<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: March 31, 2000
Commission File Number 0-14983
AMBI INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2653613
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
4 Manhattanville Road, Purchase, New York 10577
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(Address of principal executive offices) (Zip Code)
(914) 701-4500
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(Registrant's telephone number, including area code)
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(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 31,298,760 shares as of May 11, 2000
- ----------------------------- ------------------------------------
1
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AMBI INC. & SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets
at March 31, 2000
and June 30, 1999 3
Consolidated Statements of Operations
for the three and nine-month periods
ended March 31, 2000 and 1999 5
Consolidated Statement of Stockholders' Equity
for the nine-month period ended
March 31, 2000 6
Consolidated Statements of Cash Flows
for the nine-month periods ended
March 31, 2000 and 1999 7
Notes to Unaudited 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>
March 31, June 30,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $7,010 $4,458
Accounts Receivable (less allowance for doubtful
accounts of $141 at March 31, 2000, and $242 at
June 30, 1999). 4,911 3,980
Other receivables 383 473
Inventories 1,716 1,426
Prepaid and other current assets 585 685
--- ---
Total current assets 14,605 11,022
Property and equipment, net 794 1,066
Patents and trademarks (net of accumulated amortization of
$6,877 at March 31, 2000 and $4,362 at June 30, 1999). 21,368 19,473
Goodwill (net of accumulated amortization of $359 at
March 31, 2000, and $178 at June 30, 1999). 2,668 2,583
Other assets 109 397
----- -----
TOTAL ASSETS $ 39,544 $ 34,541
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and lease obligations $1,500 $ 1,563
Accounts payable and accrued expenses 3,837 4,262
Contingent payments 2,588 3,293
Preferred dividends payable 28 25
-- --
Total current liabilities 7,953 9,143
Long-term debt and lease obligation 1,500 3,375
Other long-term obligations 438 432
--- ---
TOTAL LIABILITIES 9,891 12,950
----- ------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE PREFERRED STOCK
Preferred stock, $0.01 par value, authorized 5,000 shares;
Series E convertible preferred, 1,500 shares issued, 476
shares and 773 shares outstanding at March 31, 2000, and
June 30, 1999, respectively (aggregate liquidation value
$488). 389 634
Series F convertible preferred, 575 shares issued, 343
shares outstanding at March 31, 2000, and June 30, 1999,
respectively (aggregate liquidation value $352). 287 287
STOCKHOLDERS' EQUITY
Series G convertible preferred, 828 shares issued, 663
shares outstanding at March 31, 2000, (aggregate
liquidation value $669). 489 - -
Common stock, $0.005 par value, authorized 65,000,000 shares,
31,298,760 shares and 30,152,306 shares issued and
outstanding at March 31, 2000 and June 30, l999,
respectively. 156 150
Additional paid-in capital 61,631 60,045
Accumulated deficit (33,299) (39,525)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 28,977 20,670
------ ------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY $39,544 $34,541
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
----- ----- ----- ----
Net sales $ 7,646 $ 7,146 $25,642 $18,925
Other revenues 125 237 378 1,237
------- ------- ------- -------
REVENUES 7,771 7,383 26,020 20,162
COST AND EXPENSES:
Cost of sales 1,371 1,413 4,386 2,866
Selling, general & admin. expenses 3,126 3,527 10,215 8,802
Research and development expenses 525 372 1,575 1,278
Depreciation and amortization 1,028 734 2,944 1,863
------- ------- ------- -------
OPERATING INCOME 1,721 1,337 6,900 5,353
Interest expense, net 21 39 150 70
Other income, net 6 -- 58 79
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,706 1,298 6,808 5,362
Income taxes 128 86 513 343
------- ------- ------- -------
NET INCOME $ 1,578 $ 1,212 $ 6,295 $ 5,019
======= ======= ======= =======
Basic earnings per share $ 0.05 $ 0.04 $ 0.20 $ 0.18
======= ======= ======= =======
Weighted average number of common shares 30,664 28,588 30,548 25,402
======= ======= ======= =======
Diluted earnings per share $ 0.05 $ 0.04 $ 0.20 $ 0.17
======= ======= ======= =======
Weighted average number of common
shares and equivalents 33,238 30,055 32,285 26,654
======= ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Additional
Preferred Stock Paid-In Accumulated
Series G Common Stock Capital Deficit Total
Shares $ shares $ $ $ $
------ -- ------ - ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 - - - - 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 - - - - 676,841 3 606 - - 609
Common stock issued for Optimum
Lifestyle, Inc. contingent payment - - - - 200,000 1 503 - - 504
Preferred stock issued for Optimum
Lifestyle, Inc. contingent payment 828 610 - - - - - - - - 610
Conversion of Series G preferred stock 165) (121) 26,067 1 120 - - - -
Issuance of warrants - - - - - - - - 108 - - 108
Preferred stock dividends declared - - - - - - - - - - (69) (69)
Net income for the period - - - - - - - - - - 6,295 6,295
---- --- --- --- --- ----- -----
Balance at March 31, 2000 663 489 31,298,760 156 61,631 (33,299) 28,977
=== === ========== === ====== ======== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,295 $ 5,019
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,944 1,863
Nutrition 21 consulting expense 149 158
Loss on disposal of equipment 11 137
Other non-cash items 45
Gain on sale of product line (19) --
Changes in assets and liabilities
(Increase) in accounts receivable (931) (1,296)
Decrease/(Increase) in other receivables 135 (237)
(Increase) in inventories (463) (198)
Decrease/(Increase) in prepaid and other current assets 100 (72)
Decrease/(Increase) in other assets 139 (144)
(Decrease)/Increase in accounts payable and accrued expenses (440) 641
(Decrease) in preferred stock dividend - - (41)
-------- --------
Net cash provided by operating activities 7,965 5,830
-------- --------
Cash flows from investing activities:
Contingent payments for acquisitions (4,006) (3,269)
Purchases of property and equipment (187) (430)
Proceeds from sale of equipment -- 75
Proceeds from sale of product line 467 --
Payments for patents and licensed technology (381) (436)
Payments for Lite Bites Business (6,088)
-------- --------
Net cash (used in) investing activities (4,107) (10,148)
Cash flows from financing activities:
Term loan borrowings - - 5,500
Proceeds from issuance of common stock and warrants 673 4,000
Capital lease obligation repayments (63) (98)
Term loan repayments (1,875) (2,662)
Redemption of Series C Preferred Stock - - (1,027)
Redemption of Series F Preferred Stock - - (175)
AZWELL, Inc. note repayment - - (1,000)
Preferred dividends paid (41) (9)
-------- --------
Net cash (used in)/ provided by financing activities (1,306) 4,529
-------- --------
Net increase in cash and cash equivalents 2,552 211
Cash and cash equivalents at beginning of period 4,458 2,109
-------- --------
Cash and cash equivalents at end of period $ 7,010 $ 2,320
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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
nine-month period ended March 31, 2000, 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 INVENTORIES
The components of inventories at March 31, 2000, and June 30, 1999,
were:
March 31, June 30,
2000 1999
---- ----
Raw materials $ 267 $ 373
Finished goods 1,449 1,053
----- -----
Total inventories $1,716 $1,426
====== ======
Note 3 REDEEMABLE PREFERRED STOCK
During the nine-month period ended March 31, 2000, 297 shares of the
Company's Series E Preferred and accrued dividends thereon were
converted into 243,546 shares of Common Stock.
Note 4 STOCKHOLDERS' EQUITY
On January 22, 2000, the Company issued 828 shares of new Series G
Preferred Stock ("G Preferred") with a par value of $0.01 per share, in
accordance with its Agreement of Purchase and Sale of Assets dated
January 19, 1999, with the owners of Optimum Lifestyle, Inc. The G
Preferred is convertible in blocks of not less than 250 shares at any
time at the average closing prices of the Common Stock during the ten
(10) trading days immediately preceding conversion. The G Preferred
bears dividends at a rate of $50 per share, payable in quarterly
installments. On the third anniversary of the date of issuance, the G
Preferred is automatically converted into shares of Common Stock.
During the three-month period ended March 31, 2000, 165 shares of G
Preferred were converted into 26,067 shares of Common Stock.
8
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 EARNINGS PER SHARE
Basic and diluted earnings per share for the three and nine-month
periods ended March 31, 2000 and 1999 are as follows (in thousands,
except share and per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 1,578 $ 1,212 $ 6,295 $ 5,019
Preferred stock dividends (28) (198) (69) (571)
------------ ------------ ------------ ------------
Net income attributable to common
Stockholders $ 1,550 $ 1,014 $ 6,226 $ 4,448
============ ============ ============ ============
Basic earnings per share $ 0.05 $ 0.04 $ 0.20 $ 0.18
============ ============ ============ ============
Weighted average number of common shares 30,663,712 28,588,111 30,548,055 25,401,575
============ ============ ============ ============
Net income attributable to common
shareholders $ 1,550 $ 1,014 $ 6,226 $ 4,448
Interest on AZWELL loan, net -- -- -- 33
Preferred stock dividends 28 44 69 53
------------ ------------ ------------ ------------
Net income available to common
shareholders after giving effect to
dilution $ 1,578 $ 1,058 $ 6,295 $ 4,534
============ ============ ============ ============
Diluted earnings per share $ 0.05 $ 0.04 $ 0.20 $ 0.17
============ ============ ============ ============
Weighted average number of common shares: 30,663,712 28,588,111 30,548,055 25,401,575
Plus incremental shares from assumed conversions:
Preferred stock: 905,406 1,439,040 740,532 1,216,435
Stock option plans: 1,668,873 27,715 996,631 36,448
------------ ------------ ------------ ------------
Weighted average number of common shares
and equivalents 33,237,996 30,054,866 32,285,218 26,654,458
============ ============ ============ ============
The Shares listed below were not included in the computation of diluted
earnings per share because to do so would have been antidilutive for
the periods presented.
Preferred stock - - 282,316 - - 2,072,823
Convertible debt - - 141,543 - - - -
</TABLE>
9
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 SEGMENT REPORTING
A summary of business data for the Company's reportable segments for
the three and nine-month periods ended March 31, 2000 and 1999 is as
follows:
Information by business segment (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Nutritional products $7,709 $7,168 $25,513 $19,435
Pharmaceutical products 62 215 507 727
------ ------ ------- -------
$7,771 $7,383 $26,020 $20,162
====== ====== ======= =======
Operating Income
Nutritional products $1,677 $1,387 $6,756 $5,329
Pharmaceutical products 44 (50) 144 24
------ ------ ------- -------
$1,721 $1,337 $6,900 $5,353
====== ====== ======= =======
</TABLE>
The operations of the Company are principally in the United States.
Note 7 SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine months ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $376 $247
Cash paid for income taxes 372 50
Supplemental schedule of non-cash activities:
Obligation for purchase of property & equipment $188 $220
Obligation for N21 contingent payment $2,424 $1,998
Obligation for Lite Bites contingent payment $164 $167
Issuance of common stock for Series E conversion $250 - -
Obligation related to Series C redemption - - $250
Conversion of long-term debt to common stock - - $1,000
Issuance of common stock for Series C redemption - - $345
Issuance of common stock for Series D redemption - - $105
Issuance of common stock for Series G redemption $121 - -
Issuance of Series G preferred for Optimum
Lifestyle, Inc. contingent payment $610 - -
</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 ingredient 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"), sales of nutrition bars and other related dietary
supplement products. The Company also receives 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 quarter ended March 31, 2000, increased $0.5 million
or 7.0% to $7.6 million, compared to net sales of $7.1 million for the
quarter ended March 31, 1999. Net sales for the nine months ended March
31, 2000, increased $6.7 million or 35.5% to $25.6 million, compared to
net sales of $18.9 million for the nine months ended March 31, 1999.
The increase in net sales in both periods is due primarily to
nutritional product sales resulting from the acquisition of the Lite
Bites business on January 21, 1999, combined with improved ingredient
sales.
Other revenues for the three and nine-month period ended March 31,
2000, declined $0.1 million and $0.9 million to $0.1 million and $0.4
million respectively, compared to other revenues of $0.2 million and
$1.2 million for the comparable periods a year earlier. The decline is
due to a one-time $1.0 million payment on October 8, 1998, by the
Whitehall-Robins Healthcare division of American Home Products
Corporation in accordance with a License, Options and Marketing
Agreement entered into on October 8, 1998.
Costs of sales
Cost of sales for the three months ended March 31, 2000 and March 31,
1999, was $1.4 million in each period. Cost of sales increased $1.5
million, or 53.0%, to $4.4 million for the nine months ended March 31,
2000, from $2.9 million for the comparable period a year earlier. The
increase in cost of sales reflects the mix of higher cost Lite Bites
nutritional products sold with lower cost ingredient products. Cost of
sales as a percentage of net sales decreased from 19.8% in the three
months ended March 31, 1999, to 17.9% in the three months ended March
31, 2000. The decrease is due primarily to the mix of products sold
with a greater proportion of higher margin ingredients products sold
compared to lower margin nutritional products sold.
Selling, general and administrative expenses (SG&A)
SG&A decreased $0.4 million or 11.4% from $3.5 million for the three
months ended March 31, 1999, to $3.1 million for the three months ended
March 31, 2000. This decrease resulted from reductions in professional
fees and promotional expenses.
SG&A increased $1.4 million or 16.1% from $8.8 million for the nine
months ended March 31, 1999, to $10.2 million for the nine months ended
March 31, 2000. Increases in marketing initiatives related to
ingredient products and the inclusion of marketing and selling costs
associated with acquisition of the Lite Bites business were the primary
reasons for the increase.
11
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Research and development expenses (R&D)
R&D increased $0.1 million from $0.4 million for the three months ended
March 31, 1999, to $0.5 million for the three months ended March 31,
2000. When compared to the same period a year earlier, R&D increased
$0.3 million to $1.6 million for the nine-month period ended March 31,
2000. The increase in both periods is attributable to ongoing product
development, quality control and quality assurance development
activities.
Operating Income
Operating income increased $0.4 million from $1.3 million for the three
months ended March 31, 1999, to $1.7 million for the three months ended
March 31, 2000. An increase in gross profit on product sales of $0.5
million was partially offset by an increase in operating expenses of
$0.1 million.
Operating income increased $1.5 million from $5.4 million for the nine
months ended March 31, 1999, to $6.9 million for the nine months ended
March 31, 2000. An increase in gross profit on product sales of $5.2
million was partially offset by a decline in other revenues of $0.9
million, as explained above, as well as an increase in operating
expenses of $2.8 million.
Interest expense, net
Interest expense, net decreased $18 thousand for the three months ended
March 31, 2000, when compared to Interest expense, net of $39 thousand
for the three months ended March 31, 1999. The decrease was primarily
the result of an increase in interest-bearing deposits.
Interest expense, net increased $80 thousand for the nine-month period
ended March 31, 2000, to $0.2 million, when compared to Interest
expense, net of $70 thousand for the nine months ended March 31, 1999.
The increase is primarily due to increased debt levels due to the
acquisition of the Lite Bites Business, as well as higher interest
rates.
Income taxes
Income taxes increased $42 thousand for the three months ended March
31, 2000, from $86 thousand for the three months ended March 31, 1999,
to $128 thousand for the three months ended March 31, 2000. Income
taxes increased $0.2 million from $0.3 million for the nine months
ended March 31, 1999, to $0.5 million for the nine months ended March
31, 2000. The increase is primarily due to estimated federal
alternative minimum tax and state income taxes resulting 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.
12
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Nutritional Products
Nutritional product revenues for the three and nine-month periods ended
March 31, 2000, were $7.7 million and $25.5 million respectively, an
increase of $0.5 million and $6.1 million compared to $7.2 million and
$19.4 million respectively, for the comparable periods a year earlier.
The increase in revenues is due to increased ingredient sales, as well
as nutritional product sales from its Lite Bites business, which was
acquired on January 21, 1999.
Nutritional Products operating income for the three and nine months
ended March 31, 2000, was $1.7 million and $6.8 million respectively,
an increase of $0.3 million and $1.5 million when compared to $1.4
million and $5.3 million for the three and nine-month periods a year
earlier. Improved ingredient product and Lite Bites product sales was
the primary reason for the increase.
Pharmaceutical Products
Pharmaceutical products revenues which were $62 thousand and $0.5
million for the three and nine-month periods ended March 31, 2000,
respectively, declined $0.2 million when compared to the same periods a
year earlier. The decline is attributable to reduced sales of
nisin-based animal health products, as a result of the sale to Immucell
Corporation of substantially all of the assets associated with this
product line.
Pharmaceutical products operating income of $44 thousand and $0.1
million for the three and nine months ended March 31, 2000,
respectively, improved when compared to the same periods a year
earlier.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 2000, were $7.0 million as
compared to $4.5 million at June 30, 1999. At March 31, 2000, the
Company had a working capital surplus of $6.7 million compared to a
$1.9 million surplus at June 30, 1999.
During the nine-month period ended March 31, 2000, cash provided by
operations was $8.0 million, compared to $5.8 million for the
nine-month period ended March 31, 1999. The increase is due primarily
to greater profitability and improvement in working capital management.
Cash used in investing activities for the nine months ended March 31,
2000, was $4.1 million compared to $10.1 million for the comparable
period a year ago. The improvement was due primarily to proceeds of
$0.5 million received from the sale of the Wipe Out Dairy Wipes product
line, and non-recurrence of payments for the purchase of the Lite Bites
business. Offsetting these improvements was an increase of $0.7 million
in contingent payments made to the previous owners of the business
acquired.
Cash used in financing activities for the nine months ended March 31,
2000, was $1.4 million compared to cash provided by financing
activities of $4.5 million for the comparable period a year ago. During
the nine months ended March 31, 1999, the Company received $4.0 million
in accordance with a Stock Purchase Agreement with American Home
Products Corporation in exchange for 3,478,261 shares of newly issued
common stock, which did not recur in the nine-month period ended March
31, 2000. Also, during the nine months ended March 31, 1999, the
Company redeemed its outstanding Series C Preferred Stock and issued
1,500 shares of Series E Preferred Stock, resulting in a use of funds
of $1.0 million; repaid AZWELL, Inc $1.0 million in partial settlement
of its loan, and amended and restated its revolving credit and term
loan with State Street Bank & Trust Company, resulting in net cash
provided to the Company of $2.8 million. There were no such
transactions during the nine-month period ended March 31, 2000.
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 March 31, 2000, the Company had no
borrowings under this line.
13
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
On August 11, 1997, the Company acquired the entire beneficial interest
in Nutrition 21. The Purchase Agreement provides for annual contingent
payments of $2.5 million for each of the four years following the
acquisition, subject to adjustment for the achievement of net sales
levels of certain products, and royalties of 2.5% to 5.0% on net sales
of products recommended for certain patented uses.
On January 21, 1999, the Company acquired substantially all of the
assets and assumed certain of the liabilities of Optimum Lifestyles,
Inc. ("OLI"). The Purchase Agreement provides for contingent payments
as follows: payment of up to $1.0 million cash and/or AMBI Common
Stock, at the option of the previous owners of OLI, on each of the
first three anniversaries of the acquisition; payment of $1.5 million,
subject to adjustment for the achievement of net sales levels, payable
on each of the first two anniversaries in newly issued AMBI preferred
stock; and a single payment of $1.0 million in cash, subject to
achieving certain sales levels in new markets, 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.
Future acquisition activities and any increases in marketing, selling
and research and development expenses over the present levels may
require additional funds. 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
The Company completed the implementation of Year 2000 readiness of its
critical operational and administrative software in August 1999.
As of March 31, 2000, the Company has experienced no disruption due to
the Year 2000 issue.
Recently Issued Accounting Standards
In June 1999, 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 patent
infringement actions against companies that are selling chromium
picolinate in violation of the Company's patent rights. As of this
date, several of these actions have been settled in favor of the
Company, various actions are ongoing, and the Company intends to
vigorously protect its proprietary rights.
Item 2 - Changes in Securities and Use of Proceeds
In January 2000, the Company issued a warrant to Cameron Associates,
Inc. for up to 60,000 shares of the Company's Common Stock in
connection with providing of consulting services to the Company. The
above issuance was made pursuant to Section 4 (2) of the Securities Act
of 1933.
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 changes in
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 $27
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: May 12, 2000 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
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