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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year ended June 30, 1997 Commission File Number 0-14983
AMBI INC.
(Exact Name of Registrant as Specified in its Charter)
New York 11-2653613
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number
771 Old Saw Mill River Road
Tarrytown, New York 10591
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number,
including Area Code: (914) 347-5767
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock (par value $.005 per share)
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.005 per share)
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Title of Class
Redeemable Warrants
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Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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 ninety (90) days. Yes X No ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $30,058,163 as of September 22, 1997.
The number of shares outstanding of Registrant's Common Stock as of
September 22, 1997: 19,283,342.
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FORM 10-K REPORT INDEX
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10-K Part
and Item No. Page No.
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PART I
Item 1 Business .................................................................. 3
Item 2 Properties ................................................................ 10
Item 3 Legal Proceedings ......................................................... 10
Item 4 Submission of Matters to a Vote of Security Holders ....................... 11
PART II
Item 5 Market Price of Registrant's Common Equity and
Related Stockholder Matters ............................................... 12
Item 6 Selected Financial Data ................................................... 13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................................... 14
Item 8 Financial Statements and Supplementary Data ............................... 18
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ....................................... 18
PART III
Item 10 Directors and Executive Officers of the Registrant ........................ 19
Item 11 Executive Compensation .................................................... 23
Item 12 Security Ownership of Certain Beneficial Owners
and Management ............................................................ 29
Item 13 Certain Relationships and Related Transactions ............................ 30
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ....................................................... 32
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PART I
Item 1. BUSINESS
The Company
AMBI Inc. (the "Company") is a New York corporation which was
incorporated on June 29, 1983. The Company currently concentrates its business
in two areas: Pharmaceuticals and Nutrition Products. The Company engages in the
following activities for these areas: research, development, manufacturing, and
sales.
On December 12, 1996, the Company completed the sale of its
UK-based food ingredients subsidiary, Aplin & Barrett Limited ("A&B") to Burns
Philp & Company Limited ("BP") for $13.5 million in cash and the return to the
Company of 2.42 million shares of the Company's Common Stock held by BP. In
addition, BP provided the Company with a revolving line of credit of up to $2.5
million. Any borrowings under this line of credit can be forgiven under certain
circumstances. As of the date of filing this Form 10-K, no amount has been drawn
under this line of credit. The sale included the Company's nisin-based food
preservative business. The Company retained exclusive rights to its nisin-based
pharmaceutical and animal healthcare business. See Item 13. Certain
Relationships and Related Transactions.
On August 11, 1997, the Company acquired the entire beneficial
interest in Nutrition 21, a limited partnership. Nutrition 21 is engaged in the
business of developing, producing, and marketing proprietary nutrition products
and dietary supplements. The purchase price for the acquisition was $10,000,000
(the "Cash Purchase Price"), plus 500,000 restricted shares of Common Stock of
the Company, and additional cash payments which are contingent upon the
achievement of certain sales levels in the next four years. The Company will
also pay royalties to the sellers on sales of certain patented products. Part of
the Cash Purchase Price was provided pursuant to a Revolving Credit and Term
Loan Agreement (the "Loan Agreement") with State Street Bank and Trust Company
(the "Bank") and the remainder came from internal working capital. The loans
bear interest at the Bank's prime rate plus one percent and are due February 1,
1998 unless extended pursuant to certain conditions set forth in the Loan
Agreement.
Nutrition Products
Nutrition Products may take the form of either foods or beverages and
can include vitamins, minerals, enteral and parenteral supplements, other
dietary supplements, healthy foods, functional foods, special dietary foods,
medical foods, and are sometimes referred to colloquially as nutraceuticals.
Medical Foods are foods that supply particular dietary needs or that
may aid in the dietary management of diseases or conditions.
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In October, 1995, the Company acquired an exclusive license for a
Medical Food from a division of Orion Corporation ("Orion"), the largest
pharmaceutical company in Finland, to sell Orion's patented salt alternative in
the United States. The Company began selling the salt alternative in April 1996
under the trademark Cardia(TM) Salt Alternative in Florida and Pennsylvania, and
announced the national availability of Cardia Salt Alternative in January 1997.
This product has significantly less sodium than regular salt and contains
potassium and magnesium, essential minerals that may help in the dietary
management of high blood pressure. High blood pressure, or hypertension, affects
approximately 50 million Americans. The Company has conducted and is continuing
to conduct clinical trials on Cardia Salt Alternative that demonstrate its
safety and effectiveness as a dietary aid in the management of high blood
pressure.
The Company is evaluating other proprietary Nutrition Products in the
areas of cardiovascular disease, diabetes, infectious disease, and
gastrointestinal disorders.
The Company markets Nutrition Products that are regulated by the 1994
Dietary Supplement Health and Education Act (DSHEA) and the Orphan Drug Act to
physicians, pharmacists, dietitians, and patients, and supports the use of these
products with data from clinical studies. In addition, the Company intends to
conduct its own clinical studies to further strengthen the clinical and
scientific rationale for these products.
Nutrition 21
Nutrition 21 develops, manufactures, and markets essential trace
elements used primarily as ingredients in nutritional supplements. Currently,
Nutrition 21's primary product is chromium picolinate, which is protected by 4
patents which cover the composition and its use as a dietary supplement. The
composition patent is exclusively licensed for its duration to Nutrition 21 by
the United States Department of Agriculture ("USDA"), and expires August 8,
2000. Nutrition 21 owns patents for the use of chromium picolinate in the
management of high cholesterol, glucose control, and the conversion of fat to
lean body mass, which patents expire in 2009. Chromium picolinate is marketed by
Nutrition 21 under its registered trademark "Chromax." In addition, Nutrition 21
also markets zinc picolinate, manganese picolinate, and selenium formulations.
Nutrition 21 has funded and continues to fund research studies investigating the
uses of chromium picolinate and other micro-nutrients or minerals as dietary
supplements with preventative and therapeutic benefits to humans.
Nutrition 21 has its products manufactured and formulated to its
specifications by contract manufacturers as bulk raw materials. Nutrition 21
then sells the raw materials to customers who incorporate them into over 900
finished products such as vitamin/mineral formulas, dietary supplements, baked
goods, beverages and other products. These products are sold by the customers
under a variety of brands throughout the world through natural/health food
stores, supermarkets, and drug stores, and also through direct sales and
catalogues sales. Nutrition 21 has approximately 50 customers. During the year
ended June 30, 1997, Leiner Health Products accounted for 14.8% of Nutrition
21's revenues.
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In 1996, chromium picolinate was approved by the U.S. Food and Drug
Administration ("FDA") for use as a supplement in animal feed for swine.
Nutrition 21 is developing new micro-nutrients such as arginine
silicate for which Nutrition 21 has an allowed patent, and magnesium taurate for
which Nutrition 21 has patent protection, and may commercialize these or other
products.
Pharmaceuticals
Antibacterials
The Company is developing the compound nisin, a member of the lanthocin
class of peptides, in different proprietary formulations as a potential
treatment for diseases caused by serious bacterial infections, including
hospital-acquired infections, for infections of the colon, and for ulcer
disease. In addition, the Company is developing lysostaphin, an enzyme, as a
potential treatment for hospital-acquired infections.
During each phase of the drug development process, scientific and
business evaluations of the cost, risk, and potential return on investment are
undertaken on a product by product basis. There can be no assurance that the
development programs will continue should there be a negative evaluation of the
cost and risks of continuing to develop a particular product.
The development of nisin and lysostaphin as therapeutic agents for
these and other indications can be a long, difficult, and expensive process.
There can be no assurance that a drug product will be approved by the FDA or its
regulatory equivalent in a foreign country. See "Governmental Regulation."
Infections of the colon -- AMBI has developed an oral delivery form of
nisin for the treatment of antibiotic-associated diarrhea caused by Clostridium
difficile (C. difficile) and for the eradication of Vancomycin Resistant
Enterococci (VRE) that inhabit the colon. These infections can be especially
severe for patients with cancer, AIDS, or those who are in intensive care units.
Nisin is able to kill C. difficile and VRE without affecting the normal
flora of the colon. In June 1997, AMBI announced results of a human study
demonstrating that nisin was successfully delivered orally, in the form of a
tablet, to the colon. Nisin has the potential to be the first peptide that can
be taken orally as a treatment for a serious infectious disease of the colon. It
is anticipated that an Investigational New Drug Application (IND) will be filed
with the FDA by the end of the second fiscal quarter (December 31, 1997).
Ulcer -- AMBI has developed a different oral form of nisin for the
eradication of Helicobacter pylori (H. pylori), the causative agent of peptic
ulcer disease. Most ulcers, as well as other gastric disorders such as chronic
gastritis and cancer of the stomach, are caused by H. pylori, a bacterium that
colonizes the human stomach.
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Nisin has been shown to be safe in two clinical studies in almost 100
human subjects. Recent studies in animals have confirmed nisin's efficacy
against H. pylori.
Hospital-acquired infections -- Hospital-acquired infections occur most
frequently among the sickest patients, such as those people who are
immunocompromised or have just had surgery. For some infections e.g., those
caused by Methicillin Resistant Staphylococcus Aureus (MRSA), Vancomycin
Resistant Staphylococcus Aureus (VRSA), and VRE, there are now virtually no
therapeutic agents that show consistent high rates of efficacy, and therefore,
certain serious infections can often be fatal.
When administered by injection, both nisin and lysostaphin have been
found to be effective in curing lethal systemic bacterial infections in mice.
Pharmaceutical Partners
In March 1994, the Company entered into an exclusive License and Supply
Agreement with the Astra/Merck Group of Merck & Co., Inc. (now Astra Merck) to
develop and market in the U.S. drug products based on nisin for the treatment of
gastrointestinal disorders, including ulcers.
In March 1996, the Company entered into an exclusive Agreement with
Nippon Shoji Kaisha, Ltd. of Osaka, Japan, to develop and market in Japan,
certain Asian countries, Australia and New Zealand drug products based on nisin
for the treatment of hospital acquired infections and infections of the colon.
Dairy Hygiene Products
The Company manufactures and sells a preparation of nisin which the
Company markets under its trademark Ambicin(R) N, which is the active ingredient
in an animal hygiene product applied to the udders of lactating dairy cattle
before and after milking. The Company has developed a germicidal solution based
on Ambicin N that is applied to the teats of cows as a dip or spray before and
after milking in order to prevent the spread of mastitis. This dermatological
preparation is a potent broad spectrum germicide that acts rapidly against the
bacteria that cause mastitis.
On December 15, 1988, the Company entered into a License and License
Option Agreement ("Agreement"), as amended November 25, 1991, July 1, 1993 and
February 9, 1996, with Babson Brothers ("Babson") of Naperville, Illinois. Under
the Agreement, Babson is granted licenses for certain exclusive territories
which include North America and Puerto Rico to manufacture and market Ambicin N
based mastitis preventatives, other than udder wipes, which are exclusively
reserved for manufacture and marketing by the Company. The Company supplies
Ambicin N to Babson. In July 1991, Babson commenced manufacturing and marketing
an Ambicin N-based teat dip product in the U.S. under its trademark Consept.
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Under a July 1991 agreement with CFPI, a French specialty chemical
manufacturer, the Company licensed CFPI to manufacture and market Ambicin
N-based formulations for use as topical germicides in the prevention of mastitis
in nine European countries. CFPI introduced its product in France in 1992. The
agreement with CFPI was terminated as of July 31, 1997, and the Company is
considering other approaches to the European market.
The Company developed a moistened towel using an Ambicin N-based
formulation that is for use in preparing dairy cows for milking. Trials in dairy
cows at Cornell Veterinary College showed the product to be effective. The
Company launched the product under its trademark Wipe Out(TM) Dairy Wipes on a
test basis in February 1996, and nationally in April 1996.
Governmental Regulation
Healthcare
Products which are intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease in humans or animals are subject to extensive
governmental regulation. All such products must undergo extensive
characterization, and are subject to regulation for quality assurance,
toxicology and safety. Products containing such agents must undergo thorough
preclinical and clinical evaluations of performance as to safety and efficacy
under approved protocols.
The Company intends to pursue regulatory approval for the
pharmaceutical and related uses of its drug products. The Company's proposed
pharmaceutical products will be subject to the regulatory approval processes for
new drugs.
To take a pharmaceutical product from the discovery stage through
research and preclinical development to the point where the Company and/or its
partners can make the necessary filings (to the FDA and governmental agencies
outside the U.S.) to conduct human clinical trials may take several years.
Regulatory requirements for human clinical trials are substantial, depend upon a
variety of factors, vary by country, and will further add to the time necessary
to determine whether a product candidate can be approved for human use.
There can be no assurance that the Company's proposed drug products
will prove to be safe and effective under these regulatory procedures.
Depending upon the ingredients of a specific product, some nutrition
products will be marketed in the U.S. under DSHEA or the Orphan Drug Act. Prior
to the Company's acquisition of Nutrition 21, Nutrition 21 and the Federal Trade
Commission (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 order requires that Nutrition 21 advise its customers who resell chromium
picolinate to the public not to make certain claims which the FTC deems not to
be sufficiently supported.
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Research and Development
The Company conducts research and development to expand uses of its
pharmaceutical product candidates, to identify new antibacterial products, and
to improve the production processes for the Company's antibacterial products. In
addition, the Company conducts preclinical, formulation, and clinical trials on
its Nutrition Products and product candidates. These efforts are conducted with
industrial and academic co-workers in various countries. During the fiscal year
ended June 30, 1997, approximately $4,833,000 was spent on research and
development by the Company.
Proprietary Rights
Ambicin is a registered trademark of the Company in the U.S. and other
countries. Cardia is a trademark used by the Company in the U.S. and Wipe Out is
a trademark of the Company with applications for registration filed in the U.S.
and other countries. Chromax, Selenomax, Zinmax, and Magnemax are among the
registered trademarks owned by Nutrition 21: Chromax for chromium picolinate;
Selenomax for high selenium yeast and yeast-free selenium; Zinmax for zinc
picolinate; and Magnemax for manganese picolinate.
The Company also owns 158 patents relating to, among other things, the
expression and production of proteins by recombinant Bacillus strains; plasmid
vectors and methods of construction in gram positive bacteria; expression and
production of recombinant lysostaphin; novel bacteriocin compositions and their
use as broad spectrum bactericides; the use of bacteriocin compositions to treat
bovine mastitis; the use of bacteriocin compositions in oral healthcare; the use
of bacteriocin compositions on skin for healthcare and hygiene; and the use of
bacteriocin compositions in gastrointestinal healthcare.
Nutrition 21 has an exclusive license from the USDA for the duration of
a patent which covers the composition of chromium picolinate and its uses, which
patent expires August 8, 2000. Nutrition 21 also owns 6 U.S. patents relating
to, among other things, chromium picolinate treatments, and magnesium taurate.
Under an agreement with the University of Maryland, the Company has
obtained exclusive licenses under patents and applications relating to the
cloning, expression and alteration of genes encoding nisin, subtilin, and
related peptides, and their production and compositions.
Under an agreement with the Institute of Food Research, Norwich, U.K.,
the Company owns certain strains of bacteria producing nisin and related
patents, and may obtain exclusive licenses to certain nisin-related mutants and
related patents.
Under an agreement with the New York University Medical Center, the
Company owns patent rights to the parenteral treatment of drug-resistant
bacterial infections with lanthocins and other agents.
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Under a Pre-Clinical Study Agreement for work being performed at the
McGuire Veterans Administration Hospital, the Company owns patent rights to the
parenteral treatment of drug-resistant bacterial infections with lanthocins and
other agents.
The Company maintains trade secret protection for bacterial strains,
technical know-how, and other information it considers proprietary and
beneficial for the manufacture, use, regulatory approval, and marketing of the
Company's products.
The Company maintains non-disclosure safeguards, including
confidentiality agreements, with employees, certain consultants, and Scientific
Advisory Board members. There can be no assurance, however, that others may not
independently develop similar technology or that secrecy will not be breached
despite any agreements which exist.
Manufacturing
The Company's products , e.g. Ambicin N and Cardia Salt Alternative,
are manufactured for the Company by subcontractors who manufacture to the
Company's specifications and use the Company's manufacturing technology.
The Company subcontracted purchases of nisin from BP for pharmaceutical
and animal healthcare uses from December 11, 1996 until September 26, 1997.
Nisin-based products for pharmaceutical and animal healthcare are currently
being manufactured for the Company by another subcontractor. Nutrition 21's
products, e.g. chromium picolinate, are manufactured for Nutrition 21 by
subcontractors who manufacture to Nutrition 21's specifications and use
Nutrition 21's manufacturing technology.
Marketing and Sales
The Company markets its nutrition product lines through a network of
distributors and agents, and markets its Wipe Out Dairy Wipes product through
direct sales efforts.
Financial Information About Industry Segments
The Company's business historically was in a single industry segment,
the research, development, production and marketing of antibacterial proteins
for various applications. In April 1996, the Company began selling a salt
alternative as a Medical Food that may help in the dietary management of
hypertension, and on August 11, 1997 the Company acquired Nutrition 21 which
sells nutritional supplements. For financial data pertaining to the amount of
revenue and operating profit and loss of the Company, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements."
Employees
As of June 30, 1997, the Company had 36 full-time employees, of whom 4
were executive employees, 9 were administrative, 4 were engaged in marketing and
sales, and 19 were involved in research, process development, and manufacturing.
On December 12, 1996, the Company sold its
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nisin-based food preservative business to BP, which resulted in the transfer of
72 employees to BP. On August 11, 1997, the Company acquired Nutrition 21 which
has 11 employees. Neither the Company nor Nutrition 21 has a collective
bargaining agreement with any of its personnel and each considers its
relationship with its employees to be satisfactory.
Item 2. PROPERTIES
The Company's headquarters are located at 771 Old Saw Mill River Road,
Tarrytown, New York 10591 (Tel: 914-347-5767, Fax: 914-347-6370). These
facilities include office space as well as the Company's laboratories where the
Company conducts its pharmaceutical research and development. Pursuant to a
seven year lease entered into February 1995, the Company is paying an annual
rent in the amount of $488,400, which sum is due in monthly installments. The
rent is subject to annual increases over the term of the lease. The Company's
U.K. facilities were transferred to BP on December 12, 1996 as part of the sale
of the nisin-based food preservative business to BP.
Nutrition 21's headquarters are located at 1010 Turquoise Street, San
Diego, California 92109 (Tel: 619-488-1021, Fax: 619-488-7316). These facilities
include an office complex together with a laboratory, and receiving and shipping
areas. Pursuant to a leased which expires in August 1998, Nutrition 21 is paying
an annual rent in the amount of $57,000.
Item 3. LEGAL PROCEEDINGS
No material proceedings are pending to which the Company, Nutrition 21
or any of their property is subject.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
At the annual meeting of shareholders of the Company held on December
17, 1996, the following actions were taken:
1. holders of 17,097,503 shares of common stock approved a change in the
name of the Corporation from Applied Microbiology, Inc. to AMBI Inc.
The change was opposed by the holders of 46,942 shares of common stock,
and 191,425 abstained; and
2. holders of 17,319,646 shares of common stock ratified the appointment
of KPMG Peat Marwick LLP as the Company's independent auditors. The
appointment was opposed by the holders of 64,520 shares of common
stock, and 80,067 abstained.
The following persons were elected as directors:
Name For Against
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Fredric D. Price 17,268,878 195,355
Sheldon G. Gilgore 17,268,878 195,355
Audrey T. Cross 17,268,883 195,350
Robert Flynn 17,268,383 195,850
Colin Kop 17,266,583 197,650
Robert E. Pollack 17,269,083 195,150
At a special meeting of shareholders of the Company held on July 15,
1997, the following actions were taken:
1. holders of 10,519,484 shares of common stock approved the issuance of all
shares of common stock which are issuable upon the conversion of Series D
Preferred Stock in order that the Company not be required to make cash
redemptions upon conversion. The issuance was opposed by the holders of 457,751
shares of common stock, and 121,306 abstained; and
2. holders of 14,759,821 shares of common stock approved an increase in the
authorized common stock from 40,000,000 shares to 65,000,000 shares. The
increase was opposed by the holders of 509,919 shares of common stock, and
97,145 abstained.
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PART II
Item 5. MARKET PRICE OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
System under the symbol "AMBI" and the Company's warrants are traded on Nasdaq
Small Cap Market under the symbol "AMBIW".
The Company has not paid a cash dividend to its public shareholders on
its Common Stock. The Company intends to retain all earnings for the foreseeable
future for use in the operation and expansion of its business and, accordingly,
the Company does not contemplate paying any cash dividends on its Common Stock
in the near future.
The following table sets forth prices quoted for the Common Stock which
represent actual sale prices. The high and low bid quotations for the Company's
Warrants have been reported by the National Association of Securities Dealers,
Inc. and represent quotations by dealers without adjustments for retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
Common Stock Warrants
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Fiscal
Quarter High Low High Low
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Ended
September 30, 1995 $4.50 $1.375 $1.125 $0.3125
Ended
December 31, 1995 $5.875 $3.375 $1.9375 $0.6875
Ended
March 31, 1996 $5.5625 $3.1875 $1.625 $0.6875
Ended
June 30, 1996 $8.1875 $4.875 $3.75 $1.125
Ended
September 30, 1996 $6.625 $3.250 $2.625 $1.250
Ended
December 31, 1996 $4.250 $2.1875 $1.5625 $0.500
Ended
March 31, 1997 $4.750 $2.6875 $1.5625 $0.625
Ended
June 30, 1997 $3.0625 $1.750 $0.750 $0.125
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Item 6. SELECTED FINANCIAL DATA
The following tables summarize certain financial data that are
qualified by the more detailed financial statements included herein. Figures are
stated in thousands of United States Dollars, except per share amounts.
Year ended June 30 1997(1) 1996 1995 1994 1993(2)
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Sales 10,356 14,157 11,264 9,614 12,083
Write-off of Purchased
Research and Development -- -- -- -- 22,504
Other Costs and Expenses 27,022 20,776 11,337 8,374 8,891
Tax Expense 152 285 254 185 423
Net (Loss)/Income (6,813) (4,719) 283 1,756 (19,423)
Net (Loss)/Earnings per
Share (0.37) (0.27) 0.01 .09 (1.37)
Selected Balance Sheet Data: 1997(1) 1996 1995 1994 1993(2)
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(As of June 30)
Working Capital 7,055 14,812 7,333 7,352 5,750
Total Assets 12,754 23,367 13,788 11,808 10,724
Total Liabilities 5,144 6,221 3,163 1,544 2,255
Long Term Obligations and
Redeemable Preferred Stock 2,184 4,408 2,267 1,500 1,500
Stockholders' Equity 7,610 15,646 9,125 8,764 6,969
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(1) The results for the year ended June 30, 1997, are those of the Company and
Aplin & Barrett for the period July 1, 1996 through December 11, 1996 and those
of the Company for the full year (see Item 13).
(2) In connection with the consummation of certain transactions with BP (see
Item 13), which for financial accounting purposes were accounted for as a
reverse acquisition, and pursuant to which the Company acquired its A&B
subsidiary (the "BP Transactions"), the results for the year ended June 30,
1993, are those of A&B for the full year and those of the Company other than A&B
for the period from September 1, 1992 through June 30, 1993.
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The Company has not paid a cash dividend to its public shareholders on
its Common Stock. The Company intends to retain all earnings for the foreseeable
future for use in the operation and expansion of its business and, accordingly,
the Company does not contemplate paying any cash dividends on its Common Stock
in the near future.
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto of the Company
included elsewhere herein.
General
The Company's historical revenues have been primarily attributable to
sales of its own products. The Company has acted in the past as selling agent
for certain products of both affiliated as well as unaffiliated companies.
Effective July 1, 1995, the Company assumed responsibility for selling products
in the US on behalf of an affiliated company. This relationship was discontinued
effective September 11, 1996. The Company also receives royalty income from
users of its patented technology and milestone payments from research partners.
The Company completed the sale of its UK-based food preservative
business, Aplin & Barrett, Ltd. ("A&B"), to Burns Philp & Company Ltd. on
December 12, 1996. As a result, the operations of A&B are included in the
financial statements through that date.
Cost of sales includes both direct and indirect manufacturing costs.
Research expenses include internal expenditures as well as expenses associated
with third party collaborators. Selling, general and administrative expenses
include salaries and overheads, third party fees and expenses, and costs
associated with the selling of the Company's products. The Company capitalizes
patent costs and amortizes them over periods of nine months to fifteen years.
Results of Operations
The Company has an accumulated deficit due primarily to the write-off
of purchased goodwill (amortized over five years from 1986 - 1990) and purchased
research and development costs (written-off in the year ended June 30, 1993) in
connection with the BP Transactions, and the current year loss.
Three years ended June 30, 1997, 1996 and 1995
Revenues
Revenues decreased 30% to $11.3 million in the fiscal year ended June
30, 1997 ("fiscal 1997") from $16.0 million in the fiscal year ended June 30,
1996 ("fiscal 1996"). A decline of $7.4 million was attributable to the
divestiture of the Company's A&B subsidiary which occurred December 12, 1996. A
further $0.9 million decline was due to lower receipts of milestone and
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research payments from third party research collaborators. Sales of new
products launched in 1996 fiscal year increased $3.6 million during the year -
Cardia Salt Alternative ($3.6 million in fiscal 1997 up from $0.7 million in
fiscal 1996) and Wipe Out Dairy Wipes ($1.2 million in fiscal 1997 up from $0.5
million in fiscal 1996).
Revenues increased 37% to $16.0 million in fiscal 1996 from $11.7
million in the fiscal year ended June 30, 1995 ("fiscal 1995"). $1.2 million of
this increase was attributable to new products launched during the year - Cardia
Salt Alternative ($0.7 million) and Wipe Out Dairy Wipes ($0.5 million). A
further $0.4 million in new business was recorded as a result of the Company
assuming responsibility for selling products in the US on behalf of an
affiliate. Sales of Nisaplin, a food preservative sold by A&B, increased 6% in
fiscal 1996; and accounted for 65% of the total sales, compared with 77% in
fiscal 1995. Other operating income increased by $1.4 million due to milestone
and research payments received from third party research collaborators.
Cost of Sales
Cost of sales was $4.4 million in fiscal 1997, a decline of 31% from
the fiscal 1996 figure of $6.4 million. As a percentage of revenues, it was
nearly unchanged at 39% in fiscal 1997, compared to 40% in fiscal 1996.
Cost of sales was $6.4 million in fiscal 1996, an increase of 95% from
the fiscal 1995 figure of $3.3 million. As a percentage of revenues, it
increased to 40%, compared to 28% in fiscal 1995. This was largely due to a
change in the sales mix, with a higher proportion of sales representing lower
margin products (for which the company acted solely as a distributor) versus the
prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") were $16.9
million, $11.2 million, and $5.4 million in fiscal 1997, fiscal 1996 and fiscal
1995, respectively, representing increases of 51% in fiscal 1997 from fiscal
1996, and 106% in fiscal 1996 from fiscal 1995. SG&A as a percentage of revenue
was 150%, 70%, and 46% in fiscal 1997, fiscal 1996, and fiscal 1995,
respectively.
The main component of the increase in SG&A in fiscal 1997 was marketing
and sales expenditures incurred in continuing support of the two new products
Cardia Salt Alternative and Wipe Out Dairy Wipes. The main component of the
increase in SG&A in fiscal 1996 was marketing and sales expenditures incurred in
the launch of these same two new products.
Research Expenses
Research expenses were $4.8 million, $2.3 million, and $1.8 million in
fiscal 1997, fiscal 1996, and fiscal 1995, respectively, representing increases
of 111% in fiscal 1997 from fiscal 1996, and 25% in fiscal 1996 from fiscal
1995. Research expenses as a percentage of revenue
-15-
<PAGE>
were 43%, 14% and 16% in fiscal 1997, 1996, and 1995, respectively. The
increases in expenses in fiscal 1997 and fiscal 1996 were related to added
spending to support ongoing programs.
Operating Loss/Income
The Company had an operating loss of $15.6 million in fiscal 1997,
compared with an operating loss of $4.6 million in fiscal 1996. This increase in
the loss was a result of increased expenditures in the areas of SG&A and
research referred to above and reduced revenue.
The Company had an operating loss of $4.6 million in fiscal 1996,
compared with operating income of $0.4 million in fiscal 1995. This loss was a
result of increased expenditures in the areas of SG&A and research referred to
above.
Sale of Aplin & Barrett
The Company completed the sale of its UK-based food preservative
business, Aplin & Barrett, Ltd., to Burns Philp & Company Ltd. on December 12,
1996. Key terms of the transaction included the payment to AMBI of $13.5 million
in cash and the return of 2.42 million shares of AMBI common stock held by Burns
Philp. In addition, Burns Philp has provided AMBI with a revolving line of
credit of up to $2.5 million that could be forgiven under certain circumstances
related to the performance of the food preservative business through June 30,
1999. The Company recorded a gain of $8.6 million in fiscal 1997 related to the
sale of Aplin & Barrett.
Loss Before Tax Expense
The Company had a loss before tax expense of $6.7 million in fiscal
1997, compared with a loss of $4.4 million in fiscal 1996. The increase in the
loss was a result of increased expenditures in the areas of SG&A and research
referred to above and reduced revenue. The loss was partially offset by the $8.6
million gain on the sale of A&B.
The loss before tax expense was $4.4 million in 1996, compared with
income before tax of $0.5 million in fiscal 1995. The loss was a result of the
Company's increased expenditures in the areas of SG&A and research referred to
above.
Tax Expense
The Company had a tax expense in fiscal 1997, despite having a loss
before tax expense, because of profits generated from its UK subsidiary prior to
the sale on December 12, 1996.
Refer to Note 12 of the Notes to the Consolidated Financial Statements
for a further analysis of the tax charge.
Fourth Quarter Results
Revenues in the fourth quarter of fiscal 1997 were $0.8 million, a
decrease of $5.0 million or 86% from the corresponding quarter for the previous
year. The absence of A&B sales ($3.9 million in the fourth quarter of fiscal
1996), accounted for 78% of the decline, with decreases in
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<PAGE>
Cardia Salt Alternative, Wipe Out Dairy Wipes, and research payment revenues
representing the remainder.
Operating losses for the quarter were $3.8 million, compared to a loss
of $2.3 million the previous fiscal year.
Quarterly Variations
On a quarter-to-quarter basis, the Company's sales and income may vary
widely, as a result of various factors, including, for example, customers
placing orders in anticipation of a price increase and customers adjusting
finished goods inventory levels. As a result, the Company may report sales
increases or declines and/or income gains or losses for a particular quarter
that may not reflect end-customer usage of the Company's products.
Liquidity and Capital Resources
As of June 30, 1997, the Company had working capital of $7.1 million,
which included cash and cash equivalents of $8.6 million. On June 30, 1996,
working capital was $14.8 million, which included cash and cash equivalents of
$8.4 million.
The Company raised $18.1 million during fiscal 1997 as a result of the
sale of Aplin & Barrett ($13.5 million) and the issuance of preferred stock
($4.2 million) and common stock ($0.4 million). $14.2 million was used in
operating activities, mainly to fund the operating loss of $15.6 million. $1.3
million was used in investing activities including $0.9 million for the purchase
of property and equipment and $0.4 million for patent costs and licensing fees.
An additional $2.5 million was used in financing activities representing the
redemption of the redeemable preferred ($1.5 million), repayments of capital
leases ($0.8 million) and cash used for the payment of preferred stock dividends
($0.2 million).
The Company anticipates a decline in research and SG&A expenditures as
it seeks to find pharmaceutical partners to fund research. In addition, the
Company is eliminating expenditures that are not critical to the process of
generating sales or meeting drug development milestones. The Company may report
Operating Income during the fiscal year ending June 30, 1998 as a result of the
aforementioned expense reduction combined with operating income provided from
the recent acquisition of Nutrition 21 on August 12, 1997 (see Note 17, Notes to
the Consolidated Financial Statements for further explanation).
Inflation and Prevailing Economic Conditions
The Company does not believe inflation has had a significant impact on
the Company's operations.
The Company does not believe exchange rates have had a significant
impact on the Company's operations.
Seasonality
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<PAGE>
The Company does not believe there is any significant seasonal effect
on the Company's operations. There may be variations between quarters due to
other factors. See "Quarterly Variations."
Recently Issued Accounting Standards
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share" and
SFAS No. 129, "Disclosure of Information about Capital Structure". SFAS No. 128
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. SFAS No. 128 replaces the presentation of primary EPS
and fully diluted EPS with basic EPS and diluted EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
SFAS No. 129 was issued in connection with SFAS No. 128 and specifies
the required disclosures about capital structure. Both SFAS No. 128 and No. 129
are effective for financial statements for both interim and annual periods
ending after December 31, 1997. It is not expected that the adoption of either
of these statements will have a material impact on the Company's financial
position or operating results.
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included herein commencing on page F-1.
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-18-
<PAGE>
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Year Joined
Name Company Position
- -------------------------------------------------------------------------------
<S> <C> <C>
Fredric D. Price (51) 1994 President, Chief
Executive Officer,
Acting Chief Financial Officer
and Director
Sheldon G. Gilgore, M.D. (65) 1995 Chairman of the Board
Audrey T. Cross, Ph.D. (52) 1995 Director
Robert E. Flynn (64) 1996 Director
Peter E. Herring (46) 1996 Controller
Colin Kop (35) 1996 Director
Solomon L. Mowshowitz, Ph.D. (54) 1996 Vice President-Research and
Development
Robert E. Pollack, Ph.D. (57) 1995 Director
Benjamin Sporn (59) 1986 Vice President-Legal
and Secretary
</TABLE>
Fredric Price has been President, Chief Executive Officer and a
Director of the Company since September 1994. In addition, he has been the
Company's acting Chief Financial Officer since January 1995. From July 1991 to
September 1994, he was Vice President, Finance and Administration and Chief
Financial Officer of Regeneron Pharmaceuticals, Inc. For more than five years
prior to joining Regeneron, he was head of RxFDP, a consulting firm which
provided strategic planning, market development, and new product introduction
services to pharmaceutical and other health care businesses. From 1973 to 1986
he was at Pfizer Pharmaceuticals, where he was a Vice President with both line
and staff responsibilities. Mr. Price is Secretary and on the
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<PAGE>
Executive Committee of the Board of Directors of the New York Biotechnology
Association. Mr. Price is also a director of Pharmos Corporation, a
biotechnology company engaged primarily in the development of pharmaceuticals
for ophthalmic and neurologic indications. He has a BA from Dartmouth College
and an MBA from the Wharton School of the University of Pennsylvania.
Sheldon G. Gilgore, M.D. was elected Chairman of the Board of Directors
of the Company in October 1995. Dr. Gilgore served as Chairman of the Board,
Chief Executive Officer, and President of G. D. Searle & Co. from 1986 to April
1995 when he retired. From 1971 to 1986, he was President of Pfizer
Pharmaceuticals and was a member of the Board of Directors of Pfizer, Inc. In
addition, he served as Chairman of the Pharmaceutical Research Manufacturers of
America (PhRMA). Dr. Gilgore received a BS in biology from Villanova University
and an MD from Jefferson Medical College.
Audrey T. Cross, Ph.D., was elected a Director of the Company in
January 1995. Dr. Cross has been Associate Clinical Professor at the Institute
of Human Nutrition at the School of Public Health of Columbia University since
1988. She also works as a consultant in the areas of nutrition and health
policy. She has served as a special assistant to the United States Secretary of
Agriculture as Coordinator for Human Nutrition Policy and has worked with both
the United States Senate and the California State Senate on nutrition policy
matters. Dr. Cross received a B.S. in dietetics, a Master of Public Health in
nutrition and a Ph.D. from the University of California at Berkeley, and a J.D.
from the Hastings College of Law at the University of California at San
Francisco.
Robert E. Flynn was elected a Director of the Company in October 1996.
Mr. Flynn is a Senior Advisor to CSC Index, management consultants. He served as
Chairman of the NutraSweet Company from June 1990 until he retired in December
1995. Mr. Flynn also served as Chief Executive Officer of the NutraSweet Company
from June 1990 until March 1995. From 1981 to 1990, he served in various
executive capacities with Fisher Controls International Inc., including Chairman
and Chief Executive Officer. Prior thereto from 1957 to 1981, Mr. Flynn held
positions of increasing importance with The Carborundum Co. Mr. Flynn is also a
member of the Board of Stanley Technology Group. He received a BSc from Loyola
College, a BEE from McGill University and an MBA from Rutgers University.
Peter E. Herring was appointed Controller of the Company in January
1996. Prior to joining the Company, he was with Pfizer Inc. from 1979 until
January 1996. At Pfizer, he served as Director of Finance and Systems in a
Corporate Services Division from 1993 until he joined the Company. From 1979
until 1993 he held increasingly responsible financial management positions in
both corporate and operating divisions of Pfizer. He received a BS from the
University of Tennessee and an MBA from Vanderbilt University.
Colin Kop was appointed Vice President - Finance of BP in December
1996. From 1995 to 1996 Mr. Kop served as General Manager Business Development
of BP. From 1994 to 1996, Mr. Kop served as General Manager Finance of BP and
has served in various financial positions of increasing responsibility with BP
since 1983. Mr. Kop was a Director of the Company from 1992 until 1994 and was
reelected a Director in May 1996. Mr. Kop is a Certified Practicing
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<PAGE>
Accountant and he earned a Masters of Commerce Degree from the University of New
South Wales.
Solomon L. Mowshowitz, Ph.D., was appointed Vice President-Research and
Development of the Company in January 1996. For the five prior years, Dr.
Mowshowitz was President of Diligen, a company that provides scientific and
commercial consulting services to biotechnology companies as well as to the
venture capital community. From 1983 to 1990, Dr. Mowshowitz held senior
research management positions at three biotechnology companies. From 1970 to
1983, he was Assistant Professor in the Department of Microbiology at the Mt.
Sinai School of Medicine in New York. Dr. Mowshowitz holds a BA from the
University of Pennsylvania and a Ph.D. in biochemistry from the Albert Einstein
College of Medicine in New York.
Robert E. Pollack, Ph.D., was elected a Director of the Company in
January 1995. Dr. Pollack has been a Professor of Biological Sciences at
Columbia University since 1978. In addition, from 1982 to 1989 he was Dean of
Columbia College. Prior thereto he was Professor of Microbiology at the State
University of New York School of Medicine at Stony Brook, Senior Scientist at
Cold Spring Harbor Laboratory, Special NIH fellow at the Weizmann Institute in
Israel, and NIH Fellow in the Department of Pathology at New York University
School of Medicine. He is the author of more than a hundred research papers on
the molecular biology of viral oncogenesis, a dozen articles in the popular
press, and three books. He received a B.A. in physics from Columbia University
and a Ph.D. in biology from Brandeis University.
Benjamin Sporn has been legal counsel to the Company since 1990 and has
served as Secretary of the Company since 1986. He was an attorney with AT&T from
1964 until December 1989 when he retired from AT&T as a General Attorney for
Intellectual Property Matters. Mr. Sporn is also Chairman of the Board of
Directors of Micel Corp. Mr. Sporn was a director of the Company from 1986 until
1994. He received a BSE degree from Rensselaer Polytechnic Institute and a J.D.
degree from American University.
The directors serve for a term of one year and until their successors
are duly elected and qualified. Officers serve at the pleasure of the Board of
Directors. There are no family relationships among directors or executive
officers.
Arrangements Regarding the Election of Directors
In connection with the sale on December 12, 1996 of A&B to BP, BP
agreed that for a period of two years and so long as BP owns at least 10% of the
Company's outstanding common stock, BP will vote its shares in favor of Fredric
D. Price and one nominee of Fredric D. Price for election to the Company's
Board. So long as BP owns at least 20% of the Company's outstanding common
stock, BP is entitled to nominate one member for election to the Company's
Board. See Item 13. Certain Relationships and Related Transactions.
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<PAGE>
Committees of the Board of Directors
The Company has an audit committee consisting of Mr. Flynn and Mr. Kop.
In addition, the Company has a compensation committee consisting of Dr. Cross,
Mr. Flynn and Dr. Pollack. During the year ended June 30, 1997, the audit
committee met one time, and the compensation committee met one time.
Scientific Advisory Board
The Company has certain scientific advisors with expertise in areas of
benefit to the Company, who serve on its Scientific Advisory Board and consult
with the Company concerning the Company's research and development programs.
Following are members of the Scientific Advisory Board working with the
Company:
Robert E. Pollack, Ph.D. - Dr. Pollack has been a Professor of
Biological Sciences at Columbia University since 1978. In addition, from 1982 to
1989 he was Dean of Columbia College. Prior thereto he was Professor of
Microbiology at the State University of New York School of Medicine at Stony
Brook, Senior Scientist at Cold Spring Harbor Laboratory, Special NIH fellow at
the Weizmann Institute in Israel, and NIH Fellow in the Department of Pathology
at New York University School of Medicine. He is the author of more than a
hundred research papers on the molecular biology of viral oncogenesis, a dozen
articles in the popular press, and three books. He received a B.A. in physics
from Columbia University and a Ph.D. in biology from Brandeis University.
Edward Goldberg, Ph.D. - Dr. Goldberg is professor of molecular biology
and microbiology at the Tufts University School of Medicine, Dentistry and
Veterinarian Medicine. He is an authority on the mechanism of recognition and
infection of bacteria by viruses. He has also done extensive research on the
genetics, structure and function of ion exchanges related to bacterial pH
control and multi drug antiporters in bacteria . He holds a B.A. in Chemistry
from Columbia University and a Ph.D. in Biology from Johns Hopkins University.
Richard Novick, M.D. - Dr. Novick is professor of medicine and
microbiology at New York University Medical School and an Investigator at the
Skirball Institute for Biomolecular Medicine. During a postdoctoral fellowship
at the National Institute for Medical Research in Mill Hill, England, he
discovered the first plasmids in Staphylococci, those responsible for penicillin
resistance. Dr. Novick holds a B.S. from Yale University and an M.D. with honors
in Microbiology from New York University Medical School.
Marvin Moser, M.D. - Dr. Moser is clinical professor of medicine at
Yale and senior medical consultant at the National High Blood Pressure Education
Program of the National Heart, Lung and Blood Institute. Dr. Moser's work has
focused on non pharmacological approaches to the prevention and control of
hypertension and he has published extensively on this subject with over 300
publications. He has contributed to over 30 books and numerous physician and
patient education programs. Dr. Moser holds a B.A. from Cornell University and
an M.D. from Downstate University College of Medicine.
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<PAGE>
Stephen R. Peikin, M.D. - Dr. Peikin is professor of medicine and head
of the division of gastroenterology and liver diseases at Cooper Hospital
Medical Center, the Robert Wood Johnson Medical School, Camden, New Jersey. He
is an authority on the release of the hormone cholecystokinin and its effects on
satiety. He is the holder of a US patent on a method of stimulating satiety
through the administration of an oral trypsin inhibitor. He holds a B.A. from
Temple University and an M.D. from the Thomas Jefferson University.
Dr. Pollack is Chairman of the Scientific Advisory Board. Members of
the Scientific Advisory Board receive a per diem fee of $1,000 for each meeting
of the Board attended by them, plus reasonable expenses. In addition, the
Company has issued to each member of the Scientific Advisory Board stock options
to purchase 10,000 shares of the Company's Common Stock. The options so issued
have exercise prices ranging from $1.875 to $3.00 per share and are vested. Such
options expire five years from the date of grant. See Note 10 of the Notes to
Consolidated Financial Statements.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended June 30, 1997 (i) to its Chief
Executive Officer and (ii) to the three highest paid employees of the Company
whose cash compensation exceeded $100,000 per year in any such year (other than
the individuals listed in the table, no employee of the Company or of its former
A&B subsidiary received compensation in excess of $100,000):
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<PAGE>
SUMMARY COMPENSATION TABLE(1)(2)
Annual Compensation
(a) (b) (c) (d) (e)
Name and Principal Period Salary ($) Bonus ($) All other
Position Compensation
- --------------------------------------------------------------------------------
Fredric Price, 9/12/94-
President, Chief 6/30/95 210,000 15,000
Executive Officer and
Director (3) 7/1/95-
6/30/96 260,000 21,121
7/1/96
6/30/97 275,000 90,000
Stephen Benoit, 7/1/94-
Vice President- 6/30/95 57,692
Marketing and Sales (4)
7/1/95
6/30/96 135,000 5,000
Peter Herring, 1/2/96
Controller 6/30/96 64,500
7/1/96
6/30/97 135,500
Solomon Mowshowitz, 1/15/96
Vice President-Research 6/30/96 62,308
and Development
7/1/97
6/30/97 140,000
Benjamin T. Sporn, 7/1/94-
Vice President- 6/30/95 129,000
Legal
7/1/95-
6/30/96 120,000
7/1/96
6/30/97 127,500 5,000
(1) The above compensation does not include the use of an automobile and other
personal benefits, the total value of which do not exceed as to any named
officer or director or group of executive officers, the lesser of $50,000
or 10% of such person's or persons' cash compensation
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<PAGE>
(2) Pursuant to the regulations promulgated by the Securities and Exchange
Commission (the "Commission"), the table omits a number of columns reserved
for types of compensation not applicable to the Company.
(3) Mr. Price became the Company's Chief Executive Officer on September 12,
1994.
(4) Mr. Benoit's employment with the Company terminated January 10, 1997.
None of the individuals listed above received any long-term incentive
plan awards during the fiscal year.
Employment Agreements
Effective September 1994, the Company entered into an employment
agreement with Fredric Price. The agreement provides for an annual salary of
$260,000 plus a performance related bonus. He was also granted options to
purchase up to a total of 500,000 shares of Common Stock, vesting in equal
installments over a five year period commencing at the conclusion of his first
year of employment. In addition, he was granted 15,325 shares of Common Stock on
the first anniversary of the agreement. A further 15,326 shares of Common Stock
were granted on the second anniversary of the agreement. Although employment is
at will, salary and certain benefits continue for twelve months after notice of
termination.
Stock Option Plans
The Board of Directors has adopted and the shareholders have approved
four Stock Option Plans (the "Plan(s)"):
1. The Incentive Stock Option Plan provides for the grant of qualified
incentive stock options to officers and key employees.
2. The Non-qualified Stock Option Plan provides for the grant of
options to various persons who render certain services to the Company.
3. The 1989 Stock Option Plan provides for the grant of options to
either group which, in the case of employees, may be incentive stock options.
4. The 1991 Stock Option Plan provides for the grant of options to
either group which, in the case of employees, may be incentive stock options.
Each of the Incentive and Non-qualified Stock Option Plans permits the
purchase of an aggregate of up to 250,000 shares of Common Stock. The 1989 Stock
Option Plan permits the purchase of an aggregate of up to 500,000 shares of
Common Stock. The 1991 Stock Option Plan permits the purchase of an aggregate of
up to 3,000,000 shares of Common Stock. The purpose of the Plans is to attract
and retain competent executive personnel and other key employees and consultants
and to provide incentives to all such persons to use their effort and skill for
the advancement and betterment of the Company by permitting them to participate
in the ownership of the Company.
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<PAGE>
Options granted as qualified incentive stock options are intended to
qualify as Incentive Stock Options within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended. The exercise price of Incentive Stock
Options granted under the Plans shall not be less than the fair market value
(110% of the fair market value for 10% or greater shareholders) of the Common
Stock on the date of grant. Incentive Stock Options may not be exercised later
than ten years from the date of grant (five years for 10% or greater
shareholders). Determinations as to recipients of stock options under the Plans
and other terms of such grants are made by the Company's Board of Directors.
The following tables set forth information as of June 30, 1997 with
regard to options granted (i) to the Company's Chief Executive Officer, and (ii)
to other officers of the Company named in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value At
Assumed Annual Rates Of Stock
Individual Grants Price Appreciation For Option
Term
- ------------------------------------------------------------------------------------------------------------------------
Percent Of
Number Of Total
Securities Options Exercise
Underlying Granted To Of Base
Options Employees In Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% (S) 10% (S)
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C>
A. Stephen Benoit 10,000 4.24 $5.625 (1) N/A N/A
5,000 $5.625
B. Peter Herring 10,000 6.34 $ 2.50 (2) $25,551.79 $61,790.30
5,000 $5.625
C. Solomon Mowshowitz 10,000 6.34 $ 2.50 (2) $25,551.79 $61,790.30
D. Fredric D. Price 35,000 14.83 $5.1875 (2) $87,327.00 $211,177.42
7,500 $5.625
E. Benjamin T. Sporn 35,000 1 $ 2.50 (2) $62,376.43 $150,841.01
7.978.01
</TABLE>
(1) Expired April 9, 1997 which is 89 days after termination of employment.
(2) Vesting 20% per year; expiration the earlier of 5 years from vesting or 89
days after termination of employment.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<TABLE>
<CAPTION>
Individual Grants
- -----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Name Shares Value Number of Unexercised Value of Unexercised In-the
Acquired on realized ($) Options at FY-End (#) Money Options at FY-End
Exercise (#)
Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen
Benoit 20,000 28,750 0 0 0 0
Peter
Herring 0 0 8,000 47,000 0 0
Solomon
Mowshowitz 0 0 9,200 51,800 0 0
Fredric
Price 0 0 200,000 335,000 0 0
Benjamin
T. Sporn 0 0 75,000 42,500 0 0
</TABLE>
Pension Plans
AMBI Inc.
Eligible employees of the Company are entitled to participate in the
Burns Philp Inc. Retirement Plan for Non-Bargaining Unit Employees, a
non-contributory pension plan (the "Pension Plan") maintained by Burns Philp.
Assuming retirement at age 65, the Pension Plan provides benefits equal to the
greater of (a) 1.1% of the employee's final average earnings multiplied by the
employee's final average earnings in excess of the average of the contribution
and the benefit basis in effect under Section 230 of the Social Security Act for
each year in the 35-year period ending with the year of Social Security
retirement age, multiplied by the employee's years of credited service up to 35,
minus any predecessor plan benefit in the case of an employee who participated
in a predecessor plan or (b) $24 multiplied by the number of years of credited
service up to 25 years plus $12 multiplied by the years of employment from 26-40
years, minus any predecessor plan benefit in the case of an employee who
participated in a predecessor plan. The "final average earnings" are the average
monthly earnings during the five highest-paid consecutive calendar years within
the last ten calendar years of credited service with the Company. Earnings
include the salary and bonus listed in the summary compensation table. Earnings
which may be considered under the Pension Plan are limited to $160,000 per year
subject to annual cost of living adjustments as determined by the IRS.
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<PAGE>
The following table sets forth estimated annual benefits payable upon
retirement, assuming retirement at age 65 in 1997 and a single life annuity
benefit, according to years of credited service and final average earnings. The
benefits listed are not subject to any deduction for Social Security or other
offset amounts.
Years of Credited Service
<TABLE>
<CAPTION>
final average
earnings 15 20 25 30 35
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$25,000 $4,320 $5,760 $7,200 $8,250 $9,625
$50,000 $10,268 $13,691 $17,113 $20,536 $23,958
$75,000 $16,830 $22,440 $28,051 $33,661 $39,271
$100,000 $23,393 $31,190 $38,988 $46,786 $54,583
$150,000 $36,518 $48,690 $60,683 $73,036 $85,208
$160,000 $39,143 $52,190 $65,238 $78,286 $91,333
and up
</TABLE>
Peter Herring, Solomon Mowshowitz, Benjamin Sporn and Fredric Price
each have 1.5, 1.5, 5.0 and 2.75 years, respectively, of credited service under
the Pension Plan as of June 30, 1997, and, at age 65, would have approximately
21, 12, 10, and 17 years of credited service, respectively.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the period from July 1, 1996 through June 30, 1997 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
-28-
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of September 22, 1997, information
regarding the beneficial ownership of the Company's Common Stock based upon the
most recent information available to the Company for (i) each person known by
the Company to own beneficially more than five (5%) percent of the Company's
outstanding Common Stock, (ii) each of the Company's executive officers and
directors and (iii) all officers and directors of the Company as a group. Unless
otherwise indicated, each stockholder's address is c/o the Company, 771 Old Saw
Mill River Road, Tarrytown, New York 10591.
Shares Owned Beneficially
and of Record (1)
Name and Address No. of Shares % of Total
================================================================================
Fredric D. Price (2) 337,651 1.72
Sheldon G. Gilgore (3) 125,000 *
Audrey T. Cross (4) 34,000 *
259 Sunset Avenue
Englewood, NJ 07631
Robert Flynn (5) 20,000 *
Peter E. Herring (5) 9,000 *
Colin Kop 0 --
7 Bridge Street
Sydney, NSW 2000
Australia
Solomon L. Mowshowitz (5) 10,200 *
Robert E. Pollack (5) 40,000 *
813B Sherman Fairchild
Columbia University
New York, NY 10027
Benjamin Sporn (6) 105,625 *
Burns Philp & Company 7,763,837 40.26
Limited(7)
7 Bridge Street
Sydney, NSW 2000
Australia
All Officers and Directors 681,476 3.43
as a Group (10 persons)
(2)(3)(4)(5) and (6)
- ----------
* Less than 1%
-29-
<PAGE>
(1) Includes shares issuable within 60 days upon the exercise of
all options and warrants. Shares issuable under options or
warrants are owned beneficially but not of record.
(2) Includes 307,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(3) Includes 120,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(4) Includes 30,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(5) Consists of shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(6) Includes 76,500 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(7) Consists of shares owned by subsidiaries.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an Agreement for the Purchase and Sale of Stock dated as of
June 30, 1992 (the "Purchase Agreement"), in July 1993 the Company issued
935,000 shares of Common Stock to BP. During July 1996, BP sold 1,400,000 shares
of Common Stock, and during December 1996 BP returned 2,420,000 shares of Common
Stock to the Company in connection with the purchase of A&B. As a result of the
July 1993 issuance, of prior acquisitions of shares of Common Stock, the July
1996 sale of Common Stock, and the December 1996 return of Common Stock, BP
currently owns 7,763,837 shares of Common Stock.
Under the Purchase Agreement, the Company and BP entered into certain
arrangements and understandings which were effective until September 1, 1996
with respect to election of directors, the Chief Executive Officer, issuances of
securities, borrowings, and other corporate matters.
On December 12, 1996, the Company completed the sale of its UK-based
subsidiary, A&B to BP in accordance with the terms of a Share Purchase Agreement
for $13.5 million in cash and the return to the Company of 2.42 million shares
of the Company's Common Stock held by BP. In addition, BP has provided the
Company with a revolving line of credit of up to $2.5 million. Any borrowings
under this line of credit can be forgiven under certain circumstances. As of the
date of filing this Form 10-K, no amount has been drawn under this line of
credit. In accordance with the Share Purchase Agreement, the purchase price was
paid in two installments: an initial payment of $8 million to the Company was
made on December 11, 1996; and a final payment of $5.5 million was made to the
Company on June 12, 1997.
-30-
<PAGE>
In connection with the transaction, the Company and A&B entered into
two License Agreements. Pursuant to the first License Agreement, the Company is
exclusively licensed by A&B for the use of nisin generally in pharmaceutical
products and animal healthcare products. Pursuant to the second License
Agreement, A&B is exclusively licensed by the Company generally for the use of
nisin as a food preservative and for food preservation. In addition, the Company
entered into a Supply Agreement with A&B pursuant to which A&B was required to
sell nisin to the Company while the Company was establishing its own source of
supply. The Company established its own source of supply for nisin, and sent
notice of termination of the Supply Agreement effective September 26, 1997.
In connection with the transaction, the Company and BP entered into an
Investors' Rights Agreement pursuant to which BP agreed until December 11, 1998,
not to acquire, directly or indirectly, the Company's securities, and to refrain
from selling the Company's Common Stock, except under certain circumstances
through underwritten public offerings and private placement transactions. Until
December 11, 1998 and so long as BP owns at least 10% of the Company's
outstanding common stock, BP will vote its shares in favor of Fredric D. Price
and one nominee of Fredric D. Price for election to the Company's Board. So long
as BP owns at least 20% of the Company's outstanding common stock, BP is
entitled to nominate one member for election to the Company's Board.
As of the date of sale, two of the Company's Board members were
representatives of BP. BP's Board representatives did not participate in the
vote of the Company's Board which approved the sale of A&B to BP. As a result of
the sale, BP's representation on Registrant's Board of Directors is reduced from
two members to one member. Colin Kop is currently serving as the Director
designated by BP. The amount of consideration for the sale was arrived at
through arms-length negotiation and a fairness opinion was obtained.
-31-
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements are listed in the Index to Financial
Statements on page F-1 and are filed as part of this annual report.
3. Exhibits
The Index to Exhibits following the Signature Page indicates the
Exhibits which are being filed herewith and the Exhibits which are incorporated
herein by reference.
(b) Reports on Form 8-K
The Company filed Reports on Form 8-K relating to the sale of Aplin &
Barrett Limited (filed December 27, 1996), and relating to the acquisition of
Nutrition 21 (filed on August 25, 1997).
-32-
<PAGE>
AMBI INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FILED WITH THE ANNUAL REPORT OF THE
COMPANY ON FORM 10-K
JUNE 30, 1997
PAGE
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1997 AND 1996 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995 F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F-8
<PAGE>
AMBI INC. AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AMBI Inc.:
We have audited the consolidated financial statements of AMBI Inc. and
subsidiary as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AMBI Inc., and
subsidiary as of June 30, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three-year period ended June 30,
1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
July 25, 1997
F-2
<PAGE>
AMBI INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30 JUNE 30
1997 1996
$000 $000
---- ----
ASSETS
Current assets:
Cash and cash equivalents 8,615 8,431
Trade accounts receivable (less
allowance for doubtful accounts
of $104,000 in 1997 and $81,000 in 1996) 390 5,356
Inventories 606 3,088
Prepayments and other current assets 404 874
-------- --------
Total current assets 10,015 17,749
Property and equipment, net 1,082 3,881
Patent costs and licensed technology
(net of amortization of $862,000
in 1997 and $717,000 in 1996) 1,584 1,624
Other assets 73 113
-------- --------
TOTAL ASSETS 12,754 23,367
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMBI INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1997 1996
$000 $000
---- ----
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable and lease obligation 156 195
Accounts payable and accrued expenses 2,464 1,889
Other liabilities - 368
Dividends payable 340 231
Taxes payable - 254
-------- --------
Total current liabilities 2,960 2,937
Notes payable and lease obligation 184 935
Long term loan 2,000 2,000
Deferred taxes payable - 349
-------- --------
TOTAL LIABILITIES 5,144 6,221
-------- --------
REDEEMABLE PREFERRED STOCK:
$0.01 par value. Issued and outstanding - 0 - shares at
June 30, 1997 and 1,500 shares at June 30, 1996
(aggregate involuntary liquidation value $1,500,000) - 1,500
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, authorized 5,000,000;
Series C convertible preferred, 222 shares and 370 shares
outstanding at June 30, 1997 and 1996 respectively
(aggregate liquidation value Series C $2,521,190) - -
Series D convertible preferred, 45,000 shares issued and
outstanding at June 30, 1997 (aggregate liquidation value
Series D $4,539,205) - -
Common stock, $0.005 par value, authorized 40,000,000
shares. Issued and outstanding 18,783,342 shares
at June 30, 1997 and 20,469,776 at June 30, 1996 94 102
Additional paid-in capital 49,900 51,389
Accumulated deficit (42,384) (35,179)
Currency translation adjustment - (666)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 7,610 15,646
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY 12,754 23,367
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMBI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1997 1996 1995
$000 $000 $000
---- ---- ----
<S> <C> <C> <C>
Sales 10,356 14,157 11,264
Other operating income 924 1,865 462
-------- -------- --------
TOTAL REVENUE 11,280 16,022 11,726
Cost of sales (4,363) (6,353) (3,258)
-------- -------- --------
GROSS PROFIT 6,917 9,669 8,468
Selling, general and
administrative expenses (16,912) (11,177) (5,421)
Research expenses (4,833) (2,294) (1,840)
Depreciation and amortization (772) (819) (767)
-------- -------- --------
OPERATING (LOSS)/INCOME (15,600) (4,621) 440
Foreign exchange gain/(loss) - 3 (49)
Interest income 433 317 148
Interest expense (142) (133) (2)
Gain on sale of Aplin & Barrett Ltd. 8,648 - -
-------- -------- --------
(LOSS)/INCOME BEFORE
TAX EXPENSE (6,661) (4,434) 537
Tax expense (152) (285) (254)
-------- -------- --------
NET (LOSS)/INCOME (6,813) (4,719) 283
NET (LOSS)/EARNINGS
PER SHARE ($0.37) ($0.27) $0.01
WEIGHTED AVERAGE SHARES 19,544,526 19,091,664 18,201,562
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMBI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Common Stock
Series "C" Series "D"
Shares $000 Shares $000 Shares $000
------ ---- ------ ---- ------ ----
Balance at June 30, 1994 - - - - 18,155,858 91
Common stock issued for cash on
exercise of options and warrants - - - - 21,000 -
Net income for the year - - - - - -
Preferred dividend paid and provided - - - - - -
Arising on translation during the year - - - - - -
----- ---- ------- ---- ----------- ----
Balance at June 30, 1995 - - - - 18,176,858 91
Common stock granted to officers - - - - 15,326 -
Common stock issued for cash on
exercise of options and warrants - - - - 533,163 2
Common stock issued for cash under
agreement with NSK - - - - 315,408 2
Preferred stock issued for cash 895 - - - - -
Conversion of preferred stock to common
stock including dividends issued
as common stock (525) - - 1,429,021 7
Preferred dividend paid and provided - - - - - -
Net loss for the year - - - - - -
Arising on translation during the year - - - - - -
----- ---- ------- ---- ----------- ----
Balance at June 30, 1996 370 - - - 20,469,776 102
Common stock granted to officers - - - - 15,326 -
Common stock issued for cash on
exercise of options and warrants - - - - 172,300 1
Preferred stock issued for cash - - 45,000 - - -
Common stock retired in connection with the
sale of Aplin & Barrett Ltd. - - - - (2,420,000) (12)
Conversion of preferred stock to common
stock including dividends issued as
common stock (148) - - - 545,940 3
Preferred dividend paid and provided - - - - - -
Net loss for the year - - - - - -
Arising on translation during the year - - - - - -
----- ---- ------- ---- ----------- ----
Balance at June 30, 1997 222 - 45,000 - 18,783,342 94
<CAPTION>
Additional Accumulated Currency
Paid-In Deficit Translation
Capital Adjustment TOTAL
$000 $000 $000 $000
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 39,453 (30,113) (667) 8,764
Common stock issued for cash on
exercise of options and warrants 47 - - 47
Net income for the year - 283 - 283
Preferred dividend paid and provided - (128) - (128)
Arising on translation during the year - - 159 159
------- -------- ----- ------
Balance at June 30, 1995 39,500 (29,958) (508) 9,125
Common stock granted to officers - - - -
Common stock issued for cash on
exercise of options and warrants 1,513 - - 1,515
Common stock issued for cash under
agreement with NSK 1,998 - - 2,000
Preferred stock issued for cash 8,213 - - 8,213
Conversion of preferred stock to common
stock including dividends issued
as common stock 165 (172) - -
Preferred dividend paid and provided - (330) - (330)
Net loss for the year - (4,719) - (4,719)
Arising on translation during the year - - (158) (158)
------- -------- ----- ------
Balance at June 30, 1996 51,389 (35,179) (666) 15,646
Common stock granted to officers 57 - - 57
Common stock issued for cash on
exercise of options and warrants 436 - - 437
Preferred stock issued for cash 4,230 - - 4,230
Common stock retired in connection with the
sale of Aplin & Barrett Ltd. (6,340) - - (6,352)
Conversion of preferred stock to common
stock including dividends issued as
common stock 128 (131) - -
Preferred dividend paid and provided - (261) - (261)
Net loss for the year - (6,813) - (6,813)
Arising on translation during the year - - 666 666
------- -------- ----- ------
Balance at June 30, 1997 49,900 (42,384) - 7,610
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AMBI INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1997 1996 1995
$000 $000 $000
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)/income (6,813) (4,719) 283
Adjustments to reconcile net (loss)/income to net cash (used
in)/provided by operating activities:
Depreciation and amortization 772 819 767
Loss on disposal of equipment 275 14 129
Deferred income tax benefit (6) (81)
Gain on sale of Aplin & Barrett (8,648) - -
Other non-cash items 65
Changes in assets and liabilities:
Decrease/(increase) in trade accounts receivable 1,320 (3,569) (468)
Decrease/(increase) in inventories 646 (310) (1,345)
Increase in other assets (191) (211) (124)
Decrease/(increase) in amounts due from affiliated companies - 606 (614)
(Decrease)/increase in taxes payable (254) 7 232
(Decrease)/increase in accounts payable and accrued expenses (1,559) 611 540
(Decrease)/increase in amounts due to affiliated companies - (126) (91)
Increase in other liabilities 189 282 33
--------- -------- -------
Net cash used in operating activities (14,198) (6,602) 739)
--------- -------- --------
Cash flows from investing activities:
Acquisitions of property and equipment (866) (700) (1,269)
Proceeds on sale of equipment - 19
Cash received upon sale of subsidiary 13,500 - -
Patent costs and licensed technology (437) (1,026) (393)
--------- ------- --------
Net cash provided by/(used in) investing activities 12,197 (1,726) 1,643)
--------- -------- --------
Cash flows from financing activities:
Dividends paid (153) (133) (120)
Notes payable proceeds/(repayments) (8) 23 (6)
Capital lease (repayments)/proceeds (811) (186) 721
Long term loan proceeds - 2,000 -
Proceeds from issuance of preferred stock 4,230 8,213 -
Redemption of redeemable preferred stock (1,500) - -
Proceeds from issuance of common stock 437 3,515 47
--------- -------- -------
Net cash provided by financing activities 2,195 13,432 642
--------- -------- -------
Net increase/(decrease) in cash and cash equivalents 194 5,104 (1,740)
Cash and cash equivalents at beginning of year 8,431 3,337 5,048
Effect of exchange rate movement (10) (10) 29
--------- -------- -------
Cash and cash equivalents at end of year 8,615 8,431 3,337
--------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
AMBI Inc. ('The Company') is a New York corporation which was
incorporated on June 29, 1983. The Company develops and commercializes
nutrition products for cardiovascular and other conditions and develops
pharmaceuticals for serious infectious diseases. It markets the nutrition
products through a network of distributors and should the pharmaceutical
products be approved by a regulatory authority, it is anticipated that
such products will be commercialized by joint venture partners.
As of June 30, 1997, Burns Philp & Company Limited ("BP") owned 7,763,837
shares of the Company's common stock, which constitutes approximately 40%
of the issued and outstanding shares of common stock. BP is a leading
global food manufacturer and marketer.
The Company sold its UK-based food preservative business, Aplin & Barrett
Limited ("A&B"), a wholly-owned UK company, to BP on December 12, 1996.
As a result, the operations of A&B are included in the financial
statements through that date. A&B's principal activities are the
manufacture and marketing of food preservatives, cheese starter cultures
and other ingredients for the dairy industry.
In October 1995, the Company acquired an exclusive license from a
division of Orion Corporation ("Orion"), the largest pharmaceutical
company in Finland, to sell Orion's patented salt alternative in the US.
The Company began selling the salt alternative on a test basis in April
1996, and announced national availability in January 1997, under the
trademark Cardia(TM) Salt Alternative.
The Company has developed a moistened towel using a proprietary
antibacterial formulation that is for use in preparing dairy cows for
milking. The Company launched the product under its trademark Wipe
Out(TM) Dairy Wipes on a test basis in February 1996, and nationally in
April 1996.
The Company signed an agreement with Nippon Shoji Kaisha, Ltd. (NSK) of
Osaka, Japan in March 1996, in which NSK acquired the right to develop
and market nisin, the Company's proprietary antibacterial peptide, in
Japan and certain Asian countries for the treatment of hospital-acquired
infections and infections of the colon. Under the agreement, NSK
purchased $2 million of newly-issued common stock of the Company at $6.34
per share. In addition, NSK loaned $2 million to the Company that, under
certain circumstances can be repaid in common stock valued at the market
price at the time of repayment, and agreed to make research and milestone
payments to the Company. Upon commercialization, NSK will pay royalties
to the Company. The Company issued to NSK warrants to purchase 315,408
shares of the Company's common stock as part of this transaction.
On August 12, 1997 the Company completed the acquisition of Nutrition 21,
a privately-owned San Diego, California-based company engaged in the
development and marketing of proprietary nutrition products and dietary
supplements.
During fiscal 1997, the Company incurred a $15.6 million loss from
operations. As more fully discussed in note 18, the Company acquired
Nutrition 21 for $10.0 million and other considerations. The transaction
was financed from the Company's operating funds and a $3.3 million loan
from State Street Bank and Trust company ("State Street Bank") that
matures in February 1998. Management believes that the acquisition of
Nutrition 21 and expense reductions will result in a significant
reduction in the operating loss for fiscal 1998. Management also
believes that it will be able to extend the loan from State Street Bank
upon maturity or obtain other financing to satisfy this obligation. The
achievement of a significant reduction in the operating loss and the
refinancing the State Street Bank loan will be significant factors in
the Company's ability to maintain adequate levels of cash flow.
F-8
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed by the Company are in
accordance with generally accepted accounting principles and are as
follows:
a) Consolidation
The consolidated financial statements include the results of
operations and financial position of the Company and its wholly
owned subsidiary, A&B, after elimination of material
inter-company accounts and transactions.
b) Cash Equivalents
The Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents. Cash equivalents included in the accompanying
financial statements include money market accounts.
c) Inventories
Inventories are valued at the lower of cost (first-in, first-out)
or market value, and consist of:
1997 1996
$000 $000
---- ----
Raw materials - 240
Work in process - 960
Finished products 606 1,888
---- -----
606 3,088
d) Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method to depreciate assets over
their estimated useful lives. The estimated useful lives are as
follows:
Buildings and building
improvements - 50 years
Furniture and fixtures - 20 years
Machinery and equipment - 5 or 10 years
Office equipment - 3, 5 or 6 years
Motor vehicles - 5 years
Leased assets - 3 or 5 years
e) Patent Costs and Licensed Technology
Patent costs and licensed technology have been capitalized and
are being amortized on a straight-line basis over periods
ranging from one to fifteen years.
f) Research and Development
Research and development costs are expensed as incurred.
F-9
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Net (Loss)/Earnings Per Share
Earnings per share for the years ended June 30, 1995 are
computed based on the weighted average number of shares
actually outstanding plus the shares that would be outstanding
assuming the exercise of dilutive stock options, all of which
are considered to be common stock equivalents. The number of
shares that would be issued from the exercise of stock options
and warrants has been reduced by the number of shares that
could have been purchased from the proceeds at the average
market price of the Company's stock.
Common stock equivalents are not included in the computation
of average shares outstanding for the year ended June 30, 1997
and June 30, 1996, because the effect of such inclusion would
be to decrease the loss per share.
<TABLE>
<CAPTION>
1997 1996 1995
(No. of shares) (No. of shares) (No. of shares)
<S> <C> <C> <C>
Average shares outstanding 19,544,526 19,091,664 18,168,187
Net effect of dilutive
stock options - - 33,375
------------- ------------- ------------
Total average shares 19,544,526 19,091,664 18,201,562
$000 $000 $000
---- ---- ----
Net (loss)/income (6,813) (4,719) 283
Preferred stock dividend (392) (502) (128)
------------- ------------- ------------
Net (loss)/income attributable
to common stockholders (7,205) (5,221) 155
Net (loss)/earnings per share
of common stock ($0.37) ($0.27) $0.01
</TABLE>
h) Foreign Currencies
Transactions in currencies other than the local currency are
recorded at the rate at the date of the transaction. Balances
denominated in currencies other than the local currency are
translated at the exchange rate at the balance sheet date.
Assets and liabilities of the Company's foreign subsidiary are
generally translated at current rates, and related translation
adjustments are reported as a component of stockholders'
equity. Statement of operations accounts are translated at the
average rates of exchange reported during the year.
Stockholders' equity amounts are translated at historical
rates, and variances from the balance sheet rate are recorded
as currency translation adjustment.
i) Taxation
The Company accounts for deferred taxes using the liability
method.
j) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-10
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
1997 1996
$000 $000
---- ----
Cost: Land - 110
Buildings and building improvements 75 1,083
Plant and other assets 1,018 5,898
Leased assets:
Furniture and fixtures - 195
Office equipment - 171
Machinery and equipment 371 917
------ -------
1,464 8,374
Accumulated depreciation and amortization (382) (4,493)
------- -------
Net book value 1,082 3,881
4. CAPITAL LEASES
On December 11, 1996, concurrent with the sale of A&B to BP, the
Company bought out the leases for certain lab and office equipment that
were entered into in 1995. Subsequently, on December 30, 1996, the
Company entered into an agreement to lease certain lab equipment. The
terms of the lease met the criteria for capitalization under the
Financial Accounting Standards (FAS) No. 13, "Accounting for Leases."
Accordingly, the lease has been classified as a capital lease in the
accompanying financial statements. The following is a schedule by years
of future minimum lease payments under the capital lease together with
the present value of the net minimum lease payments.
Year ending June 30: $ 000
-----
1998 152
1999 133
2000 66
----
Total minimum lease payments 351
Less amounts representing interest (40)
-----
Present value of net minimum lease payments 311
This obligation is reflected in the balance sheet at June 30, 1997, as
current and non-current obligations of $127,000 and $184,000,
respectively.
5. NOTES PAYABLE
In connection with the purchase of a telephone system, the Company
borrowed approximately $35,000 in November 1995. This loan bears
interest at a rate of 6% and matures in November 1999. The payments on
the loan approximate $800 per month.
As a result of the sale of A&B to BP the Company has access to a
revolving line of credit of up to $2.5 million that could be forgiven
under certain circumstances related to the performance of the food
preservative business through June 30, 1999. The loan bears an interest
rate equal to the Citibank prime rate. As of July 25, 1997, the Company
has not borrowed any funds on this line of credit.
6. LONG TERM DEBT
In March 1996, as part of a research collaboration with Nippon Shoji
Kaisha of Japan, the Company has secured a loan of $2 million. This
loan bears interest at a rate of 5%, and matures in March 1999.
Interest is payable quarterly and principal payment is due in full upon
maturity.
F-11
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following items are included in accounts payable and accrued
expenses:
1997 1996
$000 $000
---- ----
Accounts payable 1,283 814
Accrued expenses 1,181 1,075
----- -----
2,464 1,889
8. PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, with a $0.01 par value, in one or more series and to fix the
powers, designations, preferences and rights of each series.
In May 1997, the Company issued 45,000 shares of non-voting, Series D
preferred stock. Each share of D Preferred has a face value of $100 per
share, and accrues a premium at 6% per annum for conversion purposes.
The D Preferred is not convertible during the 90-day period from May 8,
1997 until August 5, 1997. For the next 90 days until November 4, 1997,
the D Preferred is convertible by the holder into Common Stock at
$2.49557 per share, which is 110% of the average closing bid price for
the 10 trading days prior to May 8, 1997. After November 4, 1997 the
conversion price per share is the lesser of (i) $2.49557 or (ii) the
average closing bid price of the Common Stock for the ten trading days
prior to conversion less a discount which increases in stages from 13%
on November 4, 1997 to 25% by August 1, 1998. The Company has
registered the Common Stock issuable upon conversion. In connection
with this private placement, the Company also issued Warrants to
purchase 528,937 shares of Common Stock at $2.72 per share.
In October 1995, the Company issued 895 shares of non-voting, Series C
preferred stock for $10,000 per share. These shares are convertible
into common stock of the Company at the lower of $3.25 per share or 85%
of the average closing bid price for the common stock of the Company
for the five trading days immediately preceding the date of conversion,
and bear an 8% dividend payable in common stock of the Company on the
same basis as the preferred stock at the time of conversion. The
Company has the right to redeem the preferred stock for cash upon
receipt of a notice of conversion. All preferred stock outstanding on
October 13, 1999 will automatically convert into common stock of the
Company. As of June 30, 1997, there were 222 shares of the preferred
stock outstanding.
Dividends payable at June 30, 1997 were approximately $340,000.
All of the outstanding issue of 1,500 shares of redeemable preferred
stock at June 30, 1996 was redeemed on June 12, 1997 and all cumulative
annual dividends were paid at that time.
F-12
<PAGE>
AMBI, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. CAPITAL STOCK
The Company had outstanding warrants for the purchase of its common
stock as follows:
Number of Exercise price
warrants per share
---------------------------------
Balance at June 30, 1994 1,378,368 $1.25-$6.00
Exercised (3,000) $1.25
----------
Balance at June 30, 1995 1,375,368 $1.25-$6.00
Issued 591,789 $3.125-$6.75
Expired (52,000) $1.25-$2.00
Exercised (236,663) $1.25-$4.375
---------
Balance at June 30, 1996 1,678,494 $1.25-$6.75
Issued 528,937 $2.722
Expired (167,027) $1.25-$6.00
Exercised (16,000) $1.25-$5.00
----------
Balance at June 30, 1997 2,024,404 $1.25-$6.75
At June 30, 1997, 2,170,401 shares were issuable upon exercise of the
above warrants. All such warrants were available to be exercised
immediately. The warrants expire between 1997 and 2004. Certain of the
warrants include anti-dilution clauses.
On April 10, 1986, the Company adopted a Nonqualified Stock Option Plan
whereby options to purchase 250,000 shares of the Company's common
stock may be granted to consultants and Business Advisory Board and
Scientific Advisory Board members.
The Company adopted three Incentive Stock Option Plans ('Incentive
Plans') whereby options to purchase an aggregate of 3,750,000 shares of
the Company's common stock may be granted to officers, directors,
employees, consultants and others who render services to the Company.
The exercise price per share for the options granted under the
Incentive Plans may not be less than the fair value of the Company's
common stock on the date of grant. The options expire between 1997 and
2007.
F-13
<PAGE>
AMBI, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. CAPITAL STOCK (Continued)
A summary of stock option activity related to the Company's stock
option plans is as follows:
Number of Exercise price
options per share
--------------------------------
Balance at June 30, 1994 979,750 $1.25-$6.00
Issued 560,000 $3.00-$3.625
Exercised (18,000) $1.25-$2.56
---------- ----------
Balance at June 30, 1995 1,521,750 $1.25-$6.00
Issued 577,370 $1.50-$7.688
Expired (19,750) $1.25-$2.56
Exercised (296,500) $1.25-$5.063
Canceled (49,960) $1.50-$2.875
---------- ----------
Balance at June 30, 1996 1,732,910 $1.25-$7.688
Issued 352,900 $2.375-$5.625
Expired (282,246) $1.50-$6.00
Exercised (154,980) $1.50-$4.375
---------- ----------
Balance at July 1, 1997 1,648,584 $1.25-$7.688
Each of these options are entitled to one share of common stock, and
908,796 of these options are exercisable at June 30, 1997.
10. STOCK-BASED COMPENSATION
The per share weighted-average fair value of stock options granted
during fiscal 1997 and 1996 was $2.43 and $2.22, respectively on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: expected dividend yield of 0%,
risk free interest rate of 6%, expected stock volatility of 81%, and an
expected option life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the financial
statements for its stock options which have an exercise price equal to
the fair value of the stock on the date of the grant. Had the Company
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
1997 1996
$000 $000
---- ----
Net loss
As reported (6,813) (4,719)
Pro forma (7,391) (5,592)
Net loss per share
As reported ($0.37) ($0.27)
Pro forma ($0.40) ($0.32)
F-14
<PAGE>
AMBI, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK-BASED COMPENSATION (Continued)
Pro forma net income reflects only options granted in fiscal 1997 and
1996. Therefore, the full impact of calculating compensation cost for
the stock options under SFAS No. 123 is not reflected in the pro forma
net income amounts presented above because compensation cost is
reflected over the option's vesting period of 5 years and compensation
cost for options granted prior to July 1, 1995.
11. SEGMENT REPORTING
a) Significant customers
There were no significant unaffiliated customers comprising
over 10% of sales during the years 1997, 1996 and 1995. Sales
to affiliated companies represented 0%,12%, and 19% of
consolidated sales in 1997, 1996, and 1995.
b) Information about the Company's Operations in Different
Geographic Areas
Year ended June 30, 1997
<TABLE>
<CAPTION>
United United Adjustments Consolidated
States Kingdom & Eliminations
$000 $000 $000 $000
-------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers 5,262 5,094 - 10,356
Transfer between geographic areas 810 (810) -
Sales to affiliated customers - - - -
Other income 887 37 - 924
-------- -------- -------- --------
Total revenue 6,149 5,941 (810) 11,280
-------- -------- -------- --------
Operating (loss)/profit (15,991) 391 - (15,600)
--------- -------- -------- --------
Identifiable assets 12,754 - - 12,754
</TABLE>
F-15
<PAGE>
AMBI, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. SEGMENT REPORTING (Continued)
b) Information about the Company's Operations in Different
Geographic Areas continued
<TABLE>
<CAPTION>
Year ended June 30, 1996
United United Adjustments Consolidated
States Kingdom & Eliminations
$000 $000 $000 $000
-------- -------- ------------ ----------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers 1,543 10,671 - 12,214
Transfer between geographic areas 2,824 318 (3,142) -
Sales to affiliated customers - 1,943 - 1,943
Other income 1,788 77 - 1,865
------- ------- ------- -------
Total Revenue 6,155 13,009 (3,142) 16,022
------- ------- ------- -------
Operating (loss)/profit (5,384) 786 (23) (4,621)
------- ------- ------- -------
Identifiable assets 16,005 11,443 (4,081) 23,367
------- ------- ------- -------
Year ended June 30, 1995
Sales to unaffiliated customers 6 9,141 - 9,147
Transfer between geographic areas 3,635 - (3,635) -
Sales to affiliated customers - 2,117 - 2,117
Other income 296 166 - 462
-------- -------- -------- --------
Total revenue 3,937 11,424 (3,635) 11,726
-------- -------- -------- --------
Operating (loss)/profit (88) 528 - 440
-------- -------- -------- --------
Identifiable assets 6,673 9,207 (2,092) 13,788
</TABLE>
Transfers between geographic areas are accounted for as
arms-length transactions. Operating profit is total revenue
less operating expenses. Identifiable assets are those assets
which are identifiable with the operations in each geographic
area.
Of the US sales to unaffiliated customers there were no export
sales.
Sales of the UK operation to unaffiliated customers by
geographical area were as follows:
1997 1996 1995
$000 $000 $000
---- ---- ----
North America 88 1,164 585
Europe 2,041 5,128 4,816
South America 808 2,423 1,983
Other 2,157 1,956 1,757
----- ------ ------
5,094 10,671 9,141
c) Industry
The Company's business and that of A&B have been in a single
industry segment - the research, development, production and
marketing of antimicrobial proteins and dairy ingredients for
various applications. In April 1996, the Company began selling
a salt alternative as a special dietary food that may help in
the dietary management of blood pressure.
F-16
<PAGE>
AMBI, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. RELATED PARTY TRANSACTIONS
Transactions with affiliated companies were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
$000 $000 $000
---- ---- ----
<S> <C> <C> <C>
Sales to subsidiaries of common parent:
Mauri Laboratories Pty. Ltd. (1) - 1,939 2,117
Purchases from subsidiary of common parent:
Mauri Laboratories Pty. Ltd. (1) - 1,430 832
Income from manufacturing on behalf of
associate of parent:
Imperial Biotechnology Ltd. (2) - - 77
Management fees received from subsidiaries
of common parent:
Burns Philp (UK) Plc 37 74 75
Loan interest received from subsidiaries of
common parent:
Burns Philp Inc. - 79 63
</TABLE>
(1) Mauri Laboratories Pty. Ltd. ceased to be an
affiliate on June 14, 1996.
(2) Imperial Biotechnology Ltd., ceased to be an
affiliate on December 12, 1995.
From time to time the Company advances money to affiliated
companies. Interest received on these advances is as shown
above.
In addition, the Company periodically incurs expenditures on
behalf of affiliated companies for which it is reimbursed and
reimburses affiliates for expenditures incurred on its behalf.
The Company paid an affiliate $20,000 during fiscal
year 1995 for rent of office space and facilities.
F-17
<PAGE>
AMBI, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES
The income tax expense consists of:
1997 1996 1995
$000 $000 $000
---- ---- ----
Current 501 291 335
Deferred (309) (6) (81)
---- ---- ----
152 285 254
Income tax expense attributed to pre-tax income differed from the
amounts computed by applying the US federal statutory tax rate to
pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
$000 $000 $000
---- ---- ----
<S> <C> <C> <C>
Computed 'expected' tax expense (2,265) (1,508) 188
Increase/(reduction) in income taxes
resulting from:
Tax losses carried forward/(utilized) 2,398 1,755 86
Lower tax rate on foreign earnings (4) (8) (16)
State and local taxes 11 18 -
Other items 12 28 (4)
----- -- -----
152 285 254
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
$000 $000
---- ----
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards 5494 3,807
Accrued Expenses 251 0
Less valuation allowance (5,745) (3,807))
------- -----
0 0
Deferred tax liability:
Plant and equipment differences between
depreciation and capital allowances - (192)
Pension costs deductible as paid - (153)
Other - (4)
------- -----
(349)
Net deferred tax liability - (349)
</TABLE>
At June 30, 1997, the Company has net operating loss carryforwards for
United States federal income tax purposes of approximately $17,000,000
which are available to offset future United States federal taxable
income, if any, through 2012. Ultimate utilization/availability of such
net operating losses may be significantly curtailed if a significant
change in ownership occurs.
F-18
<PAGE>
AMBI, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES
Pretax income of the Company and its source for the years ended
June 30, 1996, 1995 and 1994 is as follows:
Year Total Foreign Domestic
---- ----- ------- --------
1995 537 783 (246)
1996 (4,434) 727 (5,161)
1997 (6,661) 391 (7,052)
14. COMMITMENTS AND CONTINGENT LIABILITIES
In October 1995, the Company entered into an exclusive license agreement
whereby the Company received a license to sell a patented salt
alternative in the United States. As a result, the Company is required
to make royalty payments quarterly. Accrued royalty payments due as of
June 30, 1997 amounted to $56,000.
The Company has entered into various research and license agreements
with certain universities to supplement the Company's research
activities and to obtain for the Company rights to certain technology.
The agreements generally require the Company to fund the research and to
pay royalties based upon a percentage of product sales.
The Company has consulting agreements with several of its Scientific
Advisory Board members and other consultants. These agreements generally
are for a term of one year and are terminable at the Company's option.
Under operating leases, the Company leases certain office and laboratory
space in the US. This lease expires in the year 2002. Payments under
this lease was approximately $491,000 in 1997, $540,000 in 1996, and
$54,000 in 1995. Future noncancellable minimum payments under this lease
is as follows:
Year $000
---- ----
1998 437
1999 449
2000 449
2001 449
2002 449
------
Total 2,233
15. SUPPLEMENTAL CASH FLOW INFORMATION
1997 1996 1995
$000 $000 $000
---- ---- ----
Interest paid 137 104 2
Taxes paid 196 266 103
F-19
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. PENSION BENEFITS
The Company participates in a defined benefit pension plan of Burns
Philp Inc., an affiliated company, and the plan is called the 'Burns
Philp Inc. Retirement Plan for Non-Bargaining Unit Employees'. This
plan provides retirement benefits based upon years of service, or a
combination of employee compensation and years of service.
Contributions payable to the plan were approximately $67,000 in 1997,
$42,000 in 1996 and $28,000 in 1995.
A&B participated in a defined benefit pension plan of Burns Philp (UK)
plc, an affiliated company called "The Burns Philp (K) plc Pension
Plan'. The funding status of the Burns Philp (UK) Plc Pension Plan
for the A&B employees as of June 30, 1996 is shown below. Since the
sale of A&B was completed December 12, 1996, figures as of June 30,
1997 are not relevant.
1996
$000
----
Actuarial present value of benefit obligations:
Vested benefit obligation (3,932)
Accumulated benefit obligation (4,289)
Projected benefit obligation for service (5,101)
rendered to date
Plan assets at fair value 4,856
Plan assets (less than)/in excess of
projected benefit obligation (245)
Unrecognized net loss 961
Unrecognized net transition asset (304)
Prepaid cost 412
Of the above prepaid costs of $412,000 at June 30, 1996,
$383,000 relates to A&B as determined by actuarial valuation,
and is therefore included in the accounts of the Company.
F-20
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. PENSION BENEFITS (continued)
Net pension cost of the Burns Philp (UK) plc Pension
Plan for 1996 and 1995 included the folowing components:
1996 1995
($000) ($000)
------ ------
Service costs - benefits
earned during the period 326 183
Interest cost on projected
benefit obligation 361 262
Actual return on plan assets (416) (292)
Net amortization and deferral 9 39
Net pension cost 280 192
Of the above net pension costs of $280,000 at June 30, 1996,
$181,000 relates to A&B as determined by actuarial valuation,
and is therefore included in the accounts of the Company. For
fiscal 1995 all of the pension cost relate to A&B. The pension
cost for the period July 1, 1996 through December 12, 1996
(date of sale of A&B) was approximately $88,000. The
components of this pension cost is not available.
Assumptions used in accounting for the pension plan as at June
30, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
% %
---- ----
<S> <C> <C>
Discount rate 8 9
Rates of increase in
compensation levels 7 7
Expected return on assets 10 10
</TABLE>
17. RISKS AND UNCERTAINTIES
The Company buys certain of its inventories from single suppliers.
Management believes that other suppliers could provide similar products
at comparable terms. As a result, management believes a change in
suppliers would not disrupt on-going operations and would not effect
operating results adversely.
18. SUBSEQUENT EVENTS
On August 12, 1997, the Company completed the acquisition of Nutrition
21, a privately-owned San Diego, California-based company engaged in
the development and marketing of proprietary nutrition products and
dietary supplements. Terms of the transaction included the payment by
the Company of $10 million is cash and 500,000 shares of the Company's
common stock. The Company has agreed to make contingent payments, based
upon the achievement of certain sales levels in the next four years,
and to pay royalties in the future on sales of certain patented
products. The acquisition was financed in part by a six month loan of
$3.3 million from State Street Bank bearing an interest rate of prime
plus 1%. As part of the same financing from State Street Bank and
Trust, the Company secured a revolving credit facility of $4.0 million
which matures February 1, 1998 and is renewable for up to 18 months,
at the lender's option. The facility bears an interest rate of prime
plus 1%.
F-21
<PAGE>
AMBI INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share" and
SFAS No. 129, "Disclosure of Information about Capital Structure". SFAS
No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly
held common stock or potential common stock. SFAS No. 128 replaces the
presentation of primary EPS and fully diluted EPS with basic EPS and
diluted EPS. It also requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex
capital structures and requires reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
SFAS No. 129 was issued in connection with SFAS No. 128 and specifies
the required disclosures about capital structure. Both SFAS No. 128
and No. 129 are effective for financial statements for both interim
and annual periods ending after December 31, 1997. It is not expected
that the adoption of either of these statements will have a material
impact on the Company's financial position or operating results.
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMBI INC.
By: /s/ Fredric D. Price
------------------------------
Fredric D. Price, President,
CEO and Director
Dated: September 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of September 26, 1997 by the following
persons on behalf of Registrant and in the capacities indicated.
/s/ Fredric D. Price
------------------------------
Fredric D. Price, President,
CEO and Director
(Principal Financial Officer)
/s/ Audrey T Cross
------------------------------
Audrey T. Cross, Director
/s/ Robert Flynn
------------------------------
Robert Flynn, Director
/s/ Sheldon G. Gilgore
------------------------------
Sheldon G. Gilgore,
Chairman of the Board
/s/ Colin Kop
------------------------------
Colin Kop, Director
/s/ Robert Pollack
------------------------------
Robert E. Pollack, Director
/s/ Peter E. Herring
------------------------------
Peter E. Herring, Controller
(Principal Accounting Officer)
-33-
<PAGE>
EXHIBITS
Except where otherwise indicated, the following exhibits are
incorporated by reference to the correspondingly numbered exhibit in the
Company's Registration Statement on Form S-1 (No. 33-4822):
3.01 Certificate of Incorporation (1)
3.01a Certificate of Amendment to the Certificate of Incorporation (2)
3.01b Certificate of Amendment to the Certificate of Incorporation (3)
3.01c Certificate of Amendment to the Certificate of Incorporation (14)
3.01d Certificate of Amendment to the Certificate of Incorporation (14)
3.02 Amended and Restated By-laws (2)
4.01 Form of Warrant Agreement and Form of Warrant Certificate for
Warrants included in Units (11)
10.01 Form of Incentive Stock Option Plan (11)
10.02 Form of Non-qualified Stock Option Plan (11)
10.02a Form of 1989 Stock Option Plan (1)
10.02b Form of 1991 Stock Option Plan (1)
10.24 Exclusive Option and Collaborative Research Agreement dated
July 1, 1988 between the Company and the University of
Maryland (4)
10.25 License and License Option Agreement dated December 15,
1988 between the Company and Babson Brothers Company (4)
10.28 Agreement between the Company and BP (5)
10.34 Consulting Agreement dated June 29, 1992 between the Company and
Donald A.M. McKay (7)
10.36 Agreement, dated October 6, 1992 between the Company and PHRI (7)
10.37 Agreement for the Purchase and Sale of Stock dated as of
June 30, 1993 by and among the Company and BP (8)
-34-
<PAGE>
10.38 Technology and License Agreement dated as of June 29, 1992
by and among the Company and Fermtec Prochim SpA. (8)
10.43 Supply Agreement dated as of January 1, 1994 by and between the
Astra/Merck Group of Merck & Co., Inc. (9)*
10.44 Development and License Agreement dated as of January 1, 1994
by and between the Astra/Merck Group of Merck & Co., Inc. (9)*
10.47 Employment Agreement dated August 30, 1994 between the Company and
Fredric D. Price (9)
10.48 Lease dated as of February 7, 1995, between the Company and Keren
Limited Partnership (10)
10.49 Share Purchase Agreement dated as of December 12, 1996, by and
among Applied Microbiology, Inc., Aplin & Barrett Limited and
Burns Philp (UK) plc. (12)
10.50 License Agreement dated as of December 12, 1996 between
Licensee Applied Microbiology, Inc. and Licensor Aplin &
Barrett Limited. (12)
10.51 License Agreement dated as of December 12, 1996 between
Licensee Aplin & Barrett Limited and Licensor Applied
Microbiology, Inc. (12)
10.52 Supply Agreement dated as of December 12, 1996 between
Aplin & Barrett Limited and Applied Microbiology, Inc. (12)
10.53 Investors' Rights Agreement dated as of December 12, 1996
between Applied Microbiology, Inc. and Burns Philp Microbiology.
Pty Limited. (12)
10.54 Revolving Loan and Security Agreement dated as of December 12,
1996 between Burns Philp Inc. as Lender and Applied
Microbiology, Inc. as Borrower. (12)
10.55 Stock and Partnership Interest Purchase Agreement dated as of
August 11, 1997, for the purchase of Nutrition 21. (13)
10.56 Revolving Loan and Term Loan Agreement dated as of August 11,
1997 between State Street Bank & Trust Company as Lender and
the Company and Nutrition 21 as Borrowers. (13)
23.01 Consent of KPMG Peat Marwick LLP (14)
27 Financial Data Schedule (14)
- ----------
(1) Incorporated by reference to the Company's Report on Form 10-K for 1991.
-35-
<PAGE>
(2) Incorporated by reference to the Company's Report on Form 8-K dated
September 4, 1992.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-8 dated August 8, 1996, file No. 333-09801.
(4) Incorporated by reference to the Company's Report on Form 10-K for 1988.
(5) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended June 10, 1989.
(6) Incorporated by reference to the Company's Report on Form 10-K for 1993.
(7) Incorporated by reference to the Company's Report on Form 10-K for the
fiscal period January 31, 1992 through August 31, 1992.
(8) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended June 30, 1992.
(9) Incorporated by reference to the Company's Report on Form 10-K for 1994.
(10) Incorporated by reference to the Company's Report on Form 10-K for 1995.
(11) Incorporated by reference to the Company's Registration Statement on Form
S-1 originally filed April 15, 1986, file No. 33-4822.
(12) Incorporated by reference to the Company's Report on Form 8-K dated
December 27, 1996.
(13) Incorporated by reference to the Company's Report on Form 8-K dated August
25, 1997.
(14) Filed herewith.
* Subject to an order by the Securities and Exchange Commission granting
confidential treatment. Specific portions of the document for which confidential
treatment has been granted have been blacked out. Such portions have been filed
separately with the Commission pursuant to the application for confidential
treatment.
-36-
<PAGE>
Exhibit 3.01c Certificate of Amendment of the Certificate of Incorporation
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
APPLIED MICROBIOLOGY, INC.
Under Section 805 of the Business Corporation Law
* * * * *
WE, THE UNDERSIGNED, Fredric D. Price and Benjamin Sporn, being
respectively the President and Chief Executive Officer and the Secretary of
Applied Microbiology, Inc. hereby certify:
1. The name of the corporation is APPLIED MICROBIOLOGY, INC.
2. The certificate of incorporation of said corporation was filed with
the Department of State on June 29, 1983. The name under which the corporation
was formed was APPLIED MICRO BIOLOGY, INC.
3. (a) The certificate of incorporation is amended to change
the name of the corporation from Applied Microbiology, Inc. to AMBI Inc.
(b) To effect the foregoing, Article FIRST is amended to read
as follows: "The name of the corporation is AMBI Inc."
4. The amendment to the Certificate of Incorporation was authorized by
vote of the holders of a majority of all outstanding shares entitled to vote at
a meeting held on the 17th day of December, 1996, subsequent to the affirmative
vote of the Board of Directors.
IN WITNESS WHEREOF, we have signed this certificate this 18th day of
December, 1996 and we affirm the statements contained therein as true under
penalties of perjury.
/s/ Fredric D. Price
-----------------------------------
Fredric D. Price
President and Chief Executive Officer
/s/ Benjamin Sporn
-----------------------------------
Benjamin Sporn, Secretary
<PAGE>
Exhibit 3.01d Certificate of Amendment of the Certificate of Incorporation
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
AMBI INC.
Under Section 805 of the Business Corporation Law
* * * * *
WE, THE UNDERSIGNED, Fredric D. Price and Benjamin Sporn, being
respectively the President and Chief Executive Officer and the Secretary of
AMBI Inc. hereby certify:
1. The name of the corporation is AMBI Inc.
2. The certificate of incorporation of said corporation was filed with
the Department of State on June 29, 1983. The name under which the corporation
was formed was APPLIED MICRO BIOLOGY, INC.
3. (a) The certificate of incorporation is amended to increase
the aggregate number of shares of Common Stock, which the corporation shall have
the authority to issue from 40,000,000 to 65,000,000.
(b) To effect the foregoing, paragraph (a) of Article FOURTH,
relating to the number of shares the corporation shall have the authority to
issue shall be amended to read in its entirety as follows:
"(a) The aggregate number of shares which the Corporation
shall have the authority to issue is 70,000,000 which are
divided into 65,000,000 shares of Common Stock of a par value
of $.005 per share and 5,000,000 shares of Preferred Stock of
a par value of $.01 per share."
4. The amendment to the Certificate of Incorporation was authorized by
vote of the holders of a majority of all outstanding shares entitled to vote at
a meeting held on the 15th day of July, 1997, and by the affirmative vote of the
Board of Directors.
IN WITNESS WHEREOF, we have signed this certificate this 23rd day of
July, 1997 and we affirm the statements contained therein as true under
penalties of perjury.
/s/ Fredric D. Price
-----------------------------------
Fredric D. Price
President and Chief Executive Officer
/s/ Benjamin Sporn
-----------------------------------
Benjamin Sporn, Secretary
<PAGE>
Exhibit 23.01 Consent of KPMG Peat Marwick LLP
The Board of Directors
AMBI Inc.
We consent to incorporation by reference in the Registration Statement No.
33-73312 on Form S-3, Registration Statement No. 333-9801 on Form S-3,
Registration Statement No. 33-4822 on Form S-3, Registration Statement No.
333-2507 on Form S-3, Registration Statement No. 333-29829 on Form S-3, and
Registration Statement No 333-35897 on Form S-3 of AMBI Inc. of our report
dated July 25, 1997, relating to the consolidated balance sheets of AMBI
Inc. and subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended June 30, 1997, which
report appears in the June 30, 1997 annual report on Form 10-K of AMBI Inc.
New York, New York KPMG Peat Marwick LLP
September 26, 1997
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 8615
<SECURITIES> 0
<RECEIVABLES> 494
<ALLOWANCES> 104
<INVENTORY> 606
<CURRENT-ASSETS> 10015
<PP&E> 1464
<DEPRECIATION> 382
<TOTAL-ASSETS> 12754
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<BONDS> 2184
<COMMON> 0
0
94
<OTHER-SE> 7516
<TOTAL-LIABILITY-AND-EQUITY> 12754
<SALES> 10356
<TOTAL-REVENUES> 11280
<CGS> 4363
<TOTAL-COSTS> 26880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> (6661)
<INCOME-TAX> 152
<INCOME-CONTINUING> (6813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6813)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
