##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number: 0-26420
  AMBASSADORS INTERNATIONAL,
    INC.
 (Exact Name of Registrant as
    Specified in Its Charter)
  Delaware

91-1688605(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)1071 Camelback Street
    Newport Beach, CA(Address of Principal
    Executive Offices)

92660(Zip Code)   Registrants Telephone Number, Including Area Code:
    (949) 759-5900
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.01 Par Value

Nasdaq Global Market   Securities registered pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer o(Do not check if a smaller
    reporting company)

Smaller reporting
    company þ   Rule 12b-2 o þ
      Class

Outstanding at April 7, 2009Common Stock, $.01 par value per share

11,177,267   DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





TABLE OF
    CONTENTS
  PART IItem 1.

Business


1Item 1A.

Risk Factors


10Item 1B.

Unresolved staff comments


22Item 2.

Properties


22Item 3.

Legal Proceedings


22Item 4.

Submission of Matters to a Vote of Security
    Holders


23PART IIItem 5.

Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer 
    Purchases of Equity Securities


23Item 6.

Selected Financial Data


24Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


24Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


39Item 8.

Financial Statements and Supplementary Data


39Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


39Item 9A.

Controls and Procedures


39Item 9(T).

Controls and Procedures


39Item 9B.

Other Information


40PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


40Item 11.

Executive Compensation


40Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related 
    Stockholder Matters


40Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


41Item 14.

Principal Accountant Fees and Services


41PART IVItem 15.

Exhibits and Financial Statement Schedules


42SIGNATURES


83EXHIBIT INDEX


84EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  Item 1.
    Business  Overview
  U.S.-flagged
          92660-3228 (949) 759-5900.
  Business
    Strategy
      Business
    Operations
    
    cruise,
    marine,
    travel and events, and
    corporate and other, which consists of general corporate assets
    (primarily cash and cash equivalents and investments), our
    reinsurance operations and other activities that are not
    directly related to our cruise, marine, and travel and events
    operating segments. 1




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Cruise
    Segment
    U.S.-flagged Empress of the North Queen of the West Columbia Queen Contessa American
    Queen® Delta
    Queen® Mississippi
    Queen®
  Wind Surf Wind Spirit Wind Star
  Delta
    Queen ® Mississippi
    Queen ® Contessa Mississippi
    Queen ® Empress of the North American
    Queen®
  Delta
    Queen® Delta
    Queen ®
    U.S.-flagged
  Empress of
    the North Empress of the North Columbia Queen, Queen of the
    West Contessa American
    Queen®,

    Delta
    Queen®

    and Mississippi
    Queen®
   2




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##### Table of Contents



U.S.-flagged
  U.S.-flagged U.S.-flagged
  Passenger


In-ServiceShip

Berths


Year


Itineraries Queen of the West


142



1993



Domestic Columbia Queen


150



2000



Domestic Delta
    Queen®


176



1926



Domestic Mississippi
    Queen®


412



1976



Domestic Contessa


48



1986



Domestic Wind Surf


312



1989



International Wind Star


148



1986



International Wind Spirit


148



1987



International   Marine
    Segment
         3




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Form 10-K. Form 10-K.
  Travel
    and Events Segment
      e-mail
 4




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Form 10-K.
  Corporate
    and Other Segment
            Form 10-K.
    Competition
     5




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Regulation
  Ship
    Maintenance
  U.S.-flagged Queen of the West Columbia Queen Contessa, Delta
    Queen ® Mississippi
    Queen®
  Passenger
    Health, Safety and Security
         6




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Environmental
      Taxation
      Taxation
    to AICG of its Cruise Income: In General
    non-U.S. port
 7




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non-U.S. ports
      Taxation
    in the Absence of an Exemption under Section 883
        Controlled
    Foreign Corporation Tax Regime
         8




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Reinsurance
    Capital Requirement
    Insurance
            Environment
   9




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Employees
    Seasonality
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330. http://www.sec.gov
 Item 1A.  Risk
    Factors  Form 10-K,
 10




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Risks
    Related to Our Company and Our Industry
  If we are
    not successful at a combination of selling our non-Windstar
    Cruises assets, raising additional financing and/or
    renegotiating existing debt obligations in order to raise funds
    for operations, we may not be able to continue as a going
    concern.
    and/or and/or
      The
    change in strategic direction to focus on our cruise division
    requires us to execute the orderly divestiture of our marine and
    travel and events divisions in a difficult transactional
    atmosphere.
    The
    adverse impact of the continuing worldwide economic downturn on
    the demand for cruises could adversely impact our operating
    results, cash flows and financial condition.
   11




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In
    connection with our acquisitions within the cruise segment, we
    assumed or incurred a significant amount of indebtedness, which
    could adversely affect our cash flows and business.
    
    require us to dedicate the majority of our cash flow from
    operations to payments on our debt, thereby reducing funds
    available for working capital, capital expenditures, dividends,
    acquisitions and other purposes;
    increase our vulnerability to, and limit flexibility in planning
    for, adverse economic and industry conditions;
    adversely affect our credit rating;
    limit our ability to obtain additional financing to fund future
    working capital, capital expenditures, additional acquisitions
    and other general corporate requirements;
    create competitive disadvantages compared to other companies
    with less indebtedness; and
    limit our ability to apply proceeds from an offering or asset
    sale to purposes other than the repayment of debt.  We may
    not be able to make interest payments on our senior convertible
    notes.
    Our
    financial performance is subject to seasonal and quarterly
    fluctuations which could result in substantial losses for
    investors purchasing shares of our common stock and in
    litigation against us.
    
    our ability to effectively and efficiently operate our cruise
    operations;
    customer cancellation rates;
    competitive conditions in the industries in which we operate;
    marketing expenses; 12




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
    extreme weather conditions;
    timing of and costs related to acquisitions;
    the impact of new laws and regulations affecting our business;
    negative incidents involving cruise ships, including those
    involving the health and safety of passengers;
    cruise ship maintenance problems;
    reduced consumer demand for vacations and cruise vacations;
    changes in fuel, food, payroll, insurance and security costs;
    the availability of raw materials;
    our ability to enter into profitable marina construction
    contracts;
    changes in relationships with certain travel providers;
    changes in vacation industry capacity;
    the mix of programs and events, program destinations and event
    locations;
    the introduction and acceptance of new programs and program and
    event enhancements by us and our competitors;
    other economic factors and other considerations affecting the
    travel industry;
    potential claims related to our reinsurance business;
    the potentially volatile nature of the reinsurance
    business; and
    other factors discussed in this Annual Report on
    Form 10-K.    If we are
    unable to effectively compete against our competitors, our
    financial condition will suffer.
       13




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Our
    operations and financial condition may be adversely affected by
    events adversely affecting the travel industry, including the
    effects of general economic conditions.
    Our
    success in our travel and events business is highly dependent
    upon unaffiliated travel services suppliers with whom we have
    limited agreements.
    Overcapacity
    within the cruise vacation industry, a reduction in demand or
    economic uncertainties could adversely affect our revenues and
    profitability and impair our asset values.
  and/or
  Our
    business could be adversely affected by unanticipated casualty
    losses.
    No
    assurance can be given that our insurance costs will not
    escalate.
   14




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We are
    dependent upon key personnel.
    Our
    success in our international cruise business is highly dependent
    on our third party vessel management company.
    International
    political and other world events affecting safety and security
    could adversely affect the demand for cruises, which could harm
    our future sales and profitability.
    Incidents
    or adverse publicity concerning the cruise vacation industry or
    unusual weather conditions could adversely affect our reputation
    and harm our future sales and profitability.
  Queen of
    the West Empress of the
    North Empress of the North Mississippi
    Queen ®
 15




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If we do
    not complete drydocking on schedule or if ship mechanical faults
    result in unscheduled drydockings and repairs, we will incur
    additional expenses and may also lose revenues by canceling
    planned cruises.
  Wind Star Wind Spirit
  Unavailability
    of ports of call may adversely affect our profits by reducing
    our sales of cruise vacations.
    The
    nature of our engineering and construction business exposes us
    to potential liability claims and contract disputes, which may
    reduce our profits and cash available for operations.
  and/or
  An
    inability to obtain bonding could limit the number of projects
    our marine division is able to pursue.
   16




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Supply
    shortages and other risks related to the demand for skilled
    labor and building materials could increase costs and delay
    deliveries.
    The
    demand, timing and funding of marina construction awards and
    other factors could lead to unpredictable operating
    results.
    We may
    incur costs related to repairing defects in marinas we design
    and construct, which could adversely affect our
    profitability.
    Natural
    disasters, severe weather conditions and forces in nature beyond
    our control could adversely affect our marina construction and
    management operations.
    Our use
    of the percentage-of-completion method of accounting could
    result in a reduction or reversal of previously recorded
    revenues or profits.
   17




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Unexpected
    and adverse changes in the foreign countries in which we operate
    could result in project disruptions, increased costs and
    potential losses.
    
    abrupt changes in foreign government policies and regulations;
    embargoes;
    trade restrictions;
    tax treatment;
    U.S. government policies relating to foreign
    operations; and
    international hostilities.    Our
    international operations expose us to foreign currency
    fluctuations that could increase our U.S. dollar costs or
    reduce our U.S. dollar revenues.
    We expect
    to face significant and increasing costs to maintain our ships
    as they age and may have difficulty replacing our ships when
    needed, which could adversely affect our result of operations
    and financial condition.
    If we
    experience delays and/or defaults in customer payments, we could
    suffer liquidity problems or be unable to recover all
    expenditures.
   18




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Our
    business could be adversely affected by losses associated with
    our reinsurance operations.
    Environmental,
    health and safety, financial responsibility, tax and maritime
    and homeland security legislation and other laws and regulations
    could adversely affect us by restricting our operations
    increasing our operating costs.
                 19




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We may be
    subject to significantly higher U.S. income taxes if we do not
    qualify for exemption from tax or for deferral of tax under U.S.
    tax laws in respect of Windstar Cruises income.
      and/or
    Additional
    Risks Related to Our Stock
  If we
    fail to continue to meet all applicable continued listing
    requirements of The NASDAQ Global Market and NASDAQ determines
    to delist our common stock, the market liquidity and market
    price of our common stock could decline.
   20




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Anti-takeover
    provisions in our charter documents and under Delaware law could
    make an acquisition of us, which may be beneficial to our
    stockholders, more difficult and may prevent attempts by our
    stockholders to replace or remove our current
    management.
          U.S.
    ownership requirements and transferability limitations may
    adversely affect the liquidity of our common stock.
  non-U.S. citizens U.S.-flagged non-U.S. citizens,
  Future
    sales of shares of our common stock underlying derivative
    securities could cause our stock price to decline.
   21




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The
    market price for our common stock has experienced significant
    price and volume volatility and is likely to continue to
    experience significant volatility in the future. This volatility
    may impair our ability to finance strategic transactions with
    our stock and otherwise harm our business
   Item 1B.  Unresolved
    Staff Comments    Item 2.
    Properties            Item 3.
    Legal
    Proceedings   22




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Item 4.
    Submission
    of Matters to a Vote of Securities Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Stock
    Market and Other Information
      High


Low2008:Quarter ended March 31, 2008

$
13.77


$
7.10Quarter ended June 30, 2008


7.76



3.76Quarter ended September 30, 2008


4.64



1.78Quarter ended December 31, 2008


2.10



0.652007:Quarter ended March 31, 2007

$
47.50


$
40.82Quarter ended June 30, 2007


46.81



30.65Quarter ended September 30, 2007


32.81



22.90Quarter ended December 31, 2007


26.73



11.65   Dividend
    Policy
    Record Date

Payment Date


Dividend Amount2007:March 12, 2007


March 19, 2007


$
1,084May 21, 2007


May 31, 2007



1,084  23




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Securities
    Authorized for Issuance Under Equity Compensation
    Plans
  Number of SecuritiesRemaining Available forNumber of Securities





Future Issuance Underto Be Issued Upon


Weighted Average


Equity CompensationExercise of


Exercise Price of


Plans (ExcludingOutstanding Options,


Outstanding Options,


Securities Reflected inPlan Category

Warrants and Rights(a)


Warrants and Rights


Column (a))Equity compensation plans approved by security holders


1,604,293
(1)

$
8.99



338,735
(2)Equity compensation plans not approved by security holders


N/A



N/A



N/ATotal


1,604,293


$
8.99



338,735     (1)
    Represents outstanding options and restricted stock to be issued
    upon exercise and/or vesting under our Amended and Restated 1995
    Equity Participation Plan and our 2005 Incentive Award Plan.(2)
    Represents securities remaining available for issuance under our
    Amended and Restated 1995 Equity Participation Plan and our 2005
    Incentive Award Plan.  Recent
    Sales of Unregistered Securities
    Transfer
    Agent and Registrar
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
    Item 6.
    Selected
    Financial Data    Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
  U.S.-flagged
   24




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non-Windstar
          Critical
    Accounting Policies
        Revenue
    Recognition
  EITF 99-19,
  Passenger
    Ticket Revenue and Onboard and Other Cruise Revenues
   25




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Marine
    Revenue
  No. 81-1,
            Travel
    and Event Related
   26




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##### Table of Contents



Net
    Insurance Premiums Earned
      License
    Fees
    Property,
    Vessel and Equipment
      Goodwill
    and Intangible Assets
   27




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##### Table of Contents



Reserve
    for Loss and Loss Adjustment Reserves
    Reinsurance
      Stock-Based
    Compensation
     28




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Income
    Taxes
               29




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##### Table of Contents



Results
    of Operations
    2008


2007Revenues


100.0
%


100.0
%Costs and operating expenses:Cruise operating expenses


44.4



42.4Cost of marine revenue


29.1



32.1Selling and tour promotion


4.5



8.9General and administrative


19.6



19.5Impairment loss


7.7



Depreciation and amortization


5.3



3.8Loss and loss adjustment expenses


0.2



0.1Insurance acquisition costs and other operating expenses


0.1



0.2110.9



107.0Operating loss


(10.9
)


(7.0
)Other income (expense), net


(2.3
)


(1.2
)Loss before income taxes


(13.2
)


(8.2
)Provision (benefit) for income taxes


(0.1
)


1.0Net loss


(13.1
)%


(9.2
)%   Business
    Segment Information
   30




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Travel


CorporateCruise


Marine


and Events


and Other


Total2008:Revenues

$
150,995


$
108,655


$
14,941


$
9


$
274,600Operating income (loss)


(12,128
)


(16,113
)


2,635



(4,442
)


(30,048
)Depreciation and amortization expense


(12,934
)


(1,047
)


(283
)


(250
)


(14,514
)Interest and dividend income


39



140



123



855



1,157Interest expense


(1,759
)


(240
)






(4,299
)


(6,298
)Equity in net losses and management fees received from
    investments accounted for by the equity method






(88
)










(88
)Impairment loss






(21,289
)










(21,289
)Provision (benefit) for income taxes


18



(4,808
)


1,040



3,460



(290
)Capital expenditures for property, vessels, equipment and
    intangible assets


(2,664
)


(1,377
)


(89
)


(15
)


(4,145
)Goodwill










6,275







6,275Other intangibles, net


7,282















7,282Total assets


155,132



27,828



8,921



19,789



211,6702007:Revenues

$
154,394


$
123,221


$
14,511


$
582


$
292,708Operating income (loss)


(24,045
)


8,567



1,467



(6,421
)


(20,432
)Depreciation and amortization expense


(9,668
)


(963
)


(265
)


(114
)


(11,010
)Interest and dividend income


963



152



486



2,024



3,625Interest expense


(4,044
)


(370
)






(2,916
)


(7,330
)Equity in net loss and management fees received from investments
    accounted for by the equity method






(231
)










(231
)Impairment loss in investment in affiliates














(165
)


(165
)Provision (benefit) for income taxes


(2,977
)


520



3,657



1,768



2,968Capital expenditures for property, vessels, equipment and
    intangible assets


(20,019
)


(1,290
)


(297
)


(872
)


(22,478
)Goodwill






2,906



6,275







9,181Other intangibles, net


8,431



2,721











11,152Total assets


251,196



72,979



12,453



39,861



376,489   Results
    for Year Ended December 31, 2008 Compared Year Ended
    December 31, 2007
  Revenue
   31




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Cruise
    Operating Expenses
      Cost
    of Marine Revenue
    Selling
    and Tour Promotion
     32




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General
    and Administrative Expenses
      Impairment
    Loss
    Depreciation
    and Amortization
      Loss
    and Loss Adjustment Expenses
    Insurance
    Acquisition Costs and Other Operating Expenses
    Operating
    Income (Loss)
     33




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Other
    Income (Expense)
  Empress of the North Queen of the West Empress
    of the North
  Income
    Taxes
    Net
    Loss
    Liquidity
    and Capital Resources
     34




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and/or and/or
      lay-up
    Empress of the North Empress of the North Empress of the North Empress of
    the North
  American
    Queen ® American
    Queen ®
 35




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American
    Queen ®
    Columbia
    Queen Columbia Queen Columbia Queen
  Executive
    Explorer Contessa
              Record Date

Payment Date


Dividend Amount2007:March 12, 2007


March 19, 2007


$
1,084May 21, 2007


May 31, 2007



1,084  36




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Events
    of Default Under Debt Agreements
       37




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Off-Balance
    Sheet Transactions
    Forward-Looking
    Statements
  Form 10-K
  
    our ability to effectively complete our planned sale of assets;
    our ability to obtain additional financing at reasonable rates;
    our ability to renegotiate our debt;
    our ability to continue to operate as a going concern;
    our ability to effectively and efficiently operate our cruise
    operations;
    customer cancellation rates;
    competitive conditions in the industries in which we operate;
    marketing expenses;
    extreme weather conditions;
    timing of and costs related to acquisitions;
    the impact of new laws and regulations affecting our business;
    negative incidents involving cruise ships, including those
    involving the health and safety of passengers;
    cruise ship maintenance problems;
    reduced consumer demand for vacations and cruise vacations;
    changes in fuel, food, payroll, insurance and security costs;
    the availability of raw materials;
    our ability to enter into profitable marina construction
    contracts;
    changes in relationships with certain travel providers;
    changes in vacation industry capacity;
    the mix of programs and events, program destinations and event
    locations;
    the introduction and acceptance of new programs and program and
    event enhancements by us and our competitors;
    other economic factors and other considerations affecting the
    travel industry; 38




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##### Table of Contents




    changes in U.S. maritime tax laws;
    potential claims related to our reinsurance business;
    the potentially volatile nature of the reinsurance
    business; and
    other factors discussed in this Annual Report on
    Form 10-K.  Form 10-K,
 Item 7A.  Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data   Item 9.  Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure   Item 9A.  Controls
    and Procedures   Item 9(T).  Controls
    and Procedures    Rule 13a-15(b),
     39




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Managements
    Report on Internal Control Over Financial Reporting
  Rules 13(a)-15(f)
    Item 9B.
    Other
    Information  Events of
    Default Under Debt Agreements
     PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   40




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##### Table of Contents



Item 13.  Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   41




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PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules    (a)(1) Consolidated Financial Statements:
  Report of Independent Registered Public
    Accounting Firm


43Consolidated Balance Sheets at December 31,
    2008 and 2007


44Consolidated Statements of Operations for the
    years ended December 31, 2008 and 2007


45Consolidated Statements of Changes in
    Stockholders Equity for the years ended December 31,
    2008 and 2007


46Consolidated Statements of Cash Flows for the
    years ended December 31, 2008 and 2007


47Notes to Consolidated Financial Statements


49   (a)(2) Consolidated Financial Statement Schedules:
  Schedule II  Consolidated Valuation
    and Qualifying Accounts for the years ended December 31,
    2008 and 2007


82
     (a)(3) Exhibits:
  Form 10-K.
 42




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                43




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Ambassadors
    International, Inc.
  Consolidated
    Balance Sheets
 December 31,2008


2007(In thousands, except share data)ASSETS:Current assets:Cash and cash equivalents

$
10,105


$
21,998Restricted cash


16,625



31,084Available-for-sale securities


185



2,514Accounts and other receivables, net of allowance of $4,414 and
    $2,332 in 2008 and 2007, respectively


17,678



40,798Costs in excess of billings on construction contracts


5,283



8,410Premiums receivable


6,313



10,188Reinsurance recoverable


532



1,148Inventory


1,839



5,751Deferred income taxes


1,661



1,262Prepaid costs and other current assets


6,891



8,530Total current assets


67,112



131,683Property, vessels and equipment, net


130,461



219,793Goodwill


6,275



9,181Other intangibles, net


7,282



11,152Other assets


540



4,680Total assets

$
211,670


$
376,489LIABILITIES:Current liabilities:Accounts payable

$
22,086


$
36,564Passenger and participant deposits


17,221



47,067Accrued expenses


12,245



16,175Billings in excess of costs on construction contracts


4,253



13,108Loss and loss adjustment expense reserves


3,998



6,674Current portion of long term debt


2,760



5,479Total current liabilities


62,563



125,067Long term passenger and participant deposits






35Long term deferred tax liabilities


1,354



1,676Long term debt, net of current portion and net of discount of
    $1,902 in 2008 and $2,479 in 2007, respectively


95,213



161,584Total liabilities


159,130



288,362Commitments and contingencies (Note 12)Stockholders equity:Preferred stock, $.01 par value; 2,000,000 shares
    authorized; none issued






Common stock, $.01 par value; 40,000,000 shares
    authorized; 11,318,067 and 10,888,655 shares issued and
    outstanding in 2008 and 2007, respectively


108



108Additional paid-in capital


99,121



97,634Accumulated deficit


(47,142
)


(11,170
)Accumulated other comprehensive income


453



1,555Total stockholders equity


52,540



88,127Total liabilities and stockholders equity

$
211,670


$
376,489    44




---



##### Table of Contents



Ambassadors
    International, Inc.
  Consolidated
    Statements of Operations
  Year Ended December 31,2008


2007(In thousands, except per share data)Revenues:Passenger ticket revenue

$
126,248


$
131,796Onboard and other cruise revenue


24,747



22,598Marine revenue


108,655



123,221Travel and event related


14,941



14,511Net insurance premiums earned


9



582274,600



292,708Costs and operating expenses:Cruise operating expenses:Compensation and benefits


26,040



27,696Passenger expenses


10,579



13,420Materials and services


59,601



52,281Repairs and maintenance


12,309



17,310Commissions and other cruise operating expenses


13,438



13,248121,967



123,955Cost of marine revenue


79,884



94,029Selling and tour promotion


12,355



25,980General and administrative


53,750



57,140Impairment loss


21,289



Depreciation and amortization


14,514



11,010Loss and loss adjustment expenses


560



387Insurance acquisition costs and other operating expenses


329



639304,648



313,140Operating loss


(30,048
)


(20,432
)Other income (expense):Interest and dividend income


1,157



3,625Realized gain (loss) on sale of available-for-sale securities






(48
)Interest expense


(6,298
)


(7,330
)Other income(expense), net (Note 10)


(1,073
)


274(6,214
)


(3,479
)Loss before income taxes


(36,262
)


(23,911
)Provision (benefit) for income taxes


(290
)


2,968Net loss

$
(35,972
)

$
(26,879
)Loss per share:Basic and diluted

$
(3.29
)

$
(2.48
)Weighted-average common shares outstanding:Basic and diluted


10,926



10,838    45




---



##### Table of Contents



Ambassadors
    International, Inc.
  Consolidated
    Statements of Changes in Stockholders Equity
  Retained


AccumulatedAdditional


Earnings


OtherCommon Stock


Paid-In


(Accumulated


ComprehensiveShares


Amount


Capital


Deficit)


Income (Loss)


Total(In thousands, except share data)Balance at December 31, 2006


10,838,179



107



97,050



17,877



703


$
115,737Comprehensive income (loss):Net loss














(26,879
)






(26,879
)Other comprehensive loss:Foreign currency translation, net of tax of $0


















780



780Marketable securities, net of tax benefit of $45


















72



72Comprehensive loss






















(26,027
)Stock options exercised


60,626



1



648











649Issuance of restricted stock


95,000



















Cancellation of restricted stock


(54,000
)






(372
)










(372
)Shares repurchased and cancelled


(51,150
)






(1,576
)










(1,576
)Restricted stock compensation










1,158











1,158Amortization of stock options and restricted stock expense










726











726Dividends ($0.20 per share)














(2,168
)






(2,168
)Balance at December 31, 2007


10,888,655



108



97,634



(11,170
)


1,555


$
88,127Comprehensive income (loss):Net loss














(35,972
)






(35,972
)Other comprehensive loss:Foreign currency translation, net of tax of $0


















(1,111
)


(1,111
)Marketable securities, net of tax benefit of $0


















9



9Comprehensive loss






















(37,074
)Stock options exercised


2,412







20











20Issuance of restricted stock


450,000



















Cancellation of restricted stock


(23,000
)






(132
)










(132
)Restricted stock compensation










813











813Amortization of stock options and restricted stock expense










786











786Balance at December 31, 2008


11,318,067


$
108


$
99,121


$
(47,142
)

$
453


$
52,540    46




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##### Table of Contents



Ambassadors
    International, Inc.
  Consolidated
    Statements of Cash Flows
  Year Ended December 31,2008


2007(In thousands)Cash flows from operating activities:Net loss


(35,972
)

$
(26,879
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Depreciation and amortization


14,514



11,010Provision for losses from uncollectible receivables


2,842



1,438Foreign currency translation


(686
)


780Undistributed losses from equity investments


88



231Share-based compensation


1,467



1,512Amortization of debt discount and deferred offering costs


656



496Write-off of intangible assets






143Impairment loss


21,289



Impairment loss in investment






165Deferred income taxes


(1,710
)


2,667Loss on sale of available-for-sale securities






48Loss on disposal of property, vessels and equipment


7,008



66Change in assets and liabilities, net of effects of business
    acquisitions and dispositions:Accounts and other receivables


19,759



(17,154
)Costs in excess of billings on construction contracts


3,127



(1,349
)Premiums receivable


3,875



4,361Deferred policy acquisition costs






330Reinsurance recoverable


616



1,004Prepaid insurance premiums






252Inventory


1,451



(1,403
)Prepaid costs and other current assets


1,561



1,964Other assets


1,010



(1,199
)Accounts payable and accrued and other expenses


(18,068
)


17,381Passenger and participant deposits


(29,881
)


6,474Billings in excess of costs on construction contracts


(8,855
)


8,774Loss and loss adjustment expense reserves


(2,676
)


(5,152
)Unearned premiums






(1,220
)Deferred gain on retroactive reinsurance






(19
)Net cash provided by (used in) operating activities


(18,585
)


4,721Cash flows from investing activities:Proceeds from sale of available-for-sale securities


2,377



35,668Purchase of available-for-sale securities


(39
)


(306
)Restricted cash


12,975



(20,000
)Cash paid for acquisitions of subsidiaries, net of cash received


(808
)


(10,927
)Purchase of property and equipment


(4,146
)


(22,478
)Proceeds from disposal of assets






34Net cash provided by (used in) investing activities


10,359



(18,009
)   (continued on next page)
 47




---



##### Table of Contents



Ambassadors
    International, Inc.
  Consolidated
    Statements of Cash Flows  (Continued from
    previous page)
  Year Ended December 31,2008


2007(In thousands)Cash flows from financing activities:Proceeds from exercise of stock options


20



649Proceeds from issuance of convertible note, net of offering
    costs of $3,299






93,701Proceeds from line of credit


667



877Dividends paid on common stock






(2,168
)Purchase and retirement of common stock






(1,576
)Payment of long term debt


(4,354
)


(64,443
)Net cash provided by (used in) financing activities


(3,667
)


27,040Net increase (decrease) in cash and cash equivalents

$
(11,893
)

$
13,752Cash and cash equivalents, beginning of year


21,998



8,246Cash and cash equivalents, end of year

$
10,105


$
21,998Supplemental disclosure of cash flow information:Cash paid for interest

$
5,611


$
5,552Cash paid for income taxes


622



356See Notes 1 and 9 for non-cash investing and financing
    activities.    48




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial
    Statements
  1.
    Description
    of the Company and Summary of Significant Accounting
    Policies  The
    Company
        
    Cruise  this segment operates the Majestic America
    Line and Windstar Cruises. Majestic America Line consists of a
    North American river and coastal cruise company, American West
    Steamboat Company (American West). ACG acquired
    American West on January 13, 2006 and the cruise-related
    assets of Delta Queen Steamboat Company, Inc. (Delta
    Queen) on April 25, 2006. Through the second quarter
    of 2008 American West operated a seven-ship fleet which includes
    the 223-passenger Empress of the North, the 142-passenger
    Queen of the West, the 436-passenger American
    Queen®,

    the 412-passenger Mississippi
    Queen®

    and the 176-passenger Delta
    Queen®.

    On June 12, 2006, ACG acquired the 48-passenger
    Executive Explorer, renamed Contessa, and on
    October 13, 2006, ACG acquired the 150-passenger
    Columbia Queen. On April 2, 2007, ACG, through its
    wholly-owned subsidiary, Ambassadors International Cruise Group
    (AICG), acquired Windstar Sail Cruises Limited
    (Windstar Cruises), an international-flagged small
    ship cruise line that operates a three-ship fleet that includes
    the 312-passenger Wind Surf, 148-passenger Wind
    Spirit, and 148-passenger Wind Star.  Empress of the North Empress of the
    North Columbia Queen Queen of the West American
    Queen®,

    Delta
    Queen®

    and Mississippi
    Queen®
  Contessa Delta
    Queen ® Empress of the North American
    Queen ® Delta
    Queen ® Delta
    Queen ®
 49




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    
    Marine this segment includes marina design,
    management and development. It also includes BellPort Group,
    Inc. (BellPort), acquired in February 2005, which offers
    shipyard operations, marina consulting and marina construction
    services. On July 21, 2006, the Company acquired Bellingham
    Marine, a marina design and construction company that operates
    throughout the world.
    Travel and Events this segment develops,
    markets and manages meetings and incentive programs for a
    nationwide roster of corporate clients utilizing incentive
    travel, merchandise award programs and corporate meeting
    services. It provides comprehensive hotel reservation,
    registration and travel services for meetings, conventions,
    expositions and trade shows. It also develops, markets, and
    distributes event portfolio management technology solutions for
    corporations and large associations.
    Corporate and Other This segment consists of
    general corporate assets (primarily cash and cash equivalents
    and investments), the operations of Cypress Re and other
    activities which are not directly related to the Companys
    cruise, marine or travel and events segments. Cypress Re
    reinsures property and casualty risks written by licensed United
    States insurers. The lines of business that are currently being
    reinsured include commercial auto liability, commercial physical
    damage and workers compensation. These risks are
    associated with members of highly selective affinity groups or
    associations.  Going
    Concern
      and/or and/or
  Basis of
    Consolidation
   50




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Estimates
    Reclassifications
    Credit
    Risk
          Fair
    Value Measurements
   51




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    
    Level 1  quoted prices for identical instruments
    in active markets;
    Level 2  quoted prices for similar instruments
    in active markets; quoted prices for identical or similar
    instruments in markets that are not active; and model-derived
    valuations in which significant inputs and significant value
    drivers are observable in active markets; and
    Level 3  valuations derived from valuation
    techniques in which one or more significant inputs or
    significant value drivers are unobservable.          Fair Value


Fair Value


Change in


Change inFair Value

December 31,


December 31,


Unrealized


RealizedHierarchy

2008


2007


Gain (loss)(1)


Gain (loss)(1)Level 1

$
185


$
2,514


$
25


$
Level 2














Level 3














     (1)
    
    Settlements (net) or transfers out of Level I during the
    year ended December 31, 2008 amounted to $2,354. 52




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
   Cash and
    Cash Equivalents
    Restricted
    Cash
    As of December 31,2008


2007Restricted cash to secure credit card processing

$
10,644


$
17,100Restricted cash to pay vessel debt


5,981



12,500Restricted cash to secure letters of credit






1,484Balance at December 31,

$
16,625


$
31,084         Available-for-Sale
    Securities
      Accumulated
    Other Comprehensive Income (Loss)
    Comprehensive
    Income (Loss)
   53




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  Other
    Investments
    Property,
    Vessel and Equipment
      Drydocking
    Long-Lived
    Assets Including Intangibles
   54




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
      Reserve
    for Loss and Loss Adjustment Reserves
    Foreign
    Currency Transactions
    Revenue
    Recognition
  EITF 99-19,
  Passenger
    Ticket Revenue and Onboard and Other Cruise
    Revenues
   55




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Marine
    Revenue
  No. 81-1,
         56




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Travel
    and Event Related
      Net
    Insurance Premiums Earned
      License
    Fees
    Reinsurance
     57




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  Selling
    and Tour Promotion Expenses
    Income
    Taxes
    Earnings
    (Loss) Per Share
    Accounting
    for Stock-Based Compensation Plans
           58




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  Fair
    Value of Financial Instruments
    2008


2007Carrying


Fair


Carrying


FairAmount


Value


Amount


ValueFinancial assets:Cash and cash equivalents

$
10,105


$
10,105


$
21,998


$
21,998Restricted cash


16,625



16,625



31,084



31,084Available-for-sale securities


185



185



2,514



2,514Debt


97,973



29,100



167,063



169,542   and/or
  Cash and Cash Equivalents
  Restricted Cash
  Available-for-Sale Securities
  Debt
  Dividends
    Declared
      Record Date

Payment Date


Dividend Amount2007:March 12, 2007


March 19, 2007


$
1,084May 21, 2007


May 31, 2007



1,084   Business
    Segments
   59




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  Recent
    Accounting Pronouncements
  No. APB14-1, No. 90-19,
  No. FAS 142-3, No. FAS 142-3 142-3 No. FAS 142-3 No. FAS 142-3
      2.
    Business
    Acquisitions and Investments  BellPort
   60




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
          Windstar
    Cruises
      Cash and cash equivalents

$
1,137Accounts receivable


5Prepaid and other current assets


811Inventory


965Vessels and equipment


89,497Intangible assets


8,610Total assets acquired


101,025Passenger deposits


(22,966
)Accounts payable and accrued and other expenses


(5,995
)Long term debt


(60,000
)Total liabilities assumed


(88,961
)Net assets acquired

$
12,064    61




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Pro FormaWindstar


Pro FormaAs Reported


Cruises


CombinedRevenues

$
287,005


$
17,463


$
304,468Net income (loss)

$
(26,879
)

$
(1,080
)

$
(27,959
)Earnings per share  basic

$
(2.48
)





$
(2.58
)Earnings per share  diluted

$
(2.48
)





$
(2.58
)   3.
    Reinsurance             62




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
                  2008


2007Written


Earned


Written


EarnedAssumed

$
9


$
9


$
(468
)

$
752Ceded










83



(170
)Net premiums

$
9


$
9


$
(385
)

$
582    63




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    2008


2007Balance at January 1,

$
6,674


$
11,826Less reinsurance recoverables


(1,148
)


(2,152
)Net balance at January 1,


5,526



9,674Incurred related to:Amortization of deferred gain on retroactive reinsurance






(19
)Current year


116



568Prior years


444



(162
)Total incurred


560



387Paid related to:Current year


2,429



191Prior years


191



4,344Total paid


2,620



4,535Net balance at December 31,


3,466



5,526Plus reinsurance recoverable


532



1,148Balance at December 31,

$
3,998


$
6,674   4.
    Available-for-Sale
    Securities    Gross


Gross


Fair Value/Unrealized


Unrealized


CarryingCost


Gains


Losses


ValueDecember 31, 2008:Debt securities:U.S. government and agency obligations

$



$
25


$



$
25Corporate bonds


118



1



(1
)


118118



26



(1
)


143Interest receivable


42











42Total

$
160


$
26


$
(1
)

$
185   64




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  Gross


Gross


Fair Value/Unrealized


Unrealized


CarryingCost


Gains


Losses


ValueDecember 31, 2007:Debt securities:U.S. government and agency obligations

$
1,129


$
20


$
(10
)

$
1,139Corporate bonds


1,260



12



(25
)


1,2472,389



32



(35
)


2,386Interest receivable


128











128Total debt securities

$
2,517


$
32


$
(35
)

$
2,514     Less than


Greater than12 Months


12 Months


TotalGross unrealized loss:Corporate bonds

$
(1
)

$



$
(1
)$
(1
)

$



$
(1
)         Year Ending December 31,2009


2010Debt securities:U.S. government and agency obligations

$
25


$
Corporate bonds


43



7468



74Interest receivable


2



44Total debt securities

$
70


$
118Interest rate on debt securities


3.5
%


5.2
%  65




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  5.
    Accounts
    Receivable    2008


2007Cruise

$
454


$
817Travel and events


1,904



4,149Marine


19,705



37,969Other


29



19522,092



43,130Less allowance for doubtful accounts


(4,414
)


(2,332
)Total accounts receivable

$
17,678


$
40,798     6.
    Inventory    2008


2007Marine construction materials

$



$
2,630Food, souvenirs and supplies


1,519



2,390Fuel


320



731$
1,839


$
5,751     7. Property,
    Vessels and Equipment
    2008


2007Ships and vehicles

$
146,095


$
221,790Office furniture, fixtures and equipment


2,329



8,447Computer software and equipment


5,034



5,831Land






1,765Leasehold improvements


657



897Ship work in process


102



70154,217



238,800Less accumulated depreciation and amortization


(23,756
)


(19,007
)$
130,461


$
219,793  66




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
      8.
    Goodwill
    and Other Intangibles    2008


2007Goodwill, beginning of year

$
9,181


$
9,181Anacapa acquisition


10



Goodwill impairment


(2,916
)


Goodwill, end of year

$
6,275


$
9,181Other Intangibles:Trade name

$
7,282


$
9,980Management contracts






853Customer list






7177,282



11,550Less accumulated amortization






(398
)Total other intangibles

$
7,282


$
11,152    67




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  9.
    Long term
    Obligations    2008


2007Guaranteed principal payment to U.S. Maritime Administration

$
948


$
69,743Secured note payable to bank at a fixed interest rate of 8.245%,
    due May 2010


1,601



1,656Amounts outstanding under $8.0 million asset-based business
    loan secured line of credit with a U.S. bank


186



Amounts outstanding under $2.1 million secured lines of
    credit with an Australian bank






876Loans outstanding with New Zealand banks


3



503.75% Convertible Senior Notes, net of unamortized discount
    and offering costs of $1,902 and $2,479, respectively


95,098



94,521Equipment leases


137



21797,973



167,063Less: current portion


2,760



5,479Non-current portion

$
95,213


$
161,584     Loans
    Secured by Ship Mortgages
  Empress of the North Empress of the North Empress of the North Empress of the
    North Empress of
    the North
  American
    Queen ® American
    Queen® American
    Queen® American
    Queen®
 68




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  American
    Queen®.
  Bellingham
    Marine Debt
        3.75% Convertible
    Senior Notes
     69




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
      Year Ended December 31,2009

$
2,7602010


402011


222012


97,0222013


22Thereafter


9$
99,875   10.
    Other
    Income (expense), net    Year Ended December 31,2008


2007Insurance proceeds received (Note 12)

$
755


$
1,012Loss on disposal of assets (Note 13)


(7,008
)


Proceeds from legal settlements (Note 12)


4,322



Foreign currency translation gains (losses)


559



(228
)Equity in loss from unconsolidated entities and management fees


(88
)


(231
)Impairment loss on investment in affiliates






(165
)Other income (expense), net


387



(114
)$
(1,073
)

$
274   11.
    Income
    Taxes    Year Ended December 31,2008


2007Domestic

$
(36,449
)

$
(34,708
)Foreign


187



10,797Total pretax income (loss)

$
(36,262
)

$
(23,911
)  70




---



##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Year Ended December 31,2008


2007Current:Federal

$
(277
)

$
(316
)State


126



253Foreign


583



712Total current


432



649Deferred:Federal


(427
)


1,653State


(346
)


820Foreign


51



(154
)Total deferred


(722
)


2,319Total income tax (benefit) provision

$
(290
)

$
2,968     2008


2007Amount


%


Amount


%Provision (benefit) at the federal statutory rate

$
(12,330
)


34.0
%

$
(8,130
)


34.0
%Change in valuation allowance


11,880



(32.8
)


14,448



(60.4
)State income tax, net of federal benefit


(930
)


2.6



(982
)


4.1Rate adjustment


149



(0.4
)


123



(0.5
)Reserve adjustment


104



(0.3
)


250



(1.1
)Impairment of goodwill


992



(2.7
)






Impairment of other long-lived assets


(773
)


2.1







Foreign rate differential


570



(1.6
)


(3,113
)


13.0Other permanent and return to provision items


48



(0.1
)


372



(1.5
)$
(290
)


0.8
%

$
2,968



(12.4
)%  71




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    2008


2007Deferred tax assets:Accrued vacation and compensation

$
2,243


$
2,169Intangible assets


1,625



1,645Allowance for billing reserve


2,104



967Loss and loss adjustment expense reserves


134



199Net operating loss carryforward


20,100



19,909Other


1,642



384Total deferred tax assets


27,848



25,273Valuation allowance for deferred tax assets


(26,968
)


(15,509
)Total deferred tax assets, net of valuation allowance


880



9,764Deferred tax liabilities:Intangibles






(773
)Property and equipment


(1,434
)


(9,128
)Other


861



(278
)Total deferred tax liabilities


(573
)


(10,179
)Net deferred tax assets (liabilities)

$
307


$
(415
)        72




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Balance at January 1, 2007

$
551Additions based on tax positions related to the current year


91Reductions for tax positions of prior years


(18
)Other


(47
)Balance at December 31, 2007


577Additions based on tax positions related to the current year


33Reduction as a result of lapse of applicable statute of
    limitations


(43
)Other


46Balance at December 31, 2008

$
613            73




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  12.
    Commitments
    and Contingencies  Leases
    Year Ending December 31,2009

$
2,4172010


1,5252011


8742012


5502013


401$
5,767       Letters
    of Credit
    General
    Claims
    Surety
    Bonds
     74




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Ship
    Incidents
  Queen of the West, Columbia Queen Queen of
    the West
  Empress of the North Queen of the West Empress of the North
  Empress of the North
  Legal
    Proceedings
   75




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
      13.
    Impairment
    or Disposal of Long-Lived Assets  Empress
    of the North Empress of the
    North Empress of the North Empress of the North
  American Queen American Queen American Queen,
     76




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
  14.
    Stock
    Plans      Weighted-Number of


AverageShares


Exercise PriceBalance, December 31, 2006


1,131,759



14.12Granted


278,000



14.86Forfeited


(150,075
)


17.76Exercised


(60,626
)


10.71Balance, December 31, 2007


1,199,058



14.01Granted






Forfeited


(164,853
)


14.31Exercised


(2,412
)


8.45Balance, December 31, 2008


1,031,793



13.98     Weighted-Number of


AverageShares


Exercise PriceOptions exercisable at:December 31, 2007


711,308



12.31December 31, 2008


776,043



12.90  77




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Number








NumberOutstanding


Wtd. Avg.





Exercisable


Wtd. Avg.as of


Remaining


Wtd. Avg.


as of


Exercise PriceRange of

December 31,


Contractual


Exercise


December 31,


of ExercisableExercise Price

2008


Life


Price


2008


Options$2.93 - $5.85


13,694



1.0


$
5.39



13,694


$
5.395.85 - 8.78


51,607



0.6



7.66



51,607



7.668.78 - 11.70


121,242



0.8



9.24



121,242



9.2411.70 - 14.63


472,250



4.5



12.74



452,000



12.7014.63 - 17.55


255,000



8.4



14.89



78,500



14.9117.55 - 20.48


28,000



7.3



17.97



14,000



17.9726.33 - 29.25


90,000



7.6



27.94



45,000



27.941,031,793



5.1



13.98



776,043



12.90     15.
    Employee
    Benefit Plan    16.
    Common
    Stock Repurchase Plan   78




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
   17.
    Accumulated
    Other Comprehensive Income (Loss)    2008


2007Unrealized gains (losses) on available-for-sale securities


17



8Foreign currency translation gains


436



1,547Total accumulated other comprehensive income

$
453


$
1,555   18.
    Earnings
    (Loss) Per Share      2008


2007Numerator:Net (loss) income for basic and diluted earnings per share

$
(35,972
)

$
(26,879
)Denominator:Weighted-average shares outstanding  basic


10,926



10,838Effect of dilutive securities:Stock options Notes






Weighted-average
    shares outstanding  diluted


10,926



10,838Earnings (loss) per share:Basic

$
(3.29
)

$
(2.48
)Diluted

$
(3.29
)

$
(2.48
)     19.
    Business
    Segments   79




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
    Travel


CorporateCruise


Marine


and Events


and Other


Total2008:Revenues

$
150,995


$
108,655


$
14,941


$
9


$
274,600Operating income (loss)


(12,128
)


(16,113
)


2,635



(4,442
)


(30,048
)Depreciation and amortization expense


(12,934
)


(1,047
)


(283
)


(250
)


(14,514
)Interest and dividend income


39



140



123



855



1,157Interest expense


(1,759
)


(240
)






(4,299
)


(6,298
)Equity in net loss and management fees received from investments
    accounted for by the equity method






(88
)










(88
)Impairment loss






(21,289
)










(21,289
)Provision (benefit) for income taxes


18



(4,808
)


1,040



3,460



(290
)Capital expenditures for property, vessels, equipment and
    intangible assets


(2,664
)


(1,377
)


(89
)


(15
)


(4,145
)Goodwill










6,275







6,275Other intangibles, net


7,282















7,282Total assets


155,132



27,828



8,921



19,789



211,6702007:Revenues

$
154,394


$
123,221


$
14,511


$
582


$
292,708Operating income (loss)


(24,045
)


8,567



1,467



(6,421
)


(20,432
)Depreciation and amortization expense


(9,668
)


(963
)


(265
)


(114
)


(11,010
)Interest and dividend income


963



152



486



2,024



3,625Interest expense


(4,044
)


(370
)






(2,916
)


(7,330
)Equity in net loss and management fees received from investments
    accounted for by the equity method






(231
)










(231
)Impairment loss on investment in affiliates














(165
)


(165
)Provision (benefit) for income taxes


(2,977
)


520



3,657



1,768



2,968Capital expenditures for property, vessels, equipment and
    intangible assets


(20,019
)


(1,290
)


(297
)


(872
)


(22,478
)Goodwill






2,906



6,275







9,181Other intangibles, net


8,431



2,721











11,152Total assets


251,196



72,979



12,453



39,861



376,489   20.
    Subsequent
    Events (unaudited)     80




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##### Table of Contents



Ambassadors
    International, Inc.
  Notes to Consolidated Financial Statements 
    (Continued)
       81




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##### Table of Contents



Ambassadors
    International, Inc.
  Schedule II 
    Consolidated Valuation and Qualifying Accounts
 For the
    Years Ended December 31, 2008 and 2007
  Balance at





Deductions,


Balance atBeginning





Recoveries


End ofof Year


Additions


and Write-Offs


YearDecember 31, 2008:Allowance for doubtful accounts receivable

$
2,331,987


$
2,842,406


$
(760,815
)

$
4,413,578December 31, 2007:Allowance for doubtful accounts receivable

$
1,046,283


$
1,438,446


$
(152,742
)

$
2,331,987  82




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##### Table of Contents



Signatures



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



AMBASSADORS INTERNATIONAL, INC.

(Registrant) By:
    /s/  Mark
    T. Detillion      POWER OF
    ATTORNEY
  Form 10-K,
    Signature

Title

Date/s/  Arthur
    A. RodneyArthur
    A. Rodney

President and Chief Executive Officer (Principal Executive
    Officer)

April 15, 2009/s/  Mark
    T. DetillionMark
    T. Detillion

Chief Financial Officer(Principal Financial Officer)

April 15, 2009/s/  Arthur
    A. RodneyArthur
    A. Rodney

Chairman Board of Directors

April 15, 2009/s/  Daniel
    J. EnglanderDaniel
    J. Englander

Director

April 15, 2009/s/  J.
    Hale HoakJ.
    Hale Hoak

Director

April 15, 2009/s/  Rafer
    L. JohnsonRafer
    L. Johnson

Director

April 15, 2009  83




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##### Table of Contents



EXHIBIT INDEX  ExhibitNo.2
.1

Agreement and Plan of Merger, dated February 1, 2005, among
    Ambassadors International, Inc., BellPort Acquisition Corp. #1,
    BellPort Acquisition Corp. #2, BellPort Group, Inc. and Paul
    Penrose, as a company stockholder representative (incorporated
    by reference to Exhibit 2.1 to our Current Report on
    Form 8-K
    filed on February 3, 2005)2
.2

Membership Interest Purchase Agreement, dated December 27,
    2005, by and among Ambassadors International, Inc., Ambassadors
    Cruise Group, LLC and Oregon Rail Holdings LLC (incorporated by
    reference to Exhibit 2.1 to our Current Report on
    Form 8-K
    filed on December 28, 2005)2
.3

Amendment No. 1 to Membership Interest Purchase Agreement
    by and among Ambassadors International, Inc., Ambassadors Cruise
    Group, LLC and Oregon Rail Holdings LLC dated January 13,
    2006 (incorporated by reference to Exhibit 2.2 to our
    Current Report on
    Form 8-K
    filed on January 13, 2006)2
.4

Asset Purchase Agreement, dated April 6, 2006, by and among
    Ambassadors Cruise Group, LLC, Delta Queen Steamboat Company,
    Inc., American Queen Steamboat, LLC, Delta Queen Steamboat, LLC
    and Mississippi Queen Steamboat, LLC (incorporated by reference
    to Exhibit 2.1 to our Current Report on
    Form 8-K
    filed on April 7, 2006)2
.5

Stock Purchase Agreement, dated July 21, 2006, by and among
    Ambassadors Marine Group, LLC, Nishida Tekko Corporation,
    Nishida Tekko America Corporation and BMI Acquisition Company
    (incorporated by reference to Exhibit 2.1 to our Current
    Report on
    Form 8-K
    filed on July 26, 2006)2
.6

Stock Purchase Agreement, dated February 21, 2007, by and
    among Ambassadors International Cruise Group, LLC and HAL
    Antillen N.V. and certain exhibits listed therein including:
    First Preferred Mortgages, Pledge Agreement, Security Agreement,
    Buyer Note, Deeds of Covenants, Subsidiary Guarantee and Parent
    Guarantee (incorporated by reference to Exhibit 2.1 to our
    Current Report on
    Form 8-K
    filed April 6, 2007).3
.1

Certificate of Incorporation of Ambassadors International, Inc.
    (incorporated by reference to Exhibit 3.1 to our
    Registration Statement on
    Form S-1
    (Registration
    No. 33-93586))3
.2

By-Laws of Ambassadors International, Inc. (incorporated by
    reference to Exhibit 3.2 to our Registration Statement on
    Form S-1
    (Registration
    No. 33-93586))3
.3

Amendment to the Certificate of Incorporation of Ambassadors
    International, Inc. (incorporated by reference to
    Appendix A of our definitive proxy statement filed on
    April 18, 20074
.1

Registration Rights Agreement dated March 28, 2007 by and
    between Ambassadors International, Inc. and Thomas Weisel
    Partners (incorporated by reference to Exhibit 4.2 to our
    Current Report on
    Form 8-K
    filed on April 3, 2007)4
.2

Indenture dated as of April 3, 2007 between Ambassadors
    International, Inc. and Wells Fargo Bank National Association,
    as Trustee (incorporated by reference to Exhibit 4.2 to our
    Current Report on
    Form 8-K
    filed on April 3, 2007)4
.3

Form of Global Note (incorporated by reference to the Indenture
    dated as of April 3, 2007 between Ambassadors
    International, Inc. and Wells Fargo Bank National Association
    filed as Exhibit 4.1 to our Current Report on
    Form 8-K
    filed on April 3, 2007)4
.4

Purchase Agreement dated March 28, 2007 by and between
    Ambassadors International, Inc. and Thomas Weisel Partners
    (incorporated by reference to Exhibit 4.2 to our Current
    Report on
    Form 8-K
    filed on April 3, 2007)10
.1

Form of Registration Rights Agreement among the Company, John
    and Peter Ueberroth, and certain other stockholders
    (incorporated by reference to Exhibit 10.4 to our
    Registration Statement on
    Form S-1
    (Registration
    No. 33-93586))10
.2

Form of Indemnification Agreement for officers and directors
    (incorporated by reference to Exhibit 10.1 to our Current
    Report on
    Form 8-K
    filed on August 7, 2006)10
.3

Lease dated December 20, 1996 between Rogal America, Inc.
    and Ark-Les Corp. (incorporated by reference to
    Exhibit 10.13 to our Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1997) 84




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##### Table of Contents



ExhibitNo.10
.4

Industrial Lease dated 1998 between Ambassadors International,
    Inc. and The Irvine Company (incorporated by reference to
    Exhibit 10.14 to our Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1997)10
.5

The Atlanta Merchandise Mart Lease Agreement dated
    April 17, 1998 by and between AMC, Inc. and Destination,
    Inc. (incorporated by reference to Exhibit 10.16 to our
    Quarterly Report on
    Form 10-Q
    for the period ended June 30, 1998)10
.6

Lease dated July 24, 1998 by and between the Joseph Pell
    and Eda Pell Revocable Trust dated August 19, 1989 and
    Ambassador Performance Group, Inc. (incorporated by reference to
    Exhibit 10.19 to our Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1998)10
.7

The Amended and Restated 1995 Equity Participation Plan of
    Ambassador International, Inc., as amended by the Companys
    Shareholders at the 1999 Annual Meeting of Shareholders held on
    May 14, 1999 (incorporated by reference to Exhibit 4.1
    to our Registration Statement on
    Form S-8
    (Registration
    No. 333-81023))10
.8

First Amendment to Commercial Lease dated September 7, 2004
    by and between The Irvine Company and Ambassadors, LLC
    (incorporated by reference to Exhibit 10.21 to our Annual
    Report on
    Form 10-K
    for the fiscal year ended December 31, 2004)10
.9

Option Agreement, dated February 1, 2005, by and between
    Ambassadors International, Inc. and BellJa Holding Company, Inc.
    (incorporated by reference to Exhibit 10.1 to our Current
    Report on
    Form 8-K
    filed on February 3, 2005)10
.10

Third Amendment to Lease Agreement, dated April 29, 2005,
    by and between Ambassadors, LLC and AmericasMart Real Estate,
    LLC (incorporated by reference to Exhibit 10.1 to our
    Current Report on
    Form 8-K
    filed on May 4, 2005)10
.11

Form of the Ambassadors International, Inc. 2005 Incentive Award
    Plan Stock Option Grant Notice and Stock Option Agreement
    (incorporated by reference to Exhibit 10.1 to our
    Registration Statement on
    Form S-8
    (Registration
    No. 333-104280)
    filed on November 2, 2005)10
.12

Form of the Ambassadors International, Inc. 2005 Incentive Award
    Plan Restricted Stock Award Grant Notice and Restricted Stock
    Award Agreement (incorporated by reference to Exhibit 10.1
    to our Registration Statement on
    Form S-8
    (Registration
    No. 333-104280)
    filed on November 2, 2005)10
.13

Restricted Stock Agreement, dated December 27, 2005,
    between Ambassadors International, Inc. and ORC
    Investments I, Inc., ORC Holdings, Inc. and C.G.
    Grefenstette, E.C. Johnson and Bruce I. Crocker, Trustees Under
    a Trust dated August 28, 1968 for Henry L. Hillman, Jr.
    (incorporated by reference to Exhibit 10.29 to our Annual
    Report on
    Form 10-K
    for the period ended December 31, 2005)10
.14

Assumption Agreement and 2006 Supplement to
    Trust Indenture, dated April 25, 2006, by and among AQ
    Boat, LLC, the Bank of New York as indenture trustee, and the
    United States of America, represented by the Secretary of
    Transportation, acting by and through the Maritime Administrator
    (incorporated by reference to Exhibit 10.1 to our Current
    Report on
    Form 8-K
    filed on April 28, 2006)10
.15

Amended and Restated 2006 Security Agreement, dated
    April 25, 2006, by and between AQ Boat, LLC and the United
    States of America, represented by the Secretary of
    Transportation, acting by and through the Maritime Administrator
    (incorporated by reference to Exhibit 10.2 to our Current
    Report on
    Form 8-K
    filed on April 28, 2006)10
.16

Title XI Reserve Fund and Financial Agreement, dated
    April 25, 2006, by and between AQ Boat, LLC and the United
    States of America, represented by the Secretary of
    Transportation, acting by and through the Maritime Administrator
    (incorporated by reference to Exhibit 10.3 to our Current
    Report on
    Form 8-K
    filed on April 28, 2006)10
.17

Depository Agreement, dated April 25, 2006, by and between
    AQ Boat, LLC and the United States of America, represented by
    the Secretary of Transportation, acting by and through the
    Maritime Administrator (incorporated by reference to
    Exhibit 10.4 to our Current Report on
    Form 8-K
    filed on April 28, 2006) 85




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##### Table of Contents



ExhibitNo.10
.18

Restricted Stock Agreement, dated April 25, 2006, by and
    among Ambassadors International, Inc., Delta Queen Steamboat
    Company, Inc., American Queen Steamboat, LLC, Delta Queen
    Steamboat, LLC and Mississippi Queen Steamboat, LLC
    (incorporated by reference to Exhibit 10.5 to our Current
    Report on
    Form 8-K
    filed on April 28, 2006)10
.19

Option Agreement, dated July 21, 2006, by and between
    Ambassadors Marine Group, LLC and Nishida Tekko Corporation
    (incorporated by reference to Exhibit 10.1 to our Current
    Report on
    Form 8-K
    filed on July 26, 2006)10
.20

Loan Agreement, dated as of September 1, 2006, by and among
    Ambassadors International, Inc., Ambassadors Marine Group, LLC,
    Ambassadors, LLC, Ambassadors Cruise Group, LLC, Cypress
    Reinsurance, Ltd and Bank of America, N.A. (incorporated by
    reference to Exhibit 10.1 to our Current Report on
    Form 8-K
    filed on September 8, 2006)10
.21

Employment Agreement, dated November 2, 2006, between
    Ambassadors International, Inc. and Joseph J. Ueberroth
    (incorporated by reference to Exhibit 10.1 to our Current
    Report on
    Form 8-K
    filed on November 7, 2006)*10
.22

The Ambassadors International, Inc. Amended and Restated 2005
    Incentive Award Plan (incorporated by reference to
    Appendix B to our definitive proxy statement filed on
    Schedule 14A on April 18, 2007)10
.23

Amendment No. 1, dated as of March 27, 2007, to Loan
    Agreement dated as of September 1, 2006 by and among
    Ambassadors International, Inc., Ambassadors Marine Group, LLC,
    Ambassadors, LLC, Ambassadors Cruise Group, LLC, Cypress
    Reinsurance, Ltd. and Bank of America, N.A. (incorporated by
    reference to Exhibit 10.1 to our Current Report on
    Form 8-K
    filed on , 2007)10
.24

Amendment No. 2 dated as of November 16, 2007, to Loan
    Agreement by and among Ambassadors International, Inc.,
    Ambassadors Marine Group, LLC, Ambassadors, LLC, Ambassadors
    Cruise Group, LLC, Cypress Reinsurance, Ltd. and Bank of
    America, N.A., dated as of September 1, 2006 (incorporated
    by reference to Exhibit 10.1 to our Current Report on
    Form 8-K
    filed on November 20, 2007)10
.25

Change in Control Agreement dated as of January 14, 2008,
    by and between Ambassadors International, Inc., and Blake T.
    Barnett (incorporated by reference to Exhibit 10.1 to our
    Current Report on
    Form 8-K
    filed on January 17, 2008)*21
.1

Subsidiaries of Ambassadors International, Inc. (filed herewith)23
.1

Consent of Independent Registered Public Accounting Firm (filed
    herewith)24
.1

Power of Attorney (contained on the signature page of this
    Report)31
.1

Certification of Principal Executive Officer Required by
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934, as amended, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    (filed herewith)31
.2

Certification of Principal Financial Officer Required by
    Rule 13a-14(a)
    of the Securities Exchange Act of 1934, as amended, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    (filed herewith)32
.1

Certification of Principal Executive Officer Required by
    18 U.S.C. Section 350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)32
.2

Certification of Principal Financial Officer Required by
    18 U.S.C. Section 350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)     *
    
    Management contract or compensatory plan, contract or
    arrangement required to be filed as an exhibit. 86