##### 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 September 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
    
    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)
 o þ
 The number of shares of the registrants Common Stock outstanding as of November 5, 2010 was
3,321,384.




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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 September 30, 2010 (unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2010 and 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010
and 2009 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. (Removed and Reserved)
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27EXHIBIT INDEXExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



Ambassadors International, Inc.
 
 Condensed Consolidated Balance Sheets

(in thousands, except share amounts)
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Assets:Cash and cash equivalents
    
    $
    6,879
    
    
    $
    2,576Restricted cash
    
    
    7,836
    
    
    
    11,270Other receivables
    
    
    135
    
    
    
    179Prepaid costs and other current assets
    
    
    5,176
    
    
    
    2,882Inventory
    
    
    1,497
    
    
    
    1,421Assets held for sale
    
    
    1,765
    
    
    
    688Total current assets
    
    
    23,288
    
    
    
    19,016Property, vessels and equipment, net
    
    
    59,695
    
    
    
    66,117Intangible asset
    
    
    5,500
    
    
    
    5,500Other assets
    
    
    2,868
    
    
    
    1,286Total assets
    
    $
    91,351
    
    
    $
    91,919Liabilities:Accounts payable
    
    $
    3,510
    
    
    $
    6,302Accrued expenses
    
    
    4,575
    
    
    
    5,183Passenger deposits
    
    
    15,428
    
    
    
    11,499Current portion of long term debt
    
    
    958
    
    
    
    948Liabilities related to assets held for sale
    
    
    514
    
    
    
    491Total current liabilities
    
    
    24,985
    
    
    
    24,423Passenger deposits
    
    
    377
    
    
    
    248Long term debt net of discount of $1,612 at September 30, 2010 and $2,362 at December 31, 2009, respectively
    
    
    61,044
    
    
    
    50,719Total liabilities
    
    
    86,406
    
    
    
    75,390Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 5,000,000 shares authorized; 3,321,384 shares issued and outstanding at
Sepember 30, 2010 and 3,314,695 at December 31, 2009
    
    
    33
    
    
    
    33Additional paid-in capital
    
    
    119,032
    
    
    
    119,012Accumulated deficit
    
    
    (114,120
    )
    
    
    (102,516
    )Total stockholders equity
    
    
    4,945
    
    
    
    16,529Total liabilities and stockholders equity
    
    $
    91,351
    
    
    $
    91,919
 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

(in thousands, except per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)Revenues:Passenger ticket revenue
    
    $
    15,366
    
    
    $
    13,542
    
    
    $
    35,116
    
    
    $
    36,971Onboard and other revenue
    
    
    4,418
    
    
    
    4,170
    
    
    
    10,685
    
    
    
    11,46419,784
    
    
    
    17,712
    
    
    
    45,801
    
    
    
    48,435Costs and operating expenses:Cruise operating expenses:Compensation and benefits
    
    
    3,083
    
    
    
    2,931
    
    
    
    8,951
    
    
    
    9,249Passenger expenses
    
    
    1,134
    
    
    
    1,150
    
    
    
    2,839
    
    
    
    3,375Materials and services
    
    
    6,408
    
    
    
    6,890
    
    
    
    17,634
    
    
    
    18,752Repairs and maintenance
    
    
    1,477
    
    
    
    948
    
    
    
    4,198
    
    
    
    3,683Commissions and other cruise operating expenses
    
    
    1,795
    
    
    
    1,373
    
    
    
    4,123
    
    
    
    3,74713,897
    
    
    
    13,292
    
    
    
    37,745
    
    
    
    38,806Selling and tour promotion
    
    
    1,871
    
    
    
    1,248
    
    
    
    6,037
    
    
    
    5,150General and administrative
    
    
    1,773
    
    
    
    2,169
    
    
    
    6,025
    
    
    
    6,382Business interruption insurance claim
    
    
    
    
    
    
    (1,175
    )
    
    
    
    
    
    
    (1,175
    )Impairment
    
    
    
    
    
    
    32,493
    
    
    
    175
    
    
    
    46,493Depreciation
    
    
    1,630
    
    
    
    2,460
    
    
    
    5,288
    
    
    
    7,86419,171
    
    
    
    50,487
    
    
    
    55,270
    
    
    
    103,520Operating income (loss) from continuing operations
    
    
    613
    
    
    
    (32,775
    )
    
    
    (9,469
    )
    
    
    (55,085
    )Other income (expense):Interest expense
    
    
    (1,045
    )
    
    
    (1,670
    )
    
    
    (2,704
    )
    
    
    (5,004
    )Other, net
    
    
    (147
    )
    
    
    (116
    )
    
    
    27
    
    
    
    9(1,192
    )
    
    
    (1,786
    )
    
    
    (2,677
    )
    
    
    (4,995
    )Loss from continuing operations before income taxes
    
    
    (579
    )
    
    
    (34,561
    )
    
    
    (12,146
    )
    
    
    (60,080
    )Benefit from income taxes
    
    
    
    
    
    
    
    
    
    
    (145
    )
    
    
    (191
    )Loss from continuing operations
    
    
    (579
    )
    
    
    (34,561
    )
    
    
    (12,001
    )
    
    
    (59,889
    )Income (loss) from discontinued operations, net of tax
    
    
    (8
    )
    
    
    (674
    )
    
    
    397
    
    
    
    (8,804
    )Net loss
    
    $
    (587
    )
    
    $
    (35,235
    )
    
    $
    (11,604
    )
    
    $
    (68,693
    )
 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 Operations- continued
(in thousands, except per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)Loss per share from continuing operations:Basic and Diluted
    
    $
    (0.18
    )
    
    $
    (25.35
    )
    
    $
    (3.61
    )
    
    $
    (42.82
    )Earnings (loss) per share from
discontinued operations:Basic and Diluted
    
    $
    
    
    
    $
    (0.49
    )
    
    $
    0.12
    
    
    $
    (6.30
    )Loss per share:Basic and Diluted
    
    $
    (0.18
    )
    
    $
    (25.84
    )
    
    $
    (3.49
    )
    
    $
    (49.12
    )Weighted-average common shares outstanding:Basic and Diluted
    
    
    3,322
    
    
    
    1,364
    
    
    
    3,322
    
    
    
    1,398
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  5




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Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Cash Flows 
(in thousands)
 Nine Months EndedSeptember 302010
    
    
    2009(unaudited)Cash flows from operating activities:Net loss
    
    $
    (11,604
    )
    
    $
    (68,693
    )Income (loss) from discontinued operations
    
    
    397
    
    
    
    (8,804
    )Loss from continuing operations
    
    
    (12,001
    )
    
    
    (59,889
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    5,288
    
    
    
    7,864Amortization of debt discount
    
    
    750
    
    
    
    2,266Disposition of property, vessels and equipment
    
    
    (100
    )
    
    
    Impairment loss
    
    
    175
    
    
    
    46,493Unrealized gain on investments
    
    
    
    
    
    
    (10
    )Share-based compensation expense (benefit)
    
    
    20
    
    
    
    (292
    )Change in assets and liabilities:Other receivables
    
    
    44
    
    
    
    (1,948
    )Inventory
    
    
    (76
    )
    
    
    330Prepaid costs and other current assets
    
    
    (2,090
    )
    
    
    (1,825
    )Other assets
    
    
    (1,583
    )
    
    
    (447
    )Accounts payable and accrued expenses
    
    
    (3,222
    )
    
    
    (5,195
    )Restricted cash
    
    
    3,434
    
    
    
    7,139Passenger deposits
    
    
    3,854
    
    
    
    (1,293
    )Discontinued operations
    
    
    430
    
    
    
    4,651Net cash used in operating activities
    
    
    (5,077
    )
    
    
    (2,156
    )Cash flows from investing activities:Purchase of property, vessels and equipment
    
    
    (630
    )
    
    
    (153
    )Proceeds from sale of assets
    
    
    425
    
    
    
    Discontinued operations
    
    
    
    
    
    
    (1,199
    )Net cash used in investing activities
    
    
    (205
    )
    
    
    (1,352
    )Cash flows from financing activities:Proceeds from borrowings under Credit Facility
    
    
    9,575
    
    
    
    Increase in MARAD debt
    
    
    10
    
    
    
    Discontinued operations
    
    
    
    
    
    
    48Net cash provided by financing activities
    
    
    9,585
    
    
    
    48Net increase (decrease) in cash and cash equivalents:
    
    
    4,303
    
    
    
    (3,460
    )Cash and cash equivalents, beginning of period
    
    
    2,576
    
    
    
    10,105Cash and cash equivalents, end of period
    
    $
    6,879
    
    
    $
    6,645Supplemental disclosure of cash flow informationCredit facility financing fees
    
    $
    1,034
    
    
    
    Barter transactions
    
    $
    204
    
    
    
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  6




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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, Delta Queen ® Mississippi Queen® Contessa
 Discontinued Operations
  Liquidity
   Wind Sprit Wind Star
    7




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Seasonality
  Basis of Presentation
  www.ambassadors.com/invrel.htm
 Estimates
  Subsequent Events
  Reclassifications
   8




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Fair Value Measurements
  Cash and Cash Equivalents
  Restricted Cash
  September 30,
    
    
    December 31,2010
    
    
    2009Restricted cash to secure customer credit card processing
    
    $
    4,766
    
    
    $
    11,000Proceeds from Credit Facility, escrow for drydock and capital expenditures
    
    
    2,500
    
    
    
    Sales deposit in escrow
    
    
    
    
    
    
    200Certificate of deposits held as collateral by bank
    
    
    570
    
    
    
    70$
    7,836
    
    
    $
    11,270
 Queen of the West®
 Property, Vessels and Equipment
    9




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##### Table of Contents



Current and Other Assets, including Drydock Costs
  Intangible Asset
  Foreign Currency Transactions
  Revenue Recognition
  Selling and Tour Promotion Expenses
  Barter Transactions
  Income Taxes
   10




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Accounting for Share-Based Compensation Plans
     WeighedAverageGrant DateNumber of Shares
    
    
    Fair ValueOutstanding at December 31, 2009
    
    
    60,227
    
    
    $
    3.92Awarded
    
    
    13,384
    
    
    $
    4.40Forfeited
    
    
    (6,692
    )
    
    $
    4.32Outstanding at September 30, 2010
    
    
    66,919
    
    
    $
    4.10
 Recently Issued Accounting Standards
 Consolidation of Variable Interest
Entities
 2. Discontinued Operations and Assets Held for Sale
   11




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Nine Months Ended
    
    
    Nine Months Ended(unaudited)
    
    September 30, 2010
    
    
    September 30, 2009Revenue from discontinued operations
    
    $
    620
    
    
    $
    26,156Operating expenses from discontinued operations
    
    
    (19
    )
    
    
    (34,569
    )Income (loss) from discontinued operations before tax
    
    
    601
    
    
    
    (8,413
    )Income tax provision
    
    
    (204
    )
    
    
    (391
    )Income (loss) from discontinued operations, net of tax
    
    $
    397
    
    
    $
    (8,804
    )
  Delta Queen ® Delta Queen ®
  September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Assets held for sale:Majestic America Line vessels
    
    $
    1,765
    
    
    $
    500Other assets
    
    
    
    
    
    
    188$
    1,765
    
    
    $
    688Liabilities related to assets held for sale:Accrued expenses
    
    $
    514
    
    
    $
    491
 3. Inventory
  September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Food and beverage
    
    $
    363
    
    
    $
    449Retail and supplies
    
    
    668
    
    
    
    652Fuel
    
    
    466
    
    
    
    320$
    1,497
    
    
    $
    1,421
 4. Prepaid costs and other current assets
  September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Current portion of drydocking costs
    
    $
    2,472
    
    
    $
    1,271Loan fees
    
    
    754
    
    
    
    19Insurance
    
    
    245
    
    
    
    497Deferred commission costs
    
    
    765
    
    
    
    556Other prepaid costs, including barter credits
    
    
    940
    
    
    
    539$
    5,176
    
    
    $
    2,882
  12




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5. Long term obligations
  September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Guaranteed principal payment to MARAD
    
    $
    958
    
    
    $
    94810% Senior Secured Notes, including interest
    
    
    21,881
    
    
    
    21,8813.75% Convertible Notes, net of unamortized discount of $1,612 and $2,362, respectively
    
    
    29,588
    
    
    
    28,838Credit Facility
    
    
    9,575
    
    
    
    Less: current portion
    
    
    (958
    )
    
    
    (948
    )Non-current portion
    
    $
    61,044
    
    
    $
    50,719
 Guaranteed Principal Payment
 American Queen ® American Queen ®
 3.75% Convertible Senior Notes
 Debt with Conversion Options
    13




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##### Table of Contents



10% Senior Secured Notes
  Credit Facility
    Year Ended December 31,2010
    
    $
    9582011
    
    
    2012
    
    
    62,6562013
    
    
    2014
    
    
    Thereafter
    
    
    63,614Less: unamortized discount
    
    
    (1,612
    )$
    62,002
 6. Earnings (Loss) Per Share
   14




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7. Income Taxes
   8. Reverse Stock Split
    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;
    
    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
 Delta Queen ® Columbia Queen®
  Exchange Offer and Credit Facility
   16




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Critical Accounting Policies
   Statistical Terminology and Information for Cruise Operations
 Available Passenger Cruise Days (APCD)
  Passenger Cruise Days (PCD)
  Occupancy
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Passengers Carried
    
    
    7,105
    
    
    
    7,273
    
    
    
    17,355
    
    
    
    18,892Occupancy Percentage
    
    
    89.9
    %
    
    
    92.0
    %
    
    
    77.1
    %
    
    
    83.9
    %Average
Fare Price
    
    $
    2,163
    
    
    $
    1,862
    
    
    $
    2,023
    
    
    $
    1,957Passenger Cruise Days (PCD)
    
    
    49,735
    
    
    
    50,911
    
    
    
    123,139
    
    
    
    133,828Available Passenger Cruise Days (APCD)
    
    
    55,328
    
    
    
    55,328
    
    
    
    159,769
    
    
    
    159,544
  17




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COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2009
 Revenue
   Cruise Operating Expenses
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Depreciation
   18




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Operating income (loss) from continuing operations
  Other Expense
  Income (loss) from discontinued operations, net of tax
  Liquidity
  Wind Sprit Wind Star Wind Star
    19




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COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2009
 Revenue
  Cruise Operating Expenses
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Impairment charge
  Depreciation expense
   20




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##### Table of Contents



Operating income (loss) from continuing operations
  Other Income (Expense)
   21




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##### Table of Contents



Income Taxes
  Income (loss) from discontinued operations, net of tax
  Liquidity and Capital Resources
 Wind
Spirit,
    Wind Star
 Trends and Uncertainties
  Forward-Looking Statements
  
    
    our ability to obtain additional financing at reasonable rates;
 
    
    our ability to refinance our debt;
  22




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##### Table of Contents




    
    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.
 Evaluation of Disclosure Controls and Procedures
   23




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Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 None
 
 Item 1A. Risk Factors.
   If we are unable to maintain our common stock listing on an established national securities exchange or automated
over-the-counter trading market in the United States, we may become obligated to repurchase some or all of our
outstanding Convertible Notes for cash. We do not have sufficient funds currently
available for such repurchase, if required.
      24




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##### Table of Contents



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.
 Minimum Bid Requirement Panel Minimum Bid Requirement Panel
     25




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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.  26




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Signatures
  AMBASSADORS INTERNATIONAL, INC.
(Registrant)Date: November 15, 2010
    By:
    /s/ Mark T. DetillionMark T. DetillionChief Financial Officer,
(Principal Financial Officer and
Duly Authorized Officer)  27