##### 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 March 31, 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
    
    91-1688605(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 2101 4th Avenue, suite 210
Seattle, Washington 98121
(Address of Principal Executive Offices)
 Registrants Telephone Number, Including Area Code: (206) 292-9606
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
 Yes o No þ
 The number of shares of the registrants Common Stock outstanding as of May 11, 2010 was
26,517,557.




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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 March 31, 2010 (unaudited) and December 31, 2009
    
    
    2Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and
2009 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22Item 4T. Controls and Procedures
    
    
    22PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. (Removed and Reserved)
    
    
    23Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24SIGNATURES
    
    
    25EXHIBIT INDEX
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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Ambassadors International, Inc.
 
 Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)Assets:Cash and cash equivalents
    
    $
    2,974
    
    
    $
    2,576Restricted cash
    
    
    12,733
    
    
    
    11,270Accounts and other receivables
    
    
    164
    
    
    
    179Prepaid costs and other current assets
    
    
    4,970
    
    
    
    3,245Inventory
    
    
    1,660
    
    
    
    1,421Assets held for sale
    
    
    550
    
    
    
    688Total current assets
    
    
    23,051
    
    
    
    19,379Property, vessels and equipment, net
    
    
    64,292
    
    
    
    66,117Intangible asset
    
    
    5,500
    
    
    
    5,500Other assets
    
    
    1,063
    
    
    
    923Total assets
    
    $
    93,906
    
    
    $
    91,919Liabilities:Accounts payable
    
    $
    4,391
    
    
    $
    6,302Passenger deposits
    
    
    13,109
    
    
    
    11,499Accrued expenses
    
    
    5,550
    
    
    
    5,183Current portion of long term debt
    
    
    948
    
    
    
    948Liabilities related to assets held for sale
    
    
    336
    
    
    
    491Total current liabilities
    
    
    24,334
    
    
    
    24,423Passenger deposits
    
    
    357
    
    
    
    248Long term debt net of discount of $2,116
at March 31, 2010 and $2,362 at December
31, 2009, respectively
    
    
    58,465
    
    
    
    50,719Total liabilities
    
    
    83,156
    
    
    
    75,390Commitments and contingencies (Note 9)Stockholders equity:Preferred stock, $.01 par value; 2,000,000
shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 40,000,000
shares authorized; 26,517,557 shares
issued and outstanding at March 31, 2010
and December 31, 2009
    
    
    260
    
    
    
    260Additional paid-in capital
    
    
    118,785
    
    
    
    118,785Accumulated deficit
    
    
    (108,295
    )
    
    
    (102,516
    )Total stockholders equity
    
    
    10,750
    
    
    
    16,529Total liabilities and stockholders equity
    
    $
    93,906
    
    
    $
    91,919
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  2




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Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Operations
(in thousands, except per share data)
 Three months endedMarch 31,2010
    
    
    2009(unaudited)Revenues:Passenger ticket revenue
    
    $
    9,476
    
    
    $
    12,452Onboard and other cruise revenue
    
    
    3,172
    
    
    
    3,64412,648
    
    
    
    16,096Costs and operating expenses:Cruise operating expenses:Compensation and benefits
    
    
    2,703
    
    
    
    2,725Passenger expenses
    
    
    804
    
    
    
    1,103Materials and services
    
    
    5,426
    
    
    
    6,612Repairs and maintenance
    
    
    1,691
    
    
    
    1,670Commissions and other cruise operating expenses
    
    
    1,029
    
    
    
    1,13111,653
    
    
    
    13,241Selling and tour promotion
    
    
    2,296
    
    
    
    1,886General and administrative
    
    
    2,046
    
    
    
    1,255Depreciation
    
    
    1,885
    
    
    
    2,70117,880
    
    
    
    19,083Operating loss from continuing operations
    
    
    (5,232
    )
    
    
    (2,987
    )Other income (expense):Interest expense
    
    
    (571
    )
    
    
    (1,649
    )Other, net
    
    
    68
    
    
    
    284(503
    )
    
    
    (1,365
    )Loss from continuing operations before income taxes
    
    
    (5,735
    )
    
    
    (4,352
    )Provision for income taxes
    
    
    33
    
    
    
    3Loss from continuing operations
    
    
    (5,768
    )
    
    
    (4,355
    )Loss from discontinued operations, net of tax
    
    
    (11
    )
    
    
    (7,057
    )Net loss
    
    $
    (5,779
    )
    
    $
    (11,412
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




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Ambassadors International, Inc.
Condensed Consolidated Statements of Operations-continued
(in thousands, except per share data)
 Three months endedMarch 31,2010
    
    
    2009(unaudited)Loss per share from continuing operations:Basic and Diluted
    
    $
    (0.22
    )
    
    $
    (0.38
    )Loss per share from discontinued operations:Basic and Diluted
    
    $
    (0.00
    )
    
    $
    (0.62
    )Loss per share:Basic and Diluted
    
    $
    (0.22
    )
    
    $
    (1.00
    )Weighted-average common shares outstanding:Basic and Diluted
    
    
    26,516
    
    
    
    11,318
 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)
 Three Months Ended2010
    
    
    2009(unaudited)Cash flows from operating activities:Net loss
    
    $
    (5,779
    )
    
    $
    (11,412
    )Less: loss from discontinued operations
    
    
    (11
    )
    
    
    (7,057
    )Loss from continuing operations
    
    
    (5,768
    )
    
    
    (4,355
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    1,885
    
    
    
    2,758Amortization of debt discount and offering
costs
    
    
    246
    
    
    
    721Share-based compensation expense (benefit)
    
    
    
    
    
    
    (749
    )Foreign currency translation
    
    
    
    
    
    
    (9
    )Change in assets and liabilitiesAccounts and other receivables
    
    
    15
    
    
    
    (546
    )Inventory
    
    
    (239
    )
    
    
    175Prepaid costs and other current assets
    
    
    (691
    )
    
    
    1,152Other assets
    
    
    (140
    )
    
    
    251Accounts payable and accrued expenses
    
    
    (1,544
    )
    
    
    (6,639
    )Restricted cash
    
    
    (1,463
    )
    
    
    (634
    )Passenger deposits
    
    
    1,719
    
    
    
    (1,689
    )Discontinued operations
    
    
    (28
    )
    
    
    5,034Net cash used in operating activities
    
    
    (6,008
    )
    
    
    (4,530
    )Cash flows from investing activities:Purchase of property, vessels and equipment
    
    
    (60
    )
    
    
    (155
    )Discontinued operations
    
    
    
    
    
    
    (85
    )Net cash used in investing activities
    
    
    (60
    )
    
    
    (240
    )Cash flows from financing activities:Proceeds from borrowings under Credit Facility
    
    
    6,466
    
    
    
    Discontinued operations
    
    
    
    
    
    
    (171
    )Net cash provided by (used in)
financing activities
    
    
    6,466
    
    
    
    (171
    )Net increase (decrease) in cash and cash equivalents
    
    
    398
    
    
    
    (4,941
    )Cash and cash equivalents, beginning of
period
    
    
    2,576
    
    
    
    10,105Cash and cash equivalents, end of period
    
    $
    2,974
    
    
    
    5,164Supplemental disclosure of cash flow informationCredit facility financing fees
    
    
    1,034
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements.
  5




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




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Seasonality
  Basis of Presentation
   Estimates
  Subsequent Events
  Reclassifications
   7




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Fair Value Measurements
   Cash and Cash Equivalents
  Restricted Cash
  March 31,
    
    
    December 31,2010
    
    
    2009Restricted cash to secure credit card processing
    
    $
    8,163
    
    
    $
    11,000Proceeds
from Credit Facility, escrow account for drydock and capital expenditures
    
    
    4,500
    
    
    
    Cash deposit in escrow
    
    
    
    
    
    
    200Certificate
of Deposit to secure letter of credit
    
    
    70
    
    
    
    70Balance
    
    $
    12,733
    
    
    $
    11,270
 Queen of the West®
  8




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Property, Vessels and Equipment
   Drydocking
  Intangible Asset
  Foreign Currency Transactions
  Revenue Recognition
  Selling and Tour Promotion Expenses
   9




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Income Taxes
  Accounting for Share-Based Compensation Plans
    Weighed Average Grant DateNumber of Shares
    
    
    Fair ValueOutstanding at December 31, 2009
    
    
    481,816
    
    
    $
    0.49Awarded
    
    
    53,535
    
    
    $
    0.55Forfeited
    
    
    (53,535
    )
    
    $
    0.49Outstanding at March 31, 2010
    
    
    481,816
    
    
    $
    0.50
 Recently Issued Accounting Standards
 Consolidation of Variable Interest
Entities
  10




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2. Discontinued Operations and Assets Held for Sale
   Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009Revenue from discontinued operations
    
    $
    
    
    
    $
    15,715Operating expenses from discontinued operations
    
    
    (11
    )
    
    
    (22,815
    )Loss from discontinued operations before taxes
    
    
    (11
    )
    
    
    (7,100
    )Income tax benefit
    
    
    
    
    
    
    43Loss from discontinued operations, net of taxes
    
    $
    (11
    )
    
    $
    (7,057
    )
    March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)Assets held for saleAccounts receivable
    
    $
    10
    
    
    $
    148Majestic America Line vessels
    
    
    500
    
    
    
    500All other assets
    
    
    40
    
    
    
    40$
    550
    
    
    $
    688Liabilities related to assets held for sale:Accounts payable and accrued expenses
    
    $
    336
    
    
    $
    491
  11




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3. Inventory
  March 31, 2010
    
    
    December 31, 2009(unaudited)Food and beverage
    
    $
    444
    
    
    $
    449Gift shop and supplies
    
    
    757
    
    
    
    652Fuel
    
    
    459
    
    
    
    320$
    1,660
    
    
    $
    1,421
 4. Prepaid costs and other current assets
  March 31, 2010
    
    
    December 31, 2009(unaudited)Current portion of prepaid drydocking costs
    
    $
    1,106
    
    
    $
    1,271Prepaid loan fees
    
    
    1,051
    
    
    
    19Prepaid insurance
    
    
    682
    
    
    
    497Deferred costs
    
    
    761
    
    
    
    556Deposits
    
    
    822
    
    
    
    373Other prepaid costs and other current assets
    
    
    548
    
    
    
    529$
    $4,970
    
    
    $
    3,245
 5. Long term obligations
  March 31, 2010
    
    
    December 31, 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 and offering costs of $2,116 and
$2,362, respectively
    
    
    29,084
    
    
    
    28,838Credit Facility
    
    
    7,500
    
    
    
    Less: current portion
    
    
    (948
    )
    
    
    ( 948
    )Non-current portion
    
    $
    58,465
    
    
    $
    50,719
 Guaranteed Principal Payment
 Delta Queen ® American Queen ® American Queen ®
  12




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3.75% Convertible Senior Notes
  Debt with Conversion Options
    10% Senior Secured Notes
   13




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Credit Facility
    Year Ended December 31,2010
    
    $
    9482011
    
    
    2012
    
    
    59,6332013
    
    
    2014
    
    
    Thereafter
    
    
    60,581Less: unamortized discount and offering costs
    
    
    (2,116
    )Debt balance March 31, 2010
    
    $
    58,465
 6. Comprehensive loss
  Three Months EndedMarch 31,2010
    
    
    2009Net loss
    
    $
    (5,779
    )
    
    $
    (11,412
    )Change in unrealized gain (loss) on
foreign currency translation
    
    
    
    
    
    
    (168
    )$
    (5,779
    )
    
    $
    (11,580
    )
 7. Earnings (Loss) Per Share
   14




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##### Table of Contents



8. Income Taxes
   9. Commitments and Contingencies
 Empress of the North ®
 American Queen®.
 10. Subsequent Events
 Mississippi
Queen ®
 
  15




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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; 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 ®
   16




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Exchange Offer and Credit Facility
   Critical Accounting Policies
    17




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Statistical Terminology and Information for Cruise Operations
 Available Passenger Cruise Days (APCD)
  Occupancy
  Passenger Cruise Days
   Three Months EndedMarch 31,2010
    
    
    2009Passengers Carried
    
    
    5,460
    
    
    
    6,456Occupancy Percentage
    
    
    74.8
    %
    
    
    85.0
    %Passenger Cruise Days
    
    
    38,220
    
    
    
    45,192APCD
    
    
    51,072
    
    
    
    53,144
 COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2010 TO THE THREE MONTHS ENDED MARCH 31,
2009
 Revenue
    18




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Cruise Operating Expenses
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Depreciation and Amortization
  Operating loss from continuing operations
  Other Expense
   19




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Income Taxes
  Net loss from discontinued operations
  Liquidity and Capital Resources
   Wind Sprit Wind
Star
     20




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Trends and Uncertainties
  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;
  21




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
    
    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; and
    
    other factors discussed in this Quarterly Report on Form 10-Q.
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4.
    
    Controls and Procedures.
  
 Item 4T.
    
    Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   22




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Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings.
 Empress of the North ®
 American Queen®.
 
 Item 1A.
    
    Risk Factors.
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3.
    
    Defaults Upon Senior Securities.
  
 Item 4.
    
    (Removed and Reserved)
  23




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Item 5.
    
    Other Information.
 Notice of Delisting or Failure to
Satisfy a Continued Listing Rule or Standard; Transfer of Listing
     
 Item 6.
    
    Exhibits.
 Exhibit No.
    
    Description10.1
    
    
    Employment Agreement, dated April 26, 2010, between
Ambassadors International, Inc. and
Hans Birkholz (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K
filed on April 30, 2010)31.1
    *
    
    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.  24




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Signatures  AMBASSADORS INTERNATIONAL, INC.
(Registrant)Date: May 13, 2010
    By:
    /s/ Mark T. DetillionMark T. DetillionChief Financial Officer,
(Principal Financial Officer
and Duly Authorized Officer)  25




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Exhibit Index
 Exhibit No.
    
    Description10.1
    
    

Employment Agreement, dated April 26, 2010, between Ambassadors
International, Inc. and
Hans Birkholz (incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K
filed on April 30, 2010)31.1
    *
    
    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.  26