GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORP, SB-2/A, 1997-12-04

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORP
SB-2/A, 1997-12-04
MOTION PICTURE & VIDEO TAPE PRODUCTION

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<PAGE> 1

As filed with the Securities and Exchange Commission on December 4, 1997

REGISTRATION NO.333-38739

================================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

AMENDMENT NO.1 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

---------------

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
OREGON 4724 93-0950786
(State or other jurisdiction of (Primary industrial classification (I.R.S. Employer Identification No.
incorporation or organization) code number)
</TABLE>

<TABLE>
<S> <C>
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION MATTHEW O'HAYER
1120 Capital of Texas Highway South 1120 Capital of Texas Highway South
Building 3, Suite 300 Building 3, Suite 300
Austin, Texas 78746 Austin, Texas 78746
(512) 329-7255 (512) 329-7255
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of registrant's principal executive number, including area code, of agent for service)
offices and principal place of business)
</TABLE>

---------------

Copies to:
<TABLE>
<S> <C>
VINCE MOUER MARK ROBERTSON
Kuperman, Orr, Mouer & Albers, P.C. Robertson & Williams, Inc.
100 Congress Avenue, Suite 1400 3033 Northwest 63rd Street, Suite 160
Austin, Texas 78701-4042 Oklahoma City, Oklahoma 73116
</TABLE>

---------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.

================================================================================

<PAGE> 2

CROSS REFERENCE SHEET

(PURSUANT TO RULE 404(a))

<TABLE>
<CAPTION>
ITEM
NO. ITEM LOCATION IN PROSPECTUS
- ---- ---- ----------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Registration......................... Front of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Underwriters
9. Legal Proceedings.................................... Not Applicable
10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders
12. Description of Securities To Be Registered........... Description of the Securities
13. Interests of Named Experts and Counsel............... Experts, Legal Matters
14. Disclosure of Commission's Position on
Indemnification for Securities Act Liabilities..... Management
15. Organization Within Last Five Years.................. Prospectus Summary -- Overview; Prospectus
Summary -- Use of Proceeds; Use of
Proceeds; THE BUSINESS -- The Merger;
Security Ownership of Certain Beneficial
Owners and Management; Management --
Certain Relationships and Related
Transactions
16. Description of Business.............................. Available Information; Risk Factors,
Management's Discussion and Analysis of
Financial Condition; Security Ownership
of Certain Beneficial Owners and
Management; Management; Description of
the Common Stock; Index to Financial
Statements
17. Management's Discussion and Analysis of Plan of
Operation.......................................... The Company; Management's Discussion and
Analysis of Financial Conditions and
Results of Operation
18. Description of Property.............................. The Company
19. Certain Relationships and Related Transactions....... Use of Proceeds; The Company -- The
Business of the Company;
Management -- Certain Relationships and
Transactions
</TABLE>
<PAGE> 3

<TABLE>
<CAPTION>
ITEM
NO. ITEM LOCATION IN PROSPECTUS
- ---- ---- ----------------------
<C> <S> <C>
20. Market for Common Equity and Related Stockholder
Matters............................................ Risk Factors; Description of Securities;
Shares Eligible for Future Sale
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Not Applicable
</TABLE>

<PAGE> 4

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED DECEMBER 4, 1997

PROSPECTUS

700,000 SHARES

GATT LOGO

COMMON STOCK

All of the shares of common stock, $.0001 par value (the "Common Stock"),
offered hereby (the "Offering") are being sold by Grand Adventures Tour & Travel
Publishing Corporation, an Oregon corporation (the "Company" or "GATT"). Prior
to this Offering, the Company's Common Stock has been traded on a very limited
basis on the over-the-counter electronic bulletin board maintained by the
National Association of Securities Dealers under the symbol "GATT." The Company
has applied for listing on the American Stock Exchange under the symbol "GAT."
The initial public offering price is expected to be $7.00 per share. See
"UNDERWRITING -- Determination of Offering Price" for a discussion of the
factors considered in determining the initial public offering price.

---------------------

THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK, AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE ENTIRE LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS"
BEGINNING AT PAGE 7 AND "DILUTION" AT PAGE 13.

---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===============================================================================================================
UNDERWRITING DISCOUNT PROCEEDS TO
PRICE TO THE PUBLIC AND COMMISSIONS(1) COMPANY(2)(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $7.00 $0.70 $6.30
- ---------------------------------------------------------------------------------------------------------------
Total............................ $4,900,000 $490,000 $4,410,000
===============================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "UNDERWRITING."

(2) Before deducting expenses payable by the Company, estimated at $336,800. See
"USE OF PROCEEDS" and "UNDERWRITING."

(3) The Company has granted the Underwriters an option, exercisable within 45
business days from the date of this Prospectus, to purchase up to 105,000
additional shares of Common Stock upon the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If such over-allotment
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $5,635,000.00,
$563,500 and $5,071,500, respectively. See "UNDERWRITING."

The shares of Common Stock being offered by this Prospectus are offered by
the Underwriters, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters subject to certain other conditions. It is expected
that delivery of the shares of Common Stock will be made against payment
therefor at the offices of Capital West Securities, Inc., 211 North Robinson,
16th Floor, Oklahoma City, Oklahoma 73102, on or about December , 1997.

CAPITAL WEST SECURITIES, INC.

THIS PROSPECTUS IS DATED DECEMBER , 1997

<PAGE> 5

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THEIR MARKET PRICE OR
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
---------------------

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK IN ACCORDANCE WITH RULE
103 OF REGULATION M. SEE "UNDERWRITING."

---------------------

The Company's executive officers and directors, entities affiliated with
them and employees of the Company and holders of at least 5% of the outstanding
Common Stock affiliated with the executive officers and directors will
beneficially own shares of Common Stock representing more than 35% of the total
voting power of the Common Stock after giving effect to the Offering. These
persons, if acting in concert, will be able to exercise control over the
Company's affairs and are likely to be able to control the Board of Directors
and the disposition of any matter submitted to a vote of stockholders. See,
"RISK FACTORS -- Voting Control by Existing Management and Stockholders" and
"PRINCIPAL STOCKHOLDERS."

---------------------

The Company has filed a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") with respect to the Securities offered pursuant to this
Prospectus. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits thereto. For further information, reference is made to the
Registration Statement and amendments thereof and to the exhibits thereto, which
are available for inspection without charge at the office of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the Registration
Statement may be obtained from the Commission at prescribed rates.
---------------------

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

---------------------

The mailing address of the Company's principal executive offices is 1120
Capital of Texas Highway South, Bldg. 3, Suite 300, Austin, Texas 78746, and its
telephone number is (512) 329-7255.

2
<PAGE> 6
GRAND ADVENTURES TOUR &
TRAVEL PUBLISHING CORPORATION
GATT

WHAT WE DO:

[AIRPLANE PHOTO]

[THE INTERLINER]

There are currently over two million active and retired airline employees
in the world that enjoy traveling at little or no cost on virtually any
airline. These people are collectively referred to as Interliners. Most of
these employees also have spouses, parents and children to whom they may also
extend this travel benefit. The company estimates that this market spends at
least $3 billion annually on travel services.

GATT STAT

The airline employee market represents over $3 billion in travel expenditures
annually.

GATT STAT

interlining - n. the airline employee benefit of discounted or free flights,
usually offered on a space available basis.

[PHOTO OF A COUPLE]

[THE DEAL]

This market also enjoys, on a courtesy basis, discounts as extended by
hotel resorts and cruise lines. These courtesy discounts are both numerous
and ever changing, and GATT provides the only magazine solely dedicated to
publishing this information on a bi-monthly basis. This communications
platform, as well as GATT's ability to provide many of the lodging and cruise
accommodations described in their magazine, provides the company with a
distinct advantage in its marketing of resort and cruise properties.
<PAGE> 7
Grand Adventures Tour & Travel Publishing Corporation (GATT) is a provider of
information and travel services to the airline employee market. The unique
combination of a full line of travel services and the only independent
bi-monthly magazine targeting airline employees, INTERLINE ADVENTURES, positions
GATT to utilize the proceeds of this offering in order to greatly expand its
marketing presence. The company believes that its current efforts reach less
than 5% of their potential market.

[PHOTO - SWIMMING POOL]
[THE PITCH]

Specifically the company generates revenues by selling travel
accommodations to airline employees. GATT supplies resort, cruise, and tour
products to thousands of destinations, at all type of resorts, on every major
cruise line, and a number of superior escorted tour companies. The company
earns sufficient revenue from subscriptions for and advertising within the
magazine, to cover substantially all of the company's over-all marketing
expenses. The company anticipates that a substantial increase in circulation
as contemplated by this offering could eventually lead to the recognition of
publishing as a distinct profit center.

GATT STAT
Top-selling interline resort destinations are Cancun followed by Cozumel and
Jamaica.

GATT STAT
GATT publishes more than 1,500,000 collateral pieces annually.

[PHOTO - BEACH SCENE]

In addition to the company's primary "push" marketing vehicle, the
magazine, it also employs a number of "pull" marketing strategies including a
group of over 500 active airline employees who serve as field representatives.
These reps distribute updates to the magazine in break rooms and reservation
centers across North America and Europe. The company also utilizes fax
broadcasting and has a new interactive web site located at http://perx.com.
[THE CLOSE]

[PRINT]

Published bi-monthly, INTERLINE ADVENTURES is recognized as the premiere
airline employee travel magazine, celebrating more than 27 years in print. The
magazine, in conjunction with the INTERLINE UPDATE brochure, constitute GATT's
major marketing "push" vehicles.

[PHOTO - MAGAZINE COVER]

[NEW MEDIA]

GATT's interactive web site, perx.com, offers airline employees instant and
convenient access to booking information, travel tips, and on-line excerpts from
INTERLINE ADVENTURES.

[PHOTO - WEB SITE SCREEN]

<PAGE> 8

SUMMARY

The following summary is qualified in its entirety by reference to the
detailed information and financial statements (including the notes thereto) and
the pro forma financial information appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus: (i) reflects a
1-for-7 reverse split of Common Stock effective prior to commencement of this
Offering (the "Reverse Stock Split"); (ii) assumes the conversion of
approximately $905,182 of the Company's convertible indebtedness into 395,303
shares of Common Stock upon the closing of this Offering (the "Conversion"); and
(iii) assumes that the Underwriters' over-allotment option will not be
exercised.

THE COMPANY

The Publishing Division produces, publishes, and distributes Interline
Adventures, a 27 year-old, four-color, 120 plus-page, bi-monthly magazine, and
then supplements that publication with other information between the editions of
the larger magazine. The Marketing Division, under the name "Interline
TravelReps," provides hotel and resort accommodations, consisting of rooms or
vacation packages (comprised of some combination of rooms, meals and services)
and berths or seats on cruises and escorted tours.

The Company uses the operations of the Publishing Division to market the
products offered by the Marketing Division. In addition to advertising and
products sold by the Marketing Division, the Publishing Division advertises
other travel accommodations and travel services in exchange for advertising
revenues or "room night" credits which can then be sold by the Marketing
Division. The Marketing Division procures its supply of hotel and resort
accommodations, cruise ship cabins, and tour reservations from the operators of
those businesses and then sells the products to the interliner at a price which
reflects a discount to the prevailing retail price. The amount charged to the
customer is established and published in the magazine and in the Company's other
publications and is quoted over the telephone by the Marketing Division's
reservation specialists.

Prior to commencing its operations within the interline travel industry,
the Company existed under the name "Riley Enterprises, Inc." but conducted no
business under that name. Prior to changing its name to Riley Enterprises, Inc.,
the Company operated under the name "Pace Group International, Inc." as a
producer of English language educational materials.

MARKET OPPORTUNITY

The market that exists to service the interline market is highly
fragmented, generally consisting of small operators serving the market either as
an adjunct to a retail tour operation or by concentrating on an extremely narrow
segment. There are a handful of major interline companies that are established
and offer a relatively broad service, yet none of these operations could be
considered to have a dominant position. The Company believes that with
sufficient capital, it will be able to publish its magazine more frequently, and
more importantly, print and distribute a much larger number of copies, thereby
dramatically enhancing the Company's market presence. The increased distribution
levels should also serve to enhance the Company's ability to realize advertising
income and market its travel products.

3
<PAGE> 9

The Company's supply of travel accommodations is contingent upon the
existence of unused or unreserved travel accommodations. As the Company's
customer base grows, or as the retail travel market fully utilizes the travel
accommodations in a given market, the Company may encounter difficulty providing
its customers the accommodations they desire. See, "RISK FACTORS -- Dependence
on Travel Suppliers." The Company believes that the increased market presence it
hopes to achieve with the proceeds of this Offering will assist in its
development of more assured sources of its existing travel products and of a
broader range of products which will present viable alternatives for interline
customers should their first choice of travel products not be available.

RECENT EVENTS

Since September 1, 1997, the Company has realized gross proceeds of
$500,050 from a private placement (referred to hereinafter as the "1997 Private
Placement") of Subordinated Promissory Notes in an aggregate principal amount of
$500,000 and 500,000 shares of Common Stock (adjusted to approximately 71,469 as
a result of the Reverse Stock Split.) The Common Stock offered to the purchaser
of Subordinated Promissory Notes was sold for a per share consideration of
$.0007, as adjusted for the Reverse Stock Split. In connection with the issuance
of these shares of Common Stock, the Company will recognize a one-time,
non-recurring, non-cash expense of $499,950, which equals the difference between
the Company's estimation of the fair market value of the Common Stock at the
date of issuance and the consideration paid by noteholders in connection with
such issuance.

The Company anticipates that, prior to consummation of this Offering, it
will have effected a 1 for 7 reverse stock split (referred to hereinafter as the
"Reverse Stock Split") and that the holders of approximately $905,182 of the
Company's convertible indebtedness will convert such indebtedness into 395,303
shares of Common Stock (the "Conversion"). Unless otherwise indicated, the
information in this Prospectus assumes that the 1997 Private Placement, the
Conversion and the Reverse Stock Split were consummated prior to this Offering.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "SELECTED FINANCIAL INFORMATION."

4
<PAGE> 10

THE OFFERING

Common Stock Offered....... 700,000 shares

Common Stock Outstanding...
Prior to the
Offering(1)................ 1,827,021
After the Offering(1).... 2,527,021

Use of Proceeds............ The Company intends to use the net proceeds of the
Offering to retire the notes issued in the 1997
Private Placement; expand its magazine
publications; furniture and equipment and for
operating capital and general corporate purposes.
See "USE OF PROCEEDS."

Proposed American Stock

Exchange Symbol.......... GAT
- ---------------

(1) Does not include: (i) 292,066 shares of Common Stock issuable upon exercise
of warrants issued and outstanding as of the date of this Prospectus; (ii)
shares of Common Stock issuable upon exercise of the Underwriters' Warrants
to be issued in connection with the sale of shares of Common Stock in this
Offering; or (iii) 450,000 shares of Common Stock reserved for issuance
under the Company's stock option plans, of which 105,666 shares are subject
to outstanding options. See "UNDERWRITING" and "MANAGEMENT -- Stock Option
Plans."

RISK FACTORS

The securities offered hereby are speculative and involve a high degree of
risk, including risk associated with the travel industry, general economic
conditions, dependence on suppliers and technology, competition and the risks of
development stage companies in general. Investors should carefully consider the
risk factors enumerated herein before investing in the Common Stock. See "RISK
FACTORS."

5
<PAGE> 11

SUMMARY -- FINANCIAL AND OPERATING DATA

The following table sets forth selected historical financial information of
the Company for each of the two fiscal years ended December 31, 1995 and 1996
and the nine months ended September 30, 1997, all as adjusted for the Reverse
Stock Split. The following financial information should be read in conjunction
with such financial statements, including the notes thereto and the Pro Forma
Balance Sheet included elsewhere herein. Also see "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -----------------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues
Hotel revenue................................. $2,289,018 $ 4,249,454 $3,473,835
Cruise and tour revenue....................... 0 6,339,179 5,722,149
Magazine subscription and advertising
revenue.................................... 0 374,789 340,276
Merchandise and other revenue................. 37,874 39,904 14,013
---------- ----------- ----------
Total Revenues........................ 2,326,892 11,003,326 9,550,273
---------- ----------- ----------
Cost of Sales
Hotel cost.................................... 1,751,919 3,273,552 2,520,221
Cruise and tour cost.......................... 0 5,562,876 5,078,400
Magazine publishing cost...................... 0 75,120 396,201
Merchandise cost.............................. 13,822 2,340 0
---------- ----------- ----------
Total Cost of Sales................... 1,765,741 8,913,888 7,994,822
---------- ----------- ----------
Gross Profit.......................... 561,151 2,089,438 1,555,451
Operating Expenses
Selling, general and administrative
expenses................................... 530,488 1,816,025 704,360
Wages......................................... 342,544 1,111,081 803,436
Depreciation and amortization................. 52,863 34,987 29,978
---------- ----------- ----------
Total Operating Expenses.............. 925,895 2,962,093 1,537,774
---------- ----------- ----------
Net Loss Before Income Taxes.................... (364,744 (872,655 17,676
Income Tax Expense.............................. 0 0 0
Net (Loss)...................................... $ (364,744) $ (872,655) $ 17,676
========== =========== ==========
Net (Loss) Per Common Share (Note 2)............ $ (0.28) $ (0.64) $ 0.01
========== =========== ==========
Weighted Average Common Shares Outstanding
(adjusted for 1 for 7 reverse stock split).... 1,300,000 1,361,430 1,631,839
========== =========== ==========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------------
PRO FORMA
AS ADJUSTED PRO FORMA
FOR THE 1997 AS ADJUSTED FOR
ACTUAL PRIVATE PLACEMENT THE OFFERING
----------- ----------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.......................... $ 190,870 $ 640,920 $ 4,140,920
Total Assets....................................... 2,239,574 2,689,624 6,189,624
Long-term Obligations.............................. 803,480 1,303,480 64,473
Accumulated Deficit................................ (1,775,131) (2,325,081) (2,325,081)
Total Stockholders' Equity......................... (1,175,971) (1,225,921) 3,679,261
</TABLE>

6
<PAGE> 12

RISK FACTORS

In consideration whether to subscribe for the purchase of Shares, investors
should consider the following:

LIMITED HISTORICAL FINANCIAL INFORMATION

The financial statements included within this Prospectus contain unaudited
pro forma financial information as of December 31, 1995, all as more
particularly set forth in the notes to such historical and pro forma financial
statements. This historical financial information is being furnished in
accordance with applicable disclosure requirements. Investors are cautioned,
however, that the results of operations of these divisions prior to their
acquisition by the Company are not likely to be indicative of the results of
operations of such divisions thereafter because of changes in management,
operating plans, integration of the various operating divisions, the Company's
long-term strategic plan, and other factors. Similarly, the financial
information respecting the Company since December 31, 1995, while the Company
was integrating the operations of the acquired divisions, implementing changes
in management policies and practices, and effecting other broad-scale changes
may not be indicative of the results of operations for the combined enterprise
in the future.

ABSENCE OF OPERATING CAPITAL/GOING CONCERN QUALIFICATION

The Company has an accumulated deficit of $1,775,131 as of September 30,
1997, and the Company's auditors for fiscal year 1996 included in their audit
opinions a qualification regarding the Company's ability to continue as a going
concern. Historically, the Company has had insufficient cash or near-cash
reserves and insufficient current sources of operating income to satisfactorily
implement its business strategy and otherwise operate effectively. This has
forced the Company to publish and distribute its informational products on an
inconsistent basis, defer the payment of certain expense and otherwise limit its
efforts to promote sales growth. Although the Company believes that this
Offering, if successful, will provide enough capital to fully implement its
business plan for the next three to five years, if implementation of the
Company's business plan does not generate cash resources in sufficient amounts
and at appropriate times, the Company may require additional capital or may be
required to slow the implementation of its business strategy. At this point in
time, there can be no assurances that the Company will be able to locate and
procure such additional capital. See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

RECENT OPERATING LOSSES

Although the Company has attained marginal profitability in its two most
recent fiscal quarters, prior to those periods and since the date of acquisition
of its current operating assets, the Company has operated at a loss. See,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." Management believes that the capital infusion represented by a
successful completion of this Offering will permit the Company to fully
implement its business plan and achieve ongoing profitability, but there can be
no assurances in this regard.

DEPENDENCE ON KEY EMPLOYEES

The Company relies on the experience and ability of its executive officers,
senior management and employees of its operating divisions, the loss of any one
of whom could have a material adverse effect on the Company. The Company's
future performance will depend on its ability to attract and retain key
personnel and skilled employees, particularly in the areas of negotiation of
agreements with travel service providers and marketing of travel service
products to interline travelers. Among the most significant of its employees are
Matthew O'Hayer, the Company's Chief Executive Officer, and Joseph S. "Jay"
Juba, the Company's President and Chief Operating Officer. Although the Company
is considering the purchase of key-man life insurance insuring the lives of
Messrs. O'Hayer and Juba, no key executive is currently covered by key man life
insurance. See, "MANAGEMENT."

7
<PAGE> 13

BUSINESS SEASONALITY

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

COMPETITION

The Company is aware of over 30 competitors in the interline travel
industry, all of which are privately-held and for which no reliable sales
information is available. Two of the companies, Caesar's and Magellan, have been
in the travel business for over 20 years and have an established market presence
and variety of products and services. In providing travel services, the Company
believes that competition in the interline industry is based principally on
market visibility and the nature and variety of products and services offered
rather than merely price. The Company believes that it benefits from being able
to offer a broad variety of products in a variety of destinations. The Company
generally offers the prevailing interline discount rate, and on specific
customer requests, typically matches lower rates offered by others. See "THE
BUSINESS -- The Marketing Division -- Competition." In publishing the Magazine,
the Company competes with the ASU Travel Guide, an approximately 400-page
quarterly listing with a significant readership. The ASU Travel Guide is not
affiliated with any reservation or travel firm providing the types of support
services offered by the Company. Although the Company has designed its products
and services and its expansion strategy with a view to operating in this
competitive environment, there can be no assurance that the Company will be able
to compete effectively or profitably. Many of the Company's competitors have
significant management and financial resources and more established market
niches than the Company. See "THE BUSINESS -- The Publishing
Division -- Competition."

DIVIDENDS NOT LIKELY

The Company makes no assurances that its proposed operations will result in
sufficient revenues to enable profitable operations or to generate positive cash
flow. For the foreseeable future, the Company anticipates that it will use any
funds available to finance the growth of the Company and that it will not pay
cash dividends to stockholders. See "DIVIDEND POLICY."

RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS

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

8
<PAGE> 14

DEPENDENCE ON TRAVEL PROVIDERS

The Company is dependent upon travel providers for access to their
capacity. The Company anticipates that a significant portion of the Company's
revenues will be derived from the sale of capacity of relatively few travel
providers. Moreover, although no individual provider represents more than 10% of
any of the Company's business segments, certain portions of the Company's
business are dominated by a limited number of providers, the loss of any of whom
as a customer of the Company could have a material adverse effect on a
substantial portion of the Company's business. The Company's agreements with its
travel providers can generally be canceled or modified by the travel provider
upon relatively short notice. The failure of a travel provider, loss of a
contract, changes in the Company's pricing agreements or commission schedules,
or more restricted access to travel providers' capacity could have a material
adverse effect on the Company's business, financial condition and results of
operations. See, "THE BUSINESS -- The Marketing Division."

The Company's supply of travel products, whether offered by a given service
provider or offered by a number of providers, within a given travel destination
is often contingent upon the availability of excess supply of such
accommodations. The Company has commitments, some of which are not legally
binding, for some accommodations which are not subject to availability of excess
capacity. Although the Company has encountered a shortage of travel
accommodations in a given market only infrequently, the Company is aware of the
possibility that a substantial growth in its interline customer base may produce
a demand for interline travel accommodations in excess of the Company's
available supply. The Company believes that there is substantial excess
capacity, both in the market for interline products generally and in particular
destinations, which is not currently made available to the Company for inclusion
within its product line and that, as the Company's interline customer base
grows, the Company will be positioned to augment its product offerings to
satisfy any increase in demand or, alternatively, to offer products which are
reasonable substitutes for products which are not available. The Company's
future success and ability to meet its growth objectives may depend on its
ability to procure additional and more certain supplies of travel products in
sufficient quantities to satisfy the demands of its customer base. See, "THE
BUSINESS -- The Marketing Division -- Sources of Supply."

DEPENDENCE UPON TECHNOLOGY

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

LISTING REQUIREMENTS

The Company has applied for listing of the Common Stock on the American
Stock Exchange ("AMEX"). The Company meets all of the AMEX listing requirements
except the requirement that the Company have had net earnings of at least
$750,000 for the most recently ended fiscal year. The Company, however, has
asked the AMEX for a waiver of this listing requirement based upon the Company's
belief that this requirement will be met in fiscal year 1998. If the waiver
application is not granted by AMEX, the Company will apply for inclusion in the
NASDAQ SmallCap Market, which may involve substantial additional time and
expense on the Company's part. See "DESCRIPTION OF SECURITIES -- Listing
Requirements."

LIMITED AND UNCERTAIN MARKET FOR COMMON STOCK

The Common Stock has been traded in the over-the-counter market and is
traded on the OTC Electronic Bulletin Board under the symbol "GATT," but there
has been very little consistent trading volume, with significant changes in the
bid and asked quotations for the Common Stock as a result of relatively minor

9
<PAGE> 15

changes in the supply and demand and without any necessary correlation between
prices and the business, prospects, or results of operations of the Company. The
Company believes that during the last few months, the Common Stock traded in
small amounts at prices of approximately $0.81 to $2.50 per share (before giving
effect to the Reverse Stock Split), but because of the lack of a continuous,
consistent trading volume, such figures should not be considered a reliable
indication of the market price for the Common Stock. Subscribers in this
Offering should be extremely cautious in relying on price quotations and other
market information respecting the Common Stock in making an investment decision.
See "DESCRIPTION OF SECURITIES -- Determination of Offering Price." The Company
believes that the current trading activity does not represent a viable trading
market for the Common Stock.

The Company has applied for listing of the Common Stock on the AMEX;
however, there can be no assurance that an active public market will develop.
The initial public offering price was determined solely through negotiations
among the Company and representatives of the Underwriters based on several
factors, and may not be indicative of the market price for the Common Stock
after the completion of the Offering. Among the factors considered in such
negotiations were prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company and the Underwriters believe to be
comparable to the Company, estimates of the business potential of the Company
and the present state of the Company's development. See "UNDERWRITING --
Determination of Offering Price."

Moreover, the trading price of the Company's Common Stock could be subject
to fluctuations in response to quarterly variations in results of operations,
announcements of new services or products by the Company or its competitors,
changes in financial estimates by securities analysts and other events or
factors. Recent history relating to the market prices of other newly public
companies indicates that the market price of the Company's Common Stock
following the Offering may be highly volatile. At various times, the stock
market has experienced volatility that has particularly affected the market
prices for stock of particular industry groups, such as retail-oriented
companies, often without regard to a particular company's operating results.

BLANK CHECK PREFERRED STOCK

The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others, and otherwise result in dilution of the holders of
Common Stock. At present, the Company has no Preferred Stock outstanding and no
plans to issue any of the Preferred Stock. See, "DESCRIPTION OF SECURITIES."

SUBSTANTIAL DILUTION

The offering price of Common Stock is substantially in excess of book
value. On the basis of an assumed offering price of $7.00 per share, this
Offering involves an immediate dilution of approximately $5.69 per share of
Common Stock (approximately 82% of the offering price per share) between the
offering price per share and the pro forma net tangible book value per share of
the Common Stock immediately after the completion of this Offering. See
"DILUTION."

FUTURE ISSUANCES OF COMMON STOCK

The Company has issued warrants to acquire common stock at exercise prices
less than the Offering Price and indebtedness entitling the holders thereof to
convert such indebtedness into shares of Common Stock at conversion prices less
than the Offering Price. The outstanding warrants entitle the holders thereof to
acquire a

10
<PAGE> 16

total of 292,066 shares of Common Stock at a weighted average exercise price of
$6.87. The convertible indebtedness issued by the Company entitled the holders
thereof, as of September 30, 1997, to acquire a total of 395,303 shares of
common stock at a weighted average conversion price of $2.29. Representations in
this Prospectus as to the number of shares of Common Stock outstanding before
and after this Offering are presented subject to the assumption that all
convertible indebtedness of the Company is converted immediately prior to the
commencement of this Offering. See, "SHARES ELIGIBLE FOR FUTURE SALE."

LIMITED UNDERWRITING EXPERIENCE

Capital West Securities, Inc ("Capital West"), one of the Underwriters, was
first registered as a broker-dealer in May 1995 and has participated in only
eight public equity offerings as an underwriter, acting as a manager or
comanager in five of those offerings. All eight of the public offerings were
successfully completed. Prospective purchasers of the securities offered hereby
should consider this limited experience in evaluating this Offering. See
"UNDERWRITING."

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of shares of Common Stock by the Company or its existing
stockholders, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock. Upon completion of the Offering,
2,527,021 shares of Common Stock will be outstanding (2,632,021 shares
outstanding assuming exercise of the Underwriters' overallotment option in
full). Of the outstanding shares, the 700,000 shares (805,000 shares assuming
the Underwriters' overallotment option is exercised in full) sold in the
Offering, and approximately 40,000 shares held by existing stockholders who are
not, as of the date of this Prospectus, "affiliates" of the Company, will be
tradeable without restriction. The remaining shares of Common Stock to be
outstanding after the Offering are "restricted securities" (the "Restricted
Securities") within the meaning of Rule 144 under the Securities Act and may not
be publicly resold, except in compliance with the registration requirements of
the Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144 promulgated under the Securities Act. The Company believes
that the holders of approximately 400,000 of the Restricted Securities have
satisfied the one-year holding period mandated by Rule 144 and are capable of
sale in accordance with the other requirements of that rule. Approximately 35%
of the outstanding shares of Common Stock after the Offering (assuming that the
Underwriter's over-allotment option is not exercised), in addition to being
Restricted Securities, are subject to agreements to not sell such Restricted
Shares for a 12-month period or, in the case of certain executive officers of
the Company, a 24-month period. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. See "SHARES ELIGIBLE FOR FUTURE
SALE" and "UNDERWRITING."

In addition to the outstanding shares of Common Stock, there are 242,066
shares subject to outstanding warrants and options at a weighted average
exercise price of $6.87 per share. There are also 450,000 shares of Common Stock
(assuming approval by the Company's stockholders of a proposal to reduce the
number of shares subject to the Plan to that number) reserved for issuance under
the Company's stock option plans, of which 105,666 shares are subject to
outstanding options at a weighted average exercise price of $7.00 per share. See
"MANAGEMENT -- Incentive Stock Option Plan." Registration statements are
expected to be filed to permit the resale of shares issuable upon exercise and,
the resale of the shares acquired upon exercise could adversely affect the
prevailing market price of the Common Stock. See "SHARES ELIGIBLE FOR FUTURE
SALE."

CERTAIN GENERAL AND FORWARD-LOOKING INFORMATION

This Prospectus contains information developed by the Company, general
industry information from third party sources, estimates of market size and
characteristics, projected market growth, anticipated capital requirements,
assumptions concerning competitive conditions, and other matters. All of such
material is based on a number of variables, hypotheticals, and assumptions,
including third party data believed reliable but not fully verified or
verifiable independently by management of the Company. Further, the effect of
such

11
<PAGE> 17

information on the business of the Company is based on estimates and future
circumstances, including events that have not occurred, which may not occur, or
which may occur with difference consequences from those forecast. If investors
were to consult their own advisors and industry experts, it should be expected
that their views may differ from those set forth herein. Future operating
results are impossible to predict. No representation or warranty of any kind is
made by the Company, and none should be inferred, respecting the future accuracy
or completeness of such forward-looking information. See, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 700,000 shares being
offered hereby are estimated to be approximately $4.0 million (approximately
$4.6 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial offering price of $7.00 per share and after deducting the
estimated underwriting discounts and commissions and offering expenses. The
Company expects to use the net proceeds (assuming no exercise of the
Underwriters' over-allotment option) in fiscal 1998 approximately as follows:

<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE PERCENTAGE
USE DOLLAR AMOUNT OF NET PROCEEDS
--- ------------- ----------------------
<S> <C> <C>
Marketing/Publishing Expenses..................... $1,750,000 43.75%
Furniture and Equipment........................... 500,000 12.5 %
Operating Capital................................. 1,000,000 25.0 %
Repayment of debt incurred in connection with 1997
Private Placement Financing(1)(2)............... 500,000 12.73%
Repayment of accumulated past due vendor
liabilities(3)(4)............................... 250,000 6.02%
---------- ------
Total................................... $4,000,000 100.0 %
========== ===============
</TABLE>

- ---------------

(1) This debt is unsecured, bears interest at the rate of 10% per annum, and
matures on the earlier to occur of this Offering or September 30, 1999.

(2) Of this sum, approximately $200,000 was used as working capital.

(3) These debts are reflected on the Company's balance sheet as accounts
payable, do not bear interest and, although generally past due, have no
specified maturity date.

(4) All of these sums were used as working capital.

Where appropriate, proceeds of this Offering also may be used to acquire
competitors who help the Company to more completely serve its markets and
clientele or to expand the Company's clientele, although there are no present
understandings, agreements or commitments with respect to any such acquisitions.

Any remaining net proceeds are to be used for working capital and other
general corporate purposes. Pending application of the proceeds described above,
the net proceeds of the Offering will be invested in short-term, investment
grade, interest-bearing securities.

12
<PAGE> 18

DIVIDEND POLICY

The Company makes no assurance that its proposed operations will result in
sufficient revenues to enable profitable operations or to generate positive cash
flow. For the foreseeable future, the Company anticipates that it will use any
funds available to finance the growth of the Company and that it will not pay
cash dividends to stockholders.

The payment of dividends, if any, in the future is within the discretion of
the Board of Directors and will depend on the Company's earnings, its capital
requirements, restrictions imposed by lenders and financial condition and other
relevant factors.

DILUTION

At September 30, 1997, pro forma net tangible book value of the Company's
Common Stock was approximately ($701,580), or ($0.38) per share, after giving
effect to (i) the 1997 Private Placement, (ii) the Reverse Stock Split and (iii)
the Conversion, all as if completed at September 30, 1997. "Pro forma net
tangible book value" per share of Common Stock is defined as total tangible
assets of the Company less total liabilities, divided by the total number of
shares of Common Stock outstanding. Giving effect to the Offering, at an assumed
initial public offering price of $7.00 per share, the adjusted pro forma net
tangible book value of Common Stock at September 30, 1997 would have been
approximately $1.31 per share of Common Stock. This will represent an immediate
dilution of $5.69 per share to new investors purchasing shares of Common Stock
in this Offering. The following table illustrates the per share dilution to new
investors:

<TABLE>
<S> <C>
Assumed initial public offering price per share............. $ 7.00
Pro Forma net tangible book value per share at September 30,
1997...................................................... $(0.38)
Increase attributable to new investors...................... $ 1.69
Pro forma net tangible book value per share after the
Offering.................................................. $ 1.31
Dilution per share to new investors......................... $ 5.69
</TABLE>

The foregoing discussion and table do not assume the exercise of warrants
and stock options which are outstanding as of the date of this Prospectus and
entitling the holders thereof to purchase 397,733 shares of Common Stock at a
weighted average exercise price per share of $6.90, after giving effect to the
Reverse Stock Split.

A significant portion of the outstanding shares of Common Stock, including
substantially all of the shares of Common Stock owned by officers, directors and
affiliates of the Company, were issued in connection with a Merger between the
Company, a wholly-owned subsidiary of the Company and Airfair Publishing, Inc.
See "THE BUSINESS -- The Merger" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." Prior to the Merger, there was no reliable trading market for
shares of Common Stock, or any other reliable means of ascertaining the value of
the securities surrendered, as part of the merger, and in exchange for shares of
the Company's Common Stock.

13
<PAGE> 19

CAPITALIZATION

The following table sets forth: (i) the capitalization of the Company as of
September 30, 1997, as adjusted for the Reverse Stock Split; (ii) the effect of
the completion of the 1997 Private Placement, with net proceeds to the Company
of approximately $450,000, as if completed at September 30, 1997; and (iii) the
pro forma capitalization of the Company as of such date, after giving effect to
the Conversion and the sale of the 700,000 shares of Common Stock offered hereby
at an assumed offering price of $7.00 per share. This table should be read in
conjunction with "USE OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "PRO FORMA BALANCE SHEET" and
the financial statements and notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------
PRO FORMA
--------------------------------------------------
AS ADJUSTED AS ADJUSTED
FOR THE FOR THE AS ADJUSTED
REVERSE STOCK 1997 PRIVATE FOR THE
SPLIT(1)(2) PLACEMENT(1)(3) OFFERING(4)(5)
------------- --------------- --------------
<S> <C> <C> <C>
Long-term obligations............................ $ 803,480 $ 1,303,480 $ 64,473
Stockholders' equity:
Preferred stock -- 10,000,000 shares authorized;
none issued and outstanding at September 30,
1997........................................... -- -- --
Common Stock; $.0001 par value: 30,000,000 shares
authorized; 1,431,718 shares issued and
outstanding at September 30, 1997; 2,527,021
shares issued and outstanding as adjusted for
the Offering and the Conversion................ $ 136 $ 143 $ 253
Additional paid-in capital....................... $ 599,024 $ 1,099,017 $ 6,004,089
Accumulated deficit.............................. $(1,775,131) $(2,325,081) $(2,325,081)
Total stockholders' equity............. $(1,175,971) $(1,225,921) $ 3,679,261
Total capitalization................... $ (372,491) $ 77,559 $ 3,743,734
</TABLE>

- ---------------

(1) Excludes 450,000 shares of Common Stock reserved for issuance pursuant to
the Company's stock option plans (of which 105,666 are subject to
outstanding options), and 292,066 shares subject to outstanding warrants.
See "MANAGEMENT -- Stock Option Plans," "DESCRIPTION OF SECURITIES" and
"SHARES ELIGIBLE FOR FUTURE SALE."

(2) See Note 1 to Selected Financial Information on page 16.

(3) See Note 2 to Selected Financial Information on page 16.

(4) Excludes 450,000 shares of Common Stock reserved for issuance pursuant to
the Company's stock option plans (of which 105,666 are subject to
outstanding options), and 372,066 shares subject to outstanding warrants.
See "MANAGEMENT -- Stock Option Plans," "DESCRIPTION OF SECURITIES" and
"SHARES ELIGIBLE FOR FUTURE SALE."

(5) See Note 3 to Selected Financial Information on page 16.

14
<PAGE> 20

SELECTED FINANCIAL INFORMATION

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA FOR THE 1 FOR 7
ADJUSTMENTS ADJUSTMENTS STOCK SPLIT AND PRO FORMA
FOR FOR THE 1997 ADJUSTMENTS PRO FORMA
1 FOR 7 PRIVATE PRIVATE FOR THE FOR THE
ACTUAL STOCK SPLIT(1) PLACEMENT(2) PLACEMENT(1)(2) OFFERING(3) OFFERING(1)(2)(3)
----------- -------------- ------------ --------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents --
restricted................ $ 190,870 $ 450,050(2) $ 640,920 $ 3,500,000(3) $ 4,140,920
Accounts receivable, net of
allowance for doubtful
accounts of $8,810 in
1997...................... 76,254 76,254 0 76,254
Due from affiliate.......... 140,134 140,134 0 140,134
Prepaid expenses............ 0 0 0
Prepaid hotel cost.......... 565,744 565,744 0 565,744
Prepaid cruise and tour
cost...................... 810,321 810,321 0 810,321
----------- ----- --------- ----------- ----------- -----------
Total Current
Assets.............. 1,783,323 0 450,050 2,233,373 3,500,000 5,733,373
Property and Equipment, at
cost, net of accumulated
depreciation................ 49,300 49,300 0 49,300
Other Assets
Deferred charges and other
assets.................... 26,113 26,113 0 26,113
Intangible assets, net of
accumulated
amortization.............. 380,838 380,838 0 380,838
----------- ----- --------- ----------- ----------- -----------
$ 2,239,574 $ 0 $ 450,050 $ 2,689,624 $ 3,500,000 $ 6,189,624
=========== ===== ========= =========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable............ $ 343,434 $ 343,434 0 $ 343,434
Other current liabilities... 482,964 482,964 (21,675)(3) 461,289
Current portion of long-term
debt...................... 337,339 337,339 (144,500)(3) 192,839
Due to affiliate............ 0 0
Deferred hotel revenue...... 501,754 501,754 0 501,754
Deferred cruise and tour
revenue................... 827,581 827,581 0 827,581
Deferred subscription
revenue................... 118,994 118,994 0 118,994
----------- ----- --------- ----------- ----------- -----------
Total Current
Liabilities......... 2,612,066 2,612,066 (166,175) 2,445,891
Other Liabilities
Long-term debt.............. 803,480 500,000(2) 1,303,480 (1,239,007)(3) 64,473
Deferred discount........... 0 0 0
----------- ----- --------- ----------- ----------- -----------
Total Other
Liabilities......... 803,480 500,000 1,303,480 (1,239,007) 64,473
Stockholders' (Deficit)
Preferred stock, no par
value; authorized
10,000,000 shares; none
issued and outstanding.... -- --
Common stock $.0001 par
value; authorized
30,000,000 shares......... 952 (816)(1) 7(2) 143 110(3) 253
Additional paid-in
capital................... 598,208 816(1) 499,993(2) 1,099,017 4,905,072(3) 6,004,089
Accumulated deficit......... (1,775,131) (549,950)(2) (2,325,081) 0 (2,325,081)
----------- ----- --------- ----------- ----------- -----------
Total Stockholders'
(Deficit)........... (1,175,971) 0 (49,950) (1,225,921) 4,905,182 3,679,261
----------- ----- --------- ----------- ----------- -----------
$ 2,239,574 $ 0 $ 450,050 $ 2,689,624 $ 3,500,000 $ 6,189,624
=========== ===== ========= =========== =========== ===========
</TABLE>

15
<PAGE> 21

- ---------------

(1) The 1 for 7 Reverse Stock Split:

<TABLE>
<S> <C>
Outstanding shares of Common Stock Before Split:............ 9,522,024
Outstanding shares of Common Stock After Split:........... 1,360,289
Decrease in shares outstanding:........................... 8,161,735
Decrease in par value outstanding @ $0.0001 per share:.... $ 816
</TABLE>

(2) The 1997 Private Placement (as adjusted for the Reverse Stock Split):

<TABLE>
<S> <C>
Record issuance of Private Placement Notes Payable
Gross Notes Payable:...................................... $500,000
Less Commissions (Charged to Earnings):..................... (50,000)
Plus Proceeds From Sale of Stock (71,429 shares @
$.0007):............................................... 50
Net Proceeds:............................................... $450,050
</TABLE>

Record charge to earnings for discounted stock price:

<TABLE>
<S> <C>
Offering Price.............................................. $ 7.00
Price of shares in the Private Placement.................... 0.0007
Estimated discounted value per share........................ $ 6.9993
Shares in Private Placement................................. 71,429
Additional charge to earnings for Private Placement......... $499,950
</TABLE>

(3) The Offering:

<TABLE>
<S> <C>
Record Public Offering of Common Stock Offering Proceeds
(700,000 shares @ $7.00).................................. $4,900,000
Less: Commissions......................................... (490,000)
Less: Offering Expenses................................... (410,000)
Less: Repayment of Private Placement Debt................. (500,000)
Net Proceeds.............................................. $3,500,000
Record Conversion of Debt to Common Stock
Accrued Interest on Convertible Debt...................... $ 21,675
Short-term Convertible Debt............................... $ 144,500
Long-term Convertible Debt................................ $ 739,007
Total Converted Debt...................................... $ 905,182
Number of Common Shares issued on conversion.............. 395,303
Record Stockholder Equity Accounts
Total Offering Shares..................................... 700,000
Total Converted Shares.................................... 395,303
Total Shares Issued....................................... 1,095,303
Par value of shares issued @ $0.0001 per share............ $ 110
Additional Paid-in Capital................................ $4,905,072
Total Shares Outstanding After Offering:.......... 2,527,021
</TABLE>

16
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The Company was incorporated October, 1987 under the name "Pace Group
International, Inc." and, until November 1995, through a wholly-owned
subsidiary, marketed English language training programs developed by the
Company's founder. The Company ceased doing business under the Pace name in
November 1995 and changed its name to Riley Investments, Inc. Effective October
10, 1996, the Company merged a newly formed and wholly-owned acquisition
subsidiary with and into Airfair Publishing, Inc. ("Airfair"), which owned the
assets what now comprise substantially all of the operating assets and business
of the Company. Airfair became a wholly-owned subsidiary of the Company
following the merger and conducts all of the Company's operations. In view of
the merger and the new management team installed in connection with the merger,
operating strategies, expansion plans, resources, and other factors, management
does not believe that a discussion of the operations of the Company prior to the
Airfair merger would be meaningful. Effective January 1, 1997, the Company
combined the operations of the hotel and resort divisions together with the
cruise and escorted tour divisions into a single division called "Interline
Travel Reps."

BEI Holdings, Inc. ("BEI"), formed Airfair as a subsidiary on January 5,
1996, with the intention of using it to consolidate its interline industry
activities. On January 13, 1996, effective December 31, 1995, Airfair acquired
certain assets and assumed certain liabilities that became the Cruise and
Magazine divisions of Airfair in consideration of the assumption of $593,791 in
liabilities. Following the organization of Airfair, Inventory Merchandising
Services, ("IMS"), a subsidiary of BEI, transferred its hotel and resort
operations to Airfair, effective January 1, 1996 (these assets had been acquired
from an unrelated third party, on December 1, 1994, in consideration of the
assumption of $144,394 in liabilities). In the spring of 1996, BEI distributed
all of its shares of Airfair's common stock to its shareholders.

FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION

The Company had a negative working capital of $828,743 as of September
30,1997, as compared to a negative working capital of $1,101,503 at September
30, 1996. The primary causes for this deficit in working capital was the loss
from operations of $452,240 for the twelve-month interim period from September
1996 to September 1997 and monthly debt service that had reached approximately
$20,000 per month. The Company ended the third quarter with $2,612,066 in
current liabilities as compared to $2,338,633 for the prior year comparable
quarter. This increase in current liabilities was a result of the Company's
inability to generate enough cash funds during the year to adequately sustain
the Company's acquisitions and management's desire to grow sales through
increasing the number of issues, size, distribution and quality of the Magazine.
The largest components of current liabilities are accounts payable of $343,434
(of which $277,171 are greater than 90 days past due), as compared to $578,988
in accounts payable as of December 31, 1996, of which $313,271 were more than 90
days past due; accrued expenses and negative cash balances of $482,964; current
portion of notes payable of $337,339, and deferred revenues relating to hotels,
cruises and tours and magazine subscriptions of $1,448,329. A large portion of
accounts payable are made up of amounts due for telephone services and the
publication of the Magazine. The Company has been diligently working with its
primary vendors to work out payment schedules. During the quarter ended
September, 30, 1997, one of the Company's printing vendors agreed to convert its
trade payable balance of $6,398 to a note payable bearing interest at 8% per
annum and providing for twelve monthly payments. During the first six months of
1997, five of the

17
<PAGE> 23

Company's vendors agreed to convert their accumulated accounts payable balances
to notes in accordance with the following schedule:

<TABLE>
<CAPTION>
VENDOR (TYPE) ACCOUNT PAYABLE BALANCE INTEREST RATE # OF MONTHLY PAYMENTS
- ------------- ----------------------- ------------- ---------------------
<S> <C> <C> <C>
printing.. $ 9,548 10% 48
computer.. $25,000 10% 24
printing.. $27,206 9% 48
printing.. $36,905 6% 9
printing.. $53,502 8% 32
</TABLE>

Accrued expenses of $482,964 are comprised mainly of payroll, vacation,
commissions, note interest negative cash balances, and general administrative
expenses. Deferred revenues for hotels and cruises represent the moneys received
from passengers that are deferred for revenue recognition purposes until the
passenger has completed travel. These deferred liabilities are very short-term
in nature due to the short time from between booking date and travel date.
Amounts deferred for hotels were $501,754 and for cruises $827,581 at September
30, 1997. Deferred subscription revenue of $118,994 represents subscription
moneys received but not earned at quarter end. Magazine subscriptions are
normally paid in full in advance for the one- or two-year subscription period.
Revenue is earned on a prorata basis as the magazines are printed and shipped to
the subscribers.

Total notes payable of $1,140,818 are detailed in Note 7 of the financial
statements. The holder of the acquisition notes agreed to a substantially
discounted payoff on these notes in April, 1997. The Company completely
extinguished this debt through the payment of $75,000 in cash in April, 1997.
The discount amounted to a reduction of $224,792 in the debt balance and an
equal reduction in the amount of goodwill created in the acquisition. The
Company obtained an additional $500,000 in financing during the quarter ended
June 30, 1997 through the issuance of convertible debentures due April, 2000.
These debentures bear a 7% annual interest rate due on each anniversary. The
Company may pay the interest due with shares of the Company's common stock at
the rate of one share for each $3.50 of interest due. The holders of the
debentures may convert the unpaid principal into shares of the Company's common
stock at a conversion price of $1.75 per share. These debentures were issued
with warrants which entitle the holders thereof to purchase 142,858 shares of
the Company's common stock at a exercise price of $7.00 per share, as adjusted
for the Reverse Stock Split. The Company also negotiated an agreement with the
holder of an existing note to lend an additional $80,000 so as to permit the
Company to publish one issue of the Magazine. Of the total of $1,140,818 in
notes, the current portion amounts to $337,339 and the long-term portion equals
$803,480.

Included in other liabilities of the previous quarter besides the long term
debt was a deferred discount of $54,644 that was received as a service discount
from the Company's long distance telephone carrier in 1996 upon the execution of
a long term agreement. The agreement required the Company to use a minimum of
$240,000 in annual long distance services for a period of three years. If the
Company failed to utilize the required minimum usage, the discount was to be
forfeited. The Company renegotiated this agreement during the current quarter
and the deferred discount was forgiven and became fully earned.

The Company had $2,239,574 in total assets at September 30, 1997 compared
to assets of $1,915,169 at the end of September 30, 1996. Of the cash balance of
$190,870, approximately $190,605 represents escrow deposits required by the
Company's previous and current banks as a reserve for charge backs against the
Company's Visa/MasterCard credit card processing and the remaining $265
represents petty cash. The Company has ceased processing Visa/MasterCard charges
through its previous processor, who has agreed to return all unused escrow funds
to the Company by May, 1998. The Company has had a history of minimal charge
backs. The Company contracted with a another credit card processor, as of July
1, 1997, to continue credit card processing. The new processor is requiring a
six-month rolling reserve of 5% of monthly credit card receipts. Approximately
70% of the Company's hotel and resort sales are generated through credit cards.
The accounts receivable of $76,254 is comprised primarily of advertising revenue
from vendors that advertised in the Magazine and updates. Prepaid tour cost and
prepaid cruise cost of $575,744 and $810,321, respectfully, represent funds paid
to hotels and cruise lines as of September, 1997, for travel dates that occur
after that date.

18
<PAGE> 24

These prepaid items relate directly to the previously discussed deferred
revenues and are also very short-term in nature. Goodwill consist of the excess
of purchase price over net assets acquired during the aforementioned
acquisitions. However, goodwill associated with the cruise and magazine
divisions was reduced by $224,963 during the quarter due to a reduced lump sum
settlement of the notes due the prior owners of the acquired assets.

RESULTS OF OPERATIONS

Overall Operating Results

The Company had net income for the quarter ended September 30, 1997 of
$72,779, as compared to a loss of $55,103 for the previous six months of 1997.
The primary cause for the third quarter gain was an increase in sales of
$224,069 over the previous quarter as well as recognizing the deferred discount
from the long distance carrier. The Company also repriced the hotel rooms it
purchased from IMS in accordance with the Marketing Agreement. See Note 7 Due to
Affiliate within the financial statements and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." The Company had previously estimated the cost of these room
purchases until adequate data was available in order to properly cost out this
contractual agreement. The result of the recalculation was that the Company had
overpaid IMS approximately $159,000 for the purchase of these utilized hotel
rooms and therefore had overstated cost of goods sold. The Company has changed
the room cost in the reservation system for future purchases. The following
schedule reflects the effects of this repricing applied to the periods in which
incurred:

<TABLE>
<CAPTION>
QUARTERLY NET ADJUSTMENT FOR ALLOCATION OF COST QUARTERLY NET
INCOME (LOSS AS REDUCTION OF COST REDUCTION TO PERIOD INCOME (LOSS) AS
REPORTED ON REPRICED ROOMS INCURRED ADJUSTED
---------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C>
March 31, 1996....... $(163,546) 18,353 $(145,193)
June 30, 1996........ 11,316 15,383 26,699
September 30, 1996... (250,509) 17,439 (233,070)
December 31, 1996.... (469,916) 8,418 (461,498)
--------- -------- ---------
Total 1996........... $(872,655) $ 0 $ 59,593 $(813,062)
March 31, 1997....... $ (75,323) 26,933 $ (48,390)
June 30, 1997........ 20,220 34,148 54,368
September 30, 1997... 72,779 (159,835) 39,161 (47,895)
--------- --------- -------- ---------
Total 9 Months
1997............... $ 17,676 $(159,835) $100,242 $ (41,917)
Total Adjustment..... $(159,835) 159,835
</TABLE>

For the nine months ended September 30, 1997 the Company had a net loss of
$41,917 as adjusted for the above repricing as compared to a net loss $351,564
for the comparable period of 1996. The decreased loss in 1997 is the result of
an increase in sales of approximately $1,100,000 over the 1996 period as well a
reduction in operating expenses of approximately $245,000 over the same period.
The increase in sales is primarily attributed to repeat customer sales, a larger
property portfolio and an additional year of experience in the cruise market.
The funding of publications has come primarily from funding provided by the debt
instruments mentioned previously. Management set a goal in the latter part of
1996 of increasing sales through increasing the size, quality and distribution
of the Magazine. The Magazine's production schedule was to be increased to every
two months as opposed to every three months before the Company's acquisition of
the Magazine. The Magazine also produces an update brochure promoting hotel and
cruise specials for bulk distribution through Airport offices. Management
believes that increased circulation will increase the value of the publications
to both advertisers and subscribers. The Company intends for the Magazine
Division to increase revenue from either or both of advertising or subscriptions
to the point where the Magazine Division will at least break even in 1998.

19
<PAGE> 25

Revenue

Gross revenue for the quarter ended September 30, 1997, was $3,607,327 an
increase of $224,069 over the June, 1997 quarter revenues of $3,383,258. Hotel
sales of $1,105,218 for the current quarter represent a 16% decrease for the
September, 1997 quarter compared to $1,324,238 for the June quarter. The
decrease in hotel sales was primarily caused by the unavailability of rooms
during the quarter at one of the Company's primary resort locations (Cancun),
which is attributed to overwhelming retail demand for hotel/resort space in that
market. However, the Marketing Division has substantially increased the number
of properties available to the interline market during the year. Gross cruise
and tour revenue equaled $2,317,601 for the 1997 September quarter, an increase
of $364,983 over the second quarter. The Company recognizes hotel and cruise
revenues on a "booked, paid, traveled" basis, (i.e. revenue is not earned until
the passenger has completed travel).

Gross revenue for the nine months ended September 30, 1997 increased
$1,086,623 over the comparable nine months of 1996. Cruise and tour revenues
accounted for $955,610 of this increase, while hotels increased $86,949 over
this time frame. Management believes that these increases are attributable to an
increased presence in the marketplace.

Cost of Goods Sold

Hotel cost has been restated in the following schedule to reflect the
effects of repricing of the IMS rooms aforementioned:

<TABLE>
<CAPTION>
ADJUSTMENT FOR ALLOCATION OF
REDUCTION OF COST COST REDUCTION ADJUSTED
HOTEL REVENUE HOTEL COST ON REPRICED TO PERIOD ROOM
AS REPORTED AS REPORTED ROOMS INCURRED COST
------------- ----------- ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
March 31, 1996....... $ 915,177 710,827 (18,353) $ 692,474
June 30, 1996........ 1,264,958 963,240 (15,383) 947,857
September 30, 1996... 1,206,751 933,536 (17,439) 916,097
December 31, 1996.... 862,568 665,949 (8,418) 657,531
---------- ---------- --------- ----------
Total 1996........... $4,249,454 $3,273,552 $ 0 $ (59,593) $3,213,959
March 31, 1997....... $1,044,379 813,848 (26,933) $ 786,915
June 30, 1997........ 1,324,238 1,018,773 (34,148) 984,625
September 30, 1997... 1,105,218 687,600 159,835 (39,161) 808,274
---------- ---------- -------- --------- ----------
Total 9 months
1997............... $3,473,835 2,520,221 $159,835 $(100,242) $2,579,814
Total Adjustment..... 159,835 (159,835)
</TABLE>

The Marketing Division had adjusted cost of sales of $808,274 on sales of
$1,105,218 for the current quarter producing a gross margin of $296,944, or
26.8% of sales. The comparable second quarter hotel cost of sales were $984,625
generating a gross margin of $339,613, or 25.6% on sales of $1,324,238. The
cruise division generated a gross margin of $239,322 or 10.3% on sales of
$2,317,601 for the quarter ended September 30, 1997. This compares to the prior
quarterly margin of $232,362 or 11.9% on sales of $1,952,618. Average margins on
cruises can range from 10% to 18% depending on cruise line space availability.

The adjusted margin for hotel sales for the nine months ended September 30,
1997, was $894,021 or 25.7% of sales. Cruise and tour gross margin for the same
period was $643,749 or 11.3% of sales. The comparable 1996 margin for hotels was
$830,458 or 24.5% of hotel sales. Cruises in 1996 produced a $599,648 margin or
12.5% of sales. The larger 1996 cruise margin percentage is attributable result
of one unusual under-booked cruise in June 1996 on which the Company was able to
acquire births and then sell to produce a margin of approximately $84,000 on
sales of approximately $110,000.

Operating Expenses

Operating expenses for the quarter ended September 30, 1997 were $622,744,
as compared to $436,573 for the second quarter. The increase was caused by of
increased computer programming cost for modifications

20
<PAGE> 26

to the reservation system, commissions incurred for the relatively new Germany
and Canada operations which receive 60% of the margins on their production (in
recognition of their obligations to bear their operating costs), an increase of
1% in the discount fee charged by the new credit card processors, increased
travel to industry trade and vendor meetings, and increased expenses associated
with disseminating advertising material to the airline employees such as the
weekly fax communications, printing expenses of the Germany Guide and the
Suntrust brochure. The Suntrust brochure was a concept where the Company agreed
with Suntrust bank to market selected Company properties to the credit card
holders of the bank. The project was abandoned after a poor response rate.
Contracts were negotiated during the year with separate travel operators in
Germany and Canada where they are able to sell the Company's properties to their
respective markets. These operations are expected to significantly increase
Company sales over time. The Company is in the process of negotiating with
operators in Mexico and Japan for similar agreements.

The largest expense item for the Company is wages, which equaled $803,436
for the nine months ended September 30, 1997 as compared to $913,837 for the
previous year, a decrease of $110,401. The Company reduced salary expenses as of
January 1, 1997 through the reduction of personnel and attrition. Another major
expense area is management fees. Airfair entered into a management agreement
with BEI and IMS effective March 1, 1996, see, "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." Under this agreement, BEI permits Airfair to use office
space and certain equipment leased by BEI, and BEI and IMS provide Airfair
insurance, payroll services, office supplies and other minor office services.
IMS and BEI charge Airfair a management fee equal to 0.5% of Airfair's gross
revenue per month for these services. In addition, pursuant to the terms of the
Management Agreement, IMS, BEI, and Airfair agreed that Airfair would reimburse
BEI for a portion of the direct payroll expenses of certain members of
management who serve BEI, IMS, and Airfair (the "Shared Management Members").
The proportion is intended to correspond with the amount of time expended by the
Shared Management Members on the business matters of Airfair. These management
fees and the payroll reimbursements for Shared Management Members totaled
$168,419 for the nine months ended September 30, 1997, as compared to a $15,975
for the nine months of 1996. Prior to the management agreement, all general and
administrative expenses of BEI were allocated 70% to Airfair and 30% to IMS. In
February 1996, BEI incurred a large one-time gain which exceeded its expenses.
As such, both Airfair and IMS were the beneficiaries of an expense credit for
that month. Airfair's portion of that allocation was a credit of approximately
$142,000.

On December 1, 1997, the Company finished negotiating a new lease agreement
for office space. The terms of the lease agreement calls for 10,567 square feet
of net rentable area for a period of five years and three months with an option
to renew for five years. Monthly rent payments over the initial term of the
lease are $10,567 beginning March 1, 1998 to February 28, 1999; $11,448 from
March 1, 1999 to February 28, 2000; $12,328 from March 1, 2000 to February 28,
2001; $12,478 from March 1, 2001 to February 28, 2003. The option year rates
will be based on market conditions upon the renewal date. The Company currently
is paying its portion of rent under that certain management services agreement
with BEI/IMS previously mentioned. It is anticipated that the Company will
dissolve that management services agreement sometime around January 1, 1998 and
will directly acquire all services being furnished under that agreement. With
the exception of the above new lease agreement, the Company does not anticipate
a material increase in expenses above what was incurred under the management
services agreement.

LIQUIDITY AND CAPITAL RESOURCES

The Company has an accumulated deficit of $1,775,131 as of September 30,
1997, and the Company's auditors for fiscal year 1996 included in their audit
opinions a qualification regarding the Company's ability to continue as a going
concern. Historically, the Company has had insufficient cash reserves to
satisfactorily implement its business strategy and otherwise operate
effectively. This has forced the Company to publish and distribute its
information on an inconsistent basis, defer payment of certain expenses and
otherwise limit its efforts to promote sales growth. As most travel by
interliners takes place when there are empty seats on airlines, travel volume
tends to decrease when the retail travel industry experiences high traffic
volume. Accordingly, generally high retail travel volumes from the middle of
November through January usually results in low interline travel volume. As a
result the Company normally sees much lower travel sales during

21
<PAGE> 27

the fourth quarter of the year and their can be no assurances that the Company
will be able to generate an operating profit for the quarter.

Since Airfair's inception, it has financed its business growth through
internally generated revenue, borrowings from its former sole stockholder, BEI,
and borrowings from new stockholders subsequent to its spin-off from BEI. In
September, 1996, the Company borrowed $400,000 from seven shareholders ("bridge
loans") that were collateralized with 130,868 shares of ITEX Corporation common
stock owned by BEI. BEI executed a Security Pledge Agreement in favor of the
lenders. Thereafter, management has taken a different strategy in raising and
conserving funds needed for operations in 1997 and thereafter. Since January 1,
1997, management has reduced expenses by approximately $27,000 per month through
a reduction in nonessential personnel, changing to a lower priced package
delivery service, obtaining more services such as small printing jobs on a trade
basis and reducing any other expenses that are not considered absolutely
necessary to the ongoing needs of the operation.

During the second quarter of 1997, the Company raised funds through
additional long-term borrowings. The bridge loans were restructured in a
transaction whereby the loan-holders agreed to the release of the pledged equity
securities in exchange for the following: (1) payment of all accrued interest
through April 10, 1997, which was paid in the amount of approximately $29,000,
(2) the loan broker received a fee of $20,000, (3) 5,714 Company common stock
warrants were issued to the loan broker and 2,857 stock warrants were issued to
a principal of the loan broker, all exercisable at $1.00 per share, (4) the
bridge loans were converted to 3-year notes bearing 12% annual interest, with
principal and interest payable monthly, beginning in May, 1997, permitting the
outstanding principal balance to be converted (at the note holders' option) into
Company common stock at $3.50 per share, and providing for no prepayment
penalties. Also in April and May, 1997, the Company raised an additional
$500,000 from ten investors through the issuance of three-year convertible
debentures. The debentures carry an annual interest rate of 7%. Interest and
principal are due and payable in annual installments commencing May 1, 1998 and
on each anniversary of that date thereafter until May 1, 2000, on which date the
debentures mature. At the option of the Company, interest payments due prior to
the maturity date may be made in shares of common stock of the Company at the
rate one share for each $3.50 of interest accrued and payable. The debenture
holder has the right at any time prior to maturity to convert all or any portion
of the then outstanding principal balance into fully paid and non-assessable
shares of common stock of the Company at a conversion price of $1.75 per share
of such outstanding principal amount, subject to adjustment from time to time as
provided for in the debenture.

The Company also extinguished (in April, 1997) the $299,963 of notes
payable that were incurred in connection with the acquisition of the cruise and
magazine division for a cash settlement of $75,000 (See Financial Condition and
Changes in Financial Condition above). During the previous quarter, the Company
also negotiated the conversion of five accounts payable vendors into notes
payable with various terms and conditions (see Note 7 to the financial
statements). The remaining unpaid balance of these vendor notes was $121,933 at
September 30,1997. During the current quarter, the Company borrowed an
additional $80,000 from one of its existing note holders. This note was repaid
subsequent to the end of the quarter. Management has and is continuing to
negotiate with its accounts payable vendors in order to work out acceptable
payment schedules for all parties.

As a result of the transactions described in the preceding paragraph,
management believes that its existing working capital levels, supplemented by
cash expected to be generated by existing operations and cash generated through
stock sales or other financing arrangements, will be sufficient to fund the
Company's needs over the next 3 to 5 years. The Company has obtained an
additional $500,000 bridge loan (referred to elsewhere herein as the "1997
Private Placement") as of October 24, 1997. These funds will be utilized for
publications, operating expenses and some of the offering expenses incurred in
connection with this Offering. Management's belief is based on a number of
assumptions including, without limitation, that increased gross sales will
result from increased distribution (both in terms of frequency and number of
issues) of the Company's publications and that the Company can continue to
operate effectively at reduced levels of operating expenses. There can be no
assurance that the foregoing assumptions and the other assumptions relied upon
by management will prove accurate and any such inaccuracy may cause the Company
to need working capital. Moreover, there are no assurances that the Company will
be able to procure any such capital

22
<PAGE> 28

should it be needed and any such inability may have an adverse effect on the
Company's business, financial condition and future operating results.

FASB Statement 128, a recently issued accounting standard, will have an
impact on financial statements when adopted. It is not expected that the Company
will be impacted by other recently issued standards:

FASB Statement 128 presents new standards for computing and presenting
earnings per share (EPS). The Statement is effective for financial statements
for both interim and annual periods ending after December 15, 1997.

If adoption of SFAS 128 would have been required for fiscal years ended
December 31, 1996 and 1995, the changes in earnings per share amounts would have
been immaterial.

If adoption of SFAS 128 would have been required for the nine months and
three months ended September 30, 1997, the earnings per share amounts would have
been reported as follows:

<TABLE>
<S> <C>
Earnings per common share (nine months) (as reported)....... $.01
Earnings per common share (three months) (as reported)...... $.04
Earnings per share if reported under SFAS 128:
Nine Months
Earnings per common share.............................. $.01
Earnings per common share-assuming dilution............ $.01
Three Months Earnings per common share.................... $.04
Earnings per common share-assuming dilution............ $.04
</TABLE>

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

INFLATION

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

FORWARD-LOOKING INFORMATION

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

Management is currently unaware of any trends or conditions other than
those previously mentioned in this management's discussion and analysis that
could have a material adverse effect on the Company's consolidated financial
position, future results of operations, or liquidity. However, investors should
also be aware of factors that could have a negative impact on the Company's
prospects and the consistency of progress in the areas of revenue generation,
liquidity, and generation of capital resources. These include: (i) variations in
the mix of hotel, cruise, and magazine revenues, (ii) possible inability to
attract investors for its equity securities or otherwise raise adequate funds
from any source should the Company seek to do so, (iii) increased

23
<PAGE> 29

governmental regulation, (iv) increased competition, (v) unfavorable outcomes to
litigation involving the Company or to which the Company may become a party in
the future and, (vi) a very competitive and rapidly changing operating
environment. Furthermore, reference is also made to other sections of this
report that include factors that could adversely impact the Company's business
and financial performance.

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

24
<PAGE> 30

THE BUSINESS

The Company serves a portion of the travel industry known as "interliners"
through two divisions operated within its wholly-owned subsidiary. Interliners
are the active employees and retirees of the airline industry, who may fly on
many carriers for free or at a very significantly reduced fare, along with their
families and the friends to whom they pass along their allotments of no-cost or
low-cost flying privileges. One division (the "Publishing Division") publishes a
magazine and other promotional material directed at the interline market, see
"THE BUSINESS -- The Publishing Division," infra, and the other (the "Marketing
Division") offers travel accommodations to interliners. See "THE BUSINESS -- The
Marketing Division," infra. Primarily because interliners have a high propensity
to travel at the last minute or during off-peak periods when "stand-by" space is
available at hotels and resorts and on cruise ships, interliners are generally
able to procure hotel or resort accommodations in destination locations, cabins
on cruise ships and other travel products at rates representing a courtesy
discount of up to 50% off of established rates. The discount is available
because the travel industry views interline bookings as incremental or marginal
revenue that supplements normal marketing revenue. A principal characteristic of
the interline travel industry is that interliners are generally unaware of the
many opportunities, discounts and specials that are available to them at any
given time. The industry that exists to service the interline market is highly
fragmented, generally consisting of small operators serving the market either as
an adjunct to a retail tour operation or by concentrating on an extremely narrow
segment. There are a handful of major interline companies that are established
and offer relatively broad service, yet none of these operations could be
considered to have a dominant position.

THE PUBLISHING DIVISION

The Products

The Publishing Division produces, publishes and distributes Interline
Adventures (formerly Airfair Magazine), a 27-year-old, 4-color, 120 plus-page,
bi-monthly magazine, Interline Adventures (the "Magazine") provides general
travel editorial coverage and, in a section known as the Interline Vacation
Guide, a significant focus on cruise and tour opportunities for interliners. The
Publishing Division attempts to supplement and update the Magazine's information
on product availability via a smaller, 4-color, publication. A portion of the
net proceeds of this offering will be used to insure that the Publishing
Division will be able to publish the Magazine and its other publications
(collectively the "Publications") regularly and predictably, thereby assuring a
more constant and regular presence in the interline market. See "USE OF
PROCEEDS."

The Publishing Division's publication serve as the primary marketing
channel for the Marketing Division, which uses the Publications to advertise its
products and services and to generate inquiries and sales. In addition, the
Magazine provides an advertising outlet for the cruise lines, hotels and resorts
frequented by the Company's clients.

The Publishing Division currently sends approximately 15,000 copies of the
Magazine to subscribers, mails up to another 40,000 copies on a promotional
basis, and distributes up to 20,000 more copies through the Company's airline
representatives. Copies not delivered directly to subscribers are placed in
airport areas and rooms reserved for and frequented by airline employees
(hereinafter referred to as "Employee Areas"). Among these areas and rooms are
employee break rooms, reservation and office areas, and "pass bureaus." "Pass
bureaus" are offices maintained by each airline in an attempt to facilitate
employee travel on other airlines -- i.e., a Continental employee wishing to
make travel arrangements on American Airlines may utilize the services of
Continental's pass bureau. Airlines generally establish a pass bureau in their
"hub airports." The Company's financial performance and operations to date have
been severely constrained by a lack of capital. As a result of the lack of
adequate capital, the Company has shipped approximately half of the total number
of magazines and brochures called for by the Company's business plan.

Marketing

The Magazine derives revenue from sales of subscriptions to interliners and
sales of advertising to hotels, resorts, cruise lines and other service
providers located at or leaving from destination locations. The following

25
<PAGE> 31

table sets forth information relating to business activity of the Magazine
Division and revenue directly attributable to the Magazine during the nine
months ended September 30, 1997:

<TABLE>
<S> <C>
Number of Subscribers:...................................... 13,507
Subscription Revenue:....................................... $ 71,881
Number of Advertisers --
Hotels/Resorts:........................................... 87
Cruise Lines:............................................. 13
Tours:.................................................... 3
Classified:............................................... 20
Total Advertisers......................................... 123
Advertising Sales --
Hotels/Resorts:........................................... $ 210,265
Cruise Lines:............................................. 46,990
Tours:.................................................... 7,300
Classified:............................................... 3,900
------------
Total Advertising Sales:.................................. $ 268,395
Number of Airline Employees(2):............................. +500,000(1)
Number of Interliners(3):................................... +2,000,000(1)
</TABLE>

- ---------------

(1) Estimated

(2) Employees based in America and employed by domestic (American) passenger
carriers, excludes interliners who are employees of non-passenger carriers
such as courier or delivery services, employees of nondomestic passenger
carriers and employees of domestic passenger carriers based in foreign
countries

(3) Defined as the total number of airline employees and airline retirees,
excludes family members of airline employees and retirees, some of whom may
be offered interline benefits

The Magazine is marketed to potential subscribers and to existing
subscribers by subscription renewals and through advertising and promotions.
Advertising and subscription cards are placed within the brochures distributed
by the Marketing Division to Employee Areas. Complimentary copies of the
Magazine are mailed to selected interliners who have previously made purchases
from the Marketing Division and to individuals who have previously inquired
about the possibility of subscribing to the Magazine. As the Company more firmly
establishes its frequent traveler program discussed below, see "The Marketing
Division," infra, it anticipates that it will be able to more effectively target
its efforts to promote the Magazine. See "Competition," below.

At least to date, neither airlines nor airline employee unions have
provided lists of airline employees to interline companies. The Company has been
discussing with various airlines the possibility of obtaining these lists and,
although no airlines have committed to binding agreements in this regard, recent
indications are that airlines may be willing to provide these lists to the
Company. Mailing to all or substantially all of the employees of a major airline
would require more operating capital than has been available to the Company to
date. The Company has not undertaken this sort of mailing because it is
relatively capital intensive and the Company, to date, has lacked the operating
capital necessary to undertake such mailings. If this Offering is successful,
management anticipates that it will commence test mailings (and undertake other
evaluative measures) to ascertain the efficiency of mailing directly to
employees. There can be no assurance that major airlines will grant the Company
access to employees or retiree lists or that the Company, if such access is
granted, can implement a strategy to profitably utilize such lists.

Advertising space within the Magazine is marketed to hotels, resorts,
cruise lines and tour operators through direct telemarketing and distribution of
media kits to the advertisers and, on a selective basis, to agencies
representing the advertisers. Although many advertisers are hotels, resorts,
cruise lines, and tour

26
<PAGE> 32

operators who have rate agreements with the Marketing Division, and their
advertisements display the phone number of the Marketing Division, the Magazine
also sells advertising space to interline operators which have no agreement or
arrangement with the Marketing Division. The Company has attempted to pursue
both advertisers that are only adjuncts to the interline travel industry, such
as luggage manufacturers, and those that have no connection to the travel
industry, but the subscription base and total distribution base of the Magazine
has discouraged such advertisers. The Company offers many advertisers the
opportunity to purchase advertising space within the Magazine in exchange for
rooms in hotels, resort accommodations and cruise cabins, which it then
re-markets for cash at an additional profit. See "The Marketing Division,"
infra.

Advertisers generally, and in particular advertisers who do not have rate
agreements with the Marketing Division, focus on subscriber base and total
distribution of publications in determining both in which publications to place
advertising and how much to pay for advertising space. To date the subscription
base and total distribution of the Magazine has been too small to attract
significant advertising sales. Upon successful completion of this Offering, the
Company intends to switch the Magazine, from a "paid" circulation to a
"controlled" circulation. A "paid" circulation is calculated on the basis of the
number of subscriptions sold. A "controlled" circulation is based on the number
of magazines sent to an identified recipient at an identified address with his
approval, without regard to whether the intended recipient has paid for a
subscription. The Company has approximately 13,000 subscribers, but has a
mailing list of approximately 125,000 reliable interline addresses. In general,
in terms of advertising rates and revenues, a "paid" circulation is more
valuable than a "controlled" circulation and more recipients are more valuable
than a lesser number. Company management believes that the diminution in value
associated with the shift from a "paid" to a "controlled" circulation will be
more than offset by the increase in size of the circulation base. Although there
can be no assurances in this regard, Company management also believes that it
can increase the size of "controlled" circulation and thereby increase
acceptance from advertisers and advertising revenues.

Competition

The Magazine competes with other publications for readership and for
advertisers' patronage. Most information available to interline travelers
consists of brochures distributed by other interline companies, hotel and resort
operators, cruise lines and escorted tour operators. The Magazine is the only 4
color publication available which is updated and published six times annually.
The Magazine has one primary competitor, the ASU Travel Guide -- a 400-page
guide, published quarterly, with the look and feel of a paperback novel. It
competes with the Magazine for advertisements targeting interliners. The ASU
Travel Guide has been published successfully for a number of years and enjoys
widespread circulation. The Company hopes to compete for advertising sales by
increasing distribution and offering barter arrangements to advertisers.

Sources of Materials

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

THE MARKETING DIVISION

The Products

The Marketing Division, under the name "Interline TravelReps," provides
hotel and resort accommodations (comprised of rooms or vacation packages
consisting of some combination of rooms, meals and services) and berths or seats
on cruises and escorted tours. The hotel and resort accommodations offered by
the Marketing Division are located in North and South America and Europe, with
access to properties throughout

27
<PAGE> 33

the world and a particular focus on accommodations in Mexico and the Caribbean.
The Marketing Division offers space on cruises and escorted tours and offers
cruises on 27 lines with over 100 ships in various worldwide destinations and a
wide variety of escorted tours, primarily to England, Europe and Africa. Cruise
lines and escorted tour operators typically limit the interline companies that
market their products or commodities to those which have a demonstrated ability
to effectively serve interline travelers. The Company is permitted to market all
of the major cruise lines serving the interline market. The Company maintains an
office in Boca Raton, Florida, in order to facilitate its relations with the
substantial number of cruise lines that are located in that area. Retention of
the ability to sell cruise cabins to the interline market is key to the
continued success of the Company's and is subject to the continued satisfaction
of the cruise lines with the Company's service. Moreover, although the Company
sells all of the major cruise lines serving the interline market, many of the
cruise lines are part of holding company structures.

Should one of these holding companies fail, the possible adverse effects on
the Company would be twofold. First, the Company would be denied a significant
supply of cruise berths to be sold to its interline travel customers. Second,
the amount of overall supply in the cruise industry would be reduced, which
would also reduce the amount of usual or "marginal" capacity available for sale
to interlines. To date, during the Company's operations within the interline
industry, no major cruise line operator has failed, making it difficult to
estimate with prevision the impact such failure would have on the Company's
operation. There can be no assurances that such impact would not be materially
adverse. An analogous situation arose during the recent American Airlines labor
strike. During this period, the other airlines were loaded to and operating at
full capacity. Full capacity in turn meant that the operating airlines had no
open seats for interline travelers and, moreover, that almost all active airline
employees had full flight schedules without time for a pleasure trip. Company
revenues during the strike were dramatically reduced. Immediately after the
strikes were settled, the Company had a dramatic increase in bookings and sales,
representing what the Company believes to have been pent-up demand. There can be
no assurances that labor issues and other travel industry developments will not
produce a set of circumstances during which the Company experiences
substantially reduced levels of demand for its products or that the Company, if
such circumstances remain in place for an extended period, will have the
financial strength and resources necessary to adequately address or compensate
for such reduced levels of demand.

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

The amount charged to the interline customer is established and published
in the Magazine and the other Publications and is quoted over the phone by the
Marketing Division's reservation specialists. The Company does not rigidly
adhere to its price quotations and will negotiate with customers in an attempt
to match or better competitor's quotations. The average hotel or resort
accommodation sale, typically booked less than two weeks prior to travel, is
approximately $600 with typical margins for the Company of 18% to 35%. The most
popular destinations are: Cancun (36%), Jamaica (20%) and Cozumel (19%). Hotel
and resort accommodations sales in 1996 totaled $4.2 million. Through the
nine-month period ended September 30, 1997, sales of hotels or resort
accommodations totaled $3,473,835, as compared to $3,386,886 for the same
nine-month period of 1996. The average cruise or escorted tour sale is
approximately $1,600 with typical margins of 8% to 17%. The Marketing Division
works with all major cruise lines, and no single line accounted for more than
10% of its $6.3 million in sales in 1996. Through the nine-month period ended
September 30, 1997, sales of cruises and escorted tours totaled $5,722,149, as
compared to $4,766,539 for the same nine-month period of 1996.

28
<PAGE> 34

Seasonality

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

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

Sources of Supply

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

On a limited basis, the Marketing Division may also acquire access to
travel accommodations through barter arrangements, most typically through the
provision of advertising in the Magazine, for which the Company is given credit
for room rights and which are then marketed to interline customers. No
assurances can be given that barter transactions will yield a significant supply
of travel products for sale by the Marketing Division. In addition to these
direct barter transactions, the Company is party to a marketing agreement with
Inventory Merchandising Services, Inc. ("IMS"), a subsidiary of BEI Holdings,
Inc., pursuant to which IMS has agreed to permit the Marketing Division, on an
exclusive basis, to sell travel accommodations which IMS acquires through barter
transactions. IMS conducts a barter exchange business and, with some frequency,
obtains travel accommodations through barter transactions. Pursuant to the
marketing agreement, IMS makes the travel accommodations available for sale by
the Company and, upon sale, the Company pays to IMS a sum equal to 25% of the
proceeds received by the Company, net of IMS cost of goods sold, with respect to
the sale of such inventory. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."

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

29
<PAGE> 35

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

Customer Loyalty Program

The Company's management has implemented several product features in an
attempt to improve its products and differentiate them from the products and
services of competitors. In doing so, the Company has attempted to specifically
tailor the products offered to the needs and concerns of interliners. In July
1996, the Company launched PERX, a customer loyalty/referral program designed to
generate repeat travel business for the Marketing Division, as well as
subscribers to the Magazine. Membership in PERX allows eligible interliners to
receive points for each trip taken with the Marketing Division in a manner
similar to the many frequent flyer/guest programs operated by airlines and
hotels worldwide. In addition, PERX members will receive points for travel by
anyone they directly refer to the program. Points are redeemable for discounts
and/or free trips. In July 1996, approximately 150,000 brochures containing an
application for the PERX program were distributed. Although there is no
enrollment fee for interliners who join PERX, the Company anticipates the
following benefits from wide enrollment in PERX: (i) increase in the Company's
share of the interline market, (ii) increase in the Magazine's circulation,
enabling the Company to adjust advertising rates and underwrite the Magazine's
production and distribution costs; (iii) creation of an enthusiastic sales team
not requiring additional compensation; and (iv) establishment of a mailing list
that will supplement the lists available through the Company's own records and
may contain the names of recipients that might otherwise be reached only through
more expensive channels (e.g., paid advertising). The Company's efforts to date,
which have been severely limited by the Company's shortage of operating capital,
have resulted in approximately 7,000 interline enrollees in the PERX program.
The Company plans to use a portion of the proceeds of this Offering for
marketing expenses which are to include increased marketing of the PERX program.
No assurances can be given that sufficient numbers of interliners will enroll in
PERX so as to permit the Company to realize any of the foregoing benefits.

Competition

Management of the Company believes that competition within the interline
industry is based principally on market visibility and the nature and variety of
products and services offered. As most interline companies are quoted the same
price by hotels, resorts, cruise lines and tour operators, price is not usually
the basis for a competitive advantage. There are over 30 competitors in the
interline travel industry. None are publicly held so reliable sales information
is not available. However, two companies, Caesar's and Magellan, which have been
in the travel business for more than 20 years, currently may have greater sales,
resources, and management experience and depth than the Company and may be able
to compete very effectively with them. The balance of the Company's competition
is largely made up of smaller organizations formed by former airline employees
and retail travel operators which view the interline market as merely a portion
of their business. Most interline companies tend to focus on a specific
destination (Mexico and the Caribbean, Ski

30
<PAGE> 36

Trips, etc.) or specific airline (e.g., only Continental). Others, like the
Company, offer a more complete range of interline products and services.

FACILITIES

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

The Company occupies approximately 8,000 square feet of office space at
1120 Capital of Texas Highway, Building 3, Suite 300, Austin, Texas 78746, its
main office, and 630 square feet of office space at 1499 West Palmetto Park
Road, Suite 222, Boca Raton, Florida 33486. Effective as of December 15, 1997,
the Company's main office will be moved to 211 West Seventh Street, Suite 1100,
Austin, Texas 78701 and its phone number will become (512) 391-2000. The Company
owns no property other than office furniture, equipment and software.

The Company employs 48 people, 43 of whom are full time and 5 of whom are
part time. It is anticipated that up to 200 additional personnel will be
required to meet the demands of the projected market over the next five years.
Most of these positions will be in the areas of reservations and operations
processing and servicing the Company's projected volume increases.

GOVERNMENT REGULATION

There are currently no federal laws or regulations governing the sale of
travel products but a relative small number of states have laws relating to the
sale of travel products or the operation of travel agencies. The State of Texas,
where the Company's principal business operations are conducted, has no such
laws or regulations. The Company is uncertain as to whether the states which do
impose regulation would apply such laws to the Company's operations, but
management believes that compliance with the laws of any state which imposes
regulation, under the regulatory structure currently in place, would not have a
material adverse effect upon the company's operations or business. Although the
Company is not aware of any pending legislation imposing additional regulation
upon the Company's operations within the travel industry, there can be no
assurances that the federal or any state government will not impose
requirements, such as requirements imposing licensure or bonding requirements,
which might have a material adverse effect upon the Company's operations.

INTELLECTUAL PROPERTY

The Company has filed a federal trademark application to register the
trademark "Interline PERX Vacation Club" but has not yet heard any response from
the United States Patent and Trademark Office with respect to its application.
There can be no assurances that the Company will be able to obtain a federal
registration of this trade name. The Company has not filed trademark
applications with respect to any of the other trade names that it currently
uses. If this offering is successful, the Company will evaluate whether
meaningful trademark protection can be obtained for its other trademarks. There
can be no assurances that the Company will ever be able to obtain meaningful
trademark protection for its trade names such as "Interline Adventures" and
Interline "TravelReps."

LEGAL PROCEEDINGS

There are no legal proceedings pending against the Company.

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<PAGE> 37

THE MERGER AND INTEGRATION OF OPERATION DIVISIONS

Effective October 10, 1996, the Company, then operating as Riley
Investments, Inc., acquired as a wholly-owned subsidiary, Airfair Publishing,
Inc. ("Airfair"), an Austin, Texas based travel services group that consisted of
the businesses that now comprise the Company's operations. The acquisition was
accomplished by the merger (the "Merger") of a newly created, wholly-owned
subsidiary of the Company with and into Airfair, which was the surviving
corporation. The Merger was effected by the conversion of the issued and
outstanding shares of common stock of Airfair (the "Airfair Stock") into new
shares of common stock of the Company (the "Common Stock") on the basis of one
share of Common Stock for each share of Airfair Stock issued and outstanding, or
an aggregate of 9,125,000 shares of common stock, which represented
approximately 96% of the common stock of the Company. As adjusted for the
Reverse Stock Split, the number of shares of Common Stock issued to shareholders
of Airfair totaled 1,303,572. Following the Merger, the executive officers and
directors of Airfair, who were appointed to similar positions of the Company,
and owned approximately 65% of the issued and outstanding Common Stock. To
better reflect the nature of its business following the acquisition, Riley
changed its name to Grand Adventures Tour & Travel Publishing Corporation.

Airfair acquired its operation in two transactions -- in 1995 it acquired
the bulk of its hotel and resort operations from a former Continental Airlines
employee and in early 1996 it acquired the Magazine and the cruise and escorted
tours operations. Since the date of these acquisitions, the Company has
undertaken measures to integrate the hotel and resort operations with the cruise
and escorted tour operations, to expand the scope and improve the quality of the
Magazine, to enhance the products offered by the Marketing Division both in
terms of products offered and customer services, and to upgrade the technical
infrastructure underlying all of the Company's operations. Management believes
that it has made substantial progress in all of these areas but such progress
has yet to be reflected in tangible operating results and there can be no
assurance that such tangible operating results will be forthcoming.

OPERATIONS BEFORE THE MERGER

Before its activities under the name of Riley Investments, Inc., the
Company was known as Pace Group International, Inc., and operated until November
1, 1995, through its then wholly-owned subsidiary, Pace International Research,
Inc. ("PIR"), which globally marketed English language training programs
developed by the Company's founder, Edwin T. Cornelius, Jr. Despite the
proprietary nature of PIR's products, the then operating Company continually
failed to generate net income. Since disposing of its operating subsidiary in
late 1995, the Company has had no assets or operations until the Merger.

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<PAGE> 38

MANAGEMENT

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

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Matthew O'Hayer....................... 42 Chairman, Chief Executive Officer
Joseph S. ("Jay") Juba................ 34 President, Chief Operating Officer, Secretary
Darrell Barker........................ 49 Chief Financial Officer, Treasurer
Fernando Cruz Silva................... 37 Senior Vice President of Sales & Marketing
Patti Macchi.......................... 52 Vice President of Cruise Sales & Marketing
Robert Sandner........................ 44 Director
</TABLE>

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

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

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

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

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

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

The following is a list of other significant employees of the Company:

Joe F. Brummer, age 31, became director of Marketing in January, 1996.
Mr. Brummer served in the same capacity within Airfair's
predecessor-in-interest since June 1995. Prior to becoming Director of

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<PAGE> 39

Marketing, Mr. Brummer served as an account executive with IMS since 1992.
Prior to this employment with IMS, Mr. Brummer worked for the Honolulu
advertising agency of Peck Sims Mueller. Mr. Brummer is responsible for
overseeing the Company's marketing communication efforts including
collateral development, list management, advertising, public relations, and
promotions.

Shannan Rivers, age 29, serves as General Manager of the Company's
Reservation Center, which fields all incoming reservation and information
calls and processes all booked reservations for both Interline Travel and
Interline Representatives, Ltd. Ms. Rivers joined Airfair in February of
1995 after spending seven years with Adventure Tours, USA, most recently as
Destination Manager.

MANAGEMENT COMPENSATION

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

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
SALARY(1)(2) BONUS OTHER AWARD OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
--------------------------- ---- ------------ ----- ----- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Matthew O'Hayer..................... 1996 $91,476 $0 $0 $0 0 $0 $0
Chairman & CEO
Joseph S. ("Jay") Juba,............. 1996 $67,200 $0 $0 $0 0 $0 $0
President, COO and Secretary
</TABLE>

- ---------------

(1) The above compensation schedule reflects that portion of shared management
members compensation allocated to the Company within the terms of a
management agreement among the Company, BEI Holdings, Inc. ("BEI"), and
Inventory Merchandising Services, Inc. a wholly-owned subsidiary of BEI, See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

(2) Messrs. O'Hayer and Juba have accepted salary reductions of 40% and 25%,
respectively, for fiscal year 1997, meaning that the salaries allocable to
Messrs. O'Hayer and Juba for fiscal year 1997 would be $55,035 and $53,760,
respectively.

COMPENSATION OF DIRECTORS

The Company does not currently compensate directors for any services
provided as a director.

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

EMPLOYMENT CONTRACTS

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

Joseph S. Juba, the President and Chief Operating Officer of the Company
has signed an employment agreement with BEI Holdings, Inc. ("BEI"), and pursuant
to the terms of a management agreement (the "Management Agreement") executed by
Airfair, BEI Holdings, Inc. ("BEI") and Inventory Merchandising Services, Inc.
("IMS" and, together with Airfair and BEI, the "Employers"), the Company
reimburses BEI for that portion of Mr. Juba's time allocable to the Company.
See, "CERTAIN RELATIONSHIPS AND TRANSACTIONS." The following is a description of
the terms and conditions of Mr. Juba's employment agreement which was entered
into March 1, 1995:

Mr. Juba is paid $84,000 per year with 7% annual increases, commencing with
the first anniversary of the employment agreement, and a bonus equal to 2% of
both BEI's and Airfair's company's Pre-Tax Net Income after allocations of
corporate overhead, based upon audited financial statements. Such bonus to be
calculated

34
<PAGE> 40

on an annual basis, with quarterly draws of up to 50% of bonus due with respect
to each quarter's net income. Mr. Juba was granted shares of common stock of BEI
and Airfair, subject to repurchase rights which lapse over time. Mr. Juba is
paid an auto allowance of $420 per month for two years commencing in April,
1996. Mr. Juba is subject to three-year prohibitions (commencing with the date
of employment termination) on competition, non-disclosure and non-use of
proprietary information, contact with current or future customers or
interference with the Employers' relationship with any current or future
customers, but if terminated without cause, the prohibitions on competition and
interference are terminated. If the Employers terminate the agreement without
cause or if the Employer materially reduces the responsibilities of the
employee, (i) the employee is to be paid all non-salary monetary compensation
accrued through the date of termination and (ii) the employee is to receive, for
a period of months equal to the number of years of the employee's service to one
or more of the Employers since September 5, 1991, a monthly cash severance
payment equal to the highest monthly salary paid to the employee. The employee
is indemnified against any lawsuits or claims by any third party arising out of
any action taken in good faith by the employee in the performance of his duties.

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

LONG-TERM INCENTIVE PLAN

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

Management believes that the number of shares currently subject to the
LTSIP exceeds that which is in the best interests of the Company. Accordingly,
the Company plans to ask the Company's shareholders to enact measures to reduce
the number of shares subject to the LTSIP from a total of 1,000,000 to a total
of 450,000. This matter is scheduled for the shareholder's consideration at the
same meeting where the shareholders will consider approval of the Reverse Stock
Split.

Pursuant to the terms of the Merger, options to purchase shares of Airfair
common stock granted under the previous Airfair stock option plan were exchanged
for comparable options granted under the LTSIP for an equivalent number of
shares. The exercise price of each employee option is $7.00 after Reverse Stock
Split. An option's maximum term is five years. Employee options were granted on
August 1, 1996 and vest in three years. The fair value of each option grant is
estimated on the grant date using an option-pricing model with the following
weighted-average assumptions used for grants in 1996: risk-free interest rate of
6%, and expected lives of 5 years for the options.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Unless otherwise indicated, the terms of the following transactions were
not the results of arm's length negotiations, but in the opinion of management
of the Company each transaction is on terms as fair to the Company as could be
obtained in arm's length negotiations in similar circumstances.

ACQUISITION OF INTERLINE TRAVEL DIVISION

On December 1, 1994, IMS acquired assets from Louis J. and Claudia Nackos
in exchange for the assumption by IMS of $144,394 in liabilities. These assets
are the basis of the IT operating division. In connection with the formation of
Airfair on January 6, 1996, IMS transferred certain interline travel operating
assets to Airfair in exchange for Airfair's assumption of the related
liabilities.

35
<PAGE> 41

ORGANIZATION OF THE COMPANY'S SUBSIDIARY

Airfair, the Company's operating subsidiary, was initially organized in
January 1996 as a subsidiary of BEI Holdings, Inc. ("BEI"). In anticipation of
distributing its shares of Airfair's common stock to the shareholders of BEI,
and in order to provide Airfair's executive officers with an increased equity
stake in Airfair, BEI granted 500,000 shares of Airfair common stock to Joseph
S. Juba and 100,000 shares to Fernando Cruz Silva. At the time of the grant, Mr.
Juba was President, Chief Operating Officer and Secretary of BEI and Airfair,
and Mr. Cruz Silva was Senior Vice President of Sales and Marketing for both
companies.

From organization of the Company through March 1, 1996, the Company
obtained the services of its principal executives, Matthew O'Hayer, Jay Juba,
and after his employment on March 25, 1996, Darrell Barker, together with
computer access, accounting services, rental space and related administrative
support, from BEI, which allocated 70% of the direct costs of such items to the
Company and the remaining 30% to Inventory Merchandising Services, Inc., a
wholly-owned subsidiary of BEI ("IMS"). Effective March 1, 1996, the Company
entered into a management agreement with IMS under which it agreed to provide
the Company with such executive services and administrative support for a fee
equal to 0.5% of the Company's gross revenue per month plus a portion of the
direct payroll expenses of certain members of management who serve BEI, IMS, and
Airfair. These management fees amounted to approximately $68,475 for the year
ended December 31, 1996. Such management fees include reimbursement for an
allocable portion of the time of such executives devoted to the business affairs
of the Company as follows: Matthew O'Hayer, approximately 70% of his time at an
annual salary of $130,680; Joseph S. Juba, approximately 80% of his time at an
annual salary of $84,000; and Darrell Barker, approximately 50% of his time at
an annual salary of $60,000.

Airfair and IMS have also entered into an inventory marketing agreement
whereby Airfair sells certain IMS inventories. Airfair is required to make
monthly payments to IMS equaling (i) the cash value of IMS's acquisition cost in
the inventory plus (ii) 25% of the collected revenue generated from such sales
less such cash value.

In order to provide short-term financing for Airfair, BEI advanced certain
amounts to it prior to the Merger. At December 31, 1996, Airfair owed BEI
$88,213 in connection with such advances.

ACQUISITION OF INTERLINE REPRESENTATIVES, LTD., AND AIRFAIR PUBLISHING CORP.

On January 13, 1996, effective January 1, 1996, Airfair acquired the cruise
line operations of the Marketing Division and the Magazine and the related
assets, by assuming liabilities of $204,326 (which assumed liabilities have been
paid), paying $30,000 in cash, and delivering promissory notes aggregating
$359,465. The promissory notes were personally guaranteed by Matthew O'Hayer.

36
<PAGE> 42

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of September 30, 1997, as adjusted for
the Reverse Stock Split and for the Conversion, the name and shareholdings,
including options to acquire Common Stock, of each person who owns of record, or
was known by the Company to own beneficially, 5% or more of the shares of the
Common Stock currently issued and outstanding; the name and shareholdings,
including options to acquire the Common Stock, of each director; and the
shareholdings of all executive officers and directors as a group. The address of
each of the individuals listed below is the address of the Company.

<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NATURE OF NUMBER OF OWNERSHIP OWNERSHIP
NAME OF PERSON OR GROUP OWNERSHIP SHARES OWNED BEFORE OFFERING AFTER OFFERING
----------------------- --------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Matthew O'Hayer............................. Direct 557,714 30.5% 22.1%
Joseph S. "Jay" Juba........................ Direct 157,142 8.6% 6.2%
Fernando Cruz Silva......................... Direct 44,285 2.4% 1.8%
Robert Sandner.............................. Direct 114,285 6.3% 4.5%
All executive officers and directors as a
group (seven persons)..................... Direct 873,426 47.8% 34.6%
Options 21,427 1.2% 0.8%
Total............................. 894,853 72.5% 35.4%
</TABLE>

37
<PAGE> 43

DESCRIPTION OF SECURITIES

COMMON STOCK

The Company is authorized to issue 30,000,000 shares of Common Stock, of
which 1,360,289 shares are currently issued and outstanding. Holders of shares
of Common Stock are entitled to receive such dividends as may be declared by the
Board of Directors from assets legally available for that purpose after payment
of dividends required to be paid on outstanding shares of Preferred Stock, if
any, and are entitled at all meetings of stockholders to one vote for each share
held by them. The shares of Common Stock are not redeemable and do not have any
preemptive or conversion rights. All of the outstanding shares of Common Stock
are fully paid and nonassessable. In the event of a voluntary or involuntary
winding up or dissolution, liquidation, or partial liquidation of the Company,
holders of Common Stock shall participate, pro rata, in any distribution of the
assets of the Company remaining after payment of liabilities subject to the
prior distribution rights of any outstanding shares of Preferred Stock. The
rights of the holders of Common Stock will be subject to, and may be adversely
effected by, the rights of the holders of Preferred Stock, if any.

As of September 30, 1997, there were 330 holders of record of Common Stock.

PREFERRED STOCK

The Company is authorized to issue 10,000,000 shares of Preferred Stock.
The Preferred Stock may be issued in one or more series, with such voting
powers, designations, preferences, rights, qualifications, limitations and
restrictions as shall be set forth in a resolution of the Company's Board of
Directors providing for the issue thereof. The issuance of Preferred Stock,
while providing flexibility in connection with possible financing, acquisitions
and other corporate purposes, could, among other things, adversely affect the
voting power of holders of Common Stock and, under certain circumstances, be
used as a means of discouraging, delaying or preventing a change in control of
the Company. At the closing of this Offering, the Company will have no shares of
Preferred Stock outstanding and has no plans to issue any of the Preferred
Stock.

TRANSFER AGENT

The transfer agent for the Common Stock is OTR Stock Transfer Registry.

MARKET FOR COMMON STOCK

The Common Stock has been traded irregularly and infrequently in the
over-the-counter market and quoted on OTC EBB under the symbol "GATT" and quoted
in the pink sheets published by the National Quotations Bureau. Since May 1995,
from time to time, a very small number of securities broker-dealers published
only intermittent quotations for the Common Stock, and there was no continuous,
consistent trading market. The trading volume in the Common Stock has been and
is extremely limited, reflecting the fact that a very limited number of shares
are believed by the Company to be eligible for public trading. During the above
period, the limited nature of the trading market created the potential for
significant changes in the trading price for the Common Stock as a result of
relatively minor changes in the supply and demand for Common Stock and perhaps
without regard to the Company's business activities. The following table sets
forth, for each

38
<PAGE> 44

of the Company last eight fiscal quarters, the high and low bid and ask prices
for the Common Stock. All of the transactions were effected prior to the Reverse
Stock Split:

<TABLE>
<CAPTION>
BID ASK
-------------------- --------------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
September 30, 1997.......................................... 1 3/4 11/16 1 3/4 1
June 30, 1997............................................... 2 1/2 1 3/4 2 1/2 1/34
March 31, 1997.............................................. 2 1/2 1 1/8 2 1/2 1 7/8
December 31, 1996........................................... 2 5/8 1 1/2 3 1/2 2 1/4
September 30, 1996.......................................... 3 2 1/4 4 5/8 3 1/4
June 30, 1996............................................... 2 3/4 2 1/4 4 1/4 3 1/2
March 31, 1996.............................................. 2 1/4 3/10 3 7/8 2
December 31, 1995........................................... 3/10 3/10 3 3
</TABLE>

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

SHARES ELIGIBLE FOR FUTURE SALE

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

Upon completion of the Offering (and after giving effect to the 1 for 7
Reverse Stock Split,) the Company will have outstanding 2,527,021 shares of
Common Stock. Of these shares, all of the 700,000 shares sold in the Offering
(assuming no exercise of the Underwriters' over allotment option) will be
transferable without restriction or further registration under the Securities
Act, unless they are held by "affiliates" of the Company within the meaning of
Rule 144 promulgated under the Securities Act. Of the remaining shares,
approximately 1,747,000 shares are Restricted Securities, and, as such, may not
be sold in the absence of registration under the Securities Act or an exemption
therefrom under Rules 144 and 701, and approximately 40,000 shares will be
eligible for sale without restriction or further registration under Rule 144(k),
unless they are held by "affiliates" of the Company or subject to "lock-up"
agreements summarized below.

Of the Restricted Shares, 44,205 shares are 12-Month Lock-up Shares, or
cumulatively approximately 1.75% of the outstanding shares of Common Stock after
this Offering. See "RISK FACTORS -- Shares Eligible for Future Sale." Upon
expiration of the 12-month period, these shares will be eligible for immediate
resale, subject, in certain cases, to certain volume, timing and other
requirements of Rule 144 promulgated under the Securities Act. In addition to
the 12-Month Lock-up Shares, an additional 829,141 shares of the Restricted
Stock are 24-Month Lock-up Shares, or cumulatively 32.25% of the outstanding
Common Stock after this Offering. See, "UNDERWRITING."

In general, under Rule 144, any person (or persons whose shares are
aggregated for purposes of Rule 144) who beneficially owns Restricted Shares
with respect to which at least one year has elapsed since the later of the date
the shares were acquired from the Company or from an affiliate of the Company,
is entitled to sell, within any three month period, a number of shares that does
not exceed the greater of: (i) 1% of the then outstanding shares of Common Stock
of the Company; or (ii) the average weekly trading volume in Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain manner-of-sale provisions and notice requirements, and to the
availability of current public information about the Company. A person who is
not an affiliate, has not been an affiliate within 90 days prior to sale and who
beneficially owns Restricted Shares with respect to which at least two years
have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company, is

39
<PAGE> 45

entitled to sell such shares under Rule 144(k) without regard to any of the
volume limitations or other requirements described above.

In addition to the outstanding shares of Common Stock, and exclusive of
options granted pursuant to the Company's employee stock option plan, there are
292,066 shares of Common Stock subject to outstanding warrants and options at a
weighted average exercise price of $6.87 per share (as adjusted for the Reverse
Stock Split). Such warrants are exercisable for a period expiring at various
dates between 2003 and 2004. The Company has granted the holders of such
warrants certain registration rights relating to the Common Stock purchasable
upon the exercise of such warrants.

As of the date of this Prospectus, certain of the Company's creditors held
indebtedness, which, in accordance with its terms, could be converted into
shares of Common Stock. The convertible indebtedness totaled $905,182 and, upon
full conversion, would represent 395,303 shares of Common Stock (as adjusted for
the Reverse Stock Split). The weighted average conversion price of the
convertible indebtedness is $2.29. The Company anticipates that, in connection
with the closing of this Offering, that holders of convertible indebtedness will
convert such indebtedness.

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

As of the date of this Prospectus, the Company has reserved an aggregate of
1,000,000 shares of Common Stock for issuance pursuant to the Company's stock
option plan (but plans to ask shareholders to approve a proposal to reduce the
total number of shares subject to the plan to 450,000), and options to purchase
739,666 shares were outstanding on September 30, 1997. After giving effect to
the Reverse Stock Split, there are 105,666 shares of Common Stock subject to
employee stock options. As soon as practicable following the Offering, the
Company intends to file a registration statement under the Securities Act to
register shares of Common Stock reserved for issuance under such plans. See
"MANAGEMENT -- Stock Option Plan."

UNDERWRITING

Each of the underwriters named below (the "Underwriters") have severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company the number of Shares set forth opposite their
respective names below. The nature of the obligations of the Underwriters is
such that if any of such shares are purchased, all must be purchased.

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Capital West Securities, Inc................................
-------
Total............................................. 700,000
=======
</TABLE>

The Underwriters have advised the Company that they propose initially to
offer the Common Stock offered hereby to the public at the price to public set
forth on the cover page of this Prospectus. The Underwriters may allow a
concession to selected dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") not in excess of $ per share, and the
Underwriters may allow, and such dealers may re-allow, to members of the NASD a
concession not in excess of $ per share. After the public offering, the
price to public, the concession and the re-allowance may be changed by the
Underwriters.

Capital West Securities, Inc., one of the Underwriters, was first
registered as a broker-dealer in May 1995. Capital West has participated in only
eight public equity offerings as an underwriter, although certain of

40
<PAGE> 46

its employees have had experience in underwriting public offerings while
employed by other broker-dealers. All eight of the public equity offerings were
successful. Prospective purchasers of the securities offered hereby should
consider Capital West's limited underwriting experience in evaluating this
Offering.

The Company has granted an option to the Underwriters, exercisable within
45 business days after the date of this Prospectus, to purchase up to an
aggregate of 105,000 additional shares of Common Stock at the initial price to
public, less the underwriting discount, set forth on the cover page of this
Prospectus. The Underwriters may exercise the option only for the purpose of
covering over-allotments. To the extent that the Underwriters exercise such
option, each Underwriter will be committed, subject to certain conditions, to
purchase from the Company on a pro rata basis that number of additional shares
of Common Stock which is proportionate to such Underwriters' initial commitment.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The Company has agreed to pay to the Underwriters a non-accountable expense
allowance of 3% of the gross proceeds derived from the sale of the shares of
Common Stock underwritten (including the sale of any shares of Common Stock
subject to the Underwriters' over-allotment option), $45,000 of which has been
paid as of the date of this Prospectus. The Company also has agreed to pay all
expenses in connection with qualifying the Common Stock offered hereby for sale
under the laws of such states as the Underwriters may designate, including
filing fees and fees and expenses of counsel retained for such purposes by the
Underwriters, and registering the Offering with the NASD.

In connection with this Offering, the Company has agreed to sell to the
Underwriters, for a price of $.001 per warrant, warrants (the "Underwriters'
Warrants") to purchase shares of Common Stock equal to 10% of the total number
of shares of Common Stock sold pursuant to this Offering, excluding shares
subject to the over-allotment option. The Underwriters' Warrants are exercisable
at a price equal to 120% of the initial public offering price ($8.40 assuming an
initial public offering price of $7.00 per Share) for a period of four years
commencing one year from the date of this Prospectus (the "Exercise Period").
The Underwriters' Warrants grant to the holders thereof, with respect to the
registration under the Securities Act of the securities directly and indirectly
issuable upon exercise of the Underwriters' Warrants, one demand registration
right during the Exercise Period, as well as piggyback registration rights at
any time.

Holders of 35% of the shares of Common Stock (including the directors and
executive officers of the Company) outstanding after completion of this Offering
have agreed for a period of 12 months after the date of this Prospectus, they
will not offer, sell or otherwise dispose of any shares of Common Stock owned by
them. Certain of the Company's executive officers have agreed to enter into
similar lock-up agreements with regard to 829,141 shares of Common Stock they
own, representing 32.8% of the Common Stock outstanding after completion of this
Offering, except that the term thereof is 24 months and the officers will be
permitted to sell a limited number of shares prior to expiration of the 24-month
period if certain criteria are satisfied.

Prior to this Offering, the market for the Common Stock has been extremely
limited and there can be no assurance that a regular trading market will develop
upon the completion of this Offering. The public offering price was determined
by negotiations between the Company and the Underwriters. The primary factors
considered in determining such offering price included the history of and
prospects for the Company's business and the industry in which the Company
competes, market valuation of comparable companies, market conditions for public
offerings, the prospects for future earnings of the Company, an assessment of
the Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors.

41
<PAGE> 47

The Underwriters have advised the Company that the Underwriters do not
expect any sales by the Underwriters to accounts over which they exercise
discretionary authority.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
has been passed upon for the Company by Kuperman, Orr, Mouer & Albers, P.C.,
Austin, Texas. Robertson & Williams, Inc. of Oklahoma City, Oklahoma, has served
as counsel to the Underwriters in connection with this Offering.

EXPERTS

The financial statements of the Company for the year ended December 31,
1996, and the pro forma consolidated financial statements for the Company as of
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Andersen, Andersen & Strong, Salt Lake City, Utah, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as an expert in accounting and auditing.

ADDITIONAL INFORMATION

As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and in the exhibits and schedules thereto. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement and the exhibits thereto Statements contained
in this Prospectus concerning the provisions of documents filed with the
Registration Statement as exhibits and schedules are necessarily summaries of
such documents, and each such statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge and copied upon payment of the charges prescribed by
the Commission at the Public Reference Room of the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a website
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission at
http://www.sec.gov.

42
<PAGE> 48

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Consolidated Balance Sheets at September 30, 1997 and
1996...................................................... F-2
Consolidated Statements of Operations for the first three
months ended September 30, 1997 and 1996.................. F-3
Consolidated Statements of Operations for the nine months
ended September 30, 1997 and 1996......................... F-4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996......................... F-5
Notes to Financial Statements for the nine months ended
September 30, 1997........................................ F-6
Report of Independent Certified Public Accountants
(Andersen, Andersen & Strong)............................. F-14
Consolidated Balance Sheets at December 31, 1996 and 1995... F-15
Consolidated Statements of Operations for the Two Years
ended December 31, 1996 and 1995.......................... F-16
Consolidated Statement of Stockholders' Equity for the Two
Years ended December 31, 1996 and 1995.................... F-17
Consolidated Statements of Cash Flows for the Two Years
ended December 31, 1996 and 1995.......................... F-18
Notes to Consolidated Financial Statements.................. F-19
</TABLE>

F-1
<PAGE> 49

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
UNAUDITED
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 2)........................ $ 265 $ 12,358
Restricted cash (Note 2).................................. 190,605 --
Accounts receivable, net of allowance for doubtful
accounts of $8,810 in 1997 (Note 2).................... 76,254 20,422
Due from affiliate (Note 6)............................... 140,134 --
Prepaid expenses (Note 2)................................. -- --
Prepaid hotel cost (Note 2)............................... 565,744 335,051
Prepaid cruise and tour cost (Note 2)..................... 810,321 869,299
---------- ----------
Total Current Assets.............................. 1,783,323 1,237,130
---------- ----------
Property and Equipment, at Cost, Net of accumulated
depreciation (Notes 2 and 3).............................. 49,300 49,660
---------- ----------
Other Assets
Deferred charges and other assets......................... 26,113 --
Intangible assets, net of accumulated amortization (Notes
2 and 5)............................................... 380,838 628,379
---------- ----------
$2,239,574 $1,915,169
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable.......................................... $ 343,434 $ 4,878
Other current liabilities................................. 482,964 103,259
Current portion of long-term debt (Note 7)................ 337,339 120,396
Due to affiliate (Note 6)................................. -- 568,540
Deferred hotel revenue (Note 2)........................... 501,754 400,501
Deferred cruise and tour revenue (Note 2)................. 827,581 1,043,899
Deferred subscription revenue............................. 118,994 97,162
---------- ----------
Total Current Liabilities......................... 2,612,066 2,338,633
---------- ----------
Other Liabilities
Long-term debt (Note 7)................................... 803,480 300,267
Deferred discount (Note 9)................................ -- --
---------- ----------
Total Other Liabilities........................... 803,480 300,267
---------- ----------
Stockholders' (Deficit)
Preferred stock, no par value; authorized 10,000,000
shares; none issued and outstanding.................... -- --
Common stock $.0001 par value; authorized 30,000,000
shares; issued and outstanding 1,360,289 and 1,300,000
shares in 1997 and 1996, respectively (Note 11)(as
adjusted for the Reverse Stock Split).................. 136 130
Additional paid-in capital................................ 599,204 54,870
Accumulated deficit....................................... (1,775,131) (778,731)
---------- ----------
Total Stockholders' (Deficit)..................... (1,175,971) (723,731)
---------- ----------
$2,239,574 $1,915,169
========== ==========
</TABLE>

F-2
<PAGE> 50

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues
Hotel revenue............................................. $1,105,218 $1,206,751
Cruise and tour revenue................................... 2,317,601 1,795,151
Magazine subscription and advertising revenue............. 178,771 43,122
Merchandise and other revenue............................. 5,737 11,498
---------- ----------
Total Revenues.................................... 3,607,327 3,056,523
---------- ----------
Cost of Sales
Hotel cost................................................ 687,600 933,536
Cruise and tour cost...................................... 2,078,279 1,610,736
Magazine publishing cost.................................. 145,924 168,826
Merchandise cost.......................................... -- --
---------- ----------
Total Cost of Sales............................... 2,911,803 2,713,097
---------- ----------
Gross Profit...................................... 695,524 343,426
Operating Expenses
Selling, general and administrative expenses.............. 305,430 224,568
Wages..................................................... 307,805 345,363
Depreciation and amortization............................. 9,509 24,004
---------- ----------
Total Operating Expenses.......................... 622,744 593,935
---------- ----------
Net Income Before Income Taxes.............................. 72,779 (250,509)
Income Tax Expense.......................................... -- --
Net Income (Loss)........................................... $ 72,779 $ (250,509)
========== ==========
Net Income (Loss) Per Common Share (Note 2)................. $ 0.04 $ (0.20)
========== ==========
Weighted Average Common Shares Outstanding (as adjusted for
the Reverse Stock Split).................................. 1,631,839 1,300,000
========== ==========
</TABLE>

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

F-3
<PAGE> 51

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues
Hotel revenue............................................. $3,473,835 $3,386,886
Cruise and tour revenue................................... 5,722,149 4,766,539
Magazine subscription and advertising revenue............. 340,276 273,741
Merchandise and other revenue............................. 14,013 36,483
---------- ----------
Total Revenues.................................... 9,550,273 8,463,650
---------- ----------
Cost of Sales
Hotel cost................................................ 2,520,221 2,607,603
Cruise and tour cost...................................... 5,078,400 4,166,891
Magazine publishing cost.................................. 396,201 307,946
Merchandise cost.......................................... -- 1,556
---------- ----------
Total Cost of Sales............................... 7,994,822 7,083,995
---------- ----------
Gross Profit...................................... 1,555,451 1,379,655
Operating Expenses
Selling, general and administrative expenses.............. 704,360 817,814
Wages..................................................... 803,436 913,837
Depreciation and amortization............................. 29,978 50,743
---------- ----------
Total Operating Expenses.......................... 1,537,774 1,782,394
---------- ----------
Net Income (Loss) Before Income Taxes....................... 17,676 (402,739)
Income Tax Expense.......................................... -- --
Net Income (Loss)........................................... $ 17,676 $ (402,739)
========== ==========
Net Income (Loss) Per Common Share (Note 2)................. $ 0.01 $ (0.31)
========== ==========
Weighted Average Common Shares Outstanding (as adjusted for
the Reverse Stock Split).................................. 1,631,839 1,300,000
========== ==========
</TABLE>

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

F-4
<PAGE> 52

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss)......................................... $ 17,676 $ (402,739)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization.......................... 29,978 24,026
Changes in operating assets and liabilities:
Restricted cash...................................... (147,635) 0
Accounts receivable.................................. (56,343) (20,422)
Prepaid hotel cost................................... (313,400) (307,966)
Prepaid cruise and tour cost......................... (231,406) (869,299)
Accounts payable..................................... (235,554) (1,909)
Accrued expenses..................................... 303,096 103,259
Receivable from affiliates and other................. (254,460) 92,928
Deferred hotel revenue............................... 115,902 359,377
Deferred cruise and tour revenue..................... 203,866 1,043,899
Deferred subscription revenue........................ 13,934 97,162
Deferred discount.................................... (54,644) 0
--------- ----------
Net Cash Provided (Used) by Operating
Activities...................................... (608,720) 118,316
--------- ----------
Cash Flows from Investing Activities:
Business acquisitions..................................... 224,963 (575,128)
Purchase of property and equipment........................ 0 (17,000)
Proceeds from sale of equipment........................... 0 10,507
--------- ----------
Net Cash Provided (Used) by Investing
Activities...................................... 224,963 (581,621)
--------- ----------
Cash Flows from Financing Activities:
Proceeds from sale of common stock........................ 0 55,000
Proceeds from notes payable............................... 786,892 459,769
Repayments of notes payable............................... (402,869) (39,106)
--------- ----------
Net Cash Provided by Financing Activities......... 384,022 475,663
--------- ----------
Net Increase (Decrease) in Cash........................... 265 12,358
Cash at Beginning of Period............................... 0 0
Cash at End of Period..................................... $ 265 $ 12,358
========= ==========
Supplemental Cash Flow Information
Cash paid during the period for interest.................. $ 65,288 $ 28,732
</TABLE>

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

F-5
<PAGE> 53

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS ACTIVITIES

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Travel revenue is recognized on a "booked, paid, traveled" basis. This
means that all client funds received and all funds paid to travel suppliers
prior to the travel date are deferred for income recognition until such time as
the client has traveled and the Company has completed its commitment to the
client and the travel suppliers. Subscription sales are deferred for income
recognition until magazines are delivered to subscribers. (See Note 8.)

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

Cash and Cash Equivalents

Substantially all of the balance in the cash account consists of escrow
deposits required by Bank One (the previous processor) and Humboldt Bank (the
current processor) as a reserve for credit card processing. The Company agreed
to establish an escrow balance of 5% of Visa/Mastercard charges until a six
month rolling reserve is established with Humboldt Bank. The prior Bank One
reserve was partially released in October, 1997. The remaining $50,000 of that
reserve will be reviewed by the bank on a month to month basis and funds will be
returned to the Company on a gradual basis until fully released by March, 1998.
The reserves with Humboldt Bank and Bank One totaled approximately $190,605 at
September 30, 1997.

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

Allowance for Uncollectible Accounts

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

F-6
<PAGE> 54

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income (Loss) Per Share

The computation of primary income (loss) per share of common stock is based
on the weighted average number of common shares outstanding (as adjusted for the
Reverse Stock Split) during the period plus (in periods in which they have a
dilutive effect) the effect of common shares contingently issuable from stock
options and exercise of warrants.

Depreciation and Amortization

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

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary Airfair Publishing Company, Inc. All
intercompany transactions have been eliminated.

Income Taxes

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

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation. The Company currently accounts for its stock-based compensation
plans using the accounting prescribed by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. Since the Company is not required
to adopt the fair value based recognition provisions prescribed under SFAS No.
123, it has elected to comply with the disclosure requirements set forth in the
Statement, which includes disclosing pro forma net income as if the fair value
based method of accounting had been applied. (See Note 14.)

Estimates and Assumptions

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

3. PROPERTY AND EQUIPMENT

Property and equipment at September 30, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Property and equipment...................................... $ 93,795 $ 75,795
Less accumulated depreciation............................... (44,495) (26,135)
-------- --------
Net property and equipment........................ $ 49,300 $ 49,660
======== ========
</TABLE>

F-7
<PAGE> 55

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation expense for the quarters ending September 30, 1997 and 1996
was $4,590 and $4,590, respectively. Depreciation expense for the nine months
ending September 30, 1997 and 1996 was $13,770 and $12,190, respectively.

4. ACQUISITIONS

On December 1, 1994, Inventory Merchandising Services, Inc. (IMS) (a wholly
owned subsidiary of Barter Exchange, Inc. (BEI)), acquired the net assets of a
business owned by Lou and Claudia Nackos (Nackos) for the assumption of certain
liabilities in the amount of $144,394. This resulted in a new operating division
called Interline Travel (Interline).

Assets acquired from Nackos consist of the following:

<TABLE>
<S> <C>
Cash........................................................ $ 814
Excess of cost over net assets acquired..................... 74,278
Furniture and fixtures...................................... 69,302
--------
Total assets acquired............................. $144,394
========
</TABLE>

Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on
January 6, 1996. Immediately subsequent to incorporation of Airfair, the assets
and liabilities of Interline were transferred by IMS into Airfair. Additionally,
existing shareholders of BEI received four shares of Airfair for each share held
in BEI, resulting in 8,500,000 shares issued. An additional 600,000 shares were
authorized by the Board of Directors and issued to two shareholders, resulting
in a total of 9,100,00 shares issued pursuant to the spin-off of the Interline
division in IMS to Airfair. Capital of $30,000 was contributed to Airfair by
BEI.

On January 13, 1996, (Closing Date) [effective December 31, 1995 (Effective
Date)] Airfair acquired certain assets and assumed certain liabilities of
Interline Representatives Ltd. and Airfair Publishing Corp. (IRL/APC) for
$593,791.

Assets acquired from IRL/APC consist of the following:

<TABLE>
<S> <C>
Furniture and equipment..................................... $ 35,000
Covenant-not-to compete..................................... 30,000
Excess of cost over net assets acquired..................... 528,791
--------
Total assets acquired............................. $593,791
========
</TABLE>

Liabilities (unadjusted) assumed from IRL/APC consist of the following:

<TABLE>
<S> <C>
Subscription, prepaid advertising, and tour ledger.......... $204,326
--------
Net assets acquired............................... $389,465
========
</TABLE>

Payment for the net assets acquired from IRL/APC is as follows:

<TABLE>
<S> <C>
Cash........................................................ $ 30,000
Note payable #1 (see below)................................. 201,879
Note payable #2 (see below)................................. 157,586
--------
Total payments (unadjusted)....................... $389,465
========
</TABLE>

Both of the promissory notes described above, had identical terms (except
as specified) as follows: The annual interest rate on unpaid principal is 12%
per annum. Interest only will be due on the unpaid balance on

F-8
<PAGE> 56

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

January 31, 1996, February 29, 1996, and March 31, 1996. Thereafter, principal
and interest shall be due and payable in monthly installments of $5,593 on Note
#1 and $4,366 on Note #2, each payable on the last day of each month, beginning
April 30, 1996, until December 31, 1999, when the entire principal and accrued
interest remaining unpaid, shall be due and payable in full. These notes were
settled in full with a cash payment of $75,000 in April, 1997, when the
remaining unpaid balance was $299,963. The difference between the unpaid balance
and the settlement of $224,963 was credited to Goodwill which was created at
acquisition.

The purchase method of accounting was used to account for the above
transactions.

Effective July 19, 1996, Riley Investments, Inc. (Riley) and Airfair
executed an Agreement that provided for the merger of MergerCo, a newly-created,
wholly-owned subsidiary of Riley, with and into Airfair, which became the
surviving corporation, and the conversion of the issued and outstanding Airfair
stock into shares of Riley stock on the basis of one share of Riley stock for
each share of Airfair stock outstanding on the Effective date. On October 7,
1996, articles of amendment were filed on behalf of Riley wherein the name was
changed to Grand Adventures Tour & Travel Publishing Corporation (the Company)
with authority to issue 10,000,000, no par, preferred shares and 30,000,000 on
shares with a par value of $.0001. The transaction was accounted for as a
reverse acquisition.

5. INTANGIBLE ASSETS

Intangible assets at September 30, 1997 and 1996 are as follows:

As explained in Note 4 to the financial statements, on December 31, 1994,
IMS acquired the net assets of a business owned by Nackos (referred to herein as
Interline) and assumed certain liabilities. Of the $144,394 total purchase
price, $74,278 represented the excess of the cost over the fair value of net
assets acquired. The excess of cost over net assets acquired is amortized on a
straight-line basis over 40 years.

As explained in Note 4 to the financial statements, on January 13, 1996,
(Closing Date) [effective December 31, 1995 (Effective Date)] Airfair acquired
certain assets and assumed certain liabilities of Interline Representatives Ltd.
and Airfair Publishing Corp. (IRL/APC). Of the $593,791 total purchase price,
$528,791 represented the excess of the cost over the fair value of net assets
acquired and $30,000 represented a covenant-not-to compete. Also amortizable are
$16,336 of additional legal and acquisition costs. The excess of cost over net
assets acquired is amortized on a straight-line basis over 40 years and the
covenant is amortized over 3 years. Also, as explained in Note 4, Goodwill was
reduced by $224,963 upon the reduced settlement of the debt incurred in the
acquisition.

At September 30, 1997 and 1996, the unamortized cost consists of the
following:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cost........................................................ $424,442 $649,405
Less accumulated amortization............................... (43,604) (21,026)
-------- --------
Net............................................... $380,838 $628,379
======== ========
</TABLE>

Amortization expense for the quarters ended September 30, 1997 and 1996,
was $4,919 and $6,370, respectively. Amortization expense for the nine months
ended September 30, 1997 and 1996, was $16,208 and $19,015, respectively.

6. DUE TO AFFILIATE

F-9
<PAGE> 57

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

services, and the services of certain executive officers and personnel who
perform services for Airfair, BEI, and IMS. The Company agreed to pay to BEI and
IMS, collectively, a cash sum equal to 1/2% of the Company's gross cash receipts
during any month in which the Agreement remains in effect.

The Company and IMS have also entered into an Inventory Marketing Agreement
whereby the Company sells certain IMS inventories. The Company is required to
make monthly payments to IMS equaling (i) the cash value of the inventory sold
plus (ii) 25% of the collected revenue generated from such sales less such cash
value. At September 30, 1997, BEI/IMS owed the Company $140,134. At September
30, 1996, the Company owed BEI/IMS $568,540.

7. LONG-TERM DEBT

At September 30, 1997 and 1996 long-term debt (as adjusted for the Reverse
Stock Split) consisted of the following:

<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Notes payable to shareholders, due April 30, 2000 including
accrued interest at 12% per annum payable in, in monthly
installments, convertible into common stock at a
conversion price of $3.50 principal amount for each
share..................................................... $ 352,633 $ --
Note payable at $1,163 per month, including interest at 14%
per annum, convertible into common stock at the conversion
price of $7.00 principal amount for each share of common
stock, subordinated to senior indebtedness................ 44,529 --
Note payable with a repayment schedule based on the release
of bank credit card escrow funds, including interest at 6%
per annum, maturity date is April 16, 1998................ 116,354 --
Note payable (acquisition of IRL/APC -- see Note 4) at
$5,593 per month, including interest at 12% per annum,
collateralized by assets acquired......................... 0 179,916
Note payable (acquisition of IRL/APC see Note 4) at $4,366
per month, including interest at 12% per annum,
collateralized by assets acquired......................... 0 140,747
Note payable with interest payments only for 12 months with
interest with interest at 12% per annum. Maturity date of
August, 1997.............................................. 0 100,000
Convertible debentures due April, 2000, 7% interest only due
on each anniversary with principal due at maturity,
interest may be paid in shares of common stock at the
option of the Company at the rate one share for each $3.50
of interest due, unpaid principal is convertible into
common stock at a conversion price of $1.75 per share..... 500,000 --
Note payable at $1,000 per month for six months beginning
April 25,1997, then $1,500 per month for six months, then
$2,000 per month until paid in full, with interest at 8%
per annum................................................. 48,502 --
Note payable at $4,246 per month beginning April, 1997, with
interest at 6% per annum.................................. 23,021 --
Note payable at $1,154 per month beginning April, 1997, with
interest at 10% per annum, maturity date of March, 1999,
unpaid balance can be converted into common stock at $3.50
per share................................................. 19,209 --
</TABLE>

F-10
<PAGE> 58

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Note payable at $1,000 per month beginning May 15, 1997
remaining unpaid balance due June 15, 1998, interest at 9%
per annum................................................. 23,167 --
Note payable at $556 per month beginning August 5, 1997 with
interest at 8% per annum, maturity date of August 5,
1998...................................................... 5,368
Note payable at $300.00 per month beginning June 15, 1997
for 35 months at 10% interest per annum................... 8,035
---------- ---------
1,140,818 420,663
Less current portion........................................ (337,339) (120,396)
---------- ---------
Total............................................. $ 803,480 $ 300,267
========== =========
</TABLE>

8. DEFERRED SUBSCRIPTION REVENUE

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

9. DEFERRED DISCOUNT

In April of 1996, the Company entered into an agreement with a telephone
long-distance service provider wherein the Company receives a discount (credit)
against its telephone charges provided that its annual volume of telephone usage
is equal to at least $240,000 for a period of three years. If the Company fails
to meet the minimum usage requirement, the discount will be forfeited. The
discount credit balance as of June 30, 1997 is $54,644. The Company renegotiated
this contract during the current quarter and as a result this discount became
earned and was recognized during this period.

10. INCOME TAXES

The Company had no provision for income taxes at September 30, 1997 and
1996.

There are no reconciling items between the statutory U.S. federal rate and
effective rates for the quarters ended September 30, 1997 and 1996.

At September 30, 1997, Interline has a net operating loss carryforward
totaling approximately $880,000 that may be offset against future taxable
income. If not used, the carryforward will expire in 2011.

11. COMMON STOCK

Riley Investments, Inc. was incorporated as Pace Group International, Inc.,
("Pace") in October, 1987 under the laws of the State of Oregon. On September
20, 1995, the stockholders approved a name change of the Company to Riley
Investments, Inc. As of November 1, 1995, after the effects of the transaction
described below, the Company had no operating assets and was dormant.

On May 23, 1995, the Chairman of the Board, Edwin T. Cornelius, Jr.
("Cornelius"), the Secretary/Treasurer, Joanne Cornelius, and two sons of Mr.
and Mrs. Cornelius entered into an option agreement to sell 415,070 common
shares of Pace they owned to Bridgeworks Capital. The above shareholders,
together with another shareholder who was also the son of Mr. and Mrs.
Cornelius, owned an aggregate of 569,143 common shares of Pace. The option
agreement, among other provisions, was subject to shareholder approval of a
1-for-15 reverse stock split of the outstanding shares of Pace common stock and
an exchange of substantially all net assets of Pace, including its ownership of
100% of the outstanding common stock of Pace

F-11
<PAGE> 59

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

International Research, Inc., for notes payable and unpaid accrued interest
thereon owed to Cornelius which approximated $422,000 as of October 31, 1995.
The above transaction was approved by the shareholders on September 20, 1995 and
became effective November 1, 1995.

Prior to the consummation of the option agreement, Cornelius also
transferred 64,826 shares of Pace common stock to two investors who had
previously advanced the Company $525,000 in 1987 pursuant to profit-sharing
agreements. Under the term of those profit-sharing agreements, the investors
were to be paid in full from certain Pace profits. As of October 31, 1995, those
investors had not been repaid for their advances.

The remaining Pace common stock owned by the Cornelius family, which
aggregated 89,788 shares, were returned to the Company and 84,097 shares were
canceled as of December 31, 1996.

Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on
January 6, 1996. Immediately subsequent to incorporation of Airfair on January
6, 1996, the existing shareholders of BEI received four shares of Airfair for
each share held in BEI, resulting in 8,500,000 shares issued. An additional
600,000 shares were authorized by the Board of Directors and issued to two
shareholders, resulting in a total of 9,100,000 shares issued pursuant to the
spin-off of the Interline division in IMS to Airfair. (See Note 4.) Capital of
$30,000 was contributed to Airfair by BEI.

In September of 1996, Airfair issued 25,000 shares of common stock for
$25,000.

Effective July 19, 1996, Riley and Airfair executed an Agreement that
provided for the merger of MergerCo, a newly-created, wholly-owned subsidiary of
Riley, with and into Airfair, which became the surviving corporation, and the
conversion of the issued and outstanding Airfair stock into shares of Riley
stock on the basis of one share of Riley stock for each share of Airfair stock
outstanding on the effective date of the merger. Airfair shares outstanding on
the effective date totaled 9,125,000. On October 7, 1996, articles of amendment
were filed on behalf of Riley wherein the name was changed to Grand Adventures
Tour & Travel Publishing Corporation with authority to issue 10,000,000, no par,
preferred shares and 30,000,000 common shares with a par value of $.0001.
Existing shareholders in Riley at the date of conversion held 54,861 shares. As
adjusted for the Reverse Stock Split, Airfair shareholders received a total of
1,303,572 shares of Company Common Stock and the non-Airfair shareholders held
54,861 shares of Common Stock.

12. LEASING ARRANGEMENTS

As part of the Management Services Agreement with BEI (see Note 6), the
Company is allowed access and use of (i) approximately 8,000 square feet of
space leased by BEI and (ii) all common areas within the building to which BEI
is permitted access. The fees for usage are included in the management services
fee calculation under the Management Services Agreement.

13. SUBSEQUENT EVENTS

Subsequent to the end of the September 30,1997 quarter, the Company raised
an additional $100,000 through short-term borrowings from an existing
shareholder/noteholder. The prior credit card processor also released
approximately $50,000 from the escrow reserve being held as security. On October
24, 1997, the Company consummated a $500,050 bridge financing consisting of 10%
notes in an aggregate principal amount of $500,000 and 71,429 shares of common
stock at a per share price of $0.0007. The Company will recognize a one-time,
non-recurring, non-cash expense equal to the difference in the fair market value
of the stock and the discounted value offered to the noteholders.

14. STOCK OPTION PLAN

The Company has a long-term stock incentive plan (LTSIP) that authorizes an
aggregate of 1,000,000 shares of common stock for future grants, and if adjusted
for the Reverse Stock Split, there will be 142,857

F-12
<PAGE> 60

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

subject to the Plan. The Company's shareholders have been asked to amend the
number of shares subject to the Plan to a total of 450,000. Options to purchase
shares of Airfair common stock granted under the previous Airfair stock option
plan were exchanged for comparable options granted under the LTSIP for an
equivalent number of shares pursuant to the terms of the Merger as explained in
Note 4 to the financial statements. Under the plan, the exercise price of each
employee option is $7.00 (as adjusted for the Reverse Stock Split) and the
exercise price of options granted to shareholders range from $3.50 to $7.00 (as
adjusted for the Reverse Stock Split). An option's maximum term is five years.
Employee options were granted on August 1, 1996, and February 1, 1997, and vest
in three years. Other options are fully vested. The fair value of each option
grant is estimated on the grant date using an option-pricing model with the
following weighted-average assumptions used for grants in 1996: risk-free
interest rate of 6%, and expected lives of 5 years for the options.

A summary of the status of the Company's outstanding stock options as of
September 30, 1997 (as adjusted for the Reverse Stock Split) is presented below:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
- ----------------------------------------- ------------------------------------------------
WEIGHTED-
RANGE OF NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED
EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICES 9/30/97 CONTRACTUAL LIFE EXERCISE PRICE 9/30/97 EXERCISE PRICE
- -------- ----------- ---------------- -------------- -------------- --------------
<C> <C> <C> <C> <C> <C>
$7.00 51,572 4 years $7.00 14,524 7.00
$7.00 64,143 4 years $7.00 15,715 7.00
------- ------
115,715 30,239
======= ======
</TABLE>

F-13
<PAGE> 61

INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying consolidated balance sheets of Grand
Adventures Tour & Travel Publishing Corporation (formerly Riley Investments,
Inc.) as of December 31, 1996 and its subsidiary (Airfair Publishing, Inc.) as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period November 1, 1996
through December 31, 1996 (for Grand Adventures Tour & Travel Publishing
Corporation) and for the years ended December 31, 1996 and 1995 (for its
subsidiary Airfair Publishing, Inc.). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Grand
Adventures Tour & Travel Publishing Corporation and subsidiary as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
the periods referred to above, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

On November 14, 1997, the Board of Directors approved a reverse stock split
whereby, the Company would issue 1 share of common stock for every 7 shares of
common stock held by existing shareholders at the date of the transaction. As
discussed in Note 11 of the financial statements, all share transactions,
outstanding shares and related share amounts throughout the accompanying
financial statements have been adjusted to take into effect the 1-for-7 reverse
stock split.

ANDERSEN, ANDERSEN & STRONG, LC

April 4, 1997

(except for Note 15, as to which the date is May 1, 1997,

and the effect of the 1-for-7 reverse stock split as described

in Note 11, as to which the date is November 14, 1997)

Salt Lake City, Utah

F-14
<PAGE> 62

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

ASSETS

<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Current Assets
Restricted cash (Note 2).................................. $ 43,240 $ --
Accounts receivable, net of allowance for doubtful
accounts of $8,810 in 1996 (Note 2).................... 19,911 --
Prepaid hotel cost (Note 2)............................... 252,344 27,085
Prepaid cruise and tour cost (Note 2)..................... 578,915 --
----------- ---------
Total Current Assets.............................. 894,410 27,085
----------- ---------
Property and Equipment, at cost, net of accumulated
depreciation (Notes 2 and 3).............................. 63,070 48,179
----------- ---------
Other Assets
Intangible assets, net of accumulated amortization (Notes
2 and 5)............................................... 622,009 72,266
----------- ---------
$ 1,579,489 $ 147,530
=========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Cash overdraft............................................ $ 50,723 $ --
Accounts payable.......................................... 578,988 6,787
Other current liabilities................................. 129,145 --
Due to affiliate (Note 6)................................. 88,213 475,611
Current portion of long-term debt (Note 7)................ 502,573 --
Deferred hotel revenue (Note 2)........................... 385,852 41,124
Deferred cruise and tour revenue (Note 2)................. 623,715 --
Deferred subscription revenue............................. 105,060 --
----------- ---------
Total Current Liabilities......................... 2,464,269 523,522
----------- ---------
Other Liabilities
Long-term debt (Note 7)................................... 254,223 --
Deferred discount (Note 9)................................ 54,644 --
----------- ---------
Total Other Liabilities........................... 308,867 --
----------- ---------
Stockholders' (Deficit)
Preferred stock, no par value; authorized 10,000,000
shares; none issued and outstanding.................... -- --
Common stock $.0001 par value; authorized 30,000,000
shares; issued and outstanding 1,358,432 and 1,300,000
shares in 1996 and 1995, respectively (as adjusted for
1-for-7 stock split) (Note 11)......................... 136 1,300
Additional paid-in capital (deficit)...................... 599,024 (1,300)
Accumulated deficit....................................... (1,792,807) (375,992)
----------- ---------
Total Stockholders' (Deficit)..................... (1,193,647) (375,992)
----------- ---------
$ 1,579,489 $ 147,530
=========== =========
</TABLE>

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

F-15
<PAGE> 63

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Revenues
Hotel revenue............................................. $ 4,249,454 $2,289,018
Cruise and tour revenue................................... 6,339,179 --
Magazine subscription and advertising revenue............. 374,789 --
Merchandise and other revenue............................. 39,904 37,874
----------- ----------
Total Revenues.................................... 11,003,326 2,326,892
----------- ----------
Cost of Sales
Hotel cost................................................ 3,273,552 1,751,919
Cruise and tour cost...................................... 5,562,876 --
Magazine publishing cost.................................. 75,120 --
Merchandise cost.......................................... 2,340 13,822
----------- ----------
Total Cost of Sales............................... 8,913,888 1,765,741
----------- ----------
Gross Profit...................................... 2,089,438 561,151
Operating Expenses
Selling, general and administrative expenses.............. 1,816,025 530,488
Wages..................................................... 1,111,081 342,544
Depreciation and amortization............................. 34,987 52,863
----------- ----------
Total Operating Expenses.......................... 2,962,093 925,895
----------- ----------
Net Loss Before Income Taxes................................ (872,655) (364,744)
Income Tax Expense.......................................... -- --
----------- ----------
Net (Loss).................................................. $ (872,655) $ (364,744)
=========== ==========
Net (Loss) Per Common Share (Note 2)........................ $ (.64) $ (.28)
=========== ==========
Weighted Average Common Shares Outstanding (as adjusted for
the Reverse Stock Split).................................. 1,361,430 1,300,000
=========== ==========
</TABLE>

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

F-16
<PAGE> 64

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
All share transactions are adjusted
for 1-for-7 reverse stock split (see
Note 11)
Balance at January 1, 1995............ -- $ -- -- $ (11,248) $ (11,248)
Issuance of shares pursuant to
spin-off of Airfair from IMS........ 1,300,000 1,300 (1,300) -- --
Net (Loss)............................ -- -- -- (364,744) (364,744)
--------- ------- -------- ----------- -----------
Balance at December 31, 1995.......... 1,300,000 1,300 (1,300) (375,992) (375,992)
Cancellation of shares................ (84,096) (9) 9 -- --
Effect of 1-for-15 reverse stock split
(exclusive of fractional shares).... (689,690) (69) 69 -- --
Issuance of common shares ($7.00 per
share).............................. 3,571 4 24,996 -- 25,000
Exchange of Airfair shares for shares
in the Company...................... 828,647 (1,090) 575,250 (544,160) 30,000
Net (Loss)............................ -- -- -- (872,655) (872,655)
--------- ------- -------- ----------- -----------
Balance at December 31, 1996.......... 1,358,432 $ 136 $599,024 $(1,792,807) $(1,193,647)
========= ======= ======== =========== ===========
</TABLE>

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

F-17
<PAGE> 65

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss.................................................. $(872,655) $(364,744)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization.......................... 34,987 21,355
Provision for losses on accounts receivable............ 8,810 --
Changes in operating assets and liabilities:
Restricted cash...................................... (43,240) --
Accounts receivable.................................. (28,720) --
Prepaid hotel cost................................... (225,260) (14,015)
Prepaid cruise and tour cost......................... (578,915) --
Accounts payable..................................... 629,710 --
Accrued expenses..................................... 71,584 (137,607)
Payroll taxes payable................................ 52 --
Payable to affiliates and other...................... (387,397) 491,874
Deferred hotel revenue............................... 344,728 3,137
Deferred cruise and tour revenue..................... 623,715 --
Deferred subscription revenue........................ 105,060 --
Deferred discount.................................... 54,643 --
--------- ---------
Net Cash Provided (Used) by Operating
Activities...................................... (262,898) --
--------- ---------
Cash Flows from Investing Activities:
Business acquisitions..................................... (575,128) --
Purchase of property and equipment........................ (35,000) --
Proceeds from sale of equipment........................... 10,507 --
--------- ---------
Net Cash Provided (Used) by Investing
Activities...................................... (599,621) --
--------- ---------
Cash Flows from Financing Activities:
Proceeds from sale of common stock........................ 55,000 --
Proceeds from notes payable............................... 909,465 --
Repayments of notes payable............................... (152,669) --
--------- ---------
Net Cash Provided by Financing Activities......... 811,796 --
--------- ---------
Net Increase (Decrease) in Cash........................... (50,723) --
Cash at Beginning of Period............................... -- --
Cash at End of Period (Overdraft)......................... $ (50,723) $ --
========= =========
Supplemental Cash Flow Information
Cash paid during the year for interest.................... $ 38,402 $ --
</TABLE>

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

F-18
<PAGE> 66

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. BUSINESS ACTIVITIES

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Cash and Cash Equivalents

Substantially all of the balance in the cash account consists of an escrow
deposit required by Bank One as a reserve for credit card processing. The
Company has agreed to establish an escrow balance of $125,000 to be funded by
depositing amounts equal to 5% of the prior week's gross sales deposit activity
on a weekly basis commencing September 9, 1996, for a six week period.
Commencing the 7th week, the Company agreed to deposit $5,000 per week for a
4-week period, and commencing the 11th week, a deposit of $10,000 per week until
the reserve is fully funded. As of December 31, 1996, the Company had funded the
escrow account to a balance of $42,876, and as of the date of the audit report,
the balance in the account is $105,376.

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

Allowance for Uncollectible Accounts

F-19
<PAGE> 67

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income (Loss) Per Share

The computation of primary income (loss) per share of common stock is based
on the weighted average number of common shares outstanding (as adjusted for
1-for-7 stock split) during the period plus (in periods in which they have a
dilutive effect) the effect of common shares contingently issuable from stock
options and exercise of warrants.

Depreciation and Amortization

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary Airfair Publishing Company, Inc. All
intercompany transactions have been eliminated.

Income Taxes

Stock-Based Compensation

Estimates and Assumptions

Impairment of Long-Lived Assets

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

F-20
<PAGE> 68

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Marketing and Advertising Costs

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

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property and equipment...................................... $ 93,795 $ 69,302
Less accumulated depreciation............................... (30,725) (21,123)
-------- --------
Net property and equipment................................ $ 63,070 $ 48,179
======== ========
</TABLE>

Depreciation expense for the years ending December 31, 1996 and 1995 was
$9,601 and $19,498, respectively.

4. ACQUISITIONS

Assets acquired from Nackos consist of the following:

Assets acquired from IRL/APC consist of the following:

Liabilities (unadjusted) assumed from IRL/APC consist of the following:

F-21
<PAGE> 69

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<S> <C>
Subscription, prepaid advertising, and tour ledger.......... $204,326
--------
Net assets acquired......................................... $389,465
========
</TABLE>

Payment for the net assets acquired from IRL/APC is as follows:

Both of the promissory notes described above, have identical terms (except
as specified) as follows: The annual interest rate on unpaid principal is 12%
per annum. Interest only will be due on the unpaid balance on January 31, 1996,
February 29, 1996, and March 31, 1996. Thereafter, principal and interest shall
be due and payable in monthly installments of $5,593 on Note #1 and $4,366 on
Note #2, each payable on the last day of each month, beginning April 30, 1996,
until December 31, 1999, when the entire principal and accrued interest
remaining unpaid, shall be due and payable in full.

The purchase method of accounting was used to account for the above
transactions.

The following unaudited pro forma information has been prepared assuming
that the above acquisitions had occurred at the beginning of 1995. Permitted pro
forma adjustments include only the effects of events directly attributable to a
transaction that are factually supportable and expected to have a continuing
impact. Pro forma adjustments reflecting anticipated "efficiencies" in operation
resulting from a transaction are, under most circumstances, not permitted. As a
result of the limitations imposed with regard to the types of permitted pro
forma adjustments, the Company believes that this unaudited pro forma
information is not indicative of future results of operations, nor the results
of historical operations had the above acquisitions been consummated as of the
assumed date.

<TABLE>
<CAPTION>
UNAUDITED
1995
----------
<S> <C>
Revenues.................................................... $9,077,000
Gross profit................................................ 1,825,000
Net (Loss).................................................. (414,000)
Net (Loss) per weighted average common share (as adjusted
for 1-for-7 stock split).................................. (.28)
</TABLE>

Effective July 19, 1996, Riley Investments, Inc. (Riley) and Airfair
executed an Agreement that provided for the merger of MergerCo, a newly-created,
wholly-owned subsidiary of Riley, with and into Airfair, which became the
surviving corporation, and the conversion of the issued and outstanding Airfair
stock into shares of Riley stock on the basis of one share of Riley stock for
each share of Airfair stock outstanding on the Effective date. On October 7,
1996, articles of amendment were filed on behalf of Riley wherein the name was
changed to Grand Adventures Tour & Travel Publishing Corporation (the Company)
with authority to issue 10,000,000, no par, preferred shares and 30,000,000
common shares with a par value of $.0001. The transaction was accounted for as a
reverse acquisition.

F-22
<PAGE> 70

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INTANGIBLE ASSETS

Intangible assets at December 31, 1996 and 1995 are as follows:

At December 31, 1996 and 1995, the unamortized cost consists of the
following:

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Cost........................................................ $649,405 $74,278
Less accumulated amortization............................... (27,396) (2,012)
-------- -------
Net............................................... $622,009 $72,266
======== =======
</TABLE>

Amortization expense for the years ended December 31, 1996 and 1995, was
$25,386 and $1,857, respectively.

6. DUE TO AFFILIATE

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

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

In order to provide short-term financing for the Company's operations, BEI
has advanced certain amounts to the Company for the above services. At December
31, 1996 and 1995, the Company owed BEI $88,213 and $475,611, respectively.

F-23
<PAGE> 71

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT

At December 31, 1996 and 1995 long-term debt consisted of the following:

<TABLE>
<CAPTION>
1996 1995
--------- -----
<S> <C> <C>
Notes payable to shareholders, due September 30, 1997
including accrued interest at 14% per annum,
collateralized by marketable securities and other property
pursuant to a Security-Agreement Pledge executed by BEI in
favor of the lenders...................................... $ 400,000 $ --
Note payable at $1,163 per month, including interest at 14%
per annum, convertible into common stock at the conversion
price of $7.00 (as adjusted for 1-for-7 reverse stock
split) principal amount for each share of common stock,
subordinated to senior indebtedness....................... 50,000 --
Note payable (acquisition of IRL/APC -- see Note (4) at
$5,593 per month, including interest at 12% per annum,
collateralized by assets acquired......................... 172,300 --
Note payable (acquisition of IRL/APC -- see Note (4) at
$4,366 per month, including interest at 12% per annum,
collateralized by assets acquired......................... $ 134,496 $ --
--------- -----
756,796 --
Less current portion........................................ (502,573) --
Total............................................. $ 254,223 $ --
========= =====
</TABLE>

The annual maturities of long-term debt for the next five years are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1997........................................................ $502,573
1998........................................................ 108,048
1999........................................................ 121,944
2000........................................................ 11,274
2001........................................................ 12,957
--------
Total............................................. $756,796
========
</TABLE>

8. DEFERRED SUBSCRIPTION REVENUE

9. DEFERRED DISCOUNT

F-24
<PAGE> 72

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES

The components of the provision for income taxes at December 31, 1996 and
1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current tax expense......................................... $ -- $ --
Deferred tax expense........................................ -- --
-------- --------
Income tax expense.......................................... $ -- $ --
======== ========
</TABLE>

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

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable....................................... $ 2,995 $ --
Net operating loss carryforwards.......................... 299,517 --
-------- --------
Gross deferred tax assets................................... 302,512 --
Valuation allowance....................................... (290,770) --
-------- --------
Total deferred tax assets................................... 11,742 --
-------- --------
Deferred tax liabilities:
Fixed assets.............................................. 4,513 --
Intangible assets......................................... 7,229 --
-------- --------
Total deferred tax liabilities.............................. 11,742 --
-------- --------
Net deferred tax asset (liability)................ $ -- $ --
======== ========
</TABLE>

There are no reconciling items between the statutory U.S. federal rate and
effective rates for the years ended December 31, 1996 and 1995.

At December 31, 1996, Interline has a net operating loss carryforward
totaling approximately $880,000 that may be offset against future taxable
income. If not used, the carryforward will expire in 2011.

11. COMMON STOCK

On November 14, 1997, the Board of Directors approved a reverse stock split
whereby, the Company would issue 1 share of common stock for every 7 shares of
common stock held by existing shareholders at the date of the transaction. All
share transactions, outstanding shares, and related share amounts have been
adjusted to take into effect the 1-for-7 reverse stock split.

On May 23, 1995, the Chairman of the Board, Edwin T. Cornelius, Jr.
("Cornelius"), the Secretary/ Treasurer, Joanne Cornelius, and two sons of Mr.
and Mrs. Cornelius entered into an option agreement to sell 2,905,486 common
shares (415,069 shares as adjusted) of Pace they owned to Bridgeworks Capital.
The above shareholders, together with another shareholder who was also the son
of Mr. and Mrs. Cornelius, owned an aggregate of 3,984,000 common shares
(569,143 shares as adjusted) of Pace. The option agreement, among other
provisions, was subject to shareholder approval of a 1-for-15 reverse stock
split of the outstanding shares of Pace common stock and an exchange of
substantially all net assets of Pace, including its ownership of 100%

F-25
<PAGE> 73

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of the outstanding common stock of Pace International Research, Inc., for notes
payable and unpaid accrued interest thereon owed to Cornelius which approximated
$422,000 as of October 31, 1995. The above transaction was approved by the
shareholders on September 20, 1995 and became effective November 1, 1995.

Prior to the consummation of the option agreement, Cornelius also
transferred 450,000 shares (64,286 shares as adjusted) of Pace common stock to
two investors who had previously advanced the Company $525,000 in 1987 pursuant
to profit-sharing agreements. Under the term of those profit-sharing agreements,
the investors were to be paid in full from certain Pace profits. As of October
31, 1995, those investors had not been repaid for their advances.

The remaining Pace common stock owned by the Cornelius family, which
aggregated 628,514 shares (89,788 shares as adjusted), were returned to the
Company and 588,674 shares (84,096 shares as adjusted) were canceled as of
December 31, 1996.

Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on
January 6, 1996. Immediately Subsequent to incorporation of Airfair on January
6, 1996, the existing shareholders of BEI received four shares of Airfair for
each share held in BEI, resulting in 8,500,000 shares (1,214,286 shares as
adjusted) issued. An additional 600,000 shares (85,714 shares as adjusted) were
authorized by the Board of Directors and issued to two shareholders, resulting
in a total of 9,100,000 shares (1,300,000 shares as adjusted) issued pursuant to
the spin-off of the Interline division in IMS to Airfair. (See Note 4.) Capital
of $30,000 was contributed to Airfair by BEI.

In September of 1996, 25,000 shares (3,571 shares as adjusted) of common
stock were issued for $25,000.

Effective July 19, 1996, Riley and Airfair executed an Agreement that
provided for the merger of MergerCo, a newly-created, wholly-owned subsidiary of
Riley, with and into Airfair, which became the surviving corporation, and the
conversion of the issued and outstanding Airfair stock into shares of Riley
stock on the basis of one share of Riley stock for each share of Airfair stock
outstanding on the Effective date. Airfair shares outstanding on the Effective
date totaled 9,125,000 (1,303,571 shares as adjusted). On October 7, 1996,
articles of amendment were filed on behalf of Riley wherein the name was changed
to Grand Adventures Tour & Travel Publishing Corporation with authority to issue
10,000,000, no par, preferred shares and 30,000,000 common shares with a par
value of $.0001. Existing shareholders in Riley at the date of conversion held
384,024 shares (54,861 shares as adjusted).

12. LEASING ARRANGEMENTS

13. SUBSEQUENT EVENTS

On February 13, 1997, the Company borrowed $40,000, payable to a trust
established by a stockholder of the company. Interest accrues at the rate of 12%
per annum. Payments shall be due from time to time as follows: (i) immediately
after ascertaining that any check received in payment of any Pledged Account, as
designated in the Pledge Agreement, the Company shall make a payment in the
amount of such check; (ii) immediately after the Company utilizes any credit
issued by any advertiser in payment of any Pledged Account, the Company shall
make a payment in the amount of such utilization; and (iii) on May 15, 1997 (the
maturity date), the Company shall pay the entire unpaid principal and interest.
The promissory note is secured by (i) the secured interest granted in the
Pledged Accounts and intangible assets, and (ii) the security

F-26
<PAGE> 74

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interests granted in certain marketable securities and warrants pursuant to the
provisions of the Security Agreement-Pledge executed by the Company and BEI
Holdings, Inc. in favor of the lender.

On January 31, 1997, an account payable in the amount of $36,906 was
converted into a note payable with the following terms: Nine Monthly payments of
$4,246, including interest at 6% per annum. (Also, see Note 15.)

14. STOCK OPTION PLAN

The Company has a long-term stock incentive plan (LTSIP) that authorizes an
aggregate of 142,857 shares (as adjusted for 1-for-7 reverse stock split) of
common stock for future grants. Options to purchase shares of Airfair common
stock granted under the previous Airfair stock option plan were exchanged for
comparable options granted under the LTSIP for an equivalent number of shares
pursuant to the terms of the Merger as explained in Note 4 to the financial
statements. The exercise price of each employee option is $7.00 (price adjusted
for 1-for-7 reverse stock split). An option's maximum term is five years.
Employee options were granted on August 1, 1996 and vest in three years. In
addition to options granted to employees, the Company has granted options to
security holders. These options are fully vested and have share exercise prices
ranging from $3.50 to $7.00 (as adjusted).

A summary of the status of the Company's stock option grants (as adjusted
for 1-for-7 stock reverse stock split) as of December 31, 1996, and the changes
during the year ending December 31, 1996 is presented below: (The fair value of
each option grant is estimated on the grant date using an option-pricing model
with the following weighted-average assumptions used for grants in 1996:
risk-free interest rate of 6%, and expected lives of 5 years for the options.)

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE
------------- -------- ----------------
<S> <C> <C>
Balance -- January 1, 1996................................. -- $ --
Granted -- Stockholders.................................... 144,924 6.58
Granted -- Employees....................................... 43,571 7.00
Exercised.................................................. -- --
Forfeited.................................................. -- --
--------
Balance, -- December 31, 1996.............................. 188,495
========
Exercisable at December 31, 1996........................... 159,448
========
Weighted-average fair value of options granted during the
year..................................................... $ 2.66
========
</TABLE>

The following table summarizes information about fixed stock options
outstanding at December 31, 1996 (as adjusted for 1-for-7 reverse stock split):

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
- --------------------------------------------------------------------- -------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
$7.00 144,924 4 years $6.58 144,924 $6.58
7.00 43,572 4 years 7.00 14,524 7.00
------- -------
188,496 159,448
======= =======
</TABLE>

If the Company had used the fair value based method of accounting for its
employee stock option plan, as prescribed by Statement of Financial Accounting
Standard No. 123, compensation cost in net loss for the year ended December 31,
1996 would have increased by $38,400, resulting in a net loss of $911,055, net
of tax, and a loss per common share of $.67.

F-27
<PAGE> 75

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. GOING-CONCERN

As shown in the accompanying financial statements, the Company incurred net
losses during the years ended December 31, 1996 and 1995 of $872,655 and
$364,744, respectfully, and as of December 31, 1996 and 1995, current
liabilities exceeded its current assets by $1,569,859 and $496,437,
respectively. Those factors could create an uncertainty about the Company's
ability to continue as a going concern. Since January 1, 1997, management has
reduced expenses by approximately $40,000 per month through a reduction in
nonessential personnel, changing to a lower priced package delivery service,
obtaining more services such as small printing jobs on a trade basis and
reducing any other expenses that are not considered absolutely necessary to the
ongoing needs of the operation. Subsequent to the date of the audit report, the
Company raised funds through additional long-term borrowings. Loans to
shareholders in the amount of $400,000 (see Note 7) were restructured whereby,
the loan holders agreed to release the equity securities held as collateral
pursuant to a Security-Agreement Pledge executed by BEI in favor of the
loanholders in exchange for the following conditions: (1) payment of all accrued
interest as of April 10, 1997 (which amounted to approximately $29,000), (2) the
loan broker (Avonwood Capital) is to receive a fee of $20,000, (3) 5,714*
Company common stock warrants to be issued to Avonwood Capital and 2,857* stock
warrants to Stan Moyer (a principal of Avonwood), all exercisable at $7.00* per
share, (4) conversion of the existing $400,000 notes to new 3 year notes at a
12% annual interest rate, with principal and interest payable monthly, beginning
in May, 1997, (5) the outstanding principal balance is convertible (at the note
holders' option) to Company common stock at $3.50* per share, and (6) no
prepayment penalties.

With the release of the equity securities, the Company obtained a margin
loan of $185,000 with the equity securities as collateral with the Principal
Financial Group in April, 1997. Also in April, 1997, the Company raised an
additional $500,000 from ten investors through the issuance of three-year
convertible debentures. The debentures carry an annual interest rate of 7%.
Interest and principal are due and payable in annual installments on each
anniversary. At the option of the Company, interest payments due prior to the
maturity date may be made in shares of common stock of the Company at the rate
one share for each $3.50* of interest accrued and payable. The debenture holder
has the right at any time prior to maturity, to convert all or any portion of
the then outstanding principal balance into fully paid and non-assessable shares
of common stock of the Company at a conversion price of $1.75* per share of such
outstanding principal amount, subject to adjustment from time to time as
provided for in the debenture. The Company also extinguished in April, 1997, the
$306,796 of notes payable that were incurred in connection with the acquisition
of the cruise and magazine division for a cash settlement of $75,000. With these
cash resources, the Company has been able to expand the distribution and number
of publications advertising the Company's hotel and cruise and tour packages
which management believes should substantially increase sales in both areas.
Management has, and is continuing to negotiate with its accounts payable vendors
in order to work out acceptable payment schedules for all parties.

Management believes that its working capital after accomplishing the above
financing arrangement, together with cash generated from existing operations
will be sufficient to satisfy anticipated sales growth. There can be no
assurance that even with the provided financing that the Company will not
encounter adverse effects on its business, financial conditions or results of
operations in the future. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.

*As adjusted for 1-for-7 reverse stock split.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reflected in the consolidated balance sheets for
restricted cash, accounts receivable, cash overdraft, accounts payable and notes
payable approximate the respective values due the short maturities of those
instruments. The estimated fair values have been determined by the Company using
appropriate valuation methodologies and available market information.
Considerable judgement is necessarily required in

F-28
<PAGE> 76

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. A comparison of the
carrying value of those financial instruments, none of which are held for
trading purposes, is as follows:

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Assets:
Restricted cash........................................... $ 43,240 $ 43,240
Accounts receivable....................................... 19,911 19,911
Liabilities:
Cash overdraft............................................ 50,723 50,723
Accounts payable.......................................... 578,988 578,988
Short-term debt........................................... 502,573 502,573
Long-term debt............................................ 254,223 254,223
</TABLE>

Restricted cash, cash overdraft, accounts receivable and accounts
payable. The carrying value of such items approximates their fair value at
December 31, 1996.

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

F-29
<PAGE> 77

[PHOTO OF MAGAZINE COVERS]

FINE PRINT

PUBLISHED BI-MONTHLY, Interline Adventures is
recognized as the premiere airline employee travel
magazine, celebrating more than 27 years in
print. The magazine, in conjunction with the
Interline Update brochure, constitute GATT's
major marketing "push" vehicles.

[GATT LOGO]

GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION

[INTERLINE TRAVELREPS LOGO] [INTERLINE ADVENTURES LOGO]
<PAGE> 78

=========================================================

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER,
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................. 3
Risk Factors............................. 7
Use of Proceeds.......................... 12
Dividend Policy.......................... 13
Dilution................................. 13
Capitalization........................... 14
Selected Financial Information........... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 17
The Business............................. 25
Management............................... 33
Certain Relationships and Related
Transactions........................... 35
Principal Stockholders................... 37
Description of Securities................ 38
Shares Eligible for Future Sale.......... 39
Underwriting............................. 40
Legal Matters............................ 42
Experts.................................. 42
Additional Information................... 42
Financial Statements..................... F-1
</TABLE>

---------------------

Until January , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

=========================================================
=========================================================

700,000 SHARES

GATT LOGO

--------------------

PROSPECTUS
--------------------

CAPITAL WEST SECURITIES, INC.

DECEMBER , 1997

=========================================================
<PAGE> 79
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Articles of Incorporation of Grand Adventures Tour & Travel
Publishing Corporation (the "Company") provide that, to the fullest extent
permitted by Oregon law, directors and former directors of the Company shall
not be liable to the Company or its shareholders for monetary damages occurring
in their capacity as a director. Oregon law does not currently authorize the
elimination or limitation of the liability of a director to the extent the
director is found liable (i) for any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) for acts or omissions not in good
faith that constitute a breach of duty of the director of the Company or which
involve intentional misconduct or a knowing violation of law, (iii) for
transactions from which the director received an improper benefit, whether the
benefit resulted from an action taken within the scope of the director's office
or (iv) for acts or omissions for which the liability of a director is
expressly provided by law.

The Company's Articles of Incorporation and its Bylaws grant mandatory
indemnification to directors and officers of the Company to the fullest extent
authorized under the Oregon Business Corporation Act. In general, an Oregon
corporation may indemnify a director or officer who was, is or is threatened to
be made a named defendant or respondent in a proceeding by virtue of his
position in the corporation if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in the case of criminal proceedings, had no reasonable cause
to believe his conduct was unlawful. An Oregon corporation may indemnify an
officer or director in an action brought by or in the right of the corporation
only if such director or officer was not found liable to the corporation,
unless or only to the extent that a court finds him to be fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses to be incurred in connection with the issuance
and distribution of the shares of Common Stock covered by this Registration
Statement, all of which will be paid by the Company, are as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee . . . . . . . . . . . $1,707
American Stock Exchange Filing Fee . . . . . . . . . . . . . . . . . . $20,000
National Association of Securities Dealers, Inc. Filing Fee . . . . . . . $1,063
Printing and Engraving* . . . . . . . . . . . . . . . . . . . . . . . . $75,000
Legal Fees and Expenses*. . . . . . . . . . . . . . . . . . . . . . . . $45,000
Accounting Fees and Expenses* . . . . . . . . . . . . . . . . . . . . . $25,000
Travel* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,000
Miscellaneous* . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
Total** . . . . . . . . . . . . . . . . . . . . . . . . . . . $202,770
</TABLE>

- ----------

* Estimated
** To the extent that the actual offering expenses exceed the limitation on
the payment of offering expenses set forth in the Prospectus and/or
imposed by applicable state securities law, Grand Adventures Tour &
Travel Publishing Corporation, will pay such excess offering expense

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth certain information regarding sales of
securities of the Company issued within the past three years, which were not
registered pursuant to the Securities Act of 1933, as amended (the "Securities
Act"). The following information has been adjusted to reflect the 1-for-7 split
for all Common Stock to be effected in October, 1997 (the "Reverse Stock
Split"):

II-1
<PAGE> 80
On October 10, 1996, the Company, in connection with a merger (the
"Merger") of a newly created, wholly-owned subsidiary of the Company with and
into Airfair Publishing, Inc. ("Airfair"), which operated the businesses that
now comprise the Company's operations, the Company issued the following
securities:

(i) 1,303,571 shares of Common Stock to shareholders of
Airfair. Such issuance was exempt from registration
pursuant to either or both Section 4(2) of the Securities
Act or Rule 506 under the Securities Act ("Rule 506"),
based on the absence of any public solicitation, there
being a limited number of shareholders of Airfair (a
significant number of whom were accredited investors), and
the investors' access to information and sophistication;

(ii) incentive options to acquire 51,571 shares of Common Stock
to employees and officers of Airfair to replace incentive
stock options to acquire 325,000 shares of Airfair common
stock. Based on the absence of any public solicitation,
there being a limited number of shareholders of Airfair (a
significant number of whom were accredited investors), the
investors' access to information and sophistication, and
compliance with the requirements of Rule 701 promulgated
under the Securities Act ("Rule 701"), the options granted
to the employees and officers of Airfair were exempt from
registration pursuant to any or all of Section 4(2) of the
Securities Act or Rules 506 or 701. The exercise of such
options will be made pursuant to Rule 701;

(iii) warrants to acquire 13,095 shares of Common Stock to
replace warrants to acquire an equal number of shares of
Airfair common stock. Under the terms of the Airfair
warrants, upon consummation of the Merger, such warrants
were automatically converted into an equivalent warrant to
acquire shares of the Company's common stock. Each of
these warrant holders was an accredited investor and had
received their Airfair warrants or claim options in
transactions exempt under one or both of Rule 506 or
Section 4(2) of the Securities Act. It is a condition to
exercise of the warrants that such exercise not be
integrated with any prior registered offering and that the
holders certify, at the time of exercise, that such holder
is an accredited investor. The Company believes that the
issuance of these warrants was not a sale of securities by
the Company but, if such issuance is a "sale" within the
meaning of the Securities Act, that such issuances was,
and that the issuance of shares of common stock upon
exercise of the warrants will be, exempt from the
registration requirements of the Securities Act under
either or both Section 4(2) of the Securities Act or Rule
506;

(iv) warrants to acquire 8,571 shares of Common Stock issued to
Avonwood Capital Corporation ("Avonwood") and F. Stanton
Moyer in satisfaction of their bona fide claims to Airfair
warrants which, if issued timely by Airfair, would have
caused Mr. Moyer and Avonwood to have held Airfair
warrants at the time of the Merger and to have been issued
warrants together with the individuals described in
subparagraph (iii) above. Mr. Moyer and Avonwood are
highly sophisticated and accredited investors and their
claim for Airfair warrants arose from a transaction exempt
from the registration requirements of the Securities Act.
It is a condition to exercise of the warrants that such
exercise not be integrated with any prior registered
offering and that the holders certify, at the time of
exercise, that such holder is an accredited investor. The
Company believes that the issuance of these warrants was
and that the issuance of shares of Common Stock upon
exercise of the warrants will be, exempt from the
registration requirements of the Securities Act under
either of both Section 4(2) of the Securities Act or Rule
506; and

(v) an option to acquire 114,285 shares of Common Stock to
Mark T. Waller, then a director and substantial share-
holder of the Company. The issuance to Mr. Waller was
effected in accordance with the terms of an advisory
services agreement between Mr. Waller and the Company.
Such warrant issuance was exempt from the registration
requirements of the

II-2
<PAGE> 81
Securities Act pursuant to either or both Section 4(2) of
the Securities Act or Rule 506 under the Securities Act.

Effective as of October 10, 1996, the Company issued to a consultant a
warrant to acquire 400 shares of Common Stock. The warrant was issued to the
consultant as consideration for assistance to the Company in procuring a
valuable relationship and contract with a significant cruise line operator. The
consultant is a sophisticated investor with extensive knowledge of the Company
and its markets. It is a condition to exercise of the warrants that such
exercise not be integrated with any prior registered offering and that the
holders certify, at the time of exercise, that such holder is an accredited
investor. The Company believes that the issuance of these warrants was not a
sale of securities by the Company but, if such issuance is a "sale" within the
meaning of the Securities Act, that such issuances was, and that the issuance
of shares of common stock upon exercise of the warrants will be, exempt from
the registration requirements of the Securities Act under either or both
Section 4(2) of the Securities Act or Rule 506. Based on these factors, the
Company believes that the warrant issuance to Mr. Calhoun was exempt under
Section 4(2) of the Securities Act.

In February, 1997, the Company granted to several employees incentive
stock options to acquire a total of 64,142 shares of Common Stock. The options
granted to these employees were, and the exercise of such options will be,
effected in accordance with the provisions of Rule 701.

In November, 1996, the Company issued to Dennis O'Connor a warrant to
acquire 1,428 shares of Common Stock. The warrant was issued to Mr. O'Connor, a
securities lawyer, in consideration for consulting services rendered to the
Company and related to the Company's status as a formerly defunct reporting
company. Mr. O'Connor is an accredited and sophisticated investor and was
provided with access to all material information regarding the Company. It is a
condition to exercise of the warrants that such exercise not be integrated with
any prior registered offering and that the holders certify, at the time of
exercise, that such holder is an accredited investor. The Company believes that
the issuance of these warrants was not a sale of securities by the Company but,
if such issuance is a "sale" within the meaning of the Securities Act, that
such issuances was, and that the issuance of shares of common stock upon
exercise of the warrants will be, exempt from the registration requirements of
the Securities Act under either or both Section 4(2) of the Securities Act or
Rule 506. Based on these facts, the Company believes that the issuance of this
warrant to Mr. O'Connor was exempt under Section 4(2) of the Securities Act.

In March, 1997, the Company issued to a consultant providing the
Company with computer services, a convertible note in the principal amount of
$25,000, convertible into 7,142 shares of Common Stock. The consultant shared
office space with an affiliate of the Company, and has extensive knowledge of
the Company's business. It is a condition to exercise of the conversion feature
that such conversion not be integrated with any prior offering of the Company's
securities. The Company believes that the issuance of this convertible note
was, and the issuance of shares to occur when conversion of such notes will be,
exempt from the registration requirements of the Securities Act based on
Section 4(2) of the Act.

In April, 1997, the Company completed a private placement (the "First
1997 Placement") of convertible notes and warrants to ten accredited investors.
The aggregate principal amount of the convertible notes was $500,000 and

II-3

<PAGE> 82

no portion of the consideration (which consisted entirely of cash) was
attributed to the warrants. The warrants entitle the holders to acquire an
aggregate of 142,857 shares of Common Stock. It is a condition to exercise of
the warrants that such exercise not be integrated with any prior registered
offering and that each holder certify, at the time of exercise, that such
holder is an accredited investor. The Company believes that the issuance of
notes and warrants was, and that the issuance of shares of common stock upon
exercise of the warrants will be, exempt from the registration requirements of
the Securities Act under either or both Section 4(2) of the Securities Act or
Rule 506 under the Securities Act.

In April 1997, holders of Notes issued by Airfair in 1996 agreed to exchange the
1996 notes for convertible notes issued by the Company which, although
unsecured, incorporated a conversion feature. Each of the note holders is an
accredited investor and each of them, or their purchaser representative, as the
case may be, received complete access to the books and records of the Company.
The Company believes that this transaction was exempt under Section 4 (2) of the
Securities Act, based on the absence of any public solicitation, the Note
holders' prior relationship with the Company and their accredited status. Based
on the absence of any payment of remuneration at the time of conversion of the
convertible notes, the Common Stock to be issued upon such conversion will be
exempt from registration pursuant to the provisions of Section 3(a) and 9 of the
Securities Act.

In April 1997, in consideration for consulting services provided in
connection with restructuring of the 1996 Notes, the Company issued to F.
Stanton Moyer and Avonwood warrants to acquire an aggregate of 8,571 shares of
Common Stock. It is a condition to exercise of the warrants that such exercise
not be integrated with any prior registered offering and that the holders
certify, at the time of exercise, that such holder is an accredited investor.
Based on the absence of any public solicitation, the status of Mr. Moyer and
Avonwood as accredited and sophisticated investors and their access to
information regarding the Company, the Company believes that these issuances
are, and that the issuance of shares upon the warrants will be, exempt from
registration pursuant to the provisions of Section 4(2) of the Securities Act.

In April 1997, the Company issued to Robert A. Barrett a warrant to
acquire 7,142 shares of Common Stock. Mr. Barrett is the principal shareholder
of the two corporations which sold to Airfair most of the business operations
the Company currently operates. A substantial portion of the purchase price paid
by Airfair to these two corporations were promissory notes payable to each of
them. The warrant was issued to Mr. Barrett as partial consideration for his
causing the two corporations to discount the two promissory notes substantially.
Mr. Barrett is very knowledgeable about the Company's industry and the Company's
operations and is a sophisticated investor. It is a condition to exercise of the
warrants that such exercise not be integrated with any prior registered offering
and that the holders certify, at the time of exercise, that such holder is an
accredited investor. The Company believes that the issuance of these warrants
was not a sale of securities by the Company but, if such issuance is a "sale"
within the meaning of the Securities Act, that such issuances was, and that the
issuance of shares of common stock upon exercise of the warrants will be, exempt
from the registration requirements of the Securities Act under either or both
Section 4(2) of the Securities Act or Rule 506. Based upon these factors, and in
the absence of any public solicitation, the Company believes that this
transaction is exempt from registration pursuant to the provisions of Section
4(2) of the Securities Act.

On October 24, 1997, the Company concluded a private placement of Notes
and Shares. The aggregate offering price was $500,050 and the aggregate
principal amount of the Notes was $500,000. Each of the investors is an
accredited investor and the Company believes that the private placement
was exempt under the provisions of either or both Rule 506 or Section 4(2) of
the Securities Act.

II-4
<PAGE> 83
ITEM 27. EXHIBITS.

<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
<S> <C>
**1.01 Underwriting Agreement between Grand
Adventures Tour & Travel Publishing
Corporation and underwriter

**1.02 Warrant Agreement between Grand
Adventures Tour & Travel Publishing
Corporation and underwriter

1.03 Lock-up Agreements between certain
officers, directors and shareholders
of Grand Adventures Tour & Travel
Publishing Corporation and
underwriter (filed electronically
herewith)

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

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

**3.02 Amended and Restated Bylaws of Grand
Adventures Tour & Travel Publishing
Corporation

5.01 Opinion of Kuperman, Orr, Mouer &
Albers, P.C. regarding legality of
Common Stock (filed electronically
herewith)

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

*10.02 Long Term Stock Incentive Option Plan

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

*10.04 Indemnification and Pledge Agreement
between Grand Adventures Tour &
Travel Publishing Corporation and
Mark Waller

**10.05 Employment Agreement with Joseph S.
Juba

**10.06 Employment Agreement with Fernando
Cruz-Silva

**10.07 Management Agreement between Grand
Adventures Tour & Travel Publishing
Corporation, BEI Holdings, Inc. and
Inventory Marketing Services, Inc.

**10.08 Marketing Agreement between Grand
Adventures Tour & Travel Publishing
Corporation and Inventory
Merchandising Services, Inc.

**11.01 Statement of Computation of Earnings

</TABLE>

II-5

<PAGE> 84

<TABLE>

<S> <C>
**21.01 List of Subsidiaries

23.01 Consent of Kuperman, Orr, Mouer &
Albers, P.C. (filed electronically
herewith)

23.02 Consent of Andersen, Andersen &
Strong (filed electronically
herewith)

</TABLE>

----------

* Incorporated by reference from Form 8-K filed October 15, 1996.

** Filed previously

ITEM 28. UNDERTAKINGS.

1. The undersigned Registrant hereby undertakes:

(a) to provide to the Underwriters at the closing specified in
the Underwriting Agreement certificates in such
denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each
purchaser.

(b) for determining any liability under the Securities Act,
treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed
by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission
declared it effective.

(c) to file, during any period in which offers or sales are
made, a post-effective amendment to this Registration
Statement to:

(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the Registration Statement; and

(iii) include any additional or changed material information on
the plan of distribution.

(d) that, for the purpose of determining liability under the
Securities Act, each post-effective amendment shall be
deemed to be a new registration statement of the
securities offered, and the offering of the securities at
that time shall be deemed to be the initial bona fide
offering thereof.

(e) to file a post-effective amendment to remove from
registration any of the securities that remain unsold at
the termination or end of the offering.

2. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant

II-6

<PAGE> 85

will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended (the "Act") the Registrant certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on Form SB-2 and has duly
caused this Registration Statement on Form SB-2 to be signed on its behalf by
the undersigned, thereon duly authorized in the City of Austin, State of Texas
on December 2, 1997.

Grand Adventures Tour & Travel Publishing
Corporation an Oregon corporation

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

Pursuant to the requirements of the Act, this Registration Statement has
been signed below by the following persons in the capacities and on the date
indicated.

/s/ Joseph S. Juba
----------------------------------------------------
Joseph S. Juba President, Chief Operating Officer
and Secretary

/s/ Darrell Barker
----------------------------------------------------
Darrell Barker Chief Financial Officer and Treasurer

/s/ Fernando Cruz Silva
----------------------------------------------------
Fernando Cruz Silva Senior Vice President of Sales
& Marketing

/s/ Patti Macchi
----------------------------------------------------
Patti Macchi Vice President of Cruise Sales &
Marketing

/s/ Robert Sandner
----------------------------------------------------
Robert Sandner Director

II-7
<PAGE> 86
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
<S> <C>
**1.01 Underwriting Agreement between Grand
Adventures Tour & Travel Publishing
Corporation and underwriter

**1.02 Warrant Agreement between Grand
Adventures Tour & Travel Publishing
Corporation

1.03 Lock-up Agreements between certain
officers, directors and shareholders
of Grand Adventures Tour & Travel
Publishing Corporation and
underwriter (filed electronically
herewith)

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

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

*3.02 Amended and Restated Bylaws of Grand
Adventures Tour & Travel Publishing
Corporation

5.01 Opinion of Kuperman, Orr, Mouer &
Albers, P.C. regarding legality of
Common Stock (filed electronically
herewith)

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

**10.02 Long Term Stock Incentive Option Plan

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

**10.04 Indemnification and Pledge Agreement
between Grand Adventures Tour &
Travel Publishing Corporation and
Mark Waller

*10.05 Employment Agreement with Joseph S.
Juba

*10.06 Employment Agreement with Fernando
Cruz- Silva

*10.07 Management Agreement between Grand
Adventures Tour & Travel Publishing
Corporation, BEI Holdings, Inc. and
Inventory Marketing Services, Inc.

*10.08 Marketing Agreement between Grand
Adventures Tour & Travel Publishing
Corporation and Inventory
Merchandising Services, Inc.

*11.01 Statement of Computation of Earnings

</TABLE>

II-8

<PAGE> 87

<TABLE>
<S> <C>
*21.01 List of Subsidiaries

23.01 Consent of Kuperman, Orr, Mouer &
Albers, P.C. (filed electronically
herewith)

23.02 Consent of Andersen, Andersen &
Strong (filed electronically
herewith)
</TABLE>

----------

* Previously Filed

** Incorporated by reference from Form 8-K filed October 15, 1996.

II-9

<PAGE> 1
EXHIBIT 1.03

EXHIBIT 1.03 (a)
(Form Lock-up Agreement)

December __, 1997

Capital West Securities, Inc.
16th Floor,
One Leadership Square
211 N. Robinson
Oklahoma City, OK 73102

Re: Public Offering of Common Stock ("Common Stock"), of Grand
Adventures Tour & Travel Publishing Corporation. (the "Company")

Gentlemen:

All communications to you hereunder shall be sent to the address set
forth above, attention: Robert O. McDonald.

Sincerely,

---------------------------------
[Officer's Name]

<PAGE> 2
EXHIBIT 1.03 (b)
(Form Lock-up Agreement)

December __, 1997

Capital West Securities, Inc.
16th Floor,
One Leadership Square
211 N. Robinson
Oklahoma City, OK 73102

Re: Public Offering of Common Stock ("Common Stock"), of Grand
Adventures Tour & Travel Publishing Corporation. (the "Company")

Gentlemen:

Pursuant to Section 2(t) of the Underwriting Agreement, dated December
__,1997 (the "Underwriting Agreement"), by and among you and the Company, the
undersigned (a holder of Common Stock) hereby agrees not to sell, contract to
sell, transfer or otherwise dispose of any shares of Common Stock without the
prior written consent of Capital West Securities, Inc. for a period of 24
months after the date of the initial public offering of the Common Stock unless
the trading price of the Common Stock of the Company is equal to or greater
than 115% of the registered offering price for 20 consecutive trading days, at
which time the undersigned may sell up to 2,000 shares of Common Stock per
month during the second 12 month period and subject to the limitations of Rule
144. To the extend the undersigned does not sell in any given month, the full
number of shares of Common Stock permitted hereunder, such unsold amount shall
be available for sale in subsequent months without regard to any other sales.

All communications to you hereunder shall be sent to the address set
forth above, attention: Robert O. McDonald.

Sincerely,

---------------------------------
Matthew O'Hayer

<PAGE> 3

EXHIBIT 1.03 (c)
(Form Lock-up Agreement)

December __, 1997

Capital West Securities, Inc.
16th Floor,
One Leadership Square
211 N. Robinson
Oklahoma City, OK 73102

Re: Public Offering of Common Stock ("Common Stock"), of Grand
Adventures Tour & Travel Publishing Corporation. (the "Company")

Gentlemen:

Pursuant to Section 2(t) of the Underwriting Agreement, dated December
__,1997 (the "Underwriting Agreement"), by and among you and the Company, the
undersigned (a holder of Common Stock) hereby agrees not to sell, contract to
sell, transfer or otherwise dispose of any shares of Common Stock without the
prior written consent of Capital West Securities, Inc. for a period of 24
months after the date of the initial public offering of the Common Stock unless
the trading price of the Common Stock of the Company is equal to or greater
than 115% of the registered offering price for 20 consecutive trading days, at
which time the undersigned may sell up to 1,000 shares of Common Stock per
month during the second 12 month period and subject to the limitations of Rule
144. To the extend the undersigned does not sell in any given month, the full
number of shares of Common Stock permitted hereunder, such unsold amount shall
be available for sale in subsequent months without regard to any other sales.

All communications to you hereunder shall be sent to the address set
forth above, attention: Robert O. McDonald.

Sincerely,

---------------------------------
[Jay Juba ][Robert Sandner]

<PAGE> 1
EXHIBIT 5.01

KUPERMAN, ORR, MOUER & ALBERS, P.C.

[Date]

Grand Adventure Tour & Travel Publishing Corporation
1250 Capital of Texas Highway, Building 3, Suite 300
Austin, TX 78746

Re: Registration Statement on Form SB-2

Ladies and Gentlemen:

We have examined the Registration Statement on Form SB-2 (File No.
333-38739) originally filed by Grand Adventure Tour & Travel Publishing
Corporation (the "Company") with the Securities and Exchange Commission (the
"Commission") on October 24, 1997, as thereafter amended or supplemented (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of up to 805,000 shares of the Company's
Common Stock (the "Shares"). The Shares, which include an over-allotment option
granted by the Company to the Underwriters to purchase up to 105,000 additional
shares of the Company's Common Stock, are to be sold to the Underwriters by the
Company as described in the Registration Statement for resale to the public. As
your counsel in connection with this transaction, we have examined the
proceedings taken and are familiar with the proceedings proposed to be taken by
you in connection with the sale and issuance of the Shares.

It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
the Shares and upon completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with the securities
laws of the various states where required, the Shares, when issued and sold in
the manner described in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
and validly issued, fully paid and non-assessable.

We consent to the use of this opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.

Very truly yours,

/s/ Kuperman, Orr, Mouer & Albers, a professional corporation
----------------------------------------------------------
KUPERMAN, ORR, MOUER & ALBERS
a professional corporation

<PAGE> 1
EXHIBIT 23.01

Consent of Counsel

Kuperman, Orr, Mouer & Albers, a professional corporation, hereby
consents to the use of its name under the heading "Legal Matters" in the
Prospectus constituting a part of Amendment No. 1 to Form SB-2 Registration
Statement of Grand Adventures Tour & Travel Publishing Corporation ("GATT") for
the registration of 700,000 shares of GATT common stock (805,000 shares
assuming the exercise in full of the overallotment option).

/s/ KUPERMAN, ORR, MOUER & ALBERS
---------------------------------------------------------
Kuperman, Orr, Mouer & Albers, a professional corporation

Austin, Texas
December 4, 1997

<PAGE> 1
EXHIBIT 23.02

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the use in this Registration Statement on Form SB-2 of our report
included herein dated April 4, 1997 (except for Note 15, as to which the date
is May 1, 1997), relating to the consolidated financial statements of Grand
Adventures Tour & Travel Publishing Corporation and subsidiary, to the
incorporation by reference of such report included in the Company's 1996 annual
report on Form 10-K, and to our Firm under the caption "Experts" in the
Prospectus.

Andersen Andersen & Strong L.C.
Salt Lake City, Utah

December 4, 1997