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

FORM 10-Q

(Mark One)

[X]	QUARTERLY report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2002

OR

[   ]

TRANSITION report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________________ to _________________

Commission file number 0-26420

AMBASSADORS INTERNATIONAL, INC.

Registrant’s telephone number, including area code: (949) 759-5900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   [X]     No   [   ]

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Common shares outstanding as of July 31, 2002: 9,876,093

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AMBASSADORS INTERNATIONAL, INC.
FORM 10-Q QUARTERLY REPORT

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						Page
PART I				FINANCIAL INFORMATION
Item 1.				Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001			1
				Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 and 2001 (unaudited)			3
				Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 (unaudited)			5
				Notes to Consolidated Financial Statements			7
Item 2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
PART II				OTHER INFORMATION
Item 4.				Submission of Matters to a Vote of Security Holders			18
Item 6.				Exhibits and Reports on Form 8-K			18
SIGNATURES							19
Exhibit 99.1 Certification							20

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PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2002 and December 31, 2001
(dollars in thousands)

					June 30,				December 31,
					2002				2001
					(UNAUDITED)
ASSETS
	Current assets:
		Cash and cash equivalents			$	48,444			$	28,021
		Restricted cash equivalents				—				12
		Available-for-sale securities				54,574				107,303
		Accounts receivable				3,625				4,487
		Prepaid program costs and expenses				2,534				5,250
		Deferred income taxes				1,393				1,202
			Total current assets			110,570				146,275
	Property and equipment, net					1,673				4,205
	Other investments					1,342				323
	Goodwill and covenant not-to-compete, net of $1,246 and $1,876 of accumulated amortization					6,275				6,344
	Deferred income taxes					5,809				8,069
	Other assets					88				88
			Total assets		$	125,757			$	165,304

See notes to consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
June 30, 2002 and December 31, 2001
(dollars in thousands)

					June 30,				December 31,
					2002				2001
					(UNAUDITED)
LIABILITIES
Current liabilities:
	Accounts payable				$	1,626			$	6,396
	Accrued expenses					3,113				5,438
	Participants’ deposits					6,839				26,527
	Note payable					200				200
	Foreign currency exchange contracts					—				503
		Total liabilities				11,778				39,064
STOCKHOLDERS’ EQUITY
	Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued and outstanding					—				—
	Common stock, $.01 par value; authorized, 20,000,000 shares; issued and outstanding, 9,876,093 and 9,813,001 shares					99				98
	Additional paid-in capital					88,659				88,144
	Retained earnings					25,186				39,018
	Accumulated other comprehensive income (loss)					35				(1,020	)
			Total stockholders’ equity			113,979				126,240
			Total liabilities and stockholders’ equity		$	125,757			$	165,304

See notes to consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
for the three and six months ended June 30, 2002 and 2001
(dollars in thousands, except per share data)

				Six Months Ended								Three Months Ended
				June 30,								June 30,
				2002				2001				2002				2001
Revenues:
	Travel and incentive related			$	7,453			$	10,202			$	3,608			$	4,071
	License fees from equity investee				414				—				414				—
					7,867				10,202				4,022				4,071
Operating expenses:
	Selling and tour promotion				1,990				2,885				1,029				1,354
	General and administrative				5,393				7,389				2,559				3,514
					7,383				10,274				3,588				4,868
Operating income (loss)					484				(72	)			434				(797	)
Other income:
	Interest and dividend income				1,102				2,045				502				922
	Gain on sale of other investment				—				8,306				—				8,306
	Other, net				393				363				361				29
					1,495				10,714				863				9,257
Income from continuing operations before income taxes					1,979				10,642				1,297				8,460
Provision for income taxes					445				3,591				339				2,857
Income from continuing operations					1,534				7,051				958				5,603
Income (loss) from discontinued operations (less applicable income tax expense (benefit) of ($703), $4,661, ($41) and $5,405)					(1,197	)			8,969				(70	)			10,436
		Net income		$	337			$	16,020			$	888			$	16,039

See notes to consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED), CONTINUED
for the three and six months ended June 30, 2002 and 2001
(dollars in thousands, except per share data)

				Six Months Ended								Three Months Ended
				June 30,								June 30,
				2002				2001				2002				2001
Earnings per share — basic:
	Income from continuing operations			$	0.16			$	0.74			$	0.10			$	0.58
	Income (loss) from discontinued operations				(0.12	)			0.93				(0.01	)			1.09
		Net income		$	0.04			$	1.67			$	0.09			$	1.67
		Weighted-average common shares outstanding			9,851				9,583				9,863				9,596
Earnings per share — diluted:
	Income from continuing operations			$	0.15			$	0.70			$	0.10			$	0.56
	Income (loss) from discontinued operations				(0.12	)			0.90				(0.01	)			1.05
		Net income		$	0.03			$	1.60			$	0.09			$	1.61
		Weighted-average common shares outstanding			10,268				10,000				10,064				9,957

See notes to consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the six months ended June 30, 2002 and 2001
(dollars in thousands)

					2002				2001
Cash flows from operating activities:
	Net income				$	337			$	16,020
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Depreciation and amortization				494				1,180
		Gain on sale of other investments				—				(8,306	)
		Deferred income taxes				(449	)			—
		Compensation expense on stock grants				—				296
		Change in assets and liabilities excluding effect of business dispositions:
			Accounts receivable			719				(2,382	)
			Prepaid program costs and expenses			1,215				(22,021	)
			Accounts payable and accrued expenses			(3,272	)			13,887
			Participants’ deposits			(3,137	)			24,304
			Other			(236	)			—
Net cash provided by (used in) operating activities						(4,329	)			22,978
Cash flows from investing activities:
	Purchase of property and equipment					(297	)			(557	)
	Purchase of available-for-sale securities					(41,612	)			(54,832	)
	Proceeds from sale or maturities of available-for-sale securities					72,228				53,224
	Purchase of other investments					(412	)			(320	)
	Proceeds from sale of other investments					—				7,205
	Net cash paid for acquisition of subsidiaries and covenant-not-to-compete agreements					—				(1,129	)
	Change in other assets					—				17
Net cash provided by investing activities					$	29,907			$	3,608

See notes to consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
for the six months ended June 30, 2002 and 2001
(dollars in thousands)

			2002				2001
Cash flows from financing activities:
	Dividends paid on common stock		$	—			$	(5,133	)
	Distribution resulting from spin-off of subsidiary			(5,299	)			—
	Purchase and retirement of common stock			(80	)			—
	Proceeds from exercise of stock options			224				729
Net cash used in financing activities				(5,155	)			(4,404	)
Net increase in cash and cash equivalents				20,423				22,182
Cash and cash equivalents, beginning of period				28,021				38,071
Cash and cash equivalents, end of period			$	48,444			$	60,253

See notes to consolidated financial statements.

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AMBASSADORS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.		BASIS OF PRESENTATION
		In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals necessary to present fairly the consolidated financial position of Ambassadors International, Inc. and its subsidiaries as of June 30, 2002,the consolidated results of operations for the three and six months ended June 30, 2002 and 2001 and cash flows for the six months ended June 30, 2002 and 2001. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
		It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of those to be expected for the entire year. The accompanying consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission.
2.		COMPREHENSIVE INCOME
		The components of comprehensive income are as follows (dollars in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.		AMBASSADORS GROUP SPIN-OFF
		On January 25, 2002, the Company’s Board of Directors approved the spin-off of its wholly owned subsidiary, Ambassadors Group, Inc. (“AGI”), by declaring a special stock dividend to the stockholders of the Company and distributing to them all of the outstanding shares of AGI. The stock dividend was paid to the Company’s stockholders of record as of February 4, 2002, and was distributed to such shareholders after the close of business on February 28, 2002, the date that the spin-off was completed. Each stockholder of the Company received one share of common stock of AGI for each share of common stock owned in the Company. The distribution of AGI’s common stock pursuant to the spin-off is intended to be tax free to the Company and its stockholders. The Company received a favorable Internal Revenue Service private letter ruling to that effect. The trading of the common stock of AGI on the Nasdaq National Market began on March 1, 2002 under the symbol “EPAX”.
		The spin-off of AGI was accounted for as a disposition of discontinued operations as of February 28, 2002, the date of the dividend. The impact of the spin-off on the Company’s balance sheet on February 28, 2002 reduced total assets, liabilities, and stockholders’ equity by $34.8 million, $21.0 million and $13.8 million respectively.
		The Company has entered into various agreements with AGI providing for the separation of AGI’s business operations from the Company. These agreements also govern various interim and ongoing relationships.
		One of these agreements provides for a credit facility in which the Company has agreed to provide loans to AGI in the event that AGI requires capital. AGI may borrow up to $20 million at any time with three days written notice to the Company. All monies outstanding, including principal and interest, mature no later than August 31, 2003. All borrowings bear interest at the prime interest rate as reported in the Wall Street Journal one business day after the request for a borrowing is received by the Company. As of June 30, 2002, there were no borrowings under this agreement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.		BUSINESS SEGMENTS
		The Company operates the Performance Group and Services Group segments. On March 29, 2002, Ambassadors Performance Group, a wholly owned subsidiary of the Company, acquired a 49% ownership interest in Incentive Travel, LLC (“ITI”). The license fees of ITI are included in the operations of the Performance Group. Corporate and other consists of general corporate assets (primarily cash and cash equivalents and investments) and other activities which are not directly related to these Groups. Selected financial information related to these segments is as follows (dollars in thousands):

5.		SALE OF INVESTMENT
		During June 2001, the Company sold its ownership stake in a joint venture that owned capital stock in Scheduled Airlines Traffic Offices, Inc. (SatoTravel) to Navigant International, Inc. (Navigant)(Nasdaq: FLYR). The Company received approximately $7.2 million in cash, approximately 237,000 shares of common stock at $16 per share of Navigant and recorded a gain of approximately $8.3 million in other income in the quarter ended June 30, 2001.
		The agreement also provided for an additional payment of approximately $1.4 million consisting of cash and stock to be paid to the Company if SatoTravel, as a subsidiary of Navigant, achieved certain revenue objectives by June 14, 2002. The Company is having discussions with Navigant International, Inc. regarding whether or not the conditions for the additional payment have been satisfied. Since probability is uncertain, the additional payment has not been recorded in the statement of income for the six months ended June 30, 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Excluding this gain, income from continuing operations and fully diluted earnings per share would have been as follows:

6.		RECENT PRONOUCEMENTS
		On January 1, 2002, the Company adopted FASB Statement No. 142 Goodwill and Other Intangibles (“Statement 142”). Under Statement 142, goodwill is no longer amortized, but is subject to annual impairment tests. Application of the non-amortization provisions resulted in an increase in income from continuing operations before income taxes of approximately $0.3 million and $0.6 million for the three and six months ended June 30, 2002. During the second quarter of 2002, the Company performed the first of the required impairment tests of goodwill and indefinite lived intangible assets associated with continuing operations and determined that no impairment charge was required as of June 30, 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement 144”), which supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (“Statement 121”), which is effective for fiscal years beginning after December 15, 2001. Statement 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, Statement 144 retains certain fundamental provisions of Statement 121 including recognition and measurement of the impairment of long-lived assets to be held and used; and measurement of long-lived assets to be disposed of by sale. The Company adopted the provisions of Statement 144 effective January 1, 2002.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained in this Quarterly Report on Form 10-Q of Ambassadors International, Inc. (“the Company”) which are not historical in nature, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. A forward-looking statement may contain words such as “will continue to be”, “will be”, “continue to”, “expect to”, “anticipates that”, “believes that”, “to be”, or “can impact”. Forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from anticipated results. A more complete discussion of these risks and uncertainties, as well as other factors, may be identified from time to time in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, or in the Company’s press releases.

CRITICAL ACCOUNTING POLICIES

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

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

The Company owns minority investments in other operating companies and joint ventures. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value.

The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.

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

Revenue from hotel reservation, registration, and related travel services is recognized when the convention commences. Revenue from the sale of merchandise is recognized when the merchandise is shipped. Revenue from pre-paid certificate-based merchandise incentive programs is deferred until the Company’s obligations are fulfilled or upon management’s estimates (based upon historical trends) that the certificate will not be redeemed.

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

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

COMPARISON OF RESULTS FROM CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 TO THE THREE MONTHS ENDED JUNE 30, 2001:

GROSS PROGRAM RECEIPTS

Gross program receipts for the three months ended June 30, 2002 was $12.6 million compared to $13.6 million for the three months ended June 30, 2001, a decrease of $1.0 million. The decrease in gross revenue resulted from a lower level of business in both Ambassadors Performance Group (“APG”) and Ambassadors Services Group (“ASG”) resulting from a slowdown in corporate spending, a decrease in convention services and the impact of September 11th. The decrease in gross revenue is partially offset by the inclusion of licensing revenue generated from Incentive Travel, LLC.

NET REVENUE

Net revenue decreased to $4.0 million in the second quarter of 2002 from $4.1 million in the second quarter of 2001, a decrease of $0.1 million. The decrease in net revenue resulted from the same factors that impacted gross revenue.

SELLING AND TOUR PROMOTION EXPENSES

The Company’s policy is to expense all selling and tour promotion costs as they are incurred.

Selling and tour promotion expenses decreased to $1.0 million in the quarter ended June 30, 2002 from $1.4 million in the comparable quarter of 2001, a decrease of $0.4 million. The decrease was principally due to lower personnel expenses in both APG and ASG.

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GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses decreased during the second quarter of 2002 to $2.6 million from $3.5 million in the second quarter of 2001, a decrease of $0.9 million. The decrease was primarily the result of lower personnel expenses and the adoption of FASB Statement No. 142 “Goodwill and Other Intangibles” effective January 1, 2002, which resulted in the elimination of $0.3 million of goodwill amortization.

OPERATING INCOME (LOSS)

Operating income increased to $0.4 million in the quarter ended June 30, 2002 from a loss of $0.8 million in the comparable quarter of 2001, an increase of $1.2 million. The increase is the result of changes as described above.

OTHER INCOME

Other income for the three months ended June 30, 2002 was $0.9 million compared to $9.3 million for the three months ended June 30, 2001, a decrease of $8.4 million. The decrease in other income relates to lower investment income due to lower yields and the prior year included an $8.3 million gain on the sale of the Company’s investment in SatoTravel. This decrease was partially offset by management fees and earnings in equity investments of $0.3 million.

INCOME TAXES

The Company has recorded an income tax provision of $0.3 million for the second quarter of 2002 in comparison to $2.9 million for the second quarter of 2001, a decrease of $2.6 million. The effective tax rate for the quarter was 26.1% compared to 33.8% for the same period last year. The decrease in the effective tax rate is attributable to investment income, which represented 31.5% of the Company’s pre-tax income for the quarter ended June 30, 2002 compared to 8.3% for the same quarter of 2001. Tax-exempt interest income represented approximately 81.3% and 76.5% of the Company’s investment income in the quarters ended June 30, 2002 and 2001, respectively.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations decreased to $1.0 million in the quarter ended June 30, 2002 from $5.6 million in the comparable quarter of 2001, a decrease of $4.6 million. The decrease is the result of changes as described above.

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COMPARISON OF RESULTS FROM CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED JUNE 30, 2001:

GROSS PROGRAM RECEIPTS

Gross program receipts decreased to $24.2 million in the six month period ended June 30, 2002 from $36.4 million in the six month period ended June 30, 2001, a decrease of $12.2 million. The decrease in gross revenue resulted from a lower level of business in both APG and ASG resulting from a slowdown in corporate spending, a decrease in convention services and the impact of September 11th. The decrease in gross revenue is partially offset by the inclusion of licensing revenue generated from Incentive Travel, LLC.

NET REVENUE

Net revenue decreased to $7.9 million in the six month period ended June 30, 2002 from $10.2 million in the six month period ended June 30, 2001, a decrease of $2.3 million. The decrease in net revenue resulted from the same factors that impacted gross revenue.

SELLING AND TOUR PROMOTION EXPENSES

The Company’s policy is to expense all selling and tour promotion costs as they are incurred.

Selling and tour promotion expenses decreased to $2.0 million in the six month period ended June 30, 2002 from $2.9 million in the six month period ended June 30, 2001, a decrease of $0.9 million. The decrease was principally due to lower personnel expenses in both APG and ASG.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses decreased during the six month period ended June 30, 2002 to $5.4 million from $7.4 million in the six month period ended June 30, 2001, a decrease of $2.0 million. The decrease was primarily the result of lower personnel expenses and the adoption of FASB Statement No. 142 “Goodwill and Other Intangibles” effective January 1, 2002, which resulted in the elimination of $0.6 million of goodwill amortization.

OPERATING INCOME (LOSS)

Operating income increased to $0.5 million in the six months ended June 30, 2002 from a loss of $0.1 million in the six month period ended June 30, 2001, an increase of $0.6 million. The increase is the result of changes as described above.

OTHER INCOME

Other income for the six months ended June 30, 2002 was $1.5 million compared to $10.7 million for the six month period ended June 30, 2001, a decrease of $9.2 million. The decrease in other income relates to lower investment income due to lower yields and the prior year included: 1)$0.3 million of management fees from SatoTravel and 2) an $8.3 million gain on the sale of the Company’s investment in

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SatoTravel. This decrease was partially offset by management fees and earnings in equity investments and of $0.3 million.

INCOME TAXES

The Company has recorded an income tax provision of $0.4 million for the six month period ended June 30, 2002 in comparison to $3.6 million for the six month period ended June 30, 2001, a decrease of $3.2 million. The effective tax rate was 22.5% for the six months ended June 30, 2002 compared to 33.7% for the same period last year. The decrease in the effective tax rate is attributable to investment income, which represented 42.2% of the Company’s pre-tax income for the six months ended June 30, 2002 compared to 12.6% for the same period last year. Tax-exempt interest income represented approximately 75.7% and 65.6% of the Company’s investment income for the six months ended June 30, 2002 and 2001, respectively.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations decreased to $1.5 million for the six month period ended June 30, 2002 from $7.1 million in the comparable six month period of 2001, a decrease of $5.6 million. The decrease is the result of changes as described above.

SEASONALITY

The Company’s businesses are seasonal and revenues and operating income are not earned on a pro rata basis. The Company anticipates that this trend will continue for the foreseeable future.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s business is not capital intensive. However, the Company does retain funds for operating purposes in order to conduct sales and marketing efforts for future programs and to facilitate acquisitions.

Net cash provided by (used in) operations for the six month periods ended June 30, 2002 and 2001 was approximately ($4.3) million and $23.0 million, respectively, a decrease of $27.4 million. The decrease in operating cash flows primarily relates to i) the decrease in net income, ii) a decrease in participant deposits resulting from the spin-off of AGI and iii) a lower level of business operated by APG and ASG.

Net cash provided by investing activities for the six month periods ended June 30, 2002 and 2001 was approximately $29.9 million and $3.6 million, respectively. The increase in cash flows from investing activities relates to the Company liquidating investments in order to transfer funds to a second money manager, to partially fund cash flow from operations and to complete the acquisition of a minority interest in a corporate and incentive meeting company.

Net cash used in financing activities for the six-month periods ended June 30, 2002 and 2001 was ($5.2) million and ($4.4) million, respectively. Cash used from financing activities for the current period mainly related to the spin-off of AGI that was completed on February 28, 2002 (see Note 3).

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The Company has entered into various agreements with AGI that provide for the separation of AGI’s business operations from the Company. One of these agreements provides for a credit facility in which the Company has agreed to provide loans to AGI in the event that it requires capital. AGI may borrow up to $20 million at any time with three days written notice to the Company. All monies outstanding, including principal and interest, mature no later than August 31, 2003. All borrowings bear interest at the prime interest rate as reported in the Wall Street Journal one business day after the request for a borrowing is received by the Company. As of June 30, 2002, there were no borrowings under this agreement.

The Company does not have any material capital expenditure commitments for 2002. However, the terms of the Company’s acquisitions of certain businesses include contingent consideration, which could range up to approximately $1.4 million in 2003. Additionally, the Company is continuing to pursue further acquisitions of related travel and performance improvement, service and other businesses that may require the use of cash and cash equivalents. No such acquisitions are currently pending and no assurance can be given that definitive agreements for any such acquisitions will be entered into, or, if they are entered into, that they will be on terms favorable to the Company.

In November 1998, the Board of Directors of the Company authorized the repurchase of the Company’s common stock (up to an approved amount) in the open market or through private transactions. This repurchase program is ongoing. The Company does not believe that any such repurchases will have a significant impact on the Company’s liquidity.

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

DISCONTINUED OPERATIONS

On January 25, 2002, the Company’s Board of Directors approved the spin-off of its wholly owned subsidiary, Ambassadors Group, Inc. (“AGI”), by declaring a special stock dividend to the stockholders of the Company and distributing to them all of the outstanding shares of AGI. The stock dividend was paid to the Company’s stockholders of record as of February 4, 2002, and was distributed to such shareholders after the close of business on February 28, 2002, the date that the spin-off was completed. Each stockholder of the Company received one share of common stock of AGI for each share of common stock owned in the Company. The distribution of AGI’s common stock pursuant to the spin-off is intended to be tax free to the Company and its stockholders. The Company received a favorable Internal Revenue Service private letter ruling to that effect. The trading of the common stock of AGI on the Nasdaq National Market began on March 1, 2002, under the symbol “EPAX”.

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PART II — OTHER INFORMATION

Items 1, 2, 3, and 5 are not presented, as they are not applicable.

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

At the annual meeting of shareholders of registrant on May 17, 2002, the following matters were voted upon:

(a)

Election of Directors:

(b)

Ratification of amendment to registrant’s Amended and Restated 1995 Equity Participation Plan to increase the number of shares of registrant’s common stock available for issuance thereunder from 1,400,000 to 2,200,000:

(c)

Ratification of Ernst & Young LLP as registrant’s independent accountants for the year ending December 31, 2002:

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

	(a)		Exhibits:
			99.1 Certification Pursuant to 18 U.S.C. Section 1350
	(b)		Reports on Form 8-K:
			None

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SIGNATURES

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

AMBASSADORS INTERNATIONAL, INC
Date: August 13, 2002		By:		/s/   Timothy T. Fogarty
				Timothy T. Fogarty, Chief Financial Officer

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