<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMBI INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
AMBI INC.
NOTICE OF AN ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of
AMBI Inc. (the "Company") will be held at The Landmark at Eastview, 771 Old
Saw Mill River Road, Tarrytown, New York on March 31, 1998 at 10 A.M. for the
following purposes as set forth in the accompanying Proxy Statement:
1. To elect six directors to serve for a term of one year;
2. To ratify the selection and appointment by the Company's
Board of Directors of KPMG Peat Marwick, independent
certified public accountants, as auditors for the Company
for the fiscal year ending June 30, 1998; and
3. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Holders of record of the Company's Common Stock at the close of
business on February 25, 1998 will be entitled to vote at the meeting.
By Order of the Board of Directors
BENJAMIN T. SPORN,
Secretary
Dated: March 2, 1998
Whether or not you plan to attend the meeting, please date and sign
the enclosed proxy and return it in the envelope provided. Any person giving a
proxy has the power to revoke it at any time prior to its exercise and if
present at the meeting may withdraw it and vote in person. Attendance at the
meeting is limited to shareholders, their proxies and invited guests of the
Company.
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<PAGE>
AMBI INC.
771 Old Saw Mill River Road
Tarrytown, New York 10591
--------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 31, 1998
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of proxies to be voted at the Annual Meeting of
Shareholders of the Company to be held at The Landmark at Eastview, 771 Old
Saw Mill River Road, Tarrytown, New York at 10 A.M. on March 31, 1998, and at
any adjournments thereof. The shares represented by proxies that are received
in the enclosed form and properly filled out will be voted in accordance with
the specifications made thereon. In the absence of specific instructions,
proxies will be voted in accordance with the recommendations made herein with
respect to the proposals described in this Proxy Statement. Proxies may be
revoked by shareholders by written notice received by the Secretary of the
Company at the address set forth above, at any time prior to the exercise
thereof. Shareholders of record at the close of business on February 25, 1998
are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. As of February 25, 1998 the Company's voting securities
outstanding totaled 20,903,905 shares of Common Stock.
ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed form of
proxy, unless such proxy specifies otherwise, to nominate and to vote the
shares represented by such proxy for the election of the nominees listed below
to hold office until the next Annual Meeting of Shareholders or until their
respective successors shall have been duly elected and qualified. The Company
has no reason to believe that any of the nominees will become unavailable to
serve as directors for any reason before the Annual Meeting. However, in the
event that any of them shall become unavailable, the person designated as
proxy reserves the right to substitute another person of his choice when
voting at the Annual Meeting. Certain information regarding each nominee is
set forth in the table and text below. The number of shares, if any,
beneficially owned by each nominee is listed below under "Principal
Shareholders and Share Ownership of Directors and Officers."
The directors serve for a term of one year and until their successors
are duly elected and qualified. The Board of Directors held seven meetings in
the fiscal year ended June 30, 1997. All directors attended all meetings of
the Board during the fiscal year, except for Audrey Cross, PhD, who attended
five meetings. Douglas Cotter, PhD resigned from the Board on July 31, 1996
and Robert E. Flynn was elected to the Board on October 15, 1996. John Friend,
PhD, resigned from the Board on December 18, 1997. Sheldon G. Gilgore, MD
resigned from the office of Chairman of the Board on October 9, 1997, and
Robert E. Flynn was elected Chairman of the Board on October 9, 1997. Marvin
Moser, MD was elected to the Board effective October 13, 1997. Colin Kop
resigned from the Board on December 10, 1997. The vacancy created by Mr. Kop's
resignation has not been filled to date. The Board can elect a new director to
fill this vacancy at any time. See Certain Relationships and Related
Transactions. Dr. Cross, Mr. Flynn, and Dr. Pollack each received a quarterly
director's fee of $1,800 and Dr. Gilgore received a quarterly director's fee
of $3,600, and $500 for each meeting of the Board attended in person, $250 for
each meeting of the Board attended telephonically, and each received options
to acquire 10,000 shares of Common Stock. The Company has an Audit Committee
of the Board which consists of Mr. Flynn and a replacement for Mr. Kop to
2
<PAGE>
be appointed. There are no arrangements as to compensation of members of this
committee in such capacity. The Audit Committee held one meeting during the
fiscal year ended June 30, 1997. The Company has a Compensation Committee of
the Board which was established in March 1995 and currently consists of Dr.
Cross, Mr. Flynn and Dr. Pollack. There are no arrangements as to compensation
of members of this committee in such capacity. The Compensation Committee held
one meeting during the fiscal year ended June 30, 1997. Officers serve at the
pleasure of the Board of Directors. There are no family relationships among
directors, nominees or executive officers, nor are there any arrangements or
understandings between any such director or nominee and any other person
pursuant to which any director or nominee was selected as such other than as
described below.
Under a Purchase Agreement dated June 30, 1992, the Company and Burns
Philp & Company Limited (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 payment to the Company of 2.42
million shares of the Company's Common Stock held by BP. 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 was
reduced from two members to one member. Colin Kop was serving as the Director
designated by BP. Mr. Kop resigned from the Board on December 10, 1997, and BP
has not designated a replacement. See also Certain Relationships and Related
Transactions.
All of the nominees are currently serving as directors. The following
table sets forth the name, age and term of office as director of each nominee
for election as director and his or her present position(s) with the Company
and other principal affiliations:
Nominee for Election Director Since Position(s)
- - -------------------- -------------- -----------
Fredric D. Price (52) 1994 President and Chief Executive
Officer
Robert E. Flynn (64) 1996 Chairman of the Board
Sheldon G. Gilgore, MD (66) 1995 Former Chairman of the Board
Audrey T. Cross, PhD (52) 1995 Associate Clinical Professor,
School of Public Health, Columbia
University
Marvin Moser, MD (74) 1997 Clinical Professor of Medicine
Yale University School of Medicine
Robert E. Pollack, PhD (57) 1995 Professor of Biological Science,
Columbia University
3
<PAGE>
Fredric Price has been President, Chief Executive Officer and a
Director of the Company since September 1994. 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 on the 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.
Robert E. Flynn was elected a Director of the Company in October 1996
and Chairman of the Board in October 1997. Mr. Flynn 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.
Sheldon G. Gilgore, MD was elected a Director of the Company in
October 1995, and served as Chairman of the Board of Directors of the Company
from October 1995 to October 1997. 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, PhD was elected a Director of the Company in January
1995. Dr. Cross has been Associate Clinical Professor at the Institute of
Human Nutrition in 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 BS in dietetics, a Master of Public
Health in nutrition and a PhD from the University of California at Berkeley
and a JD from the Hastings College of Law at the University of California at
San Francisco.
Marvin Moser, MD was elected a Director of the Company in October
1997. Dr. Moser is Clinical Professor of Medicine at Yale University School of
Medicine 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 BA from Cornell
University and an MD from Downstate University College of Medicine.
Robert E. Pollack, PhD was elected a Director of the Company in
January 1995. Dr.
4
<PAGE>
Pollack has been a Professor of Biological Sciences at Columbia University
since 1978 and from 1982-1989 he was, in addition, Dean of Columbia College.
Previously, he was Professor of Microbiology at the State University of New
York School of Medicine at Stony Brook, New York, 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 NYU School of
Medicine in New York. 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 BA in physics from Columbia University
and a PhD in biology from Brandeis University.
Executive Officers
The following table sets forth the name, age and position of each executive
officer of the Company:
Name Position(s)
---- -----------
Fredric D. Price (52) President, Chief Executive Officer and
Director
Benjamin T. Sporn (59) Senior Vice President, General Counsel
and Secretary
Gerald A. Shapiro (51) Vice President, Finance and
Administration, and Chief Financial
Officer
Jonathan de la Harpe, PhD (52) Vice President, Technical Operations
Victor Moreno, PhD (60) Vice President, and President of
Nutrition 21
Solomon L. Mowshowitz, PhD (55) Vice President, Research and Development
----------------------------
Officers of the Company serve at the pleasure of the Board of
Directors subject to any contracts of employment. See the biographical
descriptions under nominees for election as directors for additional
information on Mr. Price.
Benjamin T. Sporn was appointed Senior Vice President, General
Counsel and Secretary of the Company in February 1998. Mr. Sporn has served as
Vice President ,Legal of 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 Creative
Technologies Corp. and Micel Corp., publicly traded corporations. Mr. Sporn
was a director of the Company from 1986 until 1994. He received a BSE degree
from Rensselaer Polytechnic Institute and a JD degree from American
University.
Gerald A. Shapiro was appointed Vice President, Finance and
Administration & Chief Financial Officer of the Company in March 1998. From
1996 to 1998, Mr. Shapiro was Managing Director in the Corporate Finance
practice at KPMG Peat Marwick, LLP, specializing in mergers and acquisition
activities . From 1995 to 1996, he was a Vice President in the Equity Capital
Group of GE Capital Services and also served as Chief Operating Officer and
Director of Shoe-Town, Inc., a GE Capital unit. From 1991 to 1995, Mr. Shapiro
was a Managing Director in the healthcare investment banking group at Furman
Selz LLC, concentrating on pharmaceutical and medical devices. Prior to that,
he held senior executive positions at Equitable Capital Management Corporation
and ITT Corporation with primary focus
5
<PAGE>
on mergers and acquisitions. Mr. Shapiro received a BSEE from City College of
New York and an MBA from the Columbia University Graduate School of Business.
Jonathan de la Harpe, PhD, was appointed Vice President, Technical
Operations, of the Company in February 1998. Dr. de la Harpe has been on the
staff at AMBI since 1989, holding positions as Group Leader, Analytical and
Biochemistry; Program Manager; Senior Manager, Product Development; and
Director of Technical Operations, Pharmaceutical Products. In the years 1981
to 1988, Dr. de la Harpe held positions as Post-doctoral Fellow and later
Research Associate at The Rockefeller University, and as Assistant Professor
at Cornell University Medical College. During this period, Dr. de la Harpe
also held positions as a Visiting Scientist at Genentech Inc., and Scientist
at the Friedrich Miescher Institute in Basel, Switzerland. Dr. de la Harpe
holds a BSc (Hons) and PhD from the University of Cape Town, South Africa.
Victor Moreno, PhD, was appointed Vice President of the Company in
February 1998. Dr. Moreno is currently and has been for the four years prior,
President of Nutrition 21. From 1991 to 1993, he was Vice President
responsible for worldwide research and development for Mead Johnson
Nutritional Group, a division of Bristol Myers Squibb. From 1969 to 1991, He
held senior management positions with Proctor & Gamble, Richardson Vicks,
Nestle and General Foods. Dr. Moreno received a BS and a PhD in Food Science
and Biochemistry from Cornell University.
Solomon L. Mowshowitz, PhD, 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 PhD in biochemistry from the Albert Einstein
College of Medicine in New York.
6
<PAGE>
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 four 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 $100,000):
SUMMARY COMPENSATION TABLE(1)(2)
Annual Compensation
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
| Name and Principal Position | Annual Compensation | Long-Term Compensation |
| (a) | (b) (c) (d) | (e) |
| |-----------------------------------------------------------|------------------------|
| | Period | Salary ($) | Bonus ($) | Securities Underlying |
| | | | | Options/SARs (#) |
|---------------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C>
| Fredric Price, President, | 9/12/94 -6/30/95 | 210,000 | 15,000 | 500,000 |
| Chief 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 | 35,000 |
|---------------------------------------------------------------------------------------------------------------------|
| Peter Herring, Controller (4) | 1/2/96 - 6/30/96 | 64,500 | | 40,000 |
| |-------------------|-------------------|-------------------|------------------------|
| | 7/1/96 - 6/30/97 | 135,500 | | 15,000 |
|---------------------------------------------------------------------------------------------------------------------|
| Solomon Mowshowitz, Vice | 1/15/96 - 6/30/96 | 62,308 | | 46,000 |
| President, Research & | | | | |
| Development | | | | |
| |-------------------|-------------------|-------------------|------------------------|
| | 7/1/96 - 6/30/97 | 140,000 | | 15,000 |
|---------------------------------------------------------------------------------------------------------------------|
| Benjamin T. Sporn, Vice | 7/1/94 - 6/30/95 | 129,000 | | |
| President, Legal | | | | |
| |-------------------|-------------------|-------------------|------------------------|
| | 7/1/95 - 6/30/96 | 120,000 | | |
| |-------------------|-------------------|-------------------|------------------------|
| | 7/1/96 - 6/30/97 | 127,500 | 5,000 | 42,500 |
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
(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
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<PAGE>
not applicable to the Company.
(3) Mr. Price became the Company's Chief Executive Officer on September 12,
1994.
(4) Mr. Herring's employment with the Company terminated in February 1998.
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.
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.
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<PAGE>
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.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
| | Potential Realizable Value |
| Individual Grants | At Assumed Annual Rates Of |
| | Stock Price Appreciation For |
| | Option Term |
|-----------------------------------------------------------------------------------------|-------------------------------|
| | Number Of | Percent of | | | | |
| | Securities | Total | Exercise | | | |
| | Underlying | Options | Of Base | | | |
| Name | Options | Granted To | Price | Expiration | 5% (S) | 10% (S) |
| | Granted (#) | Employees In | ($/Sh) | Date | | |
| | | Fiscal Year | | | | |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) |
|-------------------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C> <C> <C>
| | | | | | | |
| A. Peter | 5,000 | | $5.625 | | | |
| Herring | 10,000 | 6.34 | $2.50 | (1) | $25,551.79 | $61,790.30 |
| | | | | | | |
|-------------------------------------------------------------------------------------------------------------------------|
| | | | | | | |
| B. Solomon | 5,000 | | $5.625 | | | |
| Mowshowitz | 10,000 | 6.34 | $2.50 | (1) | $25,551.79 | $61,790.30 |
| | | | | | | |
|-------------------------------------------------------------------------------------------------------------------------|
| | | | | | | |
| C. Fredric | | | | | | |
| Price | 35,000 | 14.83 | $5.1875 | (1) | $87,327.00 | $211,177.42 |
| | | | | | | |
|-------------------------------------------------------------------------------------------------------------------------|
| | | | | | | |
| D. Benjamin | 7,500 | | $5.625 | | | |
| Sporn | 35,000 | 18.01 | $2.50 | (1) | $62,376.43 | $150,841.01 |
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Vesting 20% per year; expiration the earlier of 5 years from vesting or
89 days after termination of employment.
The following table sets forth information with regard to aggregated
option values at June 30, 1997 of options granted (i) to the Company's Chief
Executive Officer, and (ii) to the highest paid employees of the Company whose
cash compensation exceeded $100,000 per year in such year.
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Individual Grants
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
| | | | | |
| (a) | (b) | (c) | (d) | (e) |
| | | | | |
| Name | Shares | Value | Number of Unexercised | Value of Unexercised In-the |
| | Acquired on | realized ($) | Options at FY-End (#) | Money Options at FY-End |
| | Exercise (#) | | | |
| | | | Exercisable Unexercisable | Exercisable Unexercisable |
| | | | | |
|--------------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C> <C> <C>
| | | | | | | |
| 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>
10
<PAGE>
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.
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
final average
earnings 15 20 25 30 35
$ 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
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.
11
<PAGE>
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.
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on a
hypothetical investment made on June 30, 1992 through June 30, 1997 (assuming
reinvestment of dividends) in: (a) the Company's Common Stock; (b) all NASDAQ
stocks and (c) all pharmaceutical companies listed on NASDAQ. Pharmaceutical
companies represent the industry grouping for which information was readily
available which is most comparable to the Company. The graph shows how a $100
investment would increase or decrease in value over time, based on dividends
(stock or cash) and increases or decreases in the market price of the stock
and each of the indexes.
[GRAPH]
Date AMBI NASDAQ NASDAQ Pharmaceutical
- - ---- ---- ------ ---------------------
6/30/92 100 100 100
6/30/93 100 126.181 86.929
6/30/94 73.239 126.814 72.715
6/30/95 33.803 168.165 96.519
6/28/96 118.31 214.603 142.128
6/30/97 53.521 260.838 144.601
Compensation Committee Interlocks and Insider Participation
The Board of Directors determines executive compensation taking into
consideration recommendations of the Compensation Committee. No member of the
Company's Board of Directors is an executive officer of a company whose
compensation committee or board of directors includes an executive officer of
the Company.
Board of Directors Report on Executive Compensation
The process of determining the compensation of the executive officers
of the Company includes, among other things, evaluations of its executive
officers performance against certain objective and subjective assessments and
takes into consideration the performance of Company against planned
objectives. No material salary increases nor stock options were approved for
the fiscal year ended June 30, 1997.
13
<PAGE>
Principal Shareholders and Share Ownership of Directors and Officers.
The following table sets forth, as of March 2, 1998, 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 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 1.59
Sheldon G. Gilgore (3) 125,000 *
Audrey T. Cross (4) 34,000 *
259 Sunset Avenue
Englewood, NJ 07631
Robert E. Flynn (5) 72,000 *
Jonathan de la Harpe, PhD (5) 25,000 *
Marvin Moser (5) 35,000 *
Victor Moreno, PhD 6,000 *
Solomon L. Mowshowitz 71,000 *
Robert E. Pollack (5) 40,000 *
813B Sherman Fairchild
Columbia University
New York, NY 10027
Gerald A. Shapiro 0 --
Benjamin Sporn (6) 112,625 *
Burns Philp & Company 7,763,837 37.14
Limited(7)
7 Bridge Street
Sydney, NSW 2000
Australia
All Officers and Directors 811,276 3.80
as a Group (10 persons)
(2)(3)(4)(5) and(6)
- - -------------------------
* Less than 1%
(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
14
<PAGE>
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) Includes 70,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(6) Includes 83,500 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(7) Consists of shares owned by subsidiaries.
Certain Relationships and Related Transactions
From 1989 through 1992, the Company issued an aggregate of 10,648,837
shares of Common Stock to BP in connection with various 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 an additional
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 hereof, 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.
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
15
<PAGE>
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 served as the Director designated by
BP until his resignation on December 10, 1997. The vacancy created by Mr.
Kop's resignation has not been filled to date. The Board can elect a new
director to fill this vacancy at any time. The amount of consideration for the
sale was arrived at through arms-length negotiation and a fairness opinion was
obtained.
Ratification Of Appointment Of Independent Accountants
Subject to the approval by the shareholders, the Board of Directors has
appointed KPMG Peat Marwick as the Company's independent public accountants to
audit its financial statements for the fiscal year ending June 30, 1998. KPMG
Peat Marwick also audited the Company's financial statements since the fiscal
years ended June 30, 1993. It is expected that a representative of KPMG Peat
Marwick will be present at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK AS INDEPENDENT ACCOUNTANTS FOR FISCAL 1998.
Vote Required
Under New York law, the affirmative vote of a majority of the votes
cast at the Annual Meeting is required ratify the appointment of the
independent accountants. The affirmative vote of a plurality of the votes cast
at the Annual Meeting is required to elect directors.
Expense Of Solicitation
The cost of soliciting proxies, which also includes the preparation,
printing and mailing of this Proxy Statement, will be borne by the Company.
Solicitation will be made by the Company primarily through the mail, but
regular employees of the Company may solicit proxies personally, by telephone
or telegram. The Company will request brokers and nominees to obtain voting
instructions of beneficial owners of stock registered in their names and will
reimburse them for any expenses incurred in connection therewith.
16
<PAGE>
Proposals Of Shareholders
Shareholders of the Company who intend to present a proposal for
action at the 1999 Annual Meeting of Shareholders of the Company, must notify
the Company's management of such intention by notice received at the Company's
principal executive offices not later than November 3,, 1998 for such proposal
to be included in the Company's proxy statement and form of proxy relating to
such Meeting.
Financial Statements
The Company's Annual Report to Shareholders for the year ended June
30, 1997 and Form 10-Q for the quarter ended December 31, 1997 are being
delivered with this Proxy Statement to the Company's shareholders.
Other Matters
The Board of Directors knows of no matters that are expected to be
presented for consideration at the Annual Meeting which are not described
herein. However, if other matters properly come before the meeting, it is
intended that the person named in the accompanying proxy will vote thereon in
accordance with his best judgment.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS IT WILL SAVE
THE EXPENSE OF FURTHER MAILINGS.
Dated: Tarrytown, New York
March 2, 1998
By Order of the Board of Directors
BENJAMIN T. SPORN,
Secretary
17
<PAGE>
AMBI INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
March 31, 1998 10 a.m.
The undersigned hereby appoints Fredric D. Price proxy, with full
power of substitution and revocation, to vote on behalf of the undersigned all
shares of Common Stock of AMBI Inc. which the undersigned is entitled to vote
at the Annual Meeting of Shareholders to be held March 31, 1998 or any
adjournments thereof.
1. ELECTION OF DIRECTORS
FOR all the nominees listed below
(except as marked to the contrary below) [ ]
WITHHOLD AUTHORITY
To vote for all nominees listed below [ ]
(INSTRUCTION: To WITHHOLD authority to vote for any individual
nominee, mark the box next to the nominee's name below.)
Audrey T. Cross [ ]
Robert E. Flynn [ ]
Sheldon G. Gilgore [ ]
Marvin Moser [ ]
Fredric D. Price [ ]
Robert E. Pollack [ ]
The Board of Directors recommends a vote FOR the following:
2. RATIFICATION OF APPOINTMENT OF KPMG PEAT MARWICK AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournment(s)
thereof.
(Continued and to be signed on reverse side)
18
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED TO ELECT MS. CROSS AND MESSRS. FLYNN, GILGORE, MOSER, POLLACK AND PRICE
AS DIRECTORS, AND TO APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK AS THE
COMPANY'S AUDITORS FOR THE FISCAL YEAR 1998.
Dated:
------------------------
---------------------------------------
Signature
---------------------------------------
Signature if held jointly
(Please sign exactly as ownership
appears on this proxy. Where stock is
held by joint tenants, both should
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.)
Please mark, date, sign and
return this Proxy in the enclosed envelope.
19
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
10-Q
For Quarter Ended: December 31, 1997
Commission File Number 0-14983
AMBI INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2653613
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
771 Old Saw Mill River Road, Tarrytown, New York 10591
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 347-5767
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.005 20,903,905 shares as of February 2, 1998
- - ----------------------------- ----------------------------------------
1
<PAGE>
AMBI INC. & SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION PAGE
- - ------ --------------------- ----
Item 1 Financial Statements
Condensed Consolidated Balance
Sheets at December 31, 1997 3
and June 30, 1997
Condensed Consolidated Statements of
Operations for the three months and
six months ended December 31, 1997 5
and December 31, 1996
Condensed Consolidated Statement of
Changes in Stockholders' Equity 6
for the six months ended
December 31, 1997
Condensed Consolidated Statements of
Cash Flows for the six months
ended December 31, 1997 and 7
December 31, 1996
Notes to Condensed Consolidated
Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of 15
Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 19
2
<PAGE>
AMBI INC. & SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 June 30
1997 1997
(Unaudited) (Note)
$'000 $'000
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 507 8,615
Trade accounts receivable less allowance for
doubtful accounts of $267,000 at December 31, 1997
and $104,000 at June 30, 1997 3,055 390
Inventories 1,588 606
Prepayments and other current assets 738 404
---------- ----------
Total current assets 5,888 10,015
Property, plant and equipment at cost less
accumulated depreciation of $513,000 at December
31, 1997 and $382,000 at June 30, 1997 1,024 1,082
Patent costs, licensed technology and other
intangible assets at cost less accumulated
amortization of $1,356,000 at December 31, 1997 9,422 1,584
and $862,000 at June 30, 1997
Goodwill at cost less accumulated amortization of
$43,000 at December 31, 1997 and $0 at June 30,
1997 2,108
Other assets 295 73
---------- ----------
TOTAL ASSETS 18,737 12,754
========== ==========
</TABLE>
Note: The Condensed Consolidated Balance Sheet as of June 30, 1997 has been
derived from the audited consolidated financial statements at that
date.
See notes to condensed consolidated financial statements
3
<PAGE>
AMBI INC. & SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
December 31 June 30
1997 1997
(Unaudited) (Note)
$'000 $'000
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt and lease obligation 1,084 156
Accounts payable 734 1,283
Accrued expenses 1,570 1,181
Preferred dividends payable 480 340
Contingent payments payable - Nutrition 21 acquisition 575
------------ ------------
Total current liabilities 4,443 2,960
Long term debt and lease obligation, less current portion 3,949 2,184
Revolving line of credit facility 1,092
Accrued royalties 301
------------ ------------
TOTAL LIABILITIES 9,785 5,144
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, authorized 5,000,000:
Series C convertible preferred, 222 shares
outstanding at December 31 and June 30 respectively
(aggregate liquidation value Series C $2,610,355) * *
Series D convertible preferred, 45,000 shares issued and
22,600 shares outstanding at December 31 and 45,000
shares issued and outstanding at June 30
(aggregate liquidation value Series D $2,348,047) * *
Common stock, $0.005 par value, authorized
65,000,000 shares. Issued and outstanding 20,898,297
at December 31 and 18,783,342 at June 30 104 94
Additional paid-in capital 54,055 51,416
Accumulated deficit (45,207) (43,900)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,952 7,610
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 18,737 12,754
============ ============
</TABLE>
*Value less than $500
Note: The Condensed Consolidated Balance Sheet as of June 30, 1997 has been
derived from the audited consolidated financial statements at that
date.
See notes to condensed consolidated financial statements
4
<PAGE>
AMBI INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
1997 1996 1997 1996
$'000 $'000 $'000 $'000
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues 5,789 4,199 9,032 8,565
Cost of goods sold (695) (1,164) (1,350) (3,653)
------ ------ ------ ------
GROSS PROFIT 5,094 3,035 7,682 4,912
Marketing and sales expenses (1,600) (2,850) (3,047) (6,006)
Research and development expenses (1,067) (1,112) (1,562) (2,512)
General and administrative expenses (1,316) (1,552) (2,559) (3,001)
Depreciation and amortization (485) (241) (625) (483)
------ ------ ------ ------
OPERATING INCOME/(LOSS) 626 (2,720) (111) (7,090)
Interest income 15 42 59 109
Interest expense (161) (50) (185) (87)
Gain on sale of Aplin & Barrett 9,683 9,683
------ ------ ------ ------
INCOME/(LOSS) BEFORE TAX EXPENSE 480 6,955 (237) 2,615
Income tax expense (50) (96) (57) (141)
------ ------ ------ ------
NET INCOME/(LOSS) 430 6,859 (294) 2,474
====== ====== ====== ======
EARNINGS/(LOSS) PER SHARE
- - -Basic $ 0.00 $ 0.33 $(0.04) $ 0.11
- - -Diluted $ 0.00 $ 0.32 $(0.04) $ 0.11
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
AMBI INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Additional Accumulated
Stock Paid In Deficit
Capital
$000 $000 $000
------ ------ -------
<S> <C> <C> <C>
Balance at June 30, 1997 94 51,416 (43,900)
Common stock issued in connection with the
acquisition of Nutrition 21 3 1,772
Conversion of preferred stock 7 71
Conversion discount on convertible preferred stock 796 (796)
Preferred stock dividends (217)
Net loss for the period (294)
------ ------ -------
Balance at December 31, 1997 104 54,055 (45,207)
====== ====== =======
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
AMBI INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31
1997 1996
$'000 $'000
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net (loss)/income (294) 2,474
Adjustments to reconcile net (loss)/income
to net cash used in operating activities:
Depreciation and amortization 625 483
Gain on Sale of Aplin & Barrett (9,683)
Other non-cash items 65
Changes in assets and liabilities, net of effects
from the acquisition of Nutrition 21 and the sale
of Aplin & Barrett:
(Increase) in trade accounts receivable (58) (635)
(Increase)/decrease in inventories (526) 275
(Increase) in other current assets (257) (209)
(Decrease) in taxes payable (254)
(Decrease)/increase in accounts payable and accrued expenses (617) 1,147
Increase in accrued royalties 301
Increase in other liabilities 189
------- -------
Net cash (used in) operating activities (826) (6,148)
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (39) (754)
Patent costs (328) (121)
Increase in other assets (201)
Payment for Nutrition 21 and related acquisition costs (10,499)
Proceeds from the sale of Aplin & Barrett 8,000
------- -------
Net cash (used in)/provided by investing activities (11,067) 7,125
------- -------
Cash flows from financing activities:
Term loan borrowings 3,300
Revolving line of credit borrowings 1,092
Term loan repayments (500)
Capital lease obligation repayments (107) (1,103)
Capital lease proceeds 328
Proceeds from issuance of common stock 294
------- -------
Net cash provided by/(used in) financing activities 3,785 (481)
------- -------
Effect of exchange rate movement (10)
Net (decrease)/ increase in cash and cash equivalents (8,108) 486
Cash and cash equivalents at beginning of period 8,615 8,431
------- -------
Cash and cash equivalents at end of period 507 8,917
======= =======
Supplementary disclosure of cash flow information:
Interest paid 83 62
Tax paid 7
</TABLE>
On August 11, 1997 the Company acquired the net assets of Nutrition 21 in
exchange for $10,000,000 in cash and 500,000 shares of the Company's common
stock. In connection with the acquisition; liabilities were assumed as
follows:
Fair value of assets acquired $11,644
Cash purchase price 10,000
Stock issued 1,187
-------
Liabilities assumed $457
=======
7
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
Note A Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
statement reporting and in accordance with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the six month period ended
December 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending June 30,
1998. For further information, refer to the consolidated
financial statements and notes thereto, included in the
Company's annual report on Form 10-K as amended for the year
ended June 30, 1997.
Note B Acquisition of Nutrition 21
On August 11, 1997, the Company acquired the entire
beneficial interest in Nutrition 21 ("N21"), a limited
partnership, by way of the acquisition of Selene Systems,
Inc. ("Selene"), which was the general partner of N21, J.
Bie Enterprises, Inc. ("J. Bie"), which was a limited
partner of N21, and the limited partnership interests owned
by all other limited partners of N21, pursuant to a Purchase
Agreement. The Company retained the former chief executive
officer of N21 as a consultant.
N21 is engaged in the business of developing, producing and
marketing proprietary nutrition products and dietary
supplements. N21 has its products manufactured and
formulated to its specifications by contract manufacturers
as bulk raw materials. N21 then sells the raw materials to
customers who incorporate them into over nine hundred
finished products such as vitamin/mineral formulas, dietary
supplements, baked goods, beverages and other products.
These products are sold by customers under a variety of
brands throughout the world through natural/health food
stores, supermarkets, drug stores and direct mail catalogs.
Currently N21's primary product is chromium picolinate,
which is marketed under the registered trademark "Chromax."
N21 has an exclusive license from the United States
Department of Agriculture ("USDA") for the duration of a
patent which covers the composition of chromium picolinate
and its uses. This patent expires on August 8, 2000. The
USDA license grants N21 the exclusive right to manufacture,
use, and sell chromium picolinate in the United States. N21
also owns U.S. Patents expiring in 2009, relating to
chromium picolinate treatments for reducing hyperglycemia
and stabilizing the level of serum glucose, for preventing
undesirable high levels of blood serum lipids, and for
increasing lean body mass and reducing body fat, and other
patents relating to, among other things, magnesium taurate
treatments of cardiac conditions.
The purchase price for the acquisition was $10,000,000 in
cash plus 500,000 restricted shares of common stock of the
Company. The Purchase Agreement also provides for annual
contingent payments for each of the next four years of $2.5
million adjusted for the achievement of certain sales
levels, and royalties of 2.5% to 5.0% on net sales of
products recommended for certain patented uses. These
contingent payments, which will be made to former partners
of N21, will be recorded as an addition to the purchase
price as the amounts are earned and amortized over the
remaining life of the acquired assets. Based on sales
through December 31, 1997
8
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
a contingent payment of $575,000 has been accrued. As of
December 31, 1997 no royalty payments were due. The
acquisition was accounted for under the purchase method. As
such, as of December 31, 1997 the Company has recorded
approximately $2,150,000 of goodwill and $7,963,000 of other
intangible assets, consisting primarily of patents and
trademarks, in connection with the acquisition. The Company
is amortizing the goodwill over fifteen years and amortizing
the other intangible assets over their useful economic
lives, which range from three to fifteen years. During the
six months ended December 31, 1997 the Company recorded
approximately $422,000 in amortization expense related to
the goodwill and other intangible assets described above.
Approximately $3,300,000 of the purchase price was provided
as a term loan pursuant to a Revolving Credit and Term Loan
Agreement ("Loan Agreement") with State Street Bank and
Trust Company ("State Street"). The loans earned interest at
the bank's prime rate plus one percent and were due February
1, 1998. However, on December 31, 1997 the Company
refinanced its loans with State Street (See Note F).
Approximately $6,700,000 of the purchase price was provided
from internal working capital.
To replace a prior royalty agreement with certain
individuals who assisted the prior owners of N21 in the
development of chromium picolinate, the Company in November
1997 issued 200,000 shares of its common stock
to these individuals, and agreed on August 8, 2000 to issue
to these individuals a number of additional shares of common
stock which then have a value equal to the amount (if any)
by which the then value of the 200,000 shares of stock is
less then 10% of chromium picolinate net sales (as defined)
during the period from August 11, 1997 through August 8,
2000. The Company has capitalized the cost of the stock at
its market value on the date of issuance and it is
amortizing the cost of the stock over the term of the
agreement. Based on sales of chromium picolinate from August
11, 1997 through December 31, 1997 and the Company's stock
price at December 31, 1997, the Company has accrued $301,000
in royalties to the individuals described above.
Note C Inventory
All inventory consists of finished goods at December 31 and
June 30, respectively.
Note D Earnings/(loss) per share
The Company has adopted the provisions of the Financial
Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No.128, "Earnings Per Share."
Accordingly, the earnings per share calculations for the
prior periods have been restated to conform with the
provisions of SFAS No. 128. This statement replaces the
presentation of primary earnings per share and fully diluted
earnings per share with basic and diluted earnings per share
respectively.
Basic earnings/(loss) per share for the three and six months
ended December 31, 1997 and 1996 are computed based on the
weighted average number of shares outstanding for the
respective periods as follows:
9
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
3 months ended 6 months ended
December 31 December 31
1997 1996 1997 1996
No. of Shares No. of Shares
------------- -------------
<S> <C> <C> <C> <C>
Weighted average shares 19,820,502 20,243,174 19,464,121 20,387,206
----------- ----------- ----------- -----------
$'000 $'000 $'000 $'000
----------- ----------- ----------- -----------
Net income/(loss) 430 6,859 (294) 2,474
Preferred stock dividend (103) (100) (217) (194)
Conversion discount on convertible
preferred stock (420) (796)
----------- ----------- ----------- -----------
Net income/(loss) attributable to
common stockholders (93) 6,759 (1,307) 2,280
=========== =========== =========== ===========
Basic earnings/(loss) per share of
common stock $0.00 $0.33 ($0.07) $0.11
</TABLE>
Diluted earnings per share for the three and six month
periods ended December 31, 1997 do not reflect the
incremental shares from the assumed conversion of stock
options or warrants or the conversion of the preferred stock
or convertible debt to common stock because the effect of
such inclusion would be to reduce the loss per share.
Diluted earnings per share for the three and six month
periods ended December 31, 1996 are computed based on the
weighted average number of shares outstanding plus the
shares that would be outstanding assuming the exercise of
certain stock options and warrants and the conversion of
preferred stock to common stock. 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. The computation of diluted
earnings per share is as follows:
10
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
3 months ended 6 months ended
December 31 December 31
1997 1996 1997 1996
No. of Shares No. of Shares
------------- -------------
<S> <C> <C> <C> <C>
Average shares outstanding 19,820,502 20,243,174 19,464,121 20,387,206
Stock options and warrants 192,323 448,302
Conversion of preferred stock 1,094,632 896,381
----------- ----------- ----------- -----------
Total average shares 19,820,502 21,530,129 19,464,121 21,731,889
----------- ----------- ----------- -----------
$'000 $'000 $'000 $'000
----------- ----------- ----------- -----------
Net income/(loss) 430 6,859 (294) 2,474
Preferred stock dividend (103) (217)
Conversion discount on convertible
preferred stock (420) (796)
----------- ----------- ----------- -----------
Net income/(loss) attributable to
common stockholders (93) 6,859 (1,307) 2,474
Diluted earnings/(loss) per share of
common stock $0.00 $0.32 ($0.07) $0.11
</TABLE>
At December 31, 1997 the Company had 5,202,000 stock options
and warrants outstanding to purchase common stock at
exercise prices ranging from $1.25 to $7.69 , but were not
included in the computation of diluted earnings per share
because such inclusion would be antidilutive.
The Company has a $2 million note at an interest rate of 5%,
payable to Nippon Shoji Kaisha (NSK) on March 18, 1999. The
note provides that (1) if an Investigational New Drug
application (IND) for the treatment of diseases of the colon
is filed and accepted by the United States Food and Drug
Administration (FDA) by March 18, 1998, the Company has the
right to repay $1 million of the note with its common stock,
and (2) if rat and dog toxicology programs related to
treatment of nosocomial antibiotic resistant infections are
completed by September 18, 1998, the Company has the right
to repay $1 million of the note with its common stock. The
common stock for repayment purposes is valued at the average
closing price during the ten (10) consecutive trading days
immediately prior to the Company notifying NSK of its
election to repay with common stock. The Company has been
advised that the FDA has accepted its IND for diseases of
the colon. The Company as a result, intends to repay $1
million of the note with its common stock.
As more fully discussed in Note E the Company has
convertible preferred stock outstanding that can be
converted into common stock. At December 31, 1997, these
amounts have not been included in the computation of diluted
earnings per share because such inclusion would be
antidilutive.
11
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
Note E Convertible preferred stock
With respect to the Company's Series C Preferred Stock (the
"C Preferred"), on December 5, 1997 the Company reduced the
fixed conversion price to form $3.25 to $2.75. The maturity
date for mandatory conversion was extended to October 13,
1999. The holders of the C Preferred agreed not to convert
any of their remaining holdings for a period of six months
ending on June 5, 1998.
With respect to the Company's Series D Preferred Stock (the
"D Preferred"), on December 5, 1997 the holders of the D
Preferred (the " D Investors") converted fifty percent of
their holdings into common stock of the Company at a
twenty-five percent discount. The Company reduced the fixed
conversion price and the warrant exercise price from $2.50
to $2.25. The maturity date for mandatory conversion was
extended to May 8, 2001. The D Investors agreed not to
convert any of their remaining holdings for a period of six
months ending on June 5, 1998. The twenty-five percent
conversion discount described above has been recorded as
additional preferred dividends and it had the effect of
reducing net income available to common stockholders for the
three and six months ended December 31, 1997 (See Note D).
The Company expects to amortize an additional $730,000 in
additional preferred dividends relating to the conversion
discount on the series D preferred stock for the six months
ended June 30, 1998.
The reduction in the fixed conversion price described above
for the Series C and Series D Preferred Stock has not been
recorded as additional preferred dividends for the six
months ended December 31, 1997 because the Company's stock
price is not high enough for the fixed conversion price to
be beneficial to the Series C and Series D investors. As of
December 31, 1997 the original discounts of fifteen and
twenty-five percent granted to the Series C and Series D
investors are more beneficial for conversion purposes. As
such, these conversion discounts have been recorded as
additional preferred dividends (See Note D). At such a time
when the fixed conversion price becomes more beneficial to
the Series C investors (when the Company's stock price
exceeds $3.23) or the Series D Investors (when the Company's
stock price exceeds $3.00) the Company will record
additional preferred dividends based on the Company's stock
price at that time.
Note F Debt refinancing
On December 31, 1997 the Company entered into a new
Revolving Credit and Term Loan Agreement with State Street
to refinance its loans. The refinanced loans consist of a
term loan of $2.8 million ("Term Loan") and a revolving
credit line of up to $4.0 million ("Revolving Loan"), both
bearing interest at the prime rate plus one percent and are
due June 30, 2000. The Company is making monthly payments of
principal and interest on the Term Loan. The Revolving Loan
is an asset based loan, with any amounts borrowed due June
30, 2000.
12
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
Note G Pro forma financial information
The following represents the pro forma consolidated results
of operations as if the Company and Nutrition 21 had been
combined for the entire six months ended December 31, 1997
and 1996 respectively. The pro forma results of operations
reflect amounts adjusted to their accounting basis as if the
acquisition had occurred at the beginning of the respective
periods. The pro forma information is not necessarily
indicative of the results of operations as they may be in
the future or as they would have been had the acquisition
been effected on the assumed dates.
<TABLE>
<CAPTION>
Six Months Ended
December 31
1997 1996
$000 $000
---- ----
<S> <C> <C>
Revenues 10,355 16,649
Net income 209 4,614
Basic (loss)/earnings per share ($0.04) $0.22
Diluted (loss)/earnings per share ($0.04) $0.21
</TABLE>
The results for the six months ended December 31, 1996,
include a $9.7 million one time gain from the sale of Aplin
& Barrett, a food preservative business (See Note H).
Note H Sale of Aplin & Barrett
The Company completed the sale of its United Kingdom based
food preservative business, Aplin & Barrett, Ltd., to Burns
Philp & Company Ltd. on December 12, 1996. As a result, the
operations of Aplin & Barrett are included in the financial
statements through that date. Key terms of the transaction
included the payment to the Company of $13.5 million in
cash, ($8.0 million paid on December 12, 1996 and $5.5
million paid on June 12, 1997), and the payment of 2.42
million shares of the Company's common stock held by Burns
Philp. In addition, Burns Philp has provided the Company
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. As of December 31, 1997 the Company has not
borrowed any amounts under this revolving line of credit.
Note I Recently issued accounting standards
In April 1997, the FASB issued SFAS number 130 "Reporting
Comprehensive Income" and SFAS number 131 "Disclosures about
Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards of reporting and display of
comprehensive income and its components in a full set of
general purpose financial statements. SFAS No. 131
supersedes
13
<PAGE>
AMBI INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report
information about major customers. These statements are
effective for financial statements for both interim and
annual periods ending after December 31, 1997. It is not
expected that the adoption of these statements will have a
material impact on the Company's financial position or
operating results.
14
<PAGE>
Item 2 - 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, Burns Philp & Company
Ltd. ("Burns Philp"). 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 on December 12, 1996. As a
result, the operations of A&B are included in the financial statements through
that date. The decision to sell A&B to Burns Philip was made by the Company's
Board of Directors in 1996. At that time directors unaffiliated with Burns
Philp constituted a majority of the Board of Directors. The Board's decision
was based upon its view that the Company's resources would be more profitably
employed in pursuing the development and/or acquisition of other
products or businesses and that such development and acquisitions would be
facilitated by the cash proceeds of the sale of A&B. After the sale, Burns
Philip owned approximately 40% of the Company's Common Stock.
On August 11, 1997, the Company acquired the entire beneficial interest in
Nutrition 21 ("N21"), a limited partnership. Nutrition 21 is engaged in the
business of developing, producing, and marketing proprietary nutrition
products and dietary supplements. Currently N21's primary product is chromium
picolinate, which is marketed under the registered trademark "Chromax." N21
has an exclusive license from the United States Department of Agriculture
("USDA") for the duration of a patent which covers the composition of chromium
picolinate and its uses. This patent expires on August 8, 2000. The USDA
license grants N21 the exclusive right to manufacture use, and sell chromium
picolinate in the United States. N21 also owns U.S. Patents expiring in 2009,
relating to chromium picolinate treatments for reducing hyperglycemia and
stabilizing the level of serum glucose, for preventing undesirable high levels
of blood serum lipids, and for increasing lean body mass and reducing body
fat, and other patents relating to, among other things, magnesium taurate
treatments of cardiac conditions.
Cost of sales includes both direct and indirect manufacturing costs. Marketing
and sales expenses include salaries, third party fees, royalties and all other
costs associated with selling the Company's products. Research and development
expenses include internal expenditures as well as expenses associated with
third party collaborators. General and administrative expenses include
salaries, overheads, third party fees and expenses, and costs that are not
associated with selling the Company's products or research and development.
Depreciation and amortization include the depreciation of the companies
property, plant and equipment and the amortization of goodwill, patent costs
and other intangible assets. The Company amortizes goodwill over fifteen years
and it amortizes all other intangible assets over their useful economic lives,
which range from three to fifteen years.
Results of Operations
Revenues
Revenues for the quarter increased from the corresponding period in 1996 by
38% to $5.8 million, and for the six month period by 5% to $9.0 million. These
increases in revenues are a result primarily of the acquisition of N21. The
increase in revenue from the acquisition of N21 is partially offset by the
decline in revenues from other products. Revenues also reflect the absence of
the Company's food preservative business which was discontinued during the
quarter ended December 31, 1996 (See Note H).
15
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cost of goods sold
Gross profit for the Company as a percentage of net revenues was 88% for the
quarter and 85% for the six months ended December 31, 1997, compared to 72%
for the quarter and 57% for the six months ended December 31, 1996. This
increase in gross profits reflects a sales mix which includes the higher
margin N21 products for the
A&B products for the quarter and the six months ended December 31, 1996. N21
products had a gross profit percentage of net revenues of approximately 91%
for the quarter and six months ended December 31, 1997, while A&B had a gross
profit as a percentage of net revenues of approximately 61% for the quarter
and 52% for the six months ended December 31, 1996.
Marketing and sales expenses
Marketing and sales expenses decreased $1.3 million or 45% for the quarter and
$3.0 million or 50% for the six months ended December 31, 1997, compared to
the quarter and six months ended December 31, 1996. The decrease is primarily
due to lower spending on Cardia Salt Alternative and Wipe Out Dairy Wipes.
Combined spending on these products declined for the quarter and six months
ended December 31, 1997 by $1.9 million and $3.7 million respectively.
Research and development costs
Research costs decreased $25 thousand (2%) in the quarter and $930 thousand
(37%) in the six month period compared to the same periods last year. This
decrease is due to the Company's decision to only fund research activities
that are focused on achieving drug development milestones.
General and administrative expenses ("G&A")
G&A expenses decreased $0.2 million or 15% for the quarter and $0.4 million or
15% for the six months ended December 31, 1997, compared to the quarter and
six months ended December 31, 1996. These decreases are largely due to due to
the absence of A&B for the quarter (a decrease of $0.4 million) and six months
(a decrease of $0.6 million).
Depreciation and amortization
The increase in depreciation and amortization for the three and six month
period ended December 31, 1997 was caused by the amortization of the goodwill
and other intangible assets associated with the acquisition of N21.
Operating income (loss)
The Company recorded operating income of $0.6 million in the quarter ended
December 31, 1997, compared with a loss of $2.7 million in the quarter ended
December 31, 1996. In the six months ended December 31, 1997, the Company
recorded an operating loss of $0.1 million, compared with a loss of $7.1
million in the six months ended December 31, 1996. The decline in the
operating loss is mainly due to the decrease in spending and the increase in
gross profits attributable to the acquisition of N21.
Income/(loss) before tax expense
The Company recorded income before tax expenses of $0.5 million in the quarter
ended December 31, 1997, compared with income of $7.0 million in the quarter
ended December 31, 1996. In the six months ended December 31, 1997, the
Company recorded a loss before tax expense of $0.2 million, compared with
income of $2.6 million in the six months ended December 31, 1996. The income
in 1996 was due to the gain on the sale of A&B which occurred on December 12,
1996 (See Note H).
16
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Tax expense
The Company's tax expense for the quarter and in the six months is a result of
taxes on the profits of N21 in the state of California.
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 December 31, 1997, the Company had working capital of $1.1 million,
which included cash and cash equivalents of $0.5 million. On June 30, 1997,
working capital was $7.1 million, which included cash and cash equivalents of
$8.6 million.
As of December 31, 1997 the Company had a loan balance of $3.9 million with
State Street Bank. The Company had originally borrowed $3.3 million from State
Street to fund the acquisition of N21. At December 31, 1997 , the Company
refinanced the loan with State Street. Under the revised terms the Company now
has a $2.8 million term loan which is amortized over a 30 month period, at an
interest rate at the bank's prime rate plus one percent. The bank also
continues to provide a revolving credit line of up to $4 million, and any
amount borrowed under this facility is not due until June 30, 2000. The
Company has borrowed approximately $1.1 million under this line of credit as
of December 31, 1997.
As a result of the sale of A&B, the Company experienced a significant decline
in revenues during the latter part of fiscal 1997. This loss of revenues also
contributed to the increase in the operating loss to $16.6 million in fiscal
1997, compared with an operating loss of $4.6 million in fiscal 1996. A&B
generated cash flows of $0.5 million and $3.1 million in fiscal 1997 and
fiscal 1996, respectively. The sale of A&B did generate cash proceeds of $13.5
million which provided adequately for the Company's short-term capital
requirements. The Company has only recently reinvested the proceeds from this
sale into the acquisition of N21, which has thus far generated revenues
greater than those lost as a result of the sale of A&B.
In connection with the sale of A&B, Burns Philp provided the Company with a
revolving credit line of up to $2.5 million that could be forgiven under
certain circumstances related to the performance of the Nisaplin food
preservative business through June 30, 1999. Borrowings under this credit line
will accrue interest at a rate equal to the prime rate set from time to time
by Citibank. To date the Company has not borrowed any amounts under this
credit line, nor is it determinable at this time whether the future
performance of the food preservative business would result in the forgiveness
of any debt.
With respect to the acquisition of N21, the Company expects that as of fiscal
year-end June 30, 1998, the Company will owe the former partners of Nutrition
21 a contingent payment of $2.5 million (see Note B). As of December 31, 1997
the Company has accrued $575 thousand towards that expected contingent
payment. The Company believes that it will be able to use cash generated from
operations or its short term revolving line of credit to satisfy the
contingent payment obligation. The ability to satisfy the contingent payment
obligation will be a significant factor in the Company's ability to maintain
an adequate level of cash flow.
The Company anticipates a continued decline in spending as it seeks to find
pharmaceutical partners to fund research and development and it has eliminated
expenditures that are not critical to the process of generating sales. 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 N21 in August 1997.
17
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
After the acquisition of N21, the Company's two primary sources of financing
are cash generated from continuing operations and the State Street revolving
line of credit. The revolving line of credit was originally obtained as part
of the financing for the N21 acquisition. The availability under this
revolving line of credit is based on the Company's accounts receivable and
inventory. At December 31, 1997 approximately $1.1 million had been drawn down
on this line. The Company believes that cash generated from operations or the
amounts available under the line of credit will provide sufficient liquidity
to fund operations.
Year 2000 compliance
The Company is currently analyzing the potential impact of the Year 2000 on
the processing of date sensitive information by the Company's computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather then four) to define an applicable
year. The Company's general ledger system, Great Plains Dynamics, is currently
Year 2000 compliant. The Company is studying the impact of the Year 2000
problem on other aspects of its business and as of December 31, 1997 this
impact on the future financial position, operating results, and cash flows of
the Company is not determinable.
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
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 April 1997, the FASB issued SFAS number 130 "Reporting Comprehensive
Income" and SFAS number 131 "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards of reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 supersedes SFAS No. 14 "Financial
Reporting for Segments of a Business Enterprise", but retains the requirement
to report information about major customers.
These statements are effective for financial statements for both interim and
annual periods ending after December 31, 1997. It is not expected that the
adoption of these statements will have a material impact on the Company's
financial position or operating results.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Report on Form 8-K
Exhibit 27 - Financial Data Schedule
The Company filed reports on Form 8-K/A and Form 8-K/A2 relating to the
purchase of Nutrition 21 on October 22 and December 19, 1997, respectively.
The Company filed reports on Form 8-K/A and Form 8-K/A2 relating to the sale
of its Aplin and Barrett subsidiary on November 6 and December 19, 1997,
respectively.
19
<PAGE>
AMBI INC.& SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMBI INC.
Registrant
Date: February 17, 1998 By: /s/ Fredric D. Price
-------------------------------------
Fredric D. Price
President and Chief Executive Officer
20
