SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ___________
COMMISSION FILE NO.: 0-21489
INTERNATIONAL DISPENSING CORPORATION
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 13-3856324
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
342 Madison Avenue, Suite 1034, New York, New York 10173
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number: (212) 682-2244
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of Classes
Common Stock, $.001 par value
Class A Redeemable Warrants
Units (consisting of two shares of
Common Stock and two Class A Warrants)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: None.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 26, 1997 (computed by reference to the average bid
and asked prices of such stock on March 26, 1997) was approximately
$4,129,761.
There were 9,566,668 shares of Common Stock outstanding at March 26,
1997.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Information contained or incorporated by reference in this report
contains "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g., "Management's
Discussion and Analysis or Plan of Operations" and "Description of
Business-Strategic Focus." No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters include cautionary statements identifying important factors with respect
to such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to vary materially from the future results
covered in such forward-looking statements. Other factors could also cause
actual results to vary materially from the future results covered in such
forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
The Company was incorporated in Delaware in October 1995 under the name
ReSeal Food Dispensing Systems, Inc. and changed its name to International
Dispensing Corporation on September 12, 1996. The Company was formed primarily
for the purpose of commercializing and marketing certain proprietary and
patented delivery and dispensing technologies (the "Technologies") which, when
utilized in dispensing flowable food and beverage products, are designed to
maintain the sterility, purity and freshness of such products throughout the
period of time it is being consumed (its "use life"), with the possibility of
eliminating or reducing the need for adding preservatives to the product to keep
it fresh and/or refrigeration throughout its use life.
The Company will focus its marketing activities on the application of
the Technologies in the Field of Use (as defined) set forth in that certain
Amended and Restated License Agreement (the "Company License Agreement") between
the Company and ReSeal International Corporation, a Florida corporation ("RIC"),
which encompasses the food and beverage industries as broadly defined. Within
such categories, the applications of the licensed technologies can be divided
into a number of potential markets, including but not limited to the following:
(i) beverages, which include milk/cream, coffee, tea (hot and cold), hot
chocolate, juices, sweeteners, baby formula, baby food (in puree form), wines
and water; (ii) foods, which include soups, liquid eggs, liquid butter, sauces,
yogurt, melted cheese (nachos), baby foods and hot toppings in liquid form; and
(iii) condiments, which include
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ketchup, barbecue sauce, mayonnaise, salad dressings, oils and mustard.
The Company licenses the Technologies from RIC, which technologies
consist of barrier oriented, closed delivery and dispensing systems (the
"Systems") composed of: (i) self-adjusting reservoir bodies, (ii) patented,
barrier capable, unidirectional flow valves (the "Valve Assemblies"), and (iii)
as required, mechanisms to activate and facilitate the product delivery and flow
functions (the "Pump Assemblies"). The self-adjusting reservoir body of a System
is designed to shrink in proportion to the amount of the product being dispensed
through the Valve Assembly. The Valve Assemblies are designed to dispense a
product without letting either air or contaminants flow back into the internal
reservoir in which the remaining product is held. The Company believes that by
maintaining the purity of the product that remains in the container, the Systems
will provide higher levels of freshness for significantly longer periods of time
and, if preservatives are eliminated, the level of purity, of a wide array of
packaged flowable products.
The Company will undertake the formation of strategic alliances or
direct license/supply agreements with major food and beverage companies
currently generating substantial revenues from their existing markets. It is
further intended that these relationships will include co-development of new
products in tandem with the production of new dispensing systems which
incorporate the Technologies. Upon successful consummation of a strategic
alliance or direct license/supply relationship, of which there can be no
assurance, the customer or strategic partner will utilize the Technologies in
conjunction with products that have an existing market share, as well as the
System associated with the new products.
Historical Summary
ReSeal International Limited Partnership, RIC's parent ("RILP"), had
engaged research and development laboratory services to perform a variety of
tests (including, but not limited to, dye immersion and microbial challenge
tests), in accordance with basic scientifically accepted protocols, to determine
the reliability of the Technologies to provide barrier capabilities in order to
maintain contamination free and intact contents throughout the product's
designated use life. This is achieved by the dispensing of product without
allowing contaminants to enter the self-adjusting reservoir to which Valve
Assemblies are attached. The Company, based on such test results, believes that
Systems, when structured appropriately for product and use specific objectives,
should effectively protect the contents of the System from contamination under
static and repeat use conditions for extended periods, and that the Technologies
have application in numerous
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product areas. For example, the Company's initial marketing and
commercialization efforts in the food and beverage area include wine, water,
juices, coffee, tea, milk and other dairy products. The Company is working to
develop Systems for these markets. The Company is also pursuing marketing
opportunities with Systems that the Company intends to develop to dispense
soups, condiments, sauces, edible oils and salad dressings. In addition, the
Company believes that the range of products which can be dispensed through
Systems is expanding as the Company identifies additional materials and
structures which can be combined to produce Systems that are applicable to a
greater number of products in the food and beverage industries.
The most recent generation of Systems employs the Technologies for the
first time within traditional packaging formats, including tubes, bags or
"bag-in-a-box," and pouches. In all such cases, these basic systems would be
adapted in a manner appropriate to specialized utilization within the Company's
targeted markets which may include consumer, institutional and industrial
applications. Consequently, distributors of flowable products should have the
ability to employ the Technologies without significantly altering the outward
appearance of their existing packaging.
License Agreement
The Company was organized primarily for the purpose of licensing the
Technologies in the Field of Use (as defined below) from RIC. The Technologies
are licensed by RIC from RILP, on a worldwide exclusive basis in all of their
applications, pursuant to a License Agreement dated November 16, 1992 (the "RIC
License Agreement"). The Company has licensed the Technologies from RIC, on a
worldwide exclusive basis, solely in the Field of Use pursuant to the Company
License Agreement, and will endeavor to commercialize and market the
Technologies to third parties for its implementation in the food and beverage
industries.
Pursuant to the Company License Agreement, RIC granted the Company a
royalty-free exclusive worldwide license for an aggregate of $4,000,000 and
2,900,000 shares of Common Stock, to (i) directly or indirectly make (or
subcontract to make), use, sell and otherwise commercially exploit the
Technology, solely in the Field of Use, and (ii) grant sublicenses to affiliated
and non-affiliated third parties, solely in the Field of Use, provided, however,
that the Company shall not be permitted to sublicense the right to manufacture
the Valve Assemblies. "Field of Use" means the use of the Technology to make,
use, lease, sell or distribute (a) any food or beverage dispensers or containers
that embody the Technology or the manufacture, use, lease, sale or distribution
of which uses the Technology (collectively, the "Product") intended for use in
an industrial or commercial place of business in the
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preparation of food or beverage at such place of business, (b) any food or
beverage Product intended for use in an industrial or commercial place of
business by a customer purchasing food or beverage at such place of business for
consumption on or off the premises of such place of business, or (c) any food or
beverage Product intended to be sold to or by food or beverage wholesale price
discounters, retailers and similar establishments that sell food or beverage to
consumers.
The Company is primarily responsible for all research and development
activities necessary to exploit fully the commercial possibilities of the
Technology. The research and development activities shall include testing of
proposed Products and ongoing technical support for the modification,
improvement, enhancement, development or variation of existing Products and the
development of new Products. RIC is responsible for causing RILP to manage all
intellectual property associated with the Technology, including patents and
trademarks, to maximize its commercial potential. This obligation includes the
prosecution of all patent and trademark applications, subject to the Company's
approval of budgets and expenditures in advance, and, in the sole discretion of
RIC (or upon receipt by RIC of the Company's commitment to pay 100% of the
related reasonable costs and expenses), all suits against third parties for
infringement of patents or trademarks. If RIC or RILP is unwilling or unable to
undertake such patent obligations, then the Company is authorized to undertake
such obligations on behalf of RILP.
The Company License Agreement may not be assigned by either party
thereto without the express written consent of the other party, except that the
Company may sublicense applications of the Technologies within the Field of Use
at its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the Technologies in the Field of Use.
Strategic Focus
The Company will focus its marketing activities on the application of
the Technologies to the food and beverage industries, specifically the food
service and consumer products markets. First, the Company plans to market the
Technologies to the food service industry, which purveys bulk foods and
beverages such as milk, juices, wine and condiments to restaurants, fast food
chains and institutions. In this industry, there is a trend, away from the
traditional large tins for condiments and the cartons for milk and juice, to
one, two and three gallon plastic bags that are shipped in corrugated boxes to
the food outlet, where they are inserted into a permanent counter-dispenser-unit
for customer and/or kitchen food preparation use. The Company intends to market
the Valve Assemblies and the System for application to the products mentioned
above, on a worldwide basis. The Company will approach
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companies that already are marketing their products in a bag-in-a-box. The
Company believes that the System is ideal for the bag-in-a-box format since the
bag is already a collapsible container and thus only minimum alterations in the
production line, if any, will need to be made to incorporate it into the System.
Second, the Company plans to market the Technology to companies that
sell food and beverage products directly to the consumer through supermarkets,
grocery stores and other retail outlets. For example, sellers of wines and fruit
juices in the bag-in-a-box format can utilize the Technology since these
products tend to spoil quickly after being opened and exposed to air and
airborne contaminants, which is what the Systems are designed to prevent. Also,
the System would enable many consumer products to be marketed in larger, economy
sizes, which would otherwise spoil. While in many cases the bag-in-a-box format
would be used, the System can be used with a variety of tubes and pouches, and
thereby is applicable to condiments, salad dressings and baby foods. The Company
believes that the System also has the potential to be used with concentrated
liquid products (i.e., teas, coffees, juices, etc.) packaged without the use of
preservatives.
In addition, in many countries around the world, the milk market is
dominated by ultra high temperature ("UHT") milk, which if unopened will remain
fresh without refrigeration for up to one year. Once opened, UHT milk must be
refrigerated and has the same shelf-life as regular pasteurized milk, a number
of days. With the System, various bag-in-a-box sizes of UHT milk can be sold,
dispensed from, and still remain fresh, without refrigeration, for a longer
period of time.
The Company has engaged in preliminary marketing discussions with a
number of potential strategic alliance partners, licensees and end users of the
Technologies and has had preliminary discussions with a substantial dairy
company which supplies milk products in a food service capacity to the
restaurant industry, including fast food franchise operations and commercial
establishments throughout Canada. Management has also had discussions regarding
the use of Technologies in connection with a bag-in-a-box creamer for offices,
fast food outlets and coffee bars, as well as possible applications for yogurt
and the baby food industry. Based upon discussions that have taken place between
the Company and potential users, the Company intends to focus its initial
marketing efforts in the areas of wine, milk and condiments for the food service
industry.
Management anticipates that the Technology will prove capable of
accomplishing these objectives at commercially viable cost structures. There can
be no assurance, however, that any agreement will be entered into between the
Company and any products provider, or that if such agreement is reached that the
products
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marketed utilizing the Technology will ultimately obtain commercial success.
To oversee product development, the Company has engaged the services of
Michael Handler, a product development engineer, to create bag-in-a-box
prototype systems for application in the wine, milk, condiment and baby-bottle
design industries. These prototype systems, which embody the fundamental
approach to the Systems, have been prepared in advanced prototypical form. The
Company has solicited bid quotations from three different suppliers for the
fabrication of multi-cavity molds to be used in the manufacture of the Valve
Assemblies. Simultaneously, bid quotations for the manufacture of a single
cavity mold are being solicited. The single cavity mold will allow for the
manufacture of protoype tooling and refinement for large production runs.
Competition and Opportunities in the Packaging Industry
Most competing dispensing technology is designed to inhibit the
contamination of various products, minimally. When a can, bottle or other
dispenser, such as a bag-in-a-box, is initially used and a portion of its
contents is dispensed, the remaining contents become contaminated as air is
drawn into the vessel to fill the space created by the displaced contents or the
dispensing mechanisms are simply not capable of functioning as an adequate
barrier. Air transports various types of contaminants which can lead to the
degradation of a product, as well as basic oxidation processes initiated or
accelerated by the air itself. In effect, a System dispenses in an outward
direction as product leaves the package, but the System seals itself closed when
the dispensing is completed. Thus, Systems are designed to maintain a product's
purity throughout the product's use life by virtue of being closed and by
providing appropriate mechanical barriers to contamination while the product is
being dispensed. The Company believes that the Technologies provide the only
commercially viable closed delivery and dispensing system, which allows for
continuous delivery of a product in the desired metered or measured amounts
while maintaining the product's purity.
Competition
The Company's competition are the manufacturers of all existing
packages and bottles that contain flowable food and beverage products.
Typically, large sizes of beverages and other flowable products, such as
condiments, certain fruit juices and wine, will remain fresh without
refrigeration for a relatively long period of time before being opened; however,
once the container is opened, the contents will spoil within a short period of
time. In the case of containers with general purpose valves, where the product
is dispensed by applying pressure with a finger, the product flows out at the
same time air enters the container,
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thereby accelerating the spoilage of the remainder of the product, and the
repeated use of fingers directly adjacent to the spout also can lead to
unsanitary conditions. There are several faucet-type valves that eliminate some
of the sanitary problems described above, but they are costly and not widely
used. Also, there are soda-fountain-type pumps utilized for various condiments
employing stainless steel or plastic containers into which the condiments are
poured and which may encounter spillage onto the dispensing mechanism during the
course of a day and require frequent servicing. To be sanitary, these pumps must
be disassembled, cleaned and sterilized daily.
The System offers a distinct advantage over each of these other systems
because the System is designed to prohibit the flow of air and contaminants back
into it when product is being dispensed. It is anticipated that the System will
require no cleanup, since the product will always be contained in a bag or a
pouch and the entire system will be disposable and recyclable. A self-contained
system, like the System, provides considerably more product purity and
cleanliness.
Design Advantages
The Technology is designed to keep products fresher and purer while
being consumed, potentially with less preservatives and sometimes without
refrigeration. In instances where available on premises, additional precise
temperature control in conjunction with the Systems will provide vendors with
the ability to serve and sell perishable products at their optimum temperature.
Possible Future Alliances
The Company plans to enter into strategic alliances, supply agreements,
direct license agreements and joint ventures with leaders in the food and
beverage industry. However, to date, the Company has not entered into any such
alliances, agreements or ventures and there can be no assurance that the Company
will be able to do so in the future. Under such agreements, the Company
anticipates that under some circumstances the sublicensee will pay a license fee
of a negotiated sum to the Company upon entering into the sublicense.
Thereafter, the Company would receive income from sale of Valve Assemblies or
other components of the Systems and, under certain circumstances, royalties and
profits from the sale of products employing the Technologies. The Company may
provide the relevant Technologies to its customers and, with input from the
customers, assist in transferring and adapting the Technologies to specific
product requirements. As some customers may choose to take a more active role in
adapting the Technologies to their specific product, a portion of development
and marketing costs and a portion of the costs of adapting the Technologies to a
particular application may be borne by the sublicensees or supply partners.
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The particular relationship between the customer and the Company will vary
depending on each party's resources and needs. Therefore, a variety of
structuring and cost sharing alternatives may be used by the Company in
commercializing the Technologies.
All component parts of the Systems must be made of materials which are
compatible with the specific contents or formulation to be dispensed. Systems
must be adapted to meet the specific requirements of the particular product and
to the desired type of delivery to allow the dispensing of a flowable product in
accordance with such customer's needs. In light of the potentially undesirable
health effects of preservatives in certain products, other market factors and
the adaptability of the Technologies in the dispensing of non-preserved products
in a variety of applications, the Company believes that significant marketing
opportunities exist in the United States and around the world for the
establishment of strategic alliances involving Systems for various applications
and product categories. The Company will endeavor to integrate other existing
technology with Systems which can be commercialized, marketed and manufactured
in a wide variety of applications, worldwide. The Company anticipates that, in
many cases, the Technologies will facilitate positive changes in the nature of
product formulation, quality and efficacy.
In addition to all the advantages inherent in a barrier system, the
Company believes that the System will offer basic mechanical advantages,
including without limitation portion control and a pumping mechanism that will
enable customers to mix concentrates (such as teas and juices) with water when
being served.
Patents, Trademarks and Other Intellectual Property
RILP has been granted numerous patents and trademarks covering Systems
and their component parts.
The Company License Agreement includes all of the patents RIC licensed
from RILP. These patents encompass a broad range of delivery and dispensing
technologies and product applications for food and beverages. The following sets
forth a summary of certain key patents.
1. A valve assembly for a container permitting the easy dispensing of fluid
while preventing backflow of contaminants through the valve assembly into
the container holding the remaining fluid.
U.S. Patent No. Re. 34,243
(Expiration Date: July 11, 2006)
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2. An enclosing sleeve for a one-way valve presses an elastomeric sheath
against the valve body to provide a seal between the sheath and the valve
body. In addition, the sleeve can form a closure over the outlet end of the
valve body protecting it from contamination or contact with contaminating
surfaces.
U.S. Patent No. 5,092,855
(Expiration Date: March 3, 2009)
3. An elastomeric sleeve stretched over the valve body with ring-shaped
enlargements on each end forming "molded o-rings" in tight sealed contact
to the valve body.
U.S. Patent No. 5,305,783
(Expiration Date: April 26, 2011)
4. A fluid dispensing unit includes a collapsible reservoir with a one-way
valve at its outlet for directing flow into a metering chamber. The
metering chamber has an outlet connected to another one-way valve which
prevents backflow of contaminants into the container after fluid is
dispensed. Both the collapsible reservoir and the metering chamber can be
completely collapsed to ensure that the dispensing unit is completely
empty.
U.S. Patent No. 5,279,447
(Expiration Date: January 18, 2011)
5. A disc shaped valve body enclosed circumferentially by an elastomeric
membrane. Fluid flows through separate passageways between the
circumferential edge of the valve body and the elastomeric membrane.
U.S. Patent No. 5,279,330
(Expiration Date: January 18, 2011)
6. A one-way valve assembly with a cover member which encloses an expandable
elastomer sleeve and valve body and which presses the sleeve into
fluid-tight contact with the valve body at two axially spaced locations.
U.S. Patent No. 5,305,786
(Expiration Date: April 26, 2011)
7. A dispenser with two separate collapsible chambers, each holding a
component or substance to be mixed before use with at least one component
being in a flowable condition. A one- way valve permits flow of the
flowable component into the other chamber and prevents any backflow,
thereby providing the dispensing of a mixture having a short use lifetime
where the components of the mixture are capable of being stored separately
for an extended period.
U.S. Patent No. 5,353,961
(Expiration Date: October 11, 2011)
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8. An embodiment that replaces the tubular or disc shaped valve core with a
flat valve platform more appropriate for higher speed and lower cost
manufacturing. The elastomeric sheath can be executed as a flat sheet from
roll stock. A housing component protects the sheath while providing the
necessary sealing and resistance needed for successful functioning.
U.S. Patent No. 5,613,517
(Expiration Date: March 25, 2014)
9. A one-way vacuum actuated sheath valve with a flat elastic membrane held in
tension over a convex valve platform under a conforming cover with inlet
and outlet channels. The cover includes an expansion area on the cover
surface adjacent to the membrane and between the inlet and outlet. Liquid
flows through the valve when it is drawn by a vacuum. The vacuum operates
on both the flow path exit, but also above the membrane, lifting it to open
the flow path. Discontinuance of the vacuum allows the membrane to seal the
inlet and outlet, thus again preventing any flow between them.
U.S. Patent Pending/Allowed;
Application No. 08/398,771
Employees
As of March 28, 1997, the Company employed five persons, all of which
are on a full-time basis.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently leases, from a non-affiliated third party,
approximately 3,716 square feet of space for its principal executive office at
342 Madison Avenue, New York, New York 10173. The monthly rental on this
property is $7,509. Management believes that this facility is adequate for the
Company's intended activities in the foreseeable future. The lease terminates on
November 20, 1997. If this lease is not renewed, the Company does not anticipate
any significant problems in finding suitable alternative space.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings. However, certain
affiliates of RIC and the Company were named as defendants in a complaint filed
on or about October 31, 1994, alleging, among other things, breach of fiduciary
duty, mismanagement, waste and fraud. A settlement in connection therewith has
been entered into, which includes the dismissal with prejudice of the lawsuit.
See "Certain Relationships and Related Transactions--Settlements of Legal
Proceedings--Stanson Settlement."
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In addition, certain affiliates of RIC and the Company were named as
defendants in a complaint filed on or about December 11, 1992, alleging, among
other things, violation of certain federal securities laws, common law fraud and
negligent misrepresentation. A settlement in connection therewith has been
entered into, which provides for the eventual dismissal with prejudice of the
lawsuit upon satisfaction of certain conditions. See "Certain Relationships and
Related Transactions--Settlements of Legal Proceedings--Banco Settlement."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal year ended December 31, 1996
("Fiscal 1996"), no matter was submitted to a vote of securityholders of the
Company.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded and quoted under the symbol IDND
on the OTC Bulletin Board. The Company's Class A Warrants and IPO Units are also
traded and quoted on the OTC Bulletin Board under the symbols IDNDW and IDNDU,
respectively. Each IPO Unit consists of two shares of Common Stock and two Class
A Warrants. Each of the 3,241,668 outstanding Class A Warrants entitles the
holder thereof to purchase one share of Common Stock at $7.00 per share (subject
to adjustment) during the four year period commencing October 3, 1997. The
following table sets forth the high and low bid prices for the Common Stock,
Class A Warrants and IPO Units, as quoted on the OTC Bulletin Board, for the
periods indicated. Quotations are interdealer prices without retail markup,
markdown or commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Class A Warrants IPO Units
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High Low High Low High Low
---- --- ---- --- ---- ---
Quarter ended
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 $11.25 $0.30 $5.25 $0.01 $30.50 $0.625
Quarter ending
March 31, 1997
(through
March 26, 1997) $0.69 $0.32 $0.125 $0.01 $1.45 $0.8125
</TABLE>
As of March 26, 1997, the Company had 51 holders of record of its
Common Stock.
Since its inception, the Company has not paid any cash dividends on its
Common Stock. The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and accordingly does not plan, for the reasonably
foreseeable future, to pay cash dividends to holders of the Common Stock. Any
decisions as to the future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Company's Board
of Directors deem relevant.
Recent Sales of Unregistered Securities
Between October 1995 and April 1996, the Company (i) sold an aggregate
of 525,000 shares of Common Stock to the certain non-affiliates of the Company
(the "Bridge Securityholders") for a total of $1,050,000 (the "Private
Placement") and (ii) entered into a loan with the Bridge Securityholders in the
aggregate amount of $1,050,000 (the "Bridge Loan"). Each Bridge Securityholder
participated in both the Private Placement and the Bridge Loan. The Bridge Loan
bore interest at the rate of eight (8%) percent per
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annum and was completely repaid out of the proceeds received by the Company from
its initial public offering (the "IPO"). As further consideration for the Bridge
Loan, the Bridge Securityholders acquired 787,500 Units (the "Bridge Units")
which are comprised of 1,575,000 shares of Common Stock and 1,575,000 Class A
Warrants. The Class A Warrants included in the Bridge Units are identical to the
Class A Warrants included in the Units issued in the IPO (the "IPO Units," and
together with the Bridge Units, the "Units"). Each Unit consists of two shares
of Common Stock and two redeemable Class A purchase warrants (the "Class A
Warrants"). Each Class A Warrant entitles the holder to purchase one share of
Common Stock for $7.00 during the four year period commencing October 3, 1997.
The Class A Warrants are redeemable by the Company at $.05 per warrant at any
time after October 3, 1998, if certain conditions are met.
The securities issued in connection with the Private Placement and the
Bridge Loan were issued pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act"). The Registration Statement covering the
securities sold by the Company in the IPO also covered the registration of (i)
the 1,575,000 shares of Common Stock included as part of the Bridge Units, (ii)
the Class A Warrants to purchase 1,575,000 shares of Common Stock included as
part of the Bridge Units, and (iii) the 1,575,000 shares of Common Stock
issuable upon exercise of the Class A Warrants included in the Bridge Units
(collectively, the "Bridge Securities"). The Bridge Securities held by the
Bridge Securityholders may not be sold prior to November 3, 1997; however,
Stratton Oakmont, Inc., the underwriter of the IPO (the "Underwriter"), may
release the Bridge Securities held by the Bridge Securityholders at any time
after the IPO Units have been sold. The resale of the Bridge Securities by the
Bridge Securityholders are subject to prospectus delivery and other requirements
of the Securities Act. The Company will not receive any of the proceeds from the
sale of the Bridge Securities. Should the Class A Warrants offered by the Bridge
Securityholders be exercised, of which there is no assurance, the Company will
receive the proceeds therefrom aggregating up to $11,025,000.
Prior to making the Bridge Loan to the Company and purchasing shares of
Common Stock in the Private Placement, the Bridge Securityholders did not own
any other securities of the Company. None of the Bridge Securityholders were
otherwise affiliated with the Company at the time of making the Bridge Loan, at
the effective date of the IPO or at any other time. The Company believes that
its financial transactions with the Bridge Securityholders served a legitimate
business purpose, i.e., providing needed working capital for the Company, and
were fair and reasonable under the circumstances. The Company's financial
transactions with the Bridge Securityholders were managed by the
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Underwriter and no commissions or other remuneration were paid to the
Underwriter in connection with such transactions.
In November and December 1995, the Company issued a Convertible Note in
the principal amount of $100,000 (the "November Note") and $50,000 (the
"December Note"), respectively. The notes bore interest at an annual rate of 8%.
The November Note came due on April 15, 1996 and the December Note was due on
December 20, 1996. On June 28, 1996, in accordance with an agreement with the
Company, the holder of the December Note, which note contained the right to
convert into 1.2 million shares of Common Stock, agreed to transfer such note to
the Company for cancellation in return for the Company agreeing to pay it
$300,000. The amounts owed by the Company to the holders of the Convertible
Notes were paid out of the proceeds of the IPO.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's financial statements, beginning on page F-1, included
elsewhere in this report.
The Company was incorporated in Delaware in October 1995 under the name
ReSeal Food Dispensing Systems, Inc. and changed its name to International
Dispensing Corporation on September 12, 1996. The Company was formed primarily
for the purpose of commercializing and marketing the Technologies licensed from
RIC, which technologies consist of the Systems composed of: (i) self-adjusting
reservoir bodies, (ii) the Valve Assemblies, and (iii) as required, the Pump
Assemblies. When utilized in dispensing flowable food and beverage products like
milk, juice, wine, etc., Systems are designed to maintain the sterility, purity
and freshness of such products throughout its use life, with the possibility of
eliminating or reducing the need for adding preservatives to the product to keep
it fresh and/or refrigeration throughout its use life. The self-adjusting
reservoir body of a System is designed to shrink in proportion to the amount of
the product being dispensed through the Valve Assembly. The Valve Assemblies are
designed to dispense a product without letting either air or contaminants flow
back into the internal reservoir in which the remaining product is held. The
Company believes that by maintaining the purity of the product that remains in
the container, the Systems will provide higher levels of freshness for
significantly longer periods of time and, if preservatives are eliminated, the
level of purity, of a wide array of packaged flowable products.
The Company is focusing its marketing activities on the application of
the licensed technologies in the Field of Use as set
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forth in the Company License Agreement, which encompasses the food and beverage
industries as broadly defined. Within such categories, the applications of the
licensed technologies can be divided into a number of potential markets,
including but not limited to the following: (a) beverages, which include
milk/cream, coffee, tea (hot and cold), hot chocolate, juices, sweeteners, baby
formula, baby food (in puree form), wines and water; (b) foods, which include
soups, liquid eggs, liquid butter, sauces, yogurt, melted cheese (nachos), baby
foods and hot toppings in liquid form; and (c) condiments, which include
ketchup, barbecue sauce, mayonnaise, salad dressings, oils and mustard.
The Company is undertaking the formation of strategic alliances or
direct license/supply agreements with major food and beverage companies, as well
as applicable equipment/bag-in-box manufacturers, currently generating
substantial revenues from their existing markets. The Company further intends
that these relationships will include co-development of new products in tandem
with the production of new dispensing systems which incorporate the
Technologies. Upon successful consummation of a strategic alliance or direct
license/supply relationship, of which there can be no assurance, the customer or
strategic partner will utilize the Technologies in conjunction with products
that have an existing market share, as well as the System associated with the
introduction of new products.
RESULTS OF OPERATIONS
The Company has not generated any revenues to date and must be
considered in the development stage. The activities of the Company since
inception in October 1995 have been primarily directed at formational
activities, including the completion of initial capitalization.
In addition, the Company has engaged in on-going marketing discussions
with a number of potential strategic alliance partners, licensees and end users
of the Technologies. In this regard, discussions have been conducted with major
companies in Canada, Europe and the United States to explore opportunities in
the product categories.
The Company has reported a net loss from operations of $1,552,479 since
inception.
FINANCIAL CONDITION
As reflected in the financial statements, the Company has experienced
continuing net losses and negative cash flows from operations at December 31,
1996. The Company's continuing existence is dependent on its ability to achieve
and maintain profitable operations. The Company continues to be in the
development stage and does not foresee operating revenue until the fourth
quarter of fiscal year ending December 31, 1997. As of December 31, 1996, the
Company had liquid assets of $4,268,963.
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In a private placement concluded in February 1996, the Company obtained
aggregate capital of $2,250,000 through the issuance by the Company of
convertible notes, options and the sale of Common Stock.
In October 1996, the Company sold, in the IPO, 833,334 IPO Units, each
IPO Unit consisting of two shares of Common Stock and two redeemable Class A
purchase warrants for $12.00 per IPO Unit. Each warrant entitles the holder to
purchase one share of Common Stock for $7.00 during the four year period
commencing October 3, 1997. The warrants are redeemable by the Company at $.05
per warrant any time after October 3, 1998, if certain conditions are met. The
net proceeds, which the Company received from the IPO, amounted to approximately
$8.8 million.
The Company does not foresee needing to raise additional funds in the
next 12 months.
ITEM 7. FINANCIAL STATEMENTS.
See the financial statements and notes related thereto, beginning on
page F-1, included elsewhere in this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.
The executive officers, directors and significant employees of the
Company are as follows:
Name Age Position(s)
Jon D. Silverman 56 Chairman, President, Chief
Executive Officer and
Director
Jeffrey D. Lewenthal 53 Chief Financial Officer and
Executive Vice President of
Business Development
Joseph F. Koster, Jr. 61 Executive Vice President,
Secretary and Director
David W. Brenman 40 Treasurer and Director
George V. Kriste 49 Director
Gregory B. Abbott 46 Director
Michael D. Handler 46 Consultant
Jon D. Silverman has served as Chairman, President, Chief
Executive Officer and a director of the Company since November 1996, and prior
thereto as a consultant to the Company since its inception. Since 1980 he has
served as the principal of Tilis Products, Inc., his own specialized
international business consulting, mergers and acquisitions firm (including
capital formation) in the food, beverages and other consumer products and
services industries. He has served on the Board of Trustees of the United
Hospital, Port Chester, New York, for the past 15 years (he is currently an
Honorary Trustee) and for a number of years, prior to May 1995, had served as
Vice Chairman thereof; is a director of Pastificio Gazzola, Mondovi, Italy, a
leading pasta exporter; and a past director of Combined Moretti/Prinz Brau
Breweries, a subsidiary of John Labatt, Ltd. From 1979 to 1980, he was Executive
Vice President of Esquire, Inc., an educational, magazine and music publishing
firm, manufacturer of lighting equipment and importer of sporting goods. Before
that he was employed by the Seagram Company, Ltd., from 1965 to 1979, where he
held numerous positions, including President of Seagram, Germany, and Executive
Vice President of Seagram Overseas Sales Company, the international division of
Seagram.
Jeffrey D. Lewenthal has served as Executive Vice President of Business
Development and Chief Financial Officer of the Company since March 1997. From
March 1996 until joining the Company in March 1997 he was Vice
President/Regional Director for Westar Linen Services, Inc., a company providing
linen services to the hospital industry. From 1995 to 1996, Mr. Lewenthal was
General Manager, Western Region, for Brink's Incorporated, a
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company providing security services to financial institutions. From 1993 to
1995, he was Region Chief Operating Officer for Loomis Armored, Inc., a security
service provider to financial and retail customers. Prior to that, Mr. Lewenthal
held various international senior executive positions with PepsiCo and the
Seven-Up division of Philip Morris.
Joseph F. Koster, Jr. has served as Executive Vice President of the
Company since November 1996 and has been the Secretary and a director of the
Company since October 1995. From January 1992 through October 1995, he was a
consultant to RIC, RILP and ReSeal Technologies and Advancements, Inc., RILP's
general partner, where he principally worked in marketing and in setting up
their investment banking relationships. From 1964 to 1966, Mr. Koster worked at
Colgate Palmolive, where he reached the level of National Brand Manager. From
1966 to 1974, he was a partner at Brown Elders Koster Enterprises, a marketing
company. Thereafter, prior to 1992, he was a self-employed business consultant
and writer.
David W. Brenman has served as the Treasurer and a director of the
Company since its inception and had served as President of the Company from its
inception through November 1996. He also served as a member of the Executive
Committee, Chief Financial Officer and Treasurer of RIC from May 1993 through
September 1996 and has been a director of RIC since May 1993. Mr. Brenman has
been a self-employed attorney and financial consultant since 1988. Prior
thereto, he was a Vice President of Lloyds International Corporation, the
merchant banking subsidiary of Lloyds Bank Plc, from 1986 to 1988. Mr. Brenman
served as President of Cogenco International, Inc., a publicly held corporation
engaged in the energy industry, from 1984 to 1986 and is currently a member of
the Board of Directors and an executive officer of that company. Mr. Brenman is
a member of the Board of Directors and serves as President of Taltos SpA, an
Italian corporation engaged in the production of ultra-thin stone products.
Prior to 1986, Mr. Brenman was an associate with the law firm of Brenman,
Raskin, Friedlob and Tenenbaum P.C. of Denver, Colorado, where he specialized in
the fields of taxation and securities law. Mr. Brenman is also a member of the
Board of Directors of U.S. Energy Corp., a corporation engaged in the mining and
mineral industry.
George V. Kriste has served as a director of the Company since October
1995. He has been the Chairman and Chief Executive Officer of New Century Media,
a radio station owner, since January 1992. Prior thereto, he had been the Chief
Operating Officer of Cook Inlet Region, an investment company formed by the
Federal government for Alaska natives, since 1977.
Gregory B. Abbott has served as a director of the Company since October
1995. Mr. Abbott has been a private investor and a writer for more than five
years. From 1973 to 1986 he was employed by Ithaca Industries ("Ithaca"), a
private label manufacturer of
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pantyhose, men's and women's underwear, and T-shirts. From 1979 to 1986 he
served as Chairman and CEO of Ithaca, during which time the company grew from
having just one major customer to over 400, and in the process became the
largest private label maker in the U.S. in each of its product lines. Mr. Abbott
also negotiated a leveraged buyout of Ithaca with Merrill Lynch and Butler
Capital.
Michael D. Handler has served as a consultant to the Company since
March 1996. Since January 1994, he has been the President and Chief Executive
Officer of Nologies, Inc. ("Nologies"), a product and technology development
company. From May 1993 through January 1994, he held various positions with RIC
and its affiliates, including Vice President of Research and Development. Prior
thereto he worked at a private contract research and development consulting
company for 19 years. He has 25 years of experience in the management and
implementation of research and development activities.
No family relationship exists between any directors or executive
officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten (10%) percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
(the "Commission") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Reporting
persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, the following persons failed to file, on
a timely basis, reports required by Section 16(a) of the Exchange Act, for the
number of transactions indicated, during Fiscal 1996:
Jon Silverman Form 3 1 Transaction
Joseph Koster Form 3 1 Transaction
David Brenman Form 3 1 Transaction
George Kriste Form 3 1 Transaction
Gregory Abbott Form 3 1 Transaction
ReSeal International Corporation Form 3 1 Transaction
ITEM 10. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth information concerning the compensation
for services, in all capacities for Fiscal 1996 and for the fiscal year ended
December 31, 1995, of those persons who
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were (i) the Chief Executive Officer during Fiscal 1996 and (ii) at the end of
Fiscal 1996, the most highly compensated executive officers of the Company
(collectively, the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
Other
Name and Annual Restricted Securities All
Principal Fiscal Compensation Stock Underlying Other
Position Year Salary($) Bonus($) ($)(1) Awards($) Options(#) Compensation($)
-------- ---- --------- -------- ------ --------- ---------- ---------------
<S> <C> <C>
Jon Silverman 1996 $144,000 _ _ _ _ _
Chairman, CEO and
President 1995 $ 36,000 _ _ _ _ _
Joseph Koster 1996 $120,000 _ _ _ _ _
Executive Vice President
and Secretary 1995 $36,000 _ _ _ _ _
David Brenman 1996 $ 72,000 _ _ _ _ _
Treasurer(2)
1995 $ 18,000 _ _ _ _ _
</TABLE>
-----------------
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Officers did not exceed
the lesser of (i) 10% of such officer's total annual salary and bonus for a
given fiscal year and (ii) $50,000. Thus, such amounts are not reflected in
the table.
(2) David Brenman was the President of the Company from its inception through
November 1996 and acted in the capacity of chief executive officer during
such period.
The Company plans to submit for approval of its stockholders, in the
near future, a stock option plan covering 900,000 shares of Common Stock.
Employment and Non-Compete Agreements
Jon D. Silverman
The Company has entered into an employment agreement with Jon
Silverman, dated as of January 17, 1997, which expires on December 31, 1999.
Pursuant to such agreement, Mr. Silverman receives a base salary of $180,000. In
addition, if Mr. Silverman is insurable, the Company is obligated to pay the
premium on his $1,000,000 life insurance policy, to which Mr. Silverman will
designate the beneficiary. He also is entitled to customary benefits and
perquisites.
Michael D. Handler
The Company has entered into an agreement, dated March 5, 1996, with
Nologies, under which Nologies will assist in (i) the directing and managing of
product and technology development, (ii) licensing and strategic alliance
pursuits, and (iii) other related services that the Company may request from
time to time, in the area of food and beverage dispensing and delivery systems.
The term of such agreement has been extended through February 28,
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1998 and may be terminated upon 30 days' written notice. The Company shall pay
Nologies $8,000 per month and reimburse it for reasonable documented business
expenses. Pursuant to the terms of such agreement, Nologies agrees (a) not to
disclose, at any time, any confidential business or technical information or
trade secrets acquired during its association with the Company and which relates
to the present or contemplated business of the Company, whether or not conceived
of, discovered, developed or prepared by Nologies, (b) during the term of the
agreement and for a one year period thereafter, it will not represent, consult,
serve, or be employed by any competing enterprise, and (c) never to divulge any
confidential information to any third party.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company will be reimbursed for reasonable
travel and lodging expenses incurred in attending meetings of the Board of
Directors and any committees on which they may serve. Directors do not presently
receive any fees for attendance or participation at Board or committee meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Common Stock as of March 28, 1997, for (i)
each person or group that is known by the Company to be a beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each of the Named
Officers and directors, and (iii) all directors and executive officers of the
Company as a group. Except as otherwise indicated, the Company believes that
such beneficial owners, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws, where applicable.
Name and Address Number Percent
of Beneficial Owner(1) of Shares Owned(2)(3)
- ---------------------- --------- -----------
ReSeal International Corporation 2,225,000 23.3%
342 Madison Avenue, Suite 1034
New York, New York 10173
Jon Silverman 500,000 5.2%
c/o International Dispensing
Corporation
342 Madison Avenue, Suite 1034
New York, New York 10173
Gregory Abbott 422,000 4.4%
c/o International Dispensing
Corporation
342 Madison Avenue, Suite 1034
New York, New York 10173
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David Brenman 253,000(4) 2.6%
Joseph Koster 158,000 1.7%
George Kriste 130,000 1.4%
All directors and executive 963,000 10.1%
officers as a group
(6 persons)
- ------------
(1) Address provided for beneficial owners of more than 5% of the Common Stock.
(2) For purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security
which such person or persons have or have the right to acquire within 60
days is deemed to be outstanding but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(3) Does not include (i) 1,575,000 shares of Common Stock issuable upon the
exercise of the Class A Warrants contained in the Bridge Units; (ii)
1,666,668 shares of Common Stock issuable upon the exercise of the Class A
Warrants contained in the IPO Units; (iii) 166,666 shares of Common Stock
issuable upon the exercise of the Unit Purchase Option held by the
Underwriter; and (iv) 166,666 shares of Common Stock issuable upon the
exercise of the Class A Warrants included in the Unit Purchase Option held
by the Underwriter.
(4) Includes 200,000 shares of Common Stock owned of record by Venture
Financial Limited Partnership, a limited partnership of which David Brenman
is the sole shareholder of the General Partner, Venture Financial, Inc.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
License Agreement
The Company has licensed the Technologies from RIC, on a worldwide
exclusive basis, solely in the Field of Use pursuant to the Company License
Agreement, and will endeavor to commercialize and market the Technologies to
third parties for its implementation in the food and beverage industries.
Pursuant to the Company License Agreement, RIC granted the Company a
royalty-free exclusive worldwide license for an aggregate of $4,000,000 and
2,900,000 shares of Common Stock, to (i) directly or indirectly make (or
subcontract to make), use, sell and otherwise commercially exploit the
Technology, solely in the Field of Use, and (ii) grant
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sublicenses to affiliated and non-affiliated third parties, solely in the Field
of Use, provided, however, that the Company shall not be permitted to sublicense
the right to manufacture the Valve Assemblies. The Company has paid RIC the
$4,000,000 license fee, $2,700,000 of which was paid out of the proceeds of the
IPO.
The Company is primarily responsible for all research and development
activities necessary to exploit fully the commercial possibilities of the
Technology. The research and development activities shall include testing of
proposed Products and ongoing technical support for the modification,
improvement, enhancement, development or variation of existing Products and the
development of new Products. RIC is responsible for causing RILP to manage all
intellectual property associated with the Technology, including patents and
trademarks, in order to maximize its commercial potential. This obligation
includes the prosecution of all patent and trademark applications, subject to
the Company's approval of budgets and expenditures in advance, and, in the sole
discretion of RIC (or upon receipt by RIC of the Company's commitment to pay
100% of the related reasonable costs and expenses), all suits for infringement
of patents or trademarks. If RIC or RILP is unwilling or unable to undertake
such patent obligations, then the Company is authorized to undertake such
obligations on behalf of RILP.
The Company License Agreement may not be assigned by either party
thereto without the express written consent of the other party, except that the
Company may sublicense applications of the Technologies within the Field of Use
at its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the Technologies in the Field of Use.
Settlements of Legal Proceedings
Stanson Settlement
In October 1995, in connection with a settlement of actions and claims
against certain affiliates of RIC and RIC's officers and directors, including
David Brenman (the "Stanson Settlement"), the licensor of the Technology, the
Company agreed to issue (i) 2,900,000 shares of Common Stock to RIC, as partial
compensation under the Company License Agreement, (ii) an aggregate of 1,500,000
shares of Common Stock (the "Investor Shares") to certain investors in RILP,
including Gregory Abbott (422,000 shares) and George Kriste (130,000 shares),
and (iii) an aggregate of 450,000 shares of Common Stock to certain individuals
for services rendered, including Joseph Koster (58,000 shares), David Brenman
(53,000 shares) and Jon Silverman (50,000 shares). In addition, the Company
agreed that its Board of Directors would consist of Jon Silverman, David
Brenman, Joseph Koster, Gregory Abbott and George Kriste.
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Pursuant to such settlement, the holders of the Investor Shares may
require the Company to file a Registration Statement under the Securities Act
with respect to 25% of such shares of Common Stock, commencing October 3, 1997,
subject to certain conditions and limitations. Further, if the Company proposes
to register any shares of Common Stock under the Securities Act, other than
pursuant to the previous sentence, then the holders of the Investor Shares are
entitled to include an additional 25% of their shares of Common Stock in such
registration.
Banco Settlement
In May 1996, in connection with the settlement of a lawsuit (the "Banco
Settlement") brought by Banco Inversion, S.A. and Administratadora General de
Patrimonios, S.A. (collectively, "Banco") against certain affiliates of RIC, RIC
entered into an agreement pursuant to which it agreed, among other things, (i)
to transfer an aggregate of 300,000 of its shares of the Company's Common Stock
(the "Settlement Shares") to Banco, (ii) to pay Banco $50,000 at the closing of
such settlement and $150,000 out of the licensing fees RIC receives from the
proceeds of the IPO and (iii) to exchange mutual releases with the parties of
such lawsuit.
The number of Settlement Shares, subject to certain anti-dilution
adjustments, may be increased up to 600,000 shares in the event that 30 months
after the Effective Date the market value of the 300,000 Settlement Shares is
less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the
right to register such shares along with shares registered by the Company in a
public offering, whether on behalf of the Company or other holders of Common
Stock, subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act.
Rental Sharing
The Company currently rents a portion of its office space to RIC for
$10,000 per month. The term of such arrangement expires on April 30, 1997.
All of the transactions indicated above are on terms no less favorable
to the Company than those which could reasonably have been obtained from
non-affiliated third parties. In addition, any future transactions with
affiliates will be on terms no less favorable to the Company than those which
could reasonably be obtained from non-affiliated third parties.
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ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Exhibit No.
- -----------
3.1 Restated Certificate of Incorporation of the Registrant, as
amended (incorporated herein by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form SB- 2 (Registration
No. 333-7915) (the "Form SB-2").
3.2 Certificate of Amendment to the Certificate of
Incorporation (incorporated herein by reference to Exhibit
3.2 to the Form SB-2).
3.3 By-laws of the Registrant, as amended (incorporated herein
by reference to Exhibit 3.3 to the Form SB-2).
4.1 Specimen Common Stock Certificate (incorporated herein by
reference to Exhibit 4.1 to the Form SB-2).
4.2 Form of Class A Warrant Agreement (incorporated herein by
reference to Exhibit 4.2 to the Form SB-2).
4.3 Form of Underwriter's Unit Purchase Option (incorporated herein
by reference to Exhibit 4.3 to the Form SB-2).
10.1 License Agreement by and between the Registrant and ReSeal
International Corporation, dated as of October 10, 1995, as
amended (incorporated herein by reference to Exhibit 10.1 to the
Form SB-2).
10.2 Form of Subscription Agreement (incorporated herein by
reference to Exhibit 10.2 to the Form SB-2).
10.3 Form of Bridge Loan Agreement and Promissory Note (incorporated
herein by reference to Exhibit 10.3 to the Form SB-2).
10.4 Form of Amendment to Bridge Loan Agreement (incorporated herein
by reference to Exhibit 10.4 to the Form SB-2).
10.5 Agreement by and between the Registrant and Nologies, Inc.,
dated as of March 5, 1996 (incorporated herein by reference to
Exhibit 10.5 to the Form SB-2).
10.6 Settlement Agreement, dated as of October 10, 1995, by and among
Hardee Capital Partners, L.P., Louis Simpson, Gregory Abbott,
George Kriste, David Brenman, Gerald Gottlieb, Marc Gottlieb,
Joseph Koster, Greg Pardes, Linda Poit, ReSeal Food Dispensing
Systems, Inc., ReSeal
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International Limited Partnership, ReSeal Technologies &
Advancements, Inc., ReSeal International Corporation, ReSeal
Pharmaceutical Systems, Ltd., Milton Stanson, Hilda Brown, Ann
Hoopes, Townsend Hoopes, Robin Smith and Eugene Sumner
(incorporated herein by reference to Exhibit 10.6 to the Form
SB-2).
10.7 Settlement Agreement, dated as of May 8, 1996, by and
among Banco Inversion, S.A., Administratadora General de
Patrimonios, S.A., ReSeal Pharmaceutical Systems, Ltd.,
ReSeal International Corporation, ReSeal International
Limited Partnership, Greg P. Pardes, Lawrence B. Pentoney,
Joseph D. Blau, Bernard Gerber, George DeBush, Michael
Secondo, Linda Poit, Samuel Tucker, Chungliang Al Huang
and Rainer Greeven (incorporated herein by reference to
Exhibit 10.7 to the Form SB-2).
10.8 Amendment to the Agreement by and between the Registrant
and Nologies, Inc., dated March 3, 1997.
10.9 Employment Agreement, dated as of January 17, 1997,
between the Registrant and Jon Silverman.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
A Form 8-K was filed by the Company with the Commission on December 12,
1996. In connection with the Company's application to have its securities
registered on the Philadelphia Stock Exchange, the Company's independent public
accountants reissued their report to reflect completion of the Company's initial
public offering and the removal of the going concern qualification from such
report. The Company's financial statements were refiled along with such reissued
report.
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SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 31, 1997 INTERNATIONAL DISPENSING
CORPORATION
By:/s/ Jon Silverman
-----------------
Jon Silverman
Chairman, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Jon Silverman Chairman, President, March 31, 1997
- ------------------- Chief Executive
Jon Silverman Officer and Director
(Principal Executive
Officer)
/s/ Jeff Lewenthal Chief Financial March 31, 1997
- ------------------- Officer and Executive
Jeff Lewenthal Vice President of
Business Development
(Principal Accounting
and Financial Officer)
/s/ Joseph Koster Executive Vice March 31, 1997
- ------------------- President, Secretary
Jospeh Koster and Director
/s/ David Brenman Treasurer and Director March 31, 1997
- -------------------
David Brenman
/s/ Gregory Abbott Director March 31, 1997
- ------------------
Gregory Abbott
/s/ George Kriste Director March 31, 1997
- -----------------
George Kriste
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<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants..........................................................F-2
Balance Sheet at December 31, 1996................................................................F-3
Statements of Operations for the Year Ended December 31, 1996, the Period from
Inception (October 10, 1995) through December 31, 1995
and the Period from Inception (October 10, 1995) through December 31, 1996.....................F-4
Statements of Changes in Stockholders' Equity (Deficiency) for the Period from
Inception (October 10, 1995) through December 31, 1995 and the Year
Ended December 31, 1996........................................................................F-5
Statements of Cash Flows for the Year Ended December 31, 1996, the Period from
Inception (October 10, 1995) through December 31, 1995
and the Period from Inception (October 10, 1995) through December 31, 1996.....................F-6
Notes to the Financial Statements.................................................................F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To International Dispensing Corporation:
We have audited the accompanying balance sheet of International Dispensing
Corporation (a Delaware corporation in the development stage) as of December 31,
1996, and the related statements of operations and cash flows for the year ended
December 31, 1996, for the period from inception (October 10, 1995) to December
31, 1995, and for the period from inception (October 10, 1995) to December 31,
1996 and the statements of stockholders' equity (deficiency) for the period from
inception (October 10, 1995) through December 31, 1995 and for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Dispensing
Corporation as of December 31, 1996, and the results of its operations and its
cash flows for the year ended December 31, 1996, for the period from inception
(October 10, 1995) to December 31, 1995 and for the period from inception
(October 10, 1995) to December 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New York, New York
March 18, 1997
F-2
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1996
Assets
Current assets:
Cash and cash equivalents $ 4,268,963
Prepaid expenses 95,833
-----------
Total current assets 4,364,796
Fixed assets:
Leasehold improvements 7,270
Office equipment 4,350
Accumulated depreciation and amortization (2,044)
-----------
Net fixed assets 9,576
Other assets 95,761
------------
Total assets $ 4,470,133
===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accrued expenses $ 117,759
-----------
Total current liabilities 117,759
-----------
Total liabilities 117,759
Commitments and contingencies (Note 11)
Stockholders' Equity (Deficiency):
Preferred Stock, $.001 par value; 2,000,000 shares
authorized; no shares issued or outstanding --
Common Stock $.001 par value; 20,000,000
shares authorized; 9,566,668 issued and outstanding 9,567
Additional paid-in capital 9,895,286
Deficit accumulated during the development stage (5,552,479)
-----------
Total stockholders' equity 4,352,374
Total liabilities and stockholders'
equity $ 4,470,133
===========
The accompanying notes are an integral part of this balance sheet
F-3
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period Cumulative
from Inception from Inception
(October 10, 1995) (October 10, 1995)
Year through through
Ended December 31, December 31,
December 31, 1996 1995 1996
----------------- -------------------- ------------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and expenses
General and administrative 1,039,071 244,768 1,283,839
Depreciation and amortization 1,162 882 2,044
--------------- ------------- -------------
Total costs and expenses 1,040,233 245,650 1,285,883
--------------- ------------- -------------
Loss from operations 1,040,233 245,650 1,285,883
Interest expense 62,520 4,145 66,665
Interest income (50,069) -- (50,069)
--------------- ------------- -------------
Net loss before extraordinary loss $ 1,052,684 $ 249,795 $ 1,302,479
Extraordinary loss on retirement
of debt 250,000 -- 250,000
--------------- ------------- -------------
Net loss $ 1,302,684 $ 249,795 $ 1,552,479
=============== ============= =============
Net loss per share before
extraordinary item $ (.13) $ (.03)
Extraordinary loss per share $ (.03) $ --
--------------- -------------
Net loss per share $ (.16) $ (.03)
--------------- -------------
Weighted average shares outstanding 8,219,635 7,900,000
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
------------------------------ Paid in Development Stockholders'
Shares Amount Capital Stage Equity (Deficit)
---------------------------------------------------------------------------------------------
BALANCE, OCTOBER 10, 1995
<S> <C> <C> <C> <C> <C>
(INCEPTION) $ -- $ -- $ -- $ -- $ --
Issuance of common stock
pursuant to License Agreement 2,900,000 2,900 -- -- 2,900
Issuance of common stock
pursuant to Settlement
Agreement 1,950,000 1,950 -- -- 1,950
Issuance of common stock to
management 950,000 950 76,238 -- 77,188
Purchase of License from
affiliate -- -- -- (4,000,000) (4,000,000)
Issuance of common stock in
private placement 87,500 88 43,662 -- 43,750
Issuance of common stock rights
in private placement -- -- 131,250 -- 131,250
Net loss -- -- -- (249,795) (249,795)
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 5,887,500 5,888 251,150 (4,249,795) (3,992,757)
Issuance of common stock in
private placement 437,500 437 218,313 -- 218,750
Issuance of common stock rights
in private placement -- -- 626,250 -- 626,250
Issuance of common stock to 1,575,000 1,575 (1,575) -- --
bridge lenders
Issuance of common stock in
public offering, net of issuance
costs of $1,227,193 1,666,668 1,667 8,771,148 -- 8,772,815
Net loss -- -- -- (1,302,684) (1,302,684)
----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 9,556,668 $9,567 $9,895,286 $(5,552,479) $4,352,374
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period Cumulative
from October 10, from October 10,
1995 (Inception) 1995 (Inception)
Year through through
Ended December 31, December 31,
December 31, 1996 1995 1996
----------------- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(1,302,684) $ (249,795) $(1,552,479)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,162 882 2,044
Non-cash compensation -- 76,238 76,238
Loss on retirement of debt 250,000 -- 250,000
Change in operating assets and liabilities:
Increase in prepaid expenses (95,833) -- (95,833)
Increase in other assets (81,084) (8,877) (89,961)
Increase in accrued expenses 71,953 45,806 117,759
----------- ----------- -----------
Net cash used in operating activities (1,156,486) (135,746) (1,292,232)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (2,795) (8,825) (11,620)
Purchase of license (3,649,739) (350,261) (4,000,000)
---------- ---------- ----------
Net cash used in investing activities (3,652,534) (359,086) (4,011,620)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement 1,750,000 350,000 2,100,000
Proceeds from issuance of convertible debt -- 150,000 150,000
Repayment of promissory notes (300,000) -- (300,000)
Repayment of bridge loans (1,050,000) -- (1,050,000)
Repayment of convertible debt (100,000) -- (100,000)
Proceeds from initial public offering 8,772,815 -- 8,772,815
---------- ---------- ----------
Net cash provided from financing activities 9,072,815 500,000 9,572,815
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,263,795 5,168 4,268,963
Cash and cash equivalents, beginning of period 5,168 -- --
---------- ---------- ----------
Cash and cash equivalents, end of period $4,268,963 $ 5,168 $4,268,963
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 66,665 $ -- $ 66,665
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock -- $ 5,800 $ 5,800
Purchase of license from affiliate -- $4,000,000 $4,000,000
</TABLE>
The accompanying notes are an integral part of these statements
F-6
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
1. THE COMPANY AND ORGANIZATION
International Dispensing Corporation, formerly known as ReSeal Food
Dispensing Systems, Inc. (the "Company"), was incorporated in the State of
Delaware in October 1995. The Company was formed primarily for the purpose of
commercializing and marketing certain proprietary and patented delivery and
dispensing technologies (the "Technologies") licensed from ReSeal International
Corporation ("RIC"). The Technologies are designed to dispense a flowable
product while maintaining the product's sterility, purity and freshness without
employing preservatives.
The Company is subject to a number of risks including the Company's
lack of prior operating history. The Company is also subject to the availability
of sufficient financing to meet its future cash requirements and the uncertainty
of future product development and regulatory approval and market acceptance of
existing and proposed products. In the event of bankruptcy of RIC, the status of
the continuing obligations of the various parties to and under the License
Agreement (Note 4) is unclear since a court in a bankruptcy proceeding may not
enforce such continuing obligations. Additionally, other risk factors such as
loss of key personnel, lack of manufacturing capabilities, difficulty in
establishing new intellectual property rights and preserving and enforcing
existing intellectual property rights as well as product obsolescence due to the
development of competing technologies could impact the future results of the
Company.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks, as well as highly
liquid investments with original maturities of less than three months.
Fixed Assets
Furniture and equipment are recorded at cost and are depreciated on a
straight line basis over their estimated useful lives, generally five years.
Leasehold improvements are recorded at cost and amortized over the term of the
lease or life of the asset, whichever is shorter.
Patents
Costs to develop patents are expensed when incurred.
Income Taxes
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this method, deferred income taxes are determined based on differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year end and are measured based on enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
F-7
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Net Loss Per Share
Net loss per common share calculations are based on the weighted
average number of shares of common stock outstanding. Pursuant to the Securities
and Exchange Commission ("SEC") Staff Accounting Bulletin No. 83, stock and
stock rights issued during the twelve months preceding the Company's initial
public offering at prices below the initial public offering price have been
included in the Company's loss per share computations through June 30, 1996,
even though they are antidilutive and have been excluded for the subsequent
period.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
3. INITIAL PUBLIC OFFERING
In October 1996, the Company sold, in an initial public offering,
833,334 units (the "Units"), each Unit consisting of two shares of Common Stock
and two redeemable Class A purchase warrants for $12.00 per Unit. Each warrant
entitles the holder to purchase one share of the Company's Common Stock for
$7.00 commencing October 3, 1997 and expiring October 3, 2001. The warrants are
redeemable by the Company at $.05 per warrant any time after October 3, 1998, if
certain conditions are met. The net proceeds which the Company received from the
offering amounted to approximately $8,800,000.
4. LICENSE AGREEMENT
In October 1995, the Company entered into a License Agreement (the
"Agreement") with RIC, which was amended on June 17, 1996, pursuant to which the
Company obtained the right to commercialize and market the Technologies to third
parties for its implementation in the food and beverage industries. The
Technologies are licensed by RIC from its parent, Reseal International Limited
Partnership ("RILP"). The Agreement is royalty free and allows the Company to
grant sublicenses to third parties. Pursuant to the Agreement, the Company
issued 2,900,000 shares of its common stock to RIC and paid $750,000 upon the
completion of a private placement (Note 5) and the remaining balance of
$3,250,000 upon the completion of the initial public offering (Note 3). The cash
paid to RIC and the common stock issued for this acquisition were charged
directly to stockholders' equity and therefore not reflected as an asset on the
Company's Balance Sheet. The Agreement terminates at the end of the Technologies
useful economic life.
5. PRIVATE PLACEMENT
The Company was involved in a private placement ("Bridge Financing").
The Bridge Financing consisted of promissory notes, common shares, and rights
("Bridge Options") to acquire Units identical in form to the IPO Units. The
promissory notes bore interest at 8% per annum and were due and paid upon
completion of the IPO. During 1995, the Company had received gross proceeds of
$350,000 in connection with the Bridge
F-8
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Financing, which consisted of $175,000 of promissory notes, 87,500 shares of
common stock and rights to obtain 131,250 Units. During 1996, the Company had
received additional gross proceeds of $1,750,000, which consisted of $875,000 of
promissory notes, 437,500 shares of common stock and rights to obtain 656,250
Units. Upon completion of the Bridge Financing, the Company had received an
aggregate of $2,100,000 in consideration for $1,050,000 in promissory notes,
525,000 common shares and rights to obtain 787,500 Units. In August 1996, the
Company amended the Bridge Financing agreements so that the 787,500 Units
underlying the Bridge Options were deemed outstanding. As part of the initial
public offering, the 787,500 Units issued in the Bridge Financing, which are
identical to those Units issued in the Company's IPO, were registered.
6. SETTLEMENT AGREEMENT
In October 1995, in connection with a settlement of actions and claims
against certain affiliates of RIC, the licensor of the Technologies, the Company
agreed to issue (i) 2,900,000 shares of common stock to RIC, as partial
compensation under the License Agreement, (ii) an aggregate of 1,500,000 shares
of common stock (the "Investor Shares") to certain investors in RILP, and (iii)
an aggregate of 450,000 shares of common stock to certain individuals for
services rendered equal to the par value of such shares. Of the 1,500,000 shares
issued, 552,000 were issued to individuals who are now members of the board of
directors and of the 450,000 shares issued, 161,000 were issued to current
members of management and the board of directors.
Pursuant to such settlement, the holders of the Investor Shares may
require the Company to file a Registration Statement under the Securities Act
with respect to 25% of such shares of common stock, commencing one year from the
effective date of the Company's IPO (Note 3), subject to certain conditions and
limitations. Further, if the Company proposes to register any shares of common
stock under the Securities Act, other than pursuant to an initial public
offering or the previous sentence, then the holders of the Investor Shares are
entitled to include an additional 25% of their shares of common stock in such
registration.
7. CONVERTIBLE PROMISSORY NOTES
During 1995, two convertible promissory notes were issued for $100,000
and $50,000 (the "Convertible Notes") and were due on April 15, 1996 and
December 20, 1996, respectively. These notes bore interest at 8% and each was
convertible at any time prior to the maturity date of the notes into 1,200,000
common shares, subject to adjustments. The $100,000 note (the "Portenoy Note")
would have converted at a price of $.084 per common share, subject to
adjustments, and the $50,000 note (the "ATG Note") would have converted at a
price of $.042 per common share, subject to adjustments.
On April 15, 1996, the Portenoy Note came due. On June 28, 1996, in
accordance with an agreement with the Company, the holder of the ATG Note, which
would have come due on December 20, 1996 and contained the right to convert into
1.2 million shares of Common Stock, agreed to transfer such note to the Company
for cancellation in return for the Company agreeing to pay it $300,000. The
amounts owed by the Company to the holders of the Convertible Notes were paid
out of the proceeds of the IPO. The Company has recorded an extraordinary loss
on retirement of debt of $250,000 for the year ended December 31, 1996.
F-9
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
8. MANAGEMENT SHARES
In 1995, the Company issued an aggregate of 950,000 shares to
management at par as compensation for services rendered in incorporating the
Company. Such shares were issued at fair market value of the Company's common
stock, which was determined based upon the fair market value of the private
placement shares (see Note 5) and the convertible promissory notes. The
statement of operations for the period ended December 31, 1995 reflects
approximately $76,000 of compensation expense related to such shares.
9. RELATED PARTY TRANSACTIONS
The Company shares office space with certain affiliated companies,
including RIC and RILP. The Company also paid certain operating expenses,
including compensation of key personnel, on behalf of RIC and RILP. At December
31, 1996 and 1995, the Company had paid $826,247 and $85,261, respectively, on
behalf of RIC and RILP. The Company was reimbursed for these expenses as an
offset against the liability related to the License Agreement (Note 4) in the
Company's Balance Sheet.
For the year ended December 31, 1996 and the period ended December 31,
1995, the Company paid consulting fees to members of management in the aggregate
amount of $209,000 and $168,000, respectively.
10. INCOME TAXES
As a result of losses incurred during the year, there is no provision
for income taxes in the accompanying financial statements. The Company has
established a full valuation allowance against its net deferred tax assets as
realizability of such assets is predicated upon the Company achieving
profitability. In addition, the use of net operating loss carryforwards may be
limited as a result of ownership changes resulting from share issuances.
11. COMMITMENT AND CONTINGENCIES
The Company leases office space under a noncancellable operating lease,
expiring on November 30, 1997. Rental expense for the period ending December
31,1996 and 1995 was $90,157 and $8,259, respectively. Future minimum lease
payments under this lease agreement are $84,571.
12. SETTLEMENT OF LAWSUIT
In May 1996, in connection with the settlement of a lawsuit brought by
Banco Inversion, S.A. and Administratadora General de Patrimonios, S.A.
(collectively, "Banco") against certain affiliates of RIC, RIC entered into an
agreement pursuant to which it agreed, among other things, (i) to transfer an
aggregate of 300,000 of its shares of common stock (the "Settlement Shares") to
Banco, (ii) to pay Banco $50,000 at the closing of such settlement and $150,000
out of the licensing fees RIC receives from the proceeds of the IPO and (iii) to
exchange mutual releases with the parties of such lawsuit.
F-10
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
The number of Settlement Shares, subject to certain anti-dilution
adjustments, may be increased up to 600,000 shares in the event that 30 months
after the effective date of the registration statement the market value of the
300,000 Settlement Shares is less than $2,800,000.
The Company has granted to the holders of such Settlement Shares, the
right to register such shares along with shares registered by the Company in a
public offering, whether on behalf of the Company or other holders of common
stock, subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act.
13. EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Jon Silverman,
President and CEO, dated January 17, 1997, for the period from October 3, 1996
(the effective date of the Company's registration statement) to December 31,
1999. Pursuant to such employment agreement, Mr. Silverman receives a monthly
salary of $15,000. In addition, the Company is obligated to pay the premium on
his $1,000,000 life insurance policy, to which Mr. Silverman will designate the
beneficiary. He is also entitled to customary benefits and perquisites. In the
case that Mr. Silverman's employment is terminated by the Company without cause
or for disability, he will be entitled to one year's salary due within ten days
of the termination date.
F-11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the
Registrant, as amended (incorporated herein by
reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form SB-2 (Registration
No. 333-7915) (the "Form SB-2").
3.2 Certificate of Amendment to the Certificate of
Incorporation (incorporated herein by reference to
Exhibit 3.2 to the Form SB-2).
3.3 By-laws of the Registrant, as amended (incorporated
herein by reference to Exhibit 3.3 to the Form SB-
2).
4.1 Specimen Common Stock Certificate (incorporated
herein by reference to Exhibit 4.1 to the Form SB-
2).
4.2 Form of Class A Warrant Agreement (incorporated
herein by reference to Exhibit 4.2 to the Form SB-
2).
4.3 Form of Underwriter's Unit Purchase Option
(incorporated herein by reference to Exhibit 4.3 to
the Form SB-2).
10.1 License Agreement by and between the Registrant
and ReSeal International Corporation, dated as of
October 10, 1995, as amended (incorporated herein
by reference to Exhibit 10.1 to the Form SB-2).
10.2 Form of Subscription Agreement (incorporated herein
by reference to Exhibit 10.2 to the Form SB-2).
10.3 Form of Bridge Loan Agreement and Promissory Note
(incorporated herein by reference to Exhibit 10.3
to the Form SB-2).
10.4 Form of Amendment to Bridge Loan Agreement
(incorporated herein by reference to Exhibit 10.4
to the Form SB-2).
10.5 Agreement by and between the Registrant and
Nologies, Inc., dated as of March 5, 1996
(incorporated herein by reference to Exhibit 10.5
to the Form SB-2).
<PAGE>
Exhibit No. Description
- ----------- -----------
10.6 Settlement Agreement, dated as of October 10, 1995,
by and among Hardee Capital Partners, L.P., Louis
Simpson, Gregory Abbott, George Kriste, David
Brenman, Gerald Gottlieb, Marc Gottlieb, Joseph
Koster, Greg Pardes, Linda Poit, ReSeal Food
Dispensing Systems, Inc., ReSeal International
Limited Partnership, ReSeal Technologies &
Advancements, Inc., ReSeal International
Corporation, ReSeal Pharmaceutical Systems, Ltd.,
Milton Stanson, Hilda Brown, Ann Hoopes, Townsend
Hoopes, Robin Smith and Eugene Sumner (incorporated
herein by reference to Exhibit 10.6 to the Form SB-
2).
10.7 Settlement Agreement, dated as of May 8, 1996, by
and among Banco Inversion, S.A., Administratadora
General de Patrimonios, S.A., ReSeal
Pharmaceutical Systems, Ltd., ReSeal International
Corporation, ReSeal International Limited
Partnership, Greg P. Pardes, Lawrence B. Pentoney,
Joseph D. Blau, Bernard Gerber, George DeBush,
Michael Secondo, Linda Poit, Samuel Tucker,
Chungliang Al Huang and Rainer Greeven
(incorporated herein by reference to Exhibit 10.7
to the Form SB-2).
10.8 Amendment to the Agreement by and between the
Registrant and Nologies, Inc., dated March 3, 1997.
10.9 Employment Agreement, dated as of January 17, 1997,
between the Registrant and Jon Silverman.
27 Financial Data Schedule
International Dispensing Corporation
342 Madison Avenue, Suite 1034
New York, New York 10173
Tel: (212) 682-2244
Fax: (212) 682-4720
March 3, 1997
Mr. Michael Handler
President
Nologies, Inc.
P.O. Box 5224
Brookfield, Connecticut 06804
Dear Mr. Handler:
International Dispensing Corporation, the successor of ReSeal Food
Dispensing Systems, Inc., wishes to extend for a twelve (12) month period,
effective March 1, 1997, under the same terms and conditions the Agreement
currently in place between our companies. Said Agreement stipulates that
Nologies, Inc. will assist in (i) the directing and managing of product and
technology development, (ii) licensing and strategic alliance pursuits, and
(iii) other related services that IDC may request from time to time, in the area
of food and beverage dispensing and delivery systems.
If you are in accord with this extension, please sign and return this
document.
Respectfully yours,
/s/ Jefferey D. Lewenthal
-------------------------
Jeffrey D. Lewenthal
International Dispensing Corporation
Executive Vice President
Nologies, Inc.
Michael Handler, President
/s/ Michael Handler, Dated: March 3, 1997
- -------------------
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 17th day of January,
1996, by and among INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation
with offices at 342 Madison Avenue, Suite 1034, New York, New York 10173 (the
"Company"), and JON SILVERMAN, who resides at 13 Longledge Drive, Rye Brook, New
York 10573 (the "the Executive").
W I T N E S S E T H :
---------------------
WHEREAS, the Company desires to retain the services of the Executive as
an employee of the Company; and
WHEREAS, the Executive is desirous of becoming an employee of the
Company on the conditions hereinafter provided;
NOW THEREFORE, in consideration of the premises, and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Employment
The Company hereby agrees to employ the Executive during the Employment
Period, as that term is defined in Section 2, and the Executive agrees to accept
such employment on the terms and conditions hereinafter set forth. During the
Employment Period, the Executive also shall be elected, effective immediately
upon the commencement of the Employment Period, to and shall serve on the Board
of Directors.
2. Employment Period
The term of the Executive's employment hereunder (the "Employment
Period") shall commence on the date the Company's Registration Statement on Form
SB-2 (No. 333-7915) is declared effective by the Securities and Exchange
Commission ("Effective Date") and shall continue until the earlier to occur of
December 31, 1999 or the Termination Date (as defined).
3. Duties and Responsibilities
During the Employment Period
During the Employment Period the Executive shall serve as the Chairman
of the Board of Directors, President and Chief Executive Officer ("CEO") of the
Company. The Executive shall not be required to perform his duties during the
Employment Period in
<PAGE>
any location other than New York, New York, other than incidental travel.
As President and CEO, the Executive shall have general management
authority over the day-to-day operations of the Company and in connection
therewith perform such executive duties and responsibilities as may be assigned
to him from time to time by or under the authority of the Board of Directors of
the Company, consistent with his positions as designated in this Section 3, and
in the absence of such assignment, such duties customary to such offices as are
necessary to the successful operations of the Company. During the Employment
Period, the Executive agrees that he will devote a majority of his business time
to the business of the Company, to work with other employees of the Company in a
competent and professional manner and generally to promote the interests of the
Company and its business. The Executive may serve on the boards of directors of
other corporations and engage in other business and charitable activities.
4. Basic Salary
As compensation for services to be rendered by the Executive hereunder
during the Employment Period, the Company hereby agrees to pay or cause to be
paid to the Executive, and the Executive agrees to accept as compensation
hereunder, a base fixed salary ("Basic Salary") at the rate of $180,000 per
annum payable in substantially equal monthly installments in arrears on the date
regular payroll is paid to the employees of the Company. The Basic Salary may be
increased at the discretion of the Board of Directors.
5. Benefits
Executive shall be entitled to any benefits which become available to
the Executive along with other employees of the Company according to his and
their respective positions under any stock option plan or arrangement, bonus,
deferred compensation, incentive compensation or profit-sharing plan or
arrangement, group life insurance plan, hospitalization plan, dental insurance
plan, disability insurance plan, medical services plan, and any other employee
benefit plan or arrangement now or hereafter provided by the Company to any of
its employees during the Employment Period (the "Benefits"). The Executive shall
be entitled to four (4) weeks paid vacation per year. During the Employment
Period, the Executive may participate in all Benefits in effect from time to
time as may be made available to the officers of the Company, whether currently
in effect or adopted hereafter during the Employment Period, to the extent the
Executive meets the eligibility requirements specified in any plan of or
relating to a Benefit.
2
<PAGE>
6. Life Insurance
If the Executive is insurable, the Company shall purchase a term life
insurance policy on the life of the Executive in the face amount of $1,000,000
for a term commencing as of the date of the purchase of the policy and ending,
subject to paragraph 9 hereof, on the last day of the Employment Period. The
beneficiary of such policy shall be designated by the Executive. The Company
shall maintain such insurance in full force and effect and shall not cancel such
policy or take or omit to take any action which might result in the termination
or cancellation thereof. The Company shall pay all premiums on such policy as
they become due and shall give due proof of said payments to the Executive
within five (5) days after its due date on each premium. If any premium is not
paid within five (5) days after its due date, the Executive may pay or cause the
premiums to be paid, and he shall be entitled to reimbursement from the Company.
The Executive agrees to submit to such medical examinations as may be reasonably
required by any insurance company with respect to such policy.
7. Expenses and Accommodations
During the Employment Period the Company shall pay the Executive for
any reasonable documented travel, hotel, meals, entertainment, telephone, and
other expenses incurred by him in connection with his rendering of services
hereunder.
8. Definitions Relating to Termination
8.1 Disability
The term "Disability" shall mean any physical or mental condition of
the Executive which, in the reasonable discretion of the Board of Directors,
after consultation with the Executive's physician, materially impairs the
Executive's ability to render the services to be performed by him hereunder if
during the Employment Period, for a period of 90 consecutive days or for at
least 120 days in any consecutive 180 day period. The Company shall give the
Executive at least 30 days advanced written notice of the termination of his
employment hereunder for Disability.
8.2 Cause
(a) The term "Cause" shall mean the good faith finding by the Board of
Directors of the Company upon resolution adopted by it of the existence of any
one of the following:
(i) The Executive's failure or refusal to perform specific written
directives consistent with his duties and responsibilities as set
forth in Section 3 hereof, which lack of performance is not cured
within 30 days after written notice thereof or 60 days if at the 15th
day after such written notice and thereafter the Executive is
diligently attempting to cure.
3
<PAGE>
(ii) Excessive use of alcohol or illegal drugs, interfering with
performance of the Executive's obligations under this Agreement,
which interference is not cured within 30 days after written
notice thereof or 60 days if at the 30th day after such written
notice and thereafter the Executive's diligently attempting to
cure;
(iii) Conviction of a felony or of any crime involving moral
turpitude or fraud;
(iv) Any material breach (not covered by any of the clauses (i)
through (iii) hereof) of any of the provisions of this Agreement,
if such breach is not cured within 30 days after written notice
thereof to the Executive by the Board of Directors.
The Board of Directors shall notify the Executive in writing of its
decision to terminate his employment for Cause which notice shall set forth the
Termination Date (which date shall be no sooner than the date of such notice and
shall be after the lapse of all applicable cure periods) and be accompanied by a
copy of the Board of Director's resolution as provided by this Section 8.2.
(b) If the Executive leaves the employ of the Company other than for
Good Reason (as defined), the cessation of employment will be treated as a
termination for Cause. The Executive shall give the Company at least 30 days
advanced written notice of his decision to leave the employ with the Company
other than for Good Reason.
8.3 Without Cause
The term "Without Cause" shall mean a determination of the Board of
Directors to terminate the Executive for any reason other than Disability or
Cause. The Company shall give the Executive at least six (6) months advanced
written notice of the termination of his employment hereunder Without Cause
which notice shall set forth the Termination Date.
8.4 Good Reason
The term "Good Reason" shall mean (i) the sale by the Company of all or
substantially all of its assets, (ii) a "Change in Control" as hereafter
defined, (iii) any removal of the Executive during the Employment Period from
his positions as the Chairman of the Board of Directors, President and CEO,
except in connection with termination or suspension of the Executive's
employment for death, Disability or Cause, or (iv) a material
4
<PAGE>
reduction or change in the Executive's duties and responsibilities as Chairman
of the Board of Directors, President and CEO. The Executive shall give the
Company at least 30 days advanced written notice of his decision to terminate
his employment hereunder for "Good Reasons" which notice shall specify the
reasons for his decision and the Termination Date relating thereto.
8.5 Change in Control
A "Change of Control" shall be deemed to have occurred if:
(a) any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1994, as amended (the "Exchange Act") is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's then outstanding
securities;
(b) there shall cease to be a majority of the Board comprised as
follows: individuals who on the Effective Date constitute the Board and any new
director(s) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of a majority of the directors
then still in office who either were directors or whose election or nomination
for election was previously so approved; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent at least
sixty-five percent (65%) of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets.
8.6 Termination Date. The term "Termination Date" shall mean:
(a) in the case of the termination of the Executive's employment
by the Company for Disability, the date specified in the notice delivered by the
Company pursuant to Section 8.1 hereof which date shall be at thirty 30 days
after the date of such notice;
(b) in the case of the termination of the Executive's employment
by the Company for Cause, the later of (i) the date the Board of Directors
provides the Executive with a written copy of the resolution adopted by the
Board of Directors as
5
<PAGE>
required in Section 8.2(a) or (ii) the date specified by the Board of Directors
in a written notice required by Section 8.2(a);
(c) in the case of the Executive's terminating his employment for
any reason other than Good Reason, the date specified in the notice delivered by
the Executive pursuant to paragraph 8.2(b) hereof which date shall be at least
30 days after the date of such notice.
(d) in the case of the termination of the Executive's employment
by the Company Without Cause, the date specified in the notice delivered by the
Company pursuant to Section 8.3 hereof which date shall be at least six (6)
months after the date of such notice;
(e) in the case of the termination by Executive of his employment
with the Company for Good Reason, the date specified in the notice delivered by
the Executive pursuant to Section 8.4 hereof which date shall be at least 30
days after the date of such notice; or
(f) in the case of the Executive's death, the last day of the
month after the month in which the Executive dies.
9. Effect of Termination on
Compensation and Incentive Bonus
(a) If the Executive's employment with the Company is terminated
for any reason, the Executive shall be paid his Basic Salary through the
Termination Date.
In addition, if Executive's employment is terminated
by the Company for Disability or Without Cause or if Executive leaves the employ
of the Company for Good Reason he shall be entitled to an amount equal to the
greater of (i) one year's Basic Salary at the highest rate paid to the Executive
during the Employment Period or (ii) the Basic Salary that would have been paid
to the Executive had the Employment Period ended on December 31, 1999 calculated
at the highest rate paid to the Executive during the Employment Period. The
amount due under this Section 9(a) shall be paid within ten (10) days of the
Termination Date.
(b) If the Executive is insurable and if his employment is
terminated by the Company for Disability or Without Cause or if the Executive
leaves the employ of the Company for Good Reason, the Company shall continue to
provide the Executive with the life insurance described in Section 6 hereof
until the later of December 31, 1999 or the first anniversary of the applicable
Termination Date.
(c) Upon the termination of his employment with the Company for
any reason, the Executive shall be entitled to such Benefits under any plans or
arrangements maintained by the Company for any of its employees on the
Termination Date in which Executive
6
<PAGE>
was participating on the Termination Date in accordance with the terms and
conditions of such plans or arrangements.
10. Indemnification
The Company shall indemnify and hold harmless the Executive to the
fullest extent permitted by the General Corporation Law of Delaware as the same
currently exists or may hereafter be amended. Expenses incurred by the Executive
in defending a civil or criminal action, suit or proceeding brought by any party
other than the Company against the Executive at any time when he has ceased to
serve as such, in respect to the Executive's acts or actions in his official
capacity with the Company, shall be advanced by the Company promptly after the
Executive has delivered to the Company a written request therefor and prior to
final disposition of the action. The indemnification and advancements of
expenses provided by this Section shall not be deemed exclusive of any other
rights to which the Executive may be entitled under any other by-law, agreement,
vote of stockholders or disinterested directors, or otherwise, and shall inure
to the benefit of the heirs, executors and administrators of the Executive to
the fullest extent permitted by General Corporation Law of Delaware as the same
currently exists or may hereinafter be amended.
11. Entire Agreement
This Agreement constitutes the entire agreement of the parties hereto
with respect to the Executive's consultancy to and employment by the Company,
and all prior agreements and arrangements are hereby superseded and terminated
with effect from and after the date hereof. The clause headings used herein are
for convenience of reference only, and shall not define or limit the provisions
of this Agreement.
12. Exercise of Rights
No failure by either party hereto to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder by either party preclude any
other or future exercise of that right or any other right hereunder by that
party.
13. Validity of Provisions
In case any one or more of the provisions of this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
14. No Assignment
This Agreement shall not be assignable, in whole or in part, by either
party, except that the Company may assign this
7
<PAGE>
Agreement to and it shall be binding upon any person, firm or company with which
the Company may be merged or consolidated, or which may acquire all or
substantially all of the assets of the Company. In the event of the merger or
liquidation of the Company into another corporate entity, whether foreign or
domestic, the obligations of the Company hereunder to the Executive shall remain
in full force as to such successor entity and no waiver on the Executive's part
shall be deemed made in any respect.
15. Amendment
This Agreement may not be amended, terminated or superseded except by
an agreement in writing between the Company and the Executive.
16. Execution of Agreement
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original hereof, and all of which together shall
constitute one and the same document. This document may be executed and
thereafter transmitted by facsimile and the return facsimile shall constitute an
original.
17. Notices
All notices hereunder shall be given in writing by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
parties at the following respective addresses, or at such other address as may
from time to time be designated by either party to the other hereunder:
To the Executive: Jon Silverman
13 Longledge Drive
Rye Brook, NY 10573
Telecopier: (914) 939-7139
With a copy to: Lowenthal, Landau, Fischer & Bring, P.C.
250 Park Avenue
Suite 1000
New York, NY 10177
Attention: Martin R. Bring, Esq.
Telecopier: (212) 986-0604
To the Company: International Dispensing Corporation
342 Madison Avenue
Suite 1034
New York, NY 10173
Attention: Joseph Koster
Executive Vice President
Telecopier: (212) 682-4720
8
<PAGE>
With a copy to: Kramer, Levin, Naftalis
& Frankel
919 Third Avenue
New York, NY 10022
Attention: Scott S. Rosenblum, Esq.
Telecopier: (212) 688-2119
18. Governing Law
This Agreement shall be governed by, and construed in accordance with
the substantive laws of the State of New York and the precedents applicable
thereto, exclusive,however, of any provision thereof as to choice of law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on authority of the Board of Directors and Jon Silverman has hereunto
set his hand the day and year first above written.
/s/ Jon Silverman
-----------------
JON SILVERMAN
INTERNATIONAL DISPENSING CORPORATION
By: /s/ Joseph Koster
-----------------
Name: Joseph Koster
Title: Executive Vice President
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S ANNUAL REPORT FILED
ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,268,963
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,364,796
<PP&E> 11,620
<DEPRECIATION> (2,044)
<TOTAL-ASSETS> 4,470,133
<CURRENT-LIABILITIES> 117,759
<BONDS> 0
0
0
<COMMON> 9,567
<OTHER-SE> 4,342,807
<TOTAL-LIABILITY-AND-EQUITY> 4,470,133
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,040,233
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,520
<INCOME-PRETAX> (1,052,684)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 250,000
<CHANGES> 0
<NET-INCOME> (1,302,684)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
