(Exact Name of Registrant as Specified in Its Charter)
Delaware
91-1688605
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
2101 4th Avenue, suite 210 Seattle, Washington98121
(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code: (206) 292-9606
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definitions of “large
accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller Reporting Company þ
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
—
—
Common stock, $.01 par value; 5,000,000 shares authorized; 3,321,384 shares issued and outstanding at
Sepember 30, 2010 and 3,314,695 at December 31, 2009
33
33
Additional paid-in capital
119,032
119,012
Accumulated deficit
(114,120
)
(102,516
)
Total stockholders’ equity
4,945
16,529
Total liabilities and stockholders’ equity
$
91,351
$
91,919
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Description of the Company and Basis of Presentation
Ambassadors International, Inc. (the “Company”) has implemented its previously announced business
strategy of focusing on the international cruise operations of its subsidiary, Windstar Sail
Cruises Limited (“Windstar Cruises”). Windstar Cruises maintains a fleet of three
internationally-flagged luxury yachts that provide travel and cruise opportunities to explore
hidden harbors and secluded coves of treasured destinations with sailings in the Caribbean, Europe,
the Baltic, the Americas and the Greek Isles. During the nine months ended September 30, 2010,
Windstar Cruises was the only operating division of the Company.
As of September 30, 2010, the Company has two remaining Majestic America Line vessels from an
original fleet of seven. The two vessels are not operating and are currently being marketed for
sale or disposal, although there can be no assurances that the Company will be able to locate
qualified buyers or dispose of the vessels in a timely manner. The Delta Queen®, is currently
leased under a bareboat charter agreement under which the lessee is operating a fixed location
hotel on the ship in Chattanooga Tennessee. In January 2010, the Columbia Queen, was pledged as
collateral with a credit card processer rather than placing additional cash deposits. At September30, 2010, the Delta Queen® qualifies for “held-for-sale” classification. During the second quarter
of 2010, the Company sold the Mississippi Queen®and the Contessa for cash proceeds that
approximated each vessel’s carrying value at the time of sale.
Discontinued Operations
During 2009, the Company completed the wind-down of operations or disposition of previously
operated business segments or divisions, including the marine group, the reinsurance business and
the travel and events business. Accordingly, the results of operations of these former business
segments are reported as discontinued operations in the accompanying financial statements. See
additional discussion in Note 2.
In 2009, the Company restructured a significant portion of its Convertible Notes in an Exchange
Offer resulting in a reduction in the principal obligation of the Convertible Notes. In March 2010,
the Company obtained a $15.0 million Credit Facility to be used to fund drydock and capital
expenditures as well as working capital and other corporate purposes. As of September 30, 2010,
the Company has drawn $9.6 million to fund dry dock and capital improvements and has available for
future borrowings $5.0 million under the revolving component of the Credit Facility. In addition
to reducing outstanding indebtedness in the Exchange Offer and obtaining the Credit Facility, the
Company has restructured core business activities so as to allow it to dedicate liquidity resources
to the operations and growth of Windstar Cruises.
The Company incurs capital expenditures and costs to maintain the Windstar Cruise vessels. In 2010,
capital expenditures and drydock projects are expected to be approximately $7.0 million. In April
2010, the Company completed the scheduled drydock for the Wind Sprit in which the Company incurred
expenditures of $4.1 million. The cash required to fund these expenditures was advanced under the
Credit Facility. A scheduled drydock for the Wind Star will occur in November 2010 for which the
Company expects to incur $2.0 million in refurbishments. The cash required to fund the November
project has been provided under the Credit Facility. The Company drew $2.5 million under the
Credit Facility in September 2010 which is held in escrow and reflected as restricted cash in the
accompanying financial statements.
The Company anticipates that operating cash flows, financing cash flows, and investing cash flows
projected for 2010 and 2011, cash and cash equivalents of $14.7 million at September 30, 2010, and
funds available under the Credit Facility will be sufficient to fund ongoing operations through
2010 and 2011. Business improvement initiatives and other actions are expected to further improve
operating income and cash flow results. However, the timing and extent of success for these
strategies cannot be predicted with any level of certainty. If the Company is unable to meet cash
flow projections, it may need to seek additional sources of funding. If the pricing or terms for
any new financing do not meet expectations, the Company may be required to choose between
completion of the financing on such unfavorable terms or not completing the financing. If sources
of capital are unavailable, or are available only on a limited basis or under unacceptable terms,
then the Company could be required to substantially reduce operating, marketing, general and
administrative costs related to continuing operations.
Substantially all of the Company’s long-term indebtedness is scheduled to mature or may need to be
repaid during 2012. The Company does not expect that cash flows from operations will generate
sufficient funds to enable it to repay or repurchase this indebtedness when it is required to do
so. Accordingly, the Company’s ability to satisfy these obligations will depend upon its ability to
refinance this indebtedness or to obtain additional funds through borrowings, sales of debt or
equity securities, asset sales or other transactions.
Cruise related revenues are recognized at the completion of each cruise and the Company operates
and provides cruise services throughout the year. The Company’s revenues have historically trended
higher in the third quarter of each year which coincides with the peak cruising season and highest
occupancy rates. Future annual results could be adversely affected if revenue were to be
substantially below norms during any quarter.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim
financial reporting and include the accounts of the Company and its subsidiaries. Intercompany
accounts and transactions have been eliminated upon consolidation. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with U.S.
generally accepted accounting principles, or GAAP, have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the unaudited condensed consolidated financial
statements reflect all material adjustments, which consists of normal recurring adjustments
necessary to present fairly the Company’s financial position as of September 30, 2010 and its
operating results and cash flow for the three and nine months ended September 30, 2010 and 2009.
Operating results for the nine month period ended September 30, 2010 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2010 or any other future
periods.
The condensed consolidated balance sheet at December 31, 2009 has been derived from the audited
consolidated financial statements at that date but does not include all of the information and
footnotes required by GAAP for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Company’s report on Form
10-K for the year ended December 31, 2009, filed with the SEC on March 31, 2010 and as amended by
Amendment No. 1 on Form 10-K/A filed with the SEC on April 26, 2010. These documents can be found
at www.ambassadors.com/invrel.htm.
Estimates
The preparation of these condensed consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts reported in these
condensed consolidated financial statements and accompanying notes. Actual results could differ
materially from those estimates.
Subsequent Events
The Company has evaluated subsequent events through the filing date of this quarterly report on
Form 10-Q.
Reclassifications
As of December 31, 2009, the travel and events segment qualified as a discontinued operation as the
Company completed its wind down activities and ceased operations of the segment during the fourth
quarter of 2009. Accordingly, the assets and liabilities of the travel and events segment have been
classified as held for sale and the results of operations for the three and nine months ended
September 30, 2009 have been included in income (loss) from discontinued operations. Certain
additional reclassifications of prior year amounts have been made to conform to current year
presentation. They consist of $2.1 million reclassified from accounts payable trade to accrued
expenses and $0.4 million from current to long term assets as of December 31, 2009, $0.7 million
and $2.0 million reclassified from compensation and benefits to onboard and other revenue for the
three and nine months ended September 30, 2009, respectively, as well as other amounts within
cruise operating expenses. These reclassifications had no impact on net loss for the three and nine
months ended September 30, 2009.
The Company measures fair value using a set of standardized procedures for all financial assets and
liabilities which are required to be measured at fair value. When available, the Company utilizes
quoted market prices from an independent third party source to determine fair value and classifies
such items in Level 1 in the fair value hierarchy. In some instances where a market price may be
available, but in an inactive or over-the-counter market where significant fluctuations in pricing
could occur, the Company would consistently choose the dealer (market maker) pricing estimate and
classify the financial asset or liability in Level 2 of the fair value hierarchy. If quoted market
prices or inputs are not available, fair value measurements are based upon methodologies that
utilize current market or independently sourced market inputs. Items valued using such
internally-generated valuation techniques are classified according to the lowest level input that
is significant to the fair value measurement. As a result, a financial asset or liability could be
classified in either Level 2 or 3 of the fair value hierarchy even though there may be some
significant inputs that are readily observable.
Cash and Cash Equivalents
Securities with remaining maturities of three months or less are classified as cash equivalents.
The Company invests cash in excess of operating requirements in short-term time deposits and other
low risk investments.
Restricted Cash
The Company’s restricted cash consists of (in thousands):
Restricted cash to secure customer credit card processing
$
4,766
$
11,000
Proceeds from Credit Facility, escrow for drydock and capital expenditures
2,500
—
Sales deposit in escrow
—
200
Certificate of deposits held as collateral by bank
570
70
$
7,836
$
11,270
The Company’s cruise passenger deposits are primarily received through credit card transactions.
The Company has restricted cash held by banks in cash equivalents in order to secure processing of
passenger deposits through credit cards. The restricted amounts are negotiated between the Company
and the bank based on a percentage of the expected volume of future credit card transactions within
a twelve-month period. Borrowings under the Credit Facility, which are designated to fund drydock
and capital expenditures, are held in escrow pending payment for such expenditures. The majority of
the $2.5 million in escrow is expected to be paid for Wind Star drydock costs during the fourth
quarter of 2010. In June 2010, the Company pledged a $0.5 million certificate of deposit as
security under a bank account control agreement required under the Credit Facility. At December 31,2009, $0.2 million was held in escrow following the sale of the Queen of the West®which was
released to the Company in February 2010.
Property, Vessels and Equipment
Property, vessels and equipment are stated at cost, net of accumulated depreciation. The Company
expenses the cost of maintenance and repairs that do not improve or extend the lives of the
respective assets when incurred. Major additions and betterments are capitalized. The Company’s
ships are capitalized and depreciated using the straight-line method over the expected useful life
ranging up to 20 years. Office equipment is capitalized and depreciated using the straight-line
method over the expected useful life of the equipment, ranging up to 10 years. Leasehold
improvements are amortized using the straight-line method over the lesser of the expected useful
life of the improvement or the term of the related lease.
The Company performs reviews for the impairment of property, vessels and equipment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Assessment of possible impairment is based on the ability to recover the carrying value of the
asset based on estimated undiscounted future cash flows. If these estimated undiscounted future
cash flows are less than the carrying value of the asset, an impairment charge is recognized for
the excess, if any, of the asset’s carrying value over its estimated fair value. Judgments and
estimates made related to property, vessels and equipment are affected by factors such as economic
conditions, changes in resale values and changes in operating performance. This process requires
the use of estimates and assumptions, which are subject to a high degree of judgment. Actual
results could differ materially from these estimates.
The Company defers drydocking costs as incurred and amortizes such costs over the period to the
next scheduled drydock for each vessel and believes that this deferral method provides better
matching of revenues and expenses than immediately expensing such costs. Drydocking costs are
included in prepaid costs and other current assets and in long-term assets in the accompanying
balance sheet and are amortized over the timeframe between scheduled drydockings.
Intangible Asset
The Company holds one indefinite life intangible asset consisting of the Windstar trade name. The
Windstar trade name is tested for impairment at least annually or more frequently, whenever events
or changes in circumstances indicate that the asset may be impaired. The Company’s management
evaluates recoverability using both subjective and objective factors. Subjective factors include
the evaluation of industry, product trends and the Company’s strategic focus. Objective factors
include observable inputs such as third party appraisals and management’s estimates of projected
future earnings and cash flows.
Foreign Currency Transactions
Gains or losses resulting from the settlement of foreign currency transactions are included in the
statement of operations in the period of the settlement.
Revenue Recognition
The Company records passenger ticket revenue net of applicable discounts and recognizes passenger
ticket revenue and related costs of revenue when the cruise is completed. The Company generally
receives from its customers a partially refundable deposit within one week of booking a cruise,
with the balance typically remitted 90 days prior to the departure date of such cruise. If
customers cancel their trip, the nonrefundable portion of their deposit is recognized as revenue in
the month of the original scheduled cruise. Travel insurance revenue purchased at the time of
reservation is recognized upon the completion of the cruise or passenger cancellation, whichever is
earlier and the Company’s obligation has been met. Onboard and other revenue, consisting primarily
of beverage, shore excursion and spa sales, as well as pre and post cruise services, is recognized
when the cruise is completed.
Selling and Tour Promotion Expenses
Selling and tour promotion costs are expensed as incurred.
Barter Transactions
The Company joined a barter organization in 2010. The membership allows the Company to exchange
Windstar cruises for barter credits, which the Company can use to purchase goods and services of
member organizations of the barter organization. The exchange of the Company’s services for barter
credits is recorded at the fair value of the cruise estimated by reviewing comparable cruise fares
sold in similar geographic areas. Non-cash revenue recognized as a result of barter arrangements
were $0.2 million in 2010 with no comparable transactions in 2009. As of September 30, 2010 the
Company has barter credits of $0.2 million that are available for the purchase of goods and
services through the barter organization.
Income Taxes
The Company uses an asset and liability approach when accounting for income taxes that requires the
recognition of deferred tax assets and deferred tax liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax basis of assets and
liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to
the amount expected to be realized. At September 30, 2010 and December 31, 2009, the net deferred
domestic tax asset is subject to a 100% valuation allowance.
The Company has two share-based employee compensation plans and uses the Black-Scholes-Merton
formula to estimate the fair value of stock options granted to employees. The Company has recorded
compensation expense of $20,000 and $(292,000) related to employee stock options and restricted
stock, for the nine months ended September 30, 2010 and 2009, respectively. Cancellations of
unvested restricted stock due to employee terminations resulted in an $823,000 credit to
compensation expense during the three months ended March 31, 2009 and is reflected as a reduction
in general and administrative expense.
No common shares were issued from the exercise of stock options during the nine months ended
September 30, 2010 and 2009.
In May 2010, the Company’s board of directors authorized the grant of 82,867 incentive stock
options, after giving effect to an one- for-eight reverse stock split in August 2010 (see Note 8),
to the new Company’s chief executive officer. This grant was contingent at that time on
shareholder approval of certain amendments to the 2005 compensation plan. These amendments were
approved at the July 2010 annual meeting of shareholders. This grant vests pro rata over four
years with an option strike price of $4.56.
The following table summarizes restricted stock award activity during the nine months ended
September 30, 2010, after giving effect to the one-for-eight reverse stock split.
In June 2009, the FASB issued guidance under FASB ASC 810, Consolidation of Variable Interest
Entities. The guidance amends previous accounting related to the Consolidation of Variable Interest
Entities to require an enterprise to qualitatively assess the determination of the primary
beneficiary of a variable interest entity (VIE) based on whether the entity (1) has the power to
direct the activities of a VIE that most significantly impact the entity’s economic performance and
(2) has the obligation to absorb losses of the entity or the right to receive benefits from the
entity that could potentially be significant to the VIE. Also, ASC 810 requires an ongoing
reconsideration of the primary beneficiary and amends the events that trigger a reassessment of
whether an entity is a VIE. Enhanced disclosures are also required to provide information about an
enterprise’s involvement in a VIE. This statement will be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The adoption of ASC 810 had no effect on our
consolidated financial statements.
2. Discontinued Operations and Assets Held for Sale
As of January 1, 2009, the assets and liabilities of the Company’s marine group and the reinsurance
business qualified for “held for sale” treatment. On May 13, 2009, the marine group was sold and in
September 2009, the Company executed an agreement with a third party whereby all reinsurance assets
were assigned and related liabilities assumed. The Company exited the reinsurance business
effective as of that date. However, the Company retained the right to a 50% participation in any
future cash distribution of excess reserves related to the conclusion of the reinsurance programs.
During the second quarter of 2010, the Company earned $0.6 million, net of administration fees
under the participation agreement. These amounts are reflected in income (loss) from discontinued
operations. As of December 31, 2009, the travel and events business qualified as a discontinued
operation as the Company completed its wind-down activities and ceased operations of the segment
during the fourth quarter of 2009. As a result, the assets and liabilities of travel and events are
also classified as held for sale in the accompanying financial statements.
Income (loss) from discontinued operations before tax
601
(8,413
)
Income tax provision
(204
)
(391
)
Income (loss) from discontinued operations, net of tax
$
397
$
(8,804
)
The Company estimated the recoverability of the carrying value of the marine group and travel and
events during the six months ended June 30, 2009 and recorded an impairment charge of $7.7 million
which is included in operating expenses above. The amount of the impairment was based on the
difference between the net sales proceeds and the carrying value of the division.
The Delta Queen® qualifies for classification as an asset held for sale due to the probability of
the asset disposal within a twelve month period and accordingly, the assets and liabilities related
to the vessel, as well as residual travel and events assets and liabilities are presented as assets
held for sale as of September 30, 2010 and December 31, 2009. The Delta Queen® has not operated in
the cruise industry during 2010 or 2009.
Assets and liabilities held for sale are summarized as follows (in thousands):
The Company maintains an inventory of fuel, supplies, souvenirs and food and beverage products on
board the Windstar vessels. Inventories are stated at the lower of cost or market, using average
cost, and approximate the first-in, first-out method. The components of inventory are as follows
(in thousands):
3.75% Convertible Notes, net of unamortized discount of $1,612 and $2,362, respectively
29,588
28,838
Credit Facility
9,575
—
Less: current portion
(958
)
(948
)
Non-current portion
$
61,044
$
50,719
Guaranteed Principal Payment
In conjunction with the acquisition of certain Majestic America Line assets, the Company assumed
a fixed-rate, 6.5% debt payable through 2020 guaranteed by MARAD and secured by a mortgage on the
American Queen®. On November 15, 2008, the Company returned the American Queen® to MARAD’s
custodial control. The Company had guaranteed principal payments on the debt assumed. At
September 30, 2010, the Company has paid all guaranteed principal payments, except for $958,000.
On August 4, 2010, the Company received a court judgment requiring the Company to pay $958,142.
3.75% Convertible Senior Notes
In April 2007 the Company sold $97.0 million of 3.75% Convertible Senior Notes due 2027 (the
“Convertible Notes”) in a private offering. A portion of the proceeds from the sale of the
Convertible Notes was used to retire $60 million in seller financing incurred in connection with
the acquisition of Windstar Cruises. The remaining proceeds were used for general corporate
purposes. In January 2009, the Company adopted FASB ASC 470-20-25 Debt with Conversion Options,
to account for the Convertible Notes. Accordingly, the Company measured the fair value of the
liability component as $84.9 million and allocated the remaining cash proceeds of $12.1 million
to an equity component. A discount rate of 6.875% was used to determine the debt component based
on assumed market conditions and the Company’s financial position at the time of the debt
placement. This increases the effective interest rate of the Convertible Notes to 6.875%.
In November 2009 the Company completed an exchange offer (the “Exchange Offer”) to exchange each
$1,000 principal amount of the outstanding Convertible Notes for (i) shares of the Company’s
common stock, and (ii) 273.19 principal amount of 10% Senior Secured Notes, due 2012, (“Senior
Notes”) which were guaranteed by the Company’s subsidiaries. Approximately $65.8 million
aggregate principal amount of the Convertible Notes were validly tendered and accepted. In
exchange for the tendered Convertible Notes, the Company issued $18.0 million aggregate principal
amount of new 10% Senior Notes due January 2012 and approximately 1.9 million shares of its
common stock (giving effect to the reverse stock split in August 2010). Approximately $31.2
million aggregate principal amount of the Convertible Notes remain outstanding as of September30, 2010.
The Convertible Notes are convertible into shares of the Company’s common stock at a stated
conversion rate per $1,000 principal amount, subject to adjustment upon the occurrence of certain
events. Interest on the Convertible Notes is payable semi-annually in arrears on April 15 and on
October 15 of each year. The Company may redeem the remaining Convertible Notes in whole or in
part after April 15, 2012. Holders of the Convertible Notes may require the Company to purchase
all or a portion of the Convertible Notes, plus interest, in cash, on April 15, 2012, April 15,2017 and April 15, 2022 or upon the occurrence of specified fundamental changes. If the Company’s
common stock ceases to be listed on an established national securities exchange or automated
over-the-counter trading market in the United States, a fundamental change would be deemed to
have occurred for purposes of the Convertible Notes whereby holders would have the right to
require the Company to repurchase for cash all or a portion of the $31.2 million principal amount
outstanding plus accrued and unpaid interest. The Company does not have sufficient funds
currently available for such repurchase, if required.
The Company recorded the cancellation of $65.8 million in Convertible Notes and issuance of the
Senior Notes and common shares in November 2009 as a troubled debt restructuring. The Company
reduced the carrying amount of the tendered Convertible Notes by the fair value of the common
stock as well as the future cash payments of the Senior Notes. The Company valued the common
shares issued at $8.0 million which was the closing price of the stock on the day the Exchange
Offer was consummated. The future cash payment obligation of the Senior Notes is $21.9 million
(principal and interest). Interest on the Senior Notes is payable in kind or in cash,
semi-annually, at the Company’s option. In accordance with accounting for a troubled debt
restructuring, the Company will not recognize interest expense related to the Senior Notes in
periods following the exchange as this cost reduced the gain at the time of the 2009 restructure.
Credit Facility
In March 2010, the Company established a $15.0 million Credit Facility that consists of a $10.0
million term loan and a $5.0 million revolving line of credit. In connection with the
establishment of the facility, the Company paid direct costs of $0.8 million to third parties and
$0.6 million in annual commitment fees. Borrowings under the facility bear interest at 12% and
mature January 2012. As of September 30, 2010, the Company has drawn $9.6 million under the term
loan and has no amounts outstanding under the revolving line. Borrowings under the term loan were
used to pay the direct costs of the transaction and the remaining proceeds are reserved to fund
drydock and capital expenditures. The Credit Facility contains various restrictive and financial
covenants, including a requirement that the Company achieve certain minimum EBITDA levels, a
limitation on capital expenditures, and restrictions regarding the use of the borrowed proceeds.
In addition, at all times, the Company and its subsidiaries must maintain a minimum of $2.0
million in unrestricted cash and cash equivalents. If the Company fails to comply with these
covenants the Company could default under the Credit Facility. A default under the Credit
Facility would provide an option for the holders of the Senior Notes to accelerate the scheduled
January 2012 maturity date of the Senior Notes.
Basic earnings (loss) per share (“EPS”) for the three and nine months ended September 30, 2010 and
2009 does not include the dilutive effect of stock options or conversion of the Convertible Notes
into common shares since their inclusion would be anti-dilutive. EPS for the three and nine months
ended September 30, 2009 have been retroactively restated to reflect the Company’s one-for-eight
reverse stock split effective August 23, 2010. See Note 8.
The Company and its subsidiaries are subject to U.S. federal income tax. With a few exceptions,
the Company is no longer subject to U.S. federal income tax examinations for years before 2005;
state and local income tax examinations before 2004; and foreign income tax examinations before
2004. The Company is not currently under Internal Revenue Service, state, local or foreign
jurisdiction tax examinations.
The Company recorded an income tax benefit from continuing operations of $0.2 million for the nine
months ended September 30, 2010 and September 30, 2009. Discontinued operations are reported net of
a tax provision of $0.2 million and $0.4 million, respectively for the nine months ended September30, 2010 and 2009. The Company currently records a full valuation allowance on its deferred tax
assets.
8. Reverse Stock Split
At the annual meeting of shareholders held on July 30, 2010, the Company’s shareholders approved a
proposal to implement a one-to-eight reverse stock split of its common stock and a second proposal
to reduce the number of authorized common shares from 40 million to 5 million shares.
On August 23, 2010, the Company completed a one-to-eight reverse stock split of its common
stock. The reverse split reduced the then outstanding common shares from 26,571,092 to 3,321,386.
Under the terms of the reverse stock split, fractional shares were rounded up to the nearest whole
share. This resulted in an additional 448 shares being issued to holders of common stock, bringing
the total shares outstanding immediately following the reverse split to 3,321,834.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in
conjunction with the condensed consolidated financial statements and notes thereto included
elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking
statements that are subject to known and unknown risks, uncertainties and other factors that may
cause our actual results to differ materially from those expressed or implied by such
forward-looking statements. These risks, uncertainties and other factors include, among others,
those identified under “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this
quarterly report on Form 10-Q and in our annual report on Form 10-K for the year ended December 31,2009.
Cruise Operations — Our current cruise operations include the Windstar Cruise vessels which are
international-flagged ships that sail to destinations in the Caribbean, Europe, the Baltic, the
Americas and the Greek Isles. Windstar Cruises operates three sailing yachts including Wind Surf,
Wind Spirit and Wind Star known for their ability to visit the hidden harbors and secluded coves of
the world’s most treasured destinations. The luxurious ships of Windstar sail to nearly 50 nations,
calling at approximately 100 ports throughout Europe, the Baltic, the Caribbean and the Americas.
We are focused on improving our Windstar Cruises business performance and have identified major
areas for improvement as follows:
•
increase our sales and marketing efficiencies to drive more sales, which will enable us
to scale our campaigns to a level appropriate for a company of our size;
•
increase revenues by providing exceptional customer service and guest experiences; and
•
reduce operational costs by continuing to renegotiate key vendor contracts that will
allow for significant direct cost savings, efficiency gain and product improvements.
In September 2009 we completed the transition of our vessel management from a third-party vendor to
in-house management. We believe this transition has resulted in improved management oversight,
efficiency gains and lower operating costs.
Majestic America Line — In April 2008, we announced plans to cease operating the Majestic America
Line. As of September 30, 2010 we have completed the sale or disposition of five of the original
fleet of seven vessels. The vessels have not operated since 2008 as we exited the domestic cruise
business in an orderly fashion. We sold the Queen of the West® in November 2009, the Mississippi
Queen® in May 2010 and the Contessa in June 2010 for cash sales proceeds that approximated carrying
values of the vessels.
We are continuing disposition and wind down activities of Majestic America Line, although there can
be no assurances that we will be successful in the disposition of the remaining vessels by locating
qualified buyers in a timely fashion. The Delta Queen® is currently leased under a bareboat charter
agreement under which the lessee is operating a fixed location hotel on the ship in Tennessee. In
January 2010, the Columbia Queen®was pledged as collateral with a credit card processer rather
than placing additional cash deposits with the institution for the purpose of accepting credit card
deposits from our customers for passenger ticket revenues.
The operations of previously owned businesses, including the marine group, reinsurance business,
and travel and events, are shown as discontinued operations in the accompanying financial
statements. The assets and liabilities of travel and events and one Majestic vessel are classified
as “held for sale” at September 30, 2010 and December 31, 2009.
Exchange Offer and Credit Facility
In November 2009, we completed an exchange offer (the “Exchange Offer”) to exchange $1,000
principal amount of our outstanding 3.75% Convertible Notes due 2027 (the “Convertible Notes”) for:
(i) shares of the Company’s common stock, and (ii) 273.19 principal amount of 10% Senior Secured
Notes, due 2012, including guarantees from the Company’s subsidiaries (the “Senior Notes”).
Approximately $65.8 million aggregate principal amount of the Convertible Notes were validly
tendered and accepted. In exchange for the tendered Convertible Notes, we issued approximately
$18.0 million aggregate principal amount of Senior Notes and approximately 1.9 million shares of
our common stock (after giving effect to the one-for-eight reverse stock split in August 2010).
Approximately $31.2 million aggregate principal amount of the Convertible Notes remain outstanding.
Holders of the Convertible Notes may require the Company to purchase all or a portion of the
Convertible Notes, plus interest, in cash, on April 15, 2012, April 15, 2017 and April 15, 2022 or
upon the occurrence of specified fundamental changes. If the Company’s common stock ceases to be
listed on an established national securities exchange or automated over-the-counter trading market
in the United States, a fundamental change would be deemed to have occurred for purposes of the
Convertible Notes. The Company does not have sufficient funds available for such repurchase, if
required.
In March 2010, we entered into a $15.0 million credit facility (the “Credit Facility”) which is
composed of a $10.0 million term loan and a $5.0 million revolving line of credit. In connection
with the establishment of the facility, we paid direct costs of $0.8 million to third parties which
will be amortized over the term of the facility as a component of interest expense. Borrowings
under the facility bear interest at 12%, are secured on a first priority basis by substantially all
of our assets and mature January 2, 2012. The Credit Facility requires an annual commitment fee
equal to 4% of each of the term loan and the revolving credit commitment. In connection with the
first funding under the facility in March 2010, we paid $0.6 million in annual commitment fees. As
of September 30, 2010, there are no amounts outstanding under the revolving line and we have drawn
$9.6 million under the term loan. The Credit Facility contains various restrictive and financial
covenants, including a requirement that we achieve certain minimum EBITDA levels, a limitation on
capital expenditures, and restrictions regarding the use of the borrowed proceeds. In addition, at
all times, the Company and its subsidiaries must maintain a minimum of $2.0 million in unrestricted
cash and cash equivalents. If we fail to comply with these covenants we could default under the
Credit Facility. A default under the Credit Facility would provide an option for the holders of the
Senior Notes to accelerate the scheduled January 2012 maturity date of the Senior Notes.
Critical Accounting Policies
Our consolidated condensed financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”). The preparation of these financial statements
requires us 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. We evaluate our estimates and judgments, including those which
impact our most critical accounting policies, on an ongoing basis. We base our 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. Actual results may
differ, significantly at times, from these estimates under different assumption or conditions.
Our critical accounting policies, as described in our Annual Report on Form 10-K for the year ended
December 31, 2009, relate to property, vessels and equipment, drydocking, intangible assets,
revenue recognition, income taxes and share-based compensation. There have been no material changes
to our critical accounting policies since December 31, 2009.
Statistical Terminology and Information for Cruise Operations
Available Passenger Cruise Days (“APCD”)
APCD’s are our measurement of capacity and represent double occupancy per cabin multiplied by the
number of cruise days for the period.
Passenger Cruise Days (“PCD”)
Passenger Cruise Days represent the number of passengers carried for the period multiplied by the
number of days in their respective cruises.
Occupancy
Occupancy, in accordance with the cruise vacation industry practice, is calculated by dividing PCD
by APCD. A percentage in excess of 100% indicates that three or more passengers occupied some
cabins.
Selected Windstar Cruises statistical information is as follows:
Total revenue from continuing operations for the three months ended September 30, 2010 was $19.8
million, compared to $17.7 million for the three months ended September 30, 2009. The increase in
revenue is primarily due to increased net fares per passenger during the third quarter of 2010.
Our occupancy rates were 89.9% during the third quarter of 2010 compared to 92.0% in the comparable
quarter of 2009.
Onboard and other revenue totaled $4.4 million during the three months ended September 30, 2010
compared to $4.2 million during 2009. Beverage and shore excursions sales are the primary sources
of onboard guest revenues. Other guest revenues are also derived from spa and retail sales, as
well as pre and post cruise services.
Cruise Operating Expenses
Cruise operating expenses were $13.9 million for the three months ended September 30, 2010 compared
to $13.3 million for the three months ended September 30, 2009 or a 5% increase. The increase in
cruise operating expenses is primarily due to an increase in fuel
costs and amortization of prior drydock expenditures, offset by cost savings in port fees and insurance following the transition
of the ship management to in-house personnel in September of 2009.
Selling and Tour Promotion Expenses
Selling and tour promotion expenses increased to $1.9 million for the three months ended September30, 2010 from $1.2 million for the three months ended September 30, 2009. As a percentage of total
revenue, selling and tour promotion costs totaled 9.5% during the three months ended September 30,2010 and 7.0% during the three months ended September 30, 2009. The cost for our annual publication
of ship itineraries is reflected in the third quarter of 2010 versus reported in the second quarter
of 2009. However, it is anticipated that promotional expenditures may increase from recent past
trends due to the expansion and re-direction of marketing initiatives to increase revenues for the
2011 and future sailing seasons.
General and Administrative Expenses
General and administrative expenses were $1.8 million for the three months ended September 30, 2010
compared to $2.2 million for the three months ended September 30, 2009, or a decrease of $0.4
million. As a percentage of total revenue, general and administrative expenses decreased to 9.0%
for the three months ended September 30, 2010 from 12.2% for the three months ended September 30,2009. This decrease in administrative costs is due primarily to the overall reduction in our
corporate structure and the number of operating business segments, as well as cost saving
strategies implemented in the restructure of our core business.
Depreciation
Depreciation expense was $1.6 million for the three months ended September 30, 2010 compared to
$2.4 million for the three months ended September 30, 2009. Depreciation expense during the current
three months decreased $0.8 million based on the reduction in the carrying value of the Windstar
and Majestic vessels from fair value impairments recorded in 2009, as well as a reduction in the
number of Majestic vessels subject to depreciation.
Operating income (loss) from continuing operations
Operating income from continuing operations totaled $0.6 million for the three months ended
September 30, 2010 compared to an operating loss, excluding non-cash impairments, of $(0.3) million
for the three months ended September 30, 2009, or a $0.9 million improvement. The three months
ended September 30, 2009 included a $27.0 million impairment charge for the Windstar vessels and a
$5.5 million impairment charge related to the Majestic vessels. Including the 2009 impairment
charges, the operating loss for the three months ended September 30, 2009 totaled $(32.8) million.
The improvement in operating results from continuing operations is primarily the result of revenue
growth in the current three month period.
Other Expense
Other expense for the three months ended September 30, 2010 was $1.2 million compared to $1.8
million for the three months ended September 30, 2009. The decrease in other expense is primarily
attributed to a $0.6 million reduction in interest expense attributable to the 2009 Exchange Offer,
whereby we reduced our outstanding indebtedness under the Convertible Notes, offset by an increase
in interest expense related to borrowings under the Credit Facility.
Income (loss) from discontinued operations, net of tax
Net loss from discontinued operations for the three months ended September 30, 2010 was $8,000
compared to a net loss of $0.7 million in the comparable quarter of 2009. The three months ended
September 30, 2010 includes residual costs incurred related to the travel and events business. The
three months ended September 30, 2009 includes the operating results of the reinsurance and travel
and events business.
Liquidity
In November 2009, through our exchange offer, we restructured a significant portion of the
indebtedness under the Convertible Notes and in 2010 we obtained a $15.0 million Credit Facility
for working capital purposes and to fund drydock and capital expenditures. In addition to reducing
outstanding indebtedness and obtaining the Credit Facility, we restructured our core business
activities so as to allow us to dedicate liquidity resources to the operations and growth of
Windstar Cruises.
In 2010, as in other years, we will incur capital expenditures and costs required in the
maintenance of our ships. In 2010, planned capital expenditures and drydock projects are expected
to total approximately $7.0 million. We completed a drydock in April 2010 for the Wind Sprit for
which we incurred $4.1 million in refurbishments. We have a scheduled drydock for the Wind Star in
November 2010 for which we expect to incur $2.0 million in refurbishments. The funds necessary for
the Wind Star drydocking have been advanced under the Credit Facility and are currently being held
in escrow.
We believe that the operating cash flows, financing cash flows, and investing cash flows projected
for 2010 and 2011, cash and cash equivalents of $14.7 million at September 30, 2010, and the $5.0
million available for future borrowings under the Credit Facility will be sufficient to fund
ongoing operations through 2010 and 2011. We expect our business improvement initiatives and
marketing efforts to improve operating income and cash flow results. However, the timing and extent
of success for these strategies cannot be predicted with any level of certainty. If we are unable
to meet our cash flow projections in 2010 or 2011, we may need to seek additional sources of
funding. If the pricing or terms for any new financing do not meet our expectations, we may be
required to choose between completion of the financing on such unfavorable terms or not completing
the financing. If sources of capital are unavailable, or are available only on a limited basis or
under unacceptable terms, then we could be required to substantially reduce operating, marketing,
general and administrative costs related to our continuing operations.
Substantially all of our long-term indebtedness is scheduled to mature or may need to be repaid
during 2012. We do not expect that our cash flows from operations will generate sufficient funds to
enable us to repay or repurchase this indebtedness when we are required to do so. Accordingly, our
ability to satisfy these obligations will depend upon our ability to refinance this indebtedness or
to obtain additional funds through borrowings, sales of debt or equity securities, asset sales or
other transactions. In addition, if our common stock ceases to be listed on an established national
securities exchange or automated over-the-counter trading market in the United States, a
fundamental change would be deemed to have occurred for purposes of the Convertible Notes whereby
holders would have the right to require us to repurchase for cash all or a portion of the $31.2
million principal amount outstanding plus accrued and unpaid interest. We do not have sufficient
funds available for such repurchase, if required.
Total revenue from continuing operations for the nine months ended September 30, 2010 was $45.8
million, compared to $48.4 million for the nine months ended September 30, 2009 or a 5% decline.
The decrease in revenue is primarily due to the economic conditions over the last twelve months
which impacted both the number of passengers and price points of ticket sales during the nine
months ended September 30, 2010 as compared to the nine months ended September 30, 2009.
Cruise Operating Expenses
Cruise operating expenses were $37.7 million for the nine months ended September 30, 2010 compared
to $38.8 million for the nine months ended September 30, 2009. The decrease in cruise operating
expenses is primarily due to a reduction in the number of passengers traveling and efficiencies and
cost savings gained following the transition of the vessel management to in-house, offset by an
increase in fuel costs during 2010.
Selling and Tour Promotion Expenses
Selling and tour promotion expenses increased to $6.0 million for the nine months ended September30, 2010 from $5.1 million for the nine months ended September 30, 2009. As a percentage of total
revenue, selling and tour promotion increased to 13.2% during the nine months ended September 30,2010 from 10.6% during the nine months ended September 30, 2009. It is anticipated that
promotional expenditures may increase from recent past trends due to the current expansion and
re-direction of marketing initiatives.
General and Administrative Expenses
General and administrative expenses totaled $6.0 million during the nine months ended September 30,2010 compared to $6.4 million for the nine ended September 30, 2009. Excluding an $0.8 million
credit recorded in 2009 (due to restricted stock forfeitures upon employee terminations), general
and administrative expenditures decreased $1.2 million during the current nine months. We have
incurred costs in 2010 related to corporate restructuring and
recruiting as we identified
key personnel and positions to execute our initiatives intended to improve operating results. As
a percentage of total revenues, general and administrative expenses were 13.2% for the nine months
ended September 30, 2010 and 14.8% for the nine months ended September 30, 2009, excluding the
non-recurring compensation credit.
Impairment charge
In June 2010 we recorded a non-cash impairment charge of $0.2 million for a Majestic vessel based
on the difference between the carrying value and sales proceeds received upon sale. During the nine
months ended September 30, 2009, we recorded non-cash impairment charges of $27.0 million related
to the assets of Windstar Cruises and $19.5 million related to the assets of Majestic America Line.
Depreciation expense
Depreciation expense was $5.3 million for the nine months ended September 30, 2010 compared to $7.9
million for the nine months ended September 30, 2009. Depreciation expense during the current nine
months decreased compared to the prior nine months due to impairment charges recorded during 2009,
as well as the reduction in the number of vessels subject to depreciation for Majestic America
Line.
Operating income (loss) from continuing operations
We recorded an operating loss from continuing operations of $9.5 million for the nine months ended
September 30, 2010, compared to $55.1 million for the nine months ended September 30, 2009.
Excluding the $46.5 million asset impairment in 2009, the loss from continuing operations totaled
$8.6 million during the nine months ended September 30, 2009. The increased operating loss in 2010
is attributable to lower revenues during the nine months ended September 30, 2010.
Other Income (Expense)
Other expense for the nine months ended September 30, 2010 was $2.7 million, compared to $5.0
million for the nine months ended September 30, 2009. The decrease in other expense is attributed
to $2.3 million in lower interest expense due to the Exchange Offer in the fourth quarter of 2009,
partially offset with current interest costs for borrowings under the Credit Facility.
We
recorded an income tax benefit from continuing operations of $0.2 million for the nine months
ended September 30, 2010 and 2009. We
have established a full valuation allowance on our deferred tax assets.
Income (loss) from discontinued operations, net of tax
Net income from discontinued operations for the nine months ended September 30, 2010 was $0.4
million compared to a net loss of $(8.8) million during the prior nine month period of 2009. The
nine months ended September 30, 2010 includes a profit distribution of $0.6 million from the
reinsurance business, net of a tax provision of $0.2 million. The nine months ended September 30,2009 includes the operating results of the marine, reinsurance, and travel and events business, net
of a tax provision of $0.4 million.
Liquidity and Capital Resources
Net cash used in operating activities totaled $5.1 million and $2.2 million for the nine months
ended September 30, 2010 and 2009, respectively. The additional use of cash for operating
activities in the current year primarily relates to $4.1 million drydock expenditures for the Wind
Spirit, offset by an increase in deposits for future cruises and release of cash collateral by
credit card processors due to more favorable holdback arrangements negotiated by the Company. Cash
provided by discontinued operations totaled $4.7 million during the nine months of the 2009 period,
as compared to $0.4 million in the current period from residual wind down activities.
Net cash used in investing activities totaled $0.2 million and $1.3 million for the nine months
ended September 30, 2010 and 2009, respectively. The cash requirements of the prior year relate
primarily to discontinued operations.
Net cash provided by financing activities for the nine months ended September 30, 2010 was $9.6
million in proceeds under the Credit Facility, with no similar transaction in the same period of
2009.
Our cruise passenger deposits are primarily received through credit card transactions. As of
September 30, 2010, we had $4.7 million of restricted cash held by banks in cash equivalents as
amounts required to secure processing of passenger deposits through credit cards. The restricted
amounts are negotiated between us and the banks based on a percentage of the expected future volume
of credit card transactions within a standard twelve-month period. In addition to cash held by the
banks, we pledged one of the Majestic America Line vessels as collateral under a processing
agreement. This action reduced the amount of cash held as required by the processor.
As of September 30, 2010 we have $2.5 million held in an escrow account to fund the November 2010
dry dock refurbishments for the Wind Star. We expect to disburse these funds during the fourth
quarter of 2010 as the work and refurbishments are completed.
Trends and Uncertainties
The results of operations and financial position of our business may be affected by a number of
trends or uncertainties that have, or that we reasonably expect could have, a material effect on
income from continuing operations, cash flows and financial position. Such trends and uncertainties
include the repercussions of the global economic conditions, natural disasters or terrorist acts.
We will also, from time to time, consider the acquisition of or investment in businesses, services
and technologies that might affect our liquidity requirements.
Forward-Looking Statements
Statements contained in this Quarterly Report on Form 10-Q that 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 “expect,”“anticipate,”“outlook,”“could,”“target,”“project,”“intend,”“plan,”“believe,”“seek,”“estimate,”“should,”“may,”“assume,”“continue,” and variations of such words and similar expressions. These statements are
not guarantees of future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict. We caution that actual outcomes and results may differ materially from
what is expressed, implied, or forecasted by our forward-looking statements. We have based our
forward-looking
statements on management’s beliefs and assumptions based on information available to our management
at the time the statements were made. Such risks and uncertainties include, among others:
•
our ability to obtain additional financing at reasonable rates;
our ability to continue to operate as a going concern;
•
our ability to effectively and efficiently operate our cruise operations;
•
customer cancellation rates;
•
competitive conditions in the industry in which we operate;
•
marketing expenses;
•
extreme weather conditions;
•
the impact of new laws and regulations affecting our business;
•
negative incidents involving cruise ships, including those involving the health and
safety of passengers;
•
cruise ship maintenance problems;
•
reduced consumer demand for vacations and cruise vacations;
•
changes in fuel, food, payroll, insurance and security costs;
•
changes in relationships with certain travel providers;
•
changes in vacation industry capacity;
•
other economic factors and other considerations affecting the travel industry;
•
potential of our common stock not listed on a U.S. national securities exchange or quoted
on an established automated over the counter trading market in the U.S. exchange; and
•
other factors discussed in this Quarterly Report on Form 10-Q and in our Annual Report on
Form 10-K.
The information contained in this document is not a complete description of our business or the
risks associated with an investment in our common stock. Before deciding to buy or maintain a
position in our common stock, you should carefully review and consider the various disclosures we
made in this report, and in our other materials filed with the Securities and Exchange Commission
that discuss our business in greater detail and that disclose various risks, uncertainties and
other factors that may affect our business, results of operations or financial condition. In
particular, you should review our annual report on Form 10-K for the year ended December 31, 2009,
filed with the Securities and Exchange Commission and the “Risk Factors” we included in that
report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission
rules and forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and
management judgment is required in evaluating the cost-benefit relationship of possible controls
and procedures. Our disclosure controls and procedures are designed to provide a reasonable level
of assurance of reaching our desired disclosure control objectives.
As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation,
under the supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the quarter covered by this report. Based on
the foregoing, management, being our Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures were effective at the reasonable assurance level as of
September 30, 2010.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting, known to the Chief Executive
Officer or the Chief Financial Officer that occurred during the last fiscal quarter covered by the
report that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors.
Item 1A of Part I of our Form 10-K, for the year ended December 31, 2009, summarizes material risks that investors
should carefully consider before deciding to buy or maintain an investment in our securities. Any of those risks, if
they actually occur, would likely harm our business, financial condition and results of operations and could cause the
trading price of our common stock to decline. There are no material changes to the risk factors set forth in the
above-referenced report other than as follows:
If we are unable to maintain our common stock listing on an established national securities exchange or automated
over-the-counter trading market in the United States, we may become obligated to repurchase some or all of our
outstanding Convertible Notes for cash. We do not have sufficient funds currently
available for such repurchase, if required.
Our common stock is currently listed on the Nasdaq Capital Market. Companies listed on the Nasdaq Capital Market
must meet certain financial requirements and adhere to Nasdaq’s corporate governance standards. We were in compliance
with all applicable financial requirements of the Nasdaq Capital Market as of September 30, 2010, including the $2.5
million stockholders’ equity requirement. However, if we were to fail in the future to comply with the $2.5 million
minimum stockholders’ equity requirement or any other requirements, our Common Stock could
become subject to delisting. It is likely that stockholders equity at December 31, 2010 may be less than the $2.5 million required
for continued listing on the Nasdaq Capital Market, in which event Nasdaq may commence delisting proceedings.
If our common stock is not listed on an established national securities exchange or automated over-the-counter
trading market in the United States, the holders of our Convertible Notes will have the right to require us to
repurchase such Convertible Notes for cash at a price equal to 100% of the principal amount repurchased plus accrued
and unpaid interest. Approximately $31.2 million aggregate principal amount of Convertible Notes was outstanding as of
September 30, 2010. Our management and the Board of Directors are considering potential actions that could be taken to
avoid or mitigate any such obligation to repurchase Convertible Notes.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved)
Item 5. Other Information.
As previously disclosed, from November 2009 through August 2010, the Company was not in compliance
with the $1.00 minimum bid price required for continued inclusion of the Company’s common stock on
the Nasdaq Global Market (the “Minimum Bid Requirement”). On September 9, 2010, the
Company received written notification from the Nasdaq Stock Market that the Nasdaq Hearings Panel
(the “Panel”) determined that the Company has regained compliance with the $1.00 minimum
bid price requirement (the “Minimum Bid Requirement”). As previously disclosed, in order
to regain compliance with the Minimum Bid Requirement, the Company effected a 1-for-8 reverse stock
split at 11:59 p.m. Eastern Time on August 23, 2010. On September 9, 2010, the Company received
written notification from the Nasdaq Stock Market that the Nasdaq Hearings Panel (the
“Panel”) determined that the Company has regained compliance with the Minimum Bid
Requirement. The notification further stated that, because the
Company remained non-compliant with the Nasdaq Global Market’s $10.0 million minimum stockholders’ equity
requirement, the Company’s continued listing was conditioned upon formal approval by the Nasdaq
Listing Qualifications Department of an application to transfer the Company’s listing to the Nasdaq
Capital Market.
The Nasdaq Capital Market is one of the three markets for Nasdaq-listed stocks and operates in the
same manner as the Nasdaq Global Market. Companies listed on the Nasdaq Capital Market must meet
certain financial requirements and adhere to Nasdaq’s corporate governance standards. Upon the
transfer of the Company’s Common Stock to the Nasdaq Capital Market, the Company’s trading symbol
continued to be “AMIED” through September 20, 2010 and “AMIE” thereafter. Trading in the Company’s
Common Stock will be unaffected by the transfer to the Nasdaq Capital Market.
The Company was in compliance with all applicable financial requirements for continued listing on
the Nasdaq Capital Market as of September 13, 2010, the date of transfer, including the $2.5
million stockholders’ equity requirement of the Nasdaq Capital Market. However, if the Company
were to fail in the future to comply with the $2.5 million minimum stockholders’ equity requirement
of the Nasdaq Capital Market or any other requirements for continued listing on the Nasdaq Capital
Market, the Company’s Common Stock could become subject to potential delisting.
Certification of Chief Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
*
Certification of Chief Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
*
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2
*
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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.
