December 17, 1998
RECOMMENDATION: BUY

AMBI Inc. (NASDAQ: AMBI)

Increasing Earnings Estimates — Reiterating BUY Recommendation;
AMBI Trading at 3 Times FY1999 Cash Flow

Exchange Symbol.....................AMBI (NASDAQ)
Price of Common Stock (12/16/99)............$1.03
30-Day Average Trading Volume.............191,000
Shares Outstanding.........................26.5mm
52-Week High/Low......................$2.25/$0.62

Address.....................4 Manhattanville Road
..............................Purchase, NY  10577
Telephone............................914-701-4500
President & CEO..................Fredric D. Price
VP Finance & Admin., CFO........Gerald A. Shapiro

Summary Investment Considerations

In response to a very strong first quarter, and commentary from management on the strength of the second quarter and prospects for the remainder of fiscal 1999, we are increasing our earnings estimates for AMBI and reiterating our BUY recommendation. AMBI is trading at extremely low multiples to net income and EBITDA, especially given anticipated earnings and cash flow growth, and our belief that management will continue to execute to plan.

As reported in our update of November 16^th, AMBI had a very strong first quarter, posting $1.4 million in net income and roughly $2.1 million in EBITDA, getting 48% and 35% of the way to our forecasts for the entire fiscal 1999. In a recent investor conference call, AMBI management stated that the second quarter operations were progressing well, and that other strategic items — joint efforts with American Home Products, preparation for launch of its direct marketing efforts on the internet, and other potential acquisitions — were moving ahead "on plan." As reported by us earlier, we also anticipate AMBI booking $1 million in fees as revenues in 2Q99 (from the AHP deal).

Margins for the first quarter were better than anticipated. AMBI posted a gross margin of 88.3%, and both its R&D and SG&A expenses were below our expectations. This resulted in EBITDA and net income margins of 35% and 24% respectively.

Without changing our top-line revenue forecast for 1999, we have adjusted our margin assumptions. On a fully taxed basis (which is conservative, especially given the imputed tax rate of only 6% for 1Q99), our full-year 1999 estimate increases to $0.16 per share (up 45% from our original $0.11 per share). Our FY1999 EBITDA estimate is now approximately $8.5 million, up from $5.9 million originally.

• Commentary on Valuation: At the current share price, AMBI stock trades at 6 times prospective net income and about 3 times prospective cash flow (EBITDA). We believe these multiples are extremely low for a company with the revenue and earnings growth we are projecting for AMBI.

• Cleaned Up Convertible Securities: As reported in a recent research update, AMBI has renegotiated agreements with convertible note holders in a manner we believe to be very favorable to common share holders. With this negative technical factor eliminated, we believe AMBI common can trade upward in lockstep with the operating performance of the company.

See new earnings model (attached).

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

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Sources for Additional Information

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