##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



---

FORM 10-Q





x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|                               |  |  |  |    |  | 
|------------------------------ |  |  |  | -- |  | 
|For the transition period from |  |  |  | to |  | 
|                               |  |  |  |    |  | 

Commission file number: 0-26420

AMBASSADORS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)


|                                                                                       |  |                                                
|-------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or Other Jurisdiction of
Incorporation or Organization)                |  | 91-1688605
(I.R.S. Employer Identification No.)
|                                                                                       |  |                                                
|1071 Camelback
Street
Newport Beach, CA 92660
(Address of Principal Executive Offices) |  | 92660
(Zip Code)                               

Registrants Telephone Number, Including Area Code: (949) 759-5900

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No x

Indicate number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date:

Common shares outstanding as of
May 2, 2003: 9,879,351



---

---





---

TABLE OF CONTENTS



|                               |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | Condensed Consolidated Balance Sheets               
|                               |                                                                                               | Condensed Consolidated Statements of Income         
|                               |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                               |                                                                                               | Notes to Condensed Consolidated Financial Statements
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                               | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION   
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                    
|EXHIBIT INDEX                 
|EXHIBIT 99.1                  



---



##### Table of Contents



AMBASSADORS INTERNATIONAL, INC.
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

|                           |  |                       |  |                                                                                                                |  |   
|-------------------------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | --
|PART I                     |  | FINANCIAL INFORMATION |  |                                                                                                               
|                           |  | Item 1.               |  | Condensed Consolidated Balance Sheets at March 31, 2003 (unaudited) and
December 31, 2002                      |  | 1 
|                           |  |                       |  | Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 2003 and 2002 (unaudited)     |  | 2 
|                           |  |                       |  | Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 (unaudited) |  | 3 
|                           |  |                       |  | Notes to Condensed Consolidated Financial Statements                                                           |  | 4 
|                           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                          |  | 9 
|                           |  | Item 3.               |  | Qualitative and Quantitative Disclosures About Market Risk                                                     |  | 12
|                           |  | Item 4.               |  | Controls and Procedures                                                                                        |  | 13
|PART II                    |  | OTHER INFORMATION     |  |                                                                                                               
|                           |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                               |  | 13
|SIGNATURES                 |  |                       |  |                                                                                                                |  | 14
|Exhibit 99.1 Certification |  | 18                   





---



##### Table of Contents









PART 1  FINANCIAL INFORMATION
Item 1. Financial Statements




Ambassadors International, Inc.
Condensed Consolidated Balance Sheets

(in thousands, except share data)


|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |              |        |         |         | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------ | -------------------- | ------ | ----------- | ------- | ------------ | ------ | ------- | ------- | 
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        | March 31,   |         | December 31,
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        | 2003        |         | 2002        
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        | (unaudited) |         |              |        |        
|Assets:                       |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              | Current assets:                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |              |       
|                              |                                                                                                                                                   | Cash and cash equivalents                                                           |                                            | $                    | 58,001 |             |         | $            | 46,910 |        
|                              |                                                                                                                                                   | Available-for-sale securities                                                       |                                            |                      | 46,609 |             |         |              | 59,822 |        
|                              |                                                                                                                                                   | Accounts receivable, net of allowance of $77 and $73 in 2003
and 2002, respectively |                                            |                      | 3,092  |             |         |              | 2,550  |        
|                              |                                                                                                                                                   | Deferred income taxes                                                               |                                            |                      | 1,128  |             |         |              | 965    |        
|                              |                                                                                                                                                   | Prepaid program costs and other current assets                                      |                                            |                      | 3,887  |             |         |              | 2,605  |        
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              |                                                                                                                                                   |                                                                                     |                                            | Total current assets |        |             | 112,717 |              |        |         | 112,852 | 
|                              | Property and equipment, net                                                                                                                       |                                                                                     |                                            | 1,331                |        |             |         | 1,507        |       
|                              | Goodwill                                                                                                                                          |                                                                                     |                                            | 6,817                |        |             |         | 6,817        |       
|                              | Other intangibles                                                                                                                                 |                                                                                     |                                            | 2,257                |        |             |         | 2,361        |       
|                              | Deferred income taxes                                                                                                                             |                                                                                     |                                            | 4,146                |        |             |         | 4,146        |       
|                              | Other assets                                                                                                                                      |                                                                                     |                                            | 554                  |        |             |         | 476          |       
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              |                                                                                                                                                   |                                                                                     |                                            | Total assets         |        | $           | 127,822 |              |        | $       | 128,159 | 
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |              |        |        
|Liabilities:                  |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              | Current liabilities:                                                                                                                              |                                                                                     |                                            |                      |        |             |         |              |       
|                              |                                                                                                                                                   | Accounts payable                                                                    |                                            | $                    | 1,406  |             |         | $            | 3,395  |        
|                              |                                                                                                                                                   | Accrued expenses                                                                    |                                            |                      | 2,944  |             |         |              | 3,759  |        
|                              |                                                                                                                                                   | Participants deposits and deferred revenue                                         |                                            |                      | 8,754  |             |         |              | 5,989  |        
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              |                                                                                                                                                   |                                                                                     |                                            | Total liabilities    |        |             | 13,104  |              |        |         | 13,143  | 
|Commitments and contingencies |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|Stockholders equity:         |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              | Preferred stock, $.01 par value; 2,000,000 shares authorized;
none issued                                                                         |                                                                                     |                                            |                     |        |             |         |             |       
|                              | Common stock, $.01 par value; 20,000,000 shares authorized;
9,874,480 and 9,916,614 shares issued and outstanding, in 2003
and 2002, respectively |                                                                                     |                                            | 99                   |        |             |         | 99           |       
|                              | Additional paid-in capital                                                                                                                        |                                                                                     |                                            | 88,518               |        |             |         | 88,940       |       
|                              | Retained earnings                                                                                                                                 |                                                                                     |                                            | 26,804               |        |             |         | 26,416       |       
|                              | Accumulated other comprehensive loss                                                                                                              |                                                                                     |                                            | (703                 | )      |             |         | (439         | )     
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              |                                                                                                                                                   |                                                                                     | Total stockholders equity                 |                      |        | 114,718     |         |              |        | 115,016 |        
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |             
|                              |                                                                                                                                                   |                                                                                     | Total liabilities and stockholders equity |                      | $      | 127,822     |         |              | $      | 128,159 |        
|                              |                                                                                                                                                   |                                                                                     |                                            |                      |        |             |         |              |        |        

See Notes to Condensed Consolidated Financial Statements.

1



---



##### Table of Contents






Ambassadors International, Inc.
Condensed Consolidated Statements of Income

(in thousands, except per share data)


|                                                                     |                                                      |   |                    |        |      |   |        |        |  
|-------------------------------------------------------------------- | ---------------------------------------------------- | - | ------------------ | ------ | ---- | - | ------ | ------ | -
|                                                                     |                                                      |   | Three Months Ended
|                                                                     |                                                      |   | March 31,         
|                                                                     |                                                      |   |                   
|                                                                     |                                                      |   | 2003               |        | 2002
|                                                                     |                                                      |   |                    |        |     
|                                                                     |                                                      |   | (unaudited)       
|Revenue:                                                             |                                                      |   |                    |        |      |   |        |       
|                                                                     | Travel and incentive related                         |   | $                  | 3,414  |      |   | $      | 3,846  |  
|                                                                     | Software and technology related                      |   |                    | 591    |      |   |        |       |  
|                                                                     | License fees from equity investee                    |   |                    | 240    |      |   |        |       |  
|                                                                     |                                                      |   |                    |        |      |   |        |       
|                                                                     |                                                      |   | 4,245              |        |      |   | 3,846  |       
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Cost and operating expenses:                                         |                                                      |   |                    |        |      |   |        |       
|                                                                     | Cost of software and technology related revenue      |   |                    | 339    |      |   |        |       |  
|                                                                     | Selling and tour promotion                           |   |                    | 1,112  |      |   |        | 961    |  
|                                                                     | General and administrative                           |   |                    | 2,879  |      |   |        | 2,835  |  
|                                                                     |                                                      |   |                    |        |      |   |        |       
|                                                                     |                                                      |   | 4,330              |        |      |   | 3,796  |       
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Operating income (loss)                                              |                                                      |   | (85                | )      |      |   | 50     |       
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Other income:                                                        |                                                      |   |                    |        |      |   |        |       
|                                                                     | Interest and dividend income                         |   |                    | 394    |      |   |        | 600    |  
|                                                                     | Other, net                                           |   |                    | 144    |      |   |        | 32     |  
|                                                                     |                                                      |   |                    |        |      |   |        |       
|                                                                     |                                                      |   | 538                |        |      |   | 632    |       
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Income from continuing operations before income taxes                |                                                      |   | 453                |        |      |   | 682    |       
|Provision for income taxes                                           |                                                      |   | 65                 |        |      |   | 106    |       
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Income from continuing operations                                    |                                                      |   | 388                |        |      |   | 576    |       
|Loss from discontinued operations, net of income tax benefit of $662 |                                                      |   |                   |        |      |   | (1,127 | )     
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Net income (loss)                                                    |                                                      | $ | 388                |        |      | $ | (551   | )     
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Earnings (loss) per share  basic:                                   |                                                      |   |                    |        |      |   |        |       
|                                                                     | Continuing operations                                |   | $                  | 0.04   |      |   | $      | 0.06   |  
|                                                                     | Discontinued operations                              |   |                    |       |      |   |        | (0.12  | )
|                                                                     |                                                      |   |                    |        |      |   |        |       
|                                                                     | Net income (loss)                                    |   | $                  | 0.04   |      |   | $      | (0.06  | )
|                                                                     |                                                      |   |                    |        |      |   |        |       
|                                                                     | Weighted-average common shares outstanding  basic   |   |                    | 9,860  |      |   |        | 9,828  |  
|                                                                     |                                                      |   |                    |        |      |   |        |       
|Earnings (loss) per share  diluted:                                 |                                                      |   |                    |        |      |   |        |       
|                                                                     | Continuing operations                                |   | $                  | 0.04   |      |   | $      | 0.06   |  
|                                                                     | Discontinued operations                              |   |                    |       |      |   |        | (0.11  | )
|                                                                     |                                                      |   |                    |        |      |   |        |       
|                                                                     | Net income (loss)                                    |   | $                  | 0.04   |      |   | $      | (0.05  | )
|                                                                     |                                                      |   |                    |        |      |   |        |       
|                                                                     | Weighted-average common shares outstanding  diluted |   |                    | 10,048 |      |   |        | 10,401 |  
|                                                                     |                                                      |   |                    |        |      |   |        |       

See Notes to Condensed Consolidated Financial Statements.

2



---



##### Table of Contents






Ambassadors International, Inc.
Condensed Consolidated Statements of Cash Flows

(in thousands)


|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |         |      |        |        |  
|------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------- | ---- | ------------------ | ------ | ------- | ---- | ------ | ------ | -
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      | Three Months Ended
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      | March 31,         
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                   
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      | 2003               |        | 2002   
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      | (unaudited)       
|Cash flows from operating activities: |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      | Net income (loss)                                                                           |                                                                                             | $                                              | 388                                                 |      |                    | $      | (551    | )   
|                                      | Adjustments to reconcile net income to net cash provided by (used in)
operating activities: |                                                                                             |                                                |                                                     |      |                    |        |         |     
|                                      |                                                                                             | Depreciation and amortization                                                               |                                                |                                                     | 318  |                    |        |         | 303  |       
|                                      |                                                                                             | Earnings from equity investment                                                             |                                                |                                                     | (118 | )                  |        |         |     |       
|                                      |                                                                                             | Deferred income taxes                                                                       |                                                |                                                     |     |                    |        |         | (449 | )     
|                                      |                                                                                             | Change in assets and liabilities, net of effects of business acquisitions
and dispositions: |                                                |                                                     |      |                    |        |         |      |       
|                                      |                                                                                             |                                                                                             | Accounts receivable                            |                                                     |      | (542               | )      |         |      | 546    |       
|                                      |                                                                                             |                                                                                             | Prepaid program costs and other current assets |                                                     |      | (1,282             | )      |         |      | (1,157 | )     
|                                      |                                                                                             |                                                                                             | Accounts payable and accrued expenses          |                                                     |      | (1,025             | )      |         |      | (1,572 | )     
|                                      |                                                                                             |                                                                                             | Participants deposits and deferred revenue    |                                                     |      | 2,765              |        |         |      | 408    |       
|                                      |                                                                                             |                                                                                             | Other intangibles and other assets             |                                                     |      | 40                 |        |         |      | 3      |       
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      |                                                                                             |                                                                                             |                                                | Net cash provided by (used in) operating activities |      |                    | 544    |         |      |        | (2,469 | )
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|Cash flows from investing activities: |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      | Proceeds from sale of available-for-sale securities                                         |                                                                                             |                                                | 21,164                                              |      |                    |        | 36,487  |     
|                                      | Purchase of available-for-sale securities                                                   |                                                                                             |                                                | (8,378                                              | )    |                    |        | (34,312 | )   
|                                      | Purchase of other investments                                                               |                                                                                             |                                                | (1,754                                              | )    |                    |        | (868    | )   
|                                      | Cash paid for acquisitions of subsidiaries                                                  |                                                                                             |                                                | (45                                                 | )    |                    |        |        |     
|                                      | Purchase of property and equipment                                                          |                                                                                             |                                                | (18                                                 | )    |                    |        | (105    | )   
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      |                                                                                             |                                                                                             |                                                | Net cash provided by investing activities           |      |                    | 10,969 |         |      |        | 1,202  |  
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|Cash flows from financing activities: |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      | Proceeds from exercise of stock options                                                     |                                                                                             |                                                | 411                                                 |      |                    |        | 129     |     
|                                      | Purchase and retirement of common stock                                                     |                                                                                             |                                                | (833                                                | )    |                    |        | (80     | )   
|                                      | Distribution resulting from spin-off of subsidiary                                          |                                                                                             |                                                |                                                    |      |                    |        | (5,299  | )   
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      |                                                                                             |                                                                                             |                                                | Net cash used in financing activities               |      |                    | (422   | )       |      |        | (5,250 | )
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      | Net increase (decrease) in cash and cash equivalents                                        |                                                                                             |                                                | 11,091                                              |      |                    |        | (6,517  | )   
|                                      | Cash and cash equivalents, beginning of period                                              |                                                                                             |                                                | 46,910                                              |      |                    |        | 28,021  |     
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |        
|                                      | Cash and cash equivalents, end of period                                                    |                                                                                             | $                                              | 58,001                                              |      |                    | $      | 21,504  |     
|                                      |                                                                                             |                                                                                             |                                                |                                                     |      |                    |        |         |     

See Notes to Condensed Consolidated Financial Statements.

3



---



##### Table of Contents






Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements



|1. |  | Description of the Company and Basis of Presentation                                                                                                                        
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company                                                                                                                                                                 
|  
|   |  | Ambassadors International, Inc. (the Company) is a travel services and
performance improvement company. The Companys operations are classified in
the following segments:



| |  |  | Ambassadors Performance Group- Develops, markets and manages
meetings and incentive programs for a nationwide roster of corporate
clients utilizing incentive travel, merchandise award programs and
corporate meeting management services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Ambassadors Services Group- Provides comprehensive hotel
reservation, registration and travel services for meetings, conventions,
expositions and trade shows.                                                                             
|
| |  |  | Ambassadors Technology Group- Develops, markets and distributes
event portfolio management technology solutions for corporations and
large associations.                                                                                   



| |  | The Company was founded in 1967 and was reincorporated in Delaware in 1995.
Ambassadors Group, Inc. (AGI) represented the entire operations of the
Company until 1996 when the Performance Group commenced operations. The
Services Group commenced operations in 1998 and the Technology Group
commenced operations in 2002.                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the consolidated financial position of
Ambassadors International, Inc. and its subsidiaries as of March 31, 2003,
the consolidated results of operations and cash flows for the three months
ended March 31, 2003 and 2002. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission.
|
| |  | It should be understood that accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The
results of operations for the three months ended March 31, 2003 are not
necessarily indicative of those to be expected for the entire year. The
accompanying consolidated financial statements should be read in conjunction
with our Annual Report on Form 10-K for the year ended December 31, 2002
filed with the Securities and Exchange Commission.                                                                                                                                                                                                                    
|
| |  | As more fully described in Note 3, on January 25, 2002, the Companys Board
of Directors approved a spin-off distribution that separated the Company into
two publicly traded entities. The Condensed Consolidated Statement of Cash
Flows for the three months ended March 31, 2002 include the effects of
discontinued operations on a consolidated basis, without separate
identification and classification of discontinued operations.                                                                                                                                                                                                                                                                              

4



---



##### Table of Contents



Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements

Accounting for Stock Options



| |  | The Company accounts for its stock-based compensation in accordance with
Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to
Employees, and has adopted the disclosure-only alternative of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table illustrates the effect on net income (loss) and earnings
(loss) per share had compensation expense for the employee stock-based plans
been recorded based on the fair value method under SFAS No. 123 (in
thousands, except per share data):                                                                                                                                                               

|                                                                                                                                            |             |   |                    |      |      |   |      |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | - | ------------------ | ---- | ---- | - | ---- | ----- | -
|                                                                                                                                            |             |   | Three Months Ended
|                                                                                                                                            |             |   | March 31,         
|                                                                                                                                            |             |   |                   
|                                                                                                                                            |             |   | 2003               |      | 2002
|                                                                                                                                            |             |   |                    |      |     
|Net income (loss), as reported                                                                                                              |             | $ | 388                |      |      | $ | (551 | )    
|Deduct: total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects |             |   | (112               | )    |      |   | (329 | )    
|                                                                                                                                            |             |   |                    |      |      |   |      |      
|Net income (loss), as adjusted                                                                                                              |             | $ | 276                |      |      | $ | (880 | )    
|                                                                                                                                            |             |   |                    |      |      |   |      |      
|Earnings (loss) per share  basic                                                                                                           |             |   |                    |      |      |   |      |      
|                                                                                                                                            | As reported |   | $                  | 0.04 |      |   | $    | (0.06 | )
|                                                                                                                                            | As adjusted |   |                    | 0.03 |      |   |      | (0.09 | )
|Earnings (loss) per share  diluted                                                                                                         |             |   |                    |      |      |   |      |      
|                                                                                                                                            | As reported |   | $                  | 0.04 |      |   | $    | (0.05 | )
|                                                                                                                                            | As adjusted |   |                    | 0.03 |      |   |      | (0.08 | )



|   |  | The calculation of diluted weighted average common shares outstanding is
based on income from continuing operations. The net loss for the three
months ended March 31, 2002 includes the effects of the discontinued
operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Business Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | In December 2002, the Technology Group acquired certain of the assets and
business of Bluedot Virtual Event Organization, Inc. (Bluedot Software) out
of Chapter 11 bankruptcy. The purchase price consisted of debtor-in
possession financing and other costs of $308,000, the assumption of
liabilities and future contingent payments by the Technology Group to the
sellers covering the twenty-four months following the closing date. The
Company allocated the excess purchase price to an intangible asset, purchased
software, of $607,000. The amortization period for this intangible asset is
five years. As of March 31, 2003, the Company provided an additional
investment of approximately $20,000 which was allocated to purchased software
and reduced the asset for amortization of approximately $66,000. During the
first twelve months following the closing, the Technology Group shall pay the
greater of (i) 5% of the gross revenues actually received in each quarter
allocable to the assets purchased, or (ii) $25,000 per quarter as the First
Year Minimum Payments. During the second year following the closing, the
Technology Group shall pay the greater of (i) 5% of the gross revenues
actually received in each quarter allocable to the assets purchased, or (ii)
$15,000 per quarter as the Second Year Minimum Payments. As of March 31,
2003, the Technology Group paid $25,000 for the first quarter contingent
payment.
|  
|   |  | In March 2002, the Performance Group acquired a 49% ownership interest in
Incentive Travel, LLC (ITI). The terms of the purchase agreement call for
contingent payments by the Performance Group through 2005 based upon actual
income before income taxes multiplied by the Performance Groups 49% ownership
interest calculated based on a predefined multiplier. Total payments related to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

5



---



##### Table of Contents



Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements



|   |  | fiscal 2002 was $2.3 million
of which approximately $1.8 million was paid by March
31, 2003 and was allocated to intangible assets (license). The remaining
purchase price of $0.5 million was allocated to goodwill. License fees of
approximately $240,000 were earned from ITI during the quarter ended March
31, 2003 and are included in the operations of the Performance Group. The
Company also recorded its proportional share of the earnings and management
fees from ITI of approximately $185,000 for the quarter ended March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Discontinued Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | On January 25, 2002, the Companys Board of Directors approved the spin-off
of its wholly owned subsidiary, AGI, by declaring a special stock dividend to
the stockholders of the Company and distributing to them all of the
outstanding shares of AGI. The stock dividend was paid to the Companys
stockholders of record as of February 4, 2002, and was distributed to such
shareholders after the close of business on February 28, 2002, the date that
the spin-off was completed. Each stockholder of the Company received one
share of common stock of AGI for each share of common stock owned in the
Company. The distribution of AGIs common stock pursuant to the spin-off was
intended to be tax free to the Company and its stockholders. The Company
received a favorable Internal Revenue Service private letter ruling to that
effect. The trading of the common stock of AGI on the Nasdaq National Market
began on March 1, 2002 under the symbol EPAX.
|  
|   |  | The spin-off of AGI was accounted for as a disposition of discontinued
operations as of February 28, 2002, the date of the dividend. The spin-off
impacted the Companys balance sheet on February 28, 2002 by reducing total
assets, liabilities, and stockholders equity by $34.8 million, $21.0 million
and $13.8 million, respectively. The effect of the spin-off on the Companys
income statement for the three months ended March 31, 2002 is reflected as
discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The revenues and loss from discontinued operations before income taxes are as
follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                                            |  |                    |   |      |  |   |        |  
|----------------------------------------------------------- |  | ------------------ | - | ---- |  | - | ------ | -
|                                                            |  | Three Months Ended
|                                                            |  | March 31,         
|                                                            |  |                   
|                                                            |  | 2003               |   | 2002
|                                                            |  |                    |   |     
|Revenue                                                     |  | $                  |  |      |  | $ | 518    |  
|Loss from discontinued operations before income tax benefit |  |                    |  |      |  |   | (1,789 | )



|4. |  | Comprehensive Income                                                 
|-- |  | ---------------------------------------------------------------------
|  
|   |  | The components of comprehensive income are as follows (in thousands):

|                                                                                                                         |  |                    |      |      |  |   |      |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---- | ---- |  | - | ---- | -
|                                                                                                                         |  | Three Months Ended
|                                                                                                                         |  | March 31,         
|                                                                                                                         |  |                   
|                                                                                                                         |  | 2003               |      | 2002
|                                                                                                                         |  |                    |      |     
|Net income (loss)                                                                                                        |  | $                  | 388  |      |  | $ | (551 | )
|Change in unrealized gain (loss) on
marketable equity securities, net of income
tax expense (benefit) of ($163) and $291 |  |                    | (264 | )    |  |   | 498  |  
|Change in unrealized gain on foreign
currency exchange contracts, net of income
tax expense of $0 and $163               |  |                    |     |      |  |   | 340  |  
|                                                                                                                         |  |                    |      |      |  |   |      |  
|                                                                                                                         |  | $                  | 124  |      |  | $ | 287  |  
|                                                                                                                         |  |                    |      |      |  |   |      |  

6



---



##### Table of Contents



Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements



|5. |  | Earnings Per Share                                                                                                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following table presents a reconciliation of basic and diluted earnings
per share (EPS) computations and the number of dilutive securities (stock
options) that were included in the dilutive EPS computation (in thousands):

|             |                                                            |  |                    |        |      |  |   |        |  
|------------ | ---------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | -
|             |                                                            |  | Three Months Ended
|             |                                                            |  | March 31,         
|             |                                                            |  |                   
|             |                                                            |  | 2003               |        | 2002
|             |                                                            |  |                    |        |     
|Numerator:   |                                                            |  |                    |        |      |  |   |       
|             | Net income (loss) for basic and diluted earnings per share |  | $                  | 388    |      |  | $ | (551   | )
|             |                                                            |  |                    |        |      |  |   |        |  
|Denominator: |                                                            |  |                    |        |      |  |   |       
|             | Weighted-average shares outstanding  basic                |  |                    | 9,860  |      |  |   | 9,828  |  
|             | Effect of dilutive common stock options                    |  |                    | 188    |      |  |   | 573    |  
|             |                                                            |  |                    |        |      |  |   |       
|             | Weighted-average shares outstanding  diluted              |  |                    | 10,048 |      |  |   | 10,401 |  
|             |                                                            |  |                    |        |      |  |   |       



|   |  | At March 31, 2003 and 2002 there were approximately 363,000 and 100 stock
options outstanding, respectively, whereby the exercise price exceeded the
average common stock market value. The effects of the shares which would be
issued upon the exercise of these options have been excluded from the
calculation of diluted earnings per share because they are anti-dilutive.                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. |  | Business Segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Company operated the Performance Group and Services Group segments during
the three months ended March 31, 2003 and 2002. The Technology Group segment
was added in December 2002. On February 28, 2002, the Company spun-off the
Education Group and recorded the effect of the transaction as a disposition
of discontinued operations. Corporate and Other consists of general corporate
assets (primarily cash and cash equivalents, investments and goodwill) and
other activities which are not directly related to the Performance Group,
Services Group and Technology Group. Selected financial information related
to these segments for the three month period ended March 31, 2003 and 2002
are as follows (in thousands):

|                         |                     |                               |   |                    |       |      |   |       |       | 
|------------------------ | ------------------- | ----------------------------- | - | ------------------ | ----- | ---- | - | ----- | ----- | 
|                         |                     |                               |   | Three Months Ended
|                         |                     |                               |   | March 31,         
|                         |                     |                               |   |                   
|                         |                     |                               |   | 2003               |       | 2002
|                         |                     |                               |   |                    |       |     
|Revenue:                 |                     |                               |   |                    |       |      |   |      
|                         | Performance Group   |                               | $ | 2,350              |       |      | $ | 2,054 |      
|                         | Services Group      |                               |   | 1,304              |       |      |   | 1,792 |      
|                         | Technology Group    |                               |   | 591                |       |      |   |      |      
|                         | Corporate and Other |                               |   |                   |       |      |   |      |      
|                         |                     |                               |   |                    |       |      |   |       |      
|                         |                     | Total revenue                 |   | $                  | 4,245 |      |   | $     | 3,846 | 
|                         |                     |                               |   |                    |       |      |   |       |      
|Operating income (loss): |                     |                               |   |                    |       |      |   |      
|                         | Performance Group   |                               | $ | 242                |       |      | $ | 112   |      
|                         | Services Group      |                               |   | 257                |       |      |   | 426   |      
|                         | Technology Group    |                               |   | (141               | )     |      |   |      |      
|                         | Corporate and Other |                               |   | (443               | )     |      |   | (488  | )    
|                         |                     |                               |   |                    |       |      |   |       |      
|                         |                     | Total operating income (loss) |   | $                  | (85   | )    |   | $     | 50    | 
|                         |                     |                               |   |                    |       |      |   |       |      

7



---



##### Table of Contents



Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements



|7. |  | Recent Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
SFAS No. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No.146 requires that a liability
for a cost associated with an exit or disposal activity be recognized when
the liability is incurred. SFAS No. 146 also establishes that fair value is
the objective for initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December
31, 2002. The Company adopted this statement on January 1, 2003. Application
of this statement is not expected to have a significant effect on the
Companys consolidated results of operations or financial position.

8



---



##### Table of Contents






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

Statements contained in this Quarterly Report on Form 10-Q of Ambassadors
International, Inc. (the Company) which are not historical in nature, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. A forward-looking statement may contain words
such as will continue to be, will be, continue to, expect to,
anticipates that, believes that, to be, or can impact. Forward-looking
statements involve certain risks and uncertainties that could cause actual
results to differ materially from anticipated results. A more complete
discussion of these risks and uncertainties, as well as other factors, may be
identified from time to time in the Companys filings with the Securities and
Exchange Commission, including the Companys Annual Report on Form 10-K, or in
the Companys press releases.

Critical Accounting Policies

The Companys financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and costs
and expenses during the period. Management evaluates its estimates and
judgments, including those which impact its most critical accounting policies
on an ongoing basis. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable
under the circumstances, within the framework of current accounting literature.

The following is a list of the accounting policies that management believes are
the more significant judgments and estimates, and that could potentially result
in materially different results under different assumptions or conditions.

Revenue Recognition

Revenue from hotel reservation, registration and related travel services are
recognized when the convention commences. Revenue from the sale of merchandise
is recognized when the merchandise is shipped. Revenue from pre-paid
certificate-based merchandise incentive programs is deferred until the
Companys obligations are fulfilled.

Software and technology related revenue is derived from a combination of
license and maintenance fees and services provided with its enterprise software
tools. The services provided include hosting of data, development and workflow
configuration. Revenue from contracts with multiple elements is recognized in
accordance with Statement of Position (SOP) 97-2, Software Revenue
Recognition as amended by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions. Revenue from
development contracts that require significant production, modification or
customization of software is recognized using the percentage-of-completion
method based on contract costs incurred to date compared with total estimated
contract costs in accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.

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 other
investments. Securities with maturities of three months or less at the date of
purchase are classified as cash equivalents.

Available-for-Sale Securities

The Company classifies its marketable investments as available-for-sale
securities. Available-for-sale securities consist of debt securities with
maturities beyond three months and equity securities, which are carried at fair
value.

Unrealized gains and losses on available-for-sale securities are excluded from
operations and reported as accumulated other comprehensive income, net of
deferred income taxes. Realized gains and losses on the sale of
available-for-sale securities are recognized on a specific identification basis
in the statement of income in the period the investments are sold.

9



---



##### Table of Contents



Other Investments

The Company includes its minority investments in other operating companies as
other assets in the accompanying balance sheets. The cost of these minority
investments is allocated against the underlying fair value of the net assets of
the investee. Any cost of the investment over the Companys portion of the
underlying fair value of the net assets of the investee is recorded as
goodwill. The equity method of accounting is used for investment ownership
ranging from 20 percent to 50 percent. Investment ownership of less than 20
percent is accounted for using the cost method.

Future adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investments
current carrying value.

Long-Lived Assets

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangibles. Under SFAS No.
142, goodwill is no longer amortized, but is subject to annual impairment
tests. The Company uses a discounted cash flow model to estimate the fair
market value of each of its subsidiaries when performing its impairment tests.
Assumptions used include growth rates for revenues and expenses, investment
yields on deposits, future capital expenditure requirements and appropriate
discount rates. The Company determined that as of March 31, 2003 there was no
indication of impairment.

Deferred Income Taxes

The asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. While the Company has considered future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for a valuation allowance, in the event the Company was to
determine that it would not be able to realize all or part of its net deferred
tax assets in the future, an adjustment to the deferred tax assets would be
charged to income in the period such determination was made.

COMPARISON OF RESULTS FROM CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2003 TO THE THREE MONTHS ENDED MARCH 31, 2002:

Revenue

Total revenue for the three months ended March 31, 2003 was $4.2 million
compared to $3.8 million for the three months ended March 31, 2002. Travel and
incentive related revenue decreased by $0.4 million due to a decrease in
business volume from the Performance Group and the Services Group. This
decrease was partially offset within the Performance Group by licensing revenue
from an equity investee of $0.2 million and net program revenue generated from
an acquisition in the fourth quarter of 2002. The volume of business was
negatively impacted by the general decline in the travel industry. The
Technology Group acquisition in the fourth quarter of 2002 contributed the
software and technology related revenue of $0.6 million.

Cost of Software and Technology Related Sales

The three months ended March 31, 2003 included cost of software and technology
related sales from the Technology Group of $0.3 million. As the Technology
Group acquisition was completed during the fourth quarter of 2002, the Company
had no cost of software and technology related sales for the first quarter of
2002.

Selling and Tour Promotion Expenses

The Companys policy is to expense all selling and tour promotion costs as they
are incurred.

Selling and tour promotion expense increased $0.2 million in 2003 due to the
addition of personnel expenses from the business acquisitions which occurred
after the first quarter of 2002, which were offset by lower personnel expenses
in the comparable prior year business operations

10



---



##### Table of Contents



of the Performance Group and Services
Group. The addition of the selling and tour promotion expenses from the business
acquisitions which occurred after the first quarter of 2002 also contributed to
the increase in the expense caption.

General and Administrative Expenses

General and administrative expenses increased $44,000 in 2003 due to the
addition of personnel expenses from the business acquisitions which occurred
after the first quarter of 2002, which were offset by the Companys overall
efforts to control expenses. The increase in personnel expenses of the two
consolidated business acquisitions were partially offset by lower personnel
expenses in the comparable prior year business operations of the Performance
Group and Services Group. Furthermore, the Company decreased travel and
entertainment expenses and promotional and marketing expenses due to overall
cost reduction efforts.

Operating Income (Loss)

The Company incurred an operating loss of $85,000 for the quarter ended March
31, 2003 compared to operating income of $50,000 in the comparable quarter of
2002, a decrease of $135,000. The decrease is the result of changes as
described above.

Other Income

Other income for the three months ended March 31, 2003 was $0.5 million
compared to $0.6 million for the three months ended March 31, 2002, a decrease
of $0.1 million. Investment income for the three months ended March 31, 2003
decreased by $0.2 million due to lower yields on short-term investments. The
decrease in investment income was partially offset by $0.1 million of income
and service fees earned on equity investments.

Income Taxes

The Company recorded income tax expense of $65,000 for the first quarter of
2003 in comparison to $106,000 for the comparable quarter of 2002, a decrease
of $41,000. The effective tax rate for the quarter ended March 31, 2003 was
14.3% compared to 15.5% for the quarter ended March 31, 2002. The decrease in
the effective tax rate is due to an increase in tax-exempt interest income to
approximately 92% of the Companys investment income for the quarter ended
March 31, 2003 from 70% for the quarter ended March 31, 2002. The increase in
tax-exempt interest income was partially offset by the revaluation of the state
deferred tax assets to a higher rate as of December 31, 2002.

Income from Continuing Operations

Income from continuing operations decreased to $0.4 million in the quarter
ended March 31, 2003 from $0.6 million in the comparable quarter of 2002, a
decrease of $0.2 million. The decrease is the result of changes as described
above.

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 (used in) operations for the three months ended March 31,
2003 and 2002 was approximately $0.5 million and ($2.5) million, respectively,
an increase $3.0 million. The increase in operating cash flows primarily
relates to the increase in net income partially offset by the timing
differences in the collection of current assets and payment of current
liabilities.

Net cash provided by investing activities for the three months ended March 31,
2003 and 2002 was approximately $11.0 million and $1.2 million, respectively,
an increase of $9.8 million. The increase in cash flows from investing
activities relates to the timing difference in reinvesting matured securities
partially offset by contingent payments made on prior year acquisitions.

11



---



##### Table of Contents



Net cash used in financing activities for the three months ended March 31, 2003
and 2002 was ($0.4) million and ($5.3) million, respectively. Current period
activity consisted of the purchase and retirement of common stock partially
offset by the proceeds received from the exercise of employee stock options.
Cash used from financing activities for the period ended March 31, 2002 mainly
related to the spin-off of AGI that was completed on February 28, 2002 (see
Note 3 to Condensed Consolidated Financial Statements).

The Company has entered into various agreements with AGI that provide for the
separation of AGIs business operations from the Company. One of these
agreements provides for a credit facility in which the Company has agreed to
provide loans to AGI for certain purposes. AGI may borrow up to $20 million at
any time with three days written notice to the Company. All monies outstanding,
including principal and interest, mature no later than August 31, 2003. All
borrowings bear interest at the prime interest rate as reported in the Wall
Street Journal one business day after the request for a borrowing is received
by the Company. As of March 31, 2003, there were no borrowings under this
agreement.

The Company does not have any material capital expenditure commitments for
2003.

The terms of the Companys acquisitions of certain businesses also included
additional contingent consideration to be paid in 2003, which will be a minimum
of $75,000. The Company is continuing to pursue further acquisitions of
related travel and performance improvement, service and other businesses that
may require the use of cash and cash equivalents. No assurance can be given
that definitive agreements for any acquisitions will be entered into, or, if
they are entered into, that they will be on terms favorable to the Company.

In November 1998, the Board of Directors of the Company authorized the
repurchase of the Companys common stock (up to an approved amount) in the open
market or through private transactions. This repurchase program is ongoing and
for the quarter ended March 31, 2003, the Company repurchased 98,000 shares for
approximately $833,000. The Company does not believe that any future
repurchases will have a significant impact on the Companys liquidity.

Management believes that cash, cash equivalents, available-for-sale securities
and cash flows from operations will be sufficient to meet the Companys
anticipated operating cash needs for at least the next twelve months. However,
any projections of future cash flows are subject to substantial uncertainty.
Such uncertainty includes the repercussions of war with Iraq, the impact of the
SARS epidemic and the Companys acquisition of or investment in complementary
businesses. The Company will also, from time to time, consider the acquisition
of or investment in businesses, services and technologies which might affect
the Companys liquidity requirements.

Discontinued Operations

On January 25, 2002, the Companys Board of Directors approved the spin-off of
its wholly owned subsidiary, Ambassadors Group, Inc. (AGI), by declaring a
special stock dividend to the stockholders of the Company and distributing to
them all of the outstanding shares of AGI. The stock dividend was paid to the
Companys stockholders of record as of February 4, 2002, and was distributed to
such shareholders after the close of business on February 28, 2002, the date
that the spin-off was completed. Each stockholder of the Company received one
share of common stock of AGI for each share of common stock owned in the
Company. The distribution of AGIs common stock pursuant to the spin-off is
intended to be tax free to the Company and its stockholders. The Company
received a favorable Internal Revenue Service private letter ruling to that
effect. The trading of the common stock of AGI on the Nasdaq National Market
began on March 1, 2002, under the symbol EPAX.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to changes in financial market conditions in the normal
course of business due to its use of certain financial instruments. Market risk
generally represents the risk that losses may occur in the values of financial
instruments as a result of movements in interest rates and equity prices.

There have been no material changes in the reported market risks or the overall
credit risk of the Companys portfolio since December 31, 2002. See further
discussion of these market risks and related financial instruments in the
Companys Annual Report on Form 10-K for the year ended December 31, 2002.

12



---



##### Table of Contents






Item 4. Controls and Procedures

The Companys management, including the principal executive officer and
principal financial officer, conducted an evaluation of the Companys
disclosure controls and procedures, as such term is defined under Rule
13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended,
within 90 days of the filing date of this report. Based on their evaluation,
the Companys principal executive officer and principal accounting officer
concluded that the Companys disclosure controls and procedures are effective.

There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in the Companys
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in the paragraph
above.




PART II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:
| | --- |  | ---------
|

| | 99.1 |  | Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of
2002
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------
|

| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------
|

| | (1) |  | The Company filed a current report on Form 8-K on
April 29, 2003 in connection with the dissemination of an
earnings release.*
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------



---

|* |  | Report containing information that is required to be furnished under Item
12 was instead furnished under Item 9 in accordance with Securities and
Exchange Commission Release No. 33-8176. Pursuant to General Instruction B of Form
8-K and SEC Release No. 33-8176, the report submitted under Item 9 is not
deemed to be filed for the purpose of Section 18 of the Securities
Exchange Act of 1934 and the Company is not subject to the liabilities of
that section. The Company is not incorporating, and will not incorporate
by reference this report into a filing under the Securities Act or the
Exchange Act.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13



---



##### Table of Contents






Signatures

Pursuant to the requirements 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: May 13, 2003 |  | By:                                          |  | /s/ Timothy T. Fogarty

Timothy T. Fogarty
Chief Financial Officer

14



---



##### Table of Contents



Certifications

I, John A. Ueberroth, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Ambassadors
International, Inc.;                                                                                                                                                                                                                                        
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:                                                                                                     



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 13, 2003.

|                        |  | 
|----------------------- |  | 
|/s/ John A. Ueberroth   |  | 
|                        |  | 
|John A. Ueberroth       |  | 
|Chief Executive Officer |  | 

15



---



##### Table of Contents



I, Timothy T. Fogarty, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Ambassadors
International, Inc.;                                                                                                                                                                                                                                        
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|
| | 4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:                                                                                                     



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 13, 2003.

|                        |  | 
|----------------------- |  | 
|/s/ Timothy T. Fogarty  |  | 
|                        |  | 
|Timothy T. Fogarty      |  | 
|Chief Financial Officer |  | 

16



---



##### Table of Contents






EXHIBIT INDEX



| | (a) |  | Exhibits:
| | --- |  | ---------

| |      |  |                                                                                                                       
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------
| | 99.1 |  | Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of
2002

17