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

FORM 10-Q

(Mark One)

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[X]   |  | QUARTERLY report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 
|      |  |                                                                                         
|      |  | For the quarterly period ended March 31, 2002                                           
|      |  |                                                                                         
|      |  | OR                                                                                      
|      |  |                                                                                         
|[   ] |  | 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
incorporation of organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|                                                               |  |                                     
|1071 Camelback StreetNewport Beach, California                 |  | 92660                               
|(Address of principal
executive offices)                       |  | (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 [    ]

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 April 30, 2002: 9,855,910





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TABLE OF CONTENTS



|                               |                                                                                               |                                                   |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------- |  |  |  |  |  | 
|PART 1  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)    
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       
|                               | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II  OTHER INFORMATION   
|                               | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                    



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AMBASSADORS INTERNATIONAL, INC.
FORM 10-Q QUARTERLY REPORT

Table of Contents

|                                                                                              |                                                                                                      |  |      |   | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                                                                      |  | Page
|                                                                                              |                                                                                                      |  |     
|PART I FINANCIAL INFORMATION                                                                  |                                                                                                      |  |      |  
|Item 1. Consolidated Balance Sheets at March 31, 2002
(unaudited) and December 31, 2001       |                                                                                                      |  | 1    |  
|                                                                                              | Consolidated Statements of Income for the Three
Months Ended March 31, 2002 and 2001 (unaudited)     |  |      | 3 | 
|                                                                                              | Consolidated Statements of Cash Flows for the three
Months Ended March 31, 2002 and 2001 (unaudited) |  |      | 4 | 
|                                                                                              | Notes to Consolidated Financial Statements                                                           |  |      | 6 | 
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                      |  | 10   |  
|PART II OTHER INFORMATION                                                                     |                                                                                                      |  |      |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                      |  | 15   |  
|SIGNATURES                                                                                    |                                                                                                      |  | 16   |  





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PART 1  FINANCIAL INFORMATION
Item 1. Financial Statements

AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2002 and December 31, 2001
(dollars in thousands)

|                                                                                |                                    |                      |       |             |         |              |       |         |         | 
|------------------------------------------------------------------------------- | ---------------------------------- | -------------------- | ----- | ----------- | ------- | ------------ | ----- | ------- | ------- | 
|                                                                                |                                    |                      |       | March 31,   |         | December 31,
|                                                                                |                                    |                      |       | 2002        |         | 2001        
|                                                                                |                                    |                      |       |             |         |             
|                                                                                |                                    |                      |       | (UNAUDITED) |         |              |       |        
|ASSETS                                                                          |                                    |                      |       |             |         |              |       |        
|Current assets:                                                                 |                                    |                      |       |             |         |              |       |        
|                                                                                | Cash and cash equivalents          |                      | $     | 21,504      |         |              | $     | 28,021  |        
|                                                                                | Restricted cash equivalents        |                      |       |            |         |              |       | 12      |        
|                                                                                | Available-for-sale securities      |                      |       | 82,674      |         |              |       | 107,303 |        
|                                                                                | Accounts receivable                |                      |       | 3,798       |         |              |       | 4,487   |        
|                                                                                | Prepaid program costs and expenses |                      |       | 4,906       |         |              |       | 5,250   |        
|                                                                                | Deferred income taxes              |                      |       | 1,393       |         |              |       | 1,202   |        
|                                                                                |                                    |                      |       |             |         |              |       |        
|                                                                                |                                    | Total current assets |       |             | 114,275 |              |       |         | 146,275 | 
|Property and equipment, net                                                     |                                    |                      | 1,672 |             |         |              | 4,205 |        
|Other investments                                                               |                                    |                      | 1,561 |             |         |              | 323   |        
|Goodwill and covenant not-to-compete,
net of $1,246 of accumulated
amortization |                                    |                      | 6,274 |             |         |              | 6,344 |        
|Deferred income taxes                                                           |                                    |                      | 5,809 |             |         |              | 8,069 |        
|Other assets                                                                    |                                    |                      | 88    |             |         |              | 88    |        
|                                                                                |                                    |                      |       |             |         |              |       |        
|                                                                                |                                    | Total assets         |       | $           | 129,679 |              |       | $       | 165,304 | 
|                                                                                |                                    |                      |       |             |         |              |       |        

See notes to the consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
March 31, 2002 and December 31, 2001
(dollars in thousands)

|                           |                                                                                                                                            |                                            |         |             |         |              |         |        |         | 
|-------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ----------- | ------- | ------------ | ------- | ------ | ------- | 
|                           |                                                                                                                                            |                                            |         | March 31,   |         | December 31,
|                           |                                                                                                                                            |                                            |         | 2002        |         | 2001        
|                           |                                                                                                                                            |                                            |         |             |         |             
|                           |                                                                                                                                            |                                            |         | (UNAUDITED) |         |              |         |       
|LIABILITIES                |                                                                                                                                            |                                            |         |             |         |              |         |       
|Current liabilities:       |                                                                                                                                            |                                            |         |             |         |              |         |       
|                           | Accounts payable                                                                                                                           |                                            | $       | 2,311       |         |              | $       | 6,396  |        
|                           | Accrued expenses                                                                                                                           |                                            |         | 4,004       |         |              |         | 5,438  |        
|                           | Participants deposits                                                                                                                     |                                            |         | 10,384      |         |              |         | 26,527 |        
|                           | Note payable                                                                                                                               |                                            |         | 200         |         |              |         | 200    |        
|                           | Foreign currency exchange contracts                                                                                                        |                                            |         |            |         |              |         | 503    |        
|                           |                                                                                                                                            |                                            |         |             |         |              |         |       
|                           |                                                                                                                                            | Total liabilities                          |         |             | 16,899  |              |         |        | 39,064  | 
|STOCKHOLDERS EQUITY       |                                                                                                                                            |                                            |         |             |         |              |         |       
|                           | Preferred stock, $.01 par value;
2,000,000 shares authorized; none
issued and outstanding                                                  |                                            |         |            |         |              |         |       |        
|                           | Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued and outstanding, 9,855,910
and 9,813,001 shares
issued and outstanding |                                            |         | 99          |         |              |         | 98     |        
|                           | Additional paid-in capital                                                                                                                 |                                            |         | 88,565      |         |              |         | 88,144 |        
|                           | Retained earning                                                                                                                           |                                            |         | 24,298      |         |              |         | 39,018 |        
|                           | Accumulated other comprehensive
loss                                                                                                       |                                            |         | (182        | )       |              |         | (1,020 | )      
|                           |                                                                                                                                            |                                            |         |             |         |              |         |       
|Total stockholders equity |                                                                                                                                            |                                            | 112,780 |             |         |              | 126,240 |       
|                           |                                                                                                                                            |                                            |         |             |         |              |         |       
|                           |                                                                                                                                            | Total liabilities and stockholders equity |         | $           | 129,679 |              |         | $      | 165,304 | 
|                           |                                                                                                                                            |                                            |         |             |         |              |         |       

See notes to the consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
for the three months ended March 31, 2002 and 2001
(dollars in thousands, except per share data)

|                                                                                  |                              |                            |        |      |       |      |        |       |       | 
|--------------------------------------------------------------------------------- | ---------------------------- | -------------------------- | ------ | ---- | ----- | ---- | ------ | ----- | ----- | 
|                                                                                  |                              |                            |        | 2002 |       | 2001
|                                                                                  |                              |                            |        |      |       |     
|Revenues                                                                          |                              | $                          | 3,846  |      |       | $    | 6,131  |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|Operating expenses:                                                               |                              |                            |        |      |       |      |        |      
|                                                                                  |                              | Selling and tour promotion |        |      | 961   |      |        |       | 1,531 | 
|                                                                                  |                              | General and administrative |        |      | 2,835 |      |        |       | 3,875 | 
|                                                                                  |                              |                            |        |      |       |      |        |      
|                                                                                  |                              |                            | 3,796  |      |       |      | 5,406  |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|Operating income                                                                  |                              |                            | 50     |      |       |      | 725    |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|Other income:                                                                     |                              |                            |        |      |       |      |        |      
|                                                                                  | Interest and dividend income |                            |        | 600  |       |      |        | 1,118 |      
|                                                                                  | Other, net                   |                            |        | 32   |       |      |        | 340   |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|                                                                                  |                              |                            | 632    |      |       |      | 1,458  |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|Income from continuing operations before taxes                                    |                              |                            | 682    |      |       |      | 2,183  |      
|Provision for income taxes                                                        |                              |                            | 106    |      |       |      | 735    |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|Income from continuing operations                                                 |                              |                            | 576    |      |       |      | 1,448  |      
|Loss from discontinued operations
(less applicable income taxes of $662 and $744) |                              |                            | (1,127 | )    |       |      | (1,466 | )    
|                                                                                  |                              |                            |        |      |       |      |        |      
|Net loss                                                                          |                              | $                          | (551   | )    |       | $    | (18    | )    
|                                                                                  |                              |                            |        |      |       |      |        |      
|Earnings (loss) per share  basic:                                                |                              |                            |        |      |       |      |        |      
|Income from continuing operations                                                 |                              | $                          | 0.06   |      |       | $    | 0.15   |      
|Loss from discontinued operations                                                 |                              |                            | (0.12  | )    |       |      | (0.15  | )    
|                                                                                  |                              |                            |        |      |       |      |        |      
|Net loss                                                                          |                              | $                          | (0.06  | )    |       | $    |       |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|Weighted-average common shares outstanding                                        |                              |                            | 9,828  |      |       |      | 9,570  |      
|Earnings (loss) per share  diluted:                                              |                              |                            |        |      |       |      |        |      
|Income from continuing operations                                                 |                              | $                          | 0.06   |      |       | $    | 0.15   |      
|Loss from discontinued operations                                                 |                              |                            | (0.11  | )    |       |      | (0.15  | )    
|                                                                                  |                              |                            |        |      |       |      |        |      
|Net loss                                                                          |                              | $                          | (0.05  | )    |       | $    |       |      
|                                                                                  |                              |                            |        |      |       |      |        |      
|Weighted-average common shares outstanding                                        |                              |                            | 10,401 |      |       |      | 9,865  |      

See notes to the consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the three months ended March 31, 2002 and 2001
(dollars in thousands)

|                                                                                          |                                                                             |   |                                       |         |      |        |        |         |   |        |  
|----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | - | ------------------------------------- | ------- | ---- | ------ | ------ | ------- | - | ------ | -
|                                                                                          |                                                                             |   |                                       |         | 2002 |        | 2001  
|                                                                                          |                                                                             |   |                                       |         |      |        |       
|Cash flows from operating activities:                                                     |                                                                             |   |                                       |         |      |        |        |        
|Net loss                                                                                  |                                                                             | $ | (551                                  | )       |      | $      | (18    | )      
|Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities: |                                                                             |   |                                       |         |      |        |        |        
|                                                                                          | Depreciation and amortization                                               |   |                                       | 303     |      |        |        | 572     |  
|                                                                                          | Deferred income taxes                                                       |   |                                       | (449    | )    |        |        |        |  
|                                                                                          | Compensation expense on stock
grants                                        |   |                                       |        |      |        |        | 148     |  
|                                                                                          | Change in assets and liabilities
excluding effect of business
dispositions: |   |                                       |         |      |        |        |         |  
|                                                                                          |                                                                             |   | Accounts receivable                   |         |      | 546    |        |         |   | (1,268 | )
|                                                                                          |                                                                             |   | Prepaid program costs and expenses    |         |      | (1,157 | )      |         |   | (2,673 | )
|                                                                                          |                                                                             |   | Accounts payable and accrued
expenses |         |      | (1,572 | )      |         |   | (1,635 | )
|                                                                                          |                                                                             |   | Participants deposits                |         |      | 408    |        |         |   | 32,748 |  
|                                                                                          |                                                                             |   | Other                                 |         |      | 3      |        |         |   |       |  
|                                                                                          |                                                                             |   |                                       |         |      |        |        |        
|Net cash provided by (used in)
operating activities                                       |                                                                             |   | (2,469                                | )       |      |        | 27,874 |        
|                                                                                          |                                                                             |   |                                       |         |      |        |        |        
|Cash flows from investing activities:                                                     |                                                                             |   |                                       |         |      |        |        |        
|                                                                                          | Purchase of property and equipment                                          |   |                                       | (105    | )    |        |        | (255    | )
|                                                                                          | Purchase of available-for-sale
securities                                   |   |                                       | (34,312 | )    |        |        | (25,967 | )
|                                                                                          | Proceeds from sale or maturities of
available-for-sale securities           |   |                                       | 36,487  |      |        |        | 21,703  |  
|                                                                                          | Purchase of other investments                                               |   |                                       | (868    | )    |        |        | (320    | )
|                                                                                          | Change in other assets                                                      |   |                                       |        |      |        |        | 4       |  
|                                                                                          |                                                                             |   |                                       |         |      |        |        |        
|Net cash provided by (used in)
investing activities                                       |                                                                             |   | 1,202                                 |         |      |        | (4,835 | )      
|                                                                                          |                                                                             |   |                                       |         |      |        |        |        

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
for the three months ended March 31, 2002 and 2001
(dollars in thousands)

|                                                     |                                                    |   |        |        |      |   |        |        |  
|---------------------------------------------------- | -------------------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ | -
|                                                     |                                                    |   | 2002   |        | 2001
|                                                     |                                                    |   |        |        |     
|Cash flows from financing activities:                |                                                    |   |        |        |      |   |        |       
|                                                     | Dividends paid on common stock                     |   | $      |       |      |   | $      | (5,133 | )
|                                                     | Distribution resulting from spin-off
of subsidiary |   |        | (5,299 | )    |   |        |       |  
|                                                     | Purchase and retirement of common stock            |   |        | (80    | )    |   |        |       |  
|                                                     | Proceeds from exercise of stock
options            |   |        | 129    |      |   |        | 141    |  
|                                                     |                                                    |   |        |        |      |   |        |       
|Net cash used in financing
activities                |                                                    |   | (5,250 | )      |      |   | (4,992 | )     
|                                                     |                                                    |   |        |        |      |   |        |       
|Net increase (decrease) in cash and
cash equivalents |                                                    |   | (6,517 | )      |      |   | 18,047 |       
|Cash and cash equivalents, beginning
of period       |                                                    |   | 28,021 |        |      |   | 38,071 |       
|                                                     |                                                    |   |        |        |      |   |        |       
|Cash and cash equivalents, end of
period             |                                                    | $ | 21,504 |        |      | $ | 56,118 |       
|                                                     |                                                    |   |        |        |      |   |        |       

See notes to the consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. 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, 2002, and the consolidated results of its operations and cash
flows for the three months ended March 31, 2002 and 2001. 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, 2002 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, 2001 filed with the Securities and Exchange Commission.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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2. COMPREHENSIVE INCOME



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | The components of comprehensive income (loss) are as follows (dollars in
thousands):

|                                                                                                                   |  |                    |      |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---- | ---- |  | - | ------ | -
|                                                                                                                   |  | Three Months Ended
|                                                                                                                   |  | March 31,         
|                                                                                                                   |  |                   
|                                                                                                                   |  | 2002               |      | 2001
|                                                                                                                   |  |                    |      |     
|Net loss                                                                                                           |  | $                  | (551 | )    |  | $ | (18    | )
|Change in unrealized gain
on marketable equity
securities, net of
income taxes of ($291)                           |  |                    | 498  |      |  |   |       |  
|Change in unrealized
gains (losses) on
foreign currency
exchange contracts,
net of income taxes
of ($163) and $975 |  |                    | 340  |      |  |   | (1,660 | )
|                                                                                                                   |  |                    |      |      |  |   |        |  
|Comprehensive
Income (loss)                                                                                        |  | $                  | 287  |      |  | $ | (1,678 | )
|                                                                                                                   |  |                    |      |      |  |   |        |  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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3. AMBASSADORS GROUP SPIN-OFF



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 impact of
the spin-off on the Companys balance sheet on February 28, 2002 reduced
total assets, liabilities, and stockholders equity by $34.8 million, $21.0
million and $13.8 million respectively.



| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has entered into various agreements with AGI providing for the
separation of AGIs business operations from the Company. These agreements
also govern various interim and ongoing relationships.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | One of these agreements provides for a credit facility in which the Company
has agreed to provide loans to AGI in the event that AGI requires capital.
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, 2002, there were no borrowings under this agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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4 . BUSINESS SEGMENTS



| |                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company operates the Performance Group and Services Group segments.
Corporate and other consists of general corporate assets (primarily cash
and cash equivalents and investments) and other activities which are not
directly related to these Groups. Selected financial information related
to these segments is as follows (dollars in thousands):

|                         |                     |       |    |                    |       |      |     |       |       | 
|------------------------ | ------------------- | ----- | -- | ------------------ | ----- | ---- | --- | ----- | ----- | 
|                         |                     |       |    | Three Months Ended
|                         |                     |       |    | March 31,         
|                         |                     |       |    |                   
|                         |                     |       |    | 2002               |       | 2001
|                         |                     |       |    |                    |       |     
|Revenues:                |                     |       |    |                    |       |      |     |      
|                         | Performance Group   |       | $  | 2,054              |       |      | $   | 4,129 |      
|                         | Services Group      |       |    | 1,792              |       |      |     | 2,002 |      
|                         | Corporate and Other |       |    |                   |       |      |     |      |      
|                         |                     |       |    |                    |       |      |     |      
|                         |                     | Total |    | $                  | 3,846 |      |     | $     | 6,131 | 
|                         |                     |       |    |                    |       |      |     |      
|Operating Income (Loss): |                     |       |    |                    |       |      |     |      
|                         | Performance Group   |       | $  | 112                |       |      | $   | 1,307 |      
|                         | Services Group      |       |    | 426                |       |      |     | 248   |      
|                         | Corporate and Other |       |    | (488               | )     |      |     | (830  | )    
|                         |                     |       |    |                    |       |      |     |      
|                         |                     | $     | 50 |                    |       | $    | 725 |      
|                         |                     |       |    |                    |       |      |     |      

5. RECENT PRONOUNCEMENTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On January 1, 2002, the Company adopted FASB Statement No. 142 Goodwill and
Other Intangibles (Statement 142). Under Statement 142, goodwill is no
longer amortized, but is subject to annual impairment tests. Application of
the non-amortization provisions resulted in an increase in earnings from
continuing operations of approximately $0.1 million for the three months
ended March 31, 2002. During the second quarter of 2002, the Company will
perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets associated with continuing operations
and has not yet determined what the effect such tests will have on its
results of operations or financial position. Any impairment charge
resulting from these transitional impairment tests will be reflected as the
cumulative effect of a change in accounting principle. The Company does not
expect the adoption of the statement to have a material impact on the
earnings or financial position of the Company.

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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 preparation of consolidated financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including cash and cash equivalents, available-for-sale securities,
investments, intangible assets, income taxes, and contingencies and litigation.

Cash, cash equivalents, and available-for-sale securities are exposed to
concentrations of credit risk. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such balances may
be in excess of the federal depository insurance limit or may be on deposit at
institutions which are not covered by this insurance. If such institutions
were to become insolvent during which time it held the Companys cash, cash
equivalents, or available-for-sale securities in excess of the insurance limit,
it would be necessary for the Company to obtain credit financing to operate its
programs.

The Company owns minority investments in other operating companies and joint
ventures. 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.

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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 were 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.

The Company bills travel participants in advance, which are recorded as
participants deposits. The Company pays for certain direct program costs such
as airfare, hotel, and other program costs in advance of travel, which are
recorded as prepaid program costs and expenses. The Company recognizes travel
revenue and related costs when travel convenes.

Revenue from hotel reservation, registration, and related travel services is
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 or upon managements estimates (based upon
historical trends) that the certificate will not be redeemed.

The Company expenses all selling and tour promotion expenses as incurred.

The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.

COMPARISON OF RESULTS FROM CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2002 TO THE THREE MONTHS ENDED MARCH 31, 2001:

GROSS PROGRAM RECEIPTS

Gross program receipts decreased to $11.6 million in the first quarter of 2002
from $22.8 million in the first quarter of 2001. The $11.2 million decrease is
the direct result of a lower level of business in APG resulting from both a
slowdown in corporate spending and the impact of September 11th. The number
and average gross program receipts per program operated by APG decreased from
43 and $479,000, respectively, in the first quarter of 2001 to 33 and $288,000,
respectively, in the first quarter of 2002.

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NET REVENUE

Net revenue decreased to $3.8 million in the first quarter of 2002 from $6.1
million in the first quarter of 2001, a decrease of $2.3 million. The $2.3
million decrease is the direct result of a lower level of business in APG
resulting from both a slowdown in corporate spending and the impact of
September 11th. The net revenue per program operated by APG decreased from
$96,000 in the first quarter of 2001 to $73,000 in 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 expenses decreased to $1.0 million in the quarter
ended March 31, 2002 from $1.5 million in the comparable quarter of 2001. The
decrease was principally due to lower personnel expenses in both APG and ASG.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses decreased during the first quarter of 2002
to $2.8 million from $3.9 million in the first quarter of 2001. The decrease of
$1.1 million was primarily the result of lower personnel expenses and the
adoption of FASB Statement No. 142 Goodwill and Other Intangibles effective
January 1, 2002, which resulted in the elimination of $0.3 million of goodwill
amortization.

OPERATING INCOME

Operating income decreased to $50,000 in the quarter ended March 31, 2002 from
$0.7 million in the comparable quarter of 2001. The decrease is the result of
changes as described above.

OTHER INCOME

Other income for the three months ended March 31, 2002 was $0.6 million
compared to $1.5 million for the three months ended March 31, 2001, a decrease
of $0.9 million. The decrease in other income relates to lower investment
income due to lower yields and the prior year included $0.3 million of
management fees from the SATO investment that was sold in the second quarter of
2001.

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INCOME TAXES

The Company has recorded an income tax provision of $0.1 million for the first
quarter of 2002 in comparison to $0.7 million for the first quarter of 2001.
The effective tax rate for the quarter was 15.5% compared to 33% for the same
period last year. The decrease in the effective tax rate is attributable to
investment income which represented 88% of the Companys pre-tax income for the
quarter ended March 31, 2002 compared to 51% for the same quarter of 2001.
Tax-exempt interest income represented approximately 70% and 65% of the
Companys investment income in the quarter ended March 31, 2002 and 2001,
respectively.

NET INCOME

Net income decreased to $0.6 million in the quarter ended March 31, 2002 from
$1.4 million in the comparable quarter of 2001. The decrease of $0.8 million
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.

Net cash provided by (used in) operations for the three month period ended
March 31, 2002 and 2001 was approximately ($2.5) million and $27.9 million,
respectively. The decrease of $30.4 million in operating cash flows primarily
relates to i) the increase in the net loss, ii) a decrease in participant
deposits resulting from the spin-off of AGI and iii) a lower level of business
operated by APG.

Net cash provided by (used in) investing activities for the three month period
ended March 31, 2002 and 2001 was approximately $1.2 million and ($4.8)
million, respectively. The increase in cash flows from investing activities
relates to the Company liquidating investments in order to partially fund cash
flow from operations and to complete the acquisition of a minority interest in
a corporate and incentive meeting company.

Net cash used in financing activities for the three month period ended March
31, 2002 and 2001 was ($5.3) million and ($5.0) million, respectively. Cash
used from financing activities for the current period mainly related to the
spin-off of AGI that was completed on February 28, 2002 (see Note 3).

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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 in the event that it requires capital. 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, 2002, there were no
borrowings under this agreement.

The Company does not have any material capital expenditure commitments for
2002. However, the terms of the Companys acquisitions of certain businesses
include contingent consideration, which could range up to approximately $1.2
million in 2003. Additionally, the Company is continuing to pursue further
acquisitions of related travel and performance improvement and service
businesses that may require the use of cash and cash equivalents. No such
acquisitions are currently pending and no assurance can be given that
definitive agreements for any such 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.
The Company does not believe that any such repurchases will have a significant
impact on the Companys liquidity.

Management believes that existing cash and cash equivalents and cash flows from
operations will be sufficient to fund the Companys anticipated operating
needs, capital expenditures, stock repurchases and acquisitions at least for
the ensuing year.

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.

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PART II  OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not presented, as they are not applicable

Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits:



| |     
| | ----
| | None

(b)  Reports on Form 8-K:

|   |  |                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | The Company filed a report on Form 8-K on January
25, 2002 that contained Item 5 Other Events information in the
form of a press release relating to the Companys spin-off of
its wholly owned subsidiary Ambassadors Group, Inc.
|   |  |                                                                                                                                                                                                                                   
|2. |  | The Company filed a report on Form 8-K on April
8, 2002 that contained Item 4 Changes in Registrants
Certifying Accountant information relating to its change in
accountants.                                                    

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

AMBASSADORS INTERNATIONAL, INC.

|                   |  |     |  |                                            
|------------------ |  | --- |  | -------------------------------------------
|Date: May 13, 2002 |  | By: |  | /s/Timothy T. Fogarty                      
|                   |  |     |  |                                            
|                   |  |     |  | Timothy T. Fogarty,
Chief Financial Officer

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