SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

     (Mark One)
     [X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [FEE REQUIRED]

          For the fiscal year ended December 31, 1996

          OR

     [ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

          For the transition period from                to
                                         --------------    --------------
          Commission file number: 0-26420


          AMBASSADORS INTERNATIONAL, INC.
          ----------------------------------------------
          (Name of Small Business Issuer In Its Charter)

                     Delaware                               91-1688605
          -------------------------------              --------------------
          (State or Other Jurisdiction of               (I.R.S. Employer
           Incorporation or Organization)              Identification  No.)

          Dwight D. Eisenhower Building
          110 S. Ferrall Street
          Spokane, WA                                          99202
          -------------------------------              --------------------
          (Address of Principal Executive Offices)           (Zip Code)

          Issuer's Telephone Number, Including Area Code:  (509) 534-6200

          Securities registered under Section 12(b)
            of the Exchange Act:  None

          Securities registered under Section 12(g)
            of the Exchange Act:

                                                  Name of Each Exchange on
               Title of Each Class                    Which Registered
          ----------------------------            -------------------------
          Common Stock, $.01 Par Value                      NASDAQ

          Check whether the issuer:  (1) filed all reports required to be
          filed by Section 13 or 15(d) of the Exchange Act during the past
          12 months (or for such shorter period that the registrant was
          required to file such reports) and (2) has been subject to such
          filing requirements for the past 90 days.  Yes  X   No
     <PAGE>
          Check if there is no disclosure of delinquent filers in response
          to Item 405 of Regulation S-B in this form, and no disclosure
          will be contained, to the best of registrant's knowledge, in
          definitive proxy or information statements incorporated by
          reference in Part III of this Form 10-KSB or any amendment to
          this Form 10-KSB.[  ]

          The issuer's revenues for the most recent fiscal year were
          $18,843,000.

          The aggregate market value of the voting stock of the registrant
          held by non-affiliates of the Registrant, based upon the closing
          sales price of the Common Stock on the NASDAQ on February 28,
          1997 was $38,281,270.

          The number of shares of the registrant's Common Stock
          outstanding, as of February 28, 1997 was 6,753,888.

          DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the registrant's definitive Proxy Statement for the
          fiscal year ended December 31, 1996 are incorporated by reference
          into Part III.
     <PAGE>
     TABLE OF CONTENTS

     ITEM


     PART I

       Item 1.   Description of Business
       Item 2.   Description of Property
       Item 3.   Legal Proceedings
       Item 4.   Submission of Matters to a Vote of Security Holders

     PART II

       Item 5.   Market for Common Equity and Related Stockholder Matters
       Item 6.   Management's Discussion and Analysis or Plan of Operation
       Item 7.   Financial Statements
       Item 8.   Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure

     PART III

       Item 9.   Directors, Executive Officers, Promoters and Control
                 Persons; Compliance with Section 16(a) of the Exchange Act
       Item 10.  Executive Compensation
       Item 11.  Security Ownership of Certain Beneficial Owners and
                 Management
       Item 12.  Certain Relationships and Related Transactions
       Item 13.  Exhibits and Reports on Form 8-K

     SIGNATURES
     <PAGE>
     PART I

     Item 1.  Description of Business
     --------------------------------

     Organization
     ------------
     Ambassadors International, Inc., a Delaware corporation
     ("Ambassadors"), is a holding company of three wholly owned
     subsidiaries, Ambassador Programs, Inc., a Delaware corporation
     ("API"), Ambassador Performance Improvement, Inc., a Delaware
     corporation ("AP Improvement"), and The Helin Organization, Inc., a
     California corporation ("Helin"). API is sometimes collectively
     referred to herein as the "Travel Group."  AP Improvement and Helin
     are sometimes collectively referred to herein as the "Performance
     Group."

     Ambassadors was originally incorporated in the State of Washington in
     1967.  Effective as of January 1, 1995, John T. Tatham, Emanuele F.
     Portolese, Trudy K. Tatham, and Joe M. Sample, the sole stockholders
     of Ambassadors (collectively referred to herein as the "Former
     Stockholders"), sold a majority of their shares to John A. Ueberroth
     and Peter V. Ueberroth (collectively referred to herein as the
     "Ueberroths") and Ambassadors.  The operative stock purchase agreement
     provided that the Ueberroths would collectively purchase 3,698,130
     shares (43% of the then outstanding shares of Ambassadors) of the
     Former Stockholders' shares of common stock for a cash purchase price
     of $1.9 million and Ambassadors would redeem 3,698,130 shares (43% of
     the then outstanding shares of Ambassadors) of the Former
     Stockholders' shares of common stock for a cash redemption price of
     $1.8 million, in each case effective as of January 1, 1995.

     In August 1995, Ambassadors completed an offering of 1,540,000 shares
     of its common stock and raised approximately $12 million.  In
     connection with this offering, in August 1995, Ambassadors
     reincorporated in Delaware and changed its name from "International
     Ambassador Programs, Inc." to "Ambassadors International, Inc."
     Subsequent to the reincorporation, Ambassadors contributed all of its
     assets and liabilities to API.  The Former Stockholders, at the time
     of the offering, sold 760,000 shares of common stock, leaving them
     with 536,000 shares of common stock.  The transactions discussed above
     are collectively referred to herein as the "Reorganization."

     During 1996, all of the business conducted by the Performance Group
     was conducted through Helin.  AP Improvement was formed in October
     1996 and, on December 23, 1996, AP Improvement acquired all of the
     issued and outstanding capital stock of Bitterman & Associates, Inc.
     ("Bitterman").  Concurrently therewith, Bitterman was merged into AP
     Improvement.  The Bitterman acquisition is discussed below under
     "RECENT ACQUISITIONS."
     <PAGE>
     Business
     --------

     THE TRAVEL GROUP

     The Travel Group organizes, markets and operates international
     educational travel programs for students and adults.  Since its
     founding in 1967, the Company has offered its programs to both
     students and adults through its "Student Ambassador Programs" and
     "Citizen Ambassador Programs."  Since February 1996, through the
     acquisition of certain assets of Mr. Marc L. Bright, the Company also
     offers programs through its "American People Ambassador Programs" and
     "Missions in Understanding."  See "RECENT ACQUISITIONS" discussed
     below.  The Company's Student Ambassador Programs provide an
     opportunity for high school and junior high school students to visit
     one or more foreign countries to learn about the politics, economy and
     culture of such countries.  The Company's Citizen Ambassador Programs
     provide adults with common interests the opportunity to travel abroad
     to meet and exchange ideas with foreign citizens that have similar
     backgrounds, interests or professions.  The Company believes that its
     programs provide participants with enriching experiences and deeper
     understandings of foreign cultures and peoples than visits arranged
     independently or through travel agencies.

     A substantial percentage of the Company's programs are organized in
     connection with People to People International ("People to People"), a
     private, non-profit organization dedicated to the promotion of world
     peace through cultural exchange.  People to People was founded by
     President Dwight D. Eisenhower in 1956 and was originally administered
     by the U.S. State Department.  Over its history, eight U.S. presidents
     have served as Honorary Chairmen of People to People, including
     President Bill Clinton, who currently holds that position.

     Subject to certain exceptions, the Company's agreements with People to
     People give the Company the exclusive right to develop and conduct
     programs for kindergarten through college age students using the
     People to People name.  The Company is currently the only travel
     provider with the right to develop and conduct programs for adults
     using the People to People name pursuant to a 10-year agreement that
     the Company entered into in January 1995.  The Company believes that
     its long association with People to People has been a major factor in
     its ability to provide quality, educational student and adult travel
     programs and that this relationship provides the Company with greater
     access to foreign governmental agencies and officials and foreign
     institutions.  The Company is able to organize travel programs for its
     student and adult ambassadors featuring events and speakers which have
     been made available to the Company by virtue of its association with
     People to People.

     Student Ambassador Program delegations depart during the summer and
     generally travel for 21 days, during which time each delegation visits
     one or more foreign countries.  Each delegation generally consists of
     approximately 35 students and several teachers, who act as the
     delegation's leaders.  Teachers and students comprising a delegation
     generally come from the same locale.  Local guides generally assist
     <PAGE>
     the delegation in their travels.  Programs are designed by the
     Company's staff of international planners and researchers to provide
     an educational and entertaining travel experience by exposing students
     to the history, government, economy and culture of the country or
     countries visited.  In most instances, the Company also arranges to
     provide students the opportunity for a "homestay" (a brief stay with a
     host family), which gives students a glimpse of daily life in the
     visited country.  Students who complete certain written assignments
     and other projects can receive high school and university credit for
     their participation in the program.  Universities throughout the
     United States recognize the Company's programs with credit, including
     Stanford University, University of California at Los Angeles, and
     Georgetown University.

     The Citizen Ambassador Program, unlike the Student Ambassador Program,
     operates year-round and is generally designed to provide a more
     specialized adult educational experience.  Adult programs generally
     last from 10 days to two weeks and are designed to provide adults with
     similar backgrounds or common interests the opportunity to exchange
     information and ideas with their counterparts in other countries.
     Unlike travel programs provided by travel agencies, these professional
     exchanges are intended largely as working trips, with a significant
     amount of the participant's time involved in organized meetings,
     seminars and round-table discussions with their foreign counterparts,
     inspection visits to major foreign facilities and institutions and
     informal gatherings with foreign counterparts.  Each program is led by
     a delegation leader chosen by the Company based upon his or her
     recognition in the field and expertise regarding the special focus of
     the particular program.

     The Travel Group also operates other adult professional programs, that
     last from two to three weeks, and involve delegations of professionals
     from the United States or from other countries traveling abroad for
     the purpose of participating in counterpart meetings of professional
     or occupational interest.

     The Travel Group operates worldwide, but its principal place of
     business is located in Spokane, Washington.

     THE PERFORMANCE GROUP

     The Performance Group is dedicated to developing, marketing and
     managing performance improvement programs for corporate clients that
     utilize merchandise awards, consumer promotions and incentive travel.
     The Performance Group's employees have substantial experience in
     merchandise programs, marketing/communication programs and business
     meetings.  The Performance Group's principal offices are located in
     Minneapolis, Minnesota and Newport Beach, California but its clients
     are located throughout the United States.

     The Performance Group follows a very organized strategy aimed at
     developing and implementing a unique performance improvement program
     for each of its clients.  First, the Company's employees meet with its
     clients and potential clients to determine their business
     <PAGE>
     objectives and their performance enhancement opportunities.  The next
     step involves working with the client's employees to develop the
     program concepts and parameters in terms of purpose, costs, time,
     employee participation, etc.  Then, the Company's employees research
     and develop a completely customized improvement program that falls
     within the parameters set by the client.

     The Company's employees participate in all aspects of the program
     development.  The staff of creative writers and graphic designers
     deliver promotional campaigns that are complete from concept through
     production, including printing, collating, labeling, and mailing.  The
     Company provides each client with computerized lists generated by
     internally-designed software programs, which track the program
     participants and enable the client to know instantaneously the status
     of each participant at any time.  Additionally, the Company provides a
     program coordinator to formulate, maintain, and finalize each and
     every aspect of the client's event.

     The Company also arranges air transportation to each event.  Its air
     specialists can geographically analyze and arrange the most practical
     flights according to the client's program schedule, negotiate
     preferred airline rates, and provide participants with their
     individual seating requirements and boarding passes.  In-house central
     reservation systems provide current flight availability, the lowest
     fares between cities, and immediate issuance of airline tickets and
     flight itineraries.

     Finally, when the program begins, the Company's Travel Directors are
     on-site to provide concierge levels of service and attempt to insure
     that the program runs according to schedule.  For all of these
     services, the Company is reimbursed for all of its expenses and, in
     addition, receives as its compensation a percentage markup of the
     different items including, but not limited to, air and ground
     transportation, promotional gifts, meals, and hotel accommodations.

     The Company coordinates with the client's employees to best determine
     the type of program that complements and furthers the client's image.
     The Company believes that it is essential that it keeps costs in mind
     when reviewing different options and finds the best locations and
     services given the amount budgeted by the client.  In this regard, the
     Company takes advantage of the relationships it has with hotels,
     airlines, and visiting bureaus.

     BUSINESS STRATEGY
     -----------------
     The Company believes that high quality programs and excellent customer
     service are vital to the Company's future success.  The Company's
     strategy is to maintain its quality standards while increasing its
     volume of business.  To increase its business, the Company intends to
     (i) expand the scope and efficiency of its student travel program
     marketing efforts, (ii) develop new adult travel programs designed to
     appeal to a broader customer base and to expand its existing
     specialized adult programs, (iii) further develop and improve upon its
     <PAGE>
     travel incentive programs, and (iv) selectively acquire travel and
     travel related businesses which are either compatible with the
     Company's existing business or represent a developing specialty travel
     segment not currently addressed by the Company's operations.  See
     below "RECENT ACQUISITIONS."

     COMPETITION
     -----------
     The travel industry in general, and the educational segment of the
     travel industry in particular, is highly competitive.  The Company's
     student programs compete with other companies that provide similar
     educational travel programs for students as well as independent
     programs organized and sponsored by local teachers with the assistance
     of local travel agents and with semester or year-long out-bound
     university programs designed to provide college age students an
     opportunity to study abroad. The Company's adult programs also compete
     with independent professional associations that sponsor and organize
     their own travel programs through the assistance of local travel
     agents with tour operators and other organizations that design travel
     programs for adults.

     The Company believes that the barriers to entry for any future
     competitors are relatively low.  Certain companies engaged in the
     travel business, although not currently competing directly with the
     Company, have substantially greater financial, marketing and sales
     resources than the Company.  There can be no assurance that the
     Company's present competitors or competitors that choose to enter the
     marketplace in the future will not exert significant competitive
     pressures on the Company.

     The Company believes that the principal bases of competition in the
     educational segment of the market are the quality and uniqueness of
     the educational program offered, customer service and program cost.
     The Company believes that its connection with People to People, as
     well as its years of experience organizing student educational
     programs and established connections with public officials,
     organizations and residents in countries in which it provides
     programs, allows the Company to provide an educational opportunity
     that is not easily duplicated by competitors' programs.

     The Performance Group also competes in a segment of the travel
     industry that is highly competitive.  It competes with companies which
     are larger and have greater resources than the Company and which
     specialize in the corporate promotions market.  The Company believes
     that it is not selling a commodity and, in fact, is selling a unique
     service.  It further believes that although some potential clients
     will focus on price alone, other clients will also be interested in
     the quality and uniqueness of the programs developed by the
     Performance Group and customer service.  The Company believes that its
     years of experience in developing performance improvement programs,
     its commitment to work with the client's employees to determine the
     best program for each client and be involved with each program through
     to completion, and its vendor relations, allow it to provide programs
     that are not easily duplicated by competitors.
     <PAGE>
     SERVICEMARKS
     ------------
     The Company has registered a variety of service and trademarks,
     including the names "High School Student Ambassador Program" and
     "Citizen Ambassador Program."  In addition, the Company has the right,
     subject to certain exceptions, to use People to People's name,
     servicemark and logo for use in marketing student and adult programs.
     In February 1996, the Company acquired the exclusive rights, subject
     to certain exceptions related to adult travel programs in connection
     with those persons who permanently reside in and travel outside of
     Russia and/or CIS countries, to the names "American People Ambassador
     Programs" and "Missions in Understanding."  See "RECENT ACQUISITIONS"
     discussed below.  The Company believes that the strength of its
     service and trademarks is valuable to its business and intends to
     continue to protect and promote its marks as appropriate.  However,
     the Company believes that its business is not dependent upon any
     trademark or servicemark.

     INSURANCE
     ---------
     The Company maintains insurance coverage in amounts it believes are
     adequate for its business, including a $5.0 million professional
     liability policy and a $5.0 million umbrella policy.  The Company also
     maintains a $5.0 million general liability and property coverage
     policy.  The Company has not experienced difficulty in obtaining
     adequate insurance coverage.  There is no assurance that the insurance
     maintained by the Company will be adequate in the event of a claim, or
     that such insurance will continue to be available in the future.

     RECENT ACQUISITIONS
     -------------------
     M.L. BRIGHT ASSOCIATES, AMERICAN PEOPLE AMBASSADOR PROGRAMS, AND
     MISSIONS IN UNDERSTANDING

     In February 1996, API completed the acquisition of certain assets from
     Marc L. Bright, doing business as M.L. Bright Associates, American
     People Ambassador Programs, and Missions in Understanding
     (collectively referred to herein as "MLB") pursuant to an agreement
     dated February 6, 1996 (the "MLB Agreement").  MLB operated adult
     educational and exchange travel programs under the tradenames
     "American People Ambassador Programs" and "Missions in Understanding"
     pursuant to a General Contract between MLB and People to People dated
     July 1, 1995 (the "General Contract").  The General Contract expires
     June 30, 2005.

     Pursuant to the MLB Agreement, API acquired the following assets from
     MLB: (i) its inventory; (ii) its furniture, equipment, and fixtures;
     (iii) its goodwill including, but not limited to, its customer lists
     and files, and all of MLB's right, title, and interest in and to the
     names "American People Ambassador Programs" and "Missions in
     Understanding;" (iv) an assignment of MLB's rights under the General
     Contract; and (v) all rights to and contracts and prospective
     contracts with persons who wish to travel from and after April 1,
     1996.  Additionally, Mr. Bright entered into a five year employment
     agreement with API as well as a covenant not to compete.  Additional
     <PAGE>
     information regarding the MLB Agreement is included in the Company's
     Form 8-K dated February 9, 1996, which is incorporated herein by
     reference.

     The Agreement with Mr. Bright prohibits the Company from operating
     adult travel programs in connection with those persons who permanently
     reside in and travel outside of Russia and/or CIS countries.

     THE HELIN ORGANIZATION, INC.

     In January 1996, the Company completed its acquisition of all of the
     issued and outstanding shares of capital stock of The Helin
     Organization, Inc., a California corporation ("Helin"), from Michael
     E. Helin, Helin's sole shareholder.  In connection with such
     acquisition, Mr. Helin entered into an employment agreement that
     terminated on December 31, 1996.  However, Mr. Helin continues to work
     with the Company as an at-will employee.  Furthermore, Mr. Helin
     entered into a covenant not to compete.  Additional information
     regarding this acquisition is included in the Company's Form 8-K dated
     January 23, 1996, which is incorporated herein by reference.

     BITTERMAN & ASSOCIATES, INC.

     In December 1996, the Company merged Bitterman & Associates, Inc.
     ("Bitterman") with and into its wholly-owned subsidiary, AP
     Improvement.  In connection with this acquisition, the Company entered
     into a consulting agreement that expires on December 31, 2004 and a
     non-competition agreement that expires on December 19, 2004.
     Additional information regarding this acquisition is included in the
     Company's Form 8-K dated January 3, 1997, which is incorporated herein
     by reference.

     Bitterman, based in Minnesota, is a corporate incentive/performance
     improvement company.  It designs programs for corporations aimed at
     increasing the performance of their personnel.

     EMPLOYEES

     As of December 31, 1996, the Company had approximately 177 employees,
     of which 173 were full-time employees. 116 of the Company's employees
     are presently located in Spokane, Washington, 11 are located in
     Newport Beach, California, 2 are located in Winnebago, Illinois, and
     48 are located in Minnesota.  The Company has 60 full-time employees
     engaged in marketing and sales and 113 in finance, administration and
     operations.  The Company also occasionally employs temporary labor on
     a seasonal basis to assist it with its direct marketing efforts.
     Helin's employees all work out of Newport Beach, California.  None of
     the Company's employees is subject to collective bargaining agreements
     or is represented by a union. The Company believes its labor relations
     are good.
     <PAGE>
     Item 2.  Description of Property
     --------------------------------

     The principal executive offices of the Company, consisting of
     approximately 41,000 square feet, are located in Spokane, Washington
     and are occupied pursuant to a lease dated January 3, 1995 that
     expires December 31, 2004.  The lease provides for monthly rental
     payments of $36,992.  The Company may cancel the lease without penalty
     after the first three years (upon one year's prior notice) and also
     may extend the term of the lease for an additional ten year period
     upon providing written notice to the Lessor of its intention to
     exercise such option at least six months prior to the end of the
     initial term.  If the Company elects to exercise the extension option,
     the monthly rental during the renewal period will be the fair market
     rental value of the leased premises as of the date the option is
     exercised (as determined based on market rentals of similar properties
     in the Spokane, Washington area).  The owner of the premises is a
     partnership consisting of two of the Former Stockholders.

     The Company also leases 900 square feet of office space in Winnebago,
     Illinois pursuant to a lease that expires in July, 1997.  The Company,
     through its wholly-owned subsidiary, Helin, also leases 4,500 square
     feet of office space in Newport Beach, California.  The lease expires
     in June, 2000 and provides for monthly rental payments of $4,500. The
     Company, through its wholly-owned subsidiary, Bitterman & Associates
     leases 10,690 square feet of office and warehouse space in Plymouth,
     Minnesota, and office space in LaCrosse, Wisconsin.  The Plymouth,
     Minnesota lease expires in 1999 and provides for monthly rental
     payments of $9,101.  The LaCrosse, Wisconsin lease requires monthly
     rental payments of $2,200 and expires in 1998.

     Management believes that its existing facilities are sufficient to
     meet its present needs and anticipated needs for the foreseeable
     future.  However, additional facilities may be required in connection
     with future business acquisitions.


     Item 3.  Legal Proceedings
     --------------------------

     The Company is not a party to any legal proceedings.  It is
     anticipated that from time to time it will be subject to claims, suits
     and complaints that arise in the ordinary course of business.


     Item 4.  Submission of Matters to a Vote of Security Holders
     ------------------------------------------------------------
     None
     <PAGE>
     PART II

     Item 5.  Market for Common Equity and Related Stockholder Matters
     -----------------------------------------------------------------

     STOCK MARKET AND OTHER INFORMATION
     ----------------------------------
     The Company's common stock is traded on the NASDAQ National Market
     (the "NASDAQ") under the symbol "AMIE" and has been so traded since
     August 3, 1995.  Prior to such date, there was no public trading
     market for the Company's equity securities.  As of March 20, 1997,
     there were 50 holders of record of the Company's common stock.

     The following table sets forth the high ask and low bid prices of a
     share of the Company's common stock as reported by the NASDAQ for the
     third quarter ended September 30, 1995 through the year ended December
     31, 1996 (the only periods in which the Company's securities were
     publicly traded).  The prices reported represent prices between
     dealers but do not include retail markups, markdowns, or commissions
     and do not necessarily represent actual transactions.


                                                         High Ask   Low Bid

     1995:
       Third Quarter ended September 30, 1995
         (since August 3, 1995)                           $12.75    $10.63
       Fourth Quarter ended December 31, 1995             $11.25    $ 7.75

     1996:
       First Quarter ended March 31, 1996                 $13.25    $ 8.50
       Second Quarter ended June 30, 1996                 $16.13    $ 9.88
       Third Quarter ended September 30, 1996             $14.25    $ 7.88
       Fourth Quarter ended December 31, 1996             $11.00    $ 8.00


     PRIOR S CORPORATION STATUS
     --------------------------
     From January 1, 1994 until early August, 1995, the Company was treated
     for federal and state income tax purposes as an S Corporation under
     Subchapter S of the Internal Revenue Code of 1986, as amended.  The
     Company terminated its S Corporation status in early August 1995 (the
     "Termination Date") in connection with the Reorganization and initial
     public offering of its common stock in August 1995.  Accordingly, the
     Company's earnings from such date through the day preceding the
     Termination Date were taxed for federal and state income tax purposes
     directly to the Company's stockholders rather than to the Company.

     The Company has previously distributed approximately $2.1 million,
     representing the Company's 1994 net income, to the Former
     Stockholders.  The Company also made an additional distribution to the
     Ueberroths and the Former Stockholders (the "Distribution") of
     approximately $6 million, representing the Company's net income for
     the period from January 1, 1995 to the Termination Date (the
     "Distribution Amount"). The Distribution Amount was paid out of the
     <PAGE>
     cash balances of the Company.  After payment of the Distribution, no
     further S Corporation distributions were or will be made.  Subsequent
     to the Termination Date, the Company is no longer an S Corporation
     and, accordingly, is subject to federal and state income taxes.

     DIVIDEND POLICY
     ---------------
     The Company intends to retain earnings for use in the operation and
     expansion of its business and therefore does not anticipate declaring
     any cash dividends in the foreseeable future.  The payment of
     dividends in the future will be at the discretion of the Board of
     Directors and will be dependent upon the Company's financial
     condition, results of operations, capital requirements and such other
     factors as the Board of Directors deem relevant.

     TRANSFER AGENT AND REGISTRAR
     ----------------------------
     Chemical Mellon Shareholder Services of Los Angeles, California serves
     as transfer agent and registrar of the Company's common stock.


     Item 6.  Management's Discussion and Analysis or Plan of Operation
     ------------------------------------------------------------------

     The following discussion should be read in conjunction with the
     Company's consolidated financial statements and the notes thereto
     appearing elsewhere in this Form 10-KSB.  Certain statements contained
     herein that are not related to historical results, including, without
     limitation, statements regarding the Company's business strategy and
     objectives, future financial position and estimated cost savings, are
     forward-looking statements within the meaning of Section 27A of the
     Securities Act of 1933, as amended (the "Securities Act") and Section
     21E of the Securities Exchange Act of 1934, as amended (the
     "Securities Act") and involve risks and uncertainties.  Although the
     Company believes that the assumptions on which these forward-looking
     statements are based are reasonable, there can be no assurance that
     such assumptions will prove to be accurate and actual results could
     differ materially from those discussed in the forward-looking
     statements. Factors that could cause or contribute to such differences
     include, but are not limited to, regulation, regulatory policies in
     the United States and other countries, foreign currency fluctuations,
     competition from other travel-related businesses, and market and
     general economic factors.  All forward-looking statements contained in
     this Form 10-KSB are qualified in their entirety by this cautionary
     statement.

     <PAGE>
     RESULTS OF OPERATIONS
     ---------------------
     The following table sets forth the Company's historical and pro forma
     results of operations for the periods indicated (in millions):

     HISTORICAL RESULTS OF OPERATIONS:


                                                  Years Ended December 31,
                                                  ------------------------
                                                  1996     1995     1994
                                                  -----    -----    -----
     Gross program receipts                       $56.7    $46.7    $44.9
     Revenues                                      18.8     17.1     17.0
     Operating expenses:
       Selling and tour promotions                  8.4      8.7      9.4
       General and administrative                   5.7      4.6      5.4
                                                  -----    -----    -----
     Total operating expenses                      14.1     13.3     14.8
                                                  -----    -----    -----
     Operating income                               4.7      3.8      2.2
     Other income (expense)                         1.3      1.0     (0.1)
                                                  -----    -----    -----
     Income before income taxes                     6.0      4.8      2.1
     Income tax provision (benefit)                 2.0     (0.4)       -
                                                  -----    -----    -----
     Net income                                   $ 4.0    $ 5.2    $ 2.1
                                                  =====    =====    =====

     PRO FORMA RESULTS OF OPERATIONS:

                                                  Years Ended December 31,
                                                  ------------------------
                                                  1996     1995     1994
                                                  -----    -----    -----
     Gross program receipts                       $56.7    $46.7    $44.9
     Revenues                                      18.8     17.1     17.0
     Operating expenses:
       Selling and tour promotions                  8.4      8.7      7.1
       General and administrative                   5.7      4.6      4.9
                                                  -----    -----    -----
     Total operating expenses                      14.1     13.3     12.0
                                                  -----    -----    -----
     Operating income                               4.7      3.8      5.0
     Other income (expense)                         1.3      1.0     (0.2)
                                                  -----    -----    -----
     Income before income taxes                     6.0      4.8      4.8
     Income tax provision                           2.0      1.6      1.6
                                                  -----    -----    -----
     Net income                                   $ 4.0    $ 3.2    $ 3.2
                                                  =====    =====    =====

     The pro forma results of operations reflect income tax provisions as
     if the Company were taxed as a C corporation rather than as a S
     Corporation for 1994 and 1995 and to eliminate other costs incurred by
     the Company in 1994 that did not recur in 1995 as a result of the
     Company's initial public offering.

     <PAGE>
     OVERVIEW
     --------
     In 1996, pro forma net income increased 24%, gross program receipts
     increased 21%, revenues increased 10%, earnings per share increased
     from $0.57 per share to $0.60 per share, despite an 18% increase in
     the number of weighted average shares outstanding.

     In 1997, the Educational Travel Group is set to meet or exceed their
     goals. In 1996, our student division traveled 9,733 participants, a
     17% increase over 1995.  In 1997, we expect 11,500 students to travel.
     Additionally, the adult division is expected to increase participation
     by 15% in 1997.  In addition to increasing our number of participants,
     we also plan to increase the profitability and program quality by
     better managing our relationships with our overseas vendors.  This
     continued improvement of our program quality will aid our already
     strong word-of-mouth marketing.

     The Company integrated four companies into its operations during 1996.
     American People Ambassador Programs was successfully integrated into
     our Educational Travel Group in Spokane, Washington.  The other three
     companies, The Helin Organization, Bitterman & Associates, and The
     P.E. Aussem Company are being consolidated and integrated into a full
     service sales incentive and meeting management group, AP Improvement.
     The companies within AP Improvement offer a broad range of products
     and services including merchandise awards, consumer promotions,
     training programs and incentive travel programs.

     COMPARISON OF YEAR ENDED DECEMBER 31,1996 TO YEAR ENDED DECEMBER 31,
     1995
     --------------------------------------------------------------------

     REVENUES

     The expansion of our programs in 1996 resulted in a 24% increase in
     the number of participants from 11,635 in 1995 to 14,377 in 1996,
     which increased our gross program receipts 21%, from $46.7 million in
     1995 to $56.7 million in 1996.  Revenues also increased to $18.8
     million or 10% over 1995 revenues.

     The Company maintained a 33% gross margin for the year.  The margins
     in the Educational Travel Group remain strong at 34%.  As expcted, the
     addition of the incentive business, with a gross margin of 25%,
     decreased the overall margin for the Company in comparison to the
     prior year.

     SELLING AND TOUR PROMOTION EXPENSES

     Selling and tour promotion expenses decreased approximately $0.3
     million in 1996 when compared to 1995.  Our marketing efforts continue
     to be more effective and efficient than in prior years.  This more
     targeted effort contributed to the increase in revenues for 1996.
     Company policy is to expense all promotional expenses as they are
     incurred.

     In 1996, these expenses included our integration of American People
     Ambassador Programs, the Helin Organization, and the developmental
     costs related to Eddie Bauer Travel.

     <PAGE>
     GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses increased from $4.6 million in
     1995 to $5.7 million in 1996 primarily due to the acquisitions of the
     Helin Organization and American People Ambassador Programs in early
     1996.

     OTHER INCOME/EXPENSE

     Other income includes interest income and foreign currency gains or
     losses. During 1996, other income increased 26% from $1.0 million to
     $1.3 million.  This increase was due to improved cash management
     systems, as well as a full year's benefit of investing the proceeds
     from the initial public offering.  These two factors increased
     interest income from $0.8 million in 1995 to $1.1 million in 1996.

     Also included in other income are gains from foreign currency
     contracts and options which are marked to market.  The Company enters
     into forward foreign exchange contracts and foreign currency option
     contracts to offset certain operational exposures from changes in
     foreign currency exchange rates.  These foreign exchange contracts and
     options are entered into to support normal recurring purchases, and
     accordingly are not entered into for speculative purposes.  Forward
     foreign exchange contracts are utilized to manage the risk associated
     with currency fluctuations on certain purchase commitments.  The face
     amount of forward foreign exchange contracts outstanding as of
     December 31, 1996, was $6.7 million.

     INCOME TAXES

     The Company has recorded an income tax provision of $2.0 million for
     1996 which represents an effective tax rate of 34%.  The income tax
     benefit of $0.4 million in 1995 reflected the benefit of the net
     operating loss incurred by the Company which was generated after the
     Company became a C Corporation in mid-1995.

     LIQUIDITY AND CAPITAL RESOURCES

     The Company's business is not capital intensive.  However, the Company
     does retain funds for operating purposes in order to conduct sales and
     marketing efforts for future programs and to facilitate acquisitions
     of other companies.

     Net cash provided by operations for the years ended December 31, 1994,
     1995 and 1996, respectively, was approximately $8.2 million, $1.8
     million and $6.1 million.  The increase in cash flow from 1995 to 1996
     can be attributed to the increase in cash receipts from participants
     in 1996 and the payment of approximately $2.4 million of incentive
     compensation in 1995.

     Capital expenditures of approximately $0.3 million were funded from
     operations.  The Company does not have any material capital
     expenditure commitments for the ensuing year.  However, the Company is
     continuing to pursue further acquisitions of related travel businesses
     that will require some of its available cash and cash equivalents.
     The Company had no significant long or short-term debt as of
     December 31, 1996.
     <PAGE>
     The Company has a credit facility available with Seafirst Bank for
     $15.0 million U.S. dollars for foreign currency purchases and forward
     contracts.

     At December 31, 1996, the Company had approximately $18.3 million of
     cash and cash equivalents.  Management believes existing cash and cash
     equivalents and cash flows from operations will be sufficient to fund
     the Company's anticipated operating needs, capital expenditures and
     acquisitions for the ensuing year.

     FOREIGN CURRENCY; HEDGING POLICY

     The substantial majority of the Company's programs take place outside
     of the United States and most foreign suppliers require payment in
     their own currency rather than U.S. dollars.  Accordingly, the Company
     is exposed to foreign currency risks in certain countries as foreign
     currency exchange rates between those currencies and the U.S. dollar
     fluctuate.  In 1993, the Company initiated a program to hedge against
     these foreign currency risks in the currencies of countries in which
     the largest amount of program pass through expenses are denominated in
     foreign currency.  To hedge against foreign currency risks, the
     Company has used forward contracts which allow the Company to acquire
     the foreign currency at a fixed price for a specified period of time.
     The Company also uses foreign currency call options which provide the
     Company with the option to acquire certain foreign currencies at a
     fixed exchange rate and time period.  Concurrent with the purchase of
     a foreign currency call option, the Company sells a foreign currency
     put option to minimize the net premium paid for the call option.  The
     strike prices on these options generally straddle the exchange rate at
     the time the options are purchased and sold.  Additionally, in 1994
     and 1995, the Company purchased futures contracts to similarly hedge
     its foreign currency risk.  The Company is exposed to credit risk
     under the forward contracts and options to the extent that the
     counterparty is unable to perform under the agreement.  The Company
     anticipates hedging the majority of its foreign currency risk in
     future periods.  There can be no assurance that the Company's hedging
     strategies will be successful in mitigating the impact of foreign
     currency fluctuations.

     COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31,
     1994
     ---------------------------------------------------------------------
     REVENUES

     Gross program receipts increased from $44.9 million in 1994 to $46.7
     million in 1995 or 4%.  This increase can be principally attributed to
     the increase in the number of program participants.  The number of
     program participants increased from 11,236 in 1994 to 11,635 in 1995.
     This increase in program participants resulted in a 1% increase in
     revenues for the year and an 18% increase for the fourth quarter of
     1995 compared to the fourth quarter of 1994.

     The average program price for the Company increased from $4,000 in
     1994 to $4,020 in 1995.  Total pass through expenses increased $1.7
     million from $27.9 million to $29.6 million in direct correlation to
     the increase in gross program receipts.
     <PAGE>
     SELLING AND TOUR PROMOTION EXPENSES

     Historical selling and tour promotion expenses decreased from the
     prior year due to the accrued compensation bonuses paid to the former
     shareholders in 1994 that were not paid in 1995.  As this compensation
     would not recur due to new employment agreements, it was included in
     the pro forma adjustments and decreased pro forma selling and tour
     promotion expenses from $9.4 million to $7.1 million.

     Pro forma selling and tour promotion expenses increased in comparison
     to the prior year due to a concerted effort to increase future sales
     through expanded direct mail marketing efforts.  Company policy is to
     expense all such costs as they are incurred.  Accordingly, the
     majority of direct mail expenses related to 1996 travel were expensed
     in the fall of 1995.  In an effort to increase 1996 revenues, the
     Company mailed 5.4 million pieces of mail in 1995 in comparison to 5.0
     million pieces in 1994.  This increase in direct mail pieces is
     expected to result in an increased number of program participants in
     1996.

     GENERAL AND ADMINISTRATIVE EXPENSES

     Historical general and administrative expenses decreased from $5.4
     million in 1994 to $4.6 million in 1995.  This decrease is principally
     due to non-recurring professional fees and newly implemented cost
     control procedures within the Company during 1995.

     Pro forma general and administrative expenses decreased from $4.9
     million in 1994 to $4.6 million in 1995.  As part of the transition
     from a privately-held company to a publicly-held company, Ambassadors
     International, Inc. has implemented certain management and budget
     controls which resulted in a small decrease in 1995 costs.

     OTHER INCOME/EXPENSE

     Other income includes foreign currency gains or losses and interest
     income.  Other income increased $1.1 million in comparison to 1994.
     The majority of this increase can be attributed to the interest income
     earned on cash received from the initial public offering.  The Company
     realized $0.8 million in interest and dividend income during 1995 in
     comparison to $0.6 million in 1994.  Additionally, the Company
     recognized a $0.3 million gain on its foreign currency financial
     instruments in 1995 as compared to non-recurring marketable equity
     securities losses of $0.6 million in 1994.

     The 1995 gain is primarily due to the Company's forward foreign
     currency contracts which are marked to market.  The Company enters
     into forward foreign exchange contracts and foreign currency option
     contracts to offset certain operational exposures from changes in
     foreign currency exchange rates.  These foreign exchange contracts and
     options are entered into to support normal recurring purchases, and
     accordingly, are not entered into for speculative purposes.  Forward
     foreign exchange contracts are utilized to manage the risk associated
     with currency fluctuations on certain purchase commitments.  The
     Company is exposed to credit risk under the forward contracts and
     <PAGE>
     options to the extent that the counterparty is unable to perform under
     the agreement.  The Company anticipates hedging the majority of its
     foreign currency risk in future periods. There can be no assurance
     that the Company's hedging strategies will be successful in mitigating
     the impact of foreign currency fluctuations.  The face amount of
     forward foreign exchange contracts outstanding at December 31, 1995
     was $7.8 million.

     INCOME TAXES

     Due to the change in status from a S Corporation to a C Corporation in
     1995, the Company has recorded an income tax benefit of approximately
     $0.3 million for the year ended December 31, 1995, in comparison to
     zero income tax expense for the year ended December 31, 1994.  The
     1995 income tax benefit is primarily due to the recognition of the
     benefit of the Company's net operating loss carryforward which was
     generated after the Company became a C Corporation.  Pro forma income
     tax expense assuming the Company were a C Corporation throughout the
     entire year is reflected at the federal statutory 34% tax rate.


     Item 7.  Financial Statements
     -----------------------------

     The Financial Statements of the Company are submitted as a separate
     section of this Form 10-KSB on pages F-1 through F-23.


     Item 8.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure
     --------------------------------------------------------------------
     None


     PART III
     Item 9.  Directors, Executive Officers, Promoters and Control Persons;
              Compliance with Section 16(a) of the Exchange Act
     ----------------------------------------------------------------------

     The information called for by this item is hereby incorporated by
     reference from the Registrant's definitive Proxy Statement for the
     fiscal year ended December 31, 1996, which Proxy Statement will be
     filed with the Securities and Exchange Commission on or about
     April 14, 1997.


     Item 10.  Executive Compensation
     --------------------------------

     The information called for by this item is hereby incorporated by
     reference from the Registrant's definitive Proxy Statement for the
     fiscal year ended December 31, 1996, which Proxy Statement will be
     filed with the Securities and Exchange Commission on or about
     April 14, 1997.
     <PAGE>
     Item 11.  Security Ownership of Certain Beneficial Owners
               and Management
     ---------------------------------------------------------

     The information called for by this item is hereby incorporated by
     reference from the Registrant's definitive Proxy Statement for the
     fiscal year ended December 31, 1996, which Proxy Statement will be
     filed with the Securities and Exchange Commission on or about
     April 14, 1997.


     Item 12.  Certain Relationships and Related Transactions
     --------------------------------------------------------

     The information called for by this item is hereby incorporated by
     reference from the Registrant's definitive Proxy Statement for the
     fiscal year ended December 31, 1996, which Proxy Statement will be
     filed with the Securities and Exchange Commission on or about
     April 14, 1997.


     Item 13.  Exhibits and Reports on Form 8-K
     ------------------------------------------

     (a)     Exhibits
     -----   ----------------------------------------------------

     2.1     Form of Reincorporation Agreement(1)
     2.2     Rescission Agreement(1)
     2.3     Stock Purchase Agreement(1)
     2.4     Redemption Agreement(1)
     3.1     Certificate of Incorporation of Ambassadors International,
               Inc.(1)
     3.2     By-Laws of Ambassadors International, Inc.(1)
     4.1     Specimen Stock Certificate(1)
     10.1    People to People Contract - Student Ambassador Program(1)
     10.2    People to People Contract - Citizen Ambassador Program(1)
     10.3    Form of Equity Participation Plan of Ambassadors
               International, Inc.(1)
     10.4    Form of Registration Rights Agreement among the Company,
               John and Peter Ueberroth, and certain other stockholders(1)
     10.5    Form of Indemnification Agreement for officers and
               directors(1)
     10.6    Commercial Lease dated December 21, 1992 between Portolese and
               Sample Investments and International Ambassador Programs,
               Inc.(1)
     10.7    First Amendment to Commercial Lease dated January 3, 1995
               between Portolese and Sample Investments and International
               Ambassador Programs, Inc.(1)
     10.8    Form of Employment Agreement with Executive Officers(1)
     10.9    Form of Note between the Company and the Ueberroths relating
               to the Distribution(1)
     10.10   General Contract between People to People and M.L. Bright
               Associates dated July 1, 1995 and Assignment documents to
               the Company dated February 6, 1996(2)
     <PAGE>
     (a)     Exhibits
     -----   ----------------------------------------------------

     10.11   Agreement and Plan of Merger, effective as of December 11,
               1996 by and among Ambassadors International, Inc., a
               Delaware corporation, Ambassadors Performance Improvement,
               Inc., a Delaware corporation and wholly-owned subsidiary of
               Ambassadors, Bitterman & Associates, Inc., a Minnesota
               corporation, and Michael H. Bitterman.(3)
     21.1    Subsidiaries of Ambassadors International, Inc.(4)
     23.1    Consent of Coopers & Lybrand L.L.P.
     24.1    Powers of Attorney and certified copy of the related
               resolutions of the board of directors.(4)
     27.1    Financial Data Schedule(4)
     99.1    The Company's Form 8-K dated January 23, 1996(5)
     99.2    The Company's Form 8-K dated February 9, 1996(6)
     99.3    The Company's Form 8-K dated January 3, 1997(3)

     (1)     Filed as an exhibit of the same number to the Company's
             Registration Statement on Form S-1 (Registration No. 33-93586)
             and incorporated herein by reference.
     (2)     Filed as an exhibit of the same number to the Company's Form
             10-KSB for the year ended December 31, 1995.
     (3)     Filed with the Securities and Exchange Commission on Form 8-K
             dated January 3, 1997.
     (4)     Filed herewith.
     (5)     Filed with the Securities and Exchange Commission on Form 8-K
             dated January 23, 1996.
     (6)     Filed with the Securities and Exchange Commission on Form 8-K
             dated February 9, 1996.


     (b)     Reports on Form 8-K

             No reports on Form 8-K were filed during the quarter ending
             December 31, 1996.
     <PAGE>
     SIGNATURES

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

                               AMBASSADORS INTERNATIONAL, INC.
                               (Registrant)



     Date:  March 27, 1997     By:  /s/ Jeffrey D. Thomas
                                    --------------------------------------
                                    Jeffrey D. Thomas
                                    Chief Financial Officer

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

     Date:  March 27, 1997          /s/ John A. Ueberroth
                                    --------------------------------------
                                    John A. Ueberroth, President and
                                    Chief Executive Officer
                                    (Principal Executive Officer)

     Date:  March 27, 1997          * Peter V. Ueberroth
                                    --------------------------------------
                                    Peter V. Ueberroth, Chairman and
                                      Director

     Date:  March 27, 1997          /s/ Jeffrey D. Thomas
                                    --------------------------------------
                                    Jeffrey D. Thomas, Chief Financial
                                    Officer (Principal Financial and
                                    Accounting Officer)

     Date:  March 27, 1997          * James L. Easton
                                    --------------------------------------
                                    James L. Easton, Director

     Date:  March 27, 1997          * Richard D. C. Whilden
                                    --------------------------------------
                                    Richard D.C. Whildenm Director

     Date:  March 27, 1997          * John C. Spence
                                    --------------------------------------
                                    John C. Spence, Director

     Date:  March 27, 1997          * Rafer Johnson
                                    --------------------------------------
                                    Rafer Johnson, Director

     * By:  /s/ John A. Ueberroth
            ---------------------
            John A. Ueberroth,
            Attorney-in-Fact
     <PAGE>
     REPORT OF INDEPENDENT ACCOUNTANTS



     Board of Directors and Shareholders
     Ambassadors International, Inc.
     Spokane, Washington


     We have audited the accompanying consolidated balance sheets of
     Ambassadors International, Inc. and subsidiaries as of December 31,
     1996 and 1995, and the related consolidated statements of income,
     changes in shareholders' equity and cash flows for each of the three
     years in the period ended December 31, 1996. 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 financial statements referred to above present
     fairly, in all material respects, the consolidated financial position
     of Ambassadors International, Inc. as of December 31, 1996 and 1995,
     and the consolidated results of their operations and their cash flows
     for each of the three years in the period ended December 31, 1996 in
     conformity with generally accepted accounting principles.

     As discussed in Note 1 to the financial statements, the Company
     changed its method of accounting for impairment of long-lived assets
     in 1996 and investments in certain debt and equity securities in 1994.


                               /s/COOPERS & LYBRAND L.L.P.

     Spokane, Washington
     February 11, 1997
     <PAGE>
     AMBASSADORS INTERNATIONAL, INC.
     CONSOLIDATED BALANCE SHEETS
     December 31, 1996 and 1995



                                                1996          1995
                                                -----------   -----------
                       ASSETS

     Current assets:
       Cash and cash equivalents                $18,281,433   $12,974,252
       Restricted cash equivalents                   55,000        45,000
       Investments:
         Trading securities                                       275,488
         Available-for-sale securities              590,111
       Accounts receivable (including
         $14,167 and $33,218 from officers
         and employees)                           1,469,053       679,600
       Inventory                                    157,234
       Prepaid program costs and expenses         1,359,950       425,530
       Deferred income taxes                         24,584       454,666
       Other assets                                  12,892         2,334
                                                -----------   -----------
           Total current assets                  21,950,257    14,856,870

     Property and equipment, net                  1,575,486     1,122,494
     Investment in joint venture                    262,500
     Goodwill, net of $115,567 accumulated
       amortization                               3,338,224
     Covenant-not-to-compete, net of $19,209
       accumulated amortization                     105,791
     Other assets                                    36,792        36,447
                                                -----------   -----------
           Total assets                         $27,269,050   $16,015,811
                                                ===========   ===========
     <PAGE>
     AMBASSADORS INTERNATIONAL, INC.
     CONSOLIDATED BALANCE SHEETS, CONTINUED
     December 31, 1996 and 1995

                                                1996          1995
                                                -----------   -----------
       LIABILITIES AND SHAREHOLDERS' EQUITY

     Current liabilities:
       Accounts payable                         $ 1,764,002   $ 1,143,587
       Accrued expenses                             822,927       143,973
       Participants' deposits                     5,138,772     3,462,350
       Customer advances                          2,396,578
       Notes payable                                201,146        11,138
                                                -----------   -----------
           Total current liabilities             10,323,425     4,761,047

     Deferred income taxes                          163,044       113,958
     Notes payable due after one year                               5,760
                                                -----------   -----------
           Total liabilities                     10,486,469     4,880,765

     Commitments and contingencies
       (Notes 6, 7 and 12)

     Shareholders' equity:
       Preferred stock, $.01 par value;
         2,000,000 shares authorized;
         none issued and outstanding
       Common stock, $.01 par value;
         authorized, 20,000,000
         shares; issued and outstanding,
         6,753,887 and 6,535,030 shares              67,539        65,350
       Additional paid-in capital                13,625,279    11,926,468
       Retained earnings (accumulated deficit)    3,089,763      (856,772)
                                                -----------   -----------
           Total shareholders' equity            16,782,581    11,135,046
                                                -----------   -----------

           Total liabilities and shareholders'
             equity                             $27,269,050   $16,015,811
                                                ===========   ===========


     The accompanying notes are an integral part of the consolidated
       financial statements.
     <PAGE>
     AMBASSADORS INTERNATIONAL, INC.
     CONSOLIDATED STATEMENTS OF INCOME
     for the years ended December 31, 1996, 1995 and 1994

     <TABLE>
     <CAPTION>
                                                 1996          1995          1994
                                                 -----------   -----------   -----------
      <S>                                        <C>           <C>           <C>
      Revenue                                    $18,843,422   $17,132,920   $16,990,028
                                                 -----------   -----------   -----------
      Operating expenses:
        Selling and tour promotion                 8,420,151     8,693,600     9,407,304
        General and administrative                 5,769,874     4,676,494     5,379,663
                                                 -----------   -----------   -----------
                                                  14,190,025    13,370,094    14,786,967
                                                 -----------   -----------   -----------
      Operating income                             4,653,397     3,762,826     2,203,061
                                                 -----------   -----------   -----------
      Other income (expense):
        Interest expense                              (1,515)       (2,404)      (14,337)
        Interest and dividend income               1,079,855       785,561       545,012
        Realized and unrealized gain (loss)
           on investments                            290,253       278,471      (554,995)
        Other, net                                   (41,060)       (7,868)      (52,051)
                                                 -----------   -----------   -----------
                                                   1,327,533     1,053,760       (76,371)
                                                 -----------   -----------   -----------
      Income before income taxes                   5,980,930     4,816,586     2,126,690
      Income tax provision (benefit)               2,034,395      (340,708)
                                                 -----------   -----------   -----------
      Net income                                 $ 3,946,535   $ 5,157,294   $ 2,126,690
                                                 ===========   ===========   ===========

      Unaudited pro forma information:
        Operating income before pro forma
           adjustments                           $ 4,653,397   $ 3,762,826   $ 2,203,061
        Pro forma adjustments                                                  2,757,284
                                                 -----------   -----------   -----------
             Operating income                      4,653,397     3,762,826     4,960,345
                                                 -----------   -----------   -----------
        Other income (expense), net, before
           pro forma adjustment                    1,327,533     1,053,760       (76,371)
        Adjustment to eliminate interest
           income on note receivable                                            (108,039)
                                                 -----------   -----------   -----------
             Other income (expense), net           1,327,533     1,053,760      (184,410)
                                                 -----------   -----------   -----------
        Income before income taxes                 5,980,930     4,816,586     4,775,935
        Income tax provision                       2,034,395     1,637,639     1,623,818
                                                 -----------   -----------   -----------
        Net income                               $ 3,946,535   $ 3,178,947   $ 3,152,117
                                                 ===========   ===========   ===========
        Net income per share                     $      0.60   $      0.57   $      0.63
                                                 ===========   ===========   ===========
        Shares used in pro forma calculation       6,618,454     5,623,688     4,995,030
                                                 ===========   ===========   ===========

      </TABLE>

      The accompanying notes are an integral part of the consolidated
       financial statements.
     <PAGE>
     AMBASSADORS INTERNATIONAL, INC.
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
     for the years ended December 31, 1996, 1995 and 1994

     <TABLE>
     <CAPTION>
                                                                                   Retained
                                         Common Stock                Additional    Earnings       Receivables
                                         -------------------------   Paid-In       (Accumulated   from
                                         Shares        Amount        Capital       Deficit)       Shareholders   Total
                                         -----------   -----------   -----------   ------------   ------------   -----------
      <S>                                <C>           <C>           <C>           <C>            <C>            <C>
      Balances, December 31, 1993              6,636   $     6,636   $   133,540   $ 1,688,539                   $ 1,828,715
        Distributions to shareholders                                               (2,126,690)                   (2,126,690)
        Net income                                                                   2,126,690                     2,126,690
                                         -----------   -----------   -----------   -----------    -----------    -----------
      Balances, December 31, 1994              6,636         6,636       133,540     1,688,539                     1,828,715
        Origination of receivables
           from shareholders                                                                      $(1,820,000)    (1,820,000)
        Redemption and retire-
           ment of common stock               (2,823)       (2,823)     (133,540)   (1,683,637)     1,820,000
        Contribution of S corporation
           retained earnings with change
           to C corporation status                                         4,902        (4,902)
        Effect of reorganization and
           sale of common stock, net
           of issuance costs               6,531,217        61,537    11,921,566                                  11,983,103
        Distributions to shareholders                                               (6,014,066)                   (6,014,066)
        Origination of notes receivable
           from shareholders                                                                       (2,000,000)    (2,000,000)
        Repayment of notes receivable
           from shareholders                                                                        2,000,000      2,000,000
        Net income                                                                   5,157,294                     5,157,294
                                         -----------   -----------   -----------   -----------    -----------    -----------
      Balances, December 31, 1995          6,535,030        65,350    11,926,468      (856,772)             0     11,135,046
        Stock issued for acquisition
           of subsidiaries                   218,857         2,189     1,698,811                                   1,701,000
        Net income                                                                   3,946,535                     3,946,535
                                         -----------   -----------   -----------   -----------    -----------    -----------
      Balances, December 31, 1996          6,753,887   $    67,539   $13,625,279   $ 3,089,763    $         0    $16,782,581
                                         ===========   ===========   ===========   ===========    ===========    ===========

      </TABLE>

      The accompanying notes are an integral part of the consolidated
       financial statements.
     <PAGE>
     AMBASSADORS INTERNATIONAL, INC.
     CONSOLIDATED STATEMENTS OF CASH FLOWS
     for the years ended December 31, 1996, 1995 and 1994
     <TABLE>
      <CAPTION>
                                                 1996          1995          1994
                                                 -----------   -----------   -----------
      <S>                                        <C>           <C>           <C>
      Cash flows from operating activities:
        Net income                               $ 3,946,535   $ 5,157,294   $ 2,126,690
        Adjustments to reconcile net income
           to net cash provided by operating
           activities:
             Depreciation and amortization           392,403       227,039       206,192
             Deferred tax provision (benefit)        458,235      (340,708)
             (Gain) loss on investments             (290,253)     (278,401)      622,779
             (Gain) loss on sale of property
                and equipment                            880           (70)      (62,500)
             Gain on note receivable                                              (5,284)
             Stock dividends                                                    (148,184)
             Investment distributed as
                compensation                                                       3,371
             Purchase of investments                            (1,005,000)   (8,859,069)
             Proceeds from sale of investments       564,812     1,076,575    10,835,600
             Change in assets and liabilities,
                net of effects of purchase
                of subsidiaries:
                  Restricted cash                    (10,000)       (5,000)      (40,000)
                  Accounts receivable                882,787      (468,126)       99,435
                  Federal income tax refund
                    receivable                                                   426,196
                  Prepaid program costs and
                    expenses                          62,447      (159,397)     (130,133)
                  Accounts payable and accrued
                    expenses                        (564,821)     (695,502)      314,318
                  Accrued incentive
                    compensation                                (2,403,600)    2,403,600
                  Participants' deposits             684,834       697,937       427,341
                                                 -----------   -----------   -----------
                       Net cash provided by
                         operating activities      6,127,859     1,803,041     8,220,352
                                                 -----------   -----------   -----------
      Cash flows from investing activities:
        Purchase of property and equipment          (338,072)     (454,778)     (541,996)
        Proceeds from sale of property and
           equipment                                   1,220         2,500
        Investment in joint venture                 (262,500)
        Cash paid for acquisition of subsidi-
           aries, net of cash received              (105,340)
        Payment for covenant-not-to-compete
           agreement                                (125,000)
        Redemption of life insurance                                28,950       212,275
        Change in other assets                        19,766         2,147        22,488
        Payments on sale of building                                             244,530
        Purchase of property held for sale                                       (47,500)
        Proceeds from sale of property held
           for sale                                                               73,500
                                                 -----------   -----------   -----------
                       Net cash used in
                         investing activities       (809,926)     (421,181)      (36,703)
                                                 -----------   -----------   -----------
      </TABLE>
      <PAGE>
     AMBASSADORS INTERNATIONAL, INC.
     CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
     for the years ended December 31, 1996, 1995 and 1994

     <TABLE>
     <CAPTION>
                                                 1996          1995          1994
                                                 -----------   -----------   -----------
      <S>                                        <C>           <C>           <C>

      Cash flows from financing activities:
        Payments of long-term debt                   (10,752)       (9,596)       (7,349)
        Net proceeds from initial public
           offering                               11,983,103
        Redemption and retirement of common
           stock                                    (923,937)
        Shareholder distributions                               (6,090,756)   (2,050,000)
        Repayments of notes receivable
           from shareholders                                     2,000,000
        Origination of notes receivable
           from shareholders                                    (2,000,000)
        Net change in loans on cash value
           of life insurance                                                    (166,331)
                                                 -----------   -----------   -----------
                       Net cash provided by
                         (used in) financing
                         activities                  (10,752)    4,958,814    (2,223,680)
                                                 -----------   -----------   -----------
      Net increase in cash and cash equivalents    5,307,181     6,340,674     5,959,969
      Cash and cash equivalents, beginning
        of year                                   12,974,252     6,633,578       673,609
                                                 -----------   -----------   -----------
      Cash and cash equivalents, end of year     $18,281,433   $12,974,252   $ 6,633,578
                                                 ===========   ===========   ===========
      Supplemental disclosure of cash flow
        information:
           Cash paid for interest                $     1,515   $     2,404   $    14,337
           Cash paid for income taxes              1,440,000
           Noncash investing and financing
             activities:
                Issuance of stock for acquisi-
                  tion of subsidiaries             1,701,000
                  Net reduction of assets and
                    liabilities associated
                    with deferred sale of land
                    and building through
                    redemption of common stock                     896,063
                  Shareholder distribution
                    declared                                                      76,690
                  Origination of note for sale
                    of land                                                       36,500
      </TABLE>

      The accompanying notes are an integral part of the consolidated
       financial statements.
     <PAGE>
     AMBASSADORS INTERNATIONAL, INC.
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      1.  COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

            Organization
            ------------
            On August 4, 1995, Ambassadors International, Inc. (the
            Company), was reincorporated in the state of Delaware and
            changed its name from International Ambassador Programs, Inc.
            (see Note 10). The Company's predecessor, International
            Ambassadors Programs, Inc., was incorporated in the state of
            Washington in 1967. Subsequent to the reincorporation, the
            Company contributed all of its assets and liabilities to
            Ambassador Programs, Inc., a wholly owned subsidiary.

            The Company organizes, markets and operates international
            educational travel programs for adults and students. Through
            the Company's acquisition of other businesses in 1996 (see Note
            12), the Company also provides a wide array of performance
            improvement tools, including merchandise awards programs,
            marketing communications and solutions, and training and
            learning applications. During the years ended December 31,
            1996, 1995 and 1994, the Company's revenues as a percentage of
            total revenues were derived from travel programs in the
            following geographic areas:

                                             1996   1995   1994
                                             ----   ----   ----
              Europe                         41%    38%    27%
              South Pacific                  28%    32%    35%
              China                          11%    19%    26%
              Russia                                 4%    10%

            The consolidated financial statements include the accounts of
            Ambassadors International, Inc., and its subsidiaries,
            Ambassador Programs, Inc. (API), The Helin Organization (Helin)
            and Ambassador Performance Improvement, Inc. (APII). During
            1996, the Company acquired Helin, Bitterman & Associates, Inc.
            (B&A) and the assets of American People Ambassador Programs
            (APAP) (see Note 12). All significant intercompany accounts and
            transactions are eliminated in consolidation.

            Credit Risk
            -----------
            The Company's financial instruments that are exposed to
            concentrations of credit risk consist primarily of cash and
            cash equivalents, investments and trade accounts receivable.
            The Company places its cash and temporary cash investments with
            high credit quality institutions. At times, such investments
            may be in excess of the FDIC insurance limit or at institutions
            which are not covered by this insurance. The Company believes
            that its primary trade accounts receivable credit risk exposure
            is limited as program participants are required to pay for
            their entire program costs prior to the program departure.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Cash and Cash Equivalents
            -------------------------
            The Company invests cash in excess of operating requirements in
            short-term time deposits, money market instruments, government
            mutual bond funds and marketable securities. The Company
            considers investments with remaining maturities at date of
            purchase of three months or less to be cash equivalents.

            The Company's restricted cash equivalents represent
            certificates of deposit held by three airline companies as
            collateral for airfare purchase agreements. The certificates of
            deposit are issued in the Company's name with the respective
            airline company listed as the beneficiary.

            Inventory
            ---------
            Merchandise inventory that is used in connection with the
            Company's merchandise award programs is stated at the lower of
            cost, as determined by the first-in, first-out method, or net
            realizable value.

            Investments
            -----------
            The Company adopted the provisions of Statement of Financial
            Accounting Standards No. 115 (SFAS No. 115), "Accounting for
            Certain Investments in Debt and Equity Securities," as of
            January 1, 1994. There was no cumulative effect of adopting
            SFAS No. 115.

            The Company classifies its investments as trading or available-
            for-sale based upon the Company's intent relative to the
            eventual disposition of the securities. Trading securities
            consist of currency futures and forward contracts which are
            carried at fair value. Under the provisions of SFAS No. 115,
            realized and unrealized gains and losses on these securities
            are recognized in the statement of income.

            The Company's debt and equity securities are classified as
            available-for-sale. Accordingly, the investments are recorded
            at market value. Unrealized gains and losses are excluded from
            operations and reported as a separate component of
            shareholders' equity, net of deferred income taxes.

            Realized gains and losses on the sale of investments are
            recognized on a specific identification basis in the statement
            of income in the period the investments are sold.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Investments, Continued
            ----------------------
            The Company acquired a 15% interest in a joint venture for
            $262,500. The joint venture's purpose is the acquisition of
            preferred stock (which represents 18.4% of the total
            outstanding stock) of a private company. The investment is
            reported at cost.

            Property and Equipment
            ----------------------
            Property and equipment are stated at cost. Cost of maintenance
            and repairs which do not improve or extend the lives of the
            respective assets are expensed currently. Major additions and
            betterments are capitalized. Depreciation and amortization are
            provided over the lesser of the estimated useful lives of the
            respective assets or the lease term (including extensions),
            using the straight-line method.

            When property and equipment are sold or retired, the related
            cost and accumulated depreciation are removed from the accounts
            and any gain or loss is recognized in income.

            Goodwill and Covenant-Not-to-Compete
            ------------------------------------
            Goodwill recorded in connection with the Company's acquisition
            of other businesses is being amortized using the straight-line
            method over 10 years. Costs associated with obtaining a
            covenant-not-to-compete are amortized using the straight-line
            method over the term of the agreement (4.5 years).

            In March 1995, SFAS No. 121, "Accounting for the Impairment of
            Long-Lived Assets or Long-Lived Assets to be Disposed Of," was
            issued. SFAS No. 121 requires certain long-lived assets, such
            as the Company's property and equipment and goodwill, be
            reviewed for impairment in value whenever events or
            circumstances indicate that the carrying value of an asset may
            not be recoverable. In performing the review, if expected
            future undiscounted cash flows from the use of the asset or the
            fair value, less selling costs, from the disposition of the
            asset is less than its carrying value, an impairment loss is to
            be recognized. There was no material effect on the Company's
            results of operations, financial condition or cash flows of
            adopting SFAS No. 121 on January 1, 1996.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Revenue Recognition
            -------------------
            For travel programs, the Company bills travel participants in
            advance and records such deposits as participants' deposits.
            Additionally, the Company pays for certain direct program costs
            such as airfare, hotel, rail passes and other program costs in
            advance of the departure and records these amounts as prepaid
            program costs and expenses. The Company recognizes revenue and
            related costs associated with its programs when travel
            convenes.

            The Company also recognizes revenue from the sale of
            merchandise, printing and administration of customer incentive
            programs. The Company issues certificates for the redemption of
            merchandise related to customer incentive programs. Depending
            on the type of program, the Company is paid for certificates
            when they are issued (bill on issuance) or redeemed (bill on
            redemption). The Company records a liability for certificates
            billed on issuance as customer advances. Revenue related to
            customer advances is recognized when the Company's obligations
            associated with the certificate has been fulfilled. Revenues
            related to certificates that are billed on redemption are
            recognized when the merchandise is shipped to the participant.
            Revenues are recognized from printing and administration based
            upon the percentage of completion of the related program.

            Amounts reported as customer advances are subject to change due
            to estimates made by management related to the ultimate
            obligation associated with the unredeemed prepaid certificates.
            Estimates are based upon historical trends of issued and
            redeemed certificates. Due to uncertainties inherent in the
            estimation process, it is reasonably possible that changes
            could occur in the near term which could materially affect the
            estimated obligation.

            Selling and Tour Promotion Expenses
            -----------------------------------
            The Company expenses all selling and tour promotion expenses as
            incurred.

            Net Income Per Share
            --------------------
            Historical net income per share for the years ended
            December 31, 1995 and 1994 has not been presented as it is not
            meaningful in the presentation of these financial statements.
            Pro forma weighted average common shares outstanding have been
            calculated for the years ended December 31, 1995 and 1994,
            using common shares outstanding after the reorganization and
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  COMPANY BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Net Income Per Share, Continued
            -------------------------------
            for 1995, including certain shares issued in connection with
            the initial public offering (see Notes 10 and 11). For the
            years ended December 31, 1996 and 1995, the effects of common
            stock equivalents (stock options) have also been considered to
            the extent they were dilutive.

            Accounting for Stock Options
            ----------------------------
            In October 1995, the Financial Accounting Standards Board
            issued SFAS No. 123, "Accounting for Stock-Based Compensation."
            SFAS No. 123 establishes financial accounting and reporting
            standards for stock-based employee compensation plans. SFAS No.
            123 encourages all entities to adopt a fair value based method
            of accounting, but allows an entity to continue to measure
            compensation cost for those plans using the intrinsic value
            method of accounting prescribed by Accounting Principles Board
            Opinion No. 25, "Accounting for Stock Issued to Employees." The
            Company adopted the disclosure only provisions of SFAS No. 123
            on January 1, 1996.

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


      2.  INVESTMENTS:

            Trading Securities:
            -------------------
            At December 31, 1996, the Company has forward exchange
            contracts to purchase foreign currencies. There was no cost or
            unrealized gain or loss associated with these contracts at
            December 31, 1996.

            At December 31, 1995, the Company had foreign currency forward
            and future contracts and foreign currency call options. The
            cost and fair values of these securities were as follows:

              Cost                                               $  5,000
              Gross unrealized gains                              270,488
                                                                 --------
              Fair value (carrying value)                        $275,488
                                                                 ========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      2.  INVESTMENTS:

            Trading Securities:
            -------------------
            The fair value of the Company's investments in foreign currency
            forward and futures contracts is based upon the spot price of
            these currencies at December 31, 1995.

            Net realized gains (losses) on investments of $290,253, $7,746
            and $(554,995) for the years ended December 31, 1996, 1995 and
            1994, respectively, were included in the determination of net
            income.

            Available-for-Sale Securities
            -----------------------------
            At December 31, 1996, the Company's available-for-sale
            investments were all obtained through the acquisition of B&A
            (see Note 12). Since the acquisition was accounted for using
            the purchase method of accounting, cost and market value are
            the same at December 31, 1996. The amortized cost and carrying
            value of the Company's debt and equity investments are as
            follows:


              Taxable fixed income securities                    $224,315
              Equity securities                                   365,796
                                                                 --------
                                                                 $590,111
                                                                 ========


            The amortized cost and market value of fixed income securities
            at December 31, 1996, by contractual maturity, are shown below.
            Actual maturities will differ from contractual maturities
            because borrowers may have the right to recall or prepay
            obligations with or without call or prepayment penalties.


              Due in one year or less                            $220,815
              Due after five years                                  3,500
                                                                 --------
                                                                 $224,315
                                                                 ========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      3.  PROPERTY AND EQUIPMENT:

          Property and equipment consists of the following at December 31,
          1996 and 1995:
                                                   1996         1995
                                                   ----------   ----------
            Office furniture, fixtures and
              equipment                            $1,312,516   $  927,473
            Computer equipment                      2,014,779    1,765,416
            Leasehold improvements                    161,301       68,680
                                                   ----------   ----------
                                                    3,488,596    2,761,569
            Less accumulated depreciation and
              amortization                         (1,913,110)  (1,639,075)
                                                   ----------   ----------
                                                   $1,575,486   $1,122,494
                                                   ==========   ==========


      4.  NOTES PAYABLE:

          At December 31, 1996, the Company's subsidiary had $40,000
          outstanding under a line-of-credit agreement with a bank. The
          line of credit bore interest at 3.00% above the prime rate
          (11.25% at December 31, 1996) and was unsecured. The Company's
          subsidiary also had $155,000 outstanding on a separate line-of-
          credit agreement. The line of credit bore interest at the prime
          rate (8.25% at December 31, 1996) and was collateralized by the
          assets of the subsidiary. Borrowings under both of these lines of
          credit were repaid in full in 1997 and the agreements were not
          renewed.

          Additionally, at December 31, 1996, the Company has $6,146
          remaining balance on a note payable that is collateralized by
          real property. Monthly payments of $1,000, including interest at
          10%, are payable on the note.


      5.  INCOME TAXES:

          Effective January 1, 1994, the Company elected to be treated as a
          small business (Subchapter S) corporation for federal income tax
          purposes. As a result, the Company's earnings for the year ended
          December 31, 1994 were taxed at the shareholders' level.
          Effective August 5, 1995, the Company terminated its S
          corporation status. From August 5, 1995, the Company's earnings
          (losses) have been taxed as a C corporation and the resultant
          income taxes have been reflected in the consolidated financial
          statements.

     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      5.  INCOME TAXES, CONTINUED:

          The provision (benefit) for income taxes for the years ended
          December 31, 1996 and 1995 consisted of the following:

                                                   1996         1995
                                                   ----------   ----------
            Current                                $1,576,160
            Deferred                                  458,235   $ (340,708)
                                                   ----------   ----------
                                                   $2,034,395   $ (340,708)
                                                   ==========   ==========

          Components of the net deferred tax assets and liabilities as of
          December 31, 1996 and 1995 are as follows:

                                       December 31, 1996
                                       -----------------------------------
                                       Assets      Liabilities   Total
                                       ---------   -----------   ---------
            Accrued vacation           $  51,380                 $  51,380
            Depreciation                            $(163,044)    (163,044)
            Unrealized gain on
              available-for-sale
              investments                              (7,364)      (7,364)
            Net operating loss
              carryforwards              279,180                   279,180
            Customer advances                        (295,248)    (295,248)
            Other                          1,050       (4,414)      (3,364)
                                       ---------    ---------    ---------
            Total temporary
              differences and tax
              attributes               $ 331,610    $(649,454)   $(138,460)
                                       =========    =========    =========

                                       December 31, 1995
                                       -----------------------------------
                                       Assets      Liabilities   Total
                                       ---------   -----------   ---------
            Accrued vacation           $  30,183                 $  30,183
            Depreciation                            $(113,958)    (113,958)
            Unrealized gain on foreign
              currency contracts                      (91,966)     (91,966)
            Net operating loss
              carryforwards              516,449                   516,449
                                       ---------    ---------    ---------
            Total temporary
              differences and
               tax attributes          $ 546,632    $(205,924)   $ 340,708
                                       =========    =========    =========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      5.  INCOME TAXES, CONTINUED:

          The Company does not believe a valuation allowance is necessary
          to reduce the deferred tax asset as this asset will more likely
          than not be realized through the future reversal of temporary
          taxable items. Although realization is not assured, management
          believes it is more likely than not that all of the deferred tax
          asset will be utilized.

          The income tax provision (benefit) for the years ended
          December 31, 1996, 1995 and 1994 differ from that computed using
          the federal statutory rate applied to income before income taxes
          as follows:
     <TABLE>
     <CAPTION>
                                       1996                  1995                  1994
                                       -------------------   -------------------   -------------------
                                       Amount       %        Amount       %        Amount       %
                                       ----------   -----    ----------   -----    ----------   -----
     <S>                               <C>          <C>      <C>          <C>      <C>          <C>
            Provision at the federal
              statutory rate           $2,033,516    34.0    $1,637,639    34.0    $  723,075    34.0
            Tax effect of income not
              subject to federal tax
              due to Subchapter S
              election                                       (2,062,273)  (42.8)     (723,075)  (34.0)
            Recognition of net
              deferred tax liability
              in connection with
              S corporation termina-
              tion                                               83,926     1.7
            Other                             879
                                       ----------   -----    ----------   -----    ----------   -----
                                       $2,034,395    34.0    $ (340,708)   (7.1)   $        0     0.0
                                       ==========   =====    ==========   =====    ==========   =====
     </TABLE>
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      5.  INCOME TAXES, CONTINUED:

          At December 31, 1996, the Company has acquired companies with
          federal net operating loss carryforwards of approximately
          $650,000, which can be used to offset future regular taxable
          income. These carryforwards expire in 2011. The Company's
          utilization of tax net operating loss carryforwards is currently
          limited to approximately $140,000 annually, subject to earnings
          from the acquired entity.

          The Company also has state net operating loss carryforwards of
          approximately $315,000 that may be offset against future taxable
          income. These carryforwards expire beyond the year 2000.


      6.  COMMITMENTS AND CONTINGENCIES:

          The substantial majority of the Company's travel programs take
          place outside of the United States and most foreign suppliers
          require payment in currency other than the U.S. dollar.
          Accordingly, the Company is exposed to foreign currency risk
          relative to changes in foreign currency exchange rates between
          those currencies and the U.S. dollar. In 1993, the Company
          initiated a program to hedge against certain of these foreign
          currency risks. The Company uses forward contracts which allow
          the Company to acquire the foreign currency at a fixed price for
          a specified period of time. Additionally, the Company uses
          foreign currency call options which provide the Company with the
          option to acquire certain foreign currencies at a fixed exchange
          rate and time period. Concurrent with the purchase of a foreign
          currency call option, the Company sells a foreign currency put
          option to minimize the net premium paid for the call option. The
          strike prices on these options generally straddle the exchange
          rate at the time the options are purchased and sold. Any gains or
          losses associated with these hedging transactions are recognized
          in the Company's operations currently based upon the fair value
          of the instruments as the Company does not have firm commitments
          to purchase goods and services denominated in foreign currencies.
          The Company also purchases future contracts to similarly hedge
          its foreign currency risk. The Company is exposed to credit risk
          under the forward contracts to the extent that the counterparty
          is unable to perform under the agreement. The Company has a
          $15,000,000 credit facility through July 1997 to support foreign
          currency purchases and foreign exchange forward contracts.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      6.  COMMITMENTS AND CONTINGENCIES, CONTINUED:

          At December 31, 1996, the Company had outstanding forward
          exchange contracts to purchase foreign currencies as follows:

            Currency                Amount          Maturity Date
            ------------------      ----------      --------------------
            Australian dollar       $4,148,875      April-July 1997
            French franc               898,780      April-July 1997
            Netherland guilder         882,271      May-September 1997
            Austrian schilling         220,806      April-July 1997
            Spanish peseta             122,637      March-September 1997
            Dutch krone                426,051      May-June 1997
                                    ----------
                                    $6,699,420
                                    ==========

          At December 31, 1996, there were no unrealized gains or losses
          associated with these contracts. For the years ended December 31,
          1995 and 1994, the Company recognized unrealized foreign currency
          gains associated with these financial instruments of $270,488 and
          $194,778, respectively.

          The Company is subject to claims, suits and complaints which have
          arisen in the ordinary course of business. In the opinion of
          management and its legal counsel, all matters are adequately
          covered by insurance or, if not covered, are without merit or are
          of such a nature, or involve such amounts as would not have a
          material effect on the financial position, cash flows or results
          of operations of the Company.

          The Company leases office facilities under noncancelable
          operating leases. At December 31, 1996, future noncancelable
          lease commitments, including the lease described in Note 7, are
          as follows:

                       Year Ended
                       December 31,
                       ------------

                          1997                    $  647,489
                          1998                       639,068
                          1999                       521,260
                          2000                       476,444
                          2001                       443,904
                       Thereafter                  1,331,712
                                                  ----------
                                                  $4,059,877
                                                  ==========

          Total rent expense for the years ended December 31, 1996, 1995
          and 1994 was approximately $503,000, $444,000 and $444,000,
          respectively.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      7.  RELATED-PARTY TRANSACTIONS:

          In 1992, the Company sold and leased back its office building and
          land to a partnership formed by two shareholders of the Company,
          who were also officers and directors. The Company provided the
          financing for the sale by originating a note receivable from the
          partnership in the amount of $1,355,000. This note was scheduled
          to be repaid in equal monthly payments of $29,124 over a five-
          year period and bore interest at 10.5% per annum. Interest income
          earned on the note was approximately $108,000 for the year ended
          December 31, 1994. Effective January 1, 1995, the Company
          modified its lease to provide a 10-year lease cancelable with
          notice after the initial three-year term. This lease is renewable
          for an additional 10 years after the initial lease term. For each
          of the years ended December 31, 1996, 1995 and 1994, the Company
          incurred rent expense approximating $444,000 under this lease.

          In March 1995, the Company loaned $1,000,000 each to Messrs. John
          and Peter Ueberroth (the Ueberroths), Company shareholders, under
          notes receivable bearing interest at 7.25% per annum. In June
          1995, both notes were repaid in full, and the Company recognized
          approximately $36,000 of interest income during 1995.


      8.  STOCK OPTIONS:

          The Company adopted the 1995 Equity Participation Plan (the Plan)
          during 1995 which provides for the grant of stock options, awards
          of restricted stock, performance or other awards or stock
          appreciation rights to directors, key employees and consultants
          of the Company. The maximum number of shares which may be awarded
          under the Plan is 600,000 shares. Awards cannot exceed 100,000
          shares to any individual in a calendar year.

          Under the terms of the Plan, options to purchase shares of the
          Company's common stock are granted at a price set by the
          Compensation Committee of the Board of Directors, not to be less
          than the par value of a share of common stock and if granted as
          performance-based compensation or as incentive stock options, no
          less than the fair market value of the stock on the date of
          grant. The Compensation Committee establishes the vesting period
          of the awards. The options may be exercised any time after they
          are fully vested for a period up to 10 years from the grant date.

          On January 1, 1996, the Company adopted SFAS No. 123, "Accounting
          for Stock-Based Compensation." As permitted by SFAS No. 123, the
          Company has chosen to apply APB Opinion No. 25 (APB No. 25),
          "Accounting for Stock Issued to Employees" and related
          interpretations in accounting for its plans. Had compensation
          cost for the Company's plans been determined based on the fair
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      8.  STOCK OPTIONS, CONTINUED:

          value at the grant dates for awards under the plans consistent
          with the method of SFAS No. 123, the Company's pro forma net
          income and net income per share would have been changed to the
          pro forma amounts indicated below:

     <TABLE>
     <CAPTION>
                                       Year Ended                Year Ended
                                       December 31, 1996         December 31, 1995
                                       -----------------------   -----------------------
                                       As           Pro          As           Pro
                                       Reported     Forma        Reported     Forma
                                       ----------   ----------   ----------   ----------
      <S>                              <C>          <C>          <C>          <C>
            Net income                 $3,946,535   $3,783,749   $3,178,947   $3,032,901
                                       ==========   ==========   ==========   ==========

            Net income per share       $     0.60   $     0.57   $     0.57   $     0.54
                                       ==========   ==========   ==========   ==========
      </TABLE>

          The fair value of each option grant is estimated on the date of
          grant using the Black-Scholes option-pricing model with the
          following weighted-average assumptions used for grants in 1996
          and 1995, respectively: dividend yield of 0% in each year as
          there has been no dividend payment history, expected volatility
          of 84% in each year, risk-free interest rates of 6.40% to 6.44%
          in 1996 and 5.57% to 5.65% in 1995; and expected option lives of
          8 years.

          Stock option transactions are summarized as follows:
     <TABLE>
     <CAPTION>
                                                                     Exercise
                                              Number of   Weighted   Price           Expiration
                                              Shares      Exercise   Per Share       Date
                                              ---------   --------   -------------   ----------
      <S>                                     <C>         <C>        <C>             <C>
              Balance, December 31, 1994             0
                Options granted                319,800     $ 8.92    $   8.25-9.00      2005
                Options forfeited              (42,750)      9.00             9.00
                                               -------     ------    -------------
              Balance, December 31, 1995       277,050       8.90        8.25-9.00
                Options granted                109,400      10.79       9.75-11.25      2006
                Options forfeited             (145,087)      9.06       9.00-11.00
                                              --------     ------    -------------
              Balance, December 31, 1996       241,363     $ 9.66    $  8.25-11.25
                                              ========     ======    =============

              Exercisable, December 31, 1996    36,688
                                              ========
      </TABLE>

            The weighted-average fair value of options granted during 1996
          and 1995 were $7.95 per share and $8.41 per share, respectively.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      9.  EMPLOYEE BENEFIT PLANS:

          Effective January 1, 1993, the Company established a
          noncontributory profit sharing plan which covers substantially
          all employees. The plan provides full vesting upon eligibility
          and permits employees to direct the investment of their
          accounts. Contributions by the Company are determined at the
          discretion of the Board of Directors. No contributions were made
          to the plan during the year ended December 31, 1995. The Company
          contributed approximately $228,000 to this plan during the year
          ended December 31, 1994. During 1996, the assets of the plan
          were transferred into a new 401(k) Profit-Sharing Plan (the
          Plan).

          Employees are eligible to participate in the Plan upon one year
          of service and 21 years of age. Employees may contribute up to
          15% of their salary, subject to the maximum contribution allowed
          by the Internal Revenue Service. The Company's matching
          contribution is discretionary based upon approval by management.
          Employees are 100% vested in their contributions and vest in
          Company matching contributions equally over four years. During
          the year ended December 31, 1996, the Company contributed
          approximately $57,000 to the Plan.


     10.  REORGANIZATION AND INITIAL PUBLIC OFFERING:

          On January 3, 1995, the shareholders sold 3,320 shares to new
          shareholders (the Ueberroths). Simultaneously, the Company
          redeemed the remaining 3,316 shares outstanding for $1,820,000.
          The prior shareholders, all of whom were officers and directors
          of the Company, resigned from the Board of Directors effective
          January 3, 1995, and the Ueberroths were installed as the new
          officers and directors. The prior shareholders were to continue
          employment with the Company under employment contracts and
          entered into an agreement not to compete with the Company for a
          10-year period. The Company's obligations to the prior
          shareholders under these agreements aggregated $1,700,000 per
          year over the 10-year agreement terms. These transactions were
          rescinded in entirety in connection with the Company's initial
          public offering in August 1995. As a result of the rescission,
          the Company recorded a receivable from shareholders for
          $1,820,000 to reflect the reversal of the common stock
          redemption.

          In connection with the Company's initial public offering, the
          Ueberroths purchased 2,823 shares and the Company redeemed 2,823
          shares of the Company's 6,636 shares of common stock held by the
          shareholders for $1,820,000 effective January 1995. In
          connection with the Company's reincorporation (see Note 1), the
          Company increased the number of common shares to 4,995,030
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     10.  REORGANIZATION AND INITIAL PUBLIC OFFERING, CONTINUED:

          (1,310 shares of the new corporation for each share of the old
          corporation). Also, the Company authorized 2,000,000 shares of
          preferred stock which can be issued by the Board of Directors,
          without shareholder authorization, with such preferences as
          determined by the Board of Directors.

          In August 1995, the Company completed an initial public offering
          of its common stock whereby it sold 1,540,000 shares at $9 per
          share. Proceeds, net of offering costs, were approximately
          $11,983,000.


     11.  PRO FORMA STATEMENTS OF INCOME INFORMATION:

          The pro forma statements of income for the years ended
          December 31, 1995 and 1994 present the pro forma effects on the
          historical information as described below. These adjustments
          have been made as if they occurred at January 1, 1994.

          In connection with the Company's reorganization, certain
          compensation agreements between the Company and certain
          shareholders were terminated and new employment agreements were
          executed. Thus, compensation expense has been reduced for the
          difference between actual 1994 base and incentive compensation
          and the maximum amount of base and incentive compensation that
          can be earned under the provisions of the new employment
          agreements. Also, notes receivable from certain shareholders
          have been repaid. Therefore, pro forma adjustments have been
          made to reduce certain incentive compensation costs and
          eliminate interest income on the repaid notes receivable. An
          income tax provision has been recorded to reflect income taxes
          as a C Corporation rather than an S Corporation.

          The pro forma adjustments for the years ended December 31, 1995
          and 1994 are as follows:

                                                   1996         1995
                                                   ----------   ----------
            Tax expense recorded at an effective
              34% tax rate                         $1,978,347   $1,623,818
            Reduction in compensation expense                    2,256,100
            Elimination of costs incurred in
              connection with the rescinded
              transaction                                          501,184
            Elimination of interest income
              related to shareholder note
              receivable                                           108,039
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     12.  BUSINESS ACQUISITIONS:

          On January 29, 1996, the Company acquired all of the outstanding
          stock of Helin. Located in Newport Beach, California, Helin is a
          meeting management and incentive travel company.

          On February 7, 1996, the Company acquired the assets of APAP,
          which has offices in Winnebago, Illinois and Birmingham, Alabama
          and provides adult travel programs that are very similar to the
          adult programs provided by the Company.

          On December 23, 1996, the Company acquired all of the
          outstanding common stock of B&A which is located in Minneapolis,
          Minnesota, with sales offices in Chicago and Winnebago,
          Illinois; Newport Beach and San Francisco, California;
          Philadelphia, Pennsylvania; Fairway, Kansas; and Lacrosse,
          Wisconsin. B&A administers incentive travel and merchandise
          programs.

          The total purchase price for the above acquisitions was
          $1,450,000 plus 218,857 shares of the Company's restricted
          common stock and certain contingent consideration. The common
          stock, issued to effect the transaction, was recorded at quoted
          market price less a discount to reflect the restricted nature of
          the stock. The contingent consideration to be paid is dependent
          upon the success of APAP's travel programs. A portion of the
          contingent consideration will be accounted for as goodwill and
          will be amortized accordingly when, and if, the contingency is
          removed and additional consideration is paid. Another portion of
          the contingent consideration will be accounted for as
          compensation expense when, and if, paid. In connection with the
          acquisition of APAP, the Company also entered into a covenant-
          not-to-compete with a key employee for a total of $300,000 to be
          paid over 4.5 years.

          These acquisitions have been accounted for using the purchase
          method of accounting.  The results of operations of these
          companies have been included in the consolidated statement of
          income since their respective dates of acquisition.

          The following unaudited pro forma summary presents the
          consolidated results of operations of the Company as if the
          acquisitions had occurred at January 1, 1995:

                                                 1996          1995
                                                 -----------   -----------
            Revenue                              $22,616,552   $21,922,665
                                                 ===========   ===========
            Net income                           $ 3,690,375   $ 3,045,964
                                                 ===========   ===========
            Net income per share                 $      0.55   $      0.52
                                                 ===========   ===========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     12.  BUSINESS ACQUISITIONS, CONTINUED:

          The above amounts are based upon certain assumptions and
          estimates which the Company believes are reasonable, and do not
          reflect any benefit from economies which might be achieved from
          combined operations. The pro forma results do not necessarily
          represent results which would have occurred if the acquisitions
          had taken place on the bases assumed above, nor are they
          indicative of the results of future combined operations.


     13.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

          The following disclosure of the estimated fair value of financial
          instruments is made in accordance with the requirements of
          Statement of Financial Accounting Standards No. 107, "Disclosures
          about Fair Value of Financial Statements." The estimated fair
          value amounts have been determined using available market
          information and appropriate valuation methodologies. However,
          considerable judgment is necessarily required to interpret market
          data and to develop the estimates of fair value. Accordingly, the
          estimates presented herein are not necessarily indicative of the
          amounts the Company could realize in a current market exchange.

          The use of different market assumptions and/or estimation
          methodologies may have a material effect on the estimated fair
          value amounts.

          The following methods and assumptions were used to estimate the
          fair value of each class of financial instrument for which it is
          practicable to estimate that value. Potential income tax
          ramifications related to the realization of unrealized gains and
          losses that would be incurred in an actual sale and/or settlement
          have not been taken into consideration.

            CASH AND CASH EQUIVALENTS - The carrying value of cash and cash
            equivalents approximates fair value due to the nature of the
            cash investments.

            INVESTMENTS - The fair value of the Company's investments in
            foreign currency forward and futures contracts is based on
            quoted market prices and the spot rate of the foreign
            currencies subject to contracts at year end. The fair value of
            the Company's foreign currency put and call options is based on
            the estimated amount  to  terminate  the  put  and call
            contracts with the counterparties at year end. The fair value
            of the Company's investment in debt and equity securities is
            based on quoted market prices.

            OTHER ASSETS - The fair value of the note receivable, which is
            included in other assets, is based on the discounted value of
            contractual cash flows. The discount rate is estimated using
            the rates currently offered for notes with similar remaining
            maturities and credit risks.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     13.  FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:

            NOTES PAYABLE - The fair value of notes payable is based on the
            discounted value of contractual cash flows of the notes. The
            discount rate is estimated using the rates currently offered
            for debt with similar remaining maturities.

            The estimated fair values of the following financial
            instruments as of December 31, 1996 and 1995 are as follows (in
            thousands):

     <TABLE>
     <CAPTION>
                                          1996                        1995
                                          -------------------------   -------------------------
                                          Carrying      Fair          Carrying      Fair
                                          Amount        Value         Amount        Value
                                          -----------   -----------   -----------   -----------
      <S>                                 <C>           <C>           <C>           <C>
                Financial assets:
                  Cash and cash
                    equivalents           $18,281,433   $18,281,433   $12,974,252   $12,974,252
                Investments                   590,111       590,111       275,488       275,488
                Other assets                   35,513        35,513        38,781        38,781
                Financial liabilities:
                  Notes payable               201,146       201,146        16,898        16,898
      </TABLE>

            LIMITATIONS - The fair value estimates are made at a discrete
            point in time based on relevant market information and
            information about the financial instruments. Fair value
            estimates are based on judgments regarding current economic
            conditions, risk characteristics of various financial
            instruments and other factors. These estimates are subjective
            in nature and involve uncertainties and matters of significant
            judgment and, therefore, cannot be determined with precision.
            Changes in assumptions could significantly affect the
            estimates. Accordingly, the estimates presented herein are not
            necessarily indicative of what the Company could realize in a
            current market exchange.