<PAGE>

                                  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:                                           September 30, l999

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, NY                              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         30,518,215 shares as of November 10, 1999.
-----------------------------         ------------------------------------------


<PAGE>


                            AMBI INC. & SUBSIDIARIES

                                      INDEX


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

ITEM 1     Financial Statements (unaudited)

           Consolidated Balance Sheets at September 30, l999
              and June 30, 1999                                                3

           Consolidated Statements of Operations for the three
              months ended September 30, 1999 and l998                         5

           Consolidated Statement of Stockholders' Equity for
              the three months ended September 30, l999                        6

           Consolidated Statements of Cash Flows for the three
              months ended September 30, l999 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 6     Exhibits and Reports on Form 8-K                                   15

ITEM 7a    Quantitative and Qualitative Disclosures
              About Market Risk                                               15


                                       2
<PAGE>

                            AMBI INC. & SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                            September 30,      June 30,
                                                                1999             1999
                                                             ------------     ---------
                                                             (unaudited)
<S>                                                          <C>              <C>
ASSETS
Current assets:
      Cash and cash equivalents                               $ 2,012          $ 4,458
      Accounts receivable (less allowance for doubtful
         accounts of $231 at September 30, 1999 and
         $242 at June 30, 1999)                                 4,554            3,980
      Other receivables                                           655              473
      Inventories                                               1,050            1,426
      Prepaid expenses and other current assets                   612              685
                                                              -------          -------

          Total current assets                                  8,883           11,022

Property and equipment, net                                     1,004            1,066
Patents and trademarks (net of accumulated
   amortization of $5,151 at September 30, 1999
   and $4,362 at June 30, 1999)                                19,988           19,473
Goodwill (net of accumulated amortization of
   $244 at September 30, 1999 and $178 at
   June 30, 1999)                                               2,602            2,583
Other assets                                                      484              397
                                                              -------          -------

TOTAL ASSETS                                                  $32,961          $34,541
                                                              =======          =======
</TABLE>


See accompanying notes

                                       3
<PAGE>

                            AMBI INC. & SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                          September 30,        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                $ 1,529            $ 1,563
     Accounts payable and accrued expenses                                    2,995              4,262
     Contingent payments                                                      1,110              3,293
     Preferred dividends payable                                                 41                 25
                                                                            -------            -------

           Total current liabilities                                          5,675              9,143

Long-term debt and lease obligations                                          3,000              3,375

Other long-term obligations                                                     424                432
                                                                            -------           --------

TOTAL LIABILITIES                                                           $ 9,099            $12,950
                                                                            -------            -------
Commitments and contingent liabilities

REDEEMABLE PREFERRED STOCK:

     Series E convertible preferred, 1,500 shares issued:
     476 shares and 773 shares outstanding at September 30,
     1999 and June 30, 1999, respectively (aggregate
     liquidation value Series E $514)                                           389                634

     Series F convertible preferred, 575 shares issued: 343
     shares outstanding at September 30, l999 and June 30, 1999,
     respectively (aggregate liquidation value Series F $366)                   287                287

STOCKHOLDERS' EQUITY:

     Common stock, $0.005 par value, authorized 65,000,000 shares;
     30,494,215 shares and 30,152,306 shares issued and outstanding
     at September 30, 1999 and June 30, 1999, respectively                      152                150
     Additional paid-in capital                                              60,576             60,045
     Accumulated deficit                                                    (37,542)           (39,525)
                                                                            -------            -------

TOTAL STOCKHOLDERS' EQUITY                                                  $23,186            $20,670
                                                                            -------            -------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
   STOCK AND STOCKHOLDERS' EQUITY                                           $32,961            $34,541
                                                                            =======            =======
</TABLE>

See accompanying notes.

                                       4

<PAGE>


                            AMBI INC. & SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                                     September 30,
                                                            ----------------------------
                                                               1999              1998
                                                            ----------        ----------
<S>                                                         <C>              <C>
Net sales                                                   $    8,297        $    5,759
Other revenues                                                     127                56
                                                            ----------        ----------

REVENUES                                                         8,424             5,815

Cost of goods sold                                               1,530               743
                                                            ----------        ----------

GROSS PROFIT                                                     6,894             5,072

Selling, general & administrative expense                        3,294             2,551
Research and development expense                                   449               485
Depreciation and amortization                                      929               559
                                                            ----------        ----------

OPERATING INCOME                                                 2,222             1,477

Interest income                                                     68                36
Interest expense                                                   121                89
Other income, net                                                   --                79
                                                            ----------        ----------

INCOME BEFORE INCOME TAXES                                       2,169             1,503

Income taxes                                                       165                91
                                                            ----------        ----------

NET INCOME                                                  $    2,004        $    1,412
                                                            ==========        ==========

Basic earnings per share                                    $     0.07        $     0.06
                                                            ==========        ==========

Weighted average number of common shares - basic            30,459,294        21,199,345
                                                            ==========        ==========

Diluted earnings per share                                  $     0.06        $     0.05
                                                            ==========        ==========

Weighted average number of common shares and
    equivalents - diluted                                   32,116,198        26,383,486
                                                            ==========        ==========

</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                        98,363        1              219               --             220

Issuance of warrants                                  --       --               63               --              63

Preferred stock dividends declared                    --       --               --              (21)            (21)

Net income for the period                             --       --               --            2,004           2,004
                                              ----------      ---           ------          --------         ------

Balance at September 30, l999                 30,494,215      152           60,576          (37,542)         23,186
                                              ==========      ===           ======          ========         ======
</TABLE>


See accompanying notes.


                                       6
<PAGE>

                            AMBI INC. & SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                                                                 September 30,
                                                                           ------------------------
                                                                             1999             1998
                                                                           --------         -------
<S>                                                                        <C>              <C>
Cash flows from operating activities:
    Net income                                                             $  2,004         $ 1,412
    Adjustments to reconcile net income to net cash provided
    by operating activities:
         Depreciation and amortization                                          929             559
         Nutrition 21 consulting expense                                         51              48
         Loss on disposal of equipment                                           --             142
         Changes in assets and liabilities
             Decrease/(increase) in accounts receivable                        (574)            455
             Increase in other receivables                                     (119)             --
             Decrease in inventories                                            376              14
             Increase in prepaid and other current assets                        73              --
             Increase in other assets                                          (138)           (744)
             Increase in Nutrition 21 acquisition payable, net of
               cash payments                                                     --             275
             Decrease in accounts payable and accrued expenses               (1,267)            (28)
                                                                           --------         -------
                  Net cash provided by operating activities                   1,335           2,133
                                                                           --------         -------

Cash flows from investing activities:
    Contingent payments for Nutrition 21 acquisition                         (3,434)         (3,269)
    Purchases of property and equipment                                         (22)            (27)
    Proceeds from sale of equipment                                              --              68
    Payments for patents and trademarks                                        (128)           (430)
                                                                           --------         --------
                  Net cash (used in) investing activities                    (3,584)         (3,658)
                                                                           --------        --------

Cash flows from financing activities:
    Capital lease obligation repayments                                         (35)            (29)
    Debt repayments                                                            (382)           (233)
    Proceeds from exercise of options & warrants                                220              --
                                                                           --------         -------
                  Net cash (used in) financing activities                      (197)           (262)
                                                                           --------         -------

Net decrease in cash and cash equivalents                                    (2,446)         (1,787)
Cash and cash equivalents at beginning of period                              4,458           2,109
                                                                           --------         -------
Cash and cash equivalents at end of period                                 $  2,012         $   322
                                                                           ========         =======

</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 three month period
              ended September 30, 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 quarter ended September 30, 1998. The pro forma
              results of operations reflect amounts adjusted to their accounting
              basis as if the acquisition had occurred at the beginning of the
              respective periods. The pro forma information is not necessarily
              indicative of the results of operations as they may be in the
              future or as they would have been had the acquisition been
              effected on the assumed dates. The pro forma information for the
              quarter ended September 30, 1998 is as follows (in thousands,
              except for per share amounts):

                                                                      1998
                                                                      ----
                      Revenues                                      $ 6,858
                      Net income                                      1,664
                      Basic earnings per share                         0.07
                      Diluted earnings per share                       0.06

                                       8
<PAGE>

                            AMBI INC. & SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 3   INVENTORIES

         The components of inventories at September 30, l999 and June 30,
         1999 were:

                                      September 30,      June 30,
                                          l999             1999
                                      -------------      --------
         Raw materials                  $   289           $   373
         Finished goods                     761             1,053
                                        -------           -------
         Total inventories               $1,050           $ 1,426
                                        =======           =======

         During the quarter ended September 30, l999, the Company did not deduct
         any amounts from the inventory valuation reserve.


Note 4   REDEEMABLE PREFERRED STOCK

         During the quarter ended September 30, 1999, 297 shares of the
         Company's Series E Preferred and accrued dividends thereon were
         converted into 244 thousand shares of Common Stock.


         During the quarter ended September 30, 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 month periods ended
         September 30, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                          September 30,            September 30,
                                                              1999                     1998
                                                          ------------             ------------
<S>                                                       <C>                      <C>
Net income                                                $      2,004             $      1,412
Preferred stock dividends                                          (21)                     (74)
                                                          ------------             ------------
Net income attributable to common
   stockholders                                           $      1,983             $      1,338
                                                          ============             ============
Basic earnings per share                                  $       0.07             $       0.06
                                                          ============             ============
Weighted average number of common shares                    30,459,294               21,199,345
                                                          ============             ============
Net income attributable to common
   shareholders                                                  1,983             $      1,338
Interest on AZWELL loan, net                                      --                          8
Preferred stock dividends                                           21                       74
                                                          ------------             ------------
Net income available to common
  shareholders after giving effect to dilution            $      2,004             $      1,420
                                                          ============             ============
Diluted earnings per share                                $       0.06             $       0.05
                                                          ============             ============
Weighted average number of common shares
  and equivalents                                           32,116,198               26,383,486
                                                          ============             ============
</TABLE>

                                       9
<PAGE>

                            AMBI INC. & SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 6   COMPREHENSIVE INCOME

         Effective July 1, 1998, the Company adopted Statement of Financial
         Accounting Standards No. 130 "Reporting Comprehensive Income." This
         Statement requires that companies disclose comprehensive income, which
         includes net income, foreign currency translation, minimum pension
         liability adjustments and unrealized gains and losses on marketable
         securities classified as available for sale. For the Company,
         comprehensive income is the same as net income.



Note 7   SEGMENT REPORTING

         A summary of business data for the Company's reportable segments for
         the three months ended September 30, 1999 and 1998 are as follows:

         Information by business segment (in thousands):

<TABLE>
<CAPTION>
                                                                         September 30,      September 30,
                                                                               1999               1998
                                                                         -------------      -------------
                 <S>                                                      <C>                 <C>
                 Revenues
                 Nutritional Products                                       $ 8,203             $ 5,552
                 Pharmaceutical Products                                        221                 263
                                                                            -------             -------
                                                                            $ 8,424             $ 5,815
                                                                            =======             =======
                 Operating Income
                 Nutritional Products                                       $ 2,172             $ 1,468
                 Pharmaceutical Products                                         50                   9
                                                                            -------             -------
                                                                            $ 2,222             $ 1,477
                                                                            =======             =======
</TABLE>

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



Note 8   SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                     September 30,
                                                                              -------------------------
                                                                               1999               1998
                                                                               ----               ----
                 <S>                                                          <C>                 <C>
                 Supplemental disclosure of cash flow information:
                         Cash paid for interest                                $ 80                $ 89
                         Cash paid for income taxes                             247                  50

                 Supplemental schedule of non-cash financing activities:
                         Obligation for purchase of property & equipment       $209                $220
                         Issuance of warrants                                  $ 63                  --
                         Obligation for N21 contingent payment                 $999                  --
                         Obligation for Lite Bites contingent payment          $252                  --
                         Issuance of common stock for series E conversion      $249                  --
</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 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"), also include sales of nutrition bars and other
           related dietary supplement products marketed under the trademark
           "Lite Bites". The Company has, in addition, received 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 months ended September 30, l999 were $8.3
           million, an increase of 44.1% compared to $5.8 million for the same
           period a year ago. The increase in net sales of $2.5 million is
           primarily due to increased ingredient sales of $1.0 million, combined
           with $1.5 million of product sales from the acquisition of the Lite
           Bites Business.

           Other revenues of $0.1 million for the three months ended September
           30, 1999 were comprised of license and royalty revenues earned from
           the Whitehall-Robbins Healthcare division of American Home Products
           Corporation in accordance with the License, Option and Marketing
           Agreement entered into on October 8, l999.

           Cost of goods sold

           Cost of goods sold for the three months ended September 30, 1999
           were $1.5 million, an increase of 106% compared to $0.7 million for
           the same period a year ago. The increase in cost of goods sold is
           directly attributable to increased sales levels. Gross margin of
           81.6% for the three months ended September 30, l999 was 5.5
           percentage points lower than the comparable period a year earlier.
           The decrease in the gross margin percentage is due to lower margin
           nutritional sales included with higher margin ingredient sales.

           Selling, general and administrative expenses (SG&A)

           SG&A expense for the three month period ended September 30, l999, was
           $3.3 million, as compared to $2.6 million for the same period a year
           earlier. The increase is due to higher marketing expenses related
           primarily to increased marketing expense for the nutritional
           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 $0.4 million for the three month period ended
           September 30, l999, declined $0.1 million compared to $0.5 million
           for the same period a year earlier. The decrease for the three month
           period is attributable to the Company's decision to reduce infectious
           disease drug-related research activities.

           Operating Income

           The Company's operating income of $2.2 million for the three month
           period ended September 30, l999, was $0.7 million greater than the
           operating income of $1.5 million for the same period a year earlier.
           The increase in net sales from the acquisition of the Lite Bites
           Business and, the increase in net sales of the ingredient products
           were contributing factors; partially offsetting these improvements
           were increased selling, general and administrative expenses.

           Interest expense, net

           Interest expense, net of interest income of $53 thousand for the
           three month period ended September 30, l999, approximated interest
           expense, net of interest income, for the same period a year ago.

           Other income, net

           Other income, net was $0 for the three month period ended
           September 30, 1999, compared to $79 thousand for the same period a
           year ago. Other income resulting from the relocation of the Company's
           headquarters operations in September 1998 did not recur in the
           current fiscal period.

           Income taxes

           Income taxes for the three month period ended September 30, l999 of
           $165 thousand increased $74 thousand when compared to the comparable
           period a year earlier. The increase is primarily due to estimated
           federal alternative minimum tax and state income taxes 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 were $8.2 million for the quarter ended
           September 30, 1999, an increase of 47.7% compared to $5.6 million for
           the same period a year ago. The increase in revenues is primarily due
           to increased ingredient sales of $1.0 million, $1.5 million of
           nutritional product sales from the acquisition of the Lite Bites
           Business and fees and royalties earned from AHP.

                                       12
<PAGE>

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

           Nutritional Products operating income for the quarter ended
           September 30, 1999 was $2.2 million, an increase of 47.9% compared to
           $1.5 million for the same period a year ago. The increase in net
           sales from the acquisition of the Lite Bites Business and the
           increase in net sales of the ingredient products were the
           contributing factors.


           Pharmaceutical Products

           Pharmaceutical products revenues were $0.2 million for the quarter
           ended September 30, 1999, a decrease of $0.1 million compared to the
           same period a year ago. The decrease is attributable to reduced sales
           of nisin-based animal health products.

           Pharmaceutical products operating income was $50 thousand for the
           quarter ended September 30, 1999, compared to $9 thousand for the
           same period a year ago. The improvement is primarily due to
           reductions in manufacturing costs in the current fiscal period.


           LIQUIDITY AND CAPITAL RESOURCES

           Cash and cash equivalents at September 30, 1999 were $2.0 million
           compared to $4.5 million at September 30, 1998. As of September 30,
           1999 the Company had a working capital surplus of $3.1 million
           compared to $1.9 million surplus as of June 30, 1999.

           During the three month period ended September 30, l999, cash provided
           by operations was $1.3 million, compared to $2.1 million for the
           three month period ended September 30, 1998. The decrease is due
           primarily to payments for working capital requirements.

           Cash used in investing activities for the three months ended
           September 30, 1999 was $3.6 million compared to $3.7 million for the
           comparable period a year ago. Payments for patents and trademarks
           declined $0.3 million, while contingent payments made to the previous
           owners of Nutrition 21 increased $0.2 million.

           Cash used in financing activities for the three month period ended
           September 30, 1999 was $0.2 million compared to $0.3 million for the
           comparable period a year ago. Increased debt repayments of $0.1
           million offset by proceeds from the exercise of options and warrants
           of $0.2 million, were the primary reasons for the improvement.

           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 September 30, l999,
           the Company had no borrowings under this line.

           Additional contingent payments will be made to the former owners of
           Optimum Lifestyles, Inc. ("OLI") due to the acquisition of the Lite
           Bites Business, depending primarily on sales levels of the Lite Bites
           Business achieved during the five year period following closing
           and/or the availability of Lite Bites products through certain
           distribution channels in the future, as follows: a maximum of $3.0
           million in cash and/or AMBI common stock, at the option of the
           previous owners of OLI, payable $1.0 million on each of the first
           three anniversaries of the acquisition; $3.0 million in newly issued
           AMBI preferred stock, payable $1.5 million on the first and second
           anniversaries of the acquisition; and a single payment of $1.0
           million in cash, payable prior to the fifth anniversary of the
           acquisition.

           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.

                                       13
<PAGE>

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

           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.

           YEAR 2000 READINESS DISCLOSURE

           Many computer systems and embedded technologies may experience
           problems handling dates beyond the year 1999 and therefore may need
           to be modified prior to the Year 2000 in order to remain functional.
           The company is taking steps to ensure its readiness for handling
           dates beginning in the Year 2000.

           The Company completed the implementation of Year 2000 readiness of
           its critical operational and administrative software during the month
           of August 1999. The Company will continue to monitor its software
           vendors for additional changes that may affect Year 2000 readiness,
           and will implement such changes, if required.

           The Company has formally communicated with all of its key suppliers
           to determine their Year 2000 state of readiness and the extent to
           which the failure of any of their systems may impact the Company's
           operations. The communication and evaluation process is ongoing.
           Based upon current information, the Company estimates that the costs
           of addressing the Year 2000 issue have not been material and are
           expected to continue to be immaterial. The Company has initiated a
           program to increase key product inventories during the balance of
           calendar year 1999 to assure continuity of operations.

           The Company currently believes that a reasonable worst case scenario
           would be a failure by a significant third party in the supply and
           distribution chain to remediate its Year 2000 deficiencies that would
           continue for several days or more. Any such failure could impair the
           manufacture and/or delivery of products.

           The Company's Year 2000 efforts are ongoing and the overall plan, as
           well as the Company's development of contingency plans, will continue
           to evolve as new information becomes available.

           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 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, various actions are ongoing, and the Company
           intends to vigorously protect its proprietary rights.


ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS

           In August 1999, the Company issued a warrant to QVC, Inc. to purchase
           up to 420,000 shares of the Company's Common Stock in connection with
           a Strategic Alliance Agreement. The Company received $63,000, the
           fair value of the warrant.



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 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 $61 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: November 12, 1999      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