UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________to_______________
Commission file number 0-21489
International Dispensing Corporation
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3856324
- ------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2500 Westchester Avenue, Suite 304, Purchase, New York 10577
------------------------------------------------------------
(Address of principal executive offices)
(914) 251-0336
---------------------------
(Issuer's telephone number)
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes or common
equity, as of the latest practicable date: 9,566,668 shares of Common Stock as
of October 20, 1998
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
1
<PAGE>
International Dispensing Corporation
(A Development Stage Company)
Table of Contents
Part I - FINANCIAL INFORMATION Page Number
-----------
Item 1. Financial Statements
Balance Sheets at September 30, 1998 (unaudited) 3
and December 31, 1997
Statements of Operations for the Nine and Three Months 4
Ended September 30, 1998 and 1997 and for the Period from
Inception (October 10, 1995) through September 30, 1998
Statements of Cash Flows for the Nine Months Ended 5
September 30, 1998 and 1997 and for the Period from
Inception(October 10, 1995) through September 30, 1998
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II - OTHER INFORMATION 10
2
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
BALANCE SHEET
September 30, December 31,
1998 1997
----------- -----------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents ...................... $ 1,386,102 $ 3,138,204
Accounts receivable ............................ 723,089 --
Prepaid expenses ............................... -- 46,333
----------- -----------
Total current assets .......... 2,109,191 3,184,537
Fixed Assets:
Leasehold improvements ......................... 7,270 7,270
Office equipment ............................... 4,350 4,350
Automobile ..................................... 21,920 21,920
Accumulated depreciation and amortization ...... (11,059) (6,559)
----------- -----------
Net fixed assets .......... 22,481 26,981
Other Assets ................................... 729,367 57,786
----------- -----------
Total Assets .......... $ 2,861,039 $ 3,269,304
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ............................... 280,937 12,255
Accrued expenses ............................... 31,128 49,766
----------- -----------
Total current liabilities ...................... 312,065 62,021
----------- -----------
Total liabilities .......... 312,065 62,021
Commitments & contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; .............. -- --
2,000,000 shares authorized, no
shares issued or outstanding
Common stock, $.001 par value; ................. 9,567 9,567
40,000,000 shares authorized;
9,566,668 issued and outstanding
as of Dec. 31, 1997 and September 30,
1998 respectively
Additional paid-in capital ..................... 9,895,286 9,895,286
Deficit accumulated during ..................... (7,355,879) (6,697,570)
development stage
----------- -----------
Total stockholders' equity .......... 2,539,407 3,207,283
----------- -----------
Total liabilities and stockholders' equity ..... $ 2,861,039 $ 3,269,304
=========== ===========
The accompanying notes are an integral part of these financial statements
3
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<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
Cumulative
Nine Months Three Months from Inception
ended ended October 10, 1995
------------------------------ ---------------------------- through
September 30, September 30, September 30, September 30, September 30,
1998 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues ........................................... $ 707,750 $ -- $ 375,000 $ -- $ 707,750
Cost of goods sold ................................. 462,095 -- 275,000 -- 462,095
----------- ----------- ----------- ----------- -----------
Gross margin ....................................... 245,655 -- 100,000 -- 245,655
----------- ----------- ----------- ----------- -----------
Operating expenses:
General and adminstrative .......................... 976,801 689,378 330,107 250,845 3,589,051
Depreciation and amortization ...................... 4,500 663 1,500 221 11,060
----------- ----------- ----------- ----------- -----------
Total operating expenses ........................... 981,301 690,041 331,607 251,066 3,600,111
----------- ----------- ----------- ----------- -----------
Loss from operations ............................... (735,646) (690,041) (231,607) (251,066) (3,354,456)
Other income (expense)
Interest expense ................................... -- -- -- -- 66,665
Interest income .................................... 77,337 147,425 15,578 48,438 315,242
----------- ----------- ----------- ----------- -----------
Net loss before extraordinary loss ................. ($ 658,309) ($ 542,616) ($ 216,029) ($ 202,628) ($3,105,879)
=========== =========== =========== =========== ===========
Extraordinary loss on retirement of debt ........... -- -- -- -- (250,000)
Net loss ........................................... ($ 658,309) ($ 542,616) ($ 216,029) ($ 202,628) ($3,355,879)
Basic and diluted loss per share ................... $ (0.07) $ (0.06) $ (0.02) $ (0.02)
Basic and diluted weighted average
shares outstanding ................................. 9,566,668 9,566,668 9,566,668 9,566,668
The accompanying notes are an integral part of these financial statements
</TABLE>
4
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<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
from Inception
Nine months Nine Months October 10, 1995
ended ended through
September 30, September 30, September 30,
1998 1997 1998
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss ............................................................ $ (658,309) $ (542,616) $(3,355,879)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ..................................... 4,500 663 11,058
Non-cash compensation ............................................. -- -- 76,238
Loss on retirement of debt ........................................ -- -- 250,000
Changes in operating assets and liabilities:
Increase in accounts receivable ................................. (723,089) (97,154) (723,089)
(Increase) decrease in prepaid expenses ......................... 46,333 26,136 --
Increase in other assets ........................................ (671,581) -- (723,567)
Increase (decrease) in accrued expenses ......................... 250,044 (97,016) 312,065
----------- ----------- -----------
Net cash used in operating activities: .............................. (1,752,102) (709,987) (4,153,174)
----------- ----------- -----------
Cash flows from operating activities:
Purchase of fixed assets ............................................ -- (21,920) (33,539)
Purchase of license ................................................. -- -- (4,000,000)
----------- ----------- -----------
Net cash used in investing activities ............................... -- (21,920) (4,033,539)
Cash flows from financing activities:
Proceeds from private placement ..................................... -- -- 2,100,000
Proceeds from issuance of covertible debt ........................... -- -- 150,000
Repayment of promissory note ........................................ -- -- (300,000)
Repayment of bridge loans ........................................... -- -- (1,050,000)
Repayment of convertible debt ....................................... -- -- (100,000)
Proceeds from initial public offering ............................... -- -- 8,772,815
----------- ----------- -----------
Net cash provided from financing activities ......................... -- -- $ 9,572,815
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ................ (1,752,102) (731,907) 1,386,102
Cash and cash equivalents, beginning of period ...................... 3,138,204 4,268,963 --
----------- ----------- -----------
Cash and cash equivalents, end of period ............................ $ 1,386,102 $ 3,537,056 $ 1,386,102
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest .............................................. -- -- $ 66,665
Cash paid for taxes ................................................. -- -- --
Non-cash investing and financing activities:
Issuance of common stock ............................................ -- -- $ 5,800
Purchase of license from affiliate .................................. -- -- $ 4,000,000
The accompanying notes are an integral part of these financial statements
</TABLE>
5
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information as of and for the period ended September 30, 1998 is unaudited)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The balance sheet as of September 30, 1998 and statements of operations and
statements of cash flows for the six months then ended have been prepared by
International Dispensing Corporation (the "Company") without audit. The results
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997. Results of operations for the nine month period is not
necessarily indicative of the operating results for the full year. Interim
statements are prepared on a basis consistent with year end statements.
In the opinion of management, the unaudited interim financial statements
furnished herein include all adjustments necessary for a fair presentation of
the results of operations of the Company. All such adjustments are of a normal
recurring nature.
2. BUSINESS DEVELOPMENTS
On December 23, 1997, the Company entered into an agreement with Well Men
Industrial Company Limited, a Hong Kong registered corporation ("Well Men"),
pursuant to which Well Men granted to the Company an exclusive right to market
and sell in China certain Well Men products. Well Men also assigned to the
Company for the purpose of commercializing such Well Men products, all of Well
Men's patents and patent applications relating to such Well Men products. The
agreement is for an initial term of ten years. The Company has opened a
representative office in China to promote the sales of these products and to
establish the name of the Company. Operations commenced in March, 1998.
6
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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") licensed from
ReSeal International Corporation ("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.
When utilized in dispensing flowable food and beverage products like milk,
juice, wine, etc., the 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 primarily focusing its marketing activities on the
application of the licensed technologies in the Field of Use (as defined below)
as set forth in that certain Amended and Restated License Agreement, between the
Company and RIC, which encompasses the food and beverage industries as broadly
defined. "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 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 sol to or by food or beverage wholesale price discounters,
retailers and similar establishments that sell food or beverage to consumers.
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 ketchup, barbecue sauce, mayonnaise,
salad dressing, oils and mustard.
The prototype tooling for production of prototype Valve Assemblies has been
completed. Upon production of initial prototype Valve Assemblies, such Valve
Assemblies will be subjected to independent laboratory testing. In addition, the
Company has supplied specific prototype Systems to customers for consumer
testing. Additional customers will also be supplied with prototype systems.
On November 10, 1997, the Company entered into a Joint Systems Development
Agreement with Packaging Systems, L.L.C., the parent company of Rapak, Inc.
7
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The resulting products of this strategic alliance will be Bag-in-Box with unique
Valve/Pump Technology food and beverage delivery systems that will be marketed
to the food and beverage industries throughout the United States.
On December 23, 1997, the Company entered into an agreement with Well Men
Industrial Company Limited, a Hong Kong registered corporation ("Well Men"),
pursuant to which Well Men granted to the Company an exclusive right to market
and sell in China certain Well Men products. Well Men also assigned to the
Company for the purpose of commercializing such Well Men products, all of Well
Men's patents and patent applications relating to such Well Men products. The
agreement is for an initial term of ten years. The Company has opened a
representative office in China to promote the sales of these products and to
establish the name of the Company. Operations commenced in March, 1998.
RESULT OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to
Nine Months Ended September 30, 1997
- ------------------------------------
Revenue - For the nine months ended September 30, 1998, the Company had
revenues of $707,750 versus no revenues for the comparable 1997 period. All of
these revenues were derived from the sale of Well Men products in China. The
sale of Well Men products in China commenced in March of 1998. The Company
anticipates continuing revenues from the sale of Well Men products over the next
twelve months.
Gross Margin - For the nine months ended September 30, 1998, the Company
had gross margins of $245,655 versus no gross margins for the nine months ended
September 30, 1997. All of these gross margins derived from the sale of Well Men
products in China. The margins for the last three-month period of the nine month
period declined slightly from the margins experienced in the first six months of
the period due to price promotion activity. The Company anticipates that margins
will return to the levels experienced in the first six-month period.
Operating Expenses - For the nine months ended September 30, 1998, the
Company had operating expenses of $981,301 versus operating expenses of $690,041
for the nine month period ended September 30, 1997. This increase of $291,260,
or 42.2% over the comparable period last year is due primarily to the Company's
accelerated investment in research and development of its core technology, and
its start-up costs associated with the Well Men Agreement.
Net Loss - For the nine months ended September 30, 1998, the Company had a
net loss of $658,309 versus a net loss of $542,616 for the nine months ended
September 30, 1997. This increase in net loss of $115,693, or 21.3% over the
comparable period last year is due primarily to the Company's accelerated
investment in research and development of its core technology, and its start-up
cost associated with the Well Men Agreement.
8
<PAGE>
Three Months Ended September 30, 1998 Compared To
Three Months Ended September 30, 1997
- -------------------------------------
Revenue - For the three months ended September 30, 1998, the Company had
revenues of $375,000 versus no revenues for the comparable 1997 period. All of
these revenues were derived from the sale of Well Men products in China. The
sale of Well Men products commenced in March of 1988. The Company anticipates
continuing revenues from the sale of Well Men products over the next twelve
months.
Gross Margin - For the three months ended September 30, 1988, the Company
had gross margins of $100,000 versus no gross margins for the three months ended
September 30, 1997. All of these gross margins were derived from the sale of
Well Men products in China.
Operating Expenses - For the three months ended September 30, 1998, the
Company had operating expenses of $331,607 versus operating expenses of $251,066
for the three month period ended September 30, 1997. This increase of $80,541,
or 32.1% over the comparable period last year is primarily due to the Company's
accelerated investment in research and development of its core technology.
Net Loss - For the three months ended September 30, 1998, the Company had a
net loss of $216,029 versus a net loss of $202,628 for the three months ended
September 30, 1997. This increase in net loss of $13,401, or 6.6% over the
comparable period last year, resulted from expenses incurred by the Company in
connection with its accelerated investment in research and technology, which
were partially offset by revenues and gross margins generated by the sale of
Well Men products in China.
The Company has reported a net loss from operations of $3,355,879 since
inception.
Financial Condition
As reflected in the financial statements, the Company has experienced
continuing net losses and negative cash flows from operations through September
30, 1998. The Company's continuing existence is dependent on its ability to
attain profitable operations. As of September 30, 1998, the Company had liquid
assets of $1,386,102.
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 an initial public offering, 833,334
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 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, 1997 if certain conditions
are met. The net proceeds, which the Company received from the offering,
amounted to approximately $8.8 million.
9
<PAGE>
The Company believes that it has adequate funds available to conduct and
continue its business and does not foresee needing to raise additional funds in
the next 12 months.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders of the Company was held on July 9, 1998.
The stockholders approved an amendment to the Company's Certificate of
Incorporation to provide for a classified Board of Directors of 3 classes. The
number of votes cast in favor of the amendment was 4,869,845, the number of
votes cast against was 2,693,400 and the number of abstentions was 75,000. In
addition, Claude Lee was elected as a Class 1 director to serve for a term
expiring at the 1999 Meeting of Stockholders (8,479,282 shares voted in favor of
his election and 1,000 shares withholding votes); George Kriste and Jay Rosen
were elected as Class 2 directors to serve for a term expiring at the year 2000
Annual Meeting of Stockholders (8,247,282 shares voting in favor of election of
George Kriste, 233,000 shares withholding votes for George Kriste, 8,405,282
shares voted in favor of the election of Jay Rosen and 75,000 shares withholding
votes for Jay Rosen); and Jon D. Silverman and Gregory B. Abbott were elected as
Class 3 directors to serve until the year 2001 Annual Meeting of Stockholders
(8,405,282 shares voted in favor of the election of each of Messrs. Silverman
and Abbott and 75,000 shares withholding votes in favor of their election).
The stockholders also approved a proposal to approve 1998 Stock Option Plan
of the Company. The number of votes cast in favor was 5,138,245, the number of
votes cast against was 2,486,800 and the number of abstentions was 13,200.
Finally, the stockholders approved a proposal to approve the Director Stock
Option Plan of the Company. The number of votes cast in favor of the proposal
was 7,447,555, the number of votes cast against was 198,850 and the number of
abstentions was 3,575.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Forms 8-K have been filed for the
quarter for which this report is being filed.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL DISPENSING
CORPORATION
Date: October 21, 1998 /s/ Jon D. Silverman
--------------------
Jon D. Silverman
Chairman of the Board, Chief Executive
Officer and President
(Principal Executive Officer)
Date: October 21, 1998 /s/ Jeffrey D. Lewenthal
------------------------
Jeffrey D. Lewenthal
Chief Financial Officer and Treasurer
(Principal Accounting and Financial
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN THE SEPTEMBER 30, 1998 QUARTERLY REPORT FILED ON FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,386,102
<SECURITIES> 0
<RECEIVABLES> 723,089
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,109,191
<PP&E> 33,540
<DEPRECIATION> 11,059
<TOTAL-ASSETS> 2,861,039
<CURRENT-LIABILITIES> 312,065
<BONDS> 0
0
0
<COMMON> 9,567
<OTHER-SE> 2,539,407
<TOTAL-LIABILITY-AND-EQUITY> 2,861,039
<SALES> 707,750
<TOTAL-REVENUES> 707,750
<CGS> 462,095
<TOTAL-COSTS> 1,443,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (658,309)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (658,309)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
