UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                                    FORM 10-Q

For Quarter Ended:                                             December 31, 2000



Commission File Number 0-14983

                                    AMBI INC.

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             (Exact name of registrant as specified in its charter)


New York                                                         11-2653613

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(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation of organization)


4 Manhattanville Road, Purchase, NY                                     10577

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(Address of principal executive offices)                              (Zip Code)


                                 (914) 701-4500

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              (Registrant's telephone number, including area code)



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(Former name, former address and former fiscal year, if changed since last
report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

                                 YES [X] NO [ ]


Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.


Common Stock, Par Value $.005          31,266,019 shares as of December 31, 2000
-----------------------------          -----------------------------------------

<PAGE>

                            AMBI INC. & SUBSIDIARIES

                                      INDEX


PART I   FINANCIAL INFORMATION                                              PAGE
------   ---------------------                                              ----

ITEM 1   Consolidated Financial Statements (unaudited)


         Consolidated Balance Sheets at December 31, 2000
            and June 30, 2000                                                 3


         Consolidated Statements of Operations for the three
            and six months ended December 31, 2000 and l999                   5


         Consolidated Statement of Stockholders' Equity for
            the six months ended December 31, 2000                            6


         Consolidated Statements of Cash Flows for the six
            months ended December 31, 2000 and 1999                           7


         Notes to Consolidated Financial Statements                           8


ITEM 2   Management's Discussion and Analysis of
         Financial Condition and Results of Operations                       12


PART II  OTHER INFORMATION
-------  -----------------

ITEM 1   Legal Proceedings                                                   17

ITEM 6   Exhibits and Reports on Form 8-K                                    17

ITEM 7a  Quantitative and Qualitative Disclosures About Market Risk          17

                                        2
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (in thousands, except share and per share data))



                                                         December 31,  June 30,
                                                            2000         2000
                                                         ----------   ----------
                                                         (unaudited)   (Note 1)
ASSETS

Current assets:

      Cash and cash equivalents                          $    3,965   $    8,488

      Accounts receivable (less allowance for doubtful
         accounts of $93 at December 31, 2000 and $134
         at June 30, 2000)                                    3,281        4,587

      Other receivables                                         551          464

      Inventories                                             1,136        1,382

      Prepaid expenses and other current assets                 800          717
                                                         ----------   ----------

          Total current assets                                9,733       15,638

Property and equipment, net                                     730          734

Patents and trademarks (net of accumulated
   amortization of $9,221 at December 31, 2000
   and $7,843 at June 30, 2000)                              18,765       19,502

Goodwill (net of accumulated amortization of
   $644 at December 31, 2000 and $449 at
   June 30, 2000)                                             5,232        4,849

Other assets                                                    340          362
                                                         ----------   ----------

TOTAL ASSETS                                             $   34,800   $   41,085
                                                         ==========   ==========


See accompanying notes to consolidated financial statements.

                                        3
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                 December 31,   June 30,
                                                                    2000          2000
                                                                 ----------    ----------
LIABILITIES, REDEEMABLE PREFERRED STOCK                          (unaudited)    (Note 1)
  AND STOCKHOLDERS' EQUITY
<S>                                                              <C>           <C>
Current liabilities:
     Current portion of long-term debt                           $    1,500    $    1,500
     Accounts payable and accrued expenses                            2,756         4,039
     Contingent payments payable                                      1,315         3,584
     Preferred dividends payable                                         27            29
                                                                 ----------    ----------
           Total current liabilities                                  5,598         9,152

Long-term debt                                                          375         1,125

Other long-term obligations                                             137           153
                                                                 ----------    ----------

TOTAL LIABILITIES                                                     6,110        10,430
COMMITMENTS AND CONTINGENT LIABILITIES                           ----------    ----------


REDEEMABLE PREFERRED STOCK:

Series E convertible preferred, 1,500 shares
     issued: 476 shares outstanding at
     December 31, 2000 and June 30, 2000,
     respectively (aggregate liquidation value-$488)                    389           389

Series F convertible preferred, 575 shares issued: 343 shares
     outstanding at December 31, 2000 and June 30, 2000,
     respectively (aggregate liquidation value - $352)                  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 December 31, 2000 and June 30, 2000
     (aggregate liquidation value - $671)                               663           663

Common stock, $0.005 par value, authorized 65,000,000 shares;
     31,266,019 and 31,581,427shares issued and outstanding at
     December 31, 2000 and June 30, 2000, respectively                  156           158

Additional paid-in capital                                           62,293        62,291

Accumulated deficit                                                 (35,098)      (33,133)
                                                                 ----------    ----------

TOTAL STOCKHOLDERS' EQUITY                                           28,014        29,979
                                                                 ----------    ----------

TOTAL LIABILITIES, REDEEMABLE PREFERRED
   STOCK AND STOCKHOLDERS' EQUITY                                $   34,800    $   41,085
                                                                 ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                        4
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                    Three Months Ended      Six Months Ended
                                                       December 31,           December 31,
                                                   --------------------   --------------------
                                                     2000        1999       2000        1999
                                                   --------    --------   --------    --------
<S>                                                <C>         <C>        <C>         <C>
Net sales                                          $  4,410    $  9,699   $  9,666    $ 17,996
Other revenues                                          200         126      1,847         253
                                                   --------    --------   --------    --------

REVENUES                                              4,610       9,825     11,513      18,249

Cost of goods sold                                      957       1,485      2,389       3,015
                                                   --------    --------   --------    --------

GROSS PROFIT                                          3,653       8,340      9,124      15,234

Research and development expenses                       728         563      1,961         969
Selling, general & administrative expenses            2,408       3,832      5,547       7,169
Depreciation and amortization                           665         987      1,840       1,916
Restructuring and other charges                       2,448          --      2,448          --
                                                   --------    --------   --------    --------

OPERATING (LOSS) INCOME                              (2,596)      2,958     (2,672)      5,179

Interest income                                          64          41        198         109
Interest expense                                         65         118        141         238
Other income, net                                       204          52        231          52
                                                   --------    --------   --------    --------

(LOSS) INCOME BEFORE INCOME TAXES                    (2,393)      2,933     (2,384)      5,102

Income taxes (benefit)                                 (479)        220       (475)        385
                                                   --------    --------   --------    --------

NET (LOSS) INCOME                                  $ (1,914)   $  2,713   $ (1,909)   $  4,717
                                                   ========    ========   ========    ========

Basic (loss) earnings per share                    $  (0.06)   $   0.09   $  (0.06)   $   0.15
                                                   ========    ========   ========    ========

Diluted (loss) earnings per share                  $  (0.06)   $   0.09   $  (0.06)   $   0.15
                                                   ========    ========   ========    ========

Weighted average number of common shares - basic     31,273      30,525     31,427      30,492
                                                   ========    ========   ========    ========
Weighted average number of common shares
 and equivalents - diluted                           31,299      31,521     31,549      31,807
                                                   ========    ========   ========    ========
</TABLE>

See accompanying notes to consolidated financial statements

                                        5
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        (in thousands, except share data)
                                   (unaudited)

<TABLE>
<CAPTION>

                                      Preferred Stock                                 Additional
                                         Series G                 Common Stock          Paid-In    Accumulated
                                 ------------------------    -----------------------    Capital      Deficit        Total
                                   Shares          $           Shares         $            $            $             $
                                 ----------    ----------    ----------   ----------   ----------   ----------    ----------
<S>                                 <C>        <C>           <C>          <C>          <C>          <C>           <C>
Balance at June 30, 2000                663    $      663    31,581,427   $      158   $   62,291   $  (33,133)   $   29,979

Preferred stock dividends
declared                                 --            --            --           --           --          (56)          (56)

Cancellation of stock exercise                                 (315,408)          (2)           2

Net loss for the period                  --            --            --           --           --       (1,909)       (1,909)
                                 ----------    ----------    ----------   ----------   ----------   ----------    ----------

Balance at Dec. 31, 2000                663    $      663    31,266,019   $      156   $   62,293   $  (35,098)   $   28,014
                                 ==========    ==========    ==========   ==========   ==========   ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                        6

<PAGE>

                            AMBI INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

                                                              Six Months Ended
                                                                December 31,
                                                             ------------------
                                                               2000       1999
                                                             -------    -------
Cash flows from operating activities:
    Net (loss) income                                        $(1,909)   $ 4,717
    Adjustments to reconcile net (loss) income to
    net cash provided by operating activities:
         Depreciation and amortization                         1,840      1,916
         Nutrition 21 consulting expense                          --        100
         Loss on disposal of equipment                            --         11
         Gain on sale of product line                             --        (39)
         Changes in operating assets and liabilities:
             Accounts receivable                               1,306     (1,914)
             Other receivables                                   (87)       270
             Inventories                                         246       (187)
             Prepaid and other current assets                    (83)       110
             Other assets                                         22       (147)
             Accounts payable and accrued expenses            (1,132)        63
                                                             -------    -------
                  Net cash provided by operating activities      203      4,900
                                                             -------    -------

Cash flows from investing activities:
    Contingent payments for acquisitions                      (3,650)    (3,568)
    Purchases of property and equipment                         (133)       (79)
    Payments for patents and trademarks                         (138)      (221)
    Proceeds from sale of assets                                   3        404
                                                             -------    -------
                  Net cash used in investing activities       (3,918)    (3,464)
                                                             -------    -------

Cash flows from financing activities:
    Capital lease obligation repayments                           --        (63)
    Debt repayments                                             (750)      (750)
    Proceeds from exercise of options and warrants                --        350
    Preferred stock dividends paid and declared                  (58)       (21)
                                                             -------    -------
                  Net cash used in financing activities         (808)      (484)
                                                             -------    -------

Net (decrease)/increase in cash and cash equivalents          (4,523)       952
Cash and cash equivalents at beginning of period               8,488      4,458
                                                             -------    -------
Cash and cash equivalents at end of period                   $ 3,965    $ 5,410
                                                             =======    =======

See accompanying notes to consolidated financial statements.

                                        7
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ($ in thousands, except share data)
                                   (unaudited)


Note 1   BASIS OF PRESENTATION

         The accompanying  unaudited consolidated financial statements have been
         prepared in accordance with generally  accepted  accounting  principles
         for interim  financial  information  and with the  instructions to Form
         10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
         all of the  information  and footnotes  required by generally  accepted
         accounting principals 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 three and six month periods ended
         December 31, 2000 are not  necessarily  indicative  of the results that
         may be expected for the year ended June 30, 2001.

         The balance  sheet at June 30, 2000 has been  derived  from the audited
         financial  statements  at that  date but does  not  include  all of the
         information  and footnotes  required by generally  accepted  accounting
         principles for complete financial statements.

         For further information, refer to the consolidated financial statements
         and footnotes  thereto  included in the Company's annual report on Form
         10-K/A for the year ended June 30, 2000.

         Certain reclassifications have been made to the prior period amounts in
         order to conform to the current period presentation.

Note 2   SIGNIFICANT ACCOUNTING PRONOUNCEMENTS

         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,  SAB No. 101B on
         June 26, 2000 and a document  issued on October 12, 2000  responding to
         frequently asked questions (FAQ) regarding accounting standards related
         to  revenue  recognition  and SAB No.  101.  SAB No. 101 sets forth the
         views of the 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  fiscal  quarter of the
         fiscal year 2001.  The effect of the change  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. We have not
         yet made a determination  of the impact of this accounting  guidance on
         our financial position or results from operations,  and are considering
         guidance from the SEC's recently issued FAQ on SAB No. 101.

Note 3   INVENTORIES

         The  components of  inventories  at December 31, 2000 and June 30, 2000
         were:

                                              December 31,        June 30,
                                                 2000               2000
                                               -------            -------
               Raw materials                   $   252            $   493
               Finished goods                      884                889
                                               -------            -------
               Total inventories               $ 1,136            $ 1,382
                                               =======            =======

                                        8
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ($ in thousands, except share data)
                                   (unaudited)


Note 4   REDEEMABLE PREFERRED STOCK

         During  the  six  months  ended  December  31,  2000,   there  were  no
         conversions of the Company's Series E, F or G Preferred Stock


Note 5   (LOSS) EARNINGS PER SHARE

         Basic and diluted (loss) earnings per share:
<TABLE>
<CAPTION>

                                                      Three months ended               Six months ended
                                                          December 31,                   December 31,
                                                 ----------------------------    ----------------------------
                                                     2000            1999            2000            1999
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
         Net (loss) income                       $     (1,914)   $      2,713    $     (1,909)   $      4,717
         Preferred stock dividends                        (27)            (20)            (56)            (41)
                                                 ------------    ------------    ------------    ------------
         Net (loss) income attributable to
         common stockholders                     $     (1,941)   $      2,693    $     (1,965)   $      4,676
                                                 ============    ============    ============    ============

         Basic (loss) earnings per share         $      (0.06)   $       0.09    $      (0.06)   $       0.15
                                                 ============    ============    ============    ============

         Weighted average number of common
         shares                                    31,272,876      30,525,106      31,427,151      30,492,200
                                                 ============    ============    ============    ============

         Net (loss) income attributable to
         common shareholders                     $     (1,941)   $      2,693    $     (1,965)   $      4,676
         Preferred stock dividends                         --              20              --              41
                                                 ------------    ------------    ------------    ------------
         Net (loss) income available to common
         shareholders after giving effect to
         dilution                                $     (1,941)   $      2,713    $     (1,965)   $      4,717
                                                 ============    ============    ============    ============

         Diluted (loss) earnings per share       $      (0.06)   $       0.09    $      (0.06)   $       0.15
                                                 ============    ============    ============    ============

         Weighted average number of common
         shares and equivalents                    31,299,304      31,520,754      31,548,775      31,806,619
                                                 ============    ============    ============    ============
</TABLE>

         Diluted  loss per  share for the  three  and six  month  periods  ended
         December 31,  2000,  does not reflect the  incremental  shares from the
         assumed  conversion  of the  preferred  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:


                                                     Three and six months ended
                                                          December 31, 2000
                                                          -----------------

         Convertible preferred stock                           919,396

                                        9
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ($in thousands, except share data)
                                   (unaudited)


Note 6   RESTRUCTURING AND OTHER CHARGES


         The  Company  recorded  $2.4  million  for   restructuring   and  other
         non-recurring charges, relating to its Nutritional Products segment, in
         the second quarter of fiscal 2001. A $1.6 million  restructuring charge
         was recorded as part of the Company's initiative to reduce costs and to
         create a more  flexible  and  efficient  organization.  Included in the
         restructuring  charge  was $0.7  million of cash  termination  benefits
         associated with the separation of twenty  employees.  Approximately 90%
         of the affected employees left their positions as of December 31, 2000,
         and the remaining  employees  will leave by June 30, 2001.  Termination
         benefits  of $0.4  million  were paid in the  second  quarter of fiscal
         2001.  This cash outlay was funded  through cash from  operations.  The
         balance of the cash termination benefits is expected to be paid by June
         30,  2001.  Approximately  $0.9  million  of the  restructuring  charge
         relates to the Company's  decision to discontinue its efforts to launch
         NO YO, a consumer  weight loss product  intended for the retail channel
         and to consolidate certain of the Company's  facilities.  Approximately
         $0.4 million of these restructuring costs remain to be paid by June 30,
         2001.

         Other  charges  of $0.7  million  include a  non-cash  write off of the
         carrying   value  of  the   website   development   costs   related  to
         NutritionU.com,  the  Company's  online  nutrition  education  internet
         company.  The  Company  believes  that  since  sufficient   uncertainty
         surrounds  the ability of the Company to find  strategic  partners  for
         NutritionU.com,  there  will be no  substantive  future  benefit  to be
         derived from the website development costs. In addition,  other charges
         include a non-cash  charge of $0.1 million  related to the write off of
         the remaining carrying value of a license fee for one of its products.


Note 7   INCOME TAXES

         The  effective  tax rate for the three month period ended  December 31,
         2000 was 20%  compared to an effective  rate of 7.5% in the  comparable
         prior year period.  The prior period  effective  tax rate  includes the
         benefit of federal  net loss  carryforwards  which were  utilized as of
         June 30, 2000.  For the six month period ended  December 31, 2000,  the
         Company's  effective tax benefit was 20% primarily  attributable to the
         estimated  realization of the Company's federal net loss  carryforwards
         generated during the quarter ended December 31, 2000.

                                       10
<PAGE>

                            AMBI INC. & SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       ($ in thousands, except share data)
                                   (unaudited)


Note 8   SEGMENT REPORTING


         A summary of business data for the Company's  reportable segments is as
         follows:

         Information by business segment (in thousands):
<TABLE>
<CAPTION>

                                           Three months ended      Six months ended
                                               December 31,           December 31,
                                          --------------------    --------------------
                                            2000        1999        2000        1999
                                          --------    --------    --------    --------
<S>                                       <C>         <C>         <C>         <C>
              REVENUES
              Nutritional Products        $  4,576    $  9,614    $  9,966    $ 17,803
              Pharmaceutical Products           34         211       1,547         446
                                          --------    --------    --------    --------
                                          $  4,610    $  9,825    $ 11,513    $ 18,249
                                          ========    ========    ========    ========

              OPERATING (LOSS) INCOME
              Nutritional Products        $ (2,568)   $  2,938    $ (4,118)   $  5,079
              Pharmaceutical Products          (28)         20       1,446         100
                                          --------    --------    --------    --------
                                          $ (2,596)   $  2,958    $ (2,672)   $  5,179
                                          ========    ========    ========    ========
</TABLE>

         Nutritional  Products  segment  assets  decreased   approximately  $1.2
         million  at  December  31,  2000  due to the  restructuring  and  other
         charges, previously discussed.

         The operations of the Company are principally in the United States.


Note 9   SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>

                                                                      Six Months Ended
                                                                        December 31,
                                                                      ----------------
                                                                       2000      1999
                                                                      ------    ------
<S>                                                                   <C>       <C>
         Supplemental disclosure of cash flow information:
               Cash paid for interest                                 $  132    $  187
               Cash paid for income taxes                             $  161    $  372

         Supplemental schedule of non-cash financing activities:
               Obligation for purchase of property & equipment        $  137    $  186
               Obligation for N21 contingent payment                  $  369    $2,276
               Obligation for Lite Bites contingent payment           $  945    $  504
               Issuance of common stock for series E conversions          --    $  249
</TABLE>

                                       11
<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 products to manufacturers of vitamin and mineral  supplements
         and  sales of  nutrition  bars and  other  related  dietary  supplement
         products  marketed  under the  trademark  "Lite Bites" (the "Lite Bites
         Business"). The Company has, in addition,  received royalty and license
         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, 2000
         of $4.4 million and $9.7 million, respectively,  decreased $5.3 million
         and $8.3 million, respectively, when compared to $9.7 million and $18.0
         million, respectively, for the same periods a year ago. The decrease in
         net  sales is  primarily  due to  reductions  in the  selling  price of
         chromium    picolinate    subsequent    to   the    expiration   of   a
         composition-of-matter patent in August 2000.

         Other  revenues of $0.2  million and $1.8 million for the three and six
         month periods ended  December 31, 2000,  were  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, l999, as well
         as $1.5 million of license fees earned from Biosynexus  Incorporated in
         accordance with License Agreements entered into on August 2, 2000.


         COST OF GOODS SOLD

         Cost of goods sold for the three and six month periods  ended  December
         31, 2000 of $1.0 million and $2.4 million, respectively, decreased $0.5
         million and $0.6 million,  respectively,  when compared to $1.5 million
         and $3.0  million,  respectively,  for the same periods a year ago. The
         decrease in cost of goods sold is primarily  due to the mix of products
         sold with a greater  proportion  of lower margin  nutritional  products
         occurring  in the three and six month  periods of this fiscal year when
         compared to last year. Gross margin for the three and six month periods
         ended December 31, 2000 of 78.3% and 75.3%  respectively,  declined 6.4
         and 7.9  percentage  points,  respectively,  when  compared to the same
         periods a year ago. The decrease in the gross margin  percentage is due
         primarily to the reduction in the selling price of chromium  picolinate
         subsequent  to the  expiration  of a  composition-of-matter  patent  in
         August, 2000, as well as product mix.

                                       12
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)


         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)

         SG&A  expense for the three and six month  periods  ended  December 31,
         2000, of $2.4 and $5.5 million,  respectively,  decreased  $1.4 million
         and $1.6 million, respectively, when compared to $3.8 million, and $7.2
         million, respectively, for the same periods a year ago. The decrease is
         due to a reduction in the use of outside marketing  consultants as well
         as  cost  savings  resulting  from a  restructuring  undertaken  by the
         Company  during  the  quarter  ended   December  31,  2000,   partially
         offsetting these reductions, was a non-recurring charge of $0.5 million
         related to the departure of the Company's previous CEO.


         RESTRUCTURING AND OTHER CHARGES

         The  Company  recorded  $2.4  million  for   restructuring   and  other
         non-recurring charges, relating to its Nutritional Products segment, in
         the second quarter of fiscal 2001. A $1.6 million  restructuring charge
         was recorded as part of the Company's initiative to reduce costs and to
         create a more  flexible  and  efficient  organization.  Included in the
         restructuring  charge  was $0.7  million of cash  termination  benefits
         associated with the separation of twenty  employees.  Approximately 90%
         of the affected employees left their positions as of December 31, 2000,
         and the remaining  employees  will leave by June 30, 2001.  Termination
         benefits  of $0.4  million  were paid in the  second  quarter of fiscal
         2001.  This cash outlay was funded  through cash from  operations.  The
         balance of the cash termination benefits is expected to be paid by June
         30,  2001.  Approximately  $0.9  million  of the  restructuring  charge
         relates to the Company's  decision to discontinue its efforts to launch
         NO YO, a consumer  weight loss product  intended for the retail channel
         and to consolidate certain of the Company's  facilities.  Approximately
         $0.4 million of these restructuring costs remain to be paid by June 30,
         2001.

         Other  charges  of $0.7  million  include a  non-cash  write off of the
         carrying   value  of  the   website   development   costs   related  to
         NutritionU.com,  the  Company's  online  nutrition  education  internet
         company.  The  Company  believes  that  since  sufficient   uncertainty
         surrounds  the ability of the Company to find  strategic  partners  for
         NutritionU.com,  there  will be no  substantive  future  benefit  to be
         derived from the website development costs. In addition,  other charges
         include $0.1 million for the write off of the remaining  carrying value
         of a license fee for one of its products.


         RESEARCH AND DEVELOPMENT EXPENSES

         Research costs of $0.7 million and $2.0 million,  respectively, for the
         three and six month periods  ended  December 31, 2000,  increased  $0.2
         million and $1.0 million,  respectively,  when compared to $0.5 million
         and $1.0  million,  respectively,  for the same periods a year earlier.
         The  increases  are  primarily  attributable  to expenses  incurred for
         NutritionU.com,  as well as additional  research  costs of $0.2 million
         related to clinical trials for the Lite Bites Business.


         OPERATING INCOME (LOSS)

         The  Company's  operating  loss  of  $2.6  million  and  $2.7  million,
         respectively,  for the three and six month periods  ended  December 31,
         2000, were $5.5 million and $7.9 million less than the operating income
         of $2.9 million and $5.2 million,  respectively, for the same periods a
         year earlier.  The price reductions  offered to the Company's  chromium
         picolinate  customers,  the continued funding of NutritionU.com and the
         non-recurring charges recorded in the quarter and year to date were the
         contributing  factors.  Partially  offsetting the contributing  factors
         were license fees of $1.5 million earned from  Biosynexus  Incorporated
         in  accordance  with the License  Agreements  entered into on August 2,
         2000.

                                       13
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)


         INTEREST INCOME, NET AND OTHER INCOME

         Interest  income,  net and  other  income,  of $0.2  million  and  $0.3
         million,  respectively,  for the  three  and six  month  periods  ended
         December 31, 2000,  were  greater  than the  comparable  periods a year
         earlier.   Income  derived  from  the   successful   settlement  of  an
         infringement suit accounted for the majority of the increase.


         INCOME TAXES (BENEFIT)

         The  effective  tax rate for the three month period ended  December 31,
         2000 was 20%  compared to an effective  rate of 7.5% in the  comparable
         period a year earlier. The prior period effective tax rate includes the
         benefit of federal  net loss  carryforwards  which were  utilized as of
         June 30, 2000.  For the six month period ended  December 31, 2000,  the
         Company's effective tax benefit was 20%, primarily  attributable to the
         estimated  realization of the Company's federal net loss  carryforwards
         generated during the quarter ended December 31, 2000.


         BUSINESS SEGMENTS

         The Company  operates in two business  segments - Nutritional  Products
         and Pharmaceutical Products.


         NUTRITIONAL PRODUCTS

         Nutritional  product  revenues  of  $4.6  million  and  $10.0  million,
         respectively,  for the three and six months  ended  December  31, 2000,
         respectively,  decreased  $5.0 million and $7.8 million,  respectively,
         when  compared to the same periods a year ago. The decrease in revenues
         is  primarily  due to  reductions  in the  selling  price  of  chromium
         picolinate offered to our ingredient product customers.

         Nutritional products operating loss for the three and six month periods
         ended   December   31,  2000  was  $2.6   million  and  $4.1   million,
         respectively,  compared to  operating  income of $2.9  million and $5.1
         million, respectively, for the same periods a year ago. The decrease in
         net sales of ingredient products due to reductions in the selling price
         of chromium  picolinate;  the continued funding of NutritionU.com and a
         restructuring,  as  well  as  other  non-recurring  charges,  were  the
         contributing factors.


         PHARMACEUTICAL PRODUCTS

         Pharmaceutical  products  revenues for the three and six month  periods
         ended   December  31,  2000  was  $34   thousand   and  $1.5   million,
         respectively,  compared to $0.2 million and $0.4 million, respectively,
         for the same  periods a year ago.  The  decrease  for the three  months
         ended  December 31, 2000, is primarily  attributable  to reduced animal
         health  related  sales  resulting  from  the  sale of the  Wipe  Out(R)
         business  in  December  1999 to  Immucell  Corporation.  The six  month
         increase  is due to license  fees  earned  from users of the  Company's
         patented technologies.

         Pharmaceutical  products  operating loss was $28 thousand for the three
         months ended  December 31,  2000,  compared to operating  income of $20
         thousand for the same period a year ago.  The decline is primarily  due
         to the  elimination of operating  losses  associated  with the Wipe Out
         animal health business. For the six months ended December 31, 2000, the
         Company had operating  income of $1.4 million compared to $100 thousand
         for the comparable  period a year ago. The increase is due primarily to
         license fees earned from Biosynexus Incorporated in accordance with the
         License Agreements entered into on August 2, 2000.

                                       14
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)


         LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash  equivalents  at  December  31,  2000 were  $4.0  million
         compared to $8.5 million at June 30, 2000. As of December 31, 2000, the
         Company had working capital of $4.1 million  compared to a $6.5 million
         surplus as of June 30, 2000.

         During the six month period ended  December 31, 2000,  cash provided by
         operations was $0.2 million, compared to $4.9 million for the six month
         period ended December 31, 1999. The decrease is due primarily to losses
         incurred in the period.

         Cash used in investing activities for the six months ended December 31,
         2000 was $3.9  million  compared  to $3.5  million  for the  comparable
         period a year ago.  Contingent  payments  made in  accordance  with the
         Company's acquisition agreements accounted for the use of funds.

         Cash  used in  financing  activities  for the six  month  period  ended
         December  31, 2000 was $0.8  million  compared to $0.5  million for the
         comparable period a year ago. The lack of proceeds from the exercise of
         options and warrants in the quarter ended December 31, 2000,  accounted
         for the decrease.

         The  Company's  primary  sources of financing are cash  generated  from
         continuing operations and up to a $4.0 million 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)  based  on  certain  criteria.   At  December  31,  2000,  the
         availability  under the revolving  line of credit was $2.2 million.  At
         December 31, 2000,  the Company had no  borrowings  under the revolving
         line of credit.

         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.

         Future  acquisition  activities  and any  increases  in  marketing  and
         research and  development  expenses over the present levels may require
         additional  funds.  Also,  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.


         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 qualified for hedge accounting.

         In June 2000, 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 applied the provisions
         of SFAS No.  133  during the  quarter  ended  December  31,  2000.  The
         implementation  had no impact  on  financial  position  or  results  of
         operations during the quarter.

                                       15
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (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,  SAB No. 101B on
         June 26, 2000 and a document  issued on October 12, 2000  responding to
         frequently asked questions (FAQ) regarding accounting standards related
         to revenue  recognition and SAB No. 101. SAB No. 101 sets forth the SEC
         views of the 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  fiscal  quarter of the
         fiscal year 2001.  The effect of the change  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. We have not
         yet made a determination  of the impact of this accounting  guidance on
         our financial position or results from operations,  and are considering
         guidance from the SEC's recently issued FAQ on SAB No. 101.

                                       16
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1 - LEGAL PROCEEDINGS

         The company in the ordinary  course of its business has brought  patent
         infringement  actions  against  companies  that it  believes  have sold
         chromium  picolinate in violation of the Company's patent rights. As of
         this  date,  one  action is  ongoing,  and the  Company  is  evaluating
         bringing additional actions.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

        (a)   EXHIBITS

              Exhibit 10.67 - Employment Agreement dated as of October 16, 2000
              between the Company and Gail Montgomery.

        (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 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  $10  thousand  through  the
         scheduled maturity of the term loan on February 1, 2002.

                                       17
<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 14, 2001          By: /s/ GAIL MONTGOMERY
                                      -------------------------------------
                                      Gail Montgomery
                                      President and Chief Executive Officer
                                      (Principal Executive Officer)


                                      /s/ GERALD A. SHAPIRO
                                      -------------------------------------
                                      Gerald A. Shapiro
                                      Vice President and Chief Financial Officer
                                      (Principal Financial Officer)

                                       18