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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 2003

OR

For the transition period from _______ to _________

Commission file number: 0-26420

AMBASSADORS INTERNATIONAL, INC.

Registrant’s Telephone Number, Including Area Code: (949) 759-5900

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 Par Value
Title of Each Class

     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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

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

     The aggregate market value of the voting stock of the registrant held by non-affiliates of the Registrant, based upon the closing sales price of the Common Stock on the Nasdaq Stock Market on June 30, 2003, was $87,387,624. The number of shares of the registrant’s Common Stock outstanding as of March 4, 2004 was 9,970,137.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s definitive Proxy Statement relating to the 2004 Annual Meeting of Stockholders are incorporated by reference into Part III.

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FORWARD-LOOKING STATEMENTS

     Statements contained in this Annual Report on Form 10-K 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. These forward-looking statements include, without limitation, statements in Item 1., “Business,” and Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding intent, belief or current expectations of the Company or its officers with respect to, among other things, trends in the travel industry, the Company’s business and growth strategies, the Company’s use of technology, the continued use of travel management companies by clients, the Company’s ability to integrate acquired businesses, and fluctuations in the Company’s quarterly results of operations.

     Forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from anticipated results. These risks and uncertainties include factors affecting the travel industry generally, competition, the ability of the Company to successfully integrate the operations of existing or acquired companies, and a variety of factors such as war with Iraq, recession, weather conditions and concerns for passenger safety that could cause a decline in travel demand, as well as the risk factors set forth in Item 1. “Business — Risk Factors,” and other factors as may be identified from time to time in the Company’s filings with the Securities and Exchange Commission or in the Company’s press releases.

PART I

Item 1. Business

Overview

     Ambassadors International, Inc., a Delaware corporation, is a travel services Company with subsidiaries currently operating in the businesses of (i) developing, marketing and managing meetings and incentive programs for a nationwide roster of corporate clients, utilizing incentive travel, merchandise award programs and corporate meeting management services (the “Performance Group”); (ii) providing comprehensive hotel reservation, registration and travel services for meetings, conventions, expositions and trade shows (the “Services Group”) and (iii) providing event portfolio management software solutions (the “Technology Group”). The terms “Company” and “we” are used to refer collectively to Ambassadors International, Inc. and its subsidiaries through which our various businesses are conducted.

     The Performance Group is comprised of the Company’s wholly owned subsidiary, Ambassadors Performance Group, LLC (“APG”), a 51% ownership interest in Innovations In Marketing, LLC (“IIM”), and a 49% ownership interest in Incentive Travel, LLC (“ITI”). On October 15, 2003, the Company sold its 51% ownership interest in IIM to the minority owner. The Services Group is comprised of the Company’s wholly owned subsidiary, Ambassadors Services Group, Inc. (“ASG”). The Technology Group is comprised of the Company’s wholly owned subsidiary, Ambassadors Technology Corporation (“ATC”) d.b.a. Ambassadors Enterprise Services. In December 2003, the Company formed Cypress Reinsurance, Ltd (“Cypress Re”) as a complement to its primary business. Cypress Re is a specialty reinsurance company that takes selective reinsurance risks in property and casualty insurance programs. In connection with these programs, Cypress Re intends to market to the insureds the Performance Group’s portfolio of merchandise, incentive and debit card programs.

     In 2004, the Company consolidated the Performance Group, the Services Group and the Technology Group into one segment, called Ambassadors.

     The Company was originally incorporated in the State of Washington in 1967 under the name International Ambassador Programs, Inc. to provide international educational travel programs for students and professionals. The Company was reincorporated in the State of Delaware in 1995 under the name Ambassadors International, Inc. The Company’s principal executive offices are located at 1071 Camelback Street, Newport Beach, California, 92660-3228 and its telephone number is (949) 759-5900.

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Business Segments

     Performance Group

     The Performance Group develops, markets and manages performance improvement programs for a nationwide roster of clients. In January 1996, the Company completed the acquisition of The Helin Organization and commenced operations of the Performance Group. In December 1996, the Company acquired Bitterman & Associates, Inc.; in September 1997, the Company acquired certain of the assets of Debol & Associates; in February 1998, the Company acquired the stock of Travel Incentives, Inc.; in May 1998, the Company acquired the stock of Incentive Associates, Inc.; in March 2002, the Company acquired a 49% ownership interest in ITI and in November 2002, the Company acquired a 51% ownership interest in IIM. On October 15, 2003, the Company sold its 51% ownership interest in IIM to the minority owner.

     During 1999, pursuant to a restructuring plan, the component of the Performance Group operations located in Minneapolis, Minnesota was closed, and all finance and accounting functions were consolidated into the principal executive offices located in Newport Beach, California.

     The Performance Group offers services in performance improvement programs and business meeting management services. The performance improvement programs utilize debit cards, travel incentives and merchandise awards, designed to achieve a multitude of specific corporate objectives, including but not limited to achieving sales goals, improving productivity, and attracting and retaining qualified employees. The business meeting management services assist clients in planning, coordinating and producing business meetings and conferences. These clients include both small and large businesses, including Fortune 1000 companies.

     In offering performance improvement programs and business meeting management services, the Performance Group follows a strategy aimed at developing and implementing programs tailored to each client’s objectives. These programs are generally designed to increase revenues and profits for the client. The Company’s employees meet with the existing or potential clients to determine their business objectives and their performance enhancement opportunities. The Company then works with the client to determine the scope of the program by identifying concepts and parameters to meet the objectives of the incentive program. The Company’s employees develop and customize services for the clients that fall within the identified parameters. Program rules are then developed that specifically address the campaign participants, key wholesalers or dealers involved in the client’s distribution channel.

     The Performance Group’s marketing team participates in various aspects of a client’s program development. The staff of creative writers and graphic designers generally delivers promotional campaigns and materials that are complete from concept through production, including design, printing, collating, labeling and mailing. Also, the Company offers web based campaign performance tracking systems, with which clients can follow the period results of their programs, and determine and notify the incentive program winners. Based on the program structure, awards can be in the form of merchandise, travel, cash, recognition or any combination thereof. The Company then fulfills the award through a program coordinator that finalizes each aspect of the client’s event and delivers the awards directly to the client’s award winners.

     Services Group

     The Company’s Services Group operates hotel reservation, registration, and other services for conventions, tradeshows and large specialty events through ASG. The Services Group commenced operations in 1998 through the acquisition of two hotel reservation companies. Through the acquisition of another company in 1999, ASG added pre-registration and on-site registration services to its list of services offered. Also during 1999, pursuant to a restructuring plan, the component of the Services Group’s operations located in Boston, Massachusetts was consolidated with the operations in Atlanta, Georgia, and the finance and accounting functions were consolidated into the principal executive offices located in Newport Beach, California.

     The Services Group provides comprehensive hotel reservation, registration, and other services for large event planners. The contracts for these services generally cover an annual meeting or event and may be for a term of one to several years. The hotel services include negotiating hotel room blocks, creating sub-blocks and fulfilling

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thousands of requests for hotel rooms for large citywide events. Hotel reservation requests are received by mail, fax and telephone by the Company’s call center staff. The Services Group accepts reservation requests over the internet, by e-mail and through proprietary technology utilizing the internet to book hotel reservations. This technology also enables clients, attendees, and hotel partners to obtain real-time reports and information over the internet at any time.

     The Services Group registration technology assists planners in pre-registering attendees for multiple show events. The on-site registration technology operates through an efficient distribution network with the capability of registering thousands of attendees in a short period of time and in several different locations. The Services Group also offers attendees and event exhibitors various forms of lead retrieval systems.

     Technology Group

     The Technology Group provides enterprise wide control software which allows marketers, meeting planners and tradeshow organizers to run efficient, less costly events, while focusing on sales and marketing strategies and results. In December 2002, ATC acquired certain of the assets and business of Bluedot Virtual Event Organization, Inc. (such business and assets shall be referred to herein as “Bluedot Software” unless the context otherwise requires). Bluedot Software is a provider of event portfolio management software solutions which provides software infrastructure of web based and traditional business events to transform the customers’ events into key drivers of revenue growth, enhanced customer experience and cost savings. Global corporations and large associations in technology, financial services, media and healthcare have used the Company’s products to automate marketing events.

     In December 2003, the Technology Group operations were consolidated into the principal executive offices located in Newport Beach, California.

Education 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 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.

Corporate Investments

     The Company has a 20% minority investment in Grand Prix Tours, Inc. (“GPT”), which provides packaged tours primarily to Formula One, Indy Car and NASCAR races in the United States and internationally. GPT is the largest such travel company in the United States.

     The Company had a minority interest in GetThere.com, a company engaged in the travel business via the internet. During 2000, the Company sold its investment in GetThere.com and recognized a gain on the investment of approximately $7.9 million.

     In January 1999, the Company purchased a minority interest in a joint venture that owns the capital stock of Scheduled Airlines Traffic Offices, Inc. (“SatoTravel”). In June 2001, the Company sold its ownership stake in SatoTravel to Navigant International, Inc. (“Navigant”) (Nasdaq: FLYR). The Company received approximately $7.2 million in cash, approximately 237,000 shares of common stock of Navigant and recorded a gain of

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approximately $8.3 million in other income ($5.5 million net of income taxes). The agreement also provided for an additional payment of cash and stock to be paid to the Company if SatoTravel, as a subsidiary of Navigant, had achieved certain revenue objectives by June 14, 2002. The additional payment was disputed by Navigant and both parties agreed to arbitration to settle the dispute. In June 2003, the arbitration was settled and the Company received approximately $0.7 million in cash, net of arbitration related expenses, and approximately 36,000 shares of common stock of Navigant. As of December 31, 2003, the Company recorded in other income the final component of the gain consideration on the sale of this investment in the amount of approximately $1.2 million ($0.7 million net of income taxes).

     In October 2000, the Company purchased a minority interest in Milepoint, Inc., a development stage internet company which enables customers to convert accrued credits toward online purchasing. During the quarter ended December 31, 2001, the Company recorded a loss of approximately $400,000 to write off its investment due to what the Company’s management believed to be other than a temporary decline in the market value of this investment. The recorded loss represented the balance of this investment and thus, the Company has no future financial exposure on this investment.

     In March 2002, the Performance Group acquired a 49% ownership interest in ITI. ITI develops, markets and manages meetings and incentive programs for a select roster of corporate clients utilizing incentive travel and corporate meeting management services.

     In 2003, the Company invested in the financial results of a property and casualty insurance program mainly consisting of auto liability and auto physical damage risks for the accident years ended June 30, 2003 and 2004. The Company believes these investments will lead to additional strategic business opportunities within the Performance Group. Subsequent to year end, these investments were transferred to the Company’s newly formed reinsurance company, Cypress Re.

Business Strategy

     Our strategy in the Performance Group and Services Group is to maintain our quality standards while increasing our overall volume of business by differentiating ourselves from our competitors and extending the array of services offered. In the Technology Group, the acquisition of Bluedot Software allowed us to provide all customers, no matter the size and budget of their events, the operational and strategic advantages gained by using Bluedot Software’s event management software. The Company believes that Bluedot Software is a natural fit allowing it to cross-sell its software in the Performance Group and Services Group.

     We continue to pursue selective acquisitions of businesses in the travel, performance improvement, leisure and service sectors that will increase stockholder value.

Competition

     The travel industry in general is highly competitive. In the meeting management and incentives businesses many of our competitors are larger and have greater resources. We believe that, although some potential clients will focus on price alone, other clients will also be interested in the quality of the programs developed and the excellent customer service provided. The Company believes that its programs are not easily duplicated by its competitors.

     The Services Group operates within a highly competitive, technical segment of the travel industry. We compete with respect to price and service, and believe our technology is a key element of our service.

     The Company believes the barriers to entry are relatively low for any future competitors. Additionally, certain organizations engaged in the travel business have substantially greater financial, marketing and sales resources than the Company. There can be no assurance that the Company’s present or future competitors will not exert significant competitive pressures on the Company.

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Insurance

     The Company maintains insurance coverage that it believes is adequate for its business, including but not limited to a total of $20 million in coverage for professional and general liability. The Company also maintains insurance coverage on real property and personal property, and as required on leased properties, on a replacement cost basis. The Company has not experienced difficulty in obtaining adequate insurance coverage. There is no assurance that the insurance maintained by the Company will be adequate in the event of a claim, or that such insurance will continue to be available in the future.

Employees

     On December 31, 2003, the Company employed 121 employees, of which 113 were full-time employees. Of the Company’s full-time employees, 58 are located in Newport Beach, California; 34 are located in Atlanta, Georgia; 8 are located in San Rafael, California; and 13 are located in other individual offices throughout the United States. The Company has full-time employees engaged in marketing and sales and full-time employees in operations, administration and finance. The Company also employs temporary labor on a periodic basis to assist with its program fulfillment efforts due to the seasonal nature of the Company’s travel programs. None of the Company’s employees are subject to collective bargaining agreements or are represented by a union. The Company believes that its labor relations are good.

Risk Factors

Travel Industry and Natural Occurrences

     Substantially all of the Company’s operations are directly associated with the travel industry. As a result, the Company’s operations are subject to special risks inherent in doing business in that industry. Such risks include the adverse effect on operations from war, terrorism, civil disturbances, political instability, governmental activities and deprivation of contract rights. Periods of instability or uncertainty surrounding the travel industry may reduce the demand for the Company’s programs and services and could have an adverse effect on the Company’s business and results of operations. The repercussions of war with Iraq, terrorist attacks and the impact of regional health epidemics similar to SARS are examples of events that could have an adverse effect on the Company’s operations. Demand for the Company’s programs and services may also be adversely effected by natural occurrences such as hurricanes, earthquakes, epidemics and flooding in regions in which the Company conducts its programs and provides its services.

General Economic Conditions

     The Company derives a significant portion of its revenues directly or indirectly from the travel industry. The travel industry, especially the performance improvement and convention sectors, is sensitive to changes in economic conditions. During general economic downturns and recessions, companies tend to reduce or eliminate improvement programs and attendance at conventions and trade shows. The travel industry is also highly susceptible to unforeseen events, such as terrorism, fuel price escalation, travel-related accidents, unusual weather patterns or other adverse occurrences. Any event that results in decreased travel generally would have an adverse effect on the Company’s business, financial condition and results of operations.

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Cash, Cash Equivalents, and Available-for-Sale Securities

     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 that 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.

Acquisitions and Expansion of Business

     Part of the Company’s business strategy is to acquire businesses that will assist in the overall growth of the Company. The Company will be competing for acquisition opportunities with other companies, many of which have greater name recognition, marketing support and financial resources, which may result in a diminished number of acquisition opportunities available to the Company and higher acquisition prices. No assurance can be given that the Company will be able to identify, pursue or acquire any targeted businesses. In addition, if any targeted businesses are acquired, there can be no assurance that the Company will be able to profitably manage additional businesses or successfully integrate any acquired businesses into the Company without substantial costs, delays and/or other operational or financial problems.

     If the Company enters into any significant acquisition for cash, a substantial portion of the Company’s available cash could be used in order to consummate any such acquisition. The Company may also seek to finance such acquisitions through debt or equity financings. There can be no assurance that such financings will be available at all or on terms acceptable to the Company. If consideration for an acquisition includes equity securities, the Company’s stockholders could experience dilution.

     Acquisitions involve a number of special risks in addition to those described above. These risks include the diversion of management’s attention to the assimilation of the operations and personnel of the acquired businesses, the potential loss of key employees of acquired companies, potential exposure to unknown liabilities of acquired companies, adverse effects on the Company’s reported operating results due to acquisition costs and expenses associated with integrating and assimilating the operations of the acquired businesses. No assurance can be given that any acquisitions by the Company will or will not occur, or that if an acquisition does occur, that it will not have an adverse effect on the Company or that any such acquisition will be successful in enhancing the Company’s business.

     To properly manage its expansion through potential acquisitions, the Company will be required to expend significant management and financial resources. There can be no assurance that the Company’s systems, procedures and controls will be adequate to support the Company’s operations as they expand, without additional capital and resource expenditures. There can also be no assurance that the Company’s management will be able to manage its growth and operate a larger organization efficiently or profitably. To the extent the Company is unable to manage its growth efficiently and effectively or is unable to attract and retain additional qualified management personnel, the Company’s business, financial condition and results of operations could be adversely effected.

Seasonality — Fluctuations in Quarterly Results

     The Company’s businesses are seasonal. The Company recognizes program related revenues and expenses in the month a program operates. Historically, the majority of the Company’s operating income has been recognized in the second and third quarters; however, as a result of the spin-off of AGI, the Company anticipates that the majority of its operating income will be recognized in the first, second and fourth quarters. The Company’s annual results would be adversely affected if the Company’s revenue were to be substantially below seasonal norms during the first, second and fourth quarters of the year. The Company’s operating results may fluctuate as a result of many factors, including the mix of programs and events, program destinations and event locations, the introduction and acceptance of new programs and program and event enhancements by the Company and its competitors, timing of program and event operation, cancellation rates, competitive conditions in the industry, marketing expenses, extreme weather conditions, timing of and costs related to acquisitions, changes in relationships with certain travel providers, economic factors and other considerations affecting the travel industry. As a result of the foregoing, annual or

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quarterly operating results may be below the expectations of public market analysts and investors. In such event, the price of the Company’s common stock could be adversely affected.

Competition

     The travel industry in general, and the performance improvement and convention services sectors in particular, are highly competitive. The Company’s improvement programs and convention services compete with other companies that provide similar programs and services. In addition, corporations and associations themselves may choose to provide these programs and services “in-house.” The Company believes the barriers to entry in each of the fields in which it operates are relatively low. Certain of the Company’s competitors have substantially greater financial, marketing, and sales resources than the Company. There can be no assurance that the Company’s present competitors or competitors that elect to enter the marketplace in the future will not exert significant competitive pressures on the Company. Such competition could have an adverse effect on the Company.

Casualty Losses

     Due to the nature of the Company’s business, the Company may be subject to liability claims arising out of accidents or disasters causing injury to participants or attendees to its programs or events, including claims for serious personal injury or death. The Company believes that it has adequate liability insurance coverage for such risks arising in the normal course of business. Although the Company has never experienced a liability loss for which it did not have adequate insurance coverage, there can be no assurance that insurance coverage will be sufficient to cover one or more large claims or that the insurance carrier will be solvent at the time of any covered loss. There can be no assurance that the Company will be able to obtain sufficient insurance coverage at acceptable premium levels in the future. Successful assertion against the Company of one or a series of large uninsured claims, or of one or a series of claims exceeding the Company’s insurance coverage, could have an adverse effect on the Company’s business, financial condition and results of operations.

Dependence on Travel Suppliers

     In order to provide its services and products, the Company is dependent on airlines, hotels and other suppliers of travel services. Consistent with industry practices, the Company does not currently have any long-term agreements with its travel suppliers that obligate such suppliers to sell services or products through the Company. Restricted access to suppliers of travel services and a reduction in capacity or changes in pricing arrangements with travel suppliers could have an adverse effect on the Company’s business, financial condition and results of operations.

Dependence on Key Personnel

     The Company’s performance is substantially dependent on the continued services and performance of its senior management and certain other key personnel. The loss of the services of any of its executive officers or other key employees could have an adverse effect on the Company’s business, financial condition and results of operations. The Company does not have any long-term employment agreements with its executive officers. The Company’s future success also depends on its ability to identify, attract, hire, train, retain and motivate other highly skilled managerial, operational, marketing and customer service personnel. The failure to retain and attract necessary managerial, operational, marketing and customer service personnel could have an adverse effect on the Company’s business, financial condition and results of operations.

Available Information

     Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available without charge on our website, www.ambassadors.com/investor, as soon as reasonably practicable after they are filed electronically with the SEC. We are providing the address to our Internet site solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this report.

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Item 2. Properties

     The principal executive offices of the Company occupy approximately 27,000 square feet of office space in Newport Beach, California, pursuant to a lease dated June 15, 1998, which expires in June 2005. The lease currently provides for monthly rental payments of approximately $35,000. The Company subleases approximately 2,000 square feet to a related party for approximately $3,400 per month.

     The Company occupies offices totaling approximately 18,100 square feet in Atlanta, Georgia pursuant to a lease dated January 7, 2000, which expires in July 2005. The lease currently provides for monthly rental payments of approximately $24,000 per month.

     The Company occupies office space totaling 3,300 square feet in San Rafael, California pursuant to a lease dated December 9, 2003, which expires in December 2004. The lease currently provides for monthly rental payments approximating $5,000 per month.

     The Company occupies office space totaling approximately 1,000 square feet in Chicago, Illinois, with current monthly rental payments of approximately $2,500. This lease can be cancelled with 90 days advance notice to the landlord and is contracted on a month-to-month basis.

     The Company leases office space totaling approximately 8,100 square feet in San Francisco, California pursuant to a lease dated June 9, 2003, which expires in December 2008. The lease currently provides for current monthly rental payments of approximately $14,000. The Company may cancel the lease with penalty in July 2006 upon nine months written notice. In December 2003, the Company vacated the office space and is currently looking for a sublessee for the location.

     Management believes that its existing facilities are sufficient to meet its present needs and anticipated needs for the foreseeable future. However, additional facilities may be required in connection with future business acquisitions.

Item 3. Legal Proceedings

     The Company is not a party to any material pending legal proceedings. The Company is from time to time threatened or involved in litigation incidental to its business. The Company believes that the outcome of all current litigation will not have a material adverse effect on its business, financial condition, cash flows or results of operations.

Item 4. Submission of Matters to a Vote of Securities Holders

     None.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Stock Market and Other Information

     The Company’s common stock is traded and prices are quoted on the Nasdaq National Market under the symbol “AMIE.” As of March 4, 2004, there were approximately 37 holders of record of the Company’s common stock not including beneficial owners holding shares through nominee or street name.

     The following table sets forth the high and low bid prices of a share of the Company’s common stock as quoted on the Nasdaq National Market for the periods indicated:

Dividend Policy

     Prior to 2003, the Company had not historically paid dividends except as a result of the Company’s gain from the sale of its investment in GetThere.com in 2000 in which the Company paid a cash dividend of $0.53 per share on the Company’s common stock to stockholders of record on February 28, 2001. This dividend represented the per share gain recorded by the Company.

     On September 2, 2003, the Board of Directors authorized a new dividend policy paying shareholders $0.40 per share annually, distributable at $0.10 per share on a quarterly basis. The first dividend of approximately $995,000 was paid on October 2, 2003 to shareholders of record on September 17, 2003. The second dividend of approximately $996,000 was paid on December 8, 2003 to shareholders of record on November 24, 2003. On February 24, 2004, the Company announced the third dividend to be paid on March 23, 2004 to shareholders of record on March 9, 2004.

     The Company and its Board of Directors intend to continually review the dividend policy to ensure compliance with capital requirements, regulatory limitations, the Company’s financial position and other conditions which may affect the Company’s desire or ability to pay dividends in the future.

Transfer Agent and Registrar

     Mellon Investor Services, LLC serves as transfer agent and registrar of the Company’s common stock.

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Equity Compensation Plan Information

Item 6. Selected Financial Data

     The following selected consolidated financial data of the Company is presented as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999. The spin-off of AGI was accounted for as a disposition of discontinued operations as of February 28, 2002, the date of the spin-off, and accordingly, previously reported results of operations of the Company have been restated to reflect the results of AGI in discontinued operations. The selected financial data should be read in conjunction with the Company’s audited Consolidated Financial Statements and the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

     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. Therefore, the following discussion is based upon continuing operations.

     In the years presented, the Company has been engaged primarily in (i) developing, marketing and managing meetings and incentive programs, and (ii) providing comprehensive hotel reservation, registration, and travel services for meetings, conventions, expositions, and trade shows.

     In March 2002, the Company acquired a 49% ownership interest in San Diego, California based ITI and in November 2002, the Company acquired a 51% ownership interest in Newport Beach, California based IIM, the cumulative effect of which was to further expand the Company’s Performance Group. On October 15, 2003, the Company sold its 51% ownership interest in IIM to the minority owner.

     In December 2002, the Company’s wholly owned subsidiary, ATC, acquired Bluedot Software. Bluedot Software is a provider of event portfolio management software solutions. In December 2003, the Technology Group operations were consolidated into the principal executive offices located in Newport Beach, California.

     The Company’s businesses are seasonal. The Company recognizes travel and incentive related program revenues and expenses in the month a program operates. Historically, the majority of the Company’s operating income has been recognized in the second and third quarters; however, as a result of the spin-off of AGI, the Company anticipates that the majority of its operating income will be recognized in the first, second and fourth quarters.

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Critical Accounting Policies

     The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and costs and expenses during the period. Management evaluates its estimates and judgments, including those which impact its most critical accounting policies on an ongoing basis. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, within the framework of current accounting literature.

     The following is a list of the accounting policies that management believes are the more significant judgments and estimates, and that could potentially result in materially different results under different assumptions or conditions.

Revenue Recognition

     The Company bills travel participants, mainly consisting of large corporations, in advance, of which the cash received is recorded as a participant deposit. The Company pays for certain direct program costs such as airfare, hotel, rail passes and other program costs in advance of travel, which are recorded as prepaid program costs. The Company recognizes travel revenue and related costs when travel convenes and classifies such revenue as travel and incentive related.

     Revenue from hotel reservation, registration and related travel services are 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 certificates will not be redeemed. These revenues are classified as travel and incentive related.

     Revenue from software and technology related sales is derived from a combination of license and maintenance fees and services provided with its enterprise software tools. The services provided include hosting of data, development and workflow configuration. Revenue from contracts with multiple elements is recognized using the “residual method” in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Revenue from development contracts is recognized using the percentage-of-completion method in accordance with SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Revenue from contracts relating to only maintenance or hosting of data is recognized on a straight-line basis over the period that the services are provided.

     In May 2003, the FASB Emerging Issues Task Force (“EITF”) reached a final consensus on Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). The EITF addresses how to account for multiple-deliverable revenue arrangements and focuses on when a revenue arrangement should be separated into different revenue-generating deliverables or “units of accounting” and if so, how the arrangement considerations should be allocated to the different deliverables or units of accounting. The provisions of EITF 00-21 are effective for revenue arrangements entered into at the beginning of the first interim period after June 15, 2003. The adoption of