SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Date of Report: December 23, 1996
AMBASSADORS INTERNATIONAL, INC.
-------------------------------
(Exact name of the registrant
as specified in its charter.)
Delaware
--------------------------------
(State or other jurisdiction
of incorporation)
0-26420
--------------------------------
(Commission File Number)
91-1688605
--------------------------------
(IRS Employer I.D. Number)
Dwight D. Eisenhower Building
110 S. Ferrall St.
Spokane, Washington 91101-2203
--------------------------------
(509) 534-6200
--------------------------------
Registrant's telephone number,
including area code
N/A
--------------------------------
(Former name or former address,
if changed from last report)
<PAGE>
EXPLANATORY NOTE
The undersigned Registrant hereby amends, as and to the extent set
forth below, the following items, financial statements, exhibits or
other portions of the Current Report on Form 8-K for an event which
occurred on December 23, 1996:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This item has not been amended and has been included herein for
convenience of reference only.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
EXHIBIT INDEX
99.1 Audited consolidated financial statements of Bitterman &
Associates, Inc. as of and for the year ended April 30,
1996.
99.2 Unaudited condensed pro forma combined balance sheet of
Ambassadors International, Inc. and Bitterman &
Associates, Inc. as of December 31, 1996 and condensed
pro forma combined statement of operations for the year
ended December 31, 1996.
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
- ---------------------------------------------
On December 23, 1996, Ambassadors International, Inc. ("Ambassadors")
completed the acquisition of all of the outstanding shares of Bitterman
& Associates, Inc. ("BAI"), pursuant to an Agreement and Plan of Merger
by and among Ambassadors, Ambassadors Performance Improvement, Inc., a
Delaware corporation and wholly owned subsidiary of Ambassadors
("API"), BAI and Michael H. Bitterman, a 45.48% shareholder in BAI
("Bitterman"). The aggregate purchase price for all outstanding shares
in BAI consists of (i) $1,250,000 in cash, which will be paid out of
Ambassadors working capital, and (ii) 138,857 shares of Ambassadors'
common stock valued at $9.00 per share (the "Ambassadors Shares"). As
a consequence of the acquisition, BAI merged with and into API (the
"Merger").
BAI, based in Minnesota, is a corporate incentive/performance
improvement company. It designs programs for corporations aimed at
increasing the performance of their personnel.
In connection with the Merger, Ambassadors entered into a consulting
agreement and noncompetition agreement with Bitterman. The consulting
agreement and the noncompetition agreement each expire on December 23,
2004. Additionally, Ambassadors agreed to file a registration
statement on Form S-3 to register the Ambassadors Shares by
September 23, 1997. Bitterman and the other shareholders of BAI
further agreed that they will not sell in the aggregate more than
15,000 of the Ambassadors Shares in any month until December 23, 1998.
The Merger is being accounted for as a purchase transaction.
<PAGE>
EXHIBIT 99.1
------------
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Bitterman & Associates, Inc. and Subsidiary
Plymouth, Minnesota
We have audited the accompanying consolidated balance sheet of
Bitterman & Associates, Inc. and Subsidiary (the Company) as of
April 30, 1996 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Bitterman & Associates, Inc. and Subsidiary as of April 30, 1996 and
the consolidated results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/COOPERS & LYBRAND L.L.P.
Spokane, Washington
January 3, 1997
<PAGE>
BITTERMAN & ASSOCIATES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
April 30, 1996
ASSETS
Current assets:
Cash and cash equivalents $ 3,978
Accounts receivable 1,122,829
Inventory 95,140
Investments 2,075,035
Income taxes receivable 130,305
----------
Total current assets 3,427,287
----------
Property and equipment, net 240,996
Deposits and prepaid expenses 32,738
Goodwill, net of accumulated amortization of $1,559 185,559
----------
Total assets $3,886,580
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 166,357
Accounts payable 566,143
Advances from customers 1,175,679
Accrued expenses 209,517
Deferred income taxes 285,378
----------
Total current liabilities 2,403,074
----------
Commitments (Notes 5, 7 and 8)
Stockholder's equity:
Common stock, no par value, 100,000 shares authorized,
90,882 shares issued and outstanding 909
Unrealized gain on investments, net of deferred icnome
taxes of $46,142 69,214
Retained earnings 1,413,383
----------
Total stockholders' equity 1,483,506
----------
Total liabilities and stockholders' equity $3,886,580
==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
BITTERMAN & ASSOCIATES, INC. AND SUBSIDIARY
Consolidated Statement of Operations
for the year ended April 30, 1996
Revenue $8,846,934
Cost of revenue 5,507,557
Gross profit 3,339,377
Operating expenses:
Payroll and employee benefits 3,002,016
Selling expenses 285,658
Occupancy expenses 218,241
Office expenses 261,420
Depreciation and amortization 77,480
Other 95,615
----------
3,940,430
----------
Operating loss (601,053)
----------
Other income (expense):
Investment income 190,743
Gain on sale of investments 31,160
Interest expense (6,882)
Other 1,921
----------
216,942
----------
Loss before income taxes (384,111)
Income tax benefit 157,379
----------
Net loss $ (226,732)
==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
BITTERMAN & ASSOCIATES, INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity
for the year ended April 30, 1996
<TABLE>
<CAPTION>
Unrealized Employee Stock
Common Gain on Retained Ownership Plan (ESOP)
Stock Investments Earnings Guaranteed Note Total
---------- ----------- ---------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1995,
as restated (Note 9) $ 970 $ 15,404 $1,803,503 $ (71,509) $1,748,368
Redemption and
retirement of
common stock (61) (163,388) (163,449)
Payment of contri-
butions to ESOP
for note principal
payments 71,509 71,509
Change in unrealized
gain on invest-
ments 53,810 53,810
Net loss (226,732) (226,732)
---------- ---------- ---------- ---------- ----------
Balance, April 30, 1996 $ 909 $ 69,214 $1,413,383 $ 0 $1,483,506
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
BITTERMAN & ASSOCIATES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
for the year ended April 30, 1996
Cash flows from operating activities:
Net loss $ (226,732)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 77,480
Loss on disposal of property and equipment 1,240
Gain on sale of investments (31,160)
Deferred income tax benefit (48,982)
Change in assets and liabilities, net of
effect of purchase of subsidiary:
Accounts receivable (247,139)
Inventory 67,057
Income taxes receivable (93,268)
Deposits and prepaid expenses 6,860
Accounts payable 150,592
Advances from customers (240,676)
Accrued expenses (92,687)
----------
Net cash used by operating activities (677,415)
----------
Cash flows from investing activities:
Proceeds from sale of investments 1,295,184
Purchases of investments (255,452)
Reinvestment of investment income (104,461)
Proceeds from sale of property and equipment 5,442
Purchase of property and equipment (113,997)
Purchase of subsidiary, net of cash received (27,582)
----------
Net cash provided by investing activities 799,134
----------
Cash flows from financing activities:
Proceeds from notes payable 40,000
Payments on notes payable (198,469)
Payments received on note receivable from Employee
Stock Ownership Trust 71,509
Redemption of common stock (35,500)
----------
Net cash used by financing activities (122,460)
----------
Net decrease in cash and cash equivalents (741)
Cash and cash equivalents, beginning of year 4,719
----------
Cash and cash equivalents, end of year $ 3,978
==========
<PAGE>
BITTERMAN & ASSOCIATES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows, Continued
for the year ended April 30, 1996
Supplemental cash flow information:
Interest paid $ 3,893
Income taxes paid 25,770
Income taxes refunded 40,900
Noncash transactions:
Common stock redeemed through issuance of
note payable 127,949
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
BITTERMAN & ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
------------
Bitterman & Associates, Inc. was established in January 1980 as a
premium representative company. The Company is a full-service
performance marketing agency serving major corporations by
designing and implementing performance marketing programs.
The Company's participants in its Employee's Stock Ownership Plan
own 51.6% of the Company's common stock at April 30, 1996.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
Bitterman & Associates, Inc. and since December 1995, its wholly
owned subsidiary, LaCrosse Travel and Tours, Inc. (the Company).
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include money market and demand deposit
accounts at several financial institutions and investment
brokers. At times, the amounts on deposit may exceed federally
insured limits. The Company considers highly liquid investments
purchased with a remaining maturity of three months or less to be
cash equivalents.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounts Receivable
-------------------
The Company's sales are concentrated in a limited number of
Fortune 500 companies, principally located in the eastern and
midwestern United States. Sales to the largest four customers
comprised 51% of total revenues for the year ended April 30,
1996, as follows:
Customer
A 17%
B 13
C 12
D 9
At April 30, 1996, one customer represented approximately 41% of
total accounts receivable.
Inventory
---------
Merchandise inventory that is used in connection with the
Company's merchandise award programs is stated at the lower of
cost as determined by the first-in, first-out method or net
realizable value.
Investments
-----------
The Company accounts for its investments in debt and equity
securities in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," which requires a company to classify its
securities into categories based upon the Company's intent
relative to the eventual disposition of the securities.
The Company has classified its debt and equity securities as
available-for-sale. Accordingly, the investments are recorded at
market value. Unrealized gains and losses are excluded from
operations and reported as a separate component of stockholders'
equity, net of deferred income taxes. The Company has a limited
partner interest in an investment partnership which is recorded
at cost. The partnership holds investments in several foreign
and domestic debt and equity securities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investments, Continued
----------------------
Realized gains and losses on the sale of investments are
recognized on a specific identification basis in the statement of
operations in the period the investments are sold.
Property and Equipment
----------------------
Property and equipment are stated at cost. Cost of maintenance
and repairs which do not improve or extend the lives of the
respective assets are expensed currently. Major additions and
betterments are capitalized. Depreciation and amortization are
provided over the lesser of the estimated useful lives of the
respective assets or the lease term (including extensions), using
the straight-line method.
When property and equipment are sold or retired, the related cost
and accumulated depreciation are removed from the accounts and
any gain or loss is recognized in operations.
Goodwill
--------
Goodwill recorded in connection with the Company's acquisition of
its subsidiary is being amortized using the straight-line method
over 10 years.
Revenue Recognition
-------------------
The Company recognizes revenue from the sale of merchandise,
printing and administration of customer incentive programs. The
Company issues certificates for the redemption of merchandise
related to customer incentive programs. Depending on the type of
program, the Company is paid for certificates when they are
issued (bill on issuance) or redeemed (bill on redemption). The
Company records a liability for certificates billed on issuance
as customer advances. Revenue related to customer advances is
recognized when the Company's obligations associated with the
certificate have been fulfilled. Revenues related to
certificates that are billed on redemption are recognized when
the merchandise is shipped to the participant. Revenues are
recognized from printing and administration based upon the
percentage of completion of the related program.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition, Continued
------------------------------
Amounts reported as customer advances are subject to change due
to estimates made by management related to the ultimate
obligation associated with the unredeemed prepaid certificates.
Estimates are based upon historical trends of issued and redeemed
certificates. Due to uncertainties inherent in the estimation
process, it is reasonably possible that changes could occur in
the near term which could materially affect the estimated
obligation.
2. BUSINESS COMBINATIONS:
LaCrosse Travel and Tours, Inc.
-------------------------------
In December 1995, the Company purchased 100% of the outstanding
common stock of LaCrosse Travel and Tours, Inc. (LTT) for
$27,582. The acquisition was accounted for under the purchase
method of accounting. The results of operations of LTT for the
period January 1, 1996 to April 30, 1996 are included in the
consolidated financial statements.
P. E. Aussem Acquisition
------------------------
In November 1996, the Company purchased 100% of the outstanding
common stock of P.E. Aussem Company for $60,000. The
acquisition will be accounted for under the purchase method of
accounting.
Ambassadors International, Inc.
-------------------------------
In December 1996, 100% of the outstanding common stock of the
Company was sold to Ambassadors Performance Improvement, Inc.,
a wholly owned subsidiary of Ambassador International, Inc.
(AII) for $1,250,000 and 138,857 shares of AII's common stock.
AII is a publicly traded company that organizes, markets and
operates international travel programs and also engages in
corporate incentive travel programs.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENTS:
The amortized cost and carrying value of the Company's investments
are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt and equity securities:
Fixed income securities $ 752,546 $ 8,182 $ (13,584) $ 747,144
Equity securities 380,412 126,847 (6,089) 501,170
---------- ---------- ---------- ----------
$1,132,958 $ 135,029 $ (19,673) 1,248,314
========== ========== ==========
Limited partnership investment
($1,033,374 estimated market
value) $ 826,721 826,721
========== ----------
Total investments $2,075,035
==========
</TABLE>
The Company has restrictions as to the timing and amount of the
limited partnership investment which can be liquidated. Subsequent
to April 30, 1996, the Company liquidated its entire investment in
the limited partnership for an amount in excess of its cost.
The amortized cost and estimated market value of fixed income
securities at April 30, 1996, by contractual maturity, are shown
below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
--------- ---------
Due in one year or less $ 220,815 $ 220,815
Due after one year through five years 344,390 347,516
Due after five years 187,341 178,813
--------- ---------
$ 752,546 $ 747,144
========= =========
Gross gains of $57,843 and gross losses of $26,683 were realized
from the sale of investments during the year ended April 30, 1996.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
Office equipment $ 582,207
Vehicles 69,815
Leasehold improvements 37,936
---------
689,958
Less accumulated depreciation and amortization (448,962)
---------
$ 240,996
=========
5. NOTES PAYABLE:
Lines of Credit
---------------
The Company had a $500,000 line-of-credit agreement with a bank,
which expired in September 1996 and was not renewed. The line of
credit bore interest at the prime rate (8.25% at April 30, 1996)
and was collateralized by all corporate assets. The Company had
no borrowings under the line-of-credit agreement at April 30,
1996.
The Company had a $40,000 line-of-credit agreement with a bank,
which can be terminated by either party at any time. The line of
credit bore interest at 3.00% above the prime rate (11.25% at
April 30, 1996) and was unsecured. The Company had $40,000
outstanding under the line-of-credit agreement at April 30, 1996.
Subsequent to April 30, 1996, all amounts outstanding under the
line-of-credit agreement were repaid and the agreement was not
renewed.
Letters of Credit
-----------------
The Company had two unused letters of credit totaling $51,000,
which expired in June 1996. The letters of credit were required
for the Company's transactions with the Airlines Reporting
Corporation. One of these letters of credit for $31,000 was
renewed until June 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. NOTES PAYABLE, CONTINUED:
Note Payable
------------
In December 1995, the Company entered into an agreement with a
stockholder/employee to purchase 5,050 shares of the
stockholder's common stock for a purchase price of $134,684. Of
the purchase price, $6,735 was paid at closing and a promissory
note was issued for the remaining $127,949. At April 30, 1996,
the outstanding balance of the note was $126,357. The note bore
interest at 6.58% per annum and was payable in seven monthly
principal and interest installments of $1,120 through August 5,
1996, at which time the remaining principal balance, plus any
accrued interest, was due in full.
In September 1996, the Company settled a lawsuit with the former
stockholder regarding his breach of a non-compete agreement. The
settlement required the Company to pay $66,250 in full
satisfaction of the $126,357 note payable. Also, the Company was
required to redeem the former stockholder's vested account
balance of $237,591 under the Company's Employee Stock Ownership
Plan (ESOP). The Company received $38,750 from the stockholder's
current employer as additional consideration for the Company's
agreement to the above.
6. INCOME TAXES:
The income tax provision (benefit) is different from the amount
which would be provided by applying the federal statutory rate to
the Company's loss before income taxes as follows:
Amount %
--------- --------
Computed statutory benefit $(130,597) (34.00)%
Nondeductible meals and entertainment
expenses 9,940 2.58
Dividend received deductions (1,888) (0.49)
Nontaxable interest income (7,958) (2.07)
Benefit from utilization of state net
operating losses (24,823) (6.46)
Other (2,053) (0.53)
--------- ------
$(157,379) (40.97)%
========= ======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES, CONTINUED:
At April 30, 1996, the Company had a state net operating loss
carryforward of $315,000 that may be offset against future taxable
income. The carryforward expires beyond the year 2000.
The income tax benefit for the year ended April 30, 1996 is
summarized as follows:
Current:
Federal $(106,987)
State (1,410)
---------
Total current (108,397)
---------
Deferred:
Federal (25,569)
State (23,413)
---------
Total deferred (48,982)
---------
$(157,379)
=========
Deferred income taxes reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. The tax effects
of the primary temporary differences giving rise to the Company's
deferred tax assets and liabilities at April 30, 1996 are as
follows:
Assets Liabilities Total
--------- ----------- ---------
Customer advances $(274,531) $(274,531)
Property and equipment (4,414) (4,414)
Accrued vacation $ 19,779 19,779
Other accrued liabilities 1,030 1,030
Unrealized gain on
investments (46,142) (46,142)
State net operating losses 18,900 18,900
--------- --------- ---------
$ 39,709 $(325,087) $(285,378)
========= ========= =========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES, CONTINUED:
The Company does not believe a valuation allowance is necessary to
reduce the deferred tax assets as these assets will more likely
than not be realized through the future reversal of temporary
taxable items. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax
asset will be utilized.
7. COMMITMENTS:
Employment Agreements
---------------------
The Company has entered into employment agreements with various
employees. The agreements specify compensation including a base
salary, incentive and discretionary bonuses and other benefits.
Some agreements contain provisions that, in the event of a
merger, acquisition or sale which results in or materially
contributes to the employee's loss of employment, the Company
guarantees specific compensation for a twelve-month period
following termination.
Office Leases
-------------
The Company leases its principal office and warehouse facility
under a noncancelable operating lease which expires in January
1999. The monthly base rent is $9,101. In addition, the Company
is responsible for an allocable portion of the aggregate real
estate taxes and lessor operating expenses incurred in the
operation, repair and maintenance of the premises.
The Company's subsidiary leases an office facility under a
noncancelable lease which expires in August 1998. The monthly
base rent is $2,200. In addition, the Company is responsible for
utilities, personal property taxes, leasehold improvements and
repair and maintenance of the premises.
Total rent expense, including the additional costs for lessor
operating expenses, was $194,356 for the year ended April 30,
1996.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS, CONTINUED:
Future noncancelable lease commitments are as follows:
Year Ending
April 30,
-----------
1997 $135,612
1998 135,612
1999 90,709
--------
$361,933
========
8. STOCKHOLDERS' EQUITY:
Stock Ownership Plan
--------------------
The Company has an Employee Stock Ownership Plan (ESOP) covering
all employees meeting minimum eligibility requirements. The ESOP
originally purchased 51,000 shares of the Company's common stock
with the proceeds of a $710,000 bank loan and a $141,177
promissory note to the Company. At April 30, 1996, 46,932 shares
of the Company's common stock was held by the ESOP. The Company
guaranteed repayment of the bank loan and was committed to make
annual contributions to the ESOP to pay off the bank loan.
Contributions to the ESOP for debt repayments during fiscal 1996
were $74,214, of which $2,705 represented interest. During
fiscal 1996, the loan was repaid in full.
As of April 30, 1996, all shares held by the ESOP were allocated
to participants in the ESOP. The Company is obligated to
repurchase these shares at their fair value. For the year ended
April 30, 1996, an independent appraiser determined fair value of
the stock to be $27.90 per share.
Stock Options
-------------
The Company and a major stockholder have entered into stock
option agreements with certain key employees whereby the
employees have an option to purchase up to 11,930 shares of stock
from the Company and/or the selling stockholder at the last
valuation price. The options vest through May 2001. As of
April 30, 1996, no options were exercisable under these
agreements. Prior to December 31, 1996, 2,785 of these options
were exercised.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. STOCKHOLDERS' EQUITY, CONTINUED:
Repurchase Agreement
--------------------
The Company has an agreement with certain stockholders whereby
the Company would be required to purchase the common shares of
such stockholders upon the occurrence of certain qualifying
events which are primarily related to death or termination of
active employment with the Company. The redemption value is
determined annually based upon an independent appraisal and the
payout periods vary based upon the reason for termination. The
Company carries term insurance coverage to fund a majority of the
redemption cost.
These agreements were canceled as part of the acquisition of the
Company by AII in December 1996 (see Note 2).
9. RESTATEMENT OF FINANCIAL INFORMATION:
The Company's financial statements as of April 30, 1996 and 1995
and for the year ended April 30, 1996 have been restated to correct
for errors due to the misapplication of accounting principles. The
impact of these adjustments on the Company's financial statements
as previously reported is summarized below:
<TABLE>
<CAPTION>
Unrealized Retained Earnings
Gain on at April 30,
1996 Investments at ----------------------
Net Loss April 30, 1996 1996 1995
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
As previously reported $ (229,917) $ 194,010 $1,102,795 $1,496,100
Adjustments:
Advances from
customers (34,217) 398,110 432,327
Limited partnership
investment (206,654)
Other 18,116 (106,808) (124,924)
Income tax effect of
adjustments 19,286 81,858 19,286
---------- ---------- ---------- ----------
As restated $ (226,732) $ 69,214 $1,413,383 $1,803,503
========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 99.2
------------
CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following condensed pro forma combined balance sheet and condensed
pro forma combined statement of operations collectively, the "Pro Forma
Financial Statements" were prepared by Ambassadors International, Inc.
("Ambassadors") to illustrate the estimated effects of the business
combination to be accounted for as a purchase under generally accepted
accounting principles. Accordingly, the financial information of
Ambassadors and Bitterman & Associates, Inc. ("BAI") has been combined
as if the acquisition occurred on January 1, 1996 for purposes of the
condensed pro forma combined statement of operations, and as of
December 31, 1996, for purposes of the condensed pro forma combined
balance sheet. There are no differences between Ambassadors' and BAI's
accounting policies which are expected to have a material impact on the
pro forma combined financial statements. The Pro Forma Financial
Statements do not purport to represent what the combined financial
position or results of operations would have been if the combination
had occurred at the beginning of the period or to project the combined
financial position or results of operations for any future date or
period.
The Pro Forma Financial Statements should be read in conjunction with
the historical consolidated financial statements, including the notes
thereto, of Ambassadors, which are included in Ambassadors' Form 10-KSB
for the year ended December 31, 1995 and Ambassadors' Forms 10-QSB for
the quarters ended March 31, June 30 and September 30, 1996 and of BAI,
which are included elsewhere in this document.
The Pro Forma Financial Statements are presented utilizing the purchase
method of accounting whereby the excess of the total purchase price
over the fair value of the assets acquired and liabilities assumed of
BAI is recorded as goodwill. The combined pro forma results of operations
presented herein are not necessarily indicative of the future results of
operations.
<PAGE>
Condensed Pro Forma Combined Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
Ambassadors BAI Pro Forma Pro Forma
Historical(4) Historical Adjustments Combined
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $18,558,392 $ 1,118,083 $(1,340,042) (1) $18,336,433
Investments - 571,702 18,409 (3) 590,111
Accounts receivable 125,888 1,343,165 1,469,053
Inventory - 157,234 157,234
Prepaid program costs and
expenses 814,751 545,199 1,359,950
Deferred income taxes 31,602 (7,018) 24,584
Other assets 3,218 9,674 12,892
----------- ----------- ----------- -----------
Total current assets 19,533,851 3,738,039 (1,321,633) 21,950,257
Property and equipment, net 1,368,592 206,894 1,575,486
Investment in joint venture 262,500 - 262,500
Goodwill 989,826 356,402 1,991,996 (2) 3,338,224
Covenant-not-to-compete 105,791 - 105,791
Other assets 36,792 - 36,792
----------- ----------- ----------- -----------
Total assets $22,297,352 $ 4,301,335 $ 670,363 $27,269,050
=========== =========== =========== ===========
LIABILITIES:
Accounts payable and
accrued expenses 1,331,809 992,620 262,500 (3) 2,586,929
Participants' deposits 5,138,772 - 5,138,772
Customer advances - 2,396,578 2,396,578
Notes payable 6,146 195,000 201,146
----------- ----------- ----------- -----------
Total current liabilities 6,476,727 3,584,198 262,500 10,323,425
Deferred income taxes 163,044 - 163,044
----------- ----------- ----------- -----------
Total liabilities 6,639,771 3,584,198 262,500 10,486,469
STOCKHOLDERS' EQUITY:
Common stock 66,150 909 (909) (1) 67,539
1,389 (1)
Additional paid-in capital 12,501,668 - 1,123,611 (1) 13,625,279
Retained earnings 3,089,763 1,134,770 (1,134,770) (1) 3,089,763
Treasury stock - (418,542) 418,542 (1) -
----------- ----------- ----------- -----------
Total stockholders'
equity 15,657,581 717,137 407,863 16,782,581
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $22,297,352 $ 4,301,335 $ 670,363 $27,269,050
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this condensed
pro forma combined balance sheet.
<PAGE>
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET
The following adjustments were made to reflect the combination of
Ambassadors and BAI, as if it occurred December 31, 1996:
(1) All of the oustanding common stock of BAI was acquired for a total
purchase price of $2,465,042, which includes $90,042 of costs
related to the transaction.
(2) Goodwill was recorded for the excess of the purchase price over the
fair value of the assets acquired and liabilities assumed of BAI.
(3) Purchase accounting adjustments were made to record investments at
fair value and accrue severance and other reorganization costs
assocated with the acquisition.
(4) Ambassadors' historical financial statements are presented
excluding the effects of the business combination with BAI.
<PAGE>
Condensed Pro Forma Combined Statement of Operations
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Ambassadors BAI Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $18,843,422 $ 3,773,130 $22,616,552
Operating expenses:
Selling and tour promotion 8,420,151 3,257,975 11,678,126
General and administrative 5,769,874 1,205,004 132,800 7,107,678
----------- ----------- ----------- -----------
14,190,025 4,462,979 132,800 18,785,804
----------- ----------- ----------- -----------
Operating income (loss) 4,653,397 (689,849) (132,800) 3,830,748
Other income (expense):
Interest expense (1,515) (1,515)
Interest and dividend income 1,079,855 223,741 1,303,596
Realized and unrealized gain
(loss) on investments 290,253 257,024 547,277
Other, net (41,060) (41,060)
----------- ----------- ----------- -----------
1,327,533 480,765 - 1,808,298
----------- ----------- ----------- -----------
Income before income taxes 5,980,930 (209,084) (132,800) 5,639,046
Income tax provision (benefit) 2,034,395 (85,724) 1,948,671
----------- ----------- ----------- -----------
Net income (loss) $ 3,946,535 $ (123,360) $ (132,800) $ 3,690,375
=========== =========== =========== ===========
Net income per share $ 0.60 $ 0.55
=========== ===========
Shares used in pro forma
calculation 6,618,454 6,753,887
=========== ===========
</TABLE>
The accompanying notes are an integral part of this condensed
pro forma combined statement of operations.
<PAGE>
NOTE TO CONDENSED PRO FORMA STATEMENT OF OPERATIONS
The condensed pro forma statement of operations for the year ended
December 31, 1996 presents the pro forma effects on the historical
financial statements of Ambassadors to reflect the 1996 operations of
BAI and the amortization of goodwill associated with the BAI business
combination on a straight-line basis over 15 years. Adjustments have
been made to reflect the business combination as if it occurred at
January 1, 1996. The combined pro forma results of operations
presented herein are not necessarily indicative of the future results
of operations of the combined companies.
<PAGE>
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 duly authorized.
AMBASSADORS INTERNATIONAL, INC.
Date: March 10, 1997 /s/John A. Ueberroth
-----------------------------------
John A. Ueberroth, President
