had $1.1 million of standby letters of credit outstanding under this line of credit. The Company was required to maintain cash collateral equal to 103% of the outstanding balance of letters of credit at June 30, 2001. Subsequent to June 30, 2001 the line of credit was terminated. The remaining outstanding standby letters of credit issued by one of the lenders involved in the facility totaling $657,000 were collateralized by a standby letter of credit issued under the Company’s LC Facility.

6 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. ~~Restructuring~~ 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.

In The ~~July 2000~~treasury ~~the~~stock ~~Company~~effect ~~initiated a restructuring and consolidation~~ of ~~its~~ ~~Vacations~~options byto ~~Globetrotters~~purchase ~~(“Globetrotters”)~~1,472,220 ~~branded~~and ~~operations into its~~1,038,792 ~~Classic~~shares ~~brand.~~of Ascommon ~~part~~stock ofoutstanding ~~this~~at ~~consolidation~~September 30, ~~the~~2001 ~~Company~~and ~~migrated its~~2000, ~~Globetrotters~~respectively, ~~branded~~has ~~products~~not tobeen ~~the~~included ~~Classic~~in ~~technology platform. Additionally,~~ the ~~Company~~computations ~~closed~~of ~~its~~diluted ~~Washington,~~loss ~~D.C. headquarters office. The~~per ~~consolidation~~share offor the ~~brands~~three ~~were~~and ~~substantially~~nine ~~complete~~months atended ~~December~~September 3130, ~~2000. In May~~ 2001 ~~the~~and ~~Company~~2000, ~~announced~~as ~~the~~such effect ~~departure~~would ofbe ~~certain~~anti-dilutive. ~~members~~The effect of ~~its Allied~~the ~~Tours~~convertible ~~management~~notes ~~team~~has ~~and~~also not ~~terminated~~been ~~five~~included ~~additional~~in ~~employees.~~the Ascomputation ~~part~~ of ~~these~~diluted ~~separations,~~loss ~~which~~per ~~took~~share ~~place~~for ~~during~~ the three and nine months ended ~~June~~September 30, 2001 ~~the~~and ~~Company~~September 30, ~~recorded a restructuring charge of $642~~2000,~~000~~ ~~for~~as ~~severance~~such ~~and~~effect ~~related~~would ~~costs.~~also ~~Since~~be ~~the restructuring was announced a total of 123 employees~~anti-dilutive. ~~have been terminated as part of the Company’s restructuring~~

8New Accounting Standards

~~efforts.~~ In ~~The~~June ~~Company~~1998, ~~continues~~the toFinancial ~~review~~Accounting ~~its~~Standards ~~operations~~Board (“FASB”) issued SFAS No. 133, “Accounting for ~~opportunities~~Derivative toInstruments and Hedging Activities.” ~~further~~SFAS ~~reduce~~No. 133 ~~costs~~establishes accounting and ~~create~~reporting ~~additional~~standards ~~efficiencies.~~requiring Asthat every aderivative ~~result,~~instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or ~~Company~~liability ~~may~~measured ~~incur~~at ~~additional~~its ~~restructuring~~fair ~~charges~~value. SFAS No. 133 requires that changes in the ~~future~~derivative’s ~~periods~~fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The adoption of SFAS No. 133 for the fiscal year beginning January 1, 2001 did not have a material impact on the Company’s financial position, or the results of operations.

As In ~~part~~June of2001, the ~~restructuring~~FASB approved SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the ~~Company~~pooling isof ~~required~~interest tomethod ~~make~~of ~~additional~~accounting for ~~severance~~business ~~payments~~combinations initiated after June 30, 2001. SFAS No. 142 requires companies to ~~certain~~cease ~~separated~~amortizing ~~employees~~goodwill asthat ~~well~~existed asat ~~fund~~June 30, ~~certain~~2001. Any ~~continuing~~goodwill ~~lease~~resulting ~~obligations~~from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment ~~office~~on ~~space~~an noannual ~~longer~~basis inor ~~use~~on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The ~~following~~adoption of SFAS No. 142 will result in the Company’s ~~summarizes~~discontinuation ~~accrued~~of ~~restructuring~~amortization ~~costs~~of ~~and~~its ~~cash~~goodwill; ~~payments~~however, the Company will be required to test its goodwill for impairment under the ~~six~~new ~~months~~standard beginning ~~ended~~in ~~June 30~~the first quarter 2002, ~~2001~~which ~~(in~~could ~~thousands):~~have an adverse effect on the Company’s future results of operations if an impairment occurs. The Company has not completed an evaluation of the Company’s goodwill under the impairment guidelines of SFAS No. 142.

	Employee				Lease obligations and
	termination costs				other restructuring costs				Total
Accrued restructuring costs, December 31, 2000		$	1,502			$	778			$	2,280
Additional charges accrued			642				—				642
Cash payments			(1,026	)			(283	)			(1,309)
Accrued restructuring costs, June 30, 2001		$	1,118			$	495			$	1,613

Reclassifications

~~7. Payment~~ Certain ofreclassifications ~~Deferred~~have ~~Acquisition~~been ~~Consideration~~made in the 2000 financial statements to conform to the 2001 presentation.

~~As part of the Company’s acquisition of Island Resort Tours in 1999, the Company committed to pay to the sellers additional acquisition consideration of up to $1.~~8 ~~million in the event that certain financial targets were achieved~~ ~~during the first two calendar years following the acquisition. The targets~~ ~~were achieved and the maximum $1.8 million was paid to the sellers in April~~ ~~2001.~~

9 Table of Contents

~~ITEM 2~~3. Commitments and Contingencies

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

~~FORWARD-LOOKING~~ The ~~INFORMATION~~Company is a party to an agreement whereby it is obligated to fund a portion of the future costs of a reward points fulfillment program under certain conditions. The Company has recorded a liability in the accompanying condensed consolidated financial statements for its estimated share of the cost to fulfill points earned to date, but not yet redeemed, based upon managements’ estimate of future costs. If actual future costs per point fulfilled, or the total points redeemed vary, the Company’s actual liability may differ materially from the amount recorded in the accompanying condensed consolidated financial statements.

~~The matters discussed in this Form 10-Q include forward-looking statements that involve risks or uncertainties~~4. ~~While~~Subordinated ~~forward-looking~~Convertible ~~statements are~~Debt ~~sometimes presented with numerical specificity, they are based on various~~ ~~assumptions made by management regarding future circumstances, over many of~~ which the Company has little or no control. A number of important factors, including those identified under the caption “Risk Factors” in the Company’s 2000 Form 10-K, as well as factors discussed elsewhere in this Form 10-Q, could cause the Company’s actual results to differ materially from those in forward-looking statements or financial information. Actual results may differ from forward-looking results for a number of reasons, including the following: (i) changes in general economic conditions and other factors that affect demand for travel products or services; (ii) changes in the vacation travel industry; (iii) changes in the Company’s relationships with travel suppliers; (iv) competitive factors (including changes in travel distribution methods); and (v) the success of the Company’s operating, integration and growth strategies. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

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

~~Classic~~ Interest ~~Vacation~~is ~~Group,~~payable ~~Inc~~quarterly., ~~and~~To ~~subsidiaries,~~date ~~(formerly~~the ~~Global~~Company ~~Vacation~~has elected to make ~~Group,~~interest ~~Inc.),~~payments (required under the ~~“Company”)~~9% ~~assembles~~Note ~~air,~~in ~~hotel~~the form of additional convertible notes (together with the 9% Note, ~~rental~~the ~~car~~“9% ~~and~~Notes”) ~~other~~with ~~travel~~$2.6 million ~~components~~outstanding inat ~~bulk~~September 30, ~~and~~2001. ~~provides~~On ~~complete~~October 1, ~~vacations~~2001 tothe ~~travelers~~Company ~~primarily~~issued an ~~through~~additional ~~other~~note ~~resellers~~to ofsatisfy ~~travel~~interest ~~including~~payable ~~retail~~for ~~travel~~the ~~agents~~three ~~and~~months ended ~~international~~September 30, ~~tour~~2001 ~~wholesalers~~of $676,000. ~~The~~Through ~~Company~~August 1, ~~markets~~2003 ~~vacation~~the ~~packages~~Company ~~for travelers~~can elect to ~~resort~~pay ~~destinations~~quarterly ~~including~~interest ~~Hawaii,~~due ~~the~~in ~~Caribbean~~either ~~Islands~~cash, ~~Mexico~~ ~~and~~additional ~~Europe~~notes aswith ~~well~~terms identical asto ~~various~~the ~~continental~~9% ~~North~~Notes, ~~American~~or ~~destinations~~common stock.

~~The~~ Subsequent ~~Company~~to ~~markets~~September 30, ~~its~~2001 ~~products~~the ~~and~~Company ~~services~~entered ~~under~~into ~~multiple~~a ~~brands~~financing ~~including~~agreement ~~Classic~~with ~~Custom~~an ~~Vacations~~affiliate ~~(“Classic”),~~of ~~which~~the ~~markets~~primary ~~customized vacation~~holder ~~packages~~of ~~having~~the ~~preferred~~9% ~~agreements~~Notes ~~with~~(See ~~the~~Note ~~largest~~7). In ~~leisure~~connection ~~travel agency~~with ~~groups~~that infinancing, the ~~U.S~~holders ~~and~~of ~~Allied~~the ~~Tours~~9% ~~(“Allied”),~~Notes ~~which~~agreed ~~creates~~to ~~and~~a ~~coordinates~~modification ~~packages~~ and ~~tours~~waiver ~~for~~of ~~international~~certain ~~travel~~financial ~~wholesalers~~covenants ~~selling vacations~~under ~~to North America. Additionally,~~ the ~~Company’s~~9% ~~private label brands~~Notes ~~provide~~through ~~outsourced~~March ~~vacation~~2003. ~~packaging~~However, ~~for~~if ~~both~~the ~~Amtrak Vacations and Hyatt Vacations. The~~ Company’s ~~Island~~were ~~Resort~~to ~~Tours~~default ~~brand~~on ~~markets~~the ~~vacation packages~~notes ~~principally~~involved towith the ~~Caribbean~~new ~~and~~financing, issuch ~~operated~~event ~~together~~would ~~with~~also ~~International~~result ~~Travel &~~in ~~Resorts,~~ a ~~hotel~~default under ~~representation~~the ~~company~~9% ~~for~~Notes. ~~properties~~Likewise, ~~also~~a ~~primarily~~default ~~located in~~under the ~~Caribbean~~9% ~~(collectively~~Notes ~~“Island”).~~would ~~The~~result ~~Company~~in ~~also provides affinity~~a ~~group~~default ~~marketing~~under ~~and~~the ~~awards~~new ~~program fulfillment services~~financing.

~~Sources~~5. ofBank ~~Revenue~~Credit Facilities

~~Net~~ In ~~revenues~~March ~~include~~2001 ~~commissions~~the ~~and~~Company ~~markups~~entered oninto ~~travel~~a ~~products~~bank ~~and services,~~credit ~~volume~~facility ~~bonuses~~for ~~received~~the purpose ~~from~~of ~~travel~~securing ~~suppliers,~~standby ~~cancellation~~letters ~~fees~~of ~~and other~~credit ~~ancillary~~with ~~fees~~a ~~such~~total ascapacity ~~travel~~of ~~waiver~~$5.0 million ~~products~~(“the ~~and~~LC ~~are~~Facility”). ~~generally recognized~~The ~~upon~~LC ~~the~~Facility ~~commencement~~does ofnot ~~travel~~allow for cash borrowings. ~~For~~The ~~the~~LC ~~six~~Facility, ~~months~~which ~~ended~~expires ~~June~~on May 301, ~~2001~~ ~~and~~2004 ~~2000,~~is ~~the~~secured ~~Company~~by ~~had~~a certificate ~~net~~of ~~revenues~~deposit in the amount of $535.62 million. ~~and~~At ~~$63.7~~September ~~million~~30, 2001 ~~respectively,~~there ~~derived~~were ~~from~~approximately ~~total~~$4.1 million ~~dollar~~of ~~values~~standby letters of ~~travel~~credit ~~products~~outstanding under ~~and~~the ~~services of~~LC ~~$238.1 million~~Facility ~~and~~with $~~283.0 million~~922,000 ~~respectively~~available.

~~Expenses~~ At September 30, 2001 the Company also had $502,000 of additional standby letters of credit outstanding from a different financial institution. These letters of credit are secured a standby letter of credit issued under the Company’s LC Facility.

~~Operating expenses include travel agent commissions, salaries, credit card~~9 ~~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.

InterestTable Income of Contents

~~The Company derives a significant portion of its pre-tax results from interest earned on funds related to customer deposits and prepayments for vacation products~~6. ~~Generally,~~Restructuring the Company requires a deposit within one week of making a travel reservation. Reservations are typically made two to four months prior to departure. Additionally, for packaged tours, the Company generally requires that the entire cost of the vacation be paid in full 45 to 60 days before departure, unless reservations are made closer to departure. While terms vary, the Company generally pays for the vacation components after the customer’s departure. In the period between receipt of a deposit or prepayment and ~~the~~Impairment ~~payment of related expenses, these funds are invested in cash and~~Charges ~~investment-grade securities. This cycle is typical in the packaged tour~~ ~~industry and earnings generated on deposits and prepayments are integral~~

10 In July 2000 the Company initiated a restructuring and consolidation of its Vacations by Globetrotters (“Globetrotters”) branded operations into its Classic brand. As part of this consolidation, the Company migrated its Globetrotters branded products to the Classic technology platform. Additionally, the Company closed its Washington, D.C. headquarters office. The consolidation of the brands were substantially complete at December 31, 2000. In May 2001 the Company announced additional staff reductions as well as the departure of certain members of its Allied Tours management team. Following the terrorist attacks in September 2001 the Company made additional staff reductions, closed its Classic Chicago reservations center, and reviewed the carrying values of its long-lived assets. The restructuring and impairment charges for the nine months ended September 30, 2001 include approximately $6.3 million related to the impairment of goodwill, $935,000 related to employee severance payments including benefits, and $739,000 related to lease obligations and other restructuring costs. Since the restructuring was initially announced last year a total of 353 employees have been terminated as part of the Company’s restructuring efforts. Included in this number are 237 employees terminated in the nine months ended September 30, 2001, and 220 employees or approximately 30% of the then workforce who were terminated after September 11, 2001. The Company continues to review its operations for opportunities to further reduce costs and create additional efficiencies. As a result, the Company may incur additional restructuring charges in future periods.

to As part of the ~~Company’s~~restructuring ~~operating~~the ~~model~~Company ~~and~~has ~~pricing~~been ~~strategies.~~required ~~The~~to ~~Company’s~~make ~~investment~~additional ~~policy~~severance ispayments to ~~only~~certain ~~invest~~separated ~~funds~~employees inas ~~cash~~well ~~equivalents~~as ~~and investment~~fund ~~grade~~certain ~~securities.~~continuing ~~For~~lease ~~the~~obligations ~~six~~for ~~months~~office ~~ended~~space ~~June 30,~~no ~~2001~~longer ~~and~~in ~~2000,~~use. ~~the Company~~The ~~had~~following ~~interest~~summarizes ~~income~~accrued ofrestructuring ~~$873,000~~costs ~~(1.6%~~and ofcash ~~net~~payments ~~revenues)~~for ~~and~~the ~~$1.4 million (2.1%~~nine ofmonths ~~net~~ended ~~revenues)~~September 30, ~~respectively.~~2001 (in thousands):

Restructuring and Consolidation


				Lease obligations and
	Employee			other restructuring
	termination costs			costs			Total

Accrued restructuring costs, December 31, 2000	$	1,502		$	778		$	2,280









Additional charges accrued		935			739			1,674









Cash payments		(1,635	)		(410	)		(2,045	)









Accrued restructuring costs, September 30, 2001	$	802		$	1,107		$	1,909

In As ~~May 2001~~part of the ~~Company~~restructuring, ~~announced~~ the ~~hiring~~Company ofreviewed athe ~~new~~carrying ~~chief~~values ~~executive~~of ~~officer~~its ~~for~~long-lived ~~its~~assets, ~~Allied~~including ~~Tours~~property, ~~brand~~equipment, and ~~the~~goodwill ~~departure~~related ~~of certain executives of~~to its ~~Allied~~IRT ~~Tours~~and ~~brand.~~ITR Insubsidiaries ~~accordance~~(collectively ~~with~~“Island”), ~~certain~~which ~~employment~~operate ~~agreements~~from ~~the~~New ~~Company~~York isCity. ~~obligated~~Island towas ~~make~~particularly ~~severance~~hard ~~payments~~hit toby the ~~former~~tragedies ~~executives.~~of September 11 ~~During~~and ~~the~~experienced ~~second~~a ~~quarter~~significant ofdrop ~~2001~~in ~~the~~business. ~~Company~~The ~~also~~impact ~~increased~~led the ~~scope~~Company ~~of the~~to ~~restructuring~~reassess of its ~~Chicago~~long-term ~~operations~~strategy bywith ~~terminating~~regard ~~five~~to ~~additional employees.~~Island ~~During~~and review the recoverability ~~three~~of ~~months~~the ~~ended~~long-lived ~~June 30,~~assets ~~2001~~related to the ~~Company~~Island ~~recorded~~business. aTo ~~restructuring~~determine ~~charge~~the recoverability of ~~$642,000~~its ~~reflecting~~long-lived ~~its~~assets ~~severance~~the ~~obligations~~Company ~~incurred during~~evaluates the probability ~~quarter.~~that Asfuture ofundiscounted ~~June 30,~~cash ~~2001~~flows awill ~~total~~be ofless ~~123~~than ~~employees~~the ~~have been~~carrying ~~terminated~~amount ~~as part~~ of the ~~Company’s ongoing restructuring~~assets. The ~~Company continues~~fair tovalue ~~make~~of ~~severance~~the ~~payments~~long-lived toassets ~~certain~~including goodwill ~~separated~~was ~~employees. Additionally,~~determined based upon the ~~Company~~discounted iscash ~~required~~flows to ~~fund~~be ~~certain~~derived ~~continuing lease~~from ~~obligations~~the ~~for~~Island ~~office~~business. ~~space~~Management nobelieves ~~longer~~that inthe ~~use.~~future ~~The~~cash ~~Company~~flows ~~continues to review~~from ~~its~~Island ~~operations~~will ~~for~~be ~~opportunities~~limited, toand ~~further~~as ~~reduce~~such ~~costs~~recorded ~~and~~an ~~create~~impairment ~~additional~~charge of ~~efficiencies~~approximately $6.3 million Asrepresenting aapproximately ~~result,~~95% of the ~~Company may incur additional restructuring~~remaining ~~charges~~goodwill inrelated ~~future~~to ~~periods~~Island.

~~Results~~7. ofSubsequent ~~Operations~~Event ~~(unaudited)~~– November 2001 Financing

In November 2001 the Company entered into a financing agreement with an entity formed and controlled by its principal note holder and its principal shareholder to provide a cash infusion of up to $24.25 million through the sale of convertible notes and other notes exchangeable for convertible notes. This financing became necessary as a result of the impact on the Company of the September 11 terrorist attacks. At the initial closing the Company sold $5.0 million of 71/2% convertible senior subordinated notes and $5.0 million of 71/2% exchangeable senior subordinated notes (collectively, the “71/2% Notes”). The ~~following~~71/2% ~~table~~Notes ~~summarizes~~are senior to the 9% Notes (described in Note 4). The convertible notes are convertible into the Company’s ~~historical~~common ~~results~~stock ofat $0.15 ~~operations~~per asshare aat ~~percentage~~the option of ~~net~~the ~~revenues~~holder at any time after March 31, 2002. The exchangeable notes are exchangeable for convertible notes after the ~~six~~Company’s shareholders ~~months~~approve ~~ended~~an ~~June~~increase in the Company’s authorized capital to at least 200 30million shares. The Company’s majority shareholder, a party to the ~~2001~~agreement, ~~and~~has ~~2000.~~committed to vote in favor of the increase in

		Six Months Ended June 30,
		2001						2000
		Amount			%			Amount			%
Net revenues		$	53,626			100.0		$	63,746			100.0
Operating expenses			47,907			89.3			59,275			93.0
	Gross profit		5,719			10.7			4,471			7.0
General and administrative expenses			3,556			6.6			4,843			7.6
Depreciation and amortization			2,371			4.4			3,744			5.9
Restructuring charge			642			1.2			—			—
	Loss from operations		(850	)		(1.5	)		(4,116	)		(6.5	)
Interest income			873			1.6			1,350			2.1
Interest expense			(1,824	)		(3.4	)		(2,293	)		(3.6	)
Other			86			0.2			(1	)		—
Loss before income taxes			(1,715	)		(3.1	)		(5,060	)		(8.0	)
Income tax provision			(30	)		(0.1	)		—			—
Net loss		$	(1,745	)		(3.2	)	$	(5,060	)		(8.0	)

NetTable revenues for the six months ended June 30, 2001 and 2000, were $53.6 million and $63.7 million, respectively. The decrease in net revenues of 15.9% for the six months ended June 30, 2001 was principally due to restructuring of the Company’s Vacations by Globetrotters brand in which certain unprofitable products were discontinued. Revenue growth in certain emerging products (principally the Company’s Classic Caribbean and Classic Mexico products) offset most but not all of the effect of lower revenues in other more mature products (principally the Company’s Classic Hawaii and Allied’s inbound U.S. products) attributable to the slowing economy. Contents

~~Operating~~ ~~expenses~~authorized ~~for~~shares at the ~~six~~Company’s ~~months~~next ~~ended~~scheduled ~~June 30,~~shareholders ~~2001~~meeting assuring ~~and~~the ~~2000,~~increase ~~were $47.9 million~~in ~~and~~authorized ~~$59~~capital.~~3 million,~~ ~~respectively,~~Subject orto ~~89.3%~~certain ~~and~~conditions ~~93.0%,~~the ~~respectively,~~Company ofhas ~~net~~an ~~revenues~~additional $14.25 million ~~The~~available ~~decrease~~for inborrowing ~~operating~~through ~~expenses as a~~April ~~percentage~~30, of2002 ~~net~~under ~~revenues~~the ~~and~~financing ~~corresponding~~agreement ~~improvement~~ in ~~gross profit margin is primarily attributable to cost reductions and~~ the ~~elimination~~form of ~~certain~~additional exchangeable ~~unprofitable~~notes. ~~products~~The ~~resulting~~7 1/2% ~~from~~Notes ~~the~~mature ~~Company’s~~on ~~restructuring~~December 31, 2006. ~~The~~Interest ~~overall~~is payable ~~reduction~~quarterly inbeginning ~~operating~~March 1, ~~expenses~~2002, isand ~~also~~until ~~attributable~~June 1, to2003 ~~reductions~~can be paid in ~~certain~~the ~~variable~~form ~~operating expenses as a result~~ of ~~lower~~additional ~~net~~7 1/2% ~~revenues~~Notes.

~~General~~ The 7 1/2% Notes are subject to certain covenants and ~~administrative~~conditions including ~~expenses~~a ~~for~~requirement that the ~~six~~Company ~~months~~become ~~ended~~privately ~~June 30,~~held ~~2001~~by October 2002. ~~and~~In ~~2000~~conjunction ~~were~~with ~~$3.6~~the financing the holders of the 7 ~~million~~1/2% ~~and~~Notes $4have committed to make a tender offer for all of the shares of the Company’s common stock that they do not own (the “Tender Offer”).8 If at least 50 ~~million,~~percent ~~respectively,~~of orthe shares ~~6.6%~~they ~~and~~do ~~7.6%~~not already own are tendered, the holders will be required to ~~respectively~~take the Company private, ofand ~~net~~pay ~~revenues~~the shareholders $0.15 ~~The~~per ~~decrease~~share in ~~general~~cash. The ~~and~~Tender ~~administrative expenses~~Offer ofwill 26not expire until at least December 31, 2001.6% isOn ~~primarily~~a ~~due~~fully diluted tobasis, ~~decreases~~assuming inthe ~~headcount~~maximum $24.25 million is borrowed and ~~outside~~assuming the ~~services~~exchangeable ~~related~~notes toare exchanged for convertible notes upon the ~~Company’s~~anticipated increase ~~restructuring~~in authorized capital, the holders of ~~its~~the ~~Globetrotters~~7 1/2% ~~brand~~Notes and their ~~closing~~affiliates ofwill ~~its~~effectively ~~Washington,~~control D97.C.7% ~~headquarters~~of ~~office~~the Company’s common stock.

11 The financing agreement contains a provision whereby if prior to December 31, 2001 the Company obtains an alternative financing proposal that the Company’s board of directors determines is more favorable to the Company, the Company may terminate all aspects of the financing arrangement by repaying any outstanding borrowings and reimbursing the holders for its out-of-pocket expenses related to the financing and the Tender Offer. The holders of the 7 1/2% Notes have agreed to tender the shares that they hold (currently 70.0% of the Company’s outstanding common stock) if the alternative financing proposal involves a tender offer for all of the Company’s common stock in an amount above $0.15 per share.

~~Depreciation~~ In ~~and~~addition ~~amortization~~to ~~for~~the requirement that the ~~six~~Company ~~months~~become ~~ended~~privately ~~June 30~~held by October 2002, ~~2001~~the ~~and~~Company’s access to make additional borrowings under the ~~2000~~agreement, ~~was~~and $its continued compliance with the 7 1/2% Notes are dependent upon certain financial covenants and other restrictions including a requirement that it maintain certain levels of advanced bookings.~~4 million~~ Additionally, the Company is allowed to make additional borrowings under the financing agreement only if the Company’s consolidated unrestricted cash net of outstanding checks and drafts falls below $3.7 million, orand ~~4.4%~~if ~~and~~the ~~5.9%,~~Company’s ~~respectively,~~chief offinancial ~~net~~officer ~~revenues.~~certifies ~~The~~that ~~decrease~~additional isborrowings ~~principally~~are ~~due~~necessary. toUnder the ~~effects~~terms of the ~~impairment~~ ~~charge~~agreement, ~~recorded~~if asadditional ~~part~~acts of terrorism were to occur, the Company’s ~~restructuring~~may ~~announced~~be precluded infrom ~~July 2000~~making additional borrowings.

~~The~~ In ~~restructuring~~connection ~~charge~~with ~~for~~this financing, the ~~six~~holders ~~months~~of ~~ended~~the ~~June~~Company’s 9% Notes agreed to the modification and waiver of certain financial covenants under the 9% Notes until March 2003. However, if the Company were to default on the 7 301/2% Notes, ~~2001~~such ~~was~~event would also result in a default under the 9% Notes. ~~$642~~Likewise,~~000~~ ~~and~~a ~~represented~~default ~~employee~~under ~~severance~~the ~~costs~~9% Notes would result in a default under the 7 1/2% Notes.

~~Interest income for the six months ended June 30, 2001 and 2000 was~~11 ~~$873,000 and $1.4 million, respectively, or 1.6% and 2.1%, respectively, of net~~ ~~revenues. The lower amount of interest income earned was due to lower levels of~~ ~~investable funds as a result of the reduction in customer deposits related to its discontinued products and lower interest rates.~~

InterestTable expense for the six months ended June 30, 2001 and 2000 was $1.8 million and $2.3 million, respectively. The decrease in interest expense for the six months ended June 30, 2001 is principally due to lower percentage borrowing costs compared to the prior year, together with lower levels of borrowings for the comparable periods. Contents

~~Other~~ITEM ~~income~~2. ~~for the six months ended June 30, 2001 was primarily related to foreign currency gains related to the Company~~Management’s ~~Classic~~Discussion ~~Europe~~and ~~product.~~Analysis ~~The Company~~of ~~does~~Financial ~~not~~Condition ~~specifically~~and ~~hedge~~Results ~~its~~of ~~foreign currency transactions.~~Operations

~~The~~ FORWARD-LOOKING ~~provision for income taxes for the six months ended June 30, 2001 was~~INFORMATION ~~$30,000 for estimated state income taxes attributable to the period. The~~ ~~benefit normally attributable to the loss before income taxes for the six~~ months ended June 30, 2001 and 2000 was offset by valuation allowances provided against the related deferred tax assets. The valuation allowances are a result of the Company’s recent history of significant operating losses.

~~Net~~ The ~~loss~~matters ~~for~~discussed ~~the~~in ~~six~~this ~~months~~Form 10-Q ~~ended~~include ~~June 30,~~forward-looking ~~2001~~statements that ~~and~~involve ~~2000~~risks ~~was~~or $1uncertainties.~~7 million~~ While forward-looking statements are ~~and~~sometimes ~~$5.1 million~~presented with numerical specificity, ~~respectively~~they are based on various assumptions made by management regarding future circumstances, orover ~~3.2%~~many ~~and~~of which 8the Company has little or no control.~~0%,~~ ~~respectively,~~A number of ~~net~~important factors, ~~revenues.~~including ~~The~~those ~~improvement~~identified isunder ~~principally~~the ~~related~~caption to“Risk ~~reductions~~Factors” in ~~operating~~the asCompany’s 2000 Form 10-K, as well as ~~general~~factors ~~and~~discussed ~~administrative~~elsewhere ~~expenses~~in asthis Form 10-Q, could cause the Company’s actual results to differ materially from those in forward-looking statements or financial information. Actual results may differ from forward-looking results for a ~~result~~number of reasons, including the following: (i) changes in general economic conditions and other factors that affect demand for travel products or services; (ii) changes in the vacation travel industry; (iii) changes in the Company’s relationships with travel suppliers; (iv) ~~restructuring~~competitive factors (including changes in travel distribution methods); and ~~consolidation~~(v) the success of the Company’s operating, integration and growth strategies. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.

~~The following table summarizes the Company’s historical results of~~Overview ~~operations as a percentage of net revenues for the three months ended June 30,~~ ~~2001 and 2000.~~

		Three Months Ended June 30,
		2001						2000
		Amount			%			Amount			%
Net revenues		$	29,161			100.0		$	36,394			100.0
Operating expenses			25,073			86.0			31,908			87.7
	Gross profit		4,088			14.0			4,486			12.3
General and administrative expenses			1,531			5.3			2,425			6.7
Depreciation and amortization			1,160			4.0			1,893			5.2
Restructuring charge			642			2.2			—			—
	Income from operations		755			2.5			168			0.4
Interest income			445			1.5			821			2.3
Interest expense			(881	)		(3.0	)		(1,145	)		(3.1	)
Other			66			0.2			11			—
Income (loss) before income taxes			385			1.2			(145	)		(0.4	)
Income tax provision			(30	)		(0.1	)		(2,018	)		(5.5	)
Net income (loss)		$	355			1.1		$	(2,163	)		(5.9	)

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

~~Net~~ The ~~revenues~~Company ~~for~~markets ~~the~~its ~~three~~products ~~months~~and ~~ended~~services ~~June 30,~~under ~~2001~~multiple ~~and~~brands including ~~2000,~~Classic ~~were~~Custom ~~$29.2 million~~Vacations ~~and $36.4 million~~(“Classic”), ~~respectively.~~which ~~The~~markets ~~decrease~~customized vacation inpackages ~~net~~having ~~revenues~~preferred ofagreements ~~19.9% for~~with the ~~three~~largest ~~months~~leisure ~~ended~~travel agency ~~June 30,~~groups ~~2001~~in ~~was~~the ~~due~~U.S toand ~~restructuring~~Allied ofTours ~~the Company’s~~(“Allied”), ~~Vacations~~which bycreates ~~Globetrotters~~and coordinates ~~brand~~packages inand ~~which~~tours ~~certain~~for ~~unprofitable products~~international ~~were~~travel ~~discontinued~~wholesalers ~~and~~selling vacations ~~due~~ to ~~the~~North ~~weakness~~America. inAdditionally, the ~~global~~Company’s ~~economy.~~private ~~The~~label brands ~~Company~~provide ~~has~~outsourced ~~continued~~vacation topackaging ~~experience~~for ~~revenue~~both ~~growth~~Amtrak inVacations ~~certain~~and ~~emerging products~~Hyatt ~~(principally~~Vacations. ~~the~~The Company’s ~~Classic~~Island ~~Caribbean~~Resort ~~and~~Tours ~~Classic~~brand ~~Mexico~~markets ~~products);~~vacation packages ~~however,~~principally to the ~~weakness~~Caribbean inand ~~the~~is ~~global~~operated ~~economy~~together ~~has~~with ~~led~~International toTravel & ~~lower~~Resorts, ~~revenues~~a inhotel ~~other~~representation company for properties also primarily located ~~more~~in ~~mature~~the ~~products~~Caribbean (~~principally~~collectively ~~the~~“Island”). The Company’s ~~Classic~~also ~~Hawaii~~provides affinity group marketing and ~~its~~awards ~~Allied Tours~~program ~~inbound~~fulfillment Uservices.~~S. products).~~

~~The~~Impact ~~Company’s net revenues generally are highest in the second and third quarters~~ of ~~the~~September 11 ~~year,~~Terrorist ~~while~~Attacks ~~its~~– ~~expenses,~~Restructuring ~~as a percentage of net revenues, generally are highest in the first~~ and ~~fourth~~Impairment ~~quarters.~~Charges

~~Operating~~ The ~~expenses~~tragic ~~for~~events ~~the~~of ~~three months ended June~~September 3011, 2001 ~~and~~had ~~2000,~~a ~~were~~significant and material ~~$25.1 million~~adverse impact upon the travel and ~~$31~~hospitality industries.~~9 million,~~ ~~respectively,~~These orevents ~~86.0%~~have adversely impacted the Company and ~~87.7%,~~have created greater uncertainty with ~~respectively,~~respect to the predictability of ~~net~~the ~~revenues~~Company’s future operating results. The disruption ~~decrease~~ in ~~operating~~travel ~~expenses~~that asresulted afrom the terrorist attacks led to ~~percentage~~significant cancellations of ~~net~~existing bookings resulting in lower revenues and the continuing concern about possible additional terrorist attacks has resulted in a significant slowdown in advanced booking patterns for future travel. In response, the Company has taken certain actions to reduce operating costs and secure additional financing. In September 2001, the Company reduced its workforce by 220 employees or approximately 30 percent and implemented other cost reduction measures.

12 Principally as a result of the effects of September 11, the Company recorded restructuring and impairment charges of $7.4 million for the three months ended September 30, 2001 including an impairment charge for goodwill related to Island of approximately $6.3 million, $293,000 for severance related to reductions in staff, and $739,000 for lease costs and other restructuring charges related to the closure of Classic’s Chicago reservations center.

~~corresponding improvement in gross profit margin is primarily attributable to~~12 ~~cost reductions and the elimination of certain unprofitable products resulting~~ ~~from the Company’s restructuring. The overall reduction in operating expenses~~ ~~is also attributable to reductions in certain variable operating expenses as a result of lower net revenues.~~

GeneralTable and administrative expenses for the three months ended June 30, 2001 and 2000 were $1.5 million and $2.4 million, respectively, or 5.3% and 6.7%, respectively, of net revenues. The decrease in general and administrative expenses of 36.9% is primarily due to decreases in headcount and outside services related to the Company’s restructuring of its Globetrotters brand and closing of its Washington, D.C. headquarters office. Contents

~~Depreciation~~ As ~~and~~part ~~amortization~~of ~~for~~the restructuring, the ~~three~~Company ~~months~~reviewed ~~ended~~the ~~June 30~~carrying values of its long-lived assets, ~~2001~~including property, equipment, and goodwill related to ~~2000~~Island, ~~was~~which $1operates from New York City.2 Island was particularly hard hit by the tragedies of September ~~million~~11 and ~~$1.9 million,~~experienced ora 4significant drop in business.0% The impact led the Company to reassess its long-term strategy with regard to Island and 5review the recoverability of the long-lived assets related to the Island business.~~2%,~~ ~~respectively,~~To determine the recoverability of ~~net~~its long-lived assets the ~~revenues~~Company evaluates the probability that future undiscounted cash flows will be less than the carrying amount of the assets. The ~~decrease~~fair isvalue ~~principally~~of ~~due~~the long-lived assets including goodwill was determined based upon the discounted cash flows to be derived from the ~~effects~~Island ofbusiness. Management believes that the future cash flows from Island will be limited, and as such recorded an impairment charge ~~recorded~~of asapproximately ~~part~~$6.3 million representing approximately 95% of the remaining ~~Company’s~~goodwill ~~restructuring~~related ~~announced~~to ~~in July 2000~~Island.

The ~~restructuring~~Company ~~charge~~continues to review its operations for ~~the~~opportunities ~~three~~to further ~~months~~reduce ~~ended~~costs ~~June 30,~~and ~~2001~~create ~~was $642~~additional efficiencies. As a result,~~000~~ ~~and~~the Company ~~represented~~may ~~employee~~incur ~~severance~~additional ~~costs~~restructuring charges in future periods.

~~Interest~~Subsequent ~~income~~Event ~~for~~– ~~the~~Financing ~~three~~Transaction ~~months ended June 30, 2001~~ and ~~2000~~Tender ~~was~~Offer ~~$445,000 and $821,000, respectively, or 1.5% and 2.3%, respectively, of net~~ ~~revenues. The lower amount of interest income earned was due to lower interest~~ ~~rates earned as a result of reductions in interest rates and lower levels of investable funds as a result of the reduction in customer deposits related to the Company’s discontinued products.~~

~~Interest~~ In ~~expense~~November ~~for~~2001 the ~~three~~Company ~~months~~entered ~~ended~~into ~~June~~a financing agreement with an entity formed and controlled by its principal note holder and its principal shareholder to provide a cash infusion of up to $24.25 ~~30,~~million ~~2001~~through the sale of convertible notes and ~~2000~~other ~~was~~notes exchangeable for convertible notes. This financing became necessary as a result of the impact on the Company of the September 11 terrorist attacks. At the initial closing the Company sold $~~881,000~~5.0 million of 7 1/2% convertible senior subordinated notes and $5.0 million of 7 1/2% exchangeable senior subordinated notes (collectively, the “7 1/2% Notes”). The 7 1/2% Notes are senior to the Company’s outstanding 9% subordinated convertible notes. The convertible notes are convertible into the Company’s common stock at $0.15 per share at the option of the holder at any time after March ~~million~~31, ~~respectively~~2002. The ~~decrease~~exchangeable innotes ~~interest~~are ~~expense~~exchangeable for convertible notes after the ~~three~~Company’s ~~months~~shareholders ~~ended~~approve ~~June~~an increase in the Company’s authorized capital to at least 200 ~~30,~~million ~~2001~~shares. ~~was~~The ~~principally~~Company’s majority ~~due~~shareholder, a party to ~~due~~the agreement, has committed to ~~lower~~vote in favor ~~percentage~~of ~~borrowing~~the ~~costs~~increase onin authorized shares at the Company’s ~~current~~next ~~fixed~~scheduled shareholders ~~rate~~meeting ~~convertible notes~~assuring ~~compared~~the increase in authorized capital. Subject to certain ~~variable~~conditions ~~interest~~the ~~rate~~Company ~~and~~has ~~related~~an ~~expenses~~additional of$14.25 million ~~the~~available ~~bank~~for borrowing ~~debt~~from this same entity through April 30, 2002 under the financing ~~outstanding~~agreement ~~during~~in the ~~same~~form ~~period~~of additional exchangeable notes. The 7 1/2% Notes mature on December 31, 2006. Interest is payable quarterly beginning March 1, 2002, and until June 1, 2003 can be paid in the ~~prior~~form ~~year~~of additional 7 1/2% Notes.

~~Other~~ The ~~income~~7 1/2% ~~for~~Notes ~~the~~are ~~three~~subject ~~months~~to ~~ended~~certain ~~June 30,~~covenants ~~2001~~ and ~~2000~~conditions including ~~was~~a ~~$66,000~~requirement that the Company become privately held by October 2002. ~~and~~In ~~$11,000,~~conjunction ~~respectively~~with ~~and~~the ~~primarily~~financing ~~represented~~the ~~foreign~~holders ~~currency~~of ~~gains~~the 7 1/2% Notes has ~~related~~committed to make a tender offer for all of the shares of the Company’s ~~Classic~~common stock ~~Europe~~that ~~product~~they do not already own (the “Tender Offer”). ~~The~~If at least 50 percent of the shares they do not own are tendered, the holders will be required to take the Company ~~does~~private, and pay the shareholders $0.15 per share in cash. The Tender Offer will not expire until at least December 31, 2001. ~~specifically~~On ~~hedge~~a ~~its~~fully ~~foreign~~diluted ~~currency~~basis, ~~transactions~~assuming the maximum $24.25 million is borrowed and assuming the exchangeable notes are exchanged for convertible notes upon the anticipated increase in authorized capital, the holders of the 7 1/2% Notes and their affiliates will effectively control 97.7% of the Company’s common stock.

The ~~income~~Company’s ~~tax~~board ~~provision~~of ~~recognized~~directors ~~for~~does ~~the~~not ~~three~~expect ~~months~~to ~~ended~~make ~~June 30,~~any ~~2001~~recommendation ~~was~~to ~~$30,000~~shareholders ~~for~~as ~~estimated~~to ~~state~~whether ~~income~~they ~~taxes~~should ~~attributable~~tender totheir ~~the~~shares ~~period.~~in ~~The~~response ~~income~~to ~~tax provision recognized for~~ the ~~three~~Tender ~~months ended June 30, 2000 was $2~~Offer.~~0 million and represented a valuation allowance against previously~~ ~~recognized deferred tax assets.~~

~~Net~~ The ~~income~~financing ~~for~~agreement ~~the~~contains ~~three~~a ~~months~~provision ~~ended~~whereby ~~June 30~~if prior to December 31, 2001 ~~was~~the ~~$355,000~~Company orobtains ~~1.1%~~an alternative financing proposal that the Company’s board of ~~net~~directors ~~revenues~~determines ~~compared~~is more favorable to athe ~~net~~Company, ~~loss~~the Company ~~for~~may terminate all aspects of the ~~three~~financing ~~months~~arrangement ~~ended~~by ~~June 30,~~repaying ~~2000~~any ofoutstanding ~~$2.2 million.~~borrowings ~~The~~and ~~improvement~~reimbursing isthe ~~principally~~holders ~~due~~for its out-of-pocket expenses related to the ~~significantly~~financing ~~lower income~~and ~~tax~~the ~~provision~~Tender ~~recorded~~Offer. inThe ~~2001~~holders ~~and~~of ~~reductions~~the 7 1/2% inNotes ~~expenses~~have asagreed ato ~~result~~tender ofthe shares that they hold (currently 70.0% of the Company’s ~~restructuring~~outstanding ~~and~~common ~~consolidation~~stock) ~~efforts~~if ~~offset~~the inalternative ~~part by the~~financing ~~restructuring~~proposal ~~charge~~involves ~~recorded~~a ~~and~~tender ~~lower~~offer ~~interest~~for ~~rates~~all ~~earned~~of on the Company’s common stock in an ~~investments~~amount greater than $0.15 per share.

~~Liquidity and Capital Resources~~13

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

At The ~~June 30, 2001, the~~ Company’s ~~had~~board ~~cash and cash equivalents~~ of ~~$31.7 million,~~directors ~~excluding~~appointed ~~$9.9 million~~a ofspecial ~~cash~~committee ~~restricted pursuant to contracts with~~of ~~private~~independent ~~label~~directors ~~partners, and pursuant~~ to evaluate the ~~terms~~proposal ~~of one of~~ (the ~~Company’s credit~~“Special ~~facilities~~Committee”). ~~Contracts with certain of the Company’s private label~~The ~~partners~~Special ~~require~~Committee ~~that~~has ~~certain~~made ~~funds~~no ~~including~~recommendation ~~customer~~as ~~deposits~~to bewhether ~~segregated~~shareholders should ~~from~~tender ~~general~~their ~~cash~~shares ~~reserves~~in ~~and restrict~~ the ~~disbursement~~Tender ofOffer. ~~these~~The ~~funds~~Special ~~prior~~Committee received tofinancial ~~the~~advice ~~commencement~~from ofan ~~travel.~~investment ~~Additionally,~~banking afirm ~~credit~~retained ~~facility~~by ~~that~~ the Special ~~Company~~Committee. ~~maintained~~The atinvestment ~~June 30,~~banking ~~2001~~firm’s ~~required~~engagement ~~that~~will ~~the~~continue ~~Company maintain cash~~throughout ~~collateral to~~ the ~~extent~~term of ~~103%~~the ofTender Offer for the ~~balance~~purpose of ~~stand-by~~seeking ~~letters~~a ofmore ~~credit~~favorable ~~outstanding~~financing ~~under the facility~~alternative. AtThere ~~June 30,~~can ~~2001~~be ~~the~~no ~~Company~~assurances ~~had~~that ~~short-term investments of $5.2 million consisting of~~ a ~~certificate~~more ~~of deposit. The~~favorable ~~Company~~financing ~~has~~offer ~~pledged~~will ~~the~~be ~~certificate~~obtained ofbefore ~~deposit~~December 31, ~~as collateral securing stand-by letters of credit~~2001.

AtSources ~~June 30, 2001 the Company maintained two credit facilities that it used to secure standby letters~~ of ~~credit as the Company was in the process of~~Revenue ~~transferring from one facility to another. In March 2001 the Company entered~~ ~~into a new credit facility with a bank to secure stand-by letters of credit~~ with a capacity of $5.0 million. The facility matures on May 1, 2004. The new facility does not provide for cash borrowings for working capital purposes and is collateralized with a certificate of deposit of $5.2 million. At June 30, 2001 there were $3.5 million of stand-by letters of credit outstanding under this new facility with $1.5 million available.

13 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 products and are generally recognized upon the commencement of travel. The travel waiver products sold by the Company enable customers to cancel or make changes to advance reservations and obtain refunds without penalty in certain circumstances. Customers who do not purchase waivers are generally subject to change fees or cancellation penalties if they make changes or cancel advance reservations, which are deducted from any refund paid. For the nine months ended September 30, 2001 and 2000, the Company had net revenues of $84.0 million and $104.4 million, respectively, derived from total dollar values of travel products and services of $374.6 million and $464.8 million, respectively.

~~There were $1.1 million of standby letters of credit outstanding under a~~Expenses ~~second facility at June 30, 2001. Subsequent to June 30, 2001 this second~~ ~~facility was terminated.~~

At Operating ~~June 30,~~expenses ~~2001~~include ~~the~~travel ~~Company~~agent ~~had~~commissions, ~~$27.5 million~~salaries, ~~outstanding~~credit ~~under its~~card ~~convertible~~merchant ~~subordinated~~fees, ~~note~~telecommunications, ~~raised~~advertising inand ~~June 2000~~other ~~(the~~costs ~~“Note”).~~associated ~~The Note which~~with ~~matures~~the onselling ~~July 1,~~and ~~2007~~processing isof ~~convertible~~travel atreservations, ~~any~~products ~~time~~and byservices. Commission ~~the~~payments ~~holder~~to ~~into~~travel ~~the Company’s~~agents ~~common~~are ~~stock~~typically atbased on a ~~conversion~~percentage ~~price~~ of ~~$5.25 per share. Interest is~~the ~~payable~~price ~~quarterly.~~paid Tofor ~~date~~ the ~~Company~~travel ~~has~~product ~~elected~~or toservice, ~~make~~but ~~interest payments required under the Note~~ in ~~the~~certain ~~form~~circumstances ~~of additional convertible notes that~~are ~~matured~~fixed ondollar ~~July 2,~~amounts. ~~2001~~Reservations ~~with~~agents ~~$2.0 million~~are ~~outstanding~~compensated ateither ~~June 30,~~on ~~2001.~~an ~~On July~~hourly 2basis, ~~2001~~a ~~the~~commission ~~Company~~basis ~~satisfied~~or ~~the~~a ~~maturity~~combination of ~~these~~the ~~short-term~~two. ~~notes~~The asCompany’s ~~well as~~telephone ~~additional~~costs ~~accrued~~primarily ~~interest~~relate byto ~~issuing~~the acost ~~convertible~~of ~~note~~incoming ~~for~~calls ~~$2.6 million~~on ~~with terms~~toll-free ~~identical to the Note~~numbers. General ~~Through~~and ~~August 1,~~administrative ~~2003~~expenses ~~the~~consist ~~Company~~primarily ~~can~~of ~~elect~~compensation toand ~~pay~~benefits ~~quarterly~~to ~~interest~~administrative ~~due~~and inother ~~either~~non-sales ~~cash~~personnel, ~~additional~~fees ~~notes~~for ~~with the same terms~~professional asservices, ~~the~~and ~~Note,~~other orgeneral ~~common~~office ~~stock~~expenses.

~~During~~Interest ~~the six months ended June 30, 2001, net cash provided by operations~~Income ~~was $25.1 million. Net cash used in investing activities was $7.9 million~~ ~~including $954,000 for additions to property and equipment, $5.2 million for~~ the purchase of a certificate of deposit used to collateralize the Company’s new credit facility and $1.8 million paid during the period as deferred acquisition consideration related the Company’s 1999 acquisition of Island Resort Tours. Net cash used in financing activities was $134,000 representing repayment of capital lease obligations.

~~During~~ The ~~the~~Company ~~six~~derives ~~months~~a ~~ended~~significant ~~June 30,~~portion ~~2000~~of ~~net~~its ~~cash~~pre-tax ~~provided~~results byfrom interest ~~operations~~earned on funds related to customer deposits and prepayments for ~~was~~vacation ~~$39~~products.~~6 million.~~ ~~Net~~Generally, ~~cash~~the ~~used~~Company inrequires ~~investing~~a ~~activities~~deposit ~~was~~within ~~$1.6 million~~one week of ~~principally~~making ~~related~~a totravel ~~additions~~reservation. Reservations are typically made two to ~~property~~four ~~and~~months prior ~~equipment~~to departure. ~~Net~~Additionally, ~~cash~~for ~~used~~packaged tours, the Company generally requires that the entire cost of the vacation be paid in full 45 to 60 days ~~financing~~before ~~activities~~departure, ~~was~~unless $4reservations are made closer to departure.~~0 million~~ ~~representing~~While terms vary, the ~~repayment~~Company ofgenerally ~~borrowings under~~pays for the ~~credit~~vacation ~~facility~~components ofafter ~~$29~~the customer’s departure.~~4 million~~ ~~and~~In ~~repayment~~the period between receipt of ~~capital~~a ~~lease~~deposit or prepayment ~~obligations~~and the payment of ~~$746~~related expenses,~~000~~ ~~less~~these funds are invested in cash and investment-grade securities. This cycle is typical in the ~~net~~packaged ~~proceeds~~tour industry ~~received~~and earnings generated on deposits and prepayments are integral to the Company’s ~~Note~~operating ~~during~~model and pricing strategies. The Company’s investment policy is to only invest funds in cash equivalents and investment grade securities. For the nine months ended September 30, 2001 and 2000, the Company ~~period~~had interest income of $261.2 million (1.5% ~~The~~of net ~~proceeds~~revenues) ofand ~~the Note include~~ $12.3 million (2.2% of ~~deferred~~ ~~financing~~net ~~costs~~revenues), ~~paid~~respectively.

~~The decrease in cash provided by operations from $39.6 million to $25.1~~14 ~~million was primarily due to a reduction in the customer deposit and accounts~~ ~~payable float generated by both the Company discontinuing certain unprofitable~~ products as part of its restructuring in 2000 as well as an overall slowing in the rate of growth of the Company’s overall revenues due to the slowing economy. The impact of the reduction in the float was softened by changes in the Company’s receivables. For the six months ended June 30, 2000 accounts receivable increased by $4.7 million resulting in a use of funds. For the same six months ended June 30, 2001 accounts receivable decreased by $5.0 million resulting in a source of funds. This $9.7 million difference in the source of funds related to accounts receivable was due to increased collection efforts and the discontinuation of certain unprofitable products as part of the Company’s restructuring, as well as the reduced rate of growth related to the softening economy.

TheTable Company’s operations are seasonal in nature. Historically the Company generates cash from operations during the first and second quarters, and uses cash in operations during the third and fourth quarters. The $25.1 million of cash provided by operations for the six months ended June 30, 2001 is not necessarily indicative of the results to be expected for the full year. Contents

AsResults ~~is typical in the vacation wholesale industry, the receipt~~ of ~~advance payments~~Operations ~~and deposits prior to the commencement of travel results in an~~(unaudited) ~~expected working capital deficit. The Company’s current liabilities exceeded~~ ~~its current assets at June 30, 2001 by $48.7 million. If the float generated~~ by these advance payments were to shrink, and the Company was required to find an alternative source of capital, one may not be available at terms acceptable to the Company. Such an event could have a material adverse effect on the business, financial condition and results of the Company.

~~Although~~ The ~~the~~following ~~Company~~table ~~may~~summarizes ~~not be profitable for~~ the ~~year ending December 31, 2001, the~~ Company’s ~~anticipates~~historical ~~that~~results ~~its existing cash and cash from~~of operations ~~will~~as ~~provide~~a ~~sufficient~~percentage ~~resources~~of tonet ~~enable~~revenues for the ~~Company~~nine tomonths ~~meet~~ended ~~its~~September ~~working capital needs~~30, ~~debt~~2001 ~~service, planned capital expenditures~~ and ~~other obligations through at least the next twelve months~~2000.

Fluctuations in Quarterly Results of Operations


		Nine Months Ended September 30,

		2001						2000

		Amount			%			Amount			%

Net revenues		$	84,016			100.0		$	104,366			100.0




Operating expenses			74,637			88.8			94,939			91.0

	Gross profit		9,379			11.2			9,427			9.0




General and administrative expenses			5,209			6.2			8,041			7.7




Depreciation and amortization			3,521			4.2			5,232			5.0




Restructuring and impairment charges			8,020			9.5			38,382			36.8

	Loss from operations		(7,371	)		(8.7	)		(42,228	)		(40.5	)

Interest income			1,248			1.5			2,303			2.2




Interest expense			(2,588	)		(3.1	)		(3,127	)		(3.0	)




Other			75			—			(1	)		—

Loss before income taxes			(8,636	)		(10.3	)		(43,053	)		(41.3	)




Income tax provision			(45	)		—			(60	)		—

Net loss		$	(8,681	)		(10.3	)	$	(43,113	)		(41.3	)

~~The~~ Net ~~leisure~~revenues ~~travel~~for ~~industry~~the isnine ~~seasonal~~months ~~and~~ended ~~the~~September 30, ~~Company’s~~2001 ~~results~~and ~~have~~2000, were ~~fluctuated~~$84.0 million ~~because~~and of$104.4 million, ~~these seasonal variations~~respectively. ~~Net~~The ~~revenues~~decrease ~~and~~in ~~gross~~net ~~profit~~revenues of 19.5% for the ~~Company~~nine ~~are~~months ~~generally~~ended ~~higher~~September 30, in2001 ~~the~~was ~~second~~principally ~~and~~due ~~third quarters.~~to ~~Exclusive~~restructuring of the Company’s ~~losses~~Vacations ~~attributable~~by toGlobetrotters ~~its~~brand ~~former~~in ~~Globetrotters~~which ~~brand~~certain ~~that~~unprofitable ~~led~~products towere ~~the~~discontinued. ~~Company’s~~In ~~restructuring~~addition, ~~the~~net ~~Company has historically~~revenues ~~reported~~decreased ~~net~~due ~~losses~~to in the ~~fourth~~slowing ~~and~~global ~~first~~economy; ~~quarters.~~the ~~Due~~strength ~~to significant levels~~ of ~~advance~~the ~~payments~~U.S. ~~and~~dollar, which ~~advance~~negatively ~~booking~~impacted ~~patterns,~~ the Company’s ~~cash flow~~inbound ~~from~~U.S. ~~operations~~products; ~~has~~and ~~historically been positive in~~ the ~~first two quarters,~~ ~~and~~disruption ~~negative~~of intravel ~~third~~related ~~and~~to ~~fourth~~the ~~quarters~~September 11 ofterrorist ~~recent~~attacks ~~years.~~in ~~The~~New ~~timing of when~~York ~~certain~~and ~~holidays~~Washington, ~~fall (e~~D.gC. ~~Easter)~~Certain ~~can~~of ~~also lead to fluctuations in~~ the Company’s ~~quarterly~~emerging ~~results.~~products ~~The Company expects this seasonality to continue~~(principally in the ~~future. The~~ Company’s ~~quarterly~~Classic ~~results~~Caribbean ~~may~~and ~~also~~Classic beMexico ~~subject~~products) tohave ~~changes~~continued to ingrow ~~the~~at ~~mix~~significant ofrates ~~services~~offsetting ~~offered~~in bypart the ~~Company,~~slowing ~~extreme~~revenues ~~weather~~of ~~conditions or~~the ~~other~~Company’s ~~factors~~more ~~affecting~~mature ~~leisure travel~~products.

~~New~~ Operating ~~Accounting~~expenses ~~Standards~~for the nine months ended September 30, 2001 and 2000, were $74.6 million and $94.9 million, respectively, or 88.8% and 91.0%, respectively, of net revenues. The decrease in operating expenses as a percentage of net revenues and corresponding improvement in gross profit margin is primarily attributable to cost reductions and the elimination of certain unprofitable products resulting from the Company’s continued restructuring. The overall reduction in operating expenses is also attributable to reductions in certain variable operating expenses as a result of lower net revenues.

In General ~~June 1998,~~and ~~the~~administrative ~~Financial~~expenses ~~Accounting~~for ~~Standards~~the ~~Board~~nine ~~issued~~months ~~SFAS~~ended ~~No.~~September ~~133~~30, ~~“Accounting~~2001 ~~for~~and ~~Derivative~~2000 ~~Instruments~~were $5.2 million and ~~Hedging~~$8.0 million, ~~Activities~~respectively, or 6.”2% ~~SFAS~~and 7.7%, Norespectively, of net revenues. The decrease in general and administrative ~~133~~expenses ~~establishes~~of ~~accounting~~35.0% is primarily due to decreases in headcount and ~~reporting~~outside services ~~standards~~related ~~requiring~~to ~~that~~the ~~every~~Company’s restructuring of its Globetrotters brand and ~~derivative~~closing ~~instrument~~of its Washington, D.C. headquarters office.

14 Depreciation and amortization for the nine months ended September 30, 2001 and 2000 was $3.5 million and $5.2 million, or 4.2% and 5.0%, respectively, of net revenues. The decrease is principally due to the reduction in depreciable and amortizable assets as a result of the impairment charge recorded in 2000 as part of the Company’s restructuring.

~~(including certain derivative instruments embedded in other contracts) be~~15 ~~recorded in the balance sheet as either an asset or liability measured at its~~ ~~fair value. SFAS No. 133 requires that changes in the derivative’s fair value~~ be recognized currently in earnings unless specific hedge accounting criteria are met. The Company adopted SFAS No. 133 for the fiscal year beginning January 1, 2001 and noted no material impact on the Company’s financial position, or results of operations.

InTable June 2001, the FASB approved SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company’s discontinuation of amortization of its goodwill; however, the Company will be required to test its goodwill for impairment under the new standard beginning in the first quarter 2002, which could have an adverse effect on the Company’s future results of operations if an impairment occurs. Contents

~~ITEM~~ Restructuring and impairment charges for the nine months ended September 30, 2001 and 2000 were $8.0 million and $38.4 million, respectively. Charges for the nine months ended September 30, 2001 included approximately $6.3 million for the substantial impairment of goodwill related to Island, $935,000 for severance costs including benefits related to the 237 employees terminated as part of restructuring during the current year, and $739,000 for lease costs and other restructuring expenses principally related to the closing of Classic’s Chicago reservation center in response to the events of September 11. For the nine months ended September 30, 2000, charges included $35.0 million for the impairment of long-lived assets, $2.3 million for severance costs including benefits, and $1.1 million for lease costs and other restructuring expenses. The prior year restructuring and impairment charges were primarily related to the restructuring and consolidation of the Company’s discontinued Globetrotters products, and the closure the Company’s Washington, D.C. headquarters office.

~~Quantitative~~ Interest income for the nine months ended September 30, 2001 and ~~Qualitative~~2000 ~~Disclosures~~was $1.2 million ~~about~~and ~~Market~~$2.3 million, ~~Risk~~respectively, or 1.5% and 2.2%, respectively, of net revenues. The lower amount of interest income earned was due to lower interest rates as well as lower levels of investable funds as a result of the reduction in customer deposits related to its discontinued products and the slowing economy.

~~There~~ Interest ~~have~~expense ~~been~~for ~~no material changes in~~ the ~~market~~nine ~~risks~~months ~~faced~~ended ~~by the Company or in how those risks are managed since December~~September 3130, ~~2000.~~2001 ~~Refer~~and ~~to the Company’s~~ 2000 ~~Form~~was $2.6 ~~10-K~~million ~~for~~and a$3.1 million, ~~discussion~~respectively. ~~about~~The ~~market~~decrease ~~risk~~in asinterest ~~well as the~~expense ~~discussion~~for of the ~~effect~~nine ~~that~~months ~~recent~~ended ~~changes~~September 30, in2001 ~~interest~~is ~~rates~~principally ~~may~~due ~~have~~to ~~on the~~lower ~~Company’s~~percentage ~~results~~borrowing ofcosts ~~operations~~compared asto ~~contained~~the inprior ~~Item 2 above~~year.

15 Other income for the nine months ended September 30, 2001 of $75,000 was primarily related to foreign currency gains related to the Company’s Classic Europe product. The Company does not specifically hedge its foreign currency transactions.

~~PART~~ The IIprovision for income taxes for the nine months ended September 30, 2001 and 2000 was $45,000 and $60,000, respectively, for estimated state income taxes. The benefit that would normally be attributable to the loss before income taxes for the nine months ended September ~~OTHER~~30, ~~INFORMATION~~2001 and 2000 was offset by valuation allowances provided against the related deferred tax assets. The valuation allowances are a result of the Company’s history of significant operating losses.

~~ITEM~~ Net 6loss for the nine months ended September 30, 2001 and 2000 was $8.7 million ~~Exhibits~~and $43.1 million, respectively, or 10.3% and ~~Reports~~41.3%, onrespectively, ~~Form~~of net revenues. For both periods the net loss is principally due to restructuring and impairment charges of $8-K.0 million and $38.4 million, respectively. The improvement for the current year is also due to reductions in operating and general and administrative expenses as a result of the Company’s restructuring and consolidation.

~~(a) Exhibits~~16

1)Table 3.1 Restated Certificate of Incorporation of the Registrant as AmendedContents

~~(b)~~ The ~~Reports~~following ontable ~~Form~~summarizes ~~8-K~~the ~~during~~Company’s historical results of operations as a percentage of net revenues for the ~~quarter~~three months ended ~~June~~ September 30, 2001 and 2000.

On May 17, 2001 at the annual meeting of the Company’s shareholders, the shareholders voted to change the name of the Company from Global Vacation Group, Inc. to Classic Vacation Group, Inc. This name change became effective on May 21, 2001 when the appropriate filings with the State of New York became effective. The Company reported this event on Form 8-K.


		Three Months Ended September 30,

		2001						2000

		Amount			%			Amount			%

Net revenues		$	30,388			100.0		$	40,620			100.0




Operating expenses			26,731			88.0			35,664			87.8

	Gross profit		3,657			12.0			4,956			12.2




General and administrative expenses			1,653			5.4			3,198			7.9




Depreciation and amortization			1,150			3.8			1,488			3.7




Restructuring charge			7,378			24.3			38,382			94.4

	Loss from operations		(6,524	)		(21.5	)		(38,112	)		(93.8	)

Interest income			376			1.2			953			2.3




Interest expense			(764	)		(2.5	)		(834	)		(2.1	)




Other			(10	)		0.0			—			—

Loss before income taxes			(6,922	)		(22.8	)		(37,993	)		(93.6	)




Income tax provision			(15	)		(0.0	)		(60	)		(0.1	)

Net loss		$	(6,937	)		(22.8	)	$	(38,053	)		(93.7	)

16 Net revenues for the three months ended September 30, 2001 and 2000, were $30.4 million and $40.6 million, respectively. The decrease in net revenues of 25.1% for the three months ended September 30, 2001 was due to: (a) restructuring of the Company’s Vacations by Globetrotters brand in which certain unprofitable products were discontinued, (b) the disruption of travel related to the September 11 terrorist attacks in New York and Washington, D.C., and (c) the weakness in the global economy. The Company has continued to experience revenue growth in certain emerging products (principally the Company’s Classic Caribbean and Classic Mexico products); however, the weakness in the global economy has led to lower revenues in other more mature products (principally the Company’s Classic Hawaii and its Allied Tours inbound U.S. products).

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

~~Pursuant~~ Operating toexpenses for the ~~requirements~~three months ended September 30, 2001 and 2000, were $26.7 million and $35.7 million, respectively, or 88.0% and 87.8%, respectively, of ~~the~~net ~~Securities~~revenues. ~~Exchange~~Operating ~~Act~~expenses include certain fixed costs that would typically result in an anticipated increase in operating expenses as a percentage of ~~1934,~~net revenues when revenues decrease. The increase for the ~~Registrant~~three ~~has~~months ~~duly~~ended ~~caused~~September 30, ~~this~~2001 ~~Report~~was limited to beonly ~~signed~~20 onbasis ~~its~~points ~~behalf~~due to bysignificant cost reductions and the elimination of certain unprofitable ~~undersigned~~products ~~thereunto~~within ~~duly~~the ~~authorized~~past twelve months.

~~Date:~~ General and administrative expenses for the three months ended September 30, 2001 and 2000 were $1.7 ~~August~~million and $3.2 14million, ~~2001~~respectively, or 5.4% and 7.9%, respectively, of net revenues. The decrease in general and administrative expenses of 48.3% is primarily due to decreases in headcount and outside services related to the Company’s restructuring of its Globetrotters brand and closing of its Washington, D.C. headquarters office.

~~CLASSIC~~ Depreciation ~~VACATION~~and ~~GROUP~~amortization for the three months ended September 30, 2001 ~~INC~~and ~~By:~~2000 ~~/s/~~was ~~Debbie~~$1.2 million Aand $1.5 million, ~~Lundquist~~or ~~Debbie~~3.8% Aand 3.7%, respectively, ~~Lundquist~~of ~~Executive~~net ~~Vice~~revenues. ~~President~~The &decrease ~~Chief~~is ~~Financial~~principally ~~Officer~~due to the reduction in depreciable and amortizable assets as a result of the impairment charge recorded in 2000 as part of the Company’s restructuring.

Restructuring and impairment charges for the three months ended September 30, 2001 and 2000 were $7.4 million and $38.4 million, respectively. Charges for the three months ended September 30, 2001 included approximately $6.3 million for the substantial impairment of goodwill related to Island, $293,000 for severance costs including benefits related to the 230 employees terminated during the quarter, principally in response to the events of September 11, and $739,000 for lease costs and other restructuring expenses principally related to the closing of Classic’s Chicago reservation center, which was also in response to the events of September 11. For the three months ended September 30, 2000, charges included $35.0 million for the impairment of long-lived assets, $2.3 million for severance costs including benefits, and $1.1 million for lease costs and other restructuring expenses. The prior year restructuring and impairment charges were primarily related to the restructuring and consolidation of the Company’s discontinued Globetrotters products, and the closure the Company’s Washington, D.C. headquarters office.

Interest income for the three months ended September 30, 2001 and 2000 was $376,000 and $953,000, respectively, or 1.2% and 2.3%, respectively, of net revenues. The lower amount of interest income earned was due to lower interest rates earned as a result of general reductions in market interest rates and lower levels of investable funds as a result of the reduction in customer deposits related to the Company’s discontinued products and the slowdown in the economy.

Interest expense for the three months ended September 30, 2001 and 2000 was $764,000 and $834,000, respectively. The decrease in interest expense for the three months ended September 30, 2001 was due to expenses incurred in the prior year related to the Company’s bank credit facility that was terminated in the current year. The effect of theses nonrecurring expenses was partially offset by additional interest incurred due to the issuance of additional convertible notes during the past twelve months as payment of interest on the Company’s current outstanding debt.

Other expense for the three months ended September 30, 2001 was $10,000 and primarily represented foreign currency losses related to the Company’s Classic Europe product. The Company does not specifically hedge its foreign currency transactions.

The income tax provision recognized for the three months ended September 30, 2001 and 2000 was $15,000 and $60,000, respectively for estimated state income taxes. The benefit that would normally be attributable to the loss before income taxes for the three months ended September 30, 2001 and 2000 was offset by valuation allowances provided against the related deferred tax assets. The valuation allowances are a result of the Company’s history of significant operating losses.

Net loss for the three months ended September 30, 2001 and 2000 was $6.9 million and $38.1 million, principally the result of restructuring and impairment charges of $7.4 million and $38.4 million, respectively.

Liquidity and Capital Resources

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

The tragic events of September 11 had a significant and material adverse impact on the travel and hospitality industries. These events have adversely impacted the Company and have created greater uncertainty with respect to the predictability of the Company’s liquidity and capital resources. The disruption in travel that resulted from the terrorist attacks led to significant cancellations of existing bookings resulting in lower revenues and the continuing concern about possible additional terrorist attacks has resulted in a significant slowdown in advanced booking patterns for future travel.

As is typical in the vacation wholesale industry, the Company relies upon the float generated by advanced bookings to fund operations and has historically operated with an expected working capital deficit. At September 30, 2001 the Company’s current liabilities exceeded current assets by $47.5 million, compared to $49.9 million at September 30, 2000. If the float generated by advanced bookings were to shrink due to the slowdown in travel, consumers waiting closer to the time of travel to make their travel plans, or other factors that might restrict the Company’s access to the float, the Company would be required to find an alternative source of capital.

Because the Company anticipates that the current slowdown in advance bookings may continue and the full impact of the September 11 events may not yet be known, in November 2001 the Company secured up to $24.25 million in additional financing with 7 1/2% Notes (defined above). The 7 1/2% Notes require the Company to meet certain covenants and other restrictions. Specifically, the 7 1/2% Notes require the Company to become privately held by October 2002 and to meet certain customer booking levels or the lenders may demand payment of amounts then outstanding under the 7 1/2% Notes. The financing under the 7 1/2% Notes is available to the Company in multiple tranches. In November 2001 the Company received the first $10 million under the financing, with the remaining $14.25 million available for future borrowings subject to certain conditions, including the absence of additional terrorism. Management believes that current available financing together with recent reductions in operating expenses will enable the Company to sustain operations through at least March 2003. However, there can be no assurances that if advance booking trends deteriorate further or continue at their current depressed levels for an extended period, if the average lead time for advanced bookings shortens, or if other events or conditions were to restrict the availability to the Company of the float from advance customer payments, the financing arranged may not be sufficient and the Company may be required to find an additional source of capital. An alternative source of capital would also be required if the Company were to fail to continue to comply with the terms of the 7 1/2% Notes and the lender were to require prepayment as a result of such default. Additional or alternative sources of capital may not be available to the Company at the time they might be needed, or may not be available at terms acceptable to the Company. Such an event could have a material adverse effect on the business, financial condition and results of the Company. The 7 1/2% Notes mature on December 31, 2006. Interest is payable quarterly beginning March 1, 2002, and through June 1, 2003 interest is payable in either cash or additional 7 1/2% Notes.

The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has been advised by its independent public accountants that if the Company cannot achieve sufficient customer booking levels to maintain debt compliance, sustain its customer deposits and related cash flows, or the Company has not restructured itself as a privately held entity prior to the completion of their audit of the Company’s financial statements for the year ending December 31, 2001, their auditors’ report on those financial statements will be modified to reflect this potential going concern contingency.

At September 30, 2001, the Company had cash and cash equivalents of $21.7 million, excluding $4.2 million of cash restricted pursuant to contracts with private label partners. Contracts with certain of the Company’s private label partners require that certain funds including customer deposits be segregated from general cash reserves and restrict the disbursement of these funds prior to the commencement of travel. At September 30, 2001 the Company had short-term investments of $5.2 million consisting of a certificate of deposit. The Company has pledged the certificate of deposit as collateral securing stand-by letters of credit.

At September 30, 2001 the Company maintained a credit facility (“LC Facility”) used to secure standby letters of credit with a capacity of $5.0 million. At September 30, 2001 there were approximately $4.1 million of stand-by letters of credit outstanding under the LC Facility with $922,000 available for the issuance of additional standby letters of credit. The LC Facility matures on May 1, 2004. The LC Facility is collateralized with a certificate of deposit of $5.2 million.

Prior to August 2001 the Company also maintained a second credit facility with a consortia of lending institutions. This second facility had been used to finance the acquisition of several of the Company’s subsidiaries in 1998 and 1999. Borrowings for acquisitions were repaid in 2000. This facility was also used to secure standby letters of credit until the Company’s LC Facility was secured in March 2001. The Company terminated this credit facility in August 2001. At September 30, 2001 the Company had $502,000 of standby letters of credit outstanding with one of the banks participating in this facility. These standby letters of credit are secured by a standby letter of credit under the Company’s LC Facility.

At September 30, 2001 the Company had $30.1 million of 9% convertible subordinated notes (the “9% Notes”) related to a $27.5 million cash infusion raised in June 2000 from a private investor. The 9% Notes which matures on July 1, 2007 are convertible at any time by the holder into the Company’s common stock at a conversion price of $5.25 per share. Interest is payable quarterly. Through August 1, 2003 the Company can elect to pay quarterly interest due in either cash, additional notes with the same terms as the original 9% Note, or common stock. To date the Company has elected to make interest payments in the form of additional convertible notes. In October 2001 the Company issued an additional 9% Note in the amount of $676,000 as payment for interest due October 1, 2001.

During the nine months ended September 30, 2001, net cash provided by operations was $10.3 million. Net cash used in investing activities was $8.6 million including $1.7 million for additions to property and equipment, $5.2 million for the purchase of a certificate of deposit used to collateralize the Company’s new credit facility and $1.7 million paid during the period as deferred acquisition consideration related the Company’s 1999 acquisition of Island Resort Tours. Net cash used in financing activities was $178,000 representing repayment of capital lease obligations.

During the nine months ended September 30, 2000 net cash provided by operations was $28.7 million. Net cash used in investing activities was $2.4 million principally related to additions to property and equipment. Net cash used in financing activities was $3.6 million representing the repayment of borrowings under the credit facility of $29.4 million and repayment of capital lease obligations of $264,000 less the net proceeds received on the 9% Note during the period of $26.1 million. The net proceeds of the 9% Note include $1.4 million of deferred financing costs paid.

The decrease in cash provided by operations from $28.7 million to $10.3 million was primarily due to a reduction in the customer deposit and accounts payable float generated by both the Company discontinuing certain unprofitable products as part of its restructuring in 2000 as well as the decrease in the Company’s revenues due to the slowing economy and the disruption of travel related to the terrorist attacks on September 11. The impact of the reduction in the float was softened by changes in the Company’s receivables. For the nine months ended September 30, 2000 accounts receivable increased by $12.4 million resulting in a use of funds. For the same nine months ended September 30, 2001 accounts receivable decreased by $2.5 million resulting in a source of funds. This $14.9 million difference in the source of funds related to accounts receivable was due to increased collection efforts and the discontinuation of certain unprofitable products as part of the Company’s restructuring, as well as overall lower revenues related to the softening economy and the disruption of travel in September 2001. In spite of the increase in the source of funds related to accounts receivable of $14.9 million, the overall source of funds from operations decreased by $18.4 million principally due to a decrease in the source of funds related to accounts payable, accrued expenses and customer deposits as a result of a decrease in the float available to the Company. The Company arranged the 7 1/2% Notes because it anticipates that the float available to the Company may continue to decrease. While the Company believes that the 7 1/2% Notes will be sufficient to meet the Company’s needs, there can be no assurances that given the uncertainty of the current environment that they will be sufficient, and an additional source of capital may be required. If needed, such additional source of capital may not be available to the Company, or may not be available at terms acceptable to the Company. Such an event could have a material adverse effect on the business, financial condition and results of the Company.

The Company’s operations are seasonal in nature. Historically the Company generates cash from operations during the first and second quarters, and uses cash in operations during the third and fourth quarters. The $10.3 million of cash provided by operations for the nine months ended September 30, 2001 is not necessarily indicative of the results to be expected for the full year. Additionally, the effects of the September 11 terrorism may not be fully reflected as of September 30, 2001 and historical trends may not be reliable until the current global economic and political situation stabilizes and consumer travel patterns return to normal.

Although the Company expects to not be profitable for the year ending December 31, 2001, the Company anticipates that its existing cash, cash from operations, and currently available credit under its 7 1/2% Notes will provide sufficient resources to enable the Company to meet its working capital needs, planned capital expenditures and other obligations through at least at least March 2003.

Fluctuations in Quarterly Results of Operations

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

New Accounting Standards

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

In June 2001, the FASB approved SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 will result in the Company’s discontinuation of amortization of its goodwill; however, the Company will be required to test its goodwill for impairment under the new standard beginning in the first quarter 2002, which could have an adverse effect on the Company’s future results of operations if an impairment occurs. The Company has not completed an evaluation of the Company’s goodwill under the impairment guidelines of SFAS No. 142.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

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

PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

	1)		10.48 Note Purchase Agreement Dated November 2, 2001 between the Registrant and CVG Investment, LLC.

	2)		10.49 7 1/2% Convertible Senior Subordinated Note Dated November 5, 2001

	3)		10.50 7 1/2% Exchangeable Senior Subordinated Note Dated November 5, 2001

	4)		10.51 Agreement to Tender dated November 2, 2001 between CVG Investments LLC, their affiliates and the Registrant

	5)		10.52 Waiver Dated November 2, 2001 between GV Investments, LLC and the Registrant

	6)		3.1 (BETA) Restated Certificate of Incorporation of the Registrant as Amended

	7)		3.2 (LAMDA) Amended and Restated By-laws of the Registrant

Incorporated herein by reference:

	(BETA)		Previously filed as the same exhibit number on August 14, 2001 under a Form 10-Q (file no 001-14353)

	(LAMDA)		Previously filed as the same exhibit number under a Registration Statement on Form S-1 (file no 333-52673)

(b)		Reports on Form 8-K during the quarter ended September 30, 2001.

		None.

SIGNATURES

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


Date: November 8, 2001




	CLASSIC VACATION GROUP, INC.




	By:	/s/ Debbie A. Lundquist





		Debbie A. Lundquist Executive Vice President & Chief Financial Officer

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