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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year ended June 30, 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 incorporation (I.R.S. Employer
Number) Identification or organization)
4 Manhattanville Road
Purchase, New York 10577-2197
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code: (914) 701-4500
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock (par value $.005 per share)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.005 per share)
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $38,515,772 as of September 25, 2000.
The number of shares outstanding of Registrant's Common Stock as of
September 25, 2000: 31,581,427.
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FORM 10-K REPORT INDEX
10-K Part
and Item No. Page No.
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PART I
Item 1 Business 3
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
Item 5 Market Price of Registrant's Common Equity and
Related Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7a Quantitative and Qualitative Disclosures About Market Risk 23
Item 8 Financial Statements and Supplementary Data 23
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 24
PART III
Item 10 Directors and Executive Officers of the Registrant 25
Item 11 Executive Compensation 30
Item 12 Security Ownership of Certain Beneficial Owners
and Management 36
Item 13 Certain Relationships and Related Transactions 37
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 38
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PART I
Item 1. BUSINESS
The Company
AMBI Inc. (the "Company") is a New York corporation that was
incorporated on June 29, 1983 and currently concentrates its business primarily
on research, development, manufacturing, and sales of proprietary nutrition
products. The Company supports the value of its Nutrition Products with
"pharmaceutical-type" clinical trials and patent filings. The Company's
Nutrition Products are developed for consumers concerned primarily about
cardiovascular health, weight control and blood glucose control.
On December 12, 1996, the Company completed the sale of its UK-based
food ingredients subsidiary, Aplin & Barrett Limited ("A&B") to Burns Philp &
Company Limited ("BP") for $13.5 million in cash and the return to the Company
of 2.42 million shares of the Company's Common Stock held by BP. The sale
included the Company's nisin-based food preservative business. The Company
retained exclusive rights to its nisin-based pharmaceutical and animal
healthcare business.
On August 11, 1997, the Company acquired the entire beneficial interest
in Nutrition 21, a limited partnership. Nutrition 21 is engaged in the business
of developing, producing, and marketing proprietary nutrition products and
dietary supplements. The products acquired from Nutrition 21 constituted a large
majority of the Company's revenues during the fiscal year ended June 30, 2000.
On September 17, 1998, the Company entered into a strategic alliance
with American Home Products Corporation ("AHP") for the right to distribute
certain of the Company's proprietary nutrition products in certain retail
channels in the U.S. As part of the alliance, Whitehall-Robins Healthcare
Division was granted an exclusive license to sell the Company's Cardia(R) Salt
in retail markets in the United States and received a first negotiation option
for exclusive rights and licenses for additional nutrition products for retail
distribution in the United States. The Company retained the exclusive rights to
market its products in both direct response and ingredient channels.
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 that are marketed under the registered
trademark "Lite Bites" through the QVC, Inc. ("QVC") television network (the
"Lite Bites Business"). These products are manufactured to proprietary
specifications under agreements with third party manufacturers.
On August 13, 1999, the Company entered into a Strategic Alliance
Agreement with QVC that provides for the continuation of the Lite Bites
Business, and for the introduction of additional
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branded nutrition products for marketing through QVC.
On December 30, 1999, the Company sold its Wipe Out(R) Dairy Wipes
business to ImmuCell Corporation ("ImmuCell"). The Dairy Wipes consist of a
moistened towel using a nisin-based antibacterial formulation that is for use in
preparing dairy cows for milking. On April 12, 2000, the Company exclusively
licensed to ImmuCell worldwide rights to develop and market new antibacterial
drugs for animals using AMBI's nisin and lysostaphin technologies.
On August 2, 2000, the Company exclusively licensed to Biosynexus Inc.
("Biosynexus") rights to nisin and lysostaphin antibacterial technologies for
development and marketing of new drugs for human uses. The Company received a
payment of $1.4 million, and the license provides for milestone payments of up
to $14 million, and royalties. The Company also received Warrants to acquire
Biosynexus stock.
NutritionU.com, Inc.
On April 3, 2000, the Company launched NutritionU.com, Inc.
("NutritionU"), an Internet company --- NutritionU.com --- an online nutrition
education network that will offer patients and consumers unique interactive
courses designed to increase their knowledge of nutrition in order to improve or
maintain their health. The online nutrition courses offered by NutritionU are
being developed in consultation with Columbia University's Institute of Human
Nutrition. Columbia University's Institute of Human Nutrition will provide its
expertise in nutrition education to the development of the online course
contents. Courses will be designed to make practical and understandable
nutrition information accessible to a broad audience, including but not limited
to clients of registered dietitians and other healthcare professionals. Arthur
Andersen is providing web site, content and product development services.
Nutrition Products
Nutrition Products may take the form of either foods or beverages and
can include vitamins, minerals, enteral and parenteral supplements, other
dietary supplements, healthy foods, functional foods, special dietary foods, and
medical foods, and are sometimes referred to colloquially as "nutraceuticals".
The Company develops Nutrition Products that are regulated by the 1994
Dietary Supplement Health and Education Act (DSHEA) and the Orphan Drug Act, and
markets its products to consumers, physicians, pharmacists, dietitians, other
health care professionals, and other companies, and supports the use of these
products with data from clinical studies and patents. In addition, the Company
conducts clinical studies to further strengthen the medical and scientific
rationale for these products.
Nutrition products with proprietary features are developed and marketed
for sale in three distribution channels:
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As finished products in retail stores under the CardiaNutrition(TM)
brand, through a partnership with the Whitehall-Robins Healthcare
Division of American Home Products, and as "house brands" and other
private label arrangements;
As finished products in direct response television under the Lite
Bites(R) family of brands on the QVC television network and under the
CardiaNutrition(TM) label and, in the future, in other direct response
outlets (such as catalogs, direct mail, multi-level marketing, and the
internet, etc.); and
As ingredients to customers such as Leiner Health Products, TwinLabs,
Weider, Rexall Sundown, General Nutrition Centers, and other large food
and dietary supplement marketers.
Ingredient Products
The Company develops, manufactures, and markets essential trace
elements used as ingredients in nutritional supplements. Currently, the
Company's primary product is chromium picolinate. A composition of matter patent
for chromium picolinate exclusively licensed to Nutrition 21 by the United
States Department of Agriculture ("USDA"), expired August 8, 2000. However, the
Company owns eleven patents which cover certain chromium compositions and their
uses, including three patents that expire in 2009, for the basic nutritional
uses of chromium picolinate in the management of cholesterol, for glucose
control, and for increasing lean body mass and reducing body fat. The chromium
patents owned by the Company also include composition of matter patents for
novel chromium picolinate complexes, which the company calls "Chromax(R) Plus",
that also covers the uses of chromium picolinate complexes in the management of
cholesterol, glucose control, and increasing lean body mass and reducing body
fat. The improved chromium picolinate complexes contain combinations of
chromium, picolinic acid, and various nutrients for enhancing the benefits of
chromium picolinate. New Chromax Plus complexes should provide added benefits to
people concerned about the management of cholesterol, glucose control, and
increasing lean body mass and reducing body fat. Chromax Plus complexes will
have patent protection into the year 2018. See "Proprietary Rights."
AMBI and Nutrition 21 have sponsored more than 15 well-controlled
clinical trials with Chromax chromium picolinate for people concerned about
maintaining healthy blood glucose levels, increasing lean body mass and reducing
body fat, and promoting healthy cholesterol levels. In 1999, scientists
presented research at a symposium during the 59th annual scientific sessions of
the American Diabetes Association (ADA) that supports the emerging role for the
dietary supplement Chromax(R) chromium picolinate in the management of diabetes.
Babak Bahadori, MD, of the University of Graz in Austria found that
chromium picolinate may enhance the effects of metformin and oral sulfonylureas,
the most commonly used drugs in the treatment of diabetes. Dr. Bahadori's data
suggest that in obese patients with Type 2 diabetes
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receiving a sulfonylurea and metformin, supplementation with chromium picolinate
significantly lowered fasting insulin levels without a detrimental effect on
glucose control.
The ability of chromium picolinate to lower fasting insulin levels in
patients already receiving diabetic medications is clinically important because
an elevated insulin level in the blood is an established risk factor for
cardiovascular disease. These findings suggest the use of chromium picolinate as
a nutritional adjunct in the dietary management of diabetes.
Additional research conducted in 1999 by William T. Cefalu, MD,
Associate Professor of Medicine in the Endocrinology, Diabetes and Metabolism
Unit at the University of Vermont College of Medicine described an improvement
in insulin sensitivity in obese people with pre-diabetic symptoms who received
Chromax(R) chromium picolinate.
Furthermore, Alexander Ravina, MD, of the Diabetes Department at the
Linn Clinic in Haifa, Israel, published results of a clinical trial in Diabetic
Medicine that showed that chromium picolinate reduced or eliminated the symptoms
in 41 out of 44 patients with steroid-induced diabetes after standard drug
therapy failed. In Dr. Ravina's study, the 41 patients who had developed
diabetes as a result of undergoing steroid treatment and who benefited from
Chromax(R) chromium picolinate were able to reduce or eliminate their diabetic
medication, such as insulin. Patients were given Chromax(R) supplements starting
at daily doses of 600 micrograms of chromium and gradually decreasing to 200-400
micrograms daily within one week.
Chromium picolinate is marketed by the Company under its registered
trademark Chromax(R). In addition, the Company also markets zinc picolinate and
selenium formulations. The Company has funded and continues to fund research
studies investigating the uses of chromium picolinate and other micro-nutrients
or minerals as dietary supplements with preventative and therapeutic benefits to
humans. In 1996, chromium picolinate was approved by the U.S. Food and Drug
Administration ("FDA") for use as a supplement in animal feed for swine. In
addition to sales for human consumption, the Company sells chromium picolinate
for use in certain animal feed applications.
The Company has its products manufactured and formulated to its
specifications by contract manufacturers as bulk raw materials. The Company then
sells the raw materials to customers who incorporate them into over 900 finished
products such as vitamin/mineral formulas, dietary supplements, baked goods,
beverages and other products. These products are sold by the Company's customers
under a variety of brands throughout the world through natural/health food
stores, supermarkets, drug stores, and mass merchandisers, and also through
direct sales and catalogues sales. The Company has approximately 50 raw
materials customers.
The Company is developing new micro-nutrients such as calcium taurate,
magnesium taurate and others for which the Company has patent protection, and
may commercialize these or other products.
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Finished Products in Retail Stores
In October 1995, the Company acquired an exclusive license from a
division of Orion Corporation ("Orion"), of Finland, to sell Orion's patented
salt in the United States. The Company began selling Cardia(R) Salt in April
1996. This product has reduced sodium compared to regular salt and contains
potassium and magnesium, essential minerals that have been shown to promote
healthy blood pressure. High blood pressure, or hypertension, affects
approximately 50 million Americans. The Company has conducted trials on Cardia
Salt. For example, two separate studies released in April and May 1997,
respectively, compared the use of Cardia Salt and regular salt in hypertensive
patients and found reduced blood pressure in the patients who used Cardia Salt.
On September 17, 1998, the Company licensed Cardia Salt to AHP for sale in U.S.
retail markets. See "The Company."
In fiscal 2001, the Company is planning on introducing to the retail
trade a new product line of dietary supplements called "No Yo(TM)", designed to
address `yo yo dieting,' or `weight cycling' --- the unhealthy phenomenon of
losing then regaining weight.
Finished Products in Direct Response Outlets
In January 1999, the Company acquired the Lite Bites Business. Lite
Bites products are sold by the Company to QVC who offers them for sale to
consumers in the US primarily via QVC's direct response television programs. The
Lite Bites products constitute part of a fat fighting system that has been
demonstrated to promote weight loss when used as part of a program including
diet modification and exercise. The Company is working with QVC to expand the
Lite Bites product offerings and to broaden geographic penetration in certain
QVC international markets. In September, 1999, the Company and QVC introduced
the Lite Bites products under the trademark "Brite Bites" in the United Kingdom
through QVC-UK. The Company is planning on introducing during the first quarter
of fiscal 2001, Cardia Nutrition(TM) (CN) kits composed of multiple nutrition
products combined into convenient daily packs so that it is easier to maintain a
proper nutritional program everyday. In connection with the QVC alliance, AMBI
issued to QVC 420,000 performance-based warrants to purchase the Company's
Common Stock. During the year ended June 30, 2000, QVC, Inc. accounted for
approximately 19% of revenues.
The Company is evaluating other proprietary Nutrition Products in the
areas of cardiovascular disease, diabetes, infectious disease, and
gastrointestinal disorders.
Pharmaceutical Products and Partners
The Company has infectious disease drug technology for diseases in
humans, centered around the compound nisin, a member of the lanthocin class of
peptides, as a potential treatment for infections of the colon, and lysostaphin,
an enzyme, as a potential treatment for endocarditis, and lysostaphin and
antibiotic compositions to treat infections while suppressing the formation of
staphylococcal and antibiotic resistance. The Company determined that it did not
have the resources necessary to take these pharmaceutical products for the
treatment of infectious diseases from the development stage through regulatory
filings and ultimately to the marketplace, should a
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product be proven to be safe and efficacious. In March 1996, the Company entered
into an exclusive Agreement with AZWELL, Inc. (formerly Nippon Shoji Kaisha,
Ltd. of Osaka, Japan), under which AZWELL received exclusive rights to develop
and market certain nisin-based drug products as a treatment of infection of the
colon and nosocomial infections in Japan, certain Asian countries, Australia and
New Zealand.
In August 2000, the Company exclusively licensed to Biosynexus Inc.
("Biosynexus") the Company's remaining rights to nisin and lysostaphin
antibacterial technologies for development and marketing of new drugs for human
uses. The Company received a payment of $1.4 million, and the license provides
for milestone payments of up to $14 million, and royalties. The Company also
received Warrants to acquire common stock of Biosynexus, currently a privately
held company.
The Company also has infectious disease technology centered about nisin
and lysostaphin for the treatment of diseases in animals, including a moistened
towel using a nisin-based formulation for mastitis prevention that is used for
preparing dairy cows for milking. The Company launched the product under its
trademark Wipe Out(TM) Dairy Wipes in April 1996. On December 30, 1999, the
Company sold its Wipe Out(TM) Dairy Wipes business to ImmuCell Corporation
("ImmuCell"). On April 12, 2000, the Company exclusively licensed to ImmuCell
worldwide rights to develop and market new antibacterial drugs for animals using
AMBI's nisin and lysostaphin technologies.
The Company is developing mineral-based products with proprietary
features as prescription drugs for patients with diabetes, hypokalemia, and
hypertension. During the past year, the Company made progress in the development
of mineral-based prescription drug candidates, including Chromax Plus chromium
picolinate for steroid-induced diabetes, and a potassium product for
hypokalemia, a condition frequently associated with side effects of
anti-hypertensive diuretic medications. Also during the year, clinical results
of the use of Chromax chromium picolinate in patients with steroid-induced
diabetes were published, positive results were achieved from a safety trial in a
well-established animal model with our new potassium prescription product, and
the Company received a patent on the use of calcium taurate in the treatment of
hypertension.
Internet Nutrition Education
NutritionU.com, Inc.
On April 3, 2000, the Company launched NutritionU.com, Inc.
("NutritionU"), an Internet company - NutritionU.com --- an online nutrition
education network that will offer patients and consumers unique interactive
courses designed to increase their knowledge of nutrition in order to improve or
maintain their health. The online nutrition courses offered by NutritionU are
being developed in consultation with Columbia University's Institute of Human
Nutrition.
NutritionU is different than the proliferation of Internet Web sites
that have a significant amount of medical or nutrition data available.
NutritionU has content that is focused and organized
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to readily meet the needs of its target audience. It is now understood that
patients and consumers who use Web sites that address health generally, have a
great deal of difficulty extracting information from the data made available and
turning that data into knowledge of use to the patient or consumer. NutritionU
plans to make this knowledge desired by a patient or consumer available in a
well organized, easy-to-use, exciting, low-cost format so that beneficial action
can be taken by the patients or consumer.
The plan is to start by offering clients of registered dietitians and
other healthcare professionals the opportunity to learn more about their
disease, condition or concern. There are more than 70,000 registered dietitians,
diabetes educators, and other healthcare professionals in the U.S. These
highly-trained, certified healthcare professionals see more than two million
patients and clients annually, many of whom are referred by physicians after
diagnosing diseases and conditions such as type 1 and type 2 diabetes, high
blood pressure, high cholesterol, obesity, and digestive and eating disorders.
It is well established that proper adherence to diet and lifestyle modifications
can be instrumental in assisting in disease management and the prevention of
worsening health conditions.
The business model is based on the generation of revenues from patients
and consumers who today spend more than a billion dollars on nutrition books,
video tapes, audio cassettes, and diet plans recommended by healthcare
professionals. NutritionU will offer patients and consumers low-cost,
easy-to-learn, exciting alternatives to these conventional products and
programs. And, in addition, it will offer patients and consumers the opportunity
to earn a certificate in nutrition education that reflects their up-to-date
nutrition knowledge. NutritionU also anticipates that it will generate revenues
from other sources including partnerships and cross-promotional activities with
other healthcare providers.
Columbia University's Institute of Human Nutrition will provide its
expertise in nutrition education to the development of the online course
contents. Courses are being designed to make practical and understandable
nutrition information accessible to a broad audience, including but not limited
to clients of registered dietitians and other healthcare professionals.
Registered dietitians and diabetes educators are constantly in search
of new information and services that they can provide to their clients to better
assure compliance with their recommendations, so as to lead to better health
outcomes. Courses that address unmet knowledge needs for important conditions
that the client can pursue on his or her own should result in more effective
treatment and follow-up visits.
Courses will be offered initially in a test mode and the company
expects to be fully operational in 2001. Visitors to NutritionU's Website ---
NutritionU.com --- can get information on the business and can leave their name
and email address so that they can be contacted when the company is fully
operational.
AMBI has provided funding for NutritionU.com and the Company has
indicated that it will continue to finance operations of this business unit but
may seek additional financing from third party investors and/or companies that
can assist NutritionU in the marketing and distribution of its
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courses. NutritionU will operate as a separate entity with its own board of
directors and management team.
Governmental Regulation
Dietary Supplements and Pharmaceuticals
Depending upon the ingredients of a specific product, some nutrition
products can be marketed in the U.S. under the Dietary Supplement Health and
Education Act (DSHEA) or the Orphan Drug Act. The Company's nutrition products
fall in regulatory categories that do not require FDA approval for marketing,
but are subject to monitoring by the FDA. In addition to FDA regulations, the
Federal Trade Commission ("FTC") regulates product advertising claims. Prior to
the Company's acquisition of Nutrition 21, Nutrition 21 and the FTC entered into
a consent agreement, which culminated in an FTC order that, among other things,
requires that claims for dietary supplements be supported by competent and
reliable scientific evidence. The order requires that Nutrition 21 advise its
customers who resell chromium picolinate to the public not to make claims which
are not supported by competent and reliable scientific evidence.
Products that are intended for use in the diagnosis, cure, mitigation,
treatment or prevention of disease in humans or animals are subject to extensive
governmental regulation. All such products must undergo extensive
characterization, and are subject to regulation for quality assurance,
toxicology and safety. Products containing such agents must undergo thorough
preclinical and clinical evaluations of performance as to safety and efficacy
under approved protocols. To take a pharmaceutical product from the discovery
stage through research and preclinical development to the point where the
Company and/or its partners can make the necessary filings (to the FDA and
governmental agencies outside the U.S.) to conduct human clinical trials may
take several years. Regulatory requirements for human clinical trials are
substantial, depend upon a variety of factors, vary by country, and will further
add to the time necessary to determine whether a product candidate can be
approved for human use. The Company does not have any pharmaceutical products
that have completed this process. There can be no assurance that if the Company
has proposed drug products, that they will prove to be safe and effective under
these regulatory procedures. See also "Pharmaceutical Products."
Research and Development
The Company conducts preclinical, formulation, and clinical trials on
its nutrition products and product candidates, and development activities for
its nutrition education initiative. These efforts are conducted with industrial
and academic co-workers in various countries. During the fiscal years ended June
30, 2000, 1999 and 1998, approximately $2.6 million, $1.8 million, and $2.7
million were spent on research and development by the Company.
Proprietary Rights
Cardia, CardiaNutrition, Lite Bites, and Lite Bites Fat-Fighting System
Chewies are
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registered trademarks used by the Company in the U.S. Chromax, Selenomax,
Zinmax, and Magnemax are among the registered trademarks owned by Nutrition 21:
Chromax for chromium picolinate; Selenomax for high selenium yeast and
yeast-free selenium; Zinmax for zinc picolinate; and Magnemax for manganese
picolinate. The Company is developing other nutrition products to be sold under
its CardiaNutrition and other trademarks.
Nutrition Patents
The Company owns 21 patents on Nutrition Products. Eleven patents cover
certain chromium compositions and their uses, including three patents that
expire in 2009, for the basic nutritional uses of chromium picolinate in the
management of cholesterol, glucose control, and increasing lean body mass and
reducing body fat. The chromium patents owned by the Company also include
composition of matter patents for novel chromium picolinate complexes, which the
company calls "Chromax(R) Plus", that also covers the use of the chromium
picolinate complex in the management of cholesterol, glucose control, and
increasing lean body mass and reducing body fat. The improved chromium
picolinate complexes contain combinations of chromium, picolinic acid, and
various nutrients for enhancing the benefits of chromium picolinate. New Chromax
Plus complexes should provide added benefits to people concerned about the
management of cholesterol, glucose control, and increasing lean body mass and
reducing body fat. Chromax Plus complexes will have patent protection into the
year 2018. The Company owns other patents relating to, among other things,
chromium/biotin treatments for reducing hyperglycemia and stabilizing levels of
serum glucose, magnesium taurate treatments of cardiac conditions, and
arginine-silicate-inositol complexes for preventing or inhibiting
atherosclerosis which expire during the period from 2015 through 2018. The
Company also has other patent applications, including patent applications on
other enhanced chromium picolinate compositions and their uses. The Company
maintains non-disclosure safeguards, including confidentiality agreements, with
employees, certain consultants, and Science Advisory Board members. There can be
no assurance, however, that others may not independently develop similar
technology or that secrecy will not be breached despite any agreements that
exist.
Pharmaceutical Patents
The Company owns more than 200 patents relating to, among other things,
the expression and production of proteins by recombinant Bacillus strains;
plasmid vectors and methods of construction; expression and production of
recombinant lysostaphin; novel bacteriocin compositions and their use as broad
spectrum bactericides; the use of bacteriocin compositions to treat bovine
mastitis; the use of bacteriocin compositions in oral healthcare; the use of
bacteriocin compositions on skin for healthcare and hygiene; and the use of
bacteriocin compositions in gastrointestinal healthcare. These patents are
licensed to AZWELL, Biosynexus, and ImmuCell.
The Company maintains trade secret protection for bacterial strains,
technical know-how, and other information it considers proprietary and
beneficial for the manufacture, use, regulatory approval, and marketing of the
Company's products.
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Manufacturing
The Company's products are manufactured for the Company by contractors
who manufacture to the Company's specifications and some of whom use the
Company's manufacturing technology. The Company believes that it has adequate
inventory of products to accommodate a suspension in the manufacture of any of
its products. There are numerous sources of supply for all of the raw materials
used in the manufacture of the Company's products.
Employees
As of June 30, 2000, the Company had 42 full-time employees, of whom 5
were executive employees, 15 were administrative, 12 were engaged in marketing
and sales, and 10 were involved in research, process and product development,
and manufacturing. The Company does not have a collective bargaining agreement
with any of its personnel and considers its relationship with its employees to
be satisfactory.
Item 2. PROPERTIES
Since September 1998, the Company maintains its headquarters at 4
Manhattanville Road, Purchase, New York 10577-2197 (Tel: 914-701-4500). Pursuant
to a seven and one-half year sublease entered into September 1998, the Company
is paying an annual rent for its headquarters location in the amount of
$589,420, which sum is due in monthly installments. The rent is subject to
annual increases over the term of the lease based on increases in certain
building operating expenses. In November 1998, the Company relocated its
laboratories to 777 Old Saw Mill River Road, Tarrytown, New York 10591 (Tel:
914-347-7110). Pursuant to a lease that expires in November 2003, the annual
rent is $29,590.
Item 3. LEGAL PROCEEDINGS
The Company in the ordinary course of its business has brought many
patent infringement actions against companies that are selling chromium
picolinate in violation of the Company's patent rights. As of this date, these
actions are ongoing, and the Company intends to vigorously protect its
proprietary rights. Various actions have been terminated on terms that the
Company believes will protect its rights.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders during the
fiscal quarter ended June 30, 2000.
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PART II
Item 5. MARKET PRICE OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
System under the symbol "AMBI" .
The Company has not paid a cash dividend to its public shareholders on
its Common Stock. The Company intends to retain all earnings for the foreseeable
future for use in the operation and expansion of its business and, accordingly,
the Company does not contemplate paying any cash dividends on its Common Stock
in the near future.
The following table sets forth the high and low sales prices as
reported by the Nasdaq National Market for the Common Stock.
Common Stock
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Fiscal Quarter Ended High Low
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September 30, 1998 $1.50 $0.625
December 31, 1998 $2.00 $0.625
March 31, 1999 $1.688 $1.063
June 30, 1999 $2.969 $1.063
September 30, 1999 $3.875 $1.938
December 31, 1999 $3.00 $1.906
March 31, 2000 $8.00 $2.25
June 30, 2000 $5.50 $2.703
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Item 6. SELECTED FINANCIAL DATA
The following tables summarize selected consolidated financial data
that are qualified by the more detailed financial statements included herein.
Figures are stated in thousands of dollars, except per share amounts.
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Selected Statement of Year Ended June 30,
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Operations Data: 2000 1999(4) 1998(2) 1997(1) 1996
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<S> <C> <C> <C> <C> <C>
Total Revenues $32,814 $28,301 $20,758 $11,280 $16,022
Gross Profit 27,034 23,519 17,802 6,282 9,669
Operating Income/(Loss) 7,041 6,469 1,467 (16,635) (4,621)
Income/(Loss) Before Taxes (3) 7,004 6,347 1,168 (6,661) (4,434)
Income Taxes 523 482 116 152 285
Net Income/(Loss) 6,490 5,865 1,052 (6,813) (4,719)
Diluted Earnings /(Loss) per Share 0.20 0.19 (0.04) (0.38) (0.34)
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At June 30,
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Selected Balance Sheet Data: 2000 1999 1998 1997 1996
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<S> <C> <C> <C> <C> <C>
Working Capital $6,486 $1,879 $(2,269) $7,055 $14,812
Total Assets 41,085 34,541 20,735 12,754 23,367
Total Liabilities 10,430 12,950 10,437 5,144 6,221
Long Term Obligations 1,278 3,807 1,543 2,184 4,408
Redeemable Preferred Stock 676 921 -- -- --
Stockholders' Equity 29,979 20,670 10,298 7,610 15,646
</TABLE>
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(1) The results for the year ended June 30, 1997, are those of the Company
and Aplin & Barrett for the period July 1, 1996 through December 11,
1996 and those of the Company only for the remainder of the fiscal year
(see Item 13-Certain Relationships and Related Transactions).
(2) Consolidated Statements of Operations includes the operations of
Nutrition 21 from August 11, 1997, the date of acquisition.
(3) Includes gain of $9.7 million on sale of Aplin & Barrett in fiscal
1997.
(4) Consolidated Statements of Operations includes the operations of the
Lite Bites business from January 1, 1999, the effective date of
acquisition.
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Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto of the Company
included elsewhere herein.
Overview
The following table sets forth items in the Consolidated Statements of
Operations as a percent of revenues:
Fiscal Year
Percent of Revenues
-------------------
2000 1999 1998
---- ---- ----
Revenues 100.0% 100.0% 100.0%
Gross profit* 82.1 82.2 85.3
Selling, general and administrative expense 40.6 44.0 58.3
Research & development expense 8.0 6.3 12.8
Operating income 21.5 22.9 7.1
Net income 19.8 20.7 5.1
*Based upon percent of net sales
Results of Operations
1. Year ended June 30, 2000 vs. Year ended June 30, 1999
Revenues
Net sales for fiscal 2000 increased $5.4 million, or 20.0% to $32.3
million, compared to net sales of $26.9 million for fiscal 1999. The improvement
in net sales is due to increased nutritional product sales of $2.9 million
resulting from the January 1999 acquisition of the Lite Bite Business as well as
a $2.4 million increase in ingredient sales.
Other revenues for fiscal 2000 declined $0.9 million to $0.5 million,
as compared to other revenues of $1.4 million for fiscal 1999. Fiscal 1999
included a $1.0 million non-refundable payment for the rights granted to the
Whitehall-Robins Healthcare division of American Home Products Corporation (AHP)
in accordance with the License, Option and Marketing Agreement entered into on
October 8, 1998.
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Cost of Sales
Cost of sales for fiscal 2000 increased $1.0 million or 20.9% to $5.8
million compared to $4.8 million for fiscal 1999. The increase in cost of sales
reflects the higher costs associated with the Company's Lite Bites nutritional
products.
Gross Profit
Gross profit for fiscal 2000 increased $3.5 million or 14.9% to $27.0
million compared to $23.5 million for fiscal 1999. The increase in gross profit
is due to the full year's benefit of the Lite Bites Nutritional Products
combined with the gross profit from the increased ingredient sales. Partially
offsetting the improvement was a decline in other revenues of $0.9 million, as
noted above.
Selling, General and Administrative
Selling, general and administrative expense increased $0.9 million or
6.9% to $13.3 million in fiscal 2000 compared to $12.5 million in fiscal 1999.
The increase is due primarily to marketing initiatives related to ingredient
products as well as increased marketing and selling costs associated with the
nutritional products business.
Research and Development
Research and development expense increased $0.8 million or 46.1% to
$2.6 million in fiscal 2000, compared to $1.8 million in fiscal 1999. The
increase is due primarily to $0.5 million of costs associated with
NutritionU.com, our online nutrition education subsidiary, combined with
increased spending of $0.3 million for ongoing product development, quality
control and quality assurance development activities.
Operating Income
Operating income increased $0.6 million or 8.8% to $7.0 million in
fiscal 2000 compared to $6.5 million in fiscal 1999. The increased sales of
ingredient and nutritional products, partially offset by increases in selling,
general and administrative expense and amortization costs associated with the
Lite Bite Business acquisition, were the primary reasons for the increase.
Interest Expense Net and Minority Interest
Interest expense, net decreased $95 thousand or 45.7% to $113 thousand
for fiscal 2000 compared to $208 thousand in fiscal 1999, due primarily to
reduced debt levels and additional interest income earned on funds invested in
interest-bearing deposits. Minority interest, net of tax of $9 thousand in
fiscal 2000, is related to minority shareholder interest in NutritionU.com, our
online nutrition education subsidiary.
Income Taxes
Income taxes increased $41 thousand to $0.5 million in fiscal 2000 when
compared to
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fiscal 1999. The increase is primarily due to estimated state income taxes
resulting from the company's increased profitability. The Company has
substantially utilized it's federal tax loss carryforwards, and it is expected
that its effective tax rate will increase significantly from 7.5% in fiscal 2000
to a statutory federal tax rate of 34% in addition to state income taxes,
thereby reducing net income and earnings per share in future periods as well as
affecting comparisons with prior periods.
2. Year ended June 30, 1999 vs. Year ended June 30, 1998
Revenues
Net sales for fiscal 1999 were $26.9 million, an increase of 34.0%
compared to $20.1 million in fiscal 1998. The increase in net sales is due
primarily to increased ingredient sales of $4.0 million from the acquisition of
Nutrition 21, and an increase of $3.1 million of product sales from the
acquisition of the Lite Bites Business, partially offset by a decline in sales
from pharmaceutical products of $0.3 million.
Other revenues for fiscal 1999 were $1.4 million, an increase of 105.6%
compared to $0.7 million in fiscal 1998. The increase is comprised primarily of
a non-refundable payment by AHP for the rights granted to AHP in accordance with
the License, Option and Marketing Agreement entered into in September 1998,
partially offset by a decrease of $0.3 million in revenue from pharmaceutical
partners.
Gross Profit
Gross profit of $23.5 million increased $5.7 million or 32.1% in fiscal
1999 compared to $17.8 million in fiscal 1998 which includes $1.4 million of
license fees and royalties with no associated costs. Gross profit margins on net
sales declined to 82.2% in fiscal 1999 compared to 85.3% in fiscal 1998,
reflecting lower gross margins on Lite Bites nutritional products, partially
offset by higher gross margin ingredient product sales.
Selling, General and Administrative
Selling, general and administrative expense increased $0.4 million, an
increase of 2.9% in fiscal 1999 when compared to fiscal 1998. The increase is
due to greater spending for administrative expense and Lite Bites marketing
expense, partially offset by reduced promotional expenses for ingredient
products.
Research and Development
Research and development expense declined $0.9 million, or 32.8% in
fiscal 1999 compared to fiscal 1998. The decrease is attributable to the
Company's decision to reduce research activities related to its infectious
disease drug candidates.
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Operating Income
Operating income for fiscal 1999 was $6.5 million, an increase of 341%
compared to $1.5 million in fiscal 1998. The increase in operating income is
primarily due to the acquisition of the Lite Bites Business combined with
increases in sales of ingredients and a $0.7 million increase in other revenues.
Partially offsetting these increases were higher selling, general and
administrative expense as well as increased amortization costs resulting from
the acquisition of the Lite Bites Business.
Income Taxes
Income taxes for fiscal 1999 were $0.5 million, an increase of $0.4
million, compared to $0.1 million in fiscal 1998. The increase is primarily due
to estimated federal alternative minimum tax and state income taxes from the
Company's increased profitability.
Business Segments
The Company operates in two business segments - Nutritional Products
and Pharmaceutical Products.
Nutritional Products
1. Year ended June 30, 2000 vs. Year ended June 30, 1999
Nutritional Product revenues increased $4.9 million, or 17.8% to $32.2
million compared to $27.4 million in fiscal 1999. The increase in revenues is
due to increased nutritional product sales of $2.9 million resulting from the
January 1999 acquisition of the Lite Bites Business; as well as a $2.4 million
increase in ingredient product sales, partially offset by reduced revenues of
$0.4 million due to the sale of the Company's Wipe Out Dairy Wipes business in
December 1999.
Nutritional Products operating income was $7.0 million in fiscal 2000,
an increase of $0.4 million or 5.6% compared to $6.6 million in fiscal 1999. The
increase is primarily due to the full year's benefit resulting from the
acquisition of the Lite Bites Business, as well as increased sales of ingredient
products. Partially offsetting these increases were higher selling, general and
administrative expense as well as increased amortization costs resulting from
the acquisition of the Lite Bites Business.
2. Year ended June 30, 1999 vs. Year ended June 30, 1998
Nutritional Products revenues were $27.4 million in fiscal 1999, an
increase of 44.3% compared to $19.0 million in fiscal 1998. The increase in
revenues is due to increased ingredient sales of $4.0 million from the August
1997 acquisition of Nutrition 21, combined with product sales of $3.1 million
from the January 1999 acquisition of the Lite Bites Business, and other revenue
primarily attributable to fees and royalties from AHP.
Nutritional Products operating income was $6.6 million in fiscal 1999,
an increase of 208.6% compared to $2.1 million in fiscal 1998. The increase is
primarily due to the acquisition of the Lite Bites Business, increased sales of
ingredients, and other revenue primarily attributable to
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<PAGE>
fees and royalties from AHP. Partially offsetting these increases were higher
selling, general and administrative expense, as well as increased amortization
costs resulting from the acquisition of the Lite Bites Business.
Pharmaceutical Products
1. Year ended June 30, 2000 vs. Year ended June 30, 1999
Pharmaceutical Products revenues were $0.6 million in fiscal 2000, a
decrease of $0.3 million compared to $0.9 million in fiscal 1999. The decrease
in revenues is due to reduced sales of nisin-based animal health products
resulting from the sale of the nisin-based animal health product line in
December, 1999.
Pharmaceutical Products operating income was $63 thousand in fiscal
2000, an increase of $0.2 million compared to an operating loss of $139 thousand
in fiscal 1999. The increase is primarily due to reduced costs in the Company's
nisin-based animal health product line, as well as increased sales of the
Company's lysostaphin products.
2. Year ended June 30, 1999 vs. Year ended June 30, 1998
Pharmaceutical Products revenues were $0.9 million in fiscal 1999, a
decrease of 47.4% compared to $1.8 million in fiscal 1998. The decrease in
revenues is due to non-recurrence of $0.6 million of revenues from
pharmaceutical partners received during fiscal 1999 and from reduced sales of
nisin-based animal health products.
Pharmaceutical Products operating loss was $139 thousand in fiscal
1999, a reduction of $0.5 million compared to an operating loss of $0.7 million
in fiscal 1998. The reduction in operating loss is primarily due to a reduction
in research and development expenses associated with the Company's
pharmaceutical products, partially offset by the decrease in revenues.
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2000 increased $4.0 million or
90.4% to $8.5 million compared to $4.5 million at June 30, 1999. As of June 30,
2000, the Company had a working capital surplus of $6.5 million, compared to a
working capital surplus of $1.9 million as of June 30, 1999.
Net cash provided by operations for the fiscal year 2000 was $9.4
million compared to $8.8 million for fiscal year 1999. The increase is due
primarily to cash generated from increased profitability, partially offset by a
decrease in accounts payable and accrued expenses.
Net cash used in investing activities for fiscal 2000 was $4.2 million
compared to $10.3 million for fiscal 1999. The improvement is due primarily to
cash proceeds of $0.5 million from the sale of the Wipe Out(TM) Dairy Wipes
product line in fiscal year 2000; non-recurrence of payments for the purchase of
the Lite Bites business partially offset by increased contingent
19
<PAGE>
payments to the former owners of Nutrition 21 and the Lite Bites Business.
Net cash used in financing activities in fiscal 2000 was $1.1 million
compared to cash provided by financing in fiscal 1999 of $3.9 million.
On January 21, 1999, the Company entered into an Amended and Restated
Revolving Credit and Term Loan Agreement, that was further amended effective as
of June 30, 2000 ("the Loan Agreement") with Citizens Bank of Massachusetts
("Citizens") (successor in interest to loans originally issued to the Company by
State Bank and Trust Company, "SSBT") which Loan Agreement amended and restated
a prior agreement with SSBT. The Loan Agreement is for a $5.5 million term loan
and a $4.0 million revolving credit facility for the purposes of acquiring the
Lite Bites Business and for general corporate purposes. Loans from Citizens bear
interest at the prime rate plus 1% and are due February 1, 2002. The Company is
making monthly payments of principal and interest on the loan. The Company had
no outstanding balance on the revolving credit facility as of June 30, 2000. As
of June 30, 2000, the Company had an outstanding term loan balance of $2.6
million with Citizens.
On September 17, 1998, the Company entered into a strategic alliance
with American Home Products Corporation ("AHP"). Under a License, Option and
Marketing Agreement, AHP's Whitehall-Robins Healthcare Division was granted for
$1.0 million, an exclusive license to sell the Company's Cardia(R) Salt in
retail markets in the United States. Under a separate Stock Purchase Agreement,
AHP, on October 8, 1998 paid $1.15 per share or a total of $4.0 million for
3,478,261 shares of newly issued Common Stock. The Company retained the
exclusive rights to market its products in both direct response and ingredient
channels.
In accordance with the Purchase Agreement for the acquisition of
Nutrition 21, the Company recorded on its balance sheet at June 30, 2000, a
current liability of $3.1 million for the contingent payment due in September
2000 to the former owners of Nutrition 21 as provided for in the purchase
agreement. On September 30, 1999, the Company paid the former owners of
Nutrition 21 approximately $3.6 million, representing the full amount of the
contingent payment due for the 12-month period September 1998 through August
1999. The Company utilized cash generated from operations to satisfy the
contingent payment.
In accordance with the Agreement of Purchase and Sale of Assets of OLI
entered into on January 19, 1999, the Company recorded on its balance sheet at
June 30, 2000, a current liability of $0.4 million for a contingent payment due
in January 2001 to the former owners of OLI. On February 18, 2000, in
satisfaction of a contingent payment requirement, the Company paid the former
owners of OLI $0.4 million in cash, and issued to them 200,000 shares of its
Common Stock and 828 shares of its Series G Preferred Stock. The Company used
cash generated from operations to satisfy the cash portion of the contingent
payments.
In March 1996, the Company entered into an agreement with AZWELL, Inc.
(formerly Nippon Shoji Kaisha), under which AZWELL agreed to provide research
funding and equity and debt financing in return for exclusive rights to certain
nisin based drug products in Japan and certain other Asian countries. In
conjunction with that Agreement, AZWELL invested $2.0 million
20
<PAGE>
in the Company's Common Stock and loaned the Company another $2.0 million which
could be repaid, at the Company's option, with the Company's Common Stock upon
meeting certain milestones. The Company advised AZWELL that one milestone, FDA
acceptance of its Investigational New Drug application for diseases of the
colon, was met. On March 18, 1999, the Company exercised its right and settled
$1.0 million of the loan with its Common Stock and repaid $1.0 million in cash.
On December 10, 1998, the Company issued 1,500 shares of new Series E
Preferred Stock ("E Preferred") with a par value of $0.01 per share. The E
Preferred, which is convertible into common stock of the Company at a fixed
price of $1.25 per share, was exchanged for $1.5 million face amount of the
Company's outstanding Series C Preferred Stock ("C Preferred"), $1.0 million in
cash, and the issuance of 324,689 shares of the Company's Common Stock. The E
Preferred also provides for payment on the second anniversary of issuance of an
additional fee dependent upon the value of the Company's equity securities on
that date and the Company has recorded a current liability of $0.3 million, the
minimum amount due. As a result of this exchange transaction, the Company
recorded a one-time incremental preferred dividend of $242 thousand,
representing the excess of the consideration exchanged over the carrying value
of the then outstanding C Preferred. The E Preferred is subject to conversion at
any time at the option of the holders, and is subject to mandatory conversion
after three years.
On January 27, 1999, the Company issued 575 shares of new Series F
Preferred Stock ("F Preferred") with a par value of $0.01 per share. On that
date, the Company's then outstanding 5,570 shares of D Preferred Stock ("D
Preferred") and accrued dividends thereon of $59 thousand were exchanged for
$575 thousand face amount of F Preferred; 78,166 shares of the Company's common
stock and the resetting of the exercise price of the Warrants of the Company,
per share. The fixed conversion rate is subject to adjustments in certain
circumstances. The F Preferred bears dividends at a rate of 10% per annum
payable in cash, or at the option of the Company, in shares of Common Stock. As
a result of this exchange transaction, the Company recorded a one-time
incremental preferred dividend of $81 thousand, representing the excess of the
consideration exchanged over the carrying value of the then outstanding D
Preferred. The F Preferred is subject to conversion at any time at the option of
the holders, and is subject to mandatory conversion after three years.
The Company's primary sources of financing are cash generated from
continuing operations and the Citizens revolving line of credit. The
availability under the Citizens revolving line of credit is based on the
company's accounts receivable and inventory. At June 30, 2000, the Company had
no borrowings under this line.
The Company believes that cash generated from operations and cash
available under the line of credit will provide sufficient liquidity to fund
operations, debt service and other scheduled contingent payments for the next
twelve months.
Future acquisition activities and any increases in marketing and
research and development expenses over the present levels may require additional
funds. Also, the Company is obligated to repay the borrowings to Citizens no
later than February 2002. The Company intends to seek any
21
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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.
Factors that may affect future results
A composition of matter patent for chromium picolinate, exclusively
licensed to a subsidiary of the Company, expired on August 8, 2000. Although the
Company owns other patents on chromium picolinate, including patents on the
basic nutritional uses of chromium picolinate, the Company has lowered its
prices for chromium picolinate. As announced on July 27, 2000, the Company has
entered into agreements with 11 of its major nutrition ingredient customers in
which those customers have committed to purchase all of their chromium
picolinate requirements from the Company in return for price reductions of up to
50 percent. Although the Company expects to retain a substantial portion of its
unit volume of chromium picolinate, the price reductions will serve to
materially reduce sales from its nutritional products segment going forward.
The Company's continued funding of NutritionU.com, its Internet-based
nutrition education subsidiary, toward a planned launch in early calendar 2001,
is expected to result in increased operating expenditures in fiscal 2001.
The Company has substantially utilized it's federal tax loss
carryforwards, and therefore it is expected that its effective tax rate will
increase significantly from 7.5% in fiscal 2000 to a statutory federal tax rate
of 34% in addition to state income taxes, thereby reducing net income and
earnings per share in future periods as well as affecting comparisons with prior
periods.
Year 2000 Readiness Disclosure
The Company completed the implementation of Year 2000 readiness of its
critical operational and administrative software during the month of August
1999. As of June 30, 2000, the Company has not experienced any disruptions due
to Year 2000 issues.
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 qualifies
for hedge accounting.
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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.
The Securities and Exchange Commission (SEC) released Staff Accounting
Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements" on December
3, 1999, SAB No. 101A on March 24, 2000 and SAB No. 101B on June 26, 2000. SAB
No. 101 sets forth the views of the Staff of the SEC on revenue recognition
issues, including conceptual issues as well as certain industry specific
guidance.
We are required to report the impact of SAB No. 101, as amended by SAB
No. 101A and SAB No. 101B, no later than the fourth quarter of the fiscal year
2001. The effect of the change, if any, would be recognized as a cumulative
effect of a change in accounting principle as of July 1, 2000. Prior year
financial statements will not be restated.
The Company has not yet made an evaluation of the impact of adopting
these statements on the Company's financial position or operating results.
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 (successor
in interest to State Street Bank and Trust Company) 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 $21 thousand through the scheduled maturity of
the term loan on February 1, 2002.
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included herein commencing on page F-1.
23
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Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
24
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PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
The officers and directors of the Company are as follows:
Year Joined
Name and Age Company Position
--------------------------------------------------------------------------------
Fredric D. Price (54) 1994 President, Chief
Executive Officer,
and Director
Robert E. Flynn (67) 1996 Chairman of the Board
P. George Benson, PhD (54) 1998 Director
Audrey T. Cross, PhD (55) 1995 Director
John H. Gutfreund (70) 2000 Director
Jonathan de la Harpe, PhD (55) 1989 Senior Vice President,
Commercial Operations
Alan J. Kirschbaum (55) 1999 Controller
Marvin Moser, MD (76) 1997 Director
Robert E. Pollack, PhD (60) 1995 Director
Gerald A. Shapiro (53) 1998 Vice President, Finance and
Administration and Chief
Financial Officer
Benjamin T. Sporn (62) 1986 Senior Vice President,
General Counsel and
Secretary
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 also a member of the
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Advisory Board of Equity4Life AG, a health care investment company based in
Zurich, Switzerland. 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 of Directors in October 1997. He served as Chairman of
the NutraSweet Company from June 1990 until he retired in December 1995. Mr.
Flynn also served as Chief Executive Officer of the NutraSweet Company from June
1990 until March 1995. From 1981 to 1990, he served in various executive
capacities with Fisher Controls International Inc., including Chairman and Chief
Executive Officer. Prior thereto from 1957 to 1981, Mr. Flynn held positions of
increasing importance with The Carborundum Co. Mr. Flynn is also a member of the
Board of Stantec Inc. and WorldPages.com. He received a BSc from Loyola College,
a BEE from McGill University and an MBA from Rutgers University.
P. George Benson, PhD, was elected a Director of the Company in July
1998. Dr. Benson is Dean of the Terry College of Business and holds the Simon S.
Selig, Jr. Chair for Economic Growth at the University of Georgia. Dr. Benson
was previously the Dean of the Faculty of Management at Rutgers University and a
professor of decision sciences at the Carlson School of Management of the
University of Minnesota. In 1997, he was appointed by the U.S. Secretary of
Commerce to a three-year term as one of the nine judges for the Malcolm Baldrige
National Quality Award. In 1996, Business News New Jersey named Dr. Benson one
of New Jersey's "Top 100 Business People". He received a BS from Bucknell
University and a PhD in decision sciences from the University of Florida.
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 at the School of Public Health of Columbia University since 1988. She
also works as a consultant in the areas of nutrition and health policy. She has
served as a special assistant to the United States Secretary of Agriculture as
Coordinator for Human Nutrition Policy and has worked with both the United
States Senate and the California State Senate on nutrition policy matters. Dr.
Cross received a 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.
John H. Gutfreund was elected a Director of the Company in February
2000. Mr. Gutfreund is president of Gutfreund & Company, Inc., a New York-based
financial consulting firm that specializes in advising select corporations and
financial institutions in the United States, Europe and Asia. He is the former
chairman and chief executive officer of Salomon Inc., and past vice chairman of
the New York Stock Exchange and a past board member of the Securities Industry
Association. Mr. Gutfreund is active in the management of various civic,
charitable, and philanthropic organizations, including the New York Public
Library, and the Astor, Lenox, Tilden, and Aperture Foundations. Mr. Gutfreund
is also a director of Ascent Assurance, Inc., Baldwin Piano & Organ Company,
Evercel Inc., Foamex International Inc., LCA-Vision, Inc., and The Universal
Bond Fund. He received a BA from Oberlin College.
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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, previously 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.
Alan J. Kirschbaum was appointed Controller in October 1999. From 1996
to 1999, Mr. Kirschbaum was Vice President and Controller of AMS Asset
Management Services. From 1984 to 1996, he held a series of increasingly
responsible financial positions with Ascom Timeplex, Inc. He holds a BS from
Pennsylvania State University, an MBA from Pace University, and is a Certified
Public Accountant.
Marvin Moser, MD was elected to the Board of Directors in October 1997.
He is clinical professor of medicine at Yale and senior medical consultant at
the National High Blood Pressure Education Program of the National Heart, Lung
and Blood Institute. Dr. Moser's work has focused on various approaches to the
prevention and treatment of hypertension and heart disease. He has published
extensively on this subject with over 400 publications. He has authored or
contributed to more than 30 books and numerous physician and patient education
programs. He is editor-in-chief of the Journal of Clinical Hypertension. Dr.
Moser is also a member of the Board of The Third Avenue Value Funds and the
Trudeau Institute. 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. Pollack has been a Professor of Biological Sciences at
Columbia University since 1978. In addition, from 1982 to 1989 he was Dean of
Columbia College. Prior thereto he was Professor of Microbiology at the State
University of New York School of Medicine at Stony Brook, Senior Scientist at
Cold Spring Harbor Laboratory, Special NIH fellow at the Weizmann Institute in
Israel, and NIH Fellow in the Department of Pathology at New York University
School of Medicine. He is the author of more than one 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.
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 merger 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
pharmaceuticals and medical devices. Prior to that, he held senior executive
positions at Equitable Capital Management
27
<PAGE>
Corporation and ITT Corporation with primary focus on mergers and acquisitions.
Mr. Shapiro received a BEE from City College of New York and an MBA from the
Columbia University Graduate School of Business.
Benjamin T. Sporn has been legal counsel to the Company since 1990 and
has served as Secretary of the Company since 1986, and was appointed Senior Vice
President and General Counsel in February 1998. 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 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.
The directors serve for a term of one year and until their successors
are duly elected and qualified. Officers serve at the pleasure of the Board of
Directors. There are no family relationships among directors or executive
officers.
Arrangements Regarding the Election of Directors
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. Currently, BP has not nominated a member for election to the Company's
Board. See Item 13. Certain Relationships and Related Transactions.
Committees of the Board of Directors
The Company has an audit committee consisting of Mr. Flynn and Dr.
Benson. In addition, the Company has a compensation committee consisting of Dr.
Cross, Mr. Flynn and Dr. Pollack. During the year ended June 30, 2000, the audit
committee met two times, and the compensation committee met two times.
Science Advisory Board
The Company has certain scientific advisors with expertise in areas of
benefit to the Company, who serve on its Science Advisory Board and consult with
the Company concerning the Company's research and development programs.
Following are members of the Science Advisory Board working with the
Company:
Robert E. Pollack, PhD - Dr. Pollack has been a Professor of Biological
Sciences at Columbia University since 1978. In addition, from 1982 to 1989 he
was Dean of Columbia College. Prior thereto he was Professor of Microbiology at
the State University of New York School of Medicine at Stony Brook, Senior
Scientist at Cold Spring Harbor Laboratory, Special NIH fellow at the Weizmann
Institute in Israel, and NIH Fellow in the Department of Pathology at New York
University School of Medicine. He is the author of more than one 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.
28
<PAGE>
Gerald Friedman, MD, Ph.D. -Dr. Friedman is clinical professor of
Medicine at The Mount Sinai School of Medicine and an attending physician at The
Mount Sinai Hospital. Dr. Friedman's work has focused upon gastroenterology,
including food and water intake regulation, inflammatory bowel disease,
irritable bowel syndrome, gastrointestinal reflux disease, and probiotic
therapy. Dr. Friedman is former president of The New York Gastroenterological
Association and is a Master in the American College of Gastroenterology. He
serves on the editorial board of Practical Gastroenterology. Dr. Friedman has
published more than 30 original peer-reviewed articles and has authored or
contributed to over 15 books. He is the lead editor of the textbook,
"Gastrointestinal Pharmacology and Therapeutics" published in 1997. Dr. Friedman
holds a BS in Pharmacy from Rutgers University College of Pharmacy, an MS in
Nutrition from Columbia University, a PhD in Pharmacology from Syracuse
University, and an MD from the University of Buffalo School of Medicine.
Marvin Moser, MD - Dr. Moser is clinical professor of medicine at Yale
and senior medical consultant at the National High Blood Pressure Education
Program of the National Heart, Lung and Blood Institute. He has chaired and
served on the Joint National Committee on the treatment of hypertension Dr.
Moser's work has focused on research and treatment of hypertension and
cardiovascular disease, 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.
Stephen R. Peikin, MD - Dr. Peikin is professor of medicine and head of
the division of gastroenterology and liver diseases at Cooper Hospital Medical
Center, the Robert Wood Johnson Medical School, Camden, New Jersey. He is an
authority on the release of the hormone cholecystokinin and its effects on
satiety. He is the holder of a US patent on a method of stimulating satiety
through the administration of an oral trypsin inhibitor. He holds a BA from
Temple University and an MD from the Thomas Jefferson University.
Dr. Pollack is Chairman of the Science Advisory Board. Members of the
Science Advisory Board receive a per diem fee of $1,000 for each meeting of the
Board attended by them, plus reasonable expenses. In addition, the Company has
issued to each member of the Science Advisory Board stock options to purchase
10,000 shares of the Company's Common Stock.
29
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company during the three fiscal years ended June 30, 1998, 1999, and 2000, to
its Chief Executive Officer and to the other four most highly compensated
executive officers of the Company.
SUMMARY COMPENSATION TABLE (1)(2)(3)
<TABLE>
<CAPTION>
============================== ============================================== =================== ===================
Long-Term All Other
Name and Principal Position Annual Compensation Compensation Compensation
(a) (b) (c) (d) (e) (i)
---------------- -------------- -------------- ------------------- -------------------
Period Salary ($) Bonus ($) Securities ($)
Underlying
Options/SARs
(#)
------------------------------ ---------------- -------------- -------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Fredric D. Price, President, 7/1/97 -6/30/98 275,000 200,000 465,000
Chief Executive Officer and
Director
---------------- -------------- -------------- ------------------- -------------------
7/1/98 -6/30/99 275,000 275,000 21,154
---------------- -------------- -------------- ------------------- -------------------
7/1/99 -6/30/99 275,000 275,000 21,154
------------------------------ ---------------- -------------- -------------- ------------------- -------------------
Jonathan de la Harpe, Senior 7/1/97 -6/30/98 113,000 10,000
Vice President, Commercial
Operations
---------------- -------------- -------------- ------------------- -------------------
7/1/98 -6/30/99 129,923 30,000 15,000
---------------- -------------- -------------- ------------------- -------------------
7/1/99 -6/30/00 160,000 50,000 32,000 2,713
------------------------------ ---------------- -------------- -------------- ------------------- -------------------
Alan J. Kirschbaum, 7/1/99 -6/30/00 137,500 15,000 15,000
Controller
------------------------------ ---------------- -------------- -------------- ------------------- -------------------
Gerald A. Shapiro, Vice 3/9/98 -6/30/98 49,231 75,000
President - Finance &
Administration, &
---------------- -------------- -------------- ------------------- -------------------
CFO
7/1/98 -6/30/99 160,000 28,000 25,000 10,666
---------------- -------------- -------------- ------------------- -------------------
7/1/99 -6/30/00 172,000 30,000 10,666
------------------------------ ---------------- -------------- -------------- ------------------- -------------------
Benjamin T. Sporn, Senior 7/1/97 -6/30/98 147,000 30,000 15,000
Vice President, General
Counsel and Secretary
---------------- -------------- -------------- ------------------- -------------------
7/1/98 -6/30/99 160,000 50,000 25,000
---------------- -------------- -------------- ------------------- -------------------
7/1/99 -6/30/99 190,000 75,000
============================== ================ ============== ============== =================== ===================
</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 not applicable to the Company.
30
<PAGE>
(3) All Other Compensation represents loans and interest forgiven.
None of the individuals listed above received any long-term incentive
plan awards during the fiscal year.
Employment Agreements
The Company entered into an employment agreement, effective September
1994, with Fredric Price, which was amended and restated on April 1, 1998. The
agreement has a three-year term that ends on March 31, 2001, and provides for an
annual salary of $275,000 and the forgiveness of one-third of a $59,500 loan on
March 31 of each year of the term so long as Mr. Price is then employed by the
Company. See table of Option/SAR Grants in Last Fiscal Year for information on
certain stock options that have been granted to Mr. Price under the employment
agreement. Although employment under the agreement is at will, if employment is
terminated by the Company under certain circumstances, Mr. Price will receive
one year's salary in a single payment, certain benefits will continue for twelve
months after termination, and all of Mr. Price's stock options will vest.
Stock Option Plans
The Board of Directors has adopted and the shareholders have approved
five 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 that, 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 that, in the case of employees, may be incentive stock options.
5. The 1998 Stock Option Plan provides for the grant of options to
either group that, 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 1998 Stock Option Plan permits the
purchase of an aggregate of up to 2,500,000 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.
31
<PAGE>
Options granted as qualified incentive stock options are intended to
qualify as Incentive Stock Options within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended. The exercise price of Incentive Stock
Options granted under the Plans shall not be less than the fair market value
(110% of the fair market value for 10% or greater shareholders) of the Common
Stock on the date of grant. Incentive Stock Options may not be exercised later
than ten years from the date of grant (five years for 10% or greater
shareholders). Determinations as to recipients of stock options under the Plans
and other terms of such grants are made by the Company's Board of Directors.
The following tables set forth information as of June 30, 2000 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.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------- -------------------------------
Potential Realizable Value At
Individual Grants Assumed Annual Rates Of Stock
Price Appreciation For Option
Term
-------------------------------- ---------------- --------------- ------------ ------------ -------------------------------
Percent Of
Number Of Total
Securities Options Exercise
Underlying Granted To Of Base
Options Employees In Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
(a) (b) (c) (d) (e) (f) (g)
-------------------------------- ---------------- --------------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
A. Jonathan de la Harpe 32,000 7.17 $2.46875 (1) $49,683 $125,906
-------------------------------- ---------------- --------------- ------------ ------------ --------------- ---------------
B. Alan J. Kirschbaum 15,000 3.34 $2.8750 (1) $27,121 $68,730
-------------------------------- ---------------- --------------- ------------ ------------ --------------- ---------------
C. Fredric D. Price 0 0 - - - -
-------------------------------- ---------------- --------------- ------------ ------------ --------------- ---------------
D. Gerald A. Shapiro 0 0 - - - -
-------------------------------- ---------------- --------------- ------------ ------------ --------------- ---------------
E. Benjamin T. Sporn 0 0 - - - -
-------------------------------- ---------------- --------------- ------------ ------------ --------------- ---------------
</TABLE>
(1) Vesting 20% per year; expiration the earlier of 5 years from vesting or
89 days after termination of employment.
32
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Individual Grants
---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Name Shares Value Number of Unexercised Options at Value of Unexercised In-the-Money
Acquired realized ($) FY-End (#) Options at FY-End
in
Exercise
(#)
----------------------------------- -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------------- ----------- --------------- ---------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan de la 0 0 36,000 54,000 $376 $16,511
Harpe
----------------- ----------- --------------- ---------------- ------------------ ------------------ ----------------
Alan J. 0 0 13,000 27,000 $19,173 $17,003
Kirschbaum
----------------- ----------- --------------- ---------------- ------------------ ------------------ ----------------
Fredric D. 0 0 831,000 169,000 $348,750 $174,375
Price
----------------- ----------- --------------- ---------------- ------------------ ------------------ ----------------
Gerald A. 0 0 35,000 65,000 $48,436 $92,967
Shapiro
----------------- ----------- --------------- ---------------- ------------------ ------------------ ----------------
Benjamin T. 0 0 111,500 46,000 $24,813 $47,688
Sporn
----------------- ----------- --------------- ---------------- ------------------ ------------------ ----------------
</TABLE>
Pension Plans
AMBI Inc.
Eligible employees of the Company are entitled to participate in the
Burns Philp Inc. Retirement Plan for Non-Bargaining Unit Employees, a
non-contributory pension plan (the "Pension Plan") maintained by Burns Philp as
long as Burns Philp maintains the Pension Plan and owns at least 20% of the
Company's outstanding Common Stock. Burns Philp currently holds approximately
25% of the Company's outstanding Common Stock. 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 number of years of credited
service plus 0.65% of 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 as calculated under Section 401(l)(5)(E) of
the Code and Table I of IRS Notice 89-70, 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
33
<PAGE>
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 $170,000 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 2000 and a single life annuity
benefit, according to years of credited service and final average earnings. The
benefits listed are not subject to any deduction for Social Security or other
offset amounts.
Years of Credited Service
<TABLE>
<CAPTION>
Final average
earnings 15 20 25 30 35
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$25,000 $4,320 $5,760 $7,200 $8,160 $9,600
$50,000 $9,600 $12,840 $16,080 $19,320 $22,560
$75,000 $16,200 $21,600 $27,000 $32,520 $37,920
$100,000 $22,800 $30,360 $38,040 $45,600 $53,160
$150,000 $35,880 $47,880 $59,880 $71,880 $83,880
$170,000 $41,160 $54,840 $68,640 $82,320 $96,120
and up
</TABLE>
Jonathan de la Harpe, Alan J. Kirschbaum, Gerald A. Shapiro, Benjamin
T. Sporn and Fredric D. Price each have 7.5, 1.25, 2.25, 8.0 and 5.75 years,
respectively, of credited service under the Pension Plan as of June 30, 2000,
and, at age 65, would have approximately 18, 11, 14, 11, and 16 years of
credited service, respectively.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the period from July 1, 1999 through June 30, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
34
<PAGE>
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.
Director Compensation
Non-management Directors each receive a quarterly director's fee of
$1,800 and the Chairman of the Board receives a quarterly director's fee of
$3,600. Each also receives $500 for each meeting of the Board attended in
person, $250 for each meeting of the Board attended telephonically, and each
receives annually options to acquire 10,000 shares of Common Stock.
35
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 21, 2000, information
regarding the beneficial ownership of the Company's Common Stock based upon the
most recent information available to the Company for (i) each person known by
the Company to own beneficially more than five (5%) percent of the Company's
outstanding Common Stock, (ii) each of the Company's executive officers and
directors and (iii) all officers and directors of the Company as a group. Unless
otherwise indicated, each stockholder's address is c/o the Company, 4
Manhattanville Road, Purchase, New York 10577-2197.
Shares Owned Beneficially and of Record (1)
Name and Address No. of Shares % of Total
Fredric D. Price (2) 861,651 2.66
Robert E. Flynn (3) 112,000 *
P. George Benson (4) 35,000 *
Audrey T. Cross (5) 64,000 *
John H. Gutfreund (6) 35,000 *
Jon de la Harpe (7) 47,400 *
Alan J. Kirschbaum (7) 16,000 *
Marvin Moser (7) 115,000 *
Robert E. Pollack (7) 70,000 *
Gerald A. Shapiro (8) 49,800 *
Benjamin T. Sporn (9) 149,625 *
American Home Products Corporation 3,478,261 11.01
5 Giralda Farms
Madison, NJ 07940
Burns Philp & Company Limited (10) 7,763,837 24.58
7 Bridge Street
Sydney, NSW 2000, Australia
~All Officers and Directors 1,219,601 3.69
as a Group (11 persons)
(2)(3)(4)(5)(6) (7) (8) and (9)
----------
* Less than 1%
36
<PAGE>
(1) Includes shares issuable within 60 days upon the exercise of all
options and warrants. Shares issuable under options or warrants are
owned beneficially but not of record.
(2) Includes 831,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(3) Includes 100,000 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 60,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(6) Includes 10,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(7) Consists of shares issuable upon exercise of currently exercisable
options under the Company's Stock Option Plans.
(8) Includes 40,000 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(9) Includes 120,500 shares issuable upon exercise of currently
exercisable options under the Company's Stock Option Plans.
(10) Consists of shares owned by subsidiaries.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of June 30, 2000, BP owned 7,763,837 shares of Common Stock, and
continues such Common Stock ownership as of the date hereof.
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. 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.
As 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. Currently, BP has not nominated a member for election to the Company's
Board. The amount of consideration for the sale was arrived at through
arms-length negotiation and a fairness opinion was obtained.
In October 1998, the Company issued 3,478,261 shares of Common Stock to
AHP for $4.0 million. AHP currently holds approximately 11% of the Company's
outstanding Common Stock. Under a separate agreement in October 1998, AHP paid
the Company $1.0 million for exclusive rights to sell the Company's Cardia Salt
in retail markets in the United States. During fiscal 2000,
37
<PAGE>
AHP made payments to the Company of $500,000. See "Business - The Company"
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The financial statements are listed in the Index to
Consolidated Financial Statements on page F-1 and are filed as
part of this annual report.
2. Financial Statement Schedules
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying Accounts
All other schedules are not submitted because they are not
applicable, not required, or because the information is
included in the Consolidated Financial Statements.
3. Exhibits
The Index to Exhibits following the Signature Page indicates
the Exhibits which are being filed herewith and the Exhibits
which are incorporated herein by reference.
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the
fiscal quarter ended June 30, 2000.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. AMBI INC.
By: /s/ Fredric D. Price
Fredric D. Price, President,
CEO and Director
Dated: September 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of September 28, 2000 by the following
persons on behalf of Registrant and in the capacities indicated.
/s/ Fredric D. Price
Fredric D. Price, President,
CEO and Director
/s/ Robert E. Flynn
Robert Flynn,
Chairman of the Board
/s/ P. George Benson
P. George Benson, Director
/s/ Audrey T Cross
Audrey T. Cross, Director
/s/ John H. Gutfreund
John H. Gutfreund, Director
/s/ Marvin Moser
Marvin Moser, Director
/s/ Robert E. Pollack
Robert E. Pollack, Director
/s/ Gerald A. Shapiro
Gerald A. Shapiro, Chief
Financial Officer
39
<PAGE>
EXHIBITS
Except where otherwise indicated, the following exhibits are
incorporated by reference to the correspondingly numbered exhibit in the
Company's Registration Statement on Form S-1 (No. 33-4822):
3.01 Certificate of Incorporation (1)
3.01a Certificate of Amendment to the Certificate of Incorporation (2)
3.01b Certificate of Amendment to the Certificate of Incorporation (3)
3.01c Certificate of Amendment to the Certificate of Incorporation (11)
3.01d Certificate of Amendment to the Certificate of Incorporation (11)
3.01e Certificate of Amendment to the Certificate of Incorporation (12)
3.02 Amended and Restated By-laws (2)
10.01 Form of Incentive Stock Option Plan (8)
10.02 Form of Non-qualified Stock Option Plan (8)
10.02a Form of 1989 Stock Option Plan (1)
10.02b Form of 1991 Stock Option Plan (1)
10.02c Form of 1998 Stock Option Plan (15)
10.24 Exclusive Option and Collaborative Research Agreement dated July 1,
1988 between the Company and the University of Maryland (4)
10.25 License and License Option Agreement dated December 15, 1988 between
the Company and Babson Brothers Company (4)
10.36 Agreement, dated October 6, 1992 between the Company and PHRI (5)
10.47 Employment Agreement dated August 30, 1994 between the Company and
Fredric D. Price, as amended and restated (6)
10.48 Lease dated as of February 7, 1995, between the Company and Keren
Limited Partnership (7)
10.49 Share Purchase Agreement dated as of December 12, 1996, by and among
Applied Microbiology, Inc., Aplin & Barrett Limited and Burns Philp
(UK) plc. (9)
10.50 License Agreement dated as of December 12, 1996 between Licensee
Applied Microbiology, Inc. and Licensor Aplin & Barrett Limited. (9)
40
<PAGE>
10.51 License Agreement dated as of December 12, 1996 between Licensee Aplin
& Barrett Limited and Licensor Applied Microbiology, Inc. (9)
10.52 Supply Agreement dated as of December 12, 1996 between Aplin & Barrett
Limited and Applied Microbiology, Inc. (9)
10.53 Investors' Rights Agreement dated as of December 12, 1996 between
Applied Microbiology, Inc. and Burns Philp Microbiology. Pty Limited.
(9)
10.54 Revolving Loan and Security Agreement dated as of December 12, 1996
between Burns Philp Inc. as Lender and Applied Microbiology, Inc. as
Borrower. (9)
10.55 Stock and Partnership Interest Purchase Agreement dated as of
August 11, 1997, for the purchase of Nutrition 21. (10)
10.57 Sublease dated as of September 18, 1998, between the Company and
Abitibi Consolidated Sales Corporation (12)
10.58 Stock Purchase Agreement dated as of September 17, 1998 between
American Home Products Corporation and AMBI Inc. (13)*
10.59 License, Option and Marketing Agreement dated as of September 17, 1998
between American Home Products, acting through its Whitehall-Robins
Healthcare division, and AMBI Inc. (13)*
10.60 Amended and Restated Revolving Credit and Term Loan Agreement dated as
of January 21, 1999 between State Street Bank & Trust Company as Lender
and the Company and Nutrition 21 as Borrower. (14)
10.61 Agreement of Purchase and Sale of Assets made as of January 19, 1999 by
and among Dean Radetsky and Cheryl Radetsky, Optimum Lifestyle, Inc.
and AMBI Inc. (14)
10.62 Strategic Alliance Agreement dated as of August 13, 1999 between AMBI
Inc. and QVC, Inc. (15)*
10.63 Asset Purchase Agreement made as of December 30, 1999, by and between
ImmuCell Corporation and AMBI Inc. (16)
10.64 License Agreement entered into as of August 2, 2000 between AMBI Inc.
and Biosynexus Incorporated. (17)**
10.65 License and Sublicense Agreement entered into as of August 2, 2000
between AMBI Inc. and Biosynexus Incorporated. (17)**
10.66 Amendment effective as of June 30, 2000, to the Amended and Restated
Revolving Credit and Term Loan Agreement dated as of January 21, 1999
between Citizens Bank of Massachusetts (successor in interest to loans
originally made by State Street Bank & Trust Company) as Lender and the
Company and Nutrition 21 as Borrower. (17)
41
<PAGE>
23.1 Consent of KPMG LLP (17)
27 Financial Data Schedule (17)
----------
(1) Incorporated by reference to the Company's Report on Form 10-K for
1991.
(2) Incorporated by reference to the Company's Report on Form 8-K dated
September 4, 1992.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8 dated August 8, 1996, file No. 333-09801.
(4) Incorporated by reference to the Company's Report on Form 10-K for
1988.
(5) Incorporated by reference to the Company's Report on Form 10-K for the
fiscal period January 31, 1992 through August 31, 1992.
(6) Incorporated by reference to the Company's Report on Form 10-K for
1994.
(7) Incorporated by reference to the Company's Report on Form 10-K for
1995.
(8) Incorporated by reference to the Company's Registration Statement on
Form S-1 originally filed April 15, 1986, file No. 33-4822.
(9) Incorporated by reference to the Company's Report on Form 8-K dated
December 27, 1996.
(10) Incorporated by reference to the Company's Report on Form 8-K dated
August 25, 1997.
(11) Incorporated by reference to the Company's Report on Form 10-K/A2 for
1997.
(12) Incorporated by reference to the Company's Report on Form 10-K/A for
1998.
(13) Incorporated by reference to the Company's Report on Form 10-Q for the
quarter ended September 30. 1998.
(14) Incorporated by reference to the Company's Report on Form 8-K dated
February 3, 1999.
(15) Incorporated by reference to the Company's Report on Form 10-K for
1999.
(16) Incorporated by reference to ImmuCell Corporation's Report on Form 8-K
dated January 13, 2000.
(17) Filed Herewith. With respect to Exhibits 10.64 and 10.65, Exhibits to
the Agreements have been omitted, but will be furnished upon request.
42
<PAGE>
* Subject to an order by the Securities and Exchange Commission granting
confidential treatment. Specific portions of the document for which confidential
treatment has been granted have been blacked out. Such portions have been filed
separately with the Commission pursuant to the application for confidential
treatment.
** Subject to a request for confidential treatment currently pending with the
Securities and Exchange Commission.
43
<PAGE>
AMBI INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FILED WITH THE ANNUAL REPORT OF THE
COMPANY ON FORM 10-K
JUNE 30, 2000
PAGE
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2000 AND 1999 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JUNE 30, 2000, 1999 AND 1998 F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998 F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
YEARS ENDED JUNE 30, 2000, 1999 AND 1998 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AMBI Inc.:
We have audited the consolidated financial statements of AMBI Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AMBI Inc. and
subsidiaries as of June 30, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2000, in conformity with accounting principles generally accepted in the
United States.
KPMG LLP
Stamford, CT
September 15, 2000
F-2
<PAGE>
AMBI INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $8,488 $4,458
Accounts receivable (less allowance for
doubtful accounts of $134 in 2000 and
$242 in 1999) 4,587 3,980
Other receivables 464 473
Inventories 1,382 1,426
Prepaid expenses and other current assets 717 685
------ ------
Total current assets 15,638 11,022
Property and equipment, net 734 1,066
Patents and trademarks (net of accumulated amortization
of $7,843 in 2000 and $4,372 in 1999) 21,711 19,473
Goodwill (net of accumulated amortization of
$449 in 2000 and $178 in 1999) 2,640 2,583
Other assets 362 397
------ -------
TOTAL ASSETS $41,085 $34,541
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMBI INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
---- ----
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and lease obligation $ 1,500 $ 1,563
Accounts payable and accrued expenses 4,039 4,262
Contingent payments payable 3,584 3,293
Preferred dividends payable 29 25
-------- --------
Total current liabilities 9,152 9,143
Long-term debt and lease obligation 1,125 3,375
Other long-term obligations 153 432
-------- --------
TOTAL LIABILITIES 10,430 12,950
-------- --------
Commitments and contingent liabilities
REDEEMABLE PREFERRED STOCK
Series E convertible preferred, 1,500 shares issued; 476 and 773 shares
outstanding at June 30, 2000 and 1999, respectively (aggregate
liquidation value $488) 389 634
Series F convertible preferred, 575 shares issued and 343 shares outstanding
at June 30, 2000 and 1999, respectively (aggregate
liquidation value $351) 287 287
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, authorized 5,000,000 shares
Series G convertible preferred, 828 shares issued, 663 shares
outstanding at June 30, 2000 (aggregate liquidation value $671) 663 --
Common stock, $0.005 par value, authorized 65,000,000 shares; 31,581,427
shares and 30,152,306 shares issued and outstanding at June
30, 2000 and l999, respectively 158 150
Additional paid-in capital 62,291 60,045
Accumulated deficit (33,133) (39,525)
-------- --------
TOTAL STOCKHOLDERS' EQUITY $ 29,979 $ 20,670
-------- --------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY $ 41,085 $ 34,541
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMBI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
2000 1999 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net sales $ 32,289 $ 26,911 $ 20,082
Other revenues 525 1,390 676
----------- ----------- ------------
REVENUES 32,814 28,301 20,758
Cost of goods sold 5,780 4,782 2,956
----------- ----------- ------------
GROSS PROFIT 27,034 23,519 17,802
Selling, general & administrative expense 13,314 12,456 12,100
Research and development expense 2,610 1,787 2,660
Depreciation and amortization 4,069 2,807 1,575
----------- ----------- ------------
OPERATING INCOME 7,041 6,469 1,467
Interest income 306 189 71
Interest expense 419 397 370
Other income, net 76 86 --
----------- ----------- ------------
INCOME BEFORE INCOME TAXES 7,004 6,347 1,168
Income taxes 523 482 116
Minority interest in subsidiary 9 -- --
----------- ----------- ------------
NET INCOME $ 6,490 $ 5,865 $ 1,052
=========== =========== ============
Basic earnings (loss) per share (note 12) $ 0.21 $ 0.20 $ (0.04)
=========== =========== ============
Weighted average number of common
shares - basic 30,741,861 26,481,880 20,163,412
=========== =========== ============
Diluted earnings (loss) per share (note 12) $ 0.20 $ 0.19 $ (0.04)
=========== =========== ============
Weighted average number of common
shares and equivalents - diluted 32,546,198 27,754,827 20,163,412
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Preferred Stock
Series C Series D Series G
Shares $ Shares $ Shares $
------- ---- ------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 222 -- 45,000 -- -- --
Conversion of Series D preferred stock to common stock, including
dividends issued as common stock -- -- (22,500) -- -- --
Conversion discount on preferred stock -- -- -- -- -- --
Common stock issued for Nutrition 21 acquisition -- -- -- -- -- --
Common stock issued for Nutrition 21 consulting agreements -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Financing cost of warrants issued to State Street Bank -- -- -- -- -- --
Compensation related to issuance of stock options to non-employees -- -- -- -- -- --
Net income for the year -- -- -- -- -- --
-- -- --
------- ---- ------- ---- ------- -----
Balance at June 30, l998 222 -- 22,500 -- -- --
Conversion of Series D preferred stock to common stock, including -- -- -- -- -- --
dividends issued as common stock -- -- (16,750) -- -- --
Exchange and redemption of Series C preferred stock, including
accrued dividends for common stock and Series E preferred stock (222) -- -- -- -- --
Exchange and redemption of Series D preferred stock, including
accrued dividends for common stock and Series F preferred stock -- -- (5,750) -- -- --
Premium on redemption of Series F preferred stock -- -- -- -- -- --
Shares issued in connection with the settlement of AZWELL obligation -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Conversion of Series E preferred stock to common stock, including
dividends issued as common stock -- -- -- -- -- --
Issuance of common stock in connection with the acquisition of -- -- -- -- -- --
the Lite Bites Business -- -- -- -- -- --
Issuance of common stock to American Home Products -- -- -- -- -- --
Compensation related to issuance and repricing of stock options -- -- -- -- -- --
and warrants to non-employees -- -- -- -- -- --
Net income for the year -- -- -- -- -- --
------- ---- ------- ---- ------- -----
Balance at June 30, 1999 -- -- -- -- -- --
Conversion of Series E preferred stock -- -- -- -- -- --
Common stock issued on exercise of options and warrants -- -- -- -- -- --
Common stock issued for Optimum Lifestyle, Inc. contingent payment -- -- -- -- -- --
Issuance of warrants -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Preferred stock issued for Optimum Lifestyle, Inc. contingent payment -- -- -- -- 828 828
Conversion of Series G preferred stock -- -- -- -- (165) (165)
Net income for the year -- -- -- -- -- --
------- ---- ------- ---- ------- -----
Balance at June 30, 2000 -- -- -- -- 663 $ 663
======= ==== ======= ==== ======= =====
<CAPTION>
Additional Accumulated
Common Stock Paid-In Capital Deficit Total
Shares $ $ $ $
---------- ---- -------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 18,783,342 94 51,416 (43,900) 7,610
Conversion of Series D preferred stock to common stock, including
dividends issued as common stock 1,414,955 7 71 -- 78
Conversion discount on preferred stock -- -- 1,527 (1,527) --
Common stock issued for Nutrition 21 acquisition 500,000 3 1,185 -- 1,188
Common stock issued for Nutrition 21 consulting agreements 200,000 1 587 -- 588
Preferred stock dividends -- -- -- (374) (374)
Financing cost of warrants issued to State Street Bank -- -- 33 -- 33
Compensation related to issuance of stock options to non-employees -- -- 123 -- 123
Net income for the year -- -- -- 1,052 1,052
-- -- --
---------- ---- -------------- ----------- -------
Balance at June 30, l998 20,898,297 105 54,942 (44,749) 10,298
Conversion of Series D preferred stock to common stock, including -- -- -- -- --
dividends issued as common stock 2,696,246 12 128 -- 140
Exchange and redemption of Series C preferred stock, including
accrued dividends for common stock and Series E preferred stock 324,689 2 (1,729) (242) (1,969)
Exchange and redemption of Series D preferred stock, including
accrued dividends for common stock and Series F preferred stock 78,166 -- (379) (81) (460)
Premium on redemption of Series F preferred stock -- -- -- (117) (117)
Shares issued in connection with the settlement of AZWELL obligation 780,488 4 996 -- 1,000
Preferred stock dividends -- -- -- (201) (201)
Conversion of Series E preferred stock to common stock, including
dividends issued as common stock 591,812 3 604 -- 607
Issuance of common stock in connection with the acquisition of
the Lite Bites Business 1,304,347 7 1,430 -- 1,437
Issuance of common stock to American Home Products 3,478,261 17 3,983 -- 4,000
Compensation related to issuance and repricing of stock options -- -- -- -- --
and warrants to non-employees -- -- 70 -- 70
Net income for the year -- -- -- 5,865 5,865
---------- ---- -------------- ----------- -------
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 959,508 4 1,251 -- 1,255
Common stock issued for Optimum Lifestyle, Inc. contingent payment 200,000 1 503 -- 504
Issuance of warrants -- -- 80 -- 80
Preferred stock dividends -- -- -- (98) (98)
Preferred stock issued for Optimum Lifestyle, Inc. contingent payment -- -- -- -- 828
Conversion of Series G preferred stock 26,067 2 163 -- --
Net income for the year -- -- -- 6,490 6,490
---------- ---- -------------- ----------- -------
Balance at June 30, 2000 31,581,427 $158 $ 62,291 $ (33,133) 29,979
========== ==== ============== =========== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
AMBI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,490 $ 5,865 $ 1,052
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation and amortization 4,069 2,807 1,575
Write-off of patents and trademarks -- 179
Provision for doubtful accounts -- 273
Loss on disposal of equipment 11 138 --
Gain on sale of product line (19) -- --
Nutrition 21 consulting expense 196 214 168
Other, non-cash items 80 62 124
Changes in assets and liabilities:
(Increase) in accounts receivable (607) (668) (3,291)
Decrease/(increase) in other receivables 9 (377) --
(Increase) in inventories (129) (610) (89)
(Increase) in prepaid and other current assets (32) (272) --
(Increase) in other assets (161) (80) (467)
(Decrease)/increase in accounts payable and accrued expenses (521) 1,707 (6)
Increase in contingent payments payable -- -- 2,747
(Decrease) in preferred dividends payable -- -- (374)
------- -------- --------
Net cash provided by operating activities 9,386 8,786 1,891
------- -------- --------
Cash flows from investing activities:
Contingent payments for acquisitions (4,005) (2,747) --
Purchase of property and equipment (194) (443) (216)
Payments for patents and licensed technology (541) (1,145) (509)
Proceeds from sale of equipment -- 76 73
Payments for acquisitions -- (6,088) (10,000)
Proceeds from sale of product line 512 -- --
------- -------- --------
Net cash (used in) investing activities (4,228) (10,347) (10,652)
------- -------- --------
Cash flows from financing activities:
Proceeds from term loan borrowings -- 5,500 3,300
Debt repayments (2,250) (4,036) (919)
Proceeds from the exercise of stock options and warrants 1,255 4,000 --
Capital lease obligation repayments (63) (122) (126)
Redemption of redeemable preferred stock -- (1,388) --
Preferred dividends paid (70) (44) --
------- -------- --------
Net cash (used in)/ provided by financing activities (1,128) 3,910 2,255
------- -------- --------
Net increase/(decrease) in cash and cash equivalents 4,030 2,349 (6,506)
Cash and cash equivalents at beginning of period 4,458 2,109 8,615
------- -------- --------
Cash and cash equivalents at end of period $ 8,488 $ 4,458 $ 2,109
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation
The consolidated financial statements for the year ended June
30, 1999 include the results of operations of the Company and
the Lite Bites Business from January 21, 1999. The
consolidated financial statements for the year ended June 30,
1998 include the results of operations of the Company and its
wholly owned subsidiary, Nutrition 21, from August 11, 1997.
All intercompany balances and transactions have been
eliminated in consolidation.
b) Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
c) Cash Equivalents
The Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents. Cash equivalents included in the accompanying
financial statements include money market accounts, bank
overnight investments and commercial paper.
d) Inventories
Inventories are carried at the lower of cost (on a first-in,
first-out basis) or estimated net realizable value.
e) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives. The estimated useful
lives are as follows:
Leasehold improvements -- Term of lease
Furniture and fixtures -- 7 years
Machinery and equipment -- 5 to 10 years
Office equipment -- 3 to 6 years
f) Patents and Trademarks
The Company capitalizes certain patents and trademarks.
Patents and trademarks are amortized over the estimated
economic lives of the assets, ranging from 2 to 15 years.
g) Goodwill
Goodwill represents the excess of cost over the fair value of
net assets acquired and is amortized using the straight-line
method over 15 years. The recoverability of the carrying value
is evaluated on a periodic basis by assessing current and
future levels of operating income and cash flows, as well as
other factors.
h) Revenue Recognition
Sales of product are recognized upon shipment to customers.
Other revenues include amounts received from licensees and
research collaborators and are recognized as earned and
collectability is assured.
F-8
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
i) Research and Development
Research and development costs are expensed as incurred.
j) Income taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
k) Stock-based Compensation
The Company continues to account for stock-based compensation
using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees". Compensation cost for stock options, if any, is
measured as the excess of the quoted market price of the
Company's stock at the date of grant over the amount an
employee must pay to acquire the stock.
Statement of Financial Accounting Standards ("SFAS") No. 123.
"Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value
method of accounting for stock-based employee compensation
plans. The Company has elected to remain on its current method
of accounting as described above, and has adopted the
disclosure requirements of SFAS No. 123.
l) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
m) 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 qualifies 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.
F-9
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
m) Recently Issued Accounting Standards, Continued
The Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in
Financial Statements" on December 3, 1999, SAB No. 101A on
March 24, 2000 and SAB No. 101B on June 26, 2000. SAB No. 101
sets forth the views of the Staff of the SEC on revenue
recognition issues, including conceptual issues as well as
certain industry specific guidance.
We are required to report the impact of SAB No. 101, as
amended by SAB No. 101A and SAB No. 101B, no later than the
fourth quarter of the fiscal year 2001. The effect of the
change, if any, would be recognized as a cumulative effect of
a change in accounting principle as of July 1, 2000. Prior
year and interim financial statements will not be restated.
The Company has not yet made an evaluation of the impact of
adopting these statements on the Company's financial position
or operating results.
n) Reclassifications
Certain reclassifications have been made to prior years'
financial statement amounts to conform to the 2000
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 purchase price paid by the Company was $6.1
million in cash, including related transaction costs, and 1,304,347
shares of restricted Common Stock of the Company, valued at $1.4
million. In connection with the acquisition, liabilities assumed were
as follows (in thousands):
Fair value of assets acquired $ 7,617
Cash paid, including transaction costs (6,088)
Restricted common stock issued (1,437)
-------
Liabilities assumed $ 92
=======
Additional contingent payments will be made to the former owners of OLI
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 former 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,
subject to adjustment for the achievement of net sales levels, on each
of the first two anniversaries of the acquisition, 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. During fiscal 2000, the Company, in
satisfaction of the contingent payment requirement, paid $0.4 million
in cash, issued 200,000 shares of its Common Stock and issued 828
shares of its Series G Preferred Stock. Goodwill was increased by $1.8
million as a result of these transactions. At June 30, 2000, the
Company recorded on its balance sheet a current liability of $0.4
million in respect of the contingent payments.
F-10
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2: ACQUISITIONS, Continued
The acquisition was accounted for under the purchase method. Based upon
the allocation of purchase price, the transaction resulted in $6.1
million in identifiable intangible assets, primarily trademarks and
non-compete agreements, and $1.5 million of goodwill. The Company is
amortizing the goodwill over fifteen years and amortizing the
identifiable intangible assets over their useful economic lives, which
range from 3 to 15 years. During the year ended June 30, 2000, the
Company recorded approximately $0.9 million in amortization expense
related to the goodwill and other intangible assets described above.
Nutrition 21
On August 11, l997, the Company purchased Nutrition 21 for $10.0
million in cash plus 500,000 shares of restricted Common Stock of the
Company.
In connection with the acquisition, liabilities assumed were as follows
(in thousands):
Fair value of assets acquired $ 11,645
Cash purchase price (10,000)
Common stock issued (1,188)
--------
Liabilities assumed $ 457
========
The Purchase Agreement also provides for annual contingent payments to
the former owners of Nutrition 21 for each of the four years after the
closing of $2.5 million, but subject to adjustment for the achievement
of net sales levels of certain products (contingent consideration
clause), and royalties of 2.5% to 5.0% on net sales of products
recommended for certain patented uses. At June 30, 2000, the Company
recorded on its balance sheet a current liability of $3.1 million in
respect of the contingent payment due in September 2000. On September
30, l999 and 1998, the Company made cash payments to the former owners
of Nutrition 21 of approximately $3.5 million and $3.3 million,
respectively, which increased goodwill, patents and trademarks. These
payments represented the full amount of the contingent payment due for
the 12-month periods September through August of each respective year.
The following represents the pro forma consolidated results of
operations as if the Company, the Lite Bites Business and Nutrition 21
had been combined for the years ended June 30, 1999 and 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 year ended June 30,
1999 is as follows (in thousands, except for per share amounts):
1999 1998
-------- --------
Revenues $30,208 $ 28,862
Net income 5,116 3,173
Basic earnings per share 0.19 0.06
Diluted earnings per share 0.18 0.06
Note 3: SALE OF APLIN & BARRETT LTD.
The Company completed the sale of its United Kingdom based food
preservative business, Aplin & Barrett, Ltd. ("A&B"), to Burns Philp &
Company Ltd. ("Burns Philp") on December 12, 1996. 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. The Company reported a gain of $9.7
million in connection with this sale.
F-11
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4: INVENTORIES
The components of inventories at June 30, 2000 and 1999 are as follows
(in thousands):
2000 1999
---- ----
Raw materials $ 493 $ 373
Finished goods 889 1,053
------- -------
Total inventories $ 1,382 $ 1,426
======= =======
Note 5: FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts for cash and cash equivalents and accounts
receivable approximate carrying amounts due to the short maturities of
these instruments.
The fair value of long-term debt approximates its carrying value, as
there is no difference between the stated interest rate on the debt and
the current market rate of interest available to the Company for debt
with the same maturities.
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and cash equivalents and accounts receivable. The Company places its
cash primarily in market interest rate accounts, overnight investments
and commercial paper. The Company had $2.5 million in overnight
investments and $6.0 million invested in commercial paper at June 30,
2000.
Note 6: LICENSE, OPTION AND MARKETING AGREEMENT
On September 17, l998, the Company commenced a strategic alliance with
American Home Products Corporation ("AHP") for retail distribution of
the Company's proprietary nutrition products. As part of the alliance,
AHP's Whitehall-Robins Healthcare Division was granted an exclusive
license to sell the Company's Cardia(R) Salt in retail markets in the
United States and received a first negotiation option for exclusive
rights and licenses for additional nutrition products for retail
distribution in the United States. On October 8, l998, the Company
received a non-refundable payment of $1.0 million for the rights
granted to AHP. Also on October 8, l998, AHP paid $1.15 per share or a
total of $4.0 million for 3,478,261 shares of newly issued Company
Common Stock. The Company retained the exclusive rights to market its
products in both direct response and ingredient channels.
Note 7: PROPERTY AND EQUIPMENT, NET
The components of property and equipment, net, at June 30, 2000 and
1999 are as follows (in thousands):
2000 1999
---- ----
Furniture and fixtures $ 454 $ 421
Machinery and equipment 167 562
Office equipment 247 192
Computer equipment 683 660
------ ------
1,551 1,835
Less: Accumulated depreciation (817) (769)
------ ------
Property and equipment, net $ 734 $1,066
====== ======
F-12
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8: LINES OF CREDIT AND LONG-TERM DEBT
Long-term debt consists of the following at June 30, 2000 and 1999 (in
thousands):
2000 1999
---- ----
Citizens Bank term loan $2,625 $ 4,875
Obligations under capital leases -- 63
------ ------
2,625 4,938
Less: Current portion (1,500) (1,563)
------ -------
$1,125 $ 3,375
====== =======
In March, 1996, the Company issued a $2.0 million note at an interest
rate of 5%, to AZWELL, Inc. (formerly Nippon Shoji Kaisha). In fiscal
1999, the Company, in accordance with the terms of the agreement,
repaid $1.0 million of the note by issuing 780,488 shares of its Common
Stock, and $1.0 million in cash.
On January 21, l999, the Company entered into an Amended and Restated
Revolving Credit and Term Loan Agreement (the "Loan Agreement") with
Citizens Bank of Massachusetts ("Citizens"); (successor in interest to
loans originally issued to the Company by State Street Bank and Trust
Company), which Loan Agreement amended and restated a prior agreement
with Citizens. Certain financial covenants of the Loan Agreement were
further amended effective as of June 30, 2000. The Loan Agreement is
for a $5.5 million term loan and a $4.0 million revolving credit
facility for the purposes of acquiring the Lite Bites Business and for
general corporate purposes. Loans from Citizens bear interest at the
prime rate plus 1% and are due February 1, 2002. The Company is making
monthly payments of principal and interest on the loan. There was no
outstanding balance on the revolving loan at June 30, 2000.
Note 9: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following items are included in accounts payable and accrued
expenses at June 30, 2000 and 1999 (in thousands):
2000 1999
---- ----
Accounts payable $1,652 $1,280
Consulting and professional fees payable 296 989
Royalty fees 407 442
Accrued compensation and benefits 902 700
Taxes payable 67 309
Series E Preferred Stock fee 250 --
Other accrued expenses 465 542
------ ------
$4,039 $4,262
====== ======
F-13
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10: REDEEMABLE PREFERRED STOCK
In October 1995, the Company issued 895 shares of non-voting Series C
Preferred Stock ("C Preferred") for $10,000 per share. At June 30,
1998, 222 shares of C Preferred were outstanding. On December 10, l998,
the Company issued 1,500 shares of new Series E Preferred Stock ("E
Preferred") with a par value of $0.01 per share. On that date, the
Company's outstanding C Preferred and accrued dividends thereon of $542
thousand were exchanged for $1,500 face amount of E Preferred, $1.0
million in cash and the issuance of 324,689 shares of the Company's
common stock. In addition, the agreement provides for a payment of at
least $250 thousand on the second anniversary of the agreement. The
total amount of the payment is subject to increases based on increases
in the Company's equity securities. The E Preferred has a conversion
price of $1.25 per share. The fixed conversion rate is subject to
adjustments in certain circumstances. The E Preferred bears dividends
at a rate of 10% per annum payable in cash or, at the option of the
company, in shares of Common Stock. As a result of this exchange
transaction, the Company recorded a one-time incremental preferred
dividend of $242 thousand, representing the excess of the consideration
exchanged over the carrying value of the then outstanding C Preferred.
The E Preferred is subject to conversion at any time, at the option of
the holder, and is subject to mandatory conversion after three years.
During fiscal 2000, 297 shares of the Company's E Preferred plus
accrued dividends on these shares were converted into 243,546 shares of
Common Stock. During fiscal 1999, 727 shares of the Company's E
Preferred plus accrued dividends on these shares were converted into
591,812 shares of common stock.
On January 27, l999, the Company issued 575 shares of new Series F
Preferred Stock ("F Preferred") with a par value of $0.01 per share. On
that date, the Company's then outstanding 5,750 shares of Series D
Preferred Stock ("D Preferred") and accrued dividends thereon of $59
thousand were exchanged for $575 thousand face amount of F Preferred,
78,166 shares of the Company's common stock and the resetting of the
exercise price of the Warrants of the Company, issued in connection
with D Preferred, to $1.25. The F Preferred has a conversion price of
$1.25 per share. The fixed conversion rate is subject to adjustments in
certain circumstances. The F Preferred bears dividends at a rate of 10%
per annum payable in cash, or at the option of the Company, in shares
of Common Stock. As a result of this exchange transaction, the Company
recorded a one-time incremental preferred dividend of $81 thousand,
representing the excess of the consideration exchanged over the
carrying value of the then outstanding D Preferred. The F Preferred is
subject to conversion at any time at the option of the holders, and is
subject to mandatory conversion after three years. During fiscal 1999,
232 shares of the Company's F Preferred plus accrued dividends on these
shares were redeemed for $0.4 million
Note 11: STOCKHOLDERS' EQUITY
a) Series G Convertible Preferred Stock
In January 1999, the Company created a new Series G Convertible
Preferred Stock ("G Preferred") with a par value of $0.01 per share.
The G Preferred bears dividends of $50 per share per annum. The G
Preferred is convertible into common stock at the average closing price
of the Common Stock during the 10 days immediately preceding
conversion. The G preferred is subject to mandatory conversion after
three years from the date of issuance. On January 22, 2000, the Company
issued 828 shares of G Preferred. On March 21, 2000, 165 shares of G
Preferred were converted into 26,067 shares of the Company's Common
Stock.
b) Warrants
The Company, from time to time, issues warrants to purchase Common
Stock to non-employees for services rendered. Warrants are granted to
purchase the Company's Common Stock with exercise prices set at fair
market value on the date of grant. The terms of the warrants vary
depending on the circumstances, but generally terminate in three to
five years.
F-14
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had outstanding warrants for the purchase of its common
stock as follows:
Number of Exercise price
Warrants per share
-------- ----------
Outstanding at June 30, 1997 2,005,843 $1.25-$6.75
Issued 147,460 $1.18-$3.00
Expired (847,618) $3.00-$4.91
---------
Outstanding at June 30, 1998 1,305,685 $1.18-$6.75
Issued 100,000 $1.38-$1.84
---------
Outstanding at June 30, 1999 1,405,685 $1.18-$6.75
Issued 647,460 $1.80-$3.65
Exercised (556,759) $1.80-$4.84
Cancelled (147,460) $1.18-$4.13
---------
Outstanding at June 30, 2000 1,348,926 $1.25-$6.75
=========
At June 30, 2000, 1,348,926 shares were issuable upon exercise of the
above warrants. The warrants expire between 2001 and 2006. Certain of
the warrants include anti-dilution clauses.
Warrants outstanding and exercisable at June 30, 2000, are as follows:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
--------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$1.25 - $1.84 174,999 4.68 $1.49 134,999 $1.53
$2.00 - $2.72 520,546 1.92 $2.30 490,546 $2.28
$3.00 - $6.75 653,381 3.16 $4.18 353,381 $4.67
------- -------
1,348,926 978,926
========= =======
</TABLE>
The Company recorded compensation expense associated with the issuance
of warrants to third parties of $80 thousand, $70 thousand and $123
thousand during fiscal years 2000, 1999 and 1998, respectively.
F-15
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11: STOCKHOLDERS' EQUITY, Continued
c) Stock Based Compensation
On April 10, 1986, the Company adopted a Nonqualified Stock Option Plan
whereby options to purchase 250,000 shares of the Company's common
stock may be granted to consultants and Scientific Advisory Board
members.
The Company adopted four Stock Option Plans ("Plans") whereby options
to purchase an aggregate of 6,250,000 shares of the Company's common
stock may be granted to officers, directors, employees, consultants and
others who render services to the Company. The exercise price per share
for the options granted under the Plans may not be less than the fair
value of the Company's Common Stock on the date of grant. The options
issuable pursuant to the Plans expire between 1999 and 2009.
Approximately 2,600,000 options remain available for grant under the
Plans.
A summary of stock option activity related to the Company's stock
option plans is as follows:
Number of Exercise price
options per share
----------- --------------
Outstanding at June 30, 1997 1,896,054 $1.50 - $7.68
Issued 1,484,385 $1.56 - $3.25
Exercised (608) $1.62
Cancelled (592,486) $1.62 - $7.68
------------
Outstanding at June 30, 1998 2,787,345 $1.56 - $6.00
Issued 620,470 $0.75 - $2.31
Cancelled (454,030) $0.75 - $5.63
-----------
Outstanding at June 30, 1999 2,953,785 $0.75 - $6.00
Issued 446,500 $2.03 - $7.56
Exercised (398,194) $0.84 - $3.25
Cancelled (351,400) $0.93 - $6.00
-----------
Outstanding at June 30, 2000 2,650,691 $0.75 - $7.56
===========
Each of these options is entitled to one share of common stock. Stock
options generally vest ratably over five years from the date of grant
and expire within five years from the date of vesting.
Options outstanding and exercisable at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.75 - $1.25 124,176 1.58 $1.08 61,000 $1.09
$1.41 - $1.93 725,130 2.42 $1.81 419,224 $1.86
$2.00 - $2.94 882,885 4.60 $2.39 507,885 $2.38
$3.00 - $7.56 918,500 3.32 $3.48 747,200 $3.41
---------- ---------
2,650,691 1,735,309
========= =========
</TABLE>
F-16
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11: STOCKHOLDERS' EQUITY, Continued
The per share weighted-average fair value of stock options granted
during fiscal 2000, 1999 and 1998 was $0.45, $1.33 and $0.68,
respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate 5.6% 5.0% 5.7%
Expected life-years 2.5 2.5 2.5
Expected volatility 45.6% 46.1% 46.1%
Expected dividend yield -- -- --
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the financial
statements for its employee stock options which have an exercise price
equal to the fair value of the stock on the date of the grant. Had the
Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below
(in thousands):
2000 1999 1998
---- ---- ----
Net income
As reported $6,490 $5,865 $1,052
Pro forma 6,257 4,963 176
Basic earnings (loss) per share
As reported $0.21 $0.20 $(0.04)
Pro forma 0.20 0.16 (0.09)
Diluted earnings (loss) per share
As reported $0.20 $0.19 $(0.04)
Pro forma 0.19 0.16 (0.09)
The effects of applying SFAS No. 123 in this pro forma disclosure are
not necessarily indicative of future amounts because the calculation
does not take into consideration pro forma compensation expense related
to grants made prior to 1995.
Note 12: EARNINGS/(LOSS) PER SHARE
Basic and diluted earnings (loss) per share for the years ended June
30, 2000, 1999 and 1998 are as follows (in thousands, except share and
per share amounts):
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income $ 6,490 $ 5,865 $ 1,052
Preferred stock dividends (98) (641) (374)
Conversion discount on convertible
preferred stock -- -- (1,527)
------------ ------------ ------------
Net income/(loss) available
to common stockholders $ 6,392 $ 5,224 $ (849)
============ ============ ============
Weighted average number of common shares 30,741,861 26,481,880 20,163,412
============ ============ ============
Basic earnings/(loss) per share $ 0.21 $ 0.20 $ (0.04)
============ ============ ============
</TABLE>
F-17
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12: EARNINGS/(LOSS) PER SHARE, Continued
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net income/(loss) available to
common stockholders $ 6,392 $ 5,224 $ (849)
Interest on AZWELL, Inc. note, net -- 33 --
Preferred stock dividends 98 94 --
----------- ----------- ------------
Net income/(loss) available to common
stockholders after giving effect to dilution $ 6,490 $ 5,351 $ (849)
=========== =========== ============
Weighted average number of common
shares 30,741,861 26,481,880 20,163,412
Plus incremental dilutive shares from
assumed conversions:
Preferred stock 785,004 752,110 --
Stock options and warrants 1,019,333 34,838 --
5% Promissory Note -- 485,999 --
----------- ----------- ------------
Weighted average number of common
shares and equivalents 32,546,198 27,754,827 20,163,412
=========== =========== ============
Diluted earnings/(loss) per share $ 0.20 $ 0.19 $ (0.04)
=========== =========== ============
</TABLE>
Diluted loss per share for the year ended June 30, 1998, does not
reflect the incremental shares from the assumed conversion of stock
options or warrants or the conversion of the preferred stock to common
stock as the effect of such inclusion would be to reduce the loss per
share. The weighted average shares of dilutive securities that would
have been used to calculate diluted EPS had their effect not been
anti-dilutive is as follows:
2000 1999 1998
---- ---- ----
Convertible preferred stock -- -- 4,222,906
Note 13: SEGMENT REPORTING
Effective in fiscal 1999, the Company adopted FASB Statement No. 131
"Disclosures about Segments of an Enterprise and Related Information"
which established revised standards for reporting information about
operating segments. Pursuant to Statement No. 131, the Company's
reporting segments are nutritional products and pharmaceutical
products.
The accounting policies of the operating segments are the same as those
described in the summary of accounting policies. The Company evaluates
the performance of its operating segments based on the operating income
of the respective business units.
F-18
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13: SEGMENT REPORTING, Continued
A summary of business data for the Company's reportable segments for
the fiscal years 2000, 1999, 1998 follows.
Information by business segment (in thousands):
2000 1999 1998
---- ---- ----
Revenues
Nutritional Products $ 32,224 $ 27,356 $ 18,963
Pharmaceutical Products 590 945 1,795
-------- -------- --------
$ 32,814 $ 28,301 $ 20,758
======== ======== ========
Operating Income (Loss)
Nutritional Products $ 6,978 $ 6,608 $ 2,141
Pharmaceutical Products 63 (139) (674)
-------- -------- --------
$ 7,041 $ 6,469 $ 1,467
======== ======== ========
Depreciation and Amortization
Nutritional Products $ 3,918 $ 2,658 $ 1,447
Pharmaceutical Products 151 149 128
-------- -------- --------
$ 4,069 $ 2,807 $ 1,575
======== ======== ========
Segment Assets
Nutritional Products $ 39,479 $ 32,427 $ 18,436
Pharmaceutical Products 1,606 2,114 2,299
-------- -------- --------
$ 41,085 $ 34,541 $ 20,735
======== ======== ========
Capital Expenditures
Nutritional Products $ 194 $ 443 $ 216
Pharmaceutical Products -- -- --
-------- -------- --------
$ 194 $ 443 $ 216
======== ======== ========
Information by geographic segment (in thousands):
Geographic information about the Company's revenues, which is based on
the location of the buying organization, is presented below:
2000 1999 1998
---- ---- ----
Revenues
United States $31,533 $28,301 $20,758
United Kingdom 1,281 -- --
------- ------- -------
$32,814 $28,301 $20,758
======= ======= =======
Property and Equipment, net
United States $ 734 $ 1,066 $ 914
United Kingdom -- -- --
------- ------- -------
$ 734 $ 1,066 $ 914
======= ======= =======
Presented below is a reconciliation of total business segment operating
income to consolidated income before income taxes:
2000 1999 1998
---- ---- ----
Total segment operating income $7,041 $6,469 $1,467
Other, net 37 122 299
------ ------ ------
Income before income taxes $7,004 $6,347 $1,168
====== ====== ======
Note 14: RELATED PARTY TRANSACTIONS
During fiscal 2000, the Company did not have transactions with
affiliated companies except for a contribution to the Burns Philp &
Company Inc. Retirement Plan of $104 thousand.
F-19
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15: INCOME TAXES
Income before income taxes for the years ended June 30, 2000, 1999 and
1998 is as follows (in thousands):
2000 1999 1998
---- ---- ----
Domestic income $7,004 $6,347 $1,168
Foreign income -- -- --
------ ------ ------
Income before income taxes $7,004 $6,347 $1,168
====== ====== ======
Provisions for income taxes for the years ended June 30, 2000, 1999 and
1998 consist of the following (in thousands):
2000 1999 1998
---- ---- ----
Current $523 $482 $116
Deferred -- -- --
---- ---- ----
$523 $482 $116
==== ==== ====
Income tax expense attributed to pre-tax income differed from the
amounts computed by applying the US federal statutory tax rate to
pre-tax income as a result of the following (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income taxes at U.S. statutory rate $ 2,381 $ 2,171 $ 397
Increase/(reduction) in income taxes resulting from:
Utilization of operating loss carryforward (2,316) (2,070) (351)
Federal alternative minimum tax -- 148 38
State taxes, net of federal benefit 420 233 32
Other items 38 -- --
------- ------- -----
$ 523 $ 482 $ 116
======= ======= =====
</TABLE>
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at June 30, 2000 and 1999 is
presented below (in thousands):
<TABLE>
Deferred tax assets: 2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net operating loss carry forwards $ 1,384 $ 4,475 $ 5,713
AMT tax credit 176 176 38
R&D credit 320 720 818
Accrued expenses 100 50 209
Allowance for doubtful accounts 54 97 151
Partnership basis 970 1,054 1,318
Inventory reserve 54 54 --
Property and equipment 4 4 --
------- ------- -------
Total gross deferred tax assets 3,064 6,630 8,247
Less valuation allowance (2,322) (4,638) (5,159)
------- ------- -------
Net deferred tax assets $ 742 $ 1,992 $ 3,088
======= ======= =======
Deferred tax liabilities:
Property and equipment -- -- 163
Intangible assets, principally
due to amounts capitalized for
financial reporting purposes 742 1,992 2,925
------- ------- -------
Net deferred tax liabilities 742 1,992 3,088
------- ------- -------
Total deferred taxes, net of valuation allowance $ -- $ -- $ --
======= ======= =======
</TABLE>
F-20
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15: INCOME TAXES, Continued
At June 30, 2000, the Company has available, for state income tax
purposes, net operating loss carry forwards of approximately $23.0
million expiring in varying amounts through 2015. Ultimate utilization
of such net operating losses may be significantly curtailed if a
significant change in ownership of the Company were to occur. A
valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The Company has provided a valuation allowance of $2.3 million which
reduced the deferred tax asset to zero at June 30, 2000.
Note 16: COMMITMENTS AND CONTINGENT LIABILITIES
In October 1995, the Company entered into an exclusive license
agreement whereby the Company received a license to sell a patented
salt alternative in the United States. As a result, the Company is
required to make royalty payments quarterly through 2007. In connection
with this agreement, the Company recorded royalty expense of $0.4
million, $0.4 million, and $0.4 million for the fiscal years ended June
30, 2000, 1999 and 1998, respectively. In addition, the Company has an
exclusive license from the USDA for the duration of a patent that
covers chromium picolinate and its uses. In connection with this
agreement, the Company recorded royalty expense of $0.7 million, $0.6
million and $0.3 million for the fiscal years ended June 30, 2000, 1999
and 1998, respectively. These royalty amounts are included in selling,
general and administrative expenses in the statement of operations.
The Company has entered into various research and license agreements
with certain universities to supplement the Company's research
activities and to obtain for the Company rights to certain technology.
The agreements generally require the Company to fund the research and
to pay royalties based upon a percentage of product sales.
The Company has consulting agreements with several of its Science
Advisory Board members and other consultants. These agreements
generally are for a term of one year and are terminable at the
Company's option.
Under operating leases, the Company leases certain office and
laboratory space in the United States. These leases expire in the years
2001 to 2006. Payments under these leases were approximately $0.7
million in fiscal 2000, $0.4 million in fiscal 1999, $0.7 million in
fiscal 1998. Future non-cancelable minimum payments under these leases
are as follows (in thousands):
Year Amount
---- ------
2001 $ 673
2002 632
2003 619
2004 602
2005 589
2006 and Thereafter 418
-------
Total $3,533
======
F-21
<PAGE>
AMBI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
Supplemental disclosure of cash flow information (in 2000 1999 1998
thousands): ---- ---- ----
<S> <C> <C> <C>
Cash paid for interest $ 390 $ 337 $ 320
Cash paid for income taxes 382 217 19
Supplemental schedule of non-cash financing activities:
Common stock issued for Nutrition 21 acquisition -- 1,118 --
Obligation for purchase of property & equipment 181 208 --
Obligation for N21 contingent payment 3,143 2,855 2,747
Obligation for Lite Bites contingent payment 441 438 --
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 E conversion 304 592 --
Issuance of common stock for Series G conversion 121 -- --
Issuance of Series G preferred stock for
Optimum Lifestyle, Inc. contingent payment. 828 -- --
</TABLE>
Note 18: RISKS AND UNCERTAINTIES
The Company buys certain of its inventories from single suppliers.
Management believes that other suppliers could provide similar products
at comparable terms. As a result, management believes a change in
suppliers would not disrupt on-going operations and would not effect
operating results adversely.
F-22
<PAGE>
Schedule II
AMBI INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
-----------------------------------------
Balance Charged to Balance
Beginning Charged to Other End of
Accounts of Period Cost and Expense Accounts Deductions Period
-------- --------- ---------------- -------- ---------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Year ended June 30, 2000
Allowance for Doubtful Accounts $ 242 -- -- $(108) $ 134
Deferred Tax Valuation Allowance $4,638 -- -- $(2,316) $2,322
Year ended June 30, 1999
Allowance for Doubtful Accounts $ 377 -- -- $(135) $ 242
Deferred Tax Valuation Allowance $5,159 -- -- $(521) $4,638
Year ended June 30, 1998
Allowance for Doubtful Accounts $ 104 $ 273 -- -- $ 377
Deferred Tax Valuation Allowance $5,745 -- -- $(586) $5,159
</TABLE>
<PAGE>
Independent Auditor's Report
The Board of Directors
AMBI Inc.:
Under date of September 15, 2000, we reported on the consolidated
balance sheets of AMBI Inc. and subsidiaries as of June 30, 2000 and 1999, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended June 30, 2000, which
are included in the annual report on Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule included in the annual report
on Form 10-K. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Stamford, Connecticut
September 15, 2000
