##### 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, 2009
 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 4 th 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 16, 2009 was
26,285,741.




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##### 



AMBASSADORS INTERNATIONAL, INC.
 FORM 10-Q QUARTERLY REPORT
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at September 30, 2009 (unaudited) and December
31, 2008
    
    
    2Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2009 and 2008 (unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended
September 30, 2009 and 2008 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29Item 4T. Controls and Procedures
    
    
    29PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    36SIGNATURES
    
    
    37EXHIBIT INDEX
    
    
    38Exhibit 4.1Exhibit 4.2Exhibit 4.3Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



Ambassadors International, Inc.
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share and per share data)
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)Assets:Current assets:Cash and cash equivalents
    
    $
    6,645
    
    
    $
    10,105Restricted cash
    
    
    9,486
    
    
    
    16,625Accounts and other receivables, net of
allowance of $42 at September 30, 2009 and
$20 at December 31, 2008
    
    
    2,450
    
    
    
    2,367Prepaid costs and other current assets
    
    
    5,828
    
    
    
    3,522Inventory
    
    
    1,509
    
    
    
    1,839Assets held for sale
    
    
    4,250
    
    
    
    28,593Total current assets
    
    
    30,168
    
    
    
    63,051Property, vessels and equipment, net
    
    
    71,649
    
    
    
    130,461Goodwill
    
    
    
    
    
    
    6,275Other intangibles, net
    
    
    7,282
    
    
    
    7,282Deferred income taxes
    
    
    746
    
    
    
    746Other assets
    
    
    978
    
    
    
    541Total assets
    
    $
    110,823
    
    
    $
    208,356Liabilities:Current liabilities:Accounts payable
    
    $
    9,697
    
    
    $
    15,664Passenger and participant deposits
    
    
    4,956
    
    
    
    11,186Accrued expenses
    
    
    13,616
    
    
    
    17,221Current portion of long term debt
    
    
    948
    
    
    
    948Deferred income taxes
    
    
    746
    
    
    
    746Liabilities related to assets held for sale
    
    
    
    
    
    
    14,978Total current liabilities
    
    
    29,963
    
    
    
    60,743Passenger deposits
    
    
    485
    
    
    
    Long term debt net of discount of $8,107
at September 30, 2009 and $12,436 at
December 31, 2008, respectively
    
    
    88,893
    
    
    
    86,679Total liabilities
    
    
    119,341
    
    
    
    147,422Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 2,000,000
shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 40,000,000
shares authorized; 11,173,267 shares
issued and outstanding at September 30,
2009 and December 31, 2008, respectively
    
    
    109
    
    
    
    108Additional paid-in capital
    
    
    110,938
    
    
    
    111,245Accumulated other comprehensive income
    
    
    1
    
    
    
    453Accumulated deficit
    
    
    (119,566
    )
    
    
    (50,872
    )Total stockholders equity (deficit)
    
    
    (8,518
    )
    
    
    60,934Total liabilities and stockholders equity
    
    $
    110,823
    
    
    $
    208,356
 The accompanying notes are an integral part of these condensed consolidated financial
statements.
  2




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##### Table of Contents



Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Operations (unaudited)
 (in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(restated)
    
    
    
    
    
    (restated)Revenues:Passenger ticket revenue
    
    $
    13,551
    
    
    $
    45,884
    
    
    $
    37,532
    
    
    $
    102,649Onboard and other cruise revenue
    
    
    3,410
    
    
    
    8,424
    
    
    
    8,883
    
    
    
    20,097Travel, incentive and event related
    
    
    476
    
    
    
    4,356
    
    
    
    2,424
    
    
    
    12,69017,437
    
    
    
    58,664
    
    
    
    48,839
    
    
    
    135,436Costs and operating expenses:Cruise operating expenses:Compensation and benefits
    
    
    2,111
    
    
    
    8,402
    
    
    
    6,293
    
    
    
    21,652Passenger expenses
    
    
    932
    
    
    
    3,191
    
    
    
    2,706
    
    
    
    7,554Materials and services
    
    
    6,158
    
    
    
    19,381
    
    
    
    18,588
    
    
    
    46,499Repairs and maintenance
    
    
    1,750
    
    
    
    3,892
    
    
    
    5,581
    
    
    
    9,842Commissions and other cruise
operating expenses
    
    
    1,641
    
    
    
    4,553
    
    
    
    3,964
    
    
    
    10,90812,592
    
    
    
    39,419
    
    
    
    37,132
    
    
    
    96,455Selling and tour promotion
    
    
    1,448
    
    
    
    1,798
    
    
    
    5,646
    
    
    
    10,832General and administrative
    
    
    2,010
    
    
    
    7,979
    
    
    
    7,959
    
    
    
    25,743Impairment charge
    
    
    32,493
    
    
    
    
    
    
    
    49,175
    
    
    
    Business interruption insurance
claim
    
    
    (1,175
    )
    
    
    
    
    
    
    (1,175
    )
    
    
    Gain on disposal of vessel
    
    
    
    
    
    
    (3,100
    )
    
    
    
    
    
    
    (3,100
    )Depreciation and amortization
    
    
    2,460
    
    
    
    3,533
    
    
    
    7,921
    
    
    
    10,41349,828
    
    
    
    49,629
    
    
    
    106,658
    
    
    
    140,343Operating income ( loss) from
continuing operations
    
    
    (32,391
    )
    
    
    9,035
    
    
    
    (57,819
    )
    
    
    (4,907
    )Other income (expense):Interest and dividend income
    
    
    3
    
    
    
    109
    
    
    
    47
    
    
    
    649Interest expense
    
    
    (1,670
    )
    
    
    (2,114
    )
    
    
    (5,004
    )
    
    
    (6,782
    )Other, net
    
    
    (110
    )
    
    
    1,068
    
    
    
    296
    
    
    
    1,603(1,777
    )
    
    
    (937
    )
    
    
    (4,661
    )
    
    
    (4,530
    )Income (loss) from continuing
operations before income taxes
    
    
    (34,168
    )
    
    
    8,098
    
    
    
    (62,480
    )
    
    
    (9,437
    )Income tax provision (benefit)
    
    
    
    
    
    
    22
    
    
    
    (191
    )
    
    
    (1,412
    )Income (loss) from continuing operations
    
    
    (34,168
    )
    
    
    8,076
    
    
    
    (62,289
    )
    
    
    (8,025
    )Income (loss) from discontinued
operations, net of tax
    
    
    (1,067
    )
    
    
    959
    
    
    
    (6,404
    )
    
    
    1,628Net income ( loss)
    
    $
    (35,235
    )
    
    $
    9,035
    
    
    $
    (68,693
    )
    
    $
    (6,397
    )
 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 (unaudited)
 Continued (in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(restated)
    
    
    
    
    
    (restated)Earnings (loss) per share
from continuing
operations:Basic
    
    $
    (3.13
    )
    
    $
    0.74
    
    
    $
    (5.57
    )
    
    $
    (0.74
    )Diluted
    
    $
    (3.13
    )
    
    $
    0.64
    
    
    $
    (5.57
    )
    
    $
    (0.74
    )Weighted-average common
shares outstanding:Basic
    
    
    10,918
    
    
    
    10,888
    
    
    
    11,184
    
    
    
    10,889Diluted
    
    
    10,918
    
    
    
    12,622
    
    
    
    11,184
    
    
    
    10,889Earnings (loss) per
share from discontinued
operations:Basic
    
    $
    (0.10
    )
    
    $
    0.09
    
    
    $
    (0.57
    )
    
    $
    0.15Diluted
    
    $
    (0.10
    )
    
    $
    0.08
    
    
    $
    (0.57
    )
    
    $
    0.15Weighted-average
common shares
outstanding:Basic
    
    
    10,918
    
    
    
    10,888
    
    
    
    11,184
    
    
    
    10,889Diluted
    
    
    10,918
    
    
    
    12,622
    
    
    
    11,184
    
    
    
    10,889Earnings (loss) per share:Basic
    
    $
    (3.23
    )
    
    $
    0.83
    
    
    $
    (6.14
    )
    
    $
    (0.59
    )Diluted
    
    $
    (3.23
    )
    
    $
    0.72
    
    
    $
    (6.14
    )
    
    $
    (0.59
    )Weighted-average common
shares outstanding:Basic
    
    
    10,918
    
    
    
    10,888
    
    
    
    11,184
    
    
    
    10,889Diluted
    
    
    10,918
    
    
    
    12,622
    
    
    
    11,184
    
    
    
    10,889
 The accompanying notes are an integral part of these condensed consolidated financial
statements.
  4




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##### Table of Contents



Ambassadors International, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands) (unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (68,693
    )
    
    $
    (6,397
    )Less: Income (loss) from discontinued operations
    
    
    (6,404
    )
    
    
    1,628Loss from continuing operations
    
    
    (62,289
    )
    
    
    (8,025
    )Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    7,921
    
    
    
    10,413Amortization of debt discount and offering costs
    
    
    2,266
    
    
    
    2,143Gain on disposal of fixed assets
    
    
    (9
    )
    
    
    (3,086
    )Share-based compensation expense (benefit)
    
    
    (292
    )
    
    
    1,116Impairment Loss
    
    
    49,175
    
    
    
    Unrealized (gain) loss on investments
    
    
    (10
    )
    
    
    Change in assets and liabilities, net of effects
of business acquisitions and dispositions:Accounts and other receivables
    
    
    (1,633
    )
    
    
    (2,362
    )Inventory
    
    
    330
    
    
    
    26Prepaid costs and other current assets
    
    
    (2,402
    )
    
    
    (2,568
    )Other assets
    
    
    (447
    )
    
    
    503Accounts payable and accrued expenses
    
    
    (10,875
    )
    
    
    5,913Passenger and participant deposits
    
    
    550
    
    
    
    (13,860
    )Discontinued operations
    
    
    8,420
    
    
    
    1,526Net cash (used in) operating activities
    
    
    (9,295
    )
    
    
    (8,261
    )Cash flows from investing activities:Restricted cash
    
    
    7,139
    
    
    
    2,551Purchase of property, vessels and equipment
    
    
    (153
    )
    
    
    (2,485
    )Proceeds from sale of division
    
    
    500Purchase of available for sale securities
    
    
    
    
    
    
    (1,544
    )Discontinued operations
    
    
    (1,699
    )
    
    
    1,113Net cash provided by (used in) investing activities
    
    
    5,787
    
    
    
    (365
    )Cash flows from financing activities:Payments on long term debt
    
    
    
    
    
    
    (2,814
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    21Discontinued operations
    
    
    48
    
    
    
    (777
    )Net cash provided by (used in) financing activities
    
    
    48
    
    
    
    (3,570
    )Net decrease in cash and cash equivalents
    
    
    (3,460
    )
    
    
    (12,196
    )Cash and cash equivalents, beginning of period
    
    
    10,105
    
    
    
    21,998Cash and cash equivalents, end of period
    
    $
    6,645
    
    
    $
    9,802
 The accompanying notes are an integral part of these condensed consolidated financial
statements
  5




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##### Table of Contents



Ambassadors International, Inc.
 
 Notes to Condensed Consolidated Financial Statements (unaudited)
 1. Description of the Company and Basis of Presentation
 The Company
  Property, Plant and
Equipment Presentation of Financial Statements -
Discontinued Operations Segment Reporting.
  
    
    Cruise- This segment operates the Windstar Cruises brand within ACG. ACG, through its
wholly-owned subsidiary, AICG, acquired Windstar Cruises, an international-flagged small
luxury ship cruise line that operates a three-ship fleet that includes the 312-passenger
Wind Surf, 148-passenger Wind Spirit, and 148-passenger Wind Star. The Companys 2009
Windstar Cruises schedule includes destinations in the Greek Isles, Caribbean Islands and
Costa Rica and cruises on the Mediterranean, the Adriatic, and the Panama Canal. The
Company determined that there was an impairment of the carrying value of the vessels of
Windstar Cruises as of September 30, 2009. See Note 3, Impairment.The Company formerly operated Majestic America Line, a domestic provider of overnight
passenger cruises along inland rivers and coastal waterways of North America. In
April 2008, the Company announced its intention to sell the vessels of the Majestic
America Line. The Company originally operated seven U.S.-flagged cruise ships. On
August 15, 2008 and on November 21, 2008, the Company surrendered possession of the
Empress of the Northand American Queen®, respectively, to the United States through the Department of Transportation Maritime
Administration (MARAD). In September 2009 the Company entered into an agreement to sell
the Queen of the West®.As of September 30, 2009, the remaining four vessels of the
Majestic America Line did not qualify for held-for-sale
treatment under ASC 205-20. The Company determined that there was an impairment of the carrying value
of certain vessels of the Majestic America Line as of
September 30, 2009. See Note 3,
Impairment.
    
    Travel and Events Operating under the Ambassadors, LLC brand, this segment
develops and manages meetings and incentive programs for corporate clients utilizing
incentive travel, merchandise award programs and corporate meeting management services.
Through March 31, 2009, it also provided a comprehensive hotel reservation, registration
and travel services for meetings, conventions, expositions and trade shows referred to
as Housing. In February 2009, the Company announced its intention to sell the Travel
and Events business. As
of March 31, 2009, the Company evaluated the recoverability of goodwill related to its
travel and events segment and recorded an impairment charge of $2.7 million. On April 16,
2009, certain assets of Housing were sold and the buyer assumed certain liabilities
associated with the division. Housing comprised the majority of Travel and Events
revenue and earnings. The Company will complete all scheduled programs associated with
the residual business throughout 2009. After the completion of the scheduled 2009 events,
the Company will exit the business in an orderly fashion.
  6




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Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 Liquidity
   Restatement of Previously Reported Consolidated Financial Statements
 Empress of the North®
 Seasonality
  Basis of Presentation
    7




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Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 Subsequent Events
  Reclassifications
   Debt with Conversion Options.
 Fair Value Measurements
   Restricted Cash
  September 30,
    
    
    December 31,2009
    
    
    2008Restricted cash to secure credit card processing
    
    $
    8,962
    
    
    $
    10,644Restricted cash to secure letters of credit
    
    
    524
    
    
    
    5,981Balance
    
    $
    9,486
    
    
    $
    16,625
  Revenue Recognition
   8




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 Passenger Ticket Revenue and Onboard and Other Cruise Revenues
  Travel, Incentive and Event Related
   Property, Vessels and Equipment
   Long-lived Assets including Intangible Assets
   9




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 Income Taxes
  Drydocking
  Accounting for Stock Options
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Compensation cost related to stock options
    
    $
    101
    
    
    $
    178
    
    
    $
    470
    
    
    $
    572Compensation cost related to restricted stock
    
    
    14
    
    
    
    193
    
    
    
    (762
    )
    
    
    544Total stock-based compensation costs
    
    $
    115
    
    
    $
    371
    
    
    $
    (292
    )
    
    $
    1,116
  Recent Accounting Pronouncements
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles Generally Accepted Accounting Principles
   10




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 2. Discontinued Operations
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008Revenue from discontinued operations
    
    $
    23,732
    
    
    $
    85,542Income (loss) from discontinued operations before taxes
    
    
    (6,013
    )
    
    
    3,717Income tax expense
    
    
    391
    
    
    
    2,089Income (loss) from discontinued operations, net of taxes
    
    $
    (6,404
    )
    
    $
    1,628
  September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)Assets held for saleAccounts receivable, net
    
    $
    
    
    
    $
    15,311Costs in excess of billings
    
    
    
    
    
    
    5,283Insurance receivables
    
    
    
    
    
    
    6,313All other assets
    
    
    4,250
    
    
    
    1,686$
    4,250
    
    
    $
    28,593Liabilities related to assets held for sale:Accounts payable and accrued expenses
    
    $
    
    
    
    $
    4,137Billings in excess of costs
    
    
    
    
    
    
    4,253Long term debt
    
    
    
    
    
    
    1,927All other liabilities, including case reserves
    
    
    
    
    
    
    4,661$
    
    
    
    $
    14,978
   11




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 3. Impairment
 Loss on Impairment and Fair Value Measurements
  Property,
Plant, and Equipment
     12




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Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
    Level 1:
 Level 2:
 Level 3:
  QuotedPrices inActive
    
    
    SignificantValue at
    
    
    Markets for
    
    
    Other
    
    
    Significantlast
    
    
    Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalMeasurement
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    GainsDescription
    
    Date June 30, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Losses)Vessels:Windstar Cruises
    
    $
    87,700
    
    
    
    
    
    
    $
    60,000
    
    
    
    
    
    
    
    (27,700
    )Majestic America
    
    $
    20,250
    
    
    
    
    
    
    $
    15,450
    
    
    
    
    
    
    
    (4,800
    )Cypress Re
    
    $
    2,784
    
    
    $
    1,484
    
    
    
    
    
    
    
    
    
    
    
    (1,300
    )
 4. Inventory
  September 30, 2009
    
    
    December 31, 2008Food, souvenirs and supplies
    
    $
    1,211
    
    
    $
    1,519Fuel
    
    
    298
    
    
    
    320$
    1,509
    
    
    $
    1,839
  13




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 5. Prepaid costs and other current assets
  September 30, 2009
    
    
    December 31, 2008Current portion of prepaid drydocking costs
    
    $
    1,311
    
    
    $
    1,266Prepaid program costs
    
    
    250
    
    
    
    312Prepaid debt offering costs(1)
    
    
    1,068
    
    
    
    50Deferred Costs
    
    
    621
    
    
    
    Other prepaid costs and other current assets
    
    
    2,578
    
    
    
    1,894$
    5,828
    
    
    $
    3,522
 (1)
    
    Included in prepaid debt offering costs as of
September 30, 2009 are $1.0 million
in costs incurred pursuant to the debt restructuring which closed during the
fourth quarter of 2009. The deferred costs will be netted against the gain from the
debt restructuring. 6. Goodwill
  September 30, 2009
    
    
    December 31, 2008Goodwill, beginning of the period
    
    $
    6,275
    
    
    $
    9,181Addition to discontinued operations
    
    
    
    
    
    
    10Disposed of in sale
    
    
    (3,591
    )
    
    
    Impairment
    
    
    (2,684
    )
    
    
    (2,916
    )Goodwill, end of the period
    
    $
    
    
    
    $
    6,275
 7. Long term obligations
  September 30, 2009
    
    
    December 31, 2008Guaranteed principal payment to MARAD
    
    $
    948
    
    
    $
    9483.75% Convertible Senior Notes, net of
unamortized discount and offering costs
of $8,107 and $12,436, respectively
    
    
    88,893
    
    
    
    86,67989,841
    
    
    
    87,627Less: current portion
    
    
    948
    
    
    
    948Non-current portion
    
    $
    88,893
    
    
    $
    86,679
 Guaranteed Principal Payment
 Delta Queen ® American Queen ® American Queen ®
  14




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 3.75% Convertible Senior Notes
      Year Ended December 31,2009
    
    $
    9482010
    
    
    2011
    
    
    2012
    
    
    97,00097,948Less: Unamortized discount and offering costs
    
    
    (8,107
    )Less: current portion
    
    
    (948
    )Non-current portion
    
    $
    88,893
         15




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
 8. Comprehensive loss
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (34,734
    )
    
    $
    9,035
    
    
    $
    (68,193
    )
    
    $
    (6,397
    )Change in unrealized
gain (loss) on
foreign currency
translation
    
    
    
    
    
    
    (1,123
    )
    
    
    (437
    )
    
    
    (399
    )Change in unrealized
gain (loss) on
available for sale
securities
    
    
    (3
    )
    
    
    (8
    )
    
    
    (17
    )
    
    
    (21
    )$
    (34,737
    )
    
    $
    7,904
    
    
    $
    (68,647
    )
    
    $
    (6,817
    )
 9. Earnings (Loss) Per Share
   16




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(restated)
    
    
    
    
    
    (restated)Earnings (loss) per share from continuing operations:Basic
    
    $
    (3.13
    )
    
    $
    0.74
    
    
    $
    (5.57
    )
    
    $
    (0.74
    )Diluted
    
    $
    (3.13
    )
    
    $
    0.64
    
    
    $
    (5.57
    )
    
    $
    (0.74
    )Weighted-average common shares outstanding:Basic
    
    
    10,918
    
    
    
    10,888
    
    
    
    11,184
    
    
    
    10,889Diluted
    
    
    10,918
    
    
    
    12,622
    
    
    
    11,184
    
    
    
    10,889Earnings (loss) per share from discontinued operations:Basic
    
    $
    (0.10
    )
    
    $
    0.09
    
    
    $
    (0.57
    )
    
    $
    0.15Diluted
    
    $
    (0.10
    )
    
    $
    0.08
    
    
    $
    (0.57
    )
    
    $
    0.15Weighted-average common shares outstanding:Basic
    
    
    10,918
    
    
    
    10,888
    
    
    
    11,184
    
    
    
    10,889Diluted
    
    
    10,918
    
    
    
    12,622
    
    
    
    11,184
    
    
    
    10,889Earnings (loss) per share:Basic
    
    $
    (3.23
    )
    
    $
    0.83
    
    
    $
    (6.14
    )
    
    $
    (0.59
    )Diluted
    
    $
    (3.23
    )
    
    $
    0.72
    
    
    $
    (6.14
    )
    
    $
    (0.59
    )Weighted-average common shares outstanding:Basic
    
    
    10,918
    
    
    
    10,888
    
    
    
    11,184
    
    
    
    10,889Diluted
    
    
    10,918
    
    
    
    12,622
    
    
    
    11,184
    
    
    
    10,889
 10. Business Segments
    17




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##### Table of Contents



Ambassadors International, Inc.
 Notes
to Condensed Consolidated Financial Statements
(unaudited)(Continued)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue from continuing operations:Cruise
    
    $
    16,961
    
    
    $
    54,308
    
    
    $
    46,415
    
    
    $
    122,746Travel and events
    
    
    476
    
    
    
    4,356
    
    
    
    2,424
    
    
    
    12,690Revenue from continuing operations
    
    $
    17,437
    
    
    $
    58,664
    
    
    $
    48,839
    
    
    $
    135,436
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Operating income (loss) from continuing
operations:Cruise
    
    $
    493
    
    
    $
    5,394
    
    
    $
    (6,124
    )
    
    $
    (7,838
    )Windstar and Majestic vessel impairment
    
    
    (32,492
    )
    
    
    
    
    
    
    (46,500
    )Gain on disposal of Majestic vessel
    
    
    
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100Travel and events (1)
    
    
    385
    
    
    
    1,600
    
    
    
    (2,734
    )
    
    
    3,012Corporate and other
    
    
    (776
    )
    
    
    (1,059
    )
    
    
    (2,469
    )
    
    
    (3,181
    )Operating income (loss) from continuing
operations
    
    $
    (32,390
    )
    
    $
    9,035
    
    
    $
    (57,827
    )
    
    $
    (4,907
    )
 1.
    
    Includes $2.7 million in impairment of goodwill related to Travel and events segment
recorded during the three months ended March 31, 2009. 11. Income Taxes
    12. Commitments and Contingencies
  Empress of
the North
 13.      Subsequent Events
     18




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
   Wind Surf Wind Spirit Wind Star
     Queen of the West,
  19




---



##### Table of Contents




    
    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;
 
    
    Reduce operational costs by continuing to renegotiate key vendor contracts or
eliminating certain third party relationships that will allow for significant direct cost
savings, efficiency gain and product improvements.
 Critical Accounting Policies
    Revenue Recognition
  Passenger Ticket Revenue and Onboard and Other Cruise Revenues
   20




---



##### Table of Contents



Travel, Incentive and Event Related
   Property, Vessels and Equipment
   Drydocking
  Long-Lived Assets Including Intangibles
   21




---



##### Table of Contents



Income Taxes
  Statistical Terminology and Information for Cruise Operations
 Available Passenger Cruise Days (APCD)
  Occupancy
  Passenger Cruise Days
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Passengers Carried
    
    
    7,273
    
    
    
    7,482
    
    
    
    18,892
    
    
    
    20,320Occupancy Percentage
    
    
    92.0
    %
    
    
    94.7
    %
    
    
    83.9
    %
    
    
    88.6
    %Passenger Cruise Days
    
    
    50,911
    
    
    
    52,374
    
    
    
    133,828
    
    
    
    145,269APCD
    
    
    55,328
    
    
    
    55,328
    
    
    
    159,544
    
    
    
    163,912
 COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2008
 Revenue
  Cruise Operating Expenses
   22




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##### Table of Contents



Selling and Tour Promotion Expenses
  General and Administrative Expenses
  Insurance Settlement
 Empress of the North and the Queen of the West®.
 Gain on disposal of vessel
 Empress of the North®
 Impairment charges
  Depreciation and Amortization
  Operating income (loss) from continuing operations
  Other Expense
 Empress of the North® Empress of the
North®
  23




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##### Table of Contents



Income Taxes
  Net Income (loss) from discontinued operations
  Net Income (loss)
  COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2008
 Revenue
  Cruise Operating Expenses
  Selling and Tour Promotion Expenses
  General and Administrative Expenses
   24




---



##### Table of Contents



Insurance Settlement
 Empress of the North and the Queen of the West®.
 Gain on disposal of vessel
 Empress of the North®
 Impairment charges
  Depreciation and Amortization
  Operating income (loss) from continuing operations
  Other Expense
 Empress of the North®
 Income Taxes
   25




---



##### Table of Contents



Net Income (loss) from Discontinued Operations
  Net Income (loss)
  Liquidity and Capital Resources
 Queen of the West®
            26




---



##### Table of Contents



Events of Default under Debt Agreements
   27




---



##### Table of Contents



Trends and Uncertainties
  Cautionary Note Regarding Forward-Looking Statements
  
    
    our ability to effectively and efficiently operate our cruise operations;
    
    our ability to effectively and expeditiously divest Majestic America Line;
    
    customer cancellation rates;
    
    competitive conditions in the cruise 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 and emergency ship repairs;
    
    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 and geo-political factors and other considerations affecting the
travel industry;
    
    changes in United States maritime tax laws; and
    
    adverse conditions in the capital market
    28




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4.
    
    Controls and Procedures.
  
 Item 4T.
    
    Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
    29




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings.
  Empress of
the North
 
 Item 1A.
    
    Risk Factors.
   We may not be able to enter into the Working Capital Facility on satisfactory terms or at all
and other alternative borrowing options may not be available to us.
  There may be future sales or other dilution of our equity, which may adversely affect the
market price of our Common Stock.
   30




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##### Table of Contents



Certain stockholders will have a director designee on our Board of Directors and may exercise significant
influence over the Company and their interests may conflict with the interests of other stockholders. As a result of the Exchange Offer, Whippoorwill Associates, Inc. (as agent for its discretionary accounts),
Highbridge Capital Management, LLC and Polygon Global Opportunities Master Fund, which are unaffiliated with each
other, are significant stockholders of the Company and will each have a director designee on our Board of Directors,
which will consist of five total members. Whippoorwill, Highbridge and Polygon are also significant creditors of the
Company through their holdings of New Notes. As a result, such stockholders may exercise significant influence over
corporate policy and decisions with respect to fundamental corporate transactions and, due to, among other things,
their position as both equity holders and creditors of the Company, their interests may conflict with the interests of
other stockholders. For example, the directors designated by such holders may exert influence over significant
corporate transactions such as asset sales, debt restructuring transactions or issuances of additional capital stock.
In addition, in matters requiring or otherwise involving a vote of stockholders, each of such holders will have the
ability to vote a significant percentage of our Common Stock for or against any proposal. We still have substantial indebtedness following consummation of the Exchange Offer. Although we consummated the Exchange Offer on November 13, 2009, we still have substantial indebtedness for a
company of our size. While the New Notes provide for payment-in-kind interest, if our operating cash flow decreases, we
may be unable to service our debt, including the Notes and other debt we may incur, such as the Working Capital
Facility, without refinancing or restructuring our debt, selling our assets or operations, or raising additional debt
or equity capital. If these alternatives are not available in a timely manner or on satisfactory terms or are not
permitted under our existing agreements, we may default on our debt obligations. Such a default could result in the
acceleration of all our debts or have other serious adverse consequences for our holders of our New Notes and Common
Stock. The indenture for the New Notes contains restrictive covenants that may limit our ability to operate our business
and creates a risk of default. The indenture for the New Notes contains restrictive covenants (including a covenant that we will maintain a
minimum cash balance of $2,000,000 from and after the time that the Company enters into a Working Capital Facility),
and any of our future debt agreements may contain restrictive covenants, that limit our ability to operate our business
and create a risk of default. Our ability to comply with these covenants is dependent on our future performance, which
will be subject to many factors, some of which are beyond our control, including prevailing economic conditions. As a result of these covenants, our ability to respond to changes in business and economic conditions and to
obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in
transactions that might otherwise be beneficial to us. In addition, our failure to comply with these covenants could
result in a default under the New Notes and/or our other indebtedness, which could permit the holders to accelerate
such debt. If any of our debt is accelerated, we may not have sufficient funds available to repay such debt. Provisions of the New Notes could discourage an acquisition of us by a third party. The redemption provisions of the New Notes could make it more expensive or more difficult for a third party to
acquire us due to the requirements to repurchase the New Notes in cash at par value upon a change of control or a sale
of all or substantially all of our assets (or our entry into an agreement for such a sale). Recognition of cancellation of debt income may increase our income tax liability and adversely impact our tax
attributes. The Company generally will recognize cancellation of debt income for U.S. federal income tax purposes as a result
of the exchange of the Notes for the consideration offered in the Exchange Offer to the extent that the outstanding
balance of the Notes exchanged exceeded the fair market value of the Common Stock and the issue price of the New Notes
delivered in the Exchange Offer. The Company expects that, as a result of the Exchange Offer that was consummated on
November 13, 2009, it will recognize significant cancellation of debt income. Although we cannot provide any assurances
in this regard, we currently expect that of any cancellation of debt income will be offset by operating losses incurred
during the current taxable year and by net operating losses incurred in prior years and carried forward to the current
taxable year.  31




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##### Table of Contents



Nevertheless, we will likely be subject to alternative minimum tax in connection with the exchange of the Notes,
because only a portion of our net operating losses will be deductible in calculating our alternative minimum tax
liability. Further, under recently enacted California income tax laws, we will not be able to utilize net operating
losses to offset our cancellation of debt income for California income tax purposes. As a result, the Company expects
to incur U.S. federal and California income tax liabilities as a result of consummation of the Exchange Offer. In
addition, if our current and historic net operating losses are not available in the amount that we expect, however, we
may incur substantial U.S. federal income tax liabilities in excess of those discussed above. Changes in the composition of our stockholder population, including those resulting from the issuance of Common
Stock, may limit our ability to use our net operating losses. The issuance of approximately 15.2 million shares of our common stock on November 13, 2009 in connection with the
Exchange Offer may result in an ownership change of the Company for tax purposes. An ownership change would
significantly restrict the use of our remaining net operating loss carryforwards to offset future income (other than
potentially certain of our built in gains in our assets at the time of the Exchange Offer, if any). The Company may receive deemed dividends from its foreign subsidiaries that could result in taxable income in
future years. It is possible that the Company will receive one or more deemed dividends in future years as a result of the
guarantees by the Companys foreign subsidiaries of the Companys obligations under the New Notes. Such deemed
dividends would constitute taxable income for the Company and could result in a U.S. federal income tax liability for
the Company. If we fail to continue to meet all applicable continued listing requirements of The NASDAQ Global Market and
NASDAQ determines to delist our common stock, the market liquidity and market price of our common stock could decline. Our common stock is listed on the NASDAQ Global Market. On November 12, 2009, the Company received a Nasdaq Staff
Deficiency Letter indicating that the Company no longer meets the minimum bid price requirement for continued listing
on the NASDAQ Global Market as set forth in Marketplace Rule 5450(a)(1). The letter gives the Company notice that the
bid price of its common shares has closed under $1.00 for the last 30 consecutive business days. The notification does
not result in the immediate delisting of the Companys common shares from the NASDAQ Global Market. The Company has
until May 11, 2010 to regain compliance with the minimum closing bid price requirement. To regain compliance, the
closing bid price of the Companys common shares must meet or exceed $1.00 per share for at least ten consecutive
business days. The Company is considering actions that it may take in response to this notification in order to regain compliance
with continued listing requirements. For example, in order to regain compliance with NASDAQs minimum bid price
requirement, the Company may implement a reverse stock split of either 1-for-3 or 1-for-4 as approved by its
stockholders at the Companys 2009 annual meeting. Alternatively, the Company may apply to transfer the listing of its common shares to the NASDAQ Capital Market if it satisfies all
criteria for initial listing on the NASDAQ Capital Market, other than compliance with the minimum bid price
requirement. If such application to the NASDAQ Capital Market is approved, then the Company may be eligible for an
additional grace period. If the Company does not regain compliance by May 11, 2010, Nasdaq will provide written notification to the Company
that the Companys common shares will be delisted. At that time, the Company may appeal Nasdaqs delisting
determination to a Nasdaq Hearings Panel. If our common stock is not eligible for quotation on another market or
exchange, trading of our common stock could be conducted in the over-the-counter market or on an electronic bulletin
board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could
become more difficult to dispose of, or obtain accurate quotations for the price of our common stock, and there would
likely also be a reduction in our coverage by security analysts and the news media, which could cause the price of our
common stock to decline further. In addition, if our common stock ceases to be listed on the Nasdaq Global Market and
is not listed on an established national securities exchange or automated over-the-counter trading market in the United
States, the holders of our convertible notes will have the right to require us to repurchase the outstanding
convertible notes for cash at a price equal to 100% of the principal amount plus accrued and unpaid interest.  32




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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.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information.
 Unregistered Sale of Equity Securities
    Creation of a Direct Financial Obligation
    33




---



##### Table of Contents



Queen of the West Delta Queen Columbia Queen
   34




---



##### Table of Contents



Entry into a Material Definitive Agreement
    Failure to Satisfy a Continued Listing Rule or Standard
      35




---



##### Table of Contents



Item 6.
    
    Exhibits.
 Exhibit No.
    
    Description4.1
    
    
    Indenture, dated November 13,
2009, by and among the Company, certain subsidiaries of the Company, as guarantors, and Wilmington
Trust FSB, as trustee (1)4.2
    
    
    Pledge and Security Agreement,
dated November 13, 2009, by and among the Company, certain subsidiaries of the Company,
as guarantors, and Wilmington Trust FSB, as collateral agent (1)4.3
    
    
    Supplemental Indenture, dated
November 13, 2009, to the Indenture dated April 3, 2007, between the Company and
Wells Fargo Bank National Association, as Trustee (1)10.1
    
    
    Exchange Offer Commitment and Support Agreement, dated
as of September 4, 2009, by and between the Company and
Whippoorwill Associates (incorporated by reference to
Exhibit (d)(5) to the Schedule TO-I filed by the
Registrant on September 25, 2009)10.2
    
    
    Exchange Offer Commitment and Support Agreement, dated
as of September 4, 2009, by and between the Company and
Highbridge International, LLC (incorporated by reference
to Exhibit (d)(6) to the Schedule TO-I filed by the
Registrant on September 25, 2009)10.3
    
    
    Exchange Offer Commitment and Support Agreement, dated
as of September 4, 2009, by and between the Company and
Polygon Global Opportunities Master Fund (incorporated
by reference to Exhibit (d)(7) to the Schedule TO-I
filed by the Registrant on September 25, 2009)10.4
    
    
    Memorandum of Understanding dated September 9, 2009
between Atlantic Gateway International (SAC) Ltd. and
Ambassadors International, Inc. (incorporated by
reference to Exhibit 10.1 to the Current Report on Form
8-K filed by the Registrant on September 15, 2009)10.5
    
    
    Commutation Agreement dated September 10, 2009 between
Cypress Reinsurance Ltd. and Atlantic Gateway
International (SAC) Ltd. and Cypress II Segregated
Account (incorporated by reference to Exhibit 10.2 to
the Current Report on Form 8-K filed by the Registrant
on September 15, 2009)31.1
    
    
    Certification of Chief Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (1)31.2
    
    
    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 2002 (1)32.1
    
    
    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 2002 (1)32.2
    
    
    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 (1)
 
 (1)
    
    Attached hereto.  36




---



##### Table of Contents



Signatures
  AMBASSADORS INTERNATIONAL, INC.
(Registrant)Date: November 16, 2009
    By:
    /s/ Mark T. DetillionMark T. DetillionChief Financial Officer,
(Principal Financial Officer and Duly
Authorized Officer)  37




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description4.1
    
    
    Indenture, dated November 13,
2009, by and among the Company, certain subsidiaries of the Company, as guarantors, and Wilmington
Trust FSB, as trustee (1)4.2
    
    
    Pledge and Security Agreement,
dated November 13, 2009, by and among the Company, certain subsidiaries of the Company,
as guarantors, and Wilmington Trust FSB, as collateral agent (1)4.3
    
    
    Supplemental Indenture, dated
November 13, 2009, to the Indenture dated April 3, 2007, between the Company and
Wells Fargo Bank National Association, as Trustee (1)10.1
    
    
    Exchange Offer Commitment and Support Agreement, dated
as of September 4, 2009, by and between the Company and
Whippoorwill Associates (incorporated by reference to
Exhibit (d)(5) to the Schedule TO-I filed by the
Registrant on September 25, 2009)10.2
    
    
    Exchange Offer Commitment and Support Agreement, dated
as of September 4, 2009, by and between the Company and
Highbridge International, LLC (incorporated by reference
to Exhibit (d)(6) to the Schedule TO-I filed by the
Registrant on September 25, 2009)10.3
    
    
    Exchange Offer Commitment and Support Agreement, dated
as of September 4, 2009, by and between the Company and
Polygon Global Opportunities Master Fund (incorporated
by reference to Exhibit (d)(7) to the Schedule TO-I
filed by the Registrant on September 25, 2009)10.4
    
    
    Memorandum of Understanding dated September 9, 2009
between Atlantic Gateway International (SAC) Ltd. and
Ambassadors International, Inc. (incorporated by
reference to Exhibit 10.1 to the Current Report on Form
8-K filed by the Registrant on September 15, 2009)10.5
    
    
    Commutation Agreement dated September 10, 2009 between
Cypress Reinsurance Ltd. and Atlantic Gateway
International (SAC) Ltd. and Cypress II Segregated
Account (incorporated by reference to Exhibit 10.2 to
the Current Report on Form 8-K filed by the Registrant
on September 15, 2009)31.1
    
    
    Certification of Chief Executive Officer Required by
Rule 13a-14(a) of the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (1)31.2
    
    
    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 2002 (1)32.1
    
    
    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 2002 (1)32.2
    
    
    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 (1)
 
 (1)
    
    Attached hereto.  38