<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FORM 10-Q
For Quarter Ended: September 30, l999
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)
4 Manhattanville Road, Purchase, NY 10577
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(914) 701-4500
------------------------------------------------------
(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 30,518,215 shares as of November 10, 1999.
- ----------------------------- ------------------------------------------
<PAGE>
AMBI INC. & SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
ITEM 1 Financial Statements (unaudited)
Consolidated Balance Sheets at September 30, l999
and June 30, 1999 3
Consolidated Statements of Operations for the three
months ended September 30, 1999 and l998 5
Consolidated Statement of Stockholders' Equity for
the three months ended September 30, l999 6
Consolidated Statements of Cash Flows for the three
months ended September 30, l999 and 1998 7
Notes to Consolidated Financial Statements 8
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 15
ITEM 2 Changes in Securities and Use of Proceeds 15
ITEM 6 Exhibits and Reports on Form 8-K 15
ITEM 7a Quantitative and Qualitative Disclosures
About Market Risk 15
2
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,012 $ 4,458
Accounts receivable (less allowance for doubtful
accounts of $231 at September 30, 1999 and
$242 at June 30, 1999) 4,554 3,980
Other receivables 655 473
Inventories 1,050 1,426
Prepaid expenses and other current assets 612 685
------- -------
Total current assets 8,883 11,022
Property and equipment, net 1,004 1,066
Patents and trademarks (net of accumulated
amortization of $5,151 at September 30, 1999
and $4,362 at June 30, 1999) 19,988 19,473
Goodwill (net of accumulated amortization of
$244 at September 30, 1999 and $178 at
June 30, 1999) 2,602 2,583
Other assets 484 397
------- -------
TOTAL ASSETS $32,961 $34,541
======= =======
</TABLE>
See accompanying notes
3
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- --------
(unaudited)
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and lease obligations $ 1,529 $ 1,563
Accounts payable and accrued expenses 2,995 4,262
Contingent payments 1,110 3,293
Preferred dividends payable 41 25
------- -------
Total current liabilities 5,675 9,143
Long-term debt and lease obligations 3,000 3,375
Other long-term obligations 424 432
------- --------
TOTAL LIABILITIES $ 9,099 $12,950
------- -------
Commitments and contingent liabilities
REDEEMABLE PREFERRED STOCK:
Series E convertible preferred, 1,500 shares issued:
476 shares and 773 shares outstanding at September 30,
1999 and June 30, 1999, respectively (aggregate
liquidation value Series E $514) 389 634
Series F convertible preferred, 575 shares issued: 343
shares outstanding at September 30, l999 and June 30, 1999,
respectively (aggregate liquidation value Series F $366) 287 287
STOCKHOLDERS' EQUITY:
Common stock, $0.005 par value, authorized 65,000,000 shares;
30,494,215 shares and 30,152,306 shares issued and outstanding
at September 30, 1999 and June 30, 1999, respectively 152 150
Additional paid-in capital 60,576 60,045
Accumulated deficit (37,542) (39,525)
------- -------
TOTAL STOCKHOLDERS' EQUITY $23,186 $20,670
------- -------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY $32,961 $34,541
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net sales $ 8,297 $ 5,759
Other revenues 127 56
---------- ----------
REVENUES 8,424 5,815
Cost of goods sold 1,530 743
---------- ----------
GROSS PROFIT 6,894 5,072
Selling, general & administrative expense 3,294 2,551
Research and development expense 449 485
Depreciation and amortization 929 559
---------- ----------
OPERATING INCOME 2,222 1,477
Interest income 68 36
Interest expense 121 89
Other income, net -- 79
---------- ----------
INCOME BEFORE INCOME TAXES 2,169 1,503
Income taxes 165 91
---------- ----------
NET INCOME $ 2,004 $ 1,412
========== ==========
Basic earnings per share $ 0.07 $ 0.06
========== ==========
Weighted average number of common shares - basic 30,459,294 21,199,345
========== ==========
Diluted earnings per share $ 0.06 $ 0.05
========== ==========
Weighted average number of common shares and
equivalents - diluted 32,116,198 26,383,486
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Additional
Paid-In Accumulated
Common Stock Capital Deficit Total
shares $ $ $ $
---------- --- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, l999 30,152,306 150 60,045 (39,525) 20,670
Conversion of series E preferred
stock 243,546 1 249 -- 250
Common stock issued on exercise
of options and warrants 98,363 1 219 -- 220
Issuance of warrants -- -- 63 -- 63
Preferred stock dividends declared -- -- -- (21) (21)
Net income for the period -- -- -- 2,004 2,004
---------- --- ------ -------- ------
Balance at September 30, l999 30,494,215 152 60,576 (37,542) 23,186
========== === ====== ======== ======
</TABLE>
See accompanying notes.
6
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,004 $ 1,412
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 929 559
Nutrition 21 consulting expense 51 48
Loss on disposal of equipment -- 142
Changes in assets and liabilities
Decrease/(increase) in accounts receivable (574) 455
Increase in other receivables (119) --
Decrease in inventories 376 14
Increase in prepaid and other current assets 73 --
Increase in other assets (138) (744)
Increase in Nutrition 21 acquisition payable, net of
cash payments -- 275
Decrease in accounts payable and accrued expenses (1,267) (28)
-------- -------
Net cash provided by operating activities 1,335 2,133
-------- -------
Cash flows from investing activities:
Contingent payments for Nutrition 21 acquisition (3,434) (3,269)
Purchases of property and equipment (22) (27)
Proceeds from sale of equipment -- 68
Payments for patents and trademarks (128) (430)
-------- --------
Net cash (used in) investing activities (3,584) (3,658)
-------- --------
Cash flows from financing activities:
Capital lease obligation repayments (35) (29)
Debt repayments (382) (233)
Proceeds from exercise of options & warrants 220 --
-------- -------
Net cash (used in) financing activities (197) (262)
-------- -------
Net decrease in cash and cash equivalents (2,446) (1,787)
Cash and cash equivalents at beginning of period 4,458 2,109
-------- -------
Cash and cash equivalents at end of period $ 2,012 $ 322
======== =======
</TABLE>
See accompanying notes.
7
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 BASIS OF PRESENTATION
The accompanying unaudited interim 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 three month period
ended September 30, l999 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30,
2000. For further information, refer to the consolidated financial
statements and notes thereto, included in the Company's annual
report on Form 10-K for the year ended June 30, l999.
Certain reclassifications have been made to the prior period's
financial statement amounts to conform to the current period
presentation.
Note 2 AcquisitionS
Lite Bites Business
On January 21, l999, the Company acquired substantially all of the
assets and assumed certain of the liabilities of Optimum
Lifestyle, Inc. ("OLI") relating to the business of developing,
producing, and marketing dietary supplements, primarily nutrition
bars which are marketed under the trademark "Lite Bites" through
the QVC Inc. television network (the "Lite Bites Business"). These
products are manufactured to proprietary specifications under
agreements with third party manufacturers.
The following represents the pro forma consolidated results of
operations as if the Company and the Lite Bites Business had been
combined for the quarter ended September 30, 1998. 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. The pro forma information for the
quarter ended September 30, 1998 is as follows (in thousands,
except for per share amounts):
1998
----
Revenues $ 6,858
Net income 1,664
Basic earnings per share 0.07
Diluted earnings per share 0.06
8
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 INVENTORIES
The components of inventories at September 30, l999 and June 30,
1999 were:
September 30, June 30,
l999 1999
------------- --------
Raw materials $ 289 $ 373
Finished goods 761 1,053
------- -------
Total inventories $1,050 $ 1,426
======= =======
During the quarter ended September 30, l999, the Company did not deduct
any amounts from the inventory valuation reserve.
Note 4 REDEEMABLE PREFERRED STOCK
During the quarter ended September 30, 1999, 297 shares of the
Company's Series E Preferred and accrued dividends thereon were
converted into 244 thousand shares of Common Stock.
During the quarter ended September 30, 1999, there were no conversions
of the Company's Series F Preferred Stock.
Note 5 EARNINGS PER SHARE
Basic and diluted earnings per share for the three month periods ended
September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------ ------------
<S> <C> <C>
Net income $ 2,004 $ 1,412
Preferred stock dividends (21) (74)
------------ ------------
Net income attributable to common
stockholders $ 1,983 $ 1,338
============ ============
Basic earnings per share $ 0.07 $ 0.06
============ ============
Weighted average number of common shares 30,459,294 21,199,345
============ ============
Net income attributable to common
shareholders 1,983 $ 1,338
Interest on AZWELL loan, net -- 8
Preferred stock dividends 21 74
------------ ------------
Net income available to common
shareholders after giving effect to dilution $ 2,004 $ 1,420
============ ============
Diluted earnings per share $ 0.06 $ 0.05
============ ============
Weighted average number of common shares
and equivalents 32,116,198 26,383,486
============ ============
</TABLE>
9
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income." This
Statement requires that companies disclose comprehensive income, which
includes net income, foreign currency translation, minimum pension
liability adjustments and unrealized gains and losses on marketable
securities classified as available for sale. For the Company,
comprehensive income is the same as net income.
Note 7 SEGMENT REPORTING
A summary of business data for the Company's reportable segments for
the three months ended September 30, 1999 and 1998 are as follows:
Information by business segment (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues
Nutritional Products $ 8,203 $ 5,552
Pharmaceutical Products 221 263
------- -------
$ 8,424 $ 5,815
======= =======
Operating Income
Nutritional Products $ 2,172 $ 1,468
Pharmaceutical Products 50 9
------- -------
$ 2,222 $ 1,477
======= =======
</TABLE>
The operations of the Company are principally in the United States.
Note 8 SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 80 $ 89
Cash paid for income taxes 247 50
Supplemental schedule of non-cash financing activities:
Obligation for purchase of property & equipment $209 $220
Issuance of warrants $ 63 --
Obligation for N21 contingent payment $999 --
Obligation for Lite Bites contingent payment $252 --
Issuance of common stock for series E conversion $249 --
</TABLE>
10
<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 revenues have been primarily derived from the sale of
nutrition products to manufacturers of vitamin and mineral
supplements and, since the acquisition on January 21, l999 of all the
assets and certain liabilities of Optimum Lifestyle, Inc. (the "Lite
Bites Business"), also include sales of nutrition bars and other
related dietary supplement products marketed under the trademark
"Lite Bites". The Company has, in addition, received royalty income
from users of its patented technology.
Cost of goods sold 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, royalty expenses for licenses and
trademarks, and costs associated with the selling of the Company's
products. The Company capitalizes patent costs and acquisition-
related goodwill and intangible assets, and amortizes them over
periods of one to twenty years.
RESULTS OF OPERATIONS
Revenues
Net sales for the three months ended September 30, l999 were $8.3
million, an increase of 44.1% compared to $5.8 million for the same
period a year ago. The increase in net sales of $2.5 million is
primarily due to increased ingredient sales of $1.0 million, combined
with $1.5 million of product sales from the acquisition of the Lite
Bites Business.
Other revenues of $0.1 million for the three months ended September
30, 1999 were comprised of license and royalty revenues earned from
the Whitehall-Robbins Healthcare division of American Home Products
Corporation in accordance with the License, Option and Marketing
Agreement entered into on October 8, l999.
Cost of goods sold
Cost of goods sold for the three months ended September 30, 1999
were $1.5 million, an increase of 106% compared to $0.7 million for
the same period a year ago. The increase in cost of goods sold is
directly attributable to increased sales levels. Gross margin of
81.6% for the three months ended September 30, l999 was 5.5
percentage points lower than the comparable period a year earlier.
The decrease in the gross margin percentage is due to lower margin
nutritional sales included with higher margin ingredient sales.
Selling, general and administrative expenses (SG&A)
SG&A expense for the three month period ended September 30, l999, was
$3.3 million, as compared to $2.6 million for the same period a year
earlier. The increase is due to higher marketing expenses related
primarily to increased marketing expense for the nutritional
business.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Research and development expenses
Research costs of $0.4 million for the three month period ended
September 30, l999, declined $0.1 million compared to $0.5 million
for the same period a year earlier. The decrease for the three month
period is attributable to the Company's decision to reduce infectious
disease drug-related research activities.
Operating Income
The Company's operating income of $2.2 million for the three month
period ended September 30, l999, was $0.7 million greater than the
operating income of $1.5 million for the same period a year earlier.
The increase in net sales from the acquisition of the Lite Bites
Business and, the increase in net sales of the ingredient products
were contributing factors; partially offsetting these improvements
were increased selling, general and administrative expenses.
Interest expense, net
Interest expense, net of interest income of $53 thousand for the
three month period ended September 30, l999, approximated interest
expense, net of interest income, for the same period a year ago.
Other income, net
Other income, net was $0 for the three month period ended
September 30, 1999, compared to $79 thousand for the same period a
year ago. Other income resulting from the relocation of the Company's
headquarters operations in September 1998 did not recur in the
current fiscal period.
Income taxes
Income taxes for the three month period ended September 30, l999 of
$165 thousand increased $74 thousand when compared to the comparable
period a year earlier. The increase is primarily due to estimated
federal alternative minimum tax and state income taxes from the
Company's increased profitability.
Quarterly Variations
On a quarter-to-quarter basis, the Company's sales and income may
vary widely as a result of various factors. Such factors may include
customers placing orders in anticipation of a price increase,
customers adjusting finished goods inventory and planned variations
in marketing, promotion and product development expenses. 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.
Business Segments
The Company operates in two business segments - Nutritional Products
and Pharmaceutical Products.
Nutritional Products
Nutritional product revenues were $8.2 million for the quarter ended
September 30, 1999, an increase of 47.7% compared to $5.6 million for
the same period a year ago. The increase in revenues is primarily due
to increased ingredient sales of $1.0 million, $1.5 million of
nutritional product sales from the acquisition of the Lite Bites
Business and fees and royalties earned from AHP.
12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Nutritional Products operating income for the quarter ended
September 30, 1999 was $2.2 million, an increase of 47.9% compared to
$1.5 million for the same period a year ago. The increase in net
sales from the acquisition of the Lite Bites Business and the
increase in net sales of the ingredient products were the
contributing factors.
Pharmaceutical Products
Pharmaceutical products revenues were $0.2 million for the quarter
ended September 30, 1999, a decrease of $0.1 million compared to the
same period a year ago. The decrease is attributable to reduced sales
of nisin-based animal health products.
Pharmaceutical products operating income was $50 thousand for the
quarter ended September 30, 1999, compared to $9 thousand for the
same period a year ago. The improvement is primarily due to
reductions in manufacturing costs in the current fiscal period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 1999 were $2.0 million
compared to $4.5 million at September 30, 1998. As of September 30,
1999 the Company had a working capital surplus of $3.1 million
compared to $1.9 million surplus as of June 30, 1999.
During the three month period ended September 30, l999, cash provided
by operations was $1.3 million, compared to $2.1 million for the
three month period ended September 30, 1998. The decrease is due
primarily to payments for working capital requirements.
Cash used in investing activities for the three months ended
September 30, 1999 was $3.6 million compared to $3.7 million for the
comparable period a year ago. Payments for patents and trademarks
declined $0.3 million, while contingent payments made to the previous
owners of Nutrition 21 increased $0.2 million.
Cash used in financing activities for the three month period ended
September 30, 1999 was $0.2 million compared to $0.3 million for the
comparable period a year ago. Increased debt repayments of $0.1
million offset by proceeds from the exercise of options and warrants
of $0.2 million, were the primary reasons for the improvement.
The Company's primary sources of financing are cash generated from
continuing operations and a revolving line of credit with Citizens
Bank of Massachusetts (successor in interest to loans originally
issued to the Company by State Street Bank and Trust Company). The
availability under the revolving line of credit is based on the
Company's accounts receivable and inventory. At September 30, l999,
the Company had no borrowings under this line.
Additional contingent payments will be made to the former owners of
Optimum Lifestyles, Inc. ("OLI") due to the acquisition of the Lite
Bites Business, depending primarily on sales levels of the Lite Bites
Business achieved during the five year period following closing
and/or the availability of Lite Bites products through certain
distribution channels in the future, as follows: a maximum of $3.0
million in cash and/or AMBI common stock, at the option of the
previous owners of OLI, payable $1.0 million on each of the first
three anniversaries of the acquisition; $3.0 million in newly issued
AMBI preferred stock, payable $1.5 million on the first and second
anniversaries of the acquisition; and a single payment of $1.0
million in cash, payable prior to the fifth anniversary of the
acquisition.
The Company believes that cash generated from operations and cash
available under the line of credit will provide sufficient liquidity
to fund operations for the next twelve months. The Company continues
to eliminate expenditures that are not critical to the process of
generating sales.
13
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Future acquisition activities and any increases in marketing and
research and development expenses over the present levels may require
additional funds. Also, the Company intends to seek any necessary
additional funding through arrangements with corporate collaborators,
through public or private sales of its securities, including equity
securities, or through bank financing arrangements. The Company does
not currently have any specific arrangements for additional financing
and there can be no assurance that additional funding will be
available at all or on reasonable terms.
YEAR 2000 READINESS DISCLOSURE
Many computer systems and embedded technologies may experience
problems handling dates beyond the year 1999 and therefore may need
to be modified prior to the Year 2000 in order to remain functional.
The company is taking steps to ensure its readiness for handling
dates beginning in the Year 2000.
The Company completed the implementation of Year 2000 readiness of
its critical operational and administrative software during the month
of August 1999. The Company will continue to monitor its software
vendors for additional changes that may affect Year 2000 readiness,
and will implement such changes, if required.
The Company has formally communicated with all of its key suppliers
to determine their Year 2000 state of readiness and the extent to
which the failure of any of their systems may impact the Company's
operations. The communication and evaluation process is ongoing.
Based upon current information, the Company estimates that the costs
of addressing the Year 2000 issue have not been material and are
expected to continue to be immaterial. The Company has initiated a
program to increase key product inventories during the balance of
calendar year 1999 to assure continuity of operations.
The Company currently believes that a reasonable worst case scenario
would be a failure by a significant third party in the supply and
distribution chain to remediate its Year 2000 deficiencies that would
continue for several days or more. Any such failure could impair the
manufacture and/or delivery of products.
The Company's Year 2000 efforts are ongoing and the overall plan, as
well as the Company's development of contingency plans, will continue
to evolve as new information becomes available.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies
to recognize all derivatives as assets or liabilities measured at
their fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualified for hedge accounting.
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133". SFAS No. 137 defers the effective date of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" for one year. SFAS No. 133, as amended, is now effective
for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company is currently evaluating the impact of SFAS No. 133
on the Company's financial position and operating results.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The company in the ordinary course of its business has brought
several patent infringement actions against companies that are
selling chromium picolinate in violation of the Company's patent
rights. As of this date, various actions are ongoing, and the Company
intends to vigorously protect its proprietary rights.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
In August 1999, the Company issued a warrant to QVC, Inc. to purchase
up to 420,000 shares of the Company's Common Stock in connection with
a Strategic Alliance Agreement. The Company received $63,000, the
fair value of the warrant.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27 - Financial Data Schedule
(B) REPORTS
There were no reports on Form 8-K filed by the Company during this
fiscal quarter.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in
interest rates, foreign exchange rates and equity prices. The Company
has no financial instruments that give it exposure to foreign
exchange rates or equity prices. The Company's existing term loan
with Citizens Bank of Massachusetts bears interest at a rate equal to
the prime lending rate plus one percent. As a result, the Company
does have exposure to changes in interest rates. For example, if
interest rates increase by one percentage point from current levels,
the Company would incur incremental interest expense of $61 thousand
through the scheduled maturity of the term loan on February 1, 2002.
15
<PAGE>
AMBI INC.& SUBSIDIARIES
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: November 12, 1999 By: /s/ Fredric D. Price
--------------------
Fredric D. Price
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gerald A. Shapiro
---------------------
Gerald A. Shapiro
Vice President and Chief Financial Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,012
<SECURITIES> 0
<RECEIVABLES> 4,785
<ALLOWANCES> 231
<INVENTORY> 1,050
<CURRENT-ASSETS> 8,883
<PP&E> 1,004
<DEPRECIATION> 84
<TOTAL-ASSETS> 32,961
<CURRENT-LIABILITIES> 5,675
<BONDS> 0
0
676
<COMMON> 152
<OTHER-SE> 23,034
<TOTAL-LIABILITY-AND-EQUITY> 32,961
<SALES> 8,297
<TOTAL-REVENUES> 8,424
<CGS> 1,530
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 2,169
<INCOME-TAX> 165
<INCOME-CONTINUING> 2,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,004
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.06
</TABLE>
