<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT No. 1 TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 11, 1997
AMBI Inc.
---------
(Exact Name of Registrant as Specified in its Charter)
New York 1-12106 11-2653613
- -------- ------- ----------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
771 Old Saw Mill River Road, Tarrytown, New York 10591
- ------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including Area Code: (914) 347-5767
--------------
1
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions included in its Current Report on Form
8-K dated August 25, 1997 as set forth in the pages attached hereto:
Item 7(a). Financial statements of Nutrition 21.
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for three years ended
December 31, 1996
Statement of Partners' Capital for three years ended
December 31, 1996
Statement of Cash Flows for three years ended
December 31, 1996
Notes to Financial Statements
Item 7(b). Pro forma condensed financial information.
AMBI Inc. Pro Forma Combined Income Statement for the year
ended June 30, 1997
AMBI Inc. Pro Forma Combined Balance Sheet as of
June 30, 1997
Item 7(c). Exhibits
1. Independent Auditors' Consent
2
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
Date: October 22, 1997
By: /s/ Fredric D. Price
-----------------------------
Fredric D. Price
President and Chief Executive Officer
3
<PAGE>
ITEM 7. Financial Statements, Pro Forma Financial
Information and Exhibits
(a) Financial Statements of Business Acquired Page 5
(b) Pro forma financial information Page 15
(c) Independent Auditors' Consent Page 19
4
<PAGE>
NUTRITION 21
(a California limited partnership)
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AMBI Inc.:
We have audited the accompanying balance sheets of Nutrition 21 (a California
limited partnership) (the "Partnership") as of December 31, 1996 and 1995, and
the related statements of operations, partners' capital, and cash flows for each
of the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nutrition 21 as of December 31,
1996 and 1995 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
September 5, 1997
6
<PAGE>
NUTRITION 21
(a California limited partnership)
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,452,601 1,918,596
Trade accounts receivable 2,927,777 2,985,081
Inventories 108,908 379,770
Other current assets 43,344 154,308
------------------ ------------------
Total current assets 4,532,630 5,437,755
Property and equipment, net (note 2) 32,536 40,488
Patents, licenses and trademarks (note 4) 19,752 6,042
Other assets 12,033 13,834
------------------ ------------------
Total assets $ 4,596,951 5,498,119
================== ==================
Liabilities and Partners' Capital
Current liabilities:
Bank overdraft $ 371,521 --
Accounts payable 235,070 345,040
Accrued royalties (note 4) 466,199 831,726
Accrued litigation (note 5) 408,750 --
Other accrued liabilities 84,751 61,842
------------------ ------------------
Total current liabilities 1,566,291 1,238,608
Deferred rent 6,542 11,161
------------------ ------------------
Total liabilities 1,572,833 1,249,769
------------------ ------------------
Partners' capital:
General partner 1,442,773 2,030,404
Limited partners 1,581,345 2,217,946
------------------ ------------------
Total partners' capital 3,024,118 4,248,350
------------------ ------------------
Commitments and contingencies (notes 4, 5, 6, 7 and 8)
Total liabilities and partners' capital $ 4,596,951 5,498,119
================== ==================
</TABLE>
7
<PAGE>
NUTRITION 21
(a California limited partnership)
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Sales $ 16,273,227 21,481,707 15,549,268
Cost of sales (note 4) 3,309,439 4,406,941 3,262,748
------------------ ------------------ ------------------
Gross profit 12,963,788 17,074,766 12,286,520
------------------ ------------------ ------------------
Operating expenses:
Selling, general and administrative 6,335,653 6,457,933 4,642,602
Research and development 791,730 1,243,833 899,237
------------------ ------------------ ------------------
Total operating expenses 7,127,383 7,701,766 5,541,839
------------------ ------------------ ------------------
Operating income 5,836,405 9,373,000 6,744,681
------------------ ------------------ ------------------
Other income (expense):
Interest income, net 98,993 39,950 18,895
Litigation settlement income (note 6) 449,120 -- --
Litigation settlement expense (note 5) (408,750) -- --
------------------ ------------------ ------------------
Other income, net 139,363 39,950 18,895
Net income $ 5,975,768 9,412,950 6,763,576
================== ================== ==================
</TABLE>
8
<PAGE>
NUTRITION 21
(a California limited partnership)
Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------------- ----------------- ------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 697,672 774,152 1,471,824
Distributions (2,400,000) (2,600,000) (5,000,000)
Allocation of net income 3,246,516 3,517,060 6,763,576
----------------- ----------------- ------------------
Balance at December 31, 1994 1,544,188 1,691,212 3,235,400
Distributions (4,032,000) (4,368,000) (8,400,000)
Allocation of net income 4,518,216 4,894,734 9,412,950
----------------- ----------------- ------------------
Balance at December 31, 1995 2,030,404 2,217,946 4,248,350
Distributions (3,456,000) (3,744,000) (7,200,000)
Allocation of net income 2,868,369 3,107,399 5,975,768
----------------- ----------------- ------------------
Balance at December 31, 1996 $ 1,442,773 1,581,345 3,024,118
================= ================= ==================
</TABLE>
9
<PAGE>
NUTRITION 21
(a California limited partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,975,768 9,412,950 6,763,576
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,837 9,225 10,398
Changes in operating assets and liabilities:
Trade accounts receivable 57,304 344,688 (2,231,957)
Inventories 270,862 (122,683) (29,771)
Other current assets and other assets 112,765 (7,876) (80,082)
Accounts payable, accrued royalties and other
accrued liabilities (452,588) 259,683 551,077
Accrued litigation 408,750 -- --
Deferred rent (4,619) 10,150 (2,428)
------------------ ------------------ -----------------
Net cash provided by operating activities
6,379,079 9,906,137 4,980,813
------------------ ------------------ -----------------
Cash flows from investing activities:
Purchase of property and equipment (1,985) (22,505) (18,473)
Patents, licenses and trademarks costs (14,610) (3,795) --
------------------ ------------------ -----------------
Net cash used in investing activities (16,595) (26,300) (18,473)
------------------ ------------------ -----------------
Cash flows from financing activities:
Distributions to partners (7,200,000) (8,400,000) (5,000,000)
Bank overdraft 371,521 -- --
------------------ ------------------ -----------------
Net cash used in financing activities (6,828,479) (5,000,000) (5,000,000)
------------------ ------------------ -----------------
Net increase (decrease) in cash and cash equivalents (465,995) 1,479,837 (37,660)
Cash and cash equivalents, beginning of year 1,918,596 438,759 476,419
------------------ ------------------ -----------------
Cash and cash equivalents, end of year $ 1,452,601 1,918,596 438,759
================== ================== =================
</TABLE>
10
<PAGE>
NUTRITION 21
Notes to Financial Statements
December 31, 1996 and 1995
(1) Organization and Summary of Significant Accounting Policies
Description of Business
Nutrition 21, a California limited partnership (the "Partnership"), was
formed in October 1973 and develops, produces, and markets proprietary
nutrition products and dietary supplements. The Partnership's primary
product, chromium picolinate, accounted for 86%, 93% and 92% of sales for
the years ended December 31, 1996, 1995 and 1994, respectively. Nutrition
products and dietary supplements are subject to regulation, including
certain regulations of the U.S. Food and Drug Administration, the Federal
Trade Commission, and various state regulatory agencies. The Partnership
maintains several licenses and agreements with suppliers, manufacturers,
founding scientists, and patent holders in connection with the
manufacturing, marketing, and distribution of its products.
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1996 and 1995, respectively,
consist of checking, savings, and money market funds with an initial term
of less than three months. For purposes of the statements of cash flows,
the Partnership considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
The Partnership recognizes revenue when earned, generally when products
are shipped.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using either the first in, first out method or the average cost method
depending, on the product.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets which range from 5 to 7
years. Leasehold improvements are amortized over the shorter of their
estimated useful life or related lease term.
Patents, Licenses and Trademarks
The Partnership capitalizes certain legal costs and acquisition costs
related to patents, licenses and trademarks. Accumulated costs are
amortized over the lesser of the legal lives or the estimated economic
lives of the proprietary rights, generally five to ten years, using the
straight-line method and commencing at the time the patents are issued or
the license is acquired. Capitalized costs are written off to expense at
the time the underlying proprietary rights are deemed to have no
continuing value.
11
<PAGE>
Research and Development, and Advertising
Research and development, and advertising costs are expensed as incurred.
Advertising costs amounted to $3,348,117, $2,369,000 and $1,754,000 in
1996, 1995 and 1994, respectively.
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of
The Partnership adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," on
January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the
Partnership's financial position or results of operations.
Income Taxes
For federal and state income tax purposes, partnership tax liability is
that of the individual partners, not the partnership. Since many types of
transactions are susceptible to varying interpretations under federal and
state income tax laws and regulations, the amounts reported by the
Partnership or by the participants in their individual income tax returns
may be subject to change at a later date upon final determination by the
respective taxing authorities. The Partnership uses the cash method of
reporting income and expenses for tax purposes.
Use of Estimates
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) Property and Equipment
Property and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
<S> <C> <C>
Furniture and equipment $ 88,868 86,883
Leasehold improvements 2,652 2,652
------------------ -----------------
91,520 89,535
Less accumulated depreciation (58,984) (49,047)
------------------ -----------------
$ 32,536 40,488
================== =================
</TABLE>
12
<PAGE>
(3) Allocations of Income, Losses and Cash Distributions
The partnership agreement requires the allocation of income and losses of
the Partnership among the General Partner and Limited Partners at 48% and
52%, respectively. Cash available for distribution is to be distributed
to the General Partner and Limited Partners at 48% and 52%, respectively.
(4) Royalty and Licensing Agreements
In 1985, the National Technical Information Service (NTIS), a United
States governmental agency, granted Nutrition 21 exclusive licenses under
a U.S. Patent owned by the United States government (the "Patent") to
manufacture, market, and sell certain metal picolinate complexes. Under
the terms of the licenses, the Partnership is required to pay an annual
non-refundable maintenance fee of $2,500 to the NTIS along with a
biannual royalty fee based on a percentage of net sales. The licenses
expire on August 8, 2000 in conjunction with the expiration of the
Patent. The Partnership recognized expenses related to these licenses of
$445,362, $580,051 and $420,774 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Partnership has an agreement with an individual pursuant to which the
Partnership pays a royalty to the individual based on a percentage of net
sales for all products covered by the Patent licensed to Nutrition 21 by
the NTIS. This agreement continues through August 8, 2000. The
Partnership recognized expenses related to this agreement of $475,461,
$910,386 and $650,517 for the years ended December 31, 1996, 1995 and
1994, respectively.
The Partnership has an agreement with another individual pursuant to
which the Partnership pays a royalty based on a percentage of net sales
for certain yeast and picolinate products covered by the Patent. In the
case of the individual's death, the royalties will be paid directly to
the estate for a certain period of time. The Partnership recognized
expenses related to this agreement of $372,366, $528,178 and $403,873 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The Partnership entered into an agreement expiring October 5, 1997 to
share in the costs associated with the promotion of chromium picolinate
used in animal feed. The Partnership recognized expenses related to this
agreement of $121,781 and $136,597 for the years ended December 31, 1996
and 1995, respectively. No such cost was incurred during 1994.
(5) Commitments and Contingencies
Operating Leases
The Partnership leases office facilities and equipment under
noncancelable operating lease agreements expiring at various dates
through August 31, 1998. Future minimum lease payments are as follows:
Year ending December 31,
---------------------------
1997 $ 59,886
1998 40,726
------------------
$ 100,612
==================
Rent expense for all leased facilities and equipment was $59,307, $55,042
and $49,275 for the years ended December 31, 1996, 1995 and 1994,
respectively.
13
<PAGE>
Litigation
At December 31, 1996, the Partnership was a defendant in a lawsuit that
alleged, among other things, a breach of oral and implied contracts
related to the distribution of chromium picolinate. In January 1997, the
Partnership settled the lawsuit. Settlement costs of $408,750 were
accrued during 1996.
(6) Infringement Settlement
In November 1995, the Partnership was a plaintiff in a lawsuit with a
competitor that alleged, among other things, patent infringements related
to chromium picolinate. In April 1996, the Partnership settled the
lawsuit and recognized income of $449,120 related to the settlement.
(7) Federal Trade Commission (FTC) Decision and Order
In July 1997, the Partnership and the FTC entered into a Consent Order,
which, among other things, requires that claims or representations for
dietary supplements be supported by competent and reliable evidence on
benefits, performance efficacy and safety. The Consent Order requires
that the Partnership advise its customers who resell chromium picolinate
to the public not to make certain claims which the FTC deems not to be
sufficiently supported
(8) Subsequent Event
On August 11, 1997, AMBI, Inc. ("AMBI") purchased all General and Limited
partnership interests of the Partnership. The purchase price for the
acquisition was $10 million, subject to an adjustment based on a target
net book value, and 500,000 restricted shares of AMBI common stock. The
purchase also provided for annual contingent future payments for each of
the next four years of $2.5 million adjusted for the achievement of
certain sales levels, and royalties of 2.5% to 5% of net sales of
products recommended for certain patented uses. In addition, if prior to
August 10, 1998, AMBI terminates for other than cause, the employment of
certain individuals, AMBI will be required to make termination payments
to such individuals. Additionally, AMBI entered into a two-year
consulting agreement with the former Chief Executive Officer and general
partner who agreed not to compete with Nutrition 21 for a period of two
years after the termination of the consulting agreement.
14
<PAGE>
ITEM 7(b). PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information is presented to show
the pro forma effect of the acquisition of the N21 business on AMBI's historical
financial position and results of operations under the purchase method of
accounting.
The Pro Forma Combined Statement of Operations for the year ended June 30, 1997
assumes the acquisition was consummated on July 1, 1996. The Pro Forma Combined
Balance Sheet as of June 30, 1997 assumes the acquisition was consummated on
that date.
The pro forma financial information is not necessarily indicative of the
financial position or results of operations as they may be in the future or as
they would have been had the transactions been effected on the assumed dates.
AMBI expects to achieve cost savings by reducing administrative overhead costs
and the renegotiation of selected royalty agreements. (see footnote 4)
The pro forma financial information should be read in conjunction with AMBI's
historical consolidated financial statements and notes thereto included in its
1997 10-K, the enclosed audited historical financial statements for the business
acquired and the description of the transaction under Item 2 in the 8-K filed
August 25, 1997.
15
<PAGE>
AMBI Inc.
Pro Forma Combined Statement of Operations
For the Year Ended June 30, 1997
In thousands, except per-share amounts
(Unaudited)
<TABLE>
<CAPTION>
AMBI Inc.
Pro Forma Pro Forma
AMBI Inc. N21 Adjustments Combined
$000 $000 $000 $000
<S> <C> <C> <C> <C>
Net sales 10,356 18,822 29,178
Other operating income 924 924
----------- ----------- ------------
TOTAL REVENUE 11,280 18,822 30,102
Cost of sales (4,363) (3,925) (8,288)
----------- ----------- ------------
GROSS PROFIT 6,917 14,897 21,814
Selling, general and
administrative expenses (16,912) (6,671) (23,583)
Research and development (4,833) (510) (5,343)
Depreciation and amortization (772) (11) (984) (1) (1,767)
----------- ----------- --------- -----------
OPERATING (LOSS)/INCOME (15,600) 7,705 (984) (8,879)
Interest income 433 100 (369) (2) 164
Interest expense (142) (314) (3) (456)
Other non-operating
income/(expense) 8,648 (399) 8,249
(LOSS)/INCOME BEFORE
TAX EXPENSE (6,661) 7,406 (1,667) (922)
Tax Expense (152) (152)
----------- ----------- --------- -----------
NET (LOSS)/INCOME (6,813) 7,406 (1,667) (1,074)
NET (LOSS)/
PER SHARE ($0.37) ($0.07)
WEIGHTED AVERAGE SHARES 19,544,526 500,000 (4) 20,044,526
</TABLE>
(1) To record the estimated amortization of intangible asset values assigned at
acquisition with lives ranging from 3 to 15 years.
(2) To record interest income assumed lost (average rate of 5.25%) on cash
reserves used to pay for the acquisition.
(3) To record interest expense at approximately 9.5% on borrowings used to pay
for the acquisition.
(4) Reflects 500,000 shares issued as part of the payment to the partners of N
21 in the acquisition.
16
<PAGE>
AMBI INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
In thousands
(Unaudited)
<TABLE>
<CAPTION>
AMBI Inc.
Pro Forma Pro Forma
AMBI Inc. Nutrition 21 Adjustments Combined
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents 8,615 2,961 (9,661) (1) 1,915
Trade accounts receivable (less
allowance for doubtful accounts) 390 2,913 3,303
Inventories 606 574 1,180
Prepayments and other current assets 404 132 536
--------- ------------ ----------- ------------
Total current assets 10,015 6,580 (9,661) 6,934
Property, plant and equipment-net 1,082 31 1,113
Patent cost, licensed technology and
other intangible assets-net 1,584 19 7401 (2) 9,004
Goodwill-net 687 (2) 687
Other assets 73 9 82
--------- ------------ ----------- ------------
Total Assets 12,754 6,639 (1,573) 17,820
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of notes and
lease obligation 156 156
Accounts payable and accrued expenses 2,464 411 2,875
Accrued royalties 496 (496) (3)
Accrued litigation 281 (281) (4)
Other liabilities 161 161
Short term bank loan 3,300 (5) 3,300
Dividends payable 340 340
--------- ------------ ----------- ------------
Total current liabilities 2,960 1,349 2,523 6,832
Notes payable and lease obligation 184 6 0 190
Long term loan 2,000 2,000
--------- ------------ ----------- ------------
TOTAL LIABILITIES 5,144 1,355 2,523 9,022
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Stockholders' Equity
Common Stock 94 3 (6) 97
Additional paid-in capital 49,900 1,185 (7) 51,085
Accumulated deficit/Retained earnings (42,384) 5,284 (5,284) (8) (42,384)
--------- ------------ ----------- ------------
TOTAL STOCKHOLDER' EQUITY 7,610 5,284 (4,096) 8,798
--------- ------------ ----------- ------------
TOTAL LIABILITIES, AND
STOCKHOLDERS' EQUITY 12,754 6,639 (1,573) 17,820
</TABLE>
(1) The purchase agreement included cash on hand at N 21 of $2,961. Also
reflects AMBI's requirement to use $6,700 of cash reserves.
(2) To record the allocation of the excess of the purchase price over the net
assets acquired to patent cost and licensed technology and goodwill.
(3) Reflects purchase agreement which required N 21 partners to pay accrued
royalties.
(4) Reflects purchase agreement which required N 21 partners to pay accrued
litigation expenses.
(5) Reflects short term bank loan of $3,300, which was required in addition to
the cash reserves used to make the purchase.
(6) Reflects 500,000 shares at par value of $0.005 as part of the payment to
the partners in the acquisition.
(7) Reflects additional paid-in capital on the 500,000 shares, valued at
$2.375, which was the market price on the day of the transaction
(8) Elimination of N 21 net assets.
18
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
AMBI, Inc.:
We consent to the inclusion of our report dated September 5, 1997, with respect
to the balance sheets of Nutrition 21 as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital, and cash flows for each of
the years in the three-year period ended December 31, 1996, which report appears
in the Form 8-K/A of AMBI, Inc. dated October 22, 1997.
KPMG Peat Marwick LLP
San Diego, California
October 22, 1997
19
