##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO 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.)
 2101
4 th Avenue, suite 210
Seattle, Washington 98121
(Address of Principal Executive Offices)
 Registrants Telephone Number, Including Area Code: (206) 292-9606
 
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 Yes o No þ
 The number of shares of the registrants Common Stock outstanding as of August 9, 2010 was
26,571,092.




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##### 



AMBASSADORS INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets at June 30, 2010 (unaudited) and December 31, 2009
    
    
    2Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25Item 4T.
    
    Controls and Procedures
    
    
    26PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    (Removed and Reserved)
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits
    
    
    28SIGNATURES
    
    
    29EXHIBIT INDEX
    
    
    30Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



Ambassadors International, Inc.
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share amounts)
 June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Assets:Cash and cash equivalents
    
    $
    3,056
    
    
    $
    2,576Restricted cash
    
    
    10,017
    
    
    
    11,270Other receivables
    
    
    312
    
    
    
    179Prepaid costs and other current assets
    
    
    6,044
    
    
    
    2,882Inventory
    
    
    1,464
    
    
    
    1,421Assets held for sale
    
    
    2,426
    
    
    
    688Total current assets
    
    
    23,319
    
    
    
    19,016Property, vessels and equipment, net
    
    
    61,120
    
    
    
    66,117Intangible asset
    
    
    5,500
    
    
    
    5,500Other assets
    
    
    3,607
    
    
    
    1,286Total assets
    
    $
    93,546
    
    
    $
    91,919Liabilities:Accounts payable
    
    $
    3,489
    
    
    $
    6,302Passenger deposits
    
    
    17,927
    
    
    
    11,499Accrued expenses
    
    
    5,213
    
    
    
    5,183Current portion of long term debt
    
    
    948
    
    
    
    948Liabilities related to assets held for sale
    
    
    550
    
    
    
    491Total current liabilities
    
    
    28,127
    
    
    
    24,423Passenger deposits
    
    
    614
    
    
    
    248Long term debt net of discount of $1,866 at June 30, 2010 and $2,362 at
December 31, 2009, respectively
    
    
    59,291
    
    
    
    50,719Total liabilities
    
    
    88,032
    
    
    
    75,390Commitments and contingencies (Note 8)Stockholders equity:Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 40,000,000 shares authorized; 26,571,092
shares issued and outstanding at June 30, 2010 and 26,517,557 at
December 31, 2009
    
    
    260
    
    
    
    260Additional paid-in capital
    
    
    118,787
    
    
    
    118,785Accumulated deficit
    
    
    (113,533
    )
    
    
    (102,516
    )Total stockholders equity
    
    
    5,514
    
    
    
    16,529Total liabilities and stockholders equity
    
    $
    93,546
    
    
    $
    91,919
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  2




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##### Table of Contents



Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Operations
 (in thousands, except per share data)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)Revenues:Passenger ticket revenue
    
    $
    10,455
    
    
    $
    11,416
    
    
    $
    19,751
    
    
    $
    23,429Onboard and other cruise revenue
    
    
    2,913
    
    
    
    3,209
    
    
    
    6,266
    
    
    
    7,29413,368
    
    
    
    14,625
    
    
    
    26,017
    
    
    
    30,723Costs and operating expenses:Cruise operating expenses:Compensation and benefits
    
    
    2,960
    
    
    
    3,107
    
    
    
    5,868
    
    
    
    6,318Passenger expenses
    
    
    751
    
    
    
    822
    
    
    
    1,705
    
    
    
    2,224Materials and services
    
    
    5,806
    
    
    
    5,884
    
    
    
    11,227
    
    
    
    11,862Repairs and maintenance
    
    
    1,426
    
    
    
    1,537
    
    
    
    2,722
    
    
    
    2,736Commissions and other cruise operating expenses
    
    
    1,287
    
    
    
    1,194
    
    
    
    2,327
    
    
    
    2,37512,230
    
    
    
    12,544
    
    
    
    23,849
    
    
    
    25,515Selling and tour promotion
    
    
    1,901
    
    
    
    2,126
    
    
    
    4,166
    
    
    
    3,902General and administrative
    
    
    2,138
    
    
    
    2,574
    
    
    
    4,251
    
    
    
    4,213Impairment
    
    
    175
    
    
    
    14,000
    
    
    
    175
    
    
    
    14,000Depreciation
    
    
    1,773
    
    
    
    2,703
    
    
    
    3,658
    
    
    
    5,40418,217
    
    
    
    33,947
    
    
    
    36,099
    
    
    
    53,034Operating loss from continuing operations
    
    
    (4,849
    )
    
    
    (19,322
    )
    
    
    (10,082
    )
    
    
    (22,311
    )Other income (expense):Interest expense
    
    
    (1,089
    )
    
    
    (1,685
    )
    
    
    (1,660
    )
    
    
    (3,334
    )Other, net
    
    
    106
    
    
    
    (160
    )
    
    
    174
    
    
    
    125(983
    )
    
    
    (1,845
    )
    
    
    (1,486
    )
    
    
    (3,209
    )Loss from continuing operations before income taxes
    
    
    (5,832
    )
    
    
    (21,167
    )
    
    
    (11,568
    )
    
    
    (25,520
    )Benefit from income taxes
    
    
    (178
    )
    
    
    (194
    )
    
    
    (146
    )
    
    
    (191
    )Loss from continuing operations
    
    
    (5,654
    )
    
    
    (20,973
    )
    
    
    (11,422
    )
    
    
    (25,329
    )Income (loss) from discontinued operations, net of tax
    
    
    416
    
    
    
    (1,074
    )
    
    
    405
    
    
    
    (8,130
    )Net loss
    
    $
    (5,238
    )
    
    $
    (22,047
    )
    
    $
    (11,017
    )
    
    $
    (33,459
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




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##### Table of Contents



Ambassadors International, Inc.
 Condensed Consolidated Statements of Operations  continued
 (in thousands, except per share data)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)Loss per share from continuing operations:Basic and Diluted
    
    $
    (0.21
    )
    
    $
    (1.92
    )
    
    $
    (0.43
    )
    
    $
    (2.28
    )Earnings (loss) per share from discontinued operations:Basic and Diluted
    
    $
    0.02
    
    
    $
    (0.10
    )
    
    $
    0.02
    
    
    $
    (0.73
    )Loss per share:Basic and Diluted
    
    $
    (0.20
    )
    
    $
    (2.02
    )
    
    $
    (0.42
    )
    
    $
    (3.01
    )Weighted-average common shares outstanding:Basic and Diluted
    
    
    26,521
    
    
    
    10,918
    
    
    
    26,518
    
    
    
    11,117
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  4




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Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Cash Flows 
(in thousands)
 Six Months EndedJune 30,2010
    
    
    2009(unaudited)Cash flows from operating activities:Net loss
    
    $
    (11,017
    )
    
    $
    (33,459
    )Income (loss) from discontinued operations
    
    
    405
    
    
    
    (8,130
    )Loss from continuing operations
    
    
    (11,422
    )
    
    
    (25,329
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    3,658
    
    
    
    5,404Amortization of debt discount
    
    
    496
    
    
    
    1,503Gain on sale of marine vessel
    
    
    (100
    )
    
    
    Impairment loss
    
    
    175
    
    
    
    14,000Foreign currency translation
    
    
    
    
    
    
    (9
    )Share-based compensation expense (benefit)
    
    
    2
    
    
    
    (427
    )Change in assets and liabilities:Other receivables
    
    
    (133
    )
    
    
    (449
    )Inventory
    
    
    (43
    )
    
    
    275Prepaid costs and other current assets
    
    
    (2,799
    )
    
    
    (1,079
    )Other assets
    
    
    (2,463
    )
    
    
    (579
    )Accounts payable and accrued expenses
    
    
    (2,569
    )
    
    
    (2,206
    )Restricted cash
    
    
    1,253
    
    
    
    1,033Passenger deposits
    
    
    6,573
    
    
    
    88Discontinued operations
    
    
    (221
    )
    
    
    4,458Net cash used in operating activities
    
    
    (7,593
    )
    
    
    (3,317
    )Cash flows from investing activities:Purchase of property, vessels and equipment
    
    
    (427
    )
    
    
    (153
    )Proceeds from sale of assets
    
    
    425
    
    
    
    Discontinued operations
    
    
    
    
    
    
    (1,199
    )Net cash used in investing activities
    
    
    (2
    )
    
    
    (1,352
    )Cash flows from financing activities:Proceeds from borrowings under Credit Facility
    
    
    8,075
    
    
    
    Discontinued operations
    
    
    
    
    
    
    48Net cash provided by financing activities
    
    
    8,075
    
    
    
    48Net increase (decrease) in cash and cash equivalents:
    
    
    480
    
    
    
    (4,621
    )Cash and cash equivalents, beginning of period
    
    
    2,576
    
    
    
    10,105Cash and cash equivalents, end of period
    
    $
    3,056
    
    
    $
    5,484Supplemental disclosure of cash flow informationCredit facility financing fees
    
    $
    1,034
    
    
    
    Barter transactions
    
    $
    221
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  5




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##### Table of Contents



Ambassadors International, Inc.
 
 Notes to Condensed Consolidated Financial Statements (unaudited)
 1. Description of the Company and Basis of Presentation
  Delta Queen®, Columbia Queen, Delta Queen ® Mississippi Queen Contessa
 Discontinued Operations
  Liquidity
   Wind Sprit Wind Spirit Wind Star
  6




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##### Table of Contents



Seasonality
  Basis of Presentation
  www.ambassadors.com/invrel.htm
 Estimates
  Subsequent Events
   7




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Reclassifications
  Fair Value Measurements
   Cash and Cash Equivalents
  Restricted Cash
  June 30,
    
    
    December 31,2010
    
    
    2009Restricted cash to secure credit card processing
    
    $
    8,935
    
    
    $
    11,000Proceeds from Credit Facility, escrow account
for drydock and capital expenditures
    
    
    512
    
    
    
    Cash deposit in escrow
    
    
    
    
    
    
    200Certificate of deposits held as collateral
    
    
    570
    
    
    
    70$
    10,017
    
    
    $
    11,270
 Queen of the West®
  8




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Property, Vessels and Equipment
   Current
and Other Assets, including Drydock Costs
  Intangible Asset
  Foreign Currency Transactions
   9




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Revenue Recognition
  Selling and Tour Promotion Expenses
  Barter Transactions
   Income Taxes
  Accounting for Share-Based Compensation Plans
     10




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##### Table of Contents



WeighedAverageGrant DateNumber of Shares
    
    
    Fair ValueOutstanding at December 31, 2009
    
    
    481,816
    
    
    $
    0.49Awarded
    
    
    107,070
    
    
    $
    0.55Forfeited
    
    
    (53,535
    )
    
    $
    0.49Outstanding at June 30, 2010
    
    
    535,351
    
    
    $
    0.51
 Recently Issued Accounting Standards
 Consolidation of Variable Interest
Entities
 2. Discontinued Operations and Assets Held for Sale
   Six Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2009Revenue from discontinued operations
    
    $
    620
    
    
    $
    25,680Operating expenses from discontinued operations
    
    
    (11
    )
    
    
    (33,419
    )Income (loss) from discontinued operations before taxes
    
    
    609
    
    
    
    (7,739
    )Income tax provision
    
    
    (204
    )
    
    
    (391
    )Income (loss) from discontinued operations, net of taxes
    
    $
    405
    
    
    $
    (8,130
    )
   11




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June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Assets held for sale:Majestic America Line vessels
    
    $
    1,765
    
    
    $
    500Reinsurance Receivable and
other assets
    
    
    661
    
    
    
    188$
    2,426
    
    
    $
    688Liabilities related to assets held for sale:Accounts payable and accrued
expenses
    
    $
    550
    
    
    $
    491
 3. Inventory
  June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Food and beverage
    
    $
    394
    
    
    $
    449Gift shop and supplies
    
    
    756
    
    
    
    652Fuel
    
    
    314
    
    
    
    320$
    1,464
    
    
    $
    1,421
  12




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##### Table of Contents



4. Prepaid costs and other current assets
  June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Current portion of prepaid
drydocking costs
    
    $
    2,578
    
    
    $
    1,271Prepaid loan fees
    
    
    924
    
    
    
    19Prepaid insurance
    
    
    433
    
    
    
    497Deferred costs
    
    
    1,364
    
    
    
    556Other prepaid costs and other
current assets
    
    
    745
    
    
    
    539$
    6,044
    
    
    $
    2,882
  13




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##### Table of Contents



5. Long term obligations
  June 31,
    
    
    December 31,2010
    
    
    2009(unaudited)Guaranteed principal payment to MARAD
    
    $
    948
    
    
    $
    94810% Senior Secured Notes, including
interest
    
    
    21,881
    
    
    
    21,8813.75% Convertible Notes, net of
unamortized discount of $1,866 and
$2,362, respectively
    
    
    29,335
    
    
    
    28,838Credit Facility
    
    
    8,075
    
    
    
    Less: current portion
    
    
    (948
    )
    
    
    ( 948
    )Non-current portion
    
    $
    59,291
    
    
    $
    50,719
 Guaranteed Principal Payment
 Delta Queen ® American Queen ® American Queen ®
 3.75% Convertible Senior Notes
  Debt with Conversion Options
   14




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##### Table of Contents



10% Senior Secured Notes
  Credit Facility
    15




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##### Table of Contents



Year Ended December 31,2010
    
    $
    9482011
    
    
    2012
    
    
    61,1572013
    
    
    2014
    
    
    Thereafter
    
    
    62,105Less: unamortized discount
    
    
    (1,866
    )$
    60,239
 6. Earnings (Loss) Per Share
  7. Income Taxes
    8. Commitments and Contingencies
 American Queen®.
  16




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9. Subsequent Events
    17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Cruise Operations Wind Surf Wind Spirit Wind Star
  
    
    increase our sales and marketing efficiencies to drive more sales, which will enable us
to scale our campaigns to a level appropriate for a company of our size;
    
    increase revenues by providing exceptional customer service
and guest experiences; and
    
    reduce operational costs by continuing to renegotiate key vendor contracts that will
allow for significant direct cost savings, efficiency gain and product improvements.
  Majestic
America Line Queen of the West ® Mississippi
Queen ® Contessa
 ®
   18




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Exchange Offer and Credit Facility
   Critical Accounting Policies
    19




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##### Table of Contents



Statistical Terminology and Information for Cruise Operations
 Available Passenger Cruise Days (APCD)
  Passenger Cruise Days (PCD)
  Occupancy
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Passengers Carried
    
    
    4,659
    
    
    
    5,176
    
    
    
    10,250
    
    
    
    11,766Occupancy Percentage
    
    
    64.2
    %
    
    
    74.0
    %
    
    
    70.3
    %
    
    
    80.6
    %Passenger Cruise Days (PCD)
    
    
    34,267
    
    
    
    37,816
    
    
    
    73,404
    
    
    
    83,946Available Passenger Cruise Days (APCD)
    
    
    53,369
    
    
    
    51,072
    
    
    
    104,441
    
    
    
    104,216
 COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2010 TO THE THREE MONTHS ENDED JUNE 30,
2009
 Revenue
    20




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Cruise Operating Expenses
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Depreciation
  Operating loss from continuing operations
  Other Expense
   21




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##### Table of Contents



Income Taxes
  Net loss from discontinued operations
  Liquidity
  Wind Sprit Wind
Star
    22




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##### Table of Contents



COMPARISON OF RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2010 TO THE SIX MONTHS ENDED JUNE 30, 2009
 Revenue
  Cruise Operating Expenses
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Impairment charge
  Depreciation expense
  Operating Loss
   23




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##### Table of Contents



Other Income (Expense)
 Queen of the West
 Income Taxes
  Net Loss
  Liquidity and Capital Resources
 Wind Spirit
    Trends and Uncertainties
   24




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Forward-Looking Statements
  
    
    our ability to obtain additional financing at reasonable rates;
    
    our ability to refinance our debt;
    
    our ability to continue to operate as a going concern;
    
    our ability to effectively and efficiently operate our cruise operations;
    
    customer cancellation rates;
    
    competitive conditions in the industry in which we operate;
    
    marketing expenses;
    
    extreme weather conditions;
    
    the impact of new laws and regulations affecting our business;
    
    negative incidents involving cruise ships, including those involving the health and
safety of passengers;
    
    cruise ship maintenance problems;
    
    reduced consumer demand for vacations and cruise vacations;
    
    changes in fuel, food, payroll, insurance and security costs;
    
    changes in relationships with certain travel providers;
    
    changes in vacation industry capacity;
    
    other economic factors and other considerations affecting the travel industry;
    
    potential of our common stock not listed on a U.S. national securities exchange or
quoted on an established automated over the counter trading market in the U.S. exchange;
and
    
    other factors discussed in this Quarterly Report on Form 10-Q and in our Annual Report
on Form 10-K.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
   25




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Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 American Queen®.
 
 Item 1A. Risk Factors.
  If we are unable to meet listing requirements of The Nasdaq Global Market and Nasdaq determines to
delist our common stock, the market liquidity and market price of our common stock could decline
and we could become obligated to repurchase some or all of our outstanding Convertible Notes.
  26




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. (Removed and Reserved)
 
 Item 5. Other Information.
   27




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Item 6. Exhibits.
 Exhibit No.
    
    Description31.1*
    
    Certification of Chief Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of Chief Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2*
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 *
    
    Attached hereto.  28




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Signatures
  AMBASSADORS INTERNATIONAL, INC.
(Registrant)Date: August 12, 2010
    By:
    /s/ Mark T. DetillionMark T. DetillionChief Financial Officer,
(Principal Financial Officer
and Duly Authorized Officer)  29