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

     x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-26420

AMBASSADORS INTERNATIONAL, INC.

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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No x

     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 May 2, 2003: 9,879,351

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AMBASSADORS INTERNATIONAL, INC.
FORM 10-Q QUARTERLY REPORT

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PART 1 — FINANCIAL INFORMATION
Item 1. Financial Statements

Ambassadors International, Inc.
Condensed Consolidated Balance Sheets

See Notes to Condensed Consolidated Financial Statements.

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Ambassadors International, Inc.
Condensed Consolidated Statements of Income

See Notes to Condensed Consolidated Financial Statements.

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Ambassadors International, Inc.
Condensed Consolidated Statements of Cash Flows

See Notes to Condensed Consolidated Financial Statements.

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Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements

1.		Description of the Company and Basis of Presentation
		The Company
		Ambassadors International, Inc. (the “Company”) is a travel services and performance improvement company. The Company’s operations are classified in the following segments:

	•		Ambassadors Performance Group - Develops, markets and manages meetings and incentive programs for a nationwide roster of corporate clients utilizing incentive travel, merchandise award programs and corporate meeting management services.
	•		Ambassadors Services Group - Provides comprehensive hotel reservation, registration and travel services for meetings, conventions, expositions and trade shows.
	•		Ambassadors Technology Group - Develops, markets and distributes event portfolio management technology solutions for corporations and large associations.

		The Company was founded in 1967 and was reincorporated in Delaware in 1995. Ambassadors Group, Inc. (“AGI”) represented the entire operations of the Company until 1996 when the Performance Group commenced operations. The Services Group commenced operations in 1998 and the Technology Group commenced operations in 2002.
		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, 2003, the consolidated results of operations and cash flows for the three months ended March 31, 2003 and 2002. 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, 2003 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, 2002 filed with the Securities and Exchange Commission.
		As more fully described in Note 3, on January 25, 2002, the Company’s Board of Directors approved a spin-off distribution that separated the Company into two publicly traded entities. The Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2002 include the effects of discontinued operations on a consolidated basis, without separate identification and classification of discontinued operations.

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Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements

Accounting for Stock Options

		The Company accounts for its stock-based compensation in accordance with Accounting Principals Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.”
		The following table illustrates the effect on net income (loss) and earnings (loss) per share had compensation expense for the employee stock-based plans been recorded based on the fair value method under SFAS No. 123 (in thousands, except per share data):

		The calculation of diluted weighted average common shares outstanding is based on income from continuing operations. The net loss for the three months ended March 31, 2002 includes the effects of the discontinued operation.
2.		Business Acquisitions
		In December 2002, the Technology Group acquired certain of the assets and business of Bluedot Virtual Event Organization, Inc. (“Bluedot Software”) out of Chapter 11 bankruptcy. The purchase price consisted of debtor-in possession financing and other costs of $308,000, the assumption of liabilities and future contingent payments by the Technology Group to the sellers covering the twenty-four months following the closing date. The Company allocated the excess purchase price to an intangible asset, purchased software, of $607,000. The amortization period for this intangible asset is five years. As of March 31, 2003, the Company provided an additional investment of approximately $20,000 which was allocated to purchased software and reduced the asset for amortization of approximately $66,000. During the first twelve months following the closing, the Technology Group shall pay the greater of (i) 5% of the gross revenues actually received in each quarter allocable to the assets purchased, or (ii) $25,000 per quarter as the First Year Minimum Payments. During the second year following the closing, the Technology Group shall pay the greater of (i) 5% of the gross revenues actually received in each quarter allocable to the assets purchased, or (ii) $15,000 per quarter as the Second Year Minimum Payments. As of March 31, 2003, the Technology Group paid $25,000 for the first quarter contingent payment.
		In March 2002, the Performance Group acquired a 49% ownership interest in Incentive Travel, LLC (“ITI”). The terms of the purchase agreement call for contingent payments by the Performance Group through 2005 based upon actual income before income taxes multiplied by the Performance Group’s 49% ownership interest calculated based on a predefined multiplier. Total payments related to

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Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements

		fiscal 2002 was $2.3 million of which approximately $1.8 million was paid by March 31, 2003 and was allocated to intangible assets (license). The remaining purchase price of $0.5 million was allocated to goodwill. License fees of approximately $240,000 were earned from ITI during the quarter ended March 31, 2003 and are included in the operations of the Performance Group. The Company also recorded its proportional share of the earnings and management fees from ITI of approximately $185,000 for the quarter ended March 31, 2003.
3.		Discontinued Operations
		On January 25, 2002, the Company’s Board of Directors approved the spin-off of its wholly owned subsidiary, 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 was 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 spin-off impacted the Company’s balance sheet on February 28, 2002 by reducing total assets, liabilities, and stockholders’ equity by $34.8 million, $21.0 million and $13.8 million, respectively. The effect of the spin-off on the Company’s income statement for the three months ended March 31, 2002 is reflected as discontinued operations.
		The revenues and loss from discontinued operations before income taxes are as follows (in thousands):

4.		Comprehensive Income
		The components of comprehensive income are as follows (in thousands):

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Ambassadors International, Inc.
Notes to Condensed Consolidated Financial Statements

5.		Earnings Per Share
		The following table presents a reconciliation of basic and diluted earnings per share (“EPS”) computations and the number of dilutive securities (stock options) that were included in the dilutive EPS computation (in thousands):

		At March 31, 2003 and 2002 there were approximately 363,000 and 100 stock options outstanding, respectively, whereby the exercise price exceeded the average common stock market value. The effects of the shares which would be issued upon the exercise of these options have been excluded from the calculation of diluted earnings per share because they are anti-dilutive.
6.		Business Segments
		The Company operated the Performance Group and Services Group segments during the three months ended March 31, 2003 and 2002. The Technology Group segment was added in December 2002. On February 28, 2002, the Company spun-off the Education Group and recorded the effect of the transaction as a disposition of discontinued operations. Corporate and Other consists of general corporate assets (primarily cash and cash equivalents, investments and go