November 16, 1998

AMBI Inc. (NASDAQ: AMBI) RECOMMENDATION: BUY

Fiscal 1Q99 Exceeds Expectations; Reiterating BUY Recommendation

SUMMARY INVESTMENT CONSIDERATIONS

Last Friday, AMBI announced outstanding first quarter results. Despite advances in the share prices since initiation of coverage on October 14, 1998 (available at www.SmallCapsOnline.com), we still believe AMBI stock to be significantly undervalued based on future expected sales and earnings growth, and the likelihood of additional corporate partnerships and potential acquisitions over the next three to nine months. In addition, by any financial measure, AMBI stock is trading at a discount to its peers, the S&P and the Russell 2000. We are maintaining our 12- to 18-month price target of $4 to $5 per share, and are reiterating our BUY recommendation on AMBI for those investors tolerant of the risks associated with higher-risk, micro-cap equity investments.

• Discussion of Fiscal 1Q99 Results: For the first quarter ended September 30, 1998, AMBI reported revenues of $5.8 million, up 86% year over year, and net income of $1.4 million, or $0.05 per share fully diluted. Additionally, AMBI’s results reflected more than $2.1 million in EBITDA (or positive cash flow) for the quarter. Total expenses for the quarter were lower than anticipated due to the fact that AMBI shifted advertising and marketing costs into the second quarter. However, for the first six months, we are expecting total expenses to be in line with our expectations.
• Fiscal 2Q99 Expectations: We view these first quarter results as a very positive indication of the development of AMBI’s business. Investors should note that the first quarter did not include any contribution from the recently signed corporate deals with American Home Products (AHP) or Cultor Food Science. The recently announced $5 million deal with AHP included a $4.0 million equity investment, and a $1.0 million license fee (which will be booked as revenues in 2Q99). However, we do expect marketing expenses to increase as AMBI adds additional staff and increases advertising expenditures. We expect 2Q99 net income of approximately $1.5 to $1.6 million.
• 1Q99 Balance Sheet: The 1Q99 results reflected an end-of-period cash balance of $322 thousand. Investors should note that on September 30, 1998, AMBI paid a contingent payment of $3.3 million to the prior owners of Nutrition 21 (an acquisition completed August 1997). With EBITDA of approximately $2.1 million in the first quarter, and the $5.0 million received from AHP on October 8, 1998, we believe AMBI has a strong cash position, despite the cash balance as of September 30, 1998.
• Commentary on Valuation: For the sake of discussion, let us assume that AMBI’s market capitalization is $37 million (roughly 25 million shares at $1.50). Annualizing net income of $1.4 million for the year (or around $6.0 million), AMBI is trading at 6 times net income! Similarly, the stock is trading about 4.5 times EBITDA, or cash flow. We believe these multiples are extremely low for a company with the revenue and earnings growth we are projecting for AMBI (see our October 14^th report).

COMPANY DESCRIPTION

AMBI is executing an innovative and profitable growth strategy: developing and commercializing nutritional products for cardiovascular, diabetic and other medical conditions. Its products are proprietary, and are put through pharmaceutical-like clinical trials to demonstrate efficacy and safety. The Company has recently announced two "transforming" strategic alliances with American Home Products and Cultor Food Science, Inc. that validate AMBI’s strategy, provide the Company with national retail and ingredient distribution for its products, strengthen the balance sheet, and position the Company for future growth. We believe AMBI’s strategic and financial turnaround is completed and the company is poised for growth.

FOR ADDITIONAL INFORMATION

Contact SmallCaps Online LLC — 212-554-4158

SOURCES FOR ADDITIONAL INFORMATION

The following are website addresses offering related information, and links to other sources of information.

www.AMBIinc.com AMBI’s corporate website

www.CardiaNutrition.com AMBI’s internet commerce site, currently under construction

www.SmallCapsOnline.com SmallCaps Online’s site for company information and research

www.FDA.gov US Food and Drug Administration homepage

www.WHO.int World Health Organization homepage

www.Diabetes.org American Diabetes Association homepage

www.AmHrt.org American Heart Association National Center homepage

www.AMA-Assn.org American Medical Association homepage

www.ASH-US.org American Society of Hypertension homepage

www.SEC.gov U.S. Securities and Exchange Commission, with links to EDGAR filings

212-327-2038 Chromium Information Bureau, Inc.

The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC may have performed investment banking, consulting or other services for or may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1998 by SmallCaps Online LLC. All rights reserved.