<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
10-Q
For Quarter Ended: December 31, 1999
Commission File Number 0-14983
AMBI INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2653613
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
4 Manhattanville Road, Purchase, New York 10577
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 701-4500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.005 30,540,415 shares as of February 9, 2000
- ----------------------------- ----------------------------------------
1
<PAGE>
AMBI INC. & SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets
at December 31, 1999
and June 30, 1999 3
Consolidated Statements of Operations
for the three and six month periods
ended December 31, 1999 and 1998 5
Consolidated Statement of Stockholders' Equity
for the six-month period ended
December 31, 1999 6
Consolidated Statements of Cash Flows
for the six month periods ended
December 31, 1999 and 1998 7
Notes to Consolidated Financial
Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 15
Item 2 Changes in Securities and Use of Proceeds 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Item 7a Qualitative and Quantitative Disclosures about Market Risk 15
2
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,410 $ 4,458
Accounts receivable (less allowance for doubtful
accounts of $231 at December 31, 1999 and
$242 at June 30, 1999) 5,894 3,980
Other receivables 311 473
Inventories 1,440 1,426
Prepaid expenses and other current assets 575 685
------- -------
Total current assets 13,630 11,022
Property and equipment, net 759 1,066
Patents and trademarks (net of accumulated
amortization of $5,962 at December 31, 1999
and $4,362 at June 30, 1999) 20,558 19,473
Goodwill (net of accumulated amortization of
$316 at December 31, 1999 and $178 at
June 30, 1999) 2,638 2,583
Other assets 444 397
------- -------
TOTAL ASSETS $38,029 $34,541
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and lease obligations $1,500 $ 1,563
Accounts payable and accrued expenses 4,340 4,262
Contingent payments 2,505 3,293
Preferred dividends payable 21 25
------- ------
Total current liabilities 8,366 9,143
Long term debt and lease obligation 2,625 3,375
Other long term obligations 417 432
------- ------
TOTAL LIABILITIES 11,408 12,950
------- ------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE PREFERRED STOCK
Series E convertible preferred, 1,500 shares issued: 476 shares
and 773 shares outstanding at December 31, 1999 and June 30,
1999, respectively (aggregate liquidation value
Series E $488) 389 634
Series F convertible preferred, 575 shares issued: 343 shares
outstanding at December 31, 1999, and June 30, 1999,
respectively (aggregate liquidation value Series F $352)
287 287
STOCKHOLDERS' EQUITY
Common stock, $0.005 par value, authorized 65,000,000 shares;
30,540,415 shares and 30,152,306 shares issued and outstanding
at December 31, 1999 and June 30, 1999, respectively 152 150
Additional paid-in capital 60,642 60,045
Accumulated deficit (34,849) (39,525)
-------- --------
TOTAL STOCKHOLDERS' EQUITY $ 25,945 $ 20,670
-------- --------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY $ 38,029 $ 34,541
======== ========
See accompanying notes.
</TABLE>
4
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
----- ----- ----- ----
<S> <C> <C> <C> <C>
Net sales $9,699 $5,964 $17,996 $11,779
License revenues 126 1,000 253 1,000
----------- ----------- ----------- -----------
REVENUES 9,825 6,964 18,249 12,779
COST AND EXPENSES:
Cost of sales 1,485 711 3,015 1,474
Selling, general & admin. expenses 3,795 2,723 7,090 5,254
Research and development expenses 600 421 1,049 906
Depreciation and amortization 987 571 1,916 1,129
----------- ----------- ----------- -----------
OPERATING INCOME 2,958 2,538 5,179 4,016
Interest income 41 66 109 101
Interest expense 118 43 238 132
Other income, net 52 -- 52 79
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,933 2,561 5,102 4,064
Income taxes 220 166 385 257
----------- ----------- ----------- -----------
NET INCOME $2,713 $2,395 $4,717 $3,807
=========== =========== =========== ===========
Basic Earnings per share $0.09 $0.08 $0.15 $0.14
=========== =========== =========== ===========
Weighted average number of common shares 30,525 26,475 30,492 23,843
=========== =========== =========== ===========
Diluted Earnings per share $0.09 $0.08 $0.15 $0.14
=========== =========== =========== ===========
Weighted average number of common
shares and equivalents 31,521 31,981 31,807 27,643
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Additional
Paid-In Accumulated
Common Stock Capital Deficit Total
shares $ $ $ $
---------- --- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Balance at June 30, l999 30,152,306 150 60,045 (39,525) 20,670
Conversion of Series E preferred
stock 243,546 1 249 -- 250
Common stock issued on exercise
of options and warrants 144,563 1 285 -- 286
Issuance of warrants -- -- 63 -- 63
Preferred stock dividends declared -- -- -- (41) (41)
Net income for the period -- -- -- 4,717 4,717
---------- --- ------ ------- ------
Balance at December 31, l999 30,540,415 152 60,642 (34,849) 25,945
========== === ====== ======= ======
</TABLE>
See accompanying notes.
6
<PAGE>
AMBI INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $4,717 $3,807
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,916 1,129
Nutrition 21 consulting expense 100 106
Loss on disposal of equipment 11 137
Other non-cash items -- 40
Gain on sale of product line (39) --
Changes in assets and liabilities
(Increase) in accounts receivable (1,914) (370)
Decrease in other receivables 270 --
(Increase) decrease in inventories (187) 130
(Increase) decrease in prepaid and other current assets 110 (142)
(Increase) in other assets (147) (176)
Increase in accounts payable and accrued expenses 63 96
------------- -------------
Net cash provided by operating activities 4,900 4,757
------------- -------------
Cash flows from investing activities:
Contingent payments for Nutrition 21 acquisition (3,568) (3,269)
Purchases of property and equipment (79) (212)
Proceeds from sale of equipment -- 75
Proceeds from sale of product line 404 --
Payments for patents and licensed technology (221) (290)
------------- -------------
Net cash (used in) investing activities (3,464) (3,696)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 350 4,000
Capital lease obligation repayments (63) (57)
Term loan repayments (750) (467)
Redemption of Series C Preferred Stock -- (1,027)
Preferred dividends paid (21) (9)
------------- -------------
Net cash (used in)/ provided by financing activities (484) 2,440
------------- -------------
Net increase in cash and cash equivalents 952 3,501
Cash and cash equivalents at beginning of period 4,458 2,109
------------- -------------
Cash and cash equivalents at end of period $5,410 $5,610
============= =============
</TABLE>
See accompanying notes.
7
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 BASIS OF PRESENTATION
----------------------
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial statement reporting and in accordance
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
six-month period ended December 31, l999 are not necessarily indicative
of the results that may be expected for the fiscal year ending June 30,
2000. For further information, refer to the consolidated financial
statements and notes thereto, included in the Company's annual report
on Form 10-K for the year ended June 30, l999.
Certain reclassifications have been made to the prior period's
financial statement amounts to conform to the current period
presentation.
Note 2 ACQUISITIONS
------------
Lite Bites Business
-------------------
On January 21, l999, the Company acquired substantially all of the
assets and assumed certain of the liabilities of Optimum Lifestyle,
Inc. ("OLI") relating to the business of developing, producing, and
marketing dietary supplements, primarily nutrition bars which are
marketed under the trademark "Lite Bites" through the QVC Inc.
television network (the "Lite Bites Business"). These products are
manufactured to proprietary specifications under agreements with third
party manufacturers.
The following represents the pro forma consolidated results of
operations as if the Company and the Lite Bites Business had been
combined for the six months ended December 31, 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 period. 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 six months ended
December 31, 1998, is as follows (in thousands, except per share
amounts):
Revenues $14,686
Net income 3,768
Basic earnings per share 0.13
Diluted earnings per share 0.13
8
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 INVENTORIES
-----------
The components of inventories at December 31, l999 and June 30, 1999
were:
December 31, June 30,
1999 1999
---- ----
Raw materials $ 279 $ 373
Finished goods 1,161 1,053
------ ------
Total inventories $1,440 $1,426
====== ======
During the quarter ended December 31, l999, the Company did not deduct
any amounts from the inventory valuation reserve.
Note 4 REDEEMABLE PREFERRED STOCK
--------------------------
During the six month period ended December 31, 1999, 297 shares of the
Company's Series E Preferred and accrued dividends thereon were
converted into 243,546 shares of Common Stock.
During the six month period ended December 31, 1999, there were no
conversions of the Company's Series F Preferred Stock.
Note 5 EARNINGS PER SHARE
------------------
Basic and diluted earnings per share for the three and six month
periods ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 2,713 $ 2,395 $ 4,717 $ 3,807
Preferred stock dividends (20) (298) (41) (376)
---------- ---------- ---------- ----------
Net income attributable to
common stockholders $ 2,693 $ 2,097 $ 4,676 $ 3,431
========== ========== ========== ==========
Basic earnings per share $ 0.09 $ 0.08 $ 0.15 $ 0.14
========== ========== ========== ==========
Weighted average number
of common shares 30,525,106 26,474,738 30,492,200 23,842,943
========== ========== ========== ==========
Net income attributable to
common shareholders 2,693 $ 2,097 4,676 $ 3,431
Interest on AZWELL loan, net -- 8 -- 16
Preferred stock dividends 20 298 41 376
---------- ---------- ---------- ----------
Net income available to
common stockholders after
giving effect to dilution $ 2,713 $ 2,403 $ 4,717 $ 3,823
========== ========== ========== ==========
Diluted earnings per share $ 0.09 $ 0.08 $ 0.15 $ 0.14
========== ========== ========== ==========
Weighted average number
of common shares and
equivalents 31,520,754 31,980,985 31,806,619 27,642,848
========== ========== ========== ==========
</TABLE>
9
<PAGE>
AMBI INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 SEGMENT REPORTING
-----------------
A summary of business data for the Company's reportable segments for
the three and six month periods ended December 31, 1999 and 1998 is as
follows:
Information by business segment (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
--------
Nutritional products $9,600 $6,715 $17,803 $12,267
Pharmaceutical products 225 249 446 512
------ ------ ------- -------
$9,825 $6,964 $18,249 $12,779
------ ------ ------- -------
Operating Income
----------------
Nutritional products $2,909 $2,506 $5,079 $3,942
Pharmaceutical products 49 32 100 74
------ ------ ------- -------
$2,958 $2,538 $5,179 $4,016
====== ====== ======= =======
</TABLE>
The operations of the Company are principally in the United States.
Note 7 SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $187 $168
Cash paid for income taxes 372 50
Supplemental schedule of non-cash activities:
Obligation for purchase of property & equipment $186 $220
Obligation for N21 contingent payment $2,276 $1,142
Obligation for Lite Bites contingent payment $504 --
Issuance of common stock for series E conversion $249 --
Obligation related to Series C redemption -- $250
</TABLE>
10
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto of the
Company included elsewhere herein.
General
The Company's revenues have been primarily derived from the sale of
nutrition ingredient products to manufacturers of vitamin and mineral
supplements and, since the acquisition on January 21, l999, of all the
assets and certain liabilities of Optimum Lifestyle, Inc. (the "Lite
Bites Business"), sales of nutrition bars and other related dietary
supplement products marketed under the trademark "Lite Bites". The
Company also receives royalty income from users of its patented
technology.
Cost of goods sold includes both direct and indirect manufacturing
costs. Research expenses include internal expenditures as well as
expenses associated with third party collaborators. Selling, general
and administrative expenses include salaries and overheads, third party
fees and expenses, royalty expenses for licenses and trademarks, and
costs associated with the selling of the Company's products. The
Company capitalizes patent costs and acquisition related goodwill and
intangible assets, and amortizes them over periods of one to twenty
years.
Results of Operations
Revenues
--------
Net sales for the three and six month periods ended December 31, 1999,
of $9.7 million and $18.0 million respectively, increased $3.7 million
and $6.2 million when compared to $6.0 million and $11.8 million
respectively, for the same periods a year earlier. The increase in net
sales is primarily due to improved ingredient sales combined with
nutritional product sales resulting from the acquisition of the Lite
Bites business on January 21, 1999.
Other revenues of $0.1 million and $0.3 million for the three and six
month periods ended December 31, 1999 respectively, are comprised of
license and royalty revenues earned from the Whitehall-Robins
Healthcare division of American Home Products Corporation in accordance
with a License, Option and Marketing Agreement entered into on October
8, 1998.
Cost of goods sold
------------------
Cost of sales of $1.5 million and $ 3.0 million for the three month and
six month periods ended December 31, 1999, respectively, increased $0.8
million and $1.5 million when compared to $0.7 million and $1.5 million
respectively for the same periods a year earlier. The increase is
directly attributable to increased ingredient and Lite Bites sales.
Gross margin of 84.7% and 83.2% for the three and six month periods
ended December 31, 1999, respectively, was 3.4% and 4.3% less than the
comparable periods a year earlier. The higher proportion of lower
margin Lite Bites nutritional products accounted for the reduction in
both periods.
Selling, general and administrative expenses (SG&A)
---------------------------------------------------
SG&A expense for the three and six-month periods ended December 31,
1999, was $3.8 million and $7.1 million respectively, as compared to
$2.7 million and $5.2 million respectively for the same periods a year
earlier. The increase in both periods is due primarily to increased
marketing initiatives related to ingredient products and the inclusion
of marketing and selling costs associated with the acquisition of the
Lite Bites Business.
11
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Research and development expenses
---------------------------------
Research costs of $0.6 million and $1.0 million for the three and six
month periods ended December 31, 1999, respectively, increased $0.2
million and $0.1 million respectively when compared to $0.4 million and
$0.9 million respectively for the same periods a year earlier. The
increase is primarily attributable to ongoing product development,
quality control and quality assurance development activities.
Operating Income
----------------
The Company's operating income of $3.0 million and $5.2 million for the
three and six month periods ended December 31, 1999, respectively, was
$0.5 million and $1.2 million greater than the operating income of $2.5
million and $4.0 million for the same periods a year earlier. Increased
ingredient and Lite Bites sales were the primary reasons for the
increase.
Interest expense, net
---------------------
Interest expense, net of interest income of $77 thousand and $129
thousand for the three and six month periods ended December 31, 1999,
respectively, was $100 thousand and $98 thousand greater than the
comparable periods a year earlier. The increases are primarily due to
increased debt levels due to the acquisition of the Lite Bites
Business, as well as higher interest rates.
Other income, net
-----------------
Other income, net of $52 thousand for the three and six months ended
December 31, 1999, included gains from the sale of the Company's Wipe
Out Dairy Wipes product line, as well as payments received as a result
of litigation. The cost of relocating Nutrition 21's business offices
from California to New York partially offset these gains.
Income taxes
------------
Income taxes for the three and six month periods ended December 31,
1999, of $0.2 million and $0.4 million respectively, increased $54
thousand and $128 thousand, respectively, when compared to comparable
periods a year earlier. The increase is primarily due to estimated
federal alternative minimum tax and state income taxes resulting from
the Company's increased profitability.
Quarterly Variations
--------------------
On a quarter-to-quarter basis, the Company's sales and income may vary
widely as a result of various factors. Such factors may include
customers placing orders in anticipation of a price increase, customers
adjusting finished goods inventory and planned variations in marketing,
promotion and product development expenses. As a result, the Company
may report sales increases or declines and/or income gains or losses
for a particular quarter that may not reflect end customer usage of the
Company's products.
Business Segments
-----------------
The Company operates in two business segments - Nutritional Products
and Pharmaceutical Products.
Nutritional Products
--------------------
Nutritional product revenues for the three and six month periods ended
December 31, 1999, were $9.6 million and $17.8 million respectively, an
increase of $2.9 million and $5.6 million compared to $6.7 million and
$12.2 million for the same periods a year earlier. The increase in
revenues is due to increased ingredient and Lite Bites sales.
12
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Nutritional Products operating income for the three and six months
ended December 31, 1999, was $2.9 million and $5.1 million
respectively, an increase of $0.4 million and $1.2 million when
compared to $2.5 million and $3.9 million for the three and six months
periods a year earlier. Increased ingredient and Lite Bites sales were
the primary reasons for the increase.
Pharmaceutical Products
-----------------------
Pharmaceutical products revenues were $0.2 million and $0.4 million for
the three and six month periods ended December 31 1999, respectively,
which is a slight decline compared to the comparable periods a year
earlier. The decline is attributable to reduced sales of nisin-based
animal health products.
Pharmaceutical products operating income of $49 thousand and $0.1
million for the three and six months ended December 31, 1999,
respectively, was slightly better than the comparable periods a year
earlier.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1999, were $5.4 million as
compared to $4.5 million at June 30, 1999. At December 31, 1999, the
Company had a working capital surplus of $5.3 million compared to a
$1.9 million surplus at June 30, 1999.
During the six month period ended December 31, l999, cash provided by
operations was $4.9 million, compared to $4.8 million for the six-month
period ended December 31, 1998. The increase is due primarily to
greater profitability offset by an increase in trade receivables.
Cash used in investing activities for the six months ended December 31,
1999, was $3.5 million compared to $3.7 million for the comparable
period a year ago. The improvement was due primarily from proceeds of
$0.4 million received from the sale of the Wipe Out Dairy Wipes
business, as well as a reduction in capital equipment purchases of $0.1
million. Offsetting these improvements was an increase of $0.3 million
in contingent payments made to the previous owners of Nutrition 21.
Cash used in financing activities for the six months ended December 31,
1999, was $0.5 million compared to cash provided by financing
activities of $2.4 million for the comparable period a year ago. During
the six months ended December 31, 1998, the Company received $4.0
million in accordance with a Stock Purchase Agreement with American
Home Products Corporation in exchange for 3,478,261 shares of newly
issued common stock. Also, during the six month ended December 31,
1998, the Company redeemed its outstanding Series C Preferred Stock and
issued 1,500 shares of Series E Preferred Stock, resulting in a use of
funds of $1.0 million.
The Company's primary sources of financing are cash generated from
continuing operations and a revolving line of credit with Citizens Bank
of Massachusetts (successor in interest to loans originally issued to
the Company by State Street Bank and Trust Company). The availability
under the revolving line of credit is based on the Company's accounts
receivable and inventory. At December 31, l999, the Company had no
borrowings under this line.
On August 11, 1997, the Company acquired the entire beneficial interest
in Nutrition 21. The Purchase Agreement provides for annual contingent
payments of $2.5 million for each of the next four years, subject to
adjustment for the achievement of net sales levels of certain products,
and royalties of 2.5% to 5.0% on net sales of products recommended for
certain patented uses.
On January 21, 1999, the Company acquired substantially all of the
assets and assumed certain of the liabilities of Optimum Lifestyles,
Inc. ("OLI"). The Purchase Agreement provides for contingent payments
as follows: payment of up to $1.0 million cash and/or AMBI Common
Stock, at the option of the previous owners of OLI, on each of the
first three anniversaries of the acquisition; payment of $1.5 million,
subject to adjustment for the achievement of net sales levels, payable
on each of the first two anniversaries in newly issued AMBI preferred
stock; and a single payment of $1.0 million in cash, subject to
achieving certain sales levels in new markets, prior to the fifth
anniversary of the acquisition.
13
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
The Company believes that cash generated from operations and cash
available under the line of credit will provide sufficient liquidity to
fund operations for the next twelve months. The Company continues to
eliminate expenditures that are not critical to the process of
generating sales.
Future acquisition activities and any increases in marketing, selling
and research and development expenses over the present levels may
require additional funds. The Company intends to seek any necessary
additional funding through arrangements with corporate collaborators,
through public or private sales of its securities, including equity
securities, or through bank financing arrangements. The Company does
not currently have any specific arrangements for additional financing
and there can be no assurance that additional funding will be available
at all or on reasonable terms.
Year 2000 Readiness Disclosure
The Company completed the implementation of Year 2000 readiness of its
critical operational and administrative software in August 1999.
As of January 31, 2000, the Company has experienced no disruption due
to the Year 2000 issue.
Recently Issued Accounting Standards
------------------------------------
In June 1999, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to
recognize all derivatives as assets or liabilities measured at their
fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the
derivative and whether it qualified for hedge accounting.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, an Amendment of FASB Statement No. 133". SFAS
No. 137 defers the effective date of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" for one year. SFAS No.
133, as amended, is now effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company is currently
evaluating the impact of SFAS No. 133 on the Company's financial
position and operating results.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The company in the ordinary course of its business has brought several
patent infringement actions against companies that are selling chromium
picolinate in violation of the Company's patent rights. As of this
date, several of these actions have been settled in favor of the
Company, various actions are ongoing, and the Company intends to
vigorously protect its proprietary rights.
Item 2 - Changes in Securities and Use of Proceeds
In October 1999, the Company issued a warrant to Core Communications
Group, Inc. for up to 10,000 shares of the Company's Common Stock in
connection with the providing of investor relations services to the
Company. The above issuance was made pursuant to Section 4 (2) of the
Securities Act of 1933.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on November 19,
1999. The following actions were taken at the meeting:
Election of Directors Votes For Votes Against
P. George Benson, PhD 24,579,156 188,175
Audrey T. Cross, PhD 24,579,656 187,675
Sander A. Flaum 24,579,156 188,175
Robert E. Flynn 24,579,716 187,615
Marvin Moser, MD 24,579,216 188,115
Fredric D. Price 24,578,716 188,615
Robert E. Pollack, PhD 24,579,216 188,115
Appointment of KPMG LLP as auditors for the fiscal year ending June 30,
2000, was ratified by a vote of 24,645,841 For; 65,880 Against; and
55,610 Abstentions.
Item 5 - Other Information
Effective February 1, 2000, Mr. John H. Gutfreund, former chairman and
chief executive officer of Salomon, Inc., was elected to the board of
directors. Mr. Gutfreund replaces Sander A. Flaum who resigned from the
board for personal reasons.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports
There were no reports on Form 8-K filed by the Company during this
fiscal quarter.
Item 7a - Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in
interest rates, foreign exchange rates and equity prices. The Company
has no financial instruments that give it exposure to changes in
foreign exchange rates or equity prices. The Company's existing term
loan with Citizens Bank of Massachusetts bears interest at a rate equal
to the prime lending rate plus one percent. As a result, the Company
does have exposure to changes in interest rates. For example, if
interest rates increase by one percentage point from current levels,
the Company would incur incremental interest expense of $37 thousand
through the scheduled maturity of the term loan on February 1, 2002.
15
<PAGE>
AMBI INC.& SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMBI INC.
---------
Registrant
Date: February 10, 2000 By: /S/ Fredric D. Price
--------------------
Fredric D. Price
President and Chief Executive Officer
(Principal Executive Officer)
/S/ Gerald A. Shapiro
---------------------
Gerald A. Shapiro
Vice President and Chief Financial Officer
(Principal Financial Officer)
16
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