INTERNATIONAL DISPENSING CORP, 10KSB, 1999-03-31

INTERNATIONAL DISPENSING CORP
10KSB, 1999-03-31
FABRICATED RUBBER PRODUCTS, NEC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 1O-KSB
(Mark One)

|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 1998

| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
---------- ------------

Commission file number: 0-21489

INTERNATIONAL DISPENSING CORPORATION
(Name of Small Business Issuer in Its Charter)

Delaware 13-3856324
---------------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

2500 Westchester Avenue, Suite 317, Purchase, New York 10577
- ------------------------------------------------------ --------
(Address or Principal Executive Offices) (Zip Code)

(914) 251-0336
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)

Securities registered under Section l2(b) of the Exchange Act: None

Securities registered under Section l2(g) of the Exchange Act:

Common Stock, $.001 par value per share
---------------------------------------
(Title of Class)

Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or l5(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 there is no 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. |X|

The registrant did not have any revenues for the fiscal year ended December
31, 1998.

The aggregate market value of the registrant's voting stock held by
non-affiliates computed by reference to the average bid and asked price of such
stock as of March 19, 1999 as reported on the National Association of Securities
Dealers OTC Bulletin Board was approximately $5,469,654. (Aggregate market value
has been estimated solely for the purposes of this report. For the purpose of
this report it has been assumed that all officers and directors of the
registrant are affiliates of the registrant. The statements made herein shall
not be construed as an admission for determining the affiliate status of any
person.)

APPLICABLE ONLY TO CORPORATE REGISTRANTS

There were 9,566,668 shares of Common Stock outstanding as of March 19,
1999.

Transitional Small Business Disclosure Format (check one): Yes |_| No |X|

Documents Incorporated by Reference: None

<PAGE>

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 Description of Business

International Dispensing Corporation (the "Company") is the exclusive
worldwide sublicensee within a field of use encompassing the food and beverage
industries (as broadly defined) of certain proprietary and patented delivery and
dispensing technologies for maintaining the sterility, purity, freshness and
integrity of flowable products throughout the period of time in which they are
to be consumed (the "Technologies"). The 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.

Under an Amended and Restated License Agreement with an effective date of
October 10, 1995 (the "License Agreement") between the Company and ReSeal
International Corporation, a Florida corporation ("RIC"), which is the exclusive
worldwide licensee of the Technologies for all uses, the Company has been
granted the right to make, use, lease or distribute food and beverage dispensing
products utilizing the Technologies (the "License"). Since obtaining the
License, the Company has focused its activities upon the commercialization of
the Technologies. The Company is working to develop applications of the
Technologies within 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 dressings, oils and mustard.

The Company was incorporated under the laws of the State of Delaware in
October 1995 under the name of ReSeal Food Dispensing Systems, Inc. and changed
its name to International Dispensing Corporation in September 1996. Since its
inception, the Company has sought to form strategic alliances or direct
license/supply agreements with major food and beverage companies currently
generating substantial

<PAGE>

revenues from their existing markets. The Company 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 Systems associated with the new products.

The License Agreement

Pursuant to the License Agreement, the Company paid to RIC an aggregate of
$4,000,000 and issued to RIC an aggregate of 2,900,000 shares of the Company's
Common Stock, par value $.001 per share ("Common Stock"), in exchange for an
exclusive worldwide royalty-free license to (i) directly or indirectly make (or
subcontract to make), use, sell and otherwise commercially exploit the
Technologies, solely in the Field of Use (as defined below) 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 Technologies to make, use, lease, sell or distribute (a) any food or
beverage dispensers or containers that embody the Technologies or the
manufacture, use, lease, sale or distribution of which uses the Technologies
(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 sold to or by food
or beverage wholesale price discounters, retailers and similar establishments
that sell food or beverage to consumers.

Under the License Agreement, the Company is primarily responsible for all
research and development activities necessary to exploit fully the commercial
possibilities of the Technologies. The research and development activities
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
ReSeal International Limited Partnership ("RILP"), RIC's licensor and parent
company, to manage all intellectual property associated with the Technologies,
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 its own behalf.

The 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.

<PAGE>

Strategic Focus

The Company has focused and will continue to 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 will continue 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
Systems for application to the products mentioned above, on a worldwide basis.
The Company will attempt to form strategic alliances with companies that already
are marketing their products in a bag-in-a-box. The Company believes that the
Systems are 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 Systems.

In accordance with its business strategy, on October 1, 1997 the Company
entered into a Joint Systems Development Agreement with Packaging Systems,
L.L.C. ("Packaging"), which has certain rights to bag-in-a-box manufacturing
technology and bag-in-a-box integration technology. Pursuant to the agreement
the parties will attempt to develop for the United States market a variety of
bag-in-a-box delivery systems with unique valve/pump technology for the food and
beverage industries.

Second, the Company will continue to market the Technologies 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 Technologies
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 Systems 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 Systems can be used with a variety of tubes and
pouches, and thereby are applicable to condiments, salad dressings and baby
foods. The Company believes that the Systems also have 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. The Company believes that with the Systems, 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

<PAGE>

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, juice and condiments for the food service
industry.

Management anticipates that the Technologies 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 marketed utilizing the Technologies will ultimately obtain commercial
success.

To oversee product development, the Company has engaged the services of
Nologies, Inc. ("Nologies"), a product development engineering firm, to create
bag-in-a-box prototype systems for application in the wine, milk, condiment and
baby-bottle design industries (see "Research and Development"). These prototype
systems, which embody the fundamental approach to the Systems, have been
prepared in advanced prototypical form.

For the past two years the Company has been focusing on the preparation for
commercial production of the Valve Assemblies. In 1997 the Company engaged a
contractor to fabricate a prototype mold which was designed by Nologies. A
prototype mold was fabricated in 1998 and has been refined based upon testing.
Using the prototype mold, the Company has produced sample Valve Assemblies, some
of which have been furnished to potential customers for trial use with respect
to particular products. The Company has also submitted the Valve Assemblies to
an independent laboratory for oxygen barrier tests, which have been completed.
The Company will also submit the Valve Assemblies to another independent
laboratory for bacteriological tests and to a third independent laboratory for
product compatibility tests. The Company is currently developing protocols for
the bacteriological tests and the product compatibility tests in conjunction
with the respective laboratories. Under normal conditions, it takes up to 90
days to complete a bacteriological test and 15 to 30 days to complete a product
compatibility test for each product. Product compatibility tests for different
products may be conducted simultaneously.

To facilitate design modifications, the prototype mold is made of aluminum,
a pliable material which is less durable than steel. Therefore, the prototype
mold is not adequate to be used for long-term production of the Valve
Assemblies. The Company has solicited bid quotations for the fabrication of a
permanent steel production mold with eight cavities and is reviewing the bids.
The Company expects that the fabrication of the permanent production mold will
take approximately four months to complete and the proving of same will take
approximately one month. The permanent production mold will be able to produce
approximately 8,000,000 Valve Assemblies annually. The Company plans to finance
the permanent production mold with a capital lease.

The Company plans to continue to enter into strategic alliances, supply
agreements, direct license agreements and joint ventures with leaders in the
food and beverage industry. 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

<PAGE>

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. 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, such as that formed with Packaging, 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.

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 time it is being consumed 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.

The Company's competitors 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

<PAGE>

container, 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 Systems offer a distinct advantage over each of these other systems
because each System is designed to prohibit the flow of air and contaminants
back into it when product is being dispensed. It is anticipated that a 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 provides considerably more product purity and cleanliness.

The Systems are 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.

Patents, Trademarks and Other Intellectual Property

Under the License Agreement, RIC has granted to the Company a license to
use certain patents relating to the Systems and their component parts which RIC
in turn licenses from RILP, the owner of such patents. The License Agreement
includes a license to the Company to use certain trademarks RIC licensed from
RILP, which the Company believes to be immaterial. 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)

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)

<PAGE>

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)

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 No. 5,673,251 (Expiration Date: August 24, 2014)

<PAGE>

Agreement with Well Men

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 products, including a water heater for showers, a
water pitcher and a filter for such water pitcher (collectively, the "Well Men
Products") manufactured by Well Men. 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. Under the agreement
the Company has rights of first refusal to sell Well Men Products in any
territory outside of China and to market other products developed by Well Men in
China. The agreement is for an initial term of ten (10) years and shall continue
for successive periods of ten years unless terminated by either party by written
notice prior to the end of the existing term.

Pursuant to the agreement, the Company established a representative office
in Guangzhou, China, through which consultation and market research is being
provided. The Company also established, with Well Men's assistance, a Chinese
licensed and registered corporation, which would exclusively sell, promote,
market, advertise and solicit orders for Well Men Products in China. The Company
is solely responsible for all costs and expenses of the Chinese corporation
until such time as it is profitable. However, the Company does not have any
equity interest in such corporation.

In 1998 the Company received two orders for Well Men products in China. The
first order was for 2,750 water heaters and 11,000 water pitchers, which were
delivered to China in April pursuant to a Sale/Purchase Contract between the
Company and Guangdon Rixin Industrial Development Corporation, a Chinese
Government authorized Importer/Exporter ("Rixin"). The Company incurred a cost
of $217,250 for these goods and recorded revenues of $332,750 for the sale to
Rixin. The second order was for 5,000 water heaters placed in August for
delivery to China by December 31, 1998. The $275,000 cost of these units and the
related sales revenue of $375,000 were reflected as an account payable and an
account receivable, respectively. In December of 1998, Rixin canceled the second
order. Rixin has yet to make payment on the first order.

In December of 1998, Well Men materially breached its agreement with the
Company by selling Well Men water heaters directly in China. As a result of this
breach, the Company has discontinued its operations in China, and has taken a
charge of $718,926 representing costs and expenses incurred by the Company in
its China venture, and has fully reversed the $332,750 due from Rixin.

The Company intends to pursue payment of the $332,750 receivable from Rixin
as well as reimbursement from Well Men of expenses incurred by the Company in
its China venture.

<PAGE>

Research and Development

The Company spent approximately $249,034 on research and development
activities during fiscal 1998, $116,295 during fiscal 1997 and $39,386 during
the fiscal year ended December 31, 1996.

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, 2000 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.

Employees

As of March 19, 1999, the Company employed four people, three as executive
officers and one as an office manager. All of the four employees were employed
on full-time basis.

ITEM 2. Description of Property.

The Company currently subleases, from a non-affiliated third party,
approximately 1,800 square feet of space for its principal executive office at
2500 Westchester Avenue, Purchase, New York 10577. The monthly rental on this
property is approximately $2,786. Management believes that this facility is
adequate for the Company's intended activities in the foreseeable future. The
sublease terminates on February 29, 2000. If this sublease is not renewed, the
Company does not anticipate any significant problems in finding suitable
alternative space.

ITEM 3. Legal Proceedings.

None.

ITEM 4. Submission of Matters to a Vote of Security Holders.

During the fourth quarter of the Company's fiscal year ended December 31,
1998, no matter was submitted to a vote of security holders of the Company.

<PAGE>

PART II

ITEM 5. Market for the Company's Common Equity and Related Stockholder Matters.

Since the consummation of the Company's initial public offering on October
23, 1996 (the "IPO"), the Company's Common Stock has been traded and quoted
under the symbol IDND on the OTC Bulletin Board. The following table sets forth
the high and low bid prices for the Common Stock, 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.

High Low
------ ------
Quarter ended March 31, 1997 $0.69 $0.32
Quarter ended June 30, 1997 $0.49 $0.34
Quarter ended September 30, 1997 $0.39 $0.23
Quarter ended December 31, 1997 $1.22 $0.245
Quarter ended March 31, 1998 $1.57 $0.85
Quarter ended June 30, 1998 $2.97 $1.55
Quarter ended September 30, 1998 $2.09 $0.78
Quarter ended December 31, 1998 $1.06 $0.50

As of March 19, 1999, the Company had 53 holders of record of its Common
Stock. The Company believes that a significant number of shares of the Company's
Common Stock are held in street name and, consequently, it is unable to
determine the actual number of beneficial owners.

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.

ITEM 6. Management's Discussion and Analysis or Plan of Operation.

The following discussion and analysis should be read in conjunction with
the Company's financial statements, beginning on page F-1, and financial
information included elsewhere in this report.

<PAGE>

The Company was formed primarily for the purpose of commercializing and
marketing the Technologies licensed from RIC, which technologies consist of the
Systems designed to maintain the sterility, purity and freshness of flowable
food and beverage products. The Company is focusing its marketing activities on
the application of the licensed technologies in the Field of Use as set forth in
the License Agreement, which encompasses the food and beverage industries as
broadly defined. 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 has entered into a
strategic alliance with Packaging on October 1, 1997. The resulting products of
this Joint Systems Development Agreement will be a variety of bag-in-a-box
delivery systems with unique valve/pump technology for the food and beverage
industries. The Company has been focusing its product development activities on
the preparation of a permanent production mold and the testing of sample Valve
Assemblies. See "Item 1. - Description of Business" for more information as to
the Company's business and products.

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 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.

Results of Operations

The Company has not generated any revenues to date and must be considered
to be 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, pre-production marketing, the
preparation of molds and the testing of sample Valve Assemblies.

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, Australia and the United States to explore
opportunities in the product categories.

The Company engaged a contractor for the fabrication of a prototype mold
designed by Nologies, which prototype mold is being refined by the Company.
Using the prototype mold, the Company produced sample Valve Assemblies during
1998, some of which have been furnished to potential customers for trial use or
submitted to an independent laboratory for oxygen barrier tests, which have been
completed. The

<PAGE>

Company has been in the process of developing testing protocols for
bacteriological tests and product compatibility tests of the Valve Assemblies.

In December 1998, Well Men materially breached its agreement with the
Company by selling Well Men water heaters directly in China. As a result of this
breach, the Company has discontinued its operations in China, and has taken a
charge of $718,926 representing costs and expenses incurred by the Company in
its China venture, and has fully reversed the $332,750 due from Rixin. The
Company intends to pursue payment of the $332,750 receivable from Rixin as well
as reimbursement from Well Men of expenses incurred by the Company in its China
venture.

For the twelve months ended December 31, 1998, the Company had operating
expenses of $1,341,990 versus operating expenses of $1,203,411 for the twelve
month period ended December 31, 1997. This increase of $138,579, or 11.5% over
the comparable period last year is primarily due to the Company's accelerated
investment in research and development of its core technology.

For the twelve months ended December 31, 1998, the Company had a net loss
of $1,938,390 versus a net loss of $1,145,091 for the twelve months ended
December 31, 1997. This increase in net loss of 793,299, or 69.3% over the
comparable period last year is almost entirely due to the loss booked in
relation to the Company's discontinued China operations.

From January 1, 1997 to December 31, 1998, the Company has incurred a net
loss from continuing and discontinued operations of $3,083,481.

Financial Condition

As reflected in the financial statements, the Company has experienced
continuing net losses and negative cash flows from operations through December
31, 1998. 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 anticipate generating any operating revenue until
at least the end of the third quarter of the fiscal year ending December 31,
1999 ("Fiscal 1999"), at which time, it may be in a position to generate revenue
from sales of Valve Assemblies.

<PAGE>

As of February 28, 1999, the Company had working capital of $1,181,860.
During the first quarter of Fiscal 1999, the Company was spending at a rate of
approximately $95,000 per month. The Company expects that such rate will
increase to approximately $130,000 per month commencing in the third quarter of
Fiscal 1999. Such increase will primarily be due to the Company's leasing of a
production mold for the production of the Valve Assemblies. Therefore, the
Company expects that it will require additional capital to finance its
operations after the third quarter of Fiscal 1999.

The Company is currently studying the alternatives under which the Company
may raise additional funds. The Company expects that it will need an additional
$3,000,000 to $5,000,000 for the three-year period following Fiscal 1999. If the
Company is not able to obtain additional funds on terms and conditions
satisfactory to the Company, the Company will have to scale back its research
and development activities. Ultimately, the Company's ability to continue as a
going concern is dependent upon its ability to sell its equity securities and to
produce and market its products (see Note 2 of Notes to Financial Statements).

ITEM 7. Financial Statements.

See the financial statements and notes related thereto, beginning on page
F-1, following this page.

<PAGE>

INTERNATIONAL DISPENSING CORPORATION

(a development stage company)

INDEX TO FINANCIAL STATEMENTS

Page

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2

FINANCIAL STATEMENTS:

Balance Sheet as of December 31, 1998 F-3

Statements of Operations for the Years Ended December 31, 1998 and F-4
1997, and the Period from Inception (October 10, 1995) Through
December 31, 1998

Statements of Cash Flows for the Years Ended December 31, 1998 and F-5
1997, and the Period from Inception (October 10, 1995) Through
December 31, 1998

Statements of Changes in Stockholders' Equity (Deficiency) for the F-6
Period from October 10, 1995 (inception) Through December 31, 1995
and for the Years Ended December 31, 1998, 1997 and 1996

NOTES TO FINANCIAL STATEMENTS F-7

F-1

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
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,
1998, and the related statements of operations and cash flows for the years
ended December 31, 1998 and 1997, and for the period from inception (October 10,
1995) to December 31, 1998, and the statements of stockholders' equity
(deficiency) for the period from inception (October 10, 1995) through December
31, 1995, and for the years ended December 31, 1998 and 1997. 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, 1998, and the results of its operations and its
cash flows for the years ended December 31, 1998 and 1997, and for the period
from inception (October 10, 1995) to December 31, 1998, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has had a significant deficit accumulated during the development stage that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

New York, New York
March 3, 1999 (Except for the matters discussed in
Note 17, as to which the date is March 22, 1999)

F-2

<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION

(a development stage company)

BALANCE SHEET

DECEMBER 31, 1998

ASSETS
- ------

<S> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 1,270,527
Prepaid expenses ....................................................... 43,545
-----------
Total current assets ...................................... 1,314,072

FIXED ASSETS:
Office equipment ....................................................... 3,480
Automobile ............................................................. 21,919
Accumulated depreciation and amortization .............................. (8,314)
-----------
Net fixed assets .......................................... 17,085

OTHER ASSETS .............................................................. 30,033
-----------
Total assets .............................................. $ 1,361,190
===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
- -------------------------------------------------

CURRENT LIABILITIES:
Accounts payable ....................................................... $ 19,791
Accrued expenses ....................................................... 72,506
-----------
Total current liabilities ................................. 92,297

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.001 par value; 2,000,000 shares authorized, no shares
issued or outstanding .................................................. --
Common stock, $.001 par value; 40,000,000 shares authorized, 9,566,668
shares issued and outstanding .......................................... 9,567
Additional paid-in capital ............................................. 9,895,286
Deficit accumulated during the development stage ....................... (8,635,960)
-----------
Total stockholders' equity ................................ 1,268,893

Total liabilities and stockholders' equity ................ $ 1,361,190
===========

The accompanying notes are an integral part of this balance sheet.

</TABLE>

F-3

<PAGE>

INTERNATIONAL DISPENSING CORPORATION

(a development stage company)

STATEMENTS OF OPERATIONS

Cumulative
from Inception
(October 10,
1995)
Years Ended December 31 Through
-------------------------------- December 31,
1998 1997 1998
----------- ----------- -----------

<S> <C> <C> <C>
REVENUES ............................................................ $ -- $ -- $ --

COSTS AND EXPENSES:
General and administrative ....................................... 1,341,990 1,203,411 3,829,240
Depreciation and amortization .................................... 9,896 4,516 16,456
----------- ----------- -----------
Total costs and expenses ............................ 1,351,886 1,207,927 3,845,696
----------- ----------- -----------
-----------
Loss from operations ................................ (1,351,886) (1,207,927) (3,845,696)

INTEREST EXPENSE .................................................... -- -- (66,665)

INTEREST INCOME ..................................................... 132,423 187,836 370,328
----------- ----------- -----------
Net loss before extraordinary loss and
discontinued operations ............................. (1,219,463) (1,020,091) (3,542,033)

EXTRAORDINARY LOSS ON RETIREMENT OF DEBT ............................ -- -- (250,000)

LOSS FROM DISCONTINUED OPERATIONS ................................... (718,927) (125,000) (843,927)
----------- ----------- -----------
Net loss ............................................ $(1,938,390) $(1,145,091) $(4,635,960)
=========== =========== ===========

BASIC AND DILUTED LOSS PER SHARE FROM ............................... $ (.13) $ (.11)
CONTINUING OPERATIONS

BASIC AND DILUTED LOSS PER SHARE FROM
DISCONTINUED OPERATIONS ............................................. (.07) (.01)
----------- -----------

BASIC AND DILUTED LOSS PER SHARE .................................... $ (.20) $ (.12)
=========== ===========

BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING .................................................. 9,566,668 9,566,668
=========== ===========

The accompanying notes are an integral part of these statements

</TABLE>

F-4

<PAGE>

INTERNATIONAL DISPENSING CORPORATION

(a development stage company)

STATEMENTS OF CASH FLOWS

Cumulative
from Inception
(October 10,
1995)
Years Ended December 31, Through
------------------------------- December 31,
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................ $(1,938,390) $(1,145,091) $(4,635,960)
Deduct loss from discontinued operations ............................ 718,927 125,000 843,927
----------- ----------- -----------
Net loss from continuing operation .................................. (1,219,463) (1,020,091) (3,792,033)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization ................................ 9,896 4,514 16,454
Compensation from stock grants ............................... 25,279 -- 25,279
Noncash compensation ......................................... -- -- 76,238
Loss on retirement of debt ................................... -- -- 250,000
Changes in operating assets and liabilities-
Decrease (increase) in prepaid expenses ................... 2,788 49,500 (43,545)
Decrease (increase) in other assets ....................... 27,753 37,975 (24,233)
Increase in accounts payable .............................. 7,536 12,255 19,791
(Decrease) increase in accrued expenses ................... (2,539) (67,993) 47,227
----------- ----------- -----------
Net cash used in continuing operations ................. (1,148,750) (983,840) (3,424,822)
Net cash used in discontinued operations ............... (718,927) (125,000) (843,927)
Net cash used by operating activities .................. (1,867,677) (1,108,840) (4,268,749)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ............................................ -- (21,919) (33,539)
Purchase of license ................................................. -- -- (4,000,000)
----------- ----------- -----------
Net cash used in investing activities .................. -- (21,919) (4,033,539)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement ..................................... -- -- 2,100,000
Proceeds from issuance of convertible debt .......................... -- -- 150,000
Repayment of promissory notes ....................................... -- -- (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 by financing activities .............. -- -- 9,572,815
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents ................................. (1,867,677) (1,130,759) 1,270,527

CASH AND CASH EQUIVALENTS, beginning of year ........................... 3,138,204 4,268,963 --
----------- ----------- -----------

CASH AND CASH EQUIVALENTS, end of year ................................. $ 1,270,527 $ 3,138,204 $ 1,270,527
=========== =========== ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest ........................................... $ -- $ -- $ 66,665

NONCASH 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 statements.

</TABLE>
F-5

<PAGE>

<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION

(a development stage company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

FOR THE PERIOD FROM OCTOBER 10, 1995 (INCEPTION)

THROUGH DECEMBER 31, 1995 AND

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

Deficit
Accumulated Total
Common Stock Additional During the Stockholders'
--------------------------- Paid-in Development Equity
Shares Amount Capital Stage (Deficiency)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, October 10, 1995
(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 ...................... -- -- 656,250 -- 656,250
Issuance of common stock to
bridge lenders ............................ 1,575,000 1,575 (1,575) -- --
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 .................. 9,566,668 $ 9,567 $ 9,895,286 $(5,552,479) $ 4,352,374

Net loss ................................. -- -- -- (1,145,091) (1,145,091)
----------- ----------- ----------- ----------- -----------

BALANCE, December 31, 1997 .................. 9,566,668 9,567 9,895,286 (6,697,570) 3,207,283
----------- ----------- ----------- ----------- -----------

Net loss ................................. -- -- -- (1,938,390) (1,938,390)
----------- ----------- ----------- ----------- -----------

BALANCE, December 31, 1998 .................. 9,566,668 $ 9,567 $ 9,895,286 $(8,635,960) $ 1,268,893
=========== =========== =========== =========== ===========

The accompanying notes are an integral part of these statements.

F-6

</TABLE>

<PAGE>

INTERNATIONAL DISPENSING CORPORATION

(a development stage company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1998

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 and is in the development phase. 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 6) 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. GOING CONCERN

The Company's development stage activities have resulted in an accumulated
deficit from inception to December 31, 1998, in excess of $8.6 million
(including a discontinued operation in China of $844,000, see Note 5), and
losses are continuing. Efforts to market its products have yet to result in
revenue. The Company's primary source of funds since inception has been from the
sale of its common stock (see Note 4 regarding IPO.) Consequently, there is
substantial doubt about the Company's ability to continue as a going concern.
Management plans include the contemplation of a private placement of equity
securities in 1999 to provide funding to allow it to continue its development of
its licensed technology. Notwithstanding, the Company believes that with the
completion of the production injection mold per its Gravity Feed Valve Assembly,
scheduled for the third quarter of 1999, it will generate sales revenue in the
fourth quarter of 1999.

F-7

<PAGE>

3. 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, equipment and automobile are recorded at cost and are depreciated on
a straight-line basis over their estimated useful lives, generally five years.

Patents

Costs to develop patents are expensed when incurred.

Income Taxes

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") 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.

Net Loss Per Share

Effective for the year ended December 31, 1997, the Company adopted SFAS No.
128, "Earnings per Share." The adoption of SFAS No. 128 requires the
presentation of Basic Earnings per Share and Diluted Earnings per Share. Basic
Earnings per Share is based on the average number of common shares outstanding
during the year. Diluted Earnings per Share is based on the average number of
common shares outstanding during the year plus the common share equivalents
related to outstanding stock options and deferred contingent common stock
awards. There were no common share equivalents outstanding at December 31, 1998
and 1997, that would have a dilutive effect on earnings for those years.

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.

F-8

<PAGE>

Stock Options

In 1998, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted under this standard, the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting For Stock Issued
to Employees" in accounting for its stock options and other stock-based employee
awards. Pro forma information regarding net income and earning per share, as
calculated under the provisions of SFAS No. 123, are disclosed in Note 16.

Recently Issued Accounting Standards

In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued and are effective for periods beginning after December 15, 1997. SFAS No.
130 establishes standards for reporting comprehensive income and its components.
SFAS No. 131 establishes standards for reporting financial and descriptive
information regarding an enterprise's operating segments. These standards
increase financial reporting disclosures and will have no impact on the
Company's financial position or results of operations.

4. 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.

5. DISCONTINUED OPERATIONS

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 had opened a
representative office in China to promote the sales of Well Men products and to
establish the name of the Company. The Company incurred cumulative expenses of
approximately $844,000 related to the opening and maintaining of the
representative office in China, merchandise shipped to China, and general and
administrative expenses. In the fourth quarter of 1998, IDC's results of
operations have been classified as discontinued operations and prior periods
have been restated.

In December 1998, Well Men materially breached its agreement with the Company by
selling Well Men water heaters directly in China. In addition, Well Men had
refused to pay for any of the products provided to it. As a result of this
breach the Company's inability to obtain payment from Well Men, the Company
discontinued this operation and wrote-off all related receivables resulting in a
loss of $719,000 in 1998.

F-9

<PAGE>

It is the Company's intent to pursue payment of reimbursement of expenses
incurred in the Company's China undertaking from Well Men

6. 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 7) and the remaining balance of
$3,250,000 upon the completion of the initial public offering (Note 4). The cash
paid to RIC and the common stock issued for this acquisition were charged
directly to stockholders' equity and therefore are not reflected as an asset on
the Company's Balance Sheet. The Agreement terminates at the end of the
Technologies' useful economic life.

7. 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. 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.

8. 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 4), 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

F-10

<PAGE>

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.

9. 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 and was paid by the Company. 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.

10. 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
(Note 7) and the Convertible Notes. The statement of operations for the period
from inception through December 31, 1998 reflects approximately $76,000 of
compensation expense related to such shares.

11. RELATED PARTY TRANSACTIONS

Until June 1997, the Company shared 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.
The Company was reimbursed for these expenses as an offset against the liability
related to the License Agreement (Note 6) in the Company's balance sheet as of
December 31, 1996. Beginning in May 1997, the Company began paying substantially
all costs of obtaining and maintaining patents, a cost which was to be shared
equally by the Company and RIC, according to the Agreement. Until the Company is
reimbursed by RIC for 100% of these costs, RIC cannot utilize the patents for
any purpose. If RIC does not reimburse the Company within one year from the date
each payment was made, RIC must negotiate a fee with the Company for the use of
such patents for any purpose.

As of December 31, 1998, the Company has a receivable due from RIC related to
operating expenses, rent expense and patent costs in the amount of $50,695,
which has been fully reserved due to the inability of RIC to reimburse the
Company in the foreseeable future.

F-11

<PAGE>

For the year ended December 31, 1997, the Company paid consulting fees to
members of management in the aggregate amount of $73,000. In 1998, no such fees
were paid.

12. INCOME TAXES

As a result of losses incurred since inception, there is no provision for income
taxes in the accompanying financial statements. As of December 31, 1998, the
Company has net deferred tax assets of approximately $1.9 million. 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.

13. COMMITMENTS AND CONTINGENCIES

a. Lease

The Company leases office space under a noncancelable operating lease, expiring
on February 29, 2000. Rental expense for the periods ended December 31, 1998 and
1997 was $26,875 and $64,928, respectively. Future minimum lease payments under
this lease agreement are $58,632.

b. 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, or if Mr. Silverman leaves the employ of the Company for
"good reason" (as defined in the agreement to include, among other things, a
change in control of the Company or the removal of Mr. Silverman from his
position as Chairman of the Board, President and Chief Executive Officer), then
Mr. Silverman shall also be entitled to receive in cash within 10 days after
such termination an amount equal to the greater of (i) one year's basic salary
at the highest rate paid to him during the term of his employment under the
agreement or (ii) the basic salary that would have been paid to him had the term
of employment ended on December 31, 1999 calculated at the highest rate paid to
him during the term of his employment under the agreement.

c. Consulting Agreement

On March 5, 1996, the Company entered into an agreement with Nologies, Inc.
("Nologies") under which Nologies will assist in the directing and managing of
product and technology development, licensing and strategic alliance pursuits
and other related services in the areas of food and beverage dispensing systems.
The term of such agreement extends to February 28, 2000. The Company pays
Nologies $8,000 per month plus expenses.

F-12

<PAGE>

14. 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.

The number of Settlement Shares, subject to certain antidilution 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.

15. BUSINESS DEVELOPMENTS

In October 1997, a strategic alliance was formed with Packaging Systems, L.L.C.
(PSI), the parent company of Rapak, Inc. The resulting products of this Joint
Systems Development Agreement will be a variety of Bag-in-Box delivery systems
with unique Valve/Pump Technology for the food and beverage industries. These
systems will be marketed throughout the United States.

16. STOCK COMPENSATION PLANS

The Company has two stock option plans ("the Plans") effective as of April 2,
1998. The 1998 Stock Option Plan (the "Participant Plan") provides for the
granting of stock options to key employees, consultants or other persons
("Participants"). The objective of this Plan includes attracting and retaining
the best personnel, providing for additional performance incentives and
promoting the success of the Company by providing Participants the opportunity
to acquire common stock. The Plan provides for the granting of both options that
will qualify as "incentive stock options" and options that are non-qualified
stock options. The objectives of the second Plan, The Director Option Plan ("the
Director Plan") is to attract and retain the best available personnel for
service as outside directors of the Company, as well as to provide additional
incentive to the outside directors of the Company to serve as directors and to
encourage their continued service on the Board. The Company is authorized to
grant up to 650,000 shares and 250,000 shares under the Participant Plan and the
Director Plan, respectively. Under both of the Plans, the exercise price of the
shares granted shall be 100% of the fair market value per share on the date of
grant of the option. Options expire on such date as the Board of Directors or
the Committee may determine, but in no event later than ten years after the
grant date. During 1998, the Company issued 205,000

F-13

<PAGE>

and 80,000 options under the Participant Plan and Director Plan, respectively.
All of the options granted during the current year become exercisable in three
annual installments commencing April 2, 1999. Included in the options issued
under the Participant Plan were 155,000 incentive stock options issued to key
employees and 50,000 non-qualified options issued to an outside consultant.

The options issued to key employees have been accounted for under APB 25 as
discussed below. The options issue to the outside consultant were accounted for
in accordance with SFAS 123. Accordingly, approximately $25,000 of compensation
expense has been recognized in the current year for the estimated value of the
options granted to the outside consultant.

The status of the Company's stock option plans is summarized below as of
December 31, 1998:

Weighted
Number of Average
Shares Price
------- ------
Outstanding at December 31, 1997 ................ -- --
Granted ......................................... 285,000 $1.595
------- ------
Exercisable at December 31, 1998 ................ 285,000 $1.595
======= ======

The Company applies APB No. 25 in accounting for its stock options granted under
the stock option plans described above. The option price under the Plans equal
or exceed the fair market value of the common shares on the date of grant and,
accordingly, no compensation cost has been recognized under the provisions of
APB No. 25 for stock options granted to employees or outside directors. Under
SFAS 123, compensation cost is measured at the grant date based on the value of
the award and is recognized over the service (or vesting) period. Had
compensation cost for the Company's stock option plans been determined under
SFAS 123, based on the fair market value at the grant dates, the Company's pro
forma net income and net earnings per share would have been reflected as
follows:

December 31, 1998
Net Loss -----------------
As reported ................................... $1,938,390
Pro Forma ..................................... $2,057,203
Loss Per Share
As reported ................................... $(.20)
Pro Forma ..................................... $(.22)

Total outstanding options and the weighted average share price at December 31,
1998 are 205,000 and $1.595, respectively.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted share average
assumptions used for those options

F-14

<PAGE>

granted in 1998: no dividend yield, expected volatility 142.12%, risk-free
interest rates of 5.69% and expected lives of 7 years.

17. SUBSEQUENT EVENTS

On March 15, 1999 the Company and Mr. Silverman entered into an agreement to
amend the Silverman Employment Agreement (the "Silverman Amendment"). Pursuant
to the Silverman Amendment, Mr. Silverman will continue to serve as the Chairman
of the Company, but ceased being the President and Chief Executive Officer of
the Company, effective on the date of the Silverman Amendment. The Silvermen
Amendment also provides that of the options to purchase shares of common stock
of the Company, previously granted to Mr. Silverman, options to purchase an
aggregate of 33,333 shares shall become exercisable on April 2, 1999 and options
to purchase an aggregate of 33,334 of such shares shall become exercisable on
December 30, 1999; provided in each case that Mr. Silverman is still employed by
the Company. If they become exercisable, the forgoing options may be exercised
until December 31, 2004 whether or not the employment of Mr. Silverman by the
Company has terminated. Options to purchase the remaining 33,333 shares (of the
options to purchase 100,000 shares previously granted to Mr. Silverman) shall
become null and void and may not be exercised at any time after the termination
of Mr. Silverman's employment with the Company. As a result of the foregoing
changes in the terms of the options previously granted to Mr. Silverman, all of
such options shall be non-qualified stock options rather than incentive stock
options.

The Company and Gary Allanson have entered into an employment agreement, dated
as of Match 15, 1999, which expires on March 14, 2001 (the "Allanson Employment
Agreement"). The term of the Allanson Employment Agreement may be extended for
one or two years upon written notice given by the Company to Mr. Allanson prior
to June 14, 2000. Pursuant to the Allanson Employment Agreement, Mr. Allanson
serves as the President and Chief Executive Officer of the Company and receives
an annual salary of $240,000. In addition, if Mr. Allanson is insurable, the
Company is obligated to pay the premium on a $1,000,000 term life insurance
policy, to which Mr. Allanson will designate the beneficiary. Under the Allanson
Employment Agreement, Mr. Allanson is also entitled to customary benefits and
perquisites.

Under the Allanson Employment Agreement, if Mr. Allanson's employment is
terminated for disability, for cause or upon his death, Mr. Allanson or his
estate will receive his base salary and other benefits through the date of his
termination. If Mr. Allanson voluntarily terminates his employment with the
Company for "good reason" (defined in the Allanson Employment Agreement to
include, among other things, a change, a change in control of the Company or the
removal of Mr. Allanson from his position as the President and Chief Executive
Officer), Mr. Allanson is entitled to receive his base salary and other benefits
through the 180th day after the date of termination. If Mr. Allanson's
employment is terminated by the Company without cause, the Company is obligated
to pay Mr. Allanson his base salary and provide Mr. Allanson and Mr. Allanson's
family with hospital, major medical and dental insurance equivalent to the
insurance provided on the date of termination, through the end of the term of
the Allanson Employment Agreement then in effect the date of termination.

F-15

<PAGE>

ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.

As of March 19, 1999, the executive officers and directors of the
Company are as follows:

Name Age Position(s)
---- --- -----------

Gary Allanson 46 President and Chief Executive Officer
Jon D. Silverman 58 Chairman and Director
Jeffrey D. Lewenthal 55 Chief Financial Officer, Executive Vice
President of Business Development,
Treasurer and Secretary
Jay M. Rosen 60 Director
George V. Kriste 51 Director
Gregory B. Abbott 48 Director
Claude K. Lee 65 Director

Gary Allanson has served as the President and Chief Executive Officer of
the Company since March 15, 1999. From May 1997 to March 1999 Mr. Allanson was
the director of national retail sales at Arnott's Biscuit, Ltd. of Australia, a
manufacturer and marketer of biscuits, crackers and salty snacks, which became a
fully owned subsidiary of Campbell Soup Company in December 1997. Mr. Allanson
was a director of bakery sales at the Mid-Atlantic Division of Pepperidge Farm,
Inc. from April 1996 to May 1997. From October 1992 to April 1996 Mr. Allanson
was employed by Delmarva Engineering of Maryland in various managerial
capacities, including directing the sales, marketing, strategic planning and
joint venture strategies for the electronics and management consulting firm.

Jon D. Silverman has served as Chairman and a director of the Company since
November 1996, and prior thereto as a consultant to the Company since its
inception. Mr. Silverman also served as the President and Chief Executive
Officer of the Company from November 1996 through March 15, 1999. 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,

<PAGE>

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.

Jeffrey D. Lewenthal has served as Executive Vice President of Business
Development and Chief Financial Officer of the Company since March 1997 and
Secretary and Treasurer of the Company since June 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 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.

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.

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.

Claude K. Lee has served as director of the Company since July 1998. Since
1968 he has served as Chairman of the Board of the Power Group, a privately held
company he founded. The Power Group engages in contract packaging and contracted
logistical services worldwide.

Jay M. Rosen has served as a director of the Company since July 1998. From
January 1998 to present, he has been an independent consultant. From January
1997 to December 1997, Mr. Rosen was Vice President, General Counsel and
Secretary of Celcore, Inc., a privately held company engaged in
telecommunications. For more than five years prior thereto, he was Corporate
Vice President and Associate General Counsel of GTE Corporation.

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.

<PAGE>

To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, no persons failed to file, on a timely basis,
reports required by Section 16(a) of the Exchange Act for any transactions
occurring during Fiscal 1998.

ITEM 10. Executive Compensation.

Summary Compensation Table

The following table sets forth for the three (3) fiscal years ended
December 31, 1998, information concerning the compensation paid or accrued to
the Chief Executive Officer of the Company and the one other person serving as
an executive officer of the Company whose salary and bonus for fiscal 1998
exceeded $100,000.

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------------ --------------------------------------------
Name and Principal Fiscal Salary Bonus Other Annual Restricted Securities All Other
Position year ($) ($) Compensation Stock Underlying Compensation
($)(1) Award($) Options (#) ($)

<S> <C> <C> <C> <C> <C> <C> <C>
Jon Silverman 1998 $180,000 - - - - $4,430(2)
Chairman, CEO and 1997 $187,500 - - - - $4,000(2)
President 1996 $144,000 - - - - -

Jeffrey D. Lewenthal 1998 $144,000 - - - - -
Chief Financial 1997 $96,000(3) - - - - -
Officer, Executive 1996 - - - - - -
Vice President of
Business
Development,
Treasurer and
Secretary

- ----------
<FN>
(1) The aggregate amount of perquisites and other personal benefits paid to
each of Mr. Silverman and Mr. Lewenthal did not exceed the lesser of
(i) 10% of such officer's total annual salary and bonus for any given
fiscal year and (ii) $50,000. Thus, such amounts are not reflected in
the table.

(2) Represents the premiums paid on a $1,000,000 term life insurance
policy as to which Mr. Silverman may designate the beneficiary.

(3) Jeffrey D. Lewenthal's employment with the Company began on March 1997.
The figure represents the compensation Mr. Lewenthal received from the
Company for the period of his employment with the Company in 1997.

</FN>
</TABLE>

<PAGE>

Employment and Non-Compete Agreements

The Company has entered into an employment agreement with Jon Silverman,
dated as of January 17, 1997, which expires on December 31, 1999 (the "Silverman
Employment Agreement"). 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 a $1,000,000 term life insurance policy, to
which Mr. Silverman will designate the beneficiary. Under the agreement, Mr.
Silverman also is entitled to customary benefits and perquisites.

The Silverman Employment Agreement may be terminated by the Company sooner
than December 31, 1999 in the case of his "disability" or "for cause" (as such
terms are defined in the agreement). If Mr. Silverman's employment is terminated
for any reason he shall receive his basic salary through the effective date of
termination. If his employment is terminated due to his disability or without
cause by the Company or if Mr. Silverman leaves the employ of the Company for
"good reason" (defined in the agreement to include, among other things, a change
in control of the Company or the removal of Mr. Silverman from his position as
the Chairman of the Board, President and Chief Executive Officer), then Mr.
Silverman shall also be entitled to receive in cash within 10 days after such
termination an amount equal to the greater of (i) one year's basic salary at the
highest rate paid to him during the term of his employment under the agreement
or (ii) the basic salary that would have been paid to him had the term of
employment ended on December 31, 1999 calculated at the highest rate paid to him
during the term of his employment under the agreement.

On March 15, 1999 the Company and Mr. Silverman entered into an agreement
to amend the Silverman Employment Agreement (the "Silverman Amendment").
Pursuant to the Silverman Amendment, Mr. Silverman will continue to serve as the
Chairman of the Company, but ceased being the President and Chief Executive
Officer of the Company, effective on the date of the Silverman Amendment. The
Silverman Amendment also provides that of the options to purchase shares of
common stock of the Company previously granted to Mr. Silverman, options to
purchase an aggregate of 33,333 shares shall become exercisable on April 2, 1999
and options to purchase an aggregate of 33,334 of such shares shall become
exercisable on December 30, 1999; provided in each case that Mr. Silverman is
still employed by the Company. If they become exercisable, the foregoing options
may be exercised until December 31, 2004 whether or not the employment of Mr.
Silverman by the Company has terminated. Options to purchase the remaining
33,333 shares (of the options to purchase 100,000 shares previously granted to
Mr. Silverman) shall become null and void and may not be exercised at any time
after the termination of Mr. Silverman's employment with the Company. As a
result of the foregoing changes in the terms of the options previously granted
to Mr. Silverman, all of such options shall be non-qualified stock options
rather than incentive stock options.

The Company and Gary Allanson have entered into an employment agreement,
dated as of March 15, 1999, which expires on March 14, 2001 (the "Allanson
Employment Agreement"). The term of the Allanson Employment Agreement may be
extended for one or two years upon written notice given by the Company to Mr.
Allanson prior to June 14, 2000. Pursuant to the Allanson Employment Agreement,
Mr. Allanson serves

<PAGE>

as the President and Chief Executive Officer of the Company and receives an
annual salary of $240,000. In addition, if Mr. Allanson is insurable, the
Company is obligated to pay the premium on a $1,000,000 term life insurance
policy, to which Mr. Allanson will designate the beneficiary. Under the Allanson
Employment Agreement, Mr. Allanson is also entitled to customary benefits and
perquisites.

Under the Allanson Employment Agreement, if Mr. Allanson's employment is
terminated for disability, for cause or upon his death, Mr. Allanson or his
estate will receive his base salary and other benefits through the date of
termination. If Mr. Allanson voluntarily terminates his employment with the
Company for "good reason" (defined in the Allanson Employment Agreement to
include, among other things, a change in control of the Company or the removal
of Mr. Allanson from his position as the President and Chief Executive Officer),
Mr. Allanson is entitled to receive his base salary and other benefits through
the 180th day after the date of termination. If Mr. Allanson's employment is
terminated by the Company without cause, the Company is obligated to pay Mr.
Allanson his base salary and provide Mr. Allanson and Mr. Allanson's family with
hospital, major medical and dental insurance equivalent to the insurance
provided on the date of termination, through the end of the term of the Allanson
Employment Agreement then in effect on the date of termination.

Compensation of Directors

Non-employee directors of the Company are 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 19, 1999, 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 director of
the Company, 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.

<PAGE>

Name and Address Percent of
Of Beneficial Owner(1) Number of Shares Class(2)
------------------- ---------------- --------
Reseal International Corporation .................. 1,230,731 12.9%
c/o The ReSeal Companies
599 Lexington Avenue, 23rd Floor
New York, New York 10022

Jon Silverman ..................................... 633,333(3) 6.6%
c/o International Dispensing Corporation
2500 Westchester Avenue
Suite 317
Purchase, New York 10577

Gregory Abbott .................................... 1,102,260(4) 11.5%
1200 Kessler Drive
Aspen, CO 81611

George Kriste ..................................... 293,333(5) 3.1%
20643 Seabord Road
Malibu, California 90265

Jay M. Rosen ...................................... 1,000(6) *
21 Longledge Drive
Rye Brook, New York 10593

Claude K. Lee ..................................... 0(7) *
5025 South McCaran, Apt. 344
Reno, Nevada 89502

All directors and executive officers as a ......... 2,346,593(8) 23.6%
group (7 persons)

- ----------------------------------------------
* Less than 1%.

(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) Includes 33,333 shares of common stock of the Company issuable upon
exercise of options, which will become exercisable on April 2, 1999.
Does not include 66,667 shares of common stock of the Company issuable
upon exercise of options which will not become exercisable within the
next 60 days.

(4) Includes 13,333 shares of common stock of the Company issuable upon
exercise of options, which will become exercisable on April 2, 1999.
Does not include 26,667 shares of common stock of the Company issuable
upon exercise of options which will not become exercisable within the
next 60 days.

(5) Includes 13,333 shares of common stock of the Company issuable upon
exercise of options, which will become exercisable on April 2, 1999.
Does not include 26,667 shares of common stock of the Company issuable
upon exercise of options which will not become exercisable within the
next 60 days.

<PAGE>

(6) Does not include shares of common stock of the Company issuable upon
exercise of options which will not become exercisable within the next
60 days.

(7) Does not include shares of common stock of the Company issuable upon
exercise of options which will not become exercisable within the next
60 days.

(8) Includes in the aggregate 376,612 shares of common stock of the Company
issuable upon exercise of options held by the directors and executive
officers of the Company, which options are exercisable within 60 days
of March 19, 1999. Does not include 163,334 shares of common stock of
the Company issuable upon exercise of options which will not become
exercisable within the next 60 days.

ITEM 12. Certain Relationships and Related Transactions.

In October 1996, Stratton Oakmont, Inc. ("Stratton Oakmont") acted as the
underwriter of the IPO pursuant to an underwriting agreement with the Company
(the "Underwriting Agreement"). On January 29, 1997, the United States District
Court Judge for the Southern District of New York, entered an order which, inter
alia, appointed Harvey R. Miller, Esq. (the "Trustee") to liquidate the business
of Stratton Oakmont pursuant to the Securities Investor Protection Act of 1970
(the "Liquidation Proceeding"). As part of such Liquidation Proceeding, the
Trustee and the Company entered into a Sale and Assignment Agreement dated as of
November 19, 1997 (the "Sale and Assignment Agreement").

Pursuant to the Sale and Assignment Agreement the Trustee agreed to sell to
the Company or to no more than ten qualified designees of the Company (the
"Designees"), (a) on the closing date an aggregate number of shares of Common
Stock of the Company equal to or greater than 995,705 shares minus (1) 176,778
shares, retained by another person pursuant to a certain settlement agreement
with the Trustee and (2) 200,000 shares and (b) all of the remaining shares of
Common Stock held by the Trustee on or prior to the first business day that is
180 days after the closing date. The Trustee also agreed to assign to the
Company on the closing date all of Stratton Oakmont's right, title and interest
in, to and under the Underwriting Agreement, including, without limitation, (i)
all of its right, title and interest in, to and under its option to purchase up
to an aggregate of 83,333 IPO Units for a purchase price of $.001 per underlying
IPO Unit (the "Underwriter's Purchase Option"), (ii) its rights to enforce an
agreement by certain stockholders not to sell Common Stock for a period of two
years after the effective date of the registration statement relating to the IPO
(the "Effective Date"), and (iii) its rights to enforce the agreement by the
Company not to issue new stock (except in connection with dividends or similar
transactions) for a period of two years after the Effective Date. The
Underwriter's Purchase Option was exercisable for a term of twelve months after
the Effective Date. Pursuant to the Sale and Assignment Agreement, Mr. Jon
Silverman, the Chairman, President and Chief Executive Officer of the Company,
and Messrs. Gregory Abbott and George Kriste, each of whom is a director of the
Company, purchased from the Trustee for $0.60 per share, 100,000, 367,927, and
150,000 shares of Common Stock, respectively. Each of such persons has agreed
not to sell the shares he purchased for a period of two years.

<PAGE>

ITEM 13. Exhibits, List and Reports on Form 8-K.

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 Certificate of Amendment to the Certificate of Incorporation.*

3.4 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).

10.1 License Agreement by and between the Registrant and RIC,
dated as of October 10, 1995, as amended (incorporated herein
by reference to Exhibit 10.1 to the Form SB-2).

10.2 Agreement by and between the Registrant and Nologies, dated
as of March 5, 1996 (incorporated herein by reference to
Exhibit 10.5 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).

<PAGE>

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 10.7 to the Form SB-2).

10.6 Amendment to the Agreement by and between the Registrant and
Nologies, Inc., dated February 26, 1999.*

10.7 Employment Agreement, dated as of January 17, 1997, between
the Registrant and Jon Silverman (incorporated herein by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-KSB for its fiscal year ended December 31, 1996).

10.8 Amendment, dated March 15, 1999, to Employment Agreement
between the Registrant and Jon Silverman.*

10.9 Employment Agreement, dated March 15, 1999, between the
Registrant and Gary Allanson.*

10.10 Registration Rights Agreement dated May 8, 1996 by and
between Banco Inversion, S.A., and the Company (incorporated
herein by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-KSB for its fiscal year ended December 31,
1997 ("1997 10-KSB")).

10.11 Joint Systems Development Agreement entered into as of
October 1, 1997, between the Company and Packaging
(incorporated herein by reference to Exhibit 10.9 to the
Company's 1997 10-KSB).

10.12 Sale and Assignment Agreement dated as of November 19, 1997
between the Trustee and the Company (incorporated herein by
reference to Exhibit 10.10 to the Company's 1997 10-KSB).

10.13 Agreement entered into as of December 23, 1997 between the
Company and Well Men (incorporated herein by reference to
Exhibit 10.11 to the Company's 1997 10-KSB).

10.14 Sublease dated November 5, 1997 between General Motors
Corporation and the Company, together with Consent to
Sublease dated as of November 12, 1997 between East Ridge
Properties I Corporation and General Motors Corporation
(incorporated herein by reference to Exhibit 10.12 to the
Company's 1997 10-KSB).

27 Financial Data Schedule*
- ----------------------------

* Filed herewith

<PAGE>

Reports on Form 8-K

No Form 8-K was filed by the Company within the fourth
quarter of the Company's fiscal year ended December 31, 1998.

<PAGE>

SIGNATURES

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 30, 1999 INTERNATIONAL DISPENSING
CORPORATION

By:/s/ Gary Allanson
----------------------
Gary Allanson
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/ Gary Allanson President and Chief Executive March 30, 1999
- --------------------- Officer
Gary Allanson (Principal Executive
Officer)

/s/ Jon Silverman Chairman and Director March 30, 1999
- --------------------
Jon Silverman

/s/ Jeffrey Lewenthal Chief Financial March 30, 1999
- ---------------------- Officer, Executive Vice President
Jeffrey Lewenthal of Business Development (Princi
pal Accounting and Financial Of
ficer), Treasurer and Secretary

/s/ Jay Rosen Director March 30, 1999
- ----------------------
Jay Rosen

/s/ Gregory Abbott Director March 30, 1999
- ----------------------
Gregory Abbott

/s/ George Kriste Director March 30, 1999
- ----------------------
George Kriste

/s/ Claude Lee Director March 30, 1999
- ----------------------
Claude Lee

<PAGE>

INTERNATIONAL DISPENSING CORPORATION

ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

EXHIBITS INDEX

Description of 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 Certificate of Amendment to the Certificate of
Incorporation.*

3.4 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).

10.1 License Agreement by and between the Registrant and RIC,
dated as of October 10, 1995, as amended (incorporated herein
by reference to Exhibit 10.1 to the Form SB-2).

10.2 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).

10.3 Form of Bridge Loan Agreement and Promissory Note
(incorporated herein by reference to Exhibit 10.3 to the Form
SB-2).

<PAGE>

10.4 Form of Amendment to Bridge Loan Agreement (incorporated
herein by reference to Exhibit 10.4 to the Form SB-2).

10.5 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, 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 10.7 to the Form SB-2).

10.6 Amendment to the Agreement by and between the Registrant and
Nologies, Inc., dated February 26, 1999.*

10.8 Amendment, dated March 15, 1999, to Employment Agreement,
dated between the Registrant and Jon Silverman.*

10.9 Employment Agreement, dated March 15, 1999, between the
Registrant and Gary Allanson.*

10.10 Registration Rights Agreement dated May 8, 1996 by and
between Banco Inversion, S.A., and the Company (incorporated
herein by reference to Exhibit 10.8 to the Company's 1997 10-
KSB).

10.11 Joint Systems Development Agreement entered into as of
October 1, 1997, between the Registrant and Packaging
Systems, LLC (incorporated herein by reference to Exhibit
10.9 to the Company's 1997 10-KSB).

10.12 Sale and Assignment Agreement dated as of November 19, 1997
between Harvey R. Miller, Esq., as trustee, for the
liquidation of Stratton Oakmont, Inc. and the Registrant
(incorporated herein by reference to Exhibit 10.10 to the
Company's 1997 10-KSB).

<PAGE>

10.13 Agreement entered into as of December 23, 1997 between the
Company and Well Men Industrial Company Limited (incorporated
herein by reference to Exhibit 10.11 to the Company's 1997
10-KSB).

27 Financial Data Schedule.*

- ----------------------------

* Filed herewith.

Exhibit 3.3

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL DISPENSING CORPORATION

Pursuant to Section 242 of the
Delaware General Corporation Law

It is hereby certified that:

1. The name of the Corporation (hereinafter called the
"Corporation") is International Dispensing Corporation. The Corporation was
originally incorporated on October 10, 1995 under the name ReSeal Food
Dispensing Systems, Inc.

2. The certificate of incorporation of the Corporation is hereby
amended by adding an Article TENTH to read as follows:

"TENTH A. Commencing with the Annual Meeting of
Stockholders held in July, 1998, the directors of the
Corporation are classified with respect to the time for which
they shall severally hold office by dividing them into three
classes, each class to be as nearly equal in number as possible,
which classes shall be designated as Class 1, Class 2 and Class
3. Subject to the provisions hereof, the number of directors in
each class shall from time to time by designated by the Board of
Directors of the Corporation. The Class 1 directors shall be
elected initially for a term of one year; the Class 2 directors
shall be elected initially for a term of two years; and the
Class 3 directors shall be elected initially for a term of three
years. At each annual meeting, the successors to the class of
directors whose terms shall expire that year shall be elected to
hold office for a term of three years so that each term of
office of one class of directors shall expire in each year.
Notwithstanding the rule that the three classes shall be as
nearly equal in number of directors as possible, in the event of
any change in the authorized number of directors, each director
then continuing to serve as such shall nevertheless continue as
a director of the class of which he is a member until the
expiration of his current term, or his prior death, resignation
or removal. If any newly created directorship may, consistent
with the rule that the three classes shall be as nearly equal in
number of directors as possible, be allocated to one or two or
more classes, the Board shall allocate it to that of the
available classes whose term of office is due to expire at the
earliest date following such allocation.

<PAGE>

B. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of all
of the shares of the Corporation entitled to vote for the
election of directors shall be required to amend or repeal, or
to adopt any provisions inconsistent with this Article TENTH."

3. The amendment of the certificate of incorporation herein
certified has been duly adopted by the board of directors and stockholders of
the Corporation in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, I have made, signed and subscribed this
Certificate of Amendment this 10th day of July 1998, and affirm that the
statements contained herein are true under penalties of perjury.

/s/ Jon Silverman
-----------------
Jon D. Silverman
President

Exhibit 10.6

International Dispensing Corporation
2500 Westchester Avenue, Suite 304
Purchase, New York 10577

February 23, 1999

Mr. Michael Handler
President
Nologies, Inc.
2 Midway Drive
Apt. #5
Bethel, Connecticut 06801

Dear Mr. Handler:

International Dispensing Corporation, the successor of ReSeal Food
Dispensing Systems, Inc., wished to extend for a twelve (12) month period,
effective March 1, 1999, under the same terms, and conditions the Agreement
currently in place between our companies. Said Agreement stipulates that
Nologies, Inc. will assist in (d) the directing and managing of product and
technology development, (e) licensing and strategic alliance pursuits, and (f)
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/ Jeffrey D. Lewenthal
------------------------
Jeffrey D. Lewethal
International Dispensing Corporation
Executive Vice President

Nologies, Inc.
Michael Handler, President

/s/ Michael Handler Dated: 2/26/99

Exhibit 10.8

Amendment to Employment
Agreement, dated January 17, 1997

This Amendment, made and entered into as of the 15 day of March, 1999, by
and between International Dispensing Corporation, a Delaware corporation (the
"Company"), and Jon Silverman, a New York resident (the "Executive"), to the
Employment Agreement dated January 17, 1997.

WITNESSETH:

WHEREAS, the Company and the Executive are desirous of modifying the
Employment Agreement to reflect the needs of the Company;

Now THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:

1. DUTIES AND RESPONSIBILITIES DURING THE EMPLOYMENT PERIOD
From the date hereof until the Termination Date, the Executive
shall serve as the Chairman of the Board of Directors. In such
capacity, the Executive shall primarily work with the
President at transitioning his previous work and contacts
prior to the Termination Date, as well as other duties and
responsibilities as may be assigned from time-to-time by the
Board of Directors. He shall supervise and assist in the
necessary efforts to obtain monies owed to the Company from
the China operation. Nothing contained herein shall be deemed
to prohibit the Executive from spending a portion of his time
in pursuing and engaging in other business opportunities
provided that such activities shall be at the sole expense of
the Executive and do not adversely affect or impede the
transitioning work the Executive shall perform hereunder.

2. BASIC SALARY
From the date hereof until the Termination Date, the Basic
Salary shall be at the rate of $180,000 per annum. At the
Termination Date, the Executive shall receive title to his
Company-owned automobile.

3. STOCK OPTIONS
Notwithstanding the original terms of the options to purchase
100,000 shares of the Company's Common Stock granted to the
Executive by the Board of Directors on July 9, 1998, options
to purchase 33,333 of such shares shall become exercisable on
April 2, 1999 and options to purchase an additional 33,334 of
such shares shall become exercisable on December 30, 1999
provided in each case the Executive is still employed by the
Company. If they become exercisable, the foregoing options may
be exercised by the Executive until December 31, 2004

<PAGE>

whether or not the employment of the Executive by the Company
has terminated. Options to purchase the remaining 33,333
shares (of the options to purchase 100,000 shares granted on
July 9, 1998) shall become null and void and may not be
exercised at any time after the Termination Date. In addition,
since the options to purchase 66,667 shares shall remain
exercisable for more than 90 days after the Termination Date,
all of such options shall be non-qualified options rather than
incentive stock options.

4. OTHER
All other terms and conditions of the Employment Agreement
shall remain in full force and effect until the Termination
Date, except that the Company shall have a one year option on
a month-to-month basis to continue to utilize the Executive's
services for the same rate of compensation.

Agreed to and accepted this 15th day of March, 1999.

/s/ Jon Silverman
-----------------
Jon Silverman

INTERNATIONAL DISPENSING CORPORATION

By: /s/ Jeffrey Lewenthal
---------------------------
Jeffrey Lewenthal
Executive Vice President

Exhibit 10.9

EMPLOYMENT AGREEMENT

AGREEMENT, dated as of the 15th day of March, 1999 by and between
INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation, with offices at
2500 Westchester Avenue, Suite 304, Purchase, New York 10577 (the "Company"),
and GARY ALLANSON, an individual residing at 275 Longpoint Road, Crownsville,
Maryland 21032 (the "Employee").

W I T N E S S E T H :

WHEREAS, the parties desire to enter into this agreement to set forth
the terms of the Employee's employment by the Company.

NOW, THEREFORE, in consideration of the mutual premises and covenants
set forth herein and for other good and valuable consideration, the receipt,
adequacy and legal sufficiency of which are hereby acknowledged, the Company and
the Employee mutually agree as follows:

1. EMPLOYMENT AND DUTIES.

(a) EMPLOYMENT. The Company agrees to employ the Employee, and the
Employee agrees to accept employment with the Company, on the terms and
conditions hereinafter set forth.

(b) SCOPE OF DUTIES. The Employee's title shall be President and
Chief Executive Officer of the Company. The Employee shall render services
solely for the benefit, and on behalf of the Company and its subsidiaries as
directed by the Board of Directors of the Company. The Board of Directors of the
Company shall have the power to determine the general and specific duties to be
performed by the Employee and the means and the manner by which those duties
shall be performed including, without limitation, that the Employee shall be
responsible for overseeing the day

-1-

<PAGE>

to day operations of the Company, developing and executing a strategic plan for
the Company and such other areas as the Employee and senior management deem
appropriate. The Company shall use reasonable efforts to schedule an Annual
Meeting of Stockholders to take place on or before September 30, 1999 and cause
the Employee to be nominated for election as a director of the Company at such
meeting.

(c) EXCLUSIVE SERVICE. The Employee shall be required, and does
hereby agree, to devote his full working time and attention to the duties
imposed upon him under this Agreement. The Employee shall perform his duties in
a diligent manner; shall not engage in activities which are or could be
detrimental to the existing or future business of the Company; and shall observe
and conform to all laws, customs and standards of business ethics and honest
business practices.

(d) PROFESSIONAL STANDARDS. Recognizing and acknowledging that it
is essential for the protection and enhancement of the name and business of the
Company and the good will pertaining thereto, the Employee shall perform his
duties under this Agreement professionally and in accordance with the standards
established by the Company from time to time; and the Employee shall not act,
and shall refrain from acting, in any manner that could harm or tarnish the
name, business or income of the Company or the good will pertaining thereto.

2. COMPENSATION.

(a) BASE SALARY. For all services rendered by the Employee during
the term of this Agreement, the Company shall pay the Employee an annual base
salary of $240,000, payable in accordance with the Company's customary payment
policies and periods.

(b) BONUSES. The Employee shall be eligible to receive performance
bonuses determined by the Board of Directors in its sole discretion.

-2-

<PAGE>

(c) STOCK OPTIONS. On the date hereof the Company has granted to
the Employee non-qualified stock options under the Company's 1998 Stock Option
Plan (the "Plan"). If the Company extends the term of this Agreement pursuant to
Section 7(b), then effective March 15, 2001 the Company shall grant to the
Employee non-qualified stock options under the Plan (or any other stock option
plan then in existence under which options may be granted to the Employee) to
purchase an additional 100,000 shares. Certain of the terms of the options
referred to in the preceding two sentences are set forth on Exhibit A hereto.
The Employee shall also be eligible for additional awards of stock options under
the Plan or otherwise. The granting of said options shall be within the sole
discretion of the Board of Directors or the Committee thereof administering the
Plan or any other option plan under which options may be granted to the
Employee.

(d) FRINGE BENEFITS.

(i) During the term of this Agreement, the Company at its sole
cost shall provide to the Employee and the Employee's family,
hospital, major medical and dental insurance.

(ii) During the term of this Agreement and provided that the
Employee is insurable, the Company shall obtain and pay the
premiums on a term life insurance policy on the life of the
Employee in the amount of $1,000,000, the beneficiary or
beneficiaries of which shall be designated by the Employee.

(iii) The Company may from time to time provide to, or withdraw
from, the Employee certain other fringe benefits. Nothing
herein shall require the Company to adopt, maintain or
continue any such fringe benefit.

-3-

<PAGE>

(e) VACATION. During the term of this Agreement, the Employee
shall be entitled to a vacation of twenty (20) working days per year, which may
be taken all at once or from time to time; provided, however, that (i) the
Employee shall schedule such vacation time so as to mitigate the adverse effects
to the Company of the Employee's absence; and (ii) the Employee shall give the
Company at least thirty (30) days notice of consecutive vacation days in excess
of five (5) to be taken by the Employee at any one time.

3. NON-COMPETITION.

(a) In view of the Employee's knowledge of the trade secrets and
other proprietary information relating to the business of the Company and its
subsidiaries and their customers and dealers which the Employee has heretofore
obtained and is expected to obtain during the term the Employee is employed
under this Agreement (the "Employment Period"), and in consideration of the
compensation to be received hereunder, the Employee agrees: (i) that he will not
during the Employment Period Participate In (as such term hereinafter defined)
any other business or organization if such business or organization now is or
shall then be competing with or be of a nature similar to the business of the
Company or its subsidiaries; and (ii) (A) for a period of two (2) years after
the Termination Date (as defined in Section 7) due to a termination of this
Agreement for Cause (as defined in Section 8(b)) or (B) for such period as the
Company shall continue to pay to the Employee his salary and insurance benefits
in accordance with Section 9(c) after a termination of the Employee's employment
Without Cause (as defined in Section 8(c)), he will not in any geographic area
in which the Company does business as of the Termination Date compete with or be
engaged in the same business as, or Participate In any other business or
organization which during such period competes with or is engaged in the same
business as, the Company or its subsidiaries with respect to any service offered
or activity engaged in up to the Termination Date, except that in each case the
provisions of

-4-

<PAGE>

this Section 3 will not be deemed breached merely because the Employee owns not
more than 2% of the outstanding common stock of a corporation, if, at the time
of its acquisition by the Employee, such stock is listed on a national
securities exchange, is reported on NASDAQ, or is regularly traded in the
over-the-counter market by a member of a national securities exchange.

(b) The term "Participate In" shall mean: "directly or
indirectly, for his own benefit or for, or through any other person, firm, or
corporation, own, manage, operate, control, loan money to (provided, that an
investment in debt instruments issued pursuant to an effective registration
statement under the Securities Act shall not be deemed to be a loan), or
participate in the ownership, management, operation, or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor, or otherwise with, or acquiesce in the use of his name
in."

(c) During the Employment Period and, in the case of the
termination of the Employee's employment for Cause only, for a period of two (2)
years after the Termination Date, the Employee will not directly or indirectly:

(i) reveal the name of, solicit, use or interfere with, or
endeavor to entice away from the Company (or any of its
subsidiaries) any of its customers, vendors or employees,
or

(ii) employ any person who, at any time up to the Termination
Date, was an employee of the Company or its subsidiaries
without the written consent of the Company.

(d) The Employee agrees that the provisions of this Section 3 are
necessary and reasonable to protect the Company in the conduct of its business.
If any restriction contained in this Section 3 shall be deemed to be invalid,
illegal, or unenforceable by reason of the extent, duration, or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form such restriction shall then be
enforceable in the manner contemplated hereby.

-5-

<PAGE>

4. CONFIDENTIAL INFORMATION. All information which the Employee may
now possess, may obtain during or after the Employment Period, or may create
prior to the end of the Employment Period relating to the business of the
Company or its subsidiaries or of any of their respective customers or vendors
(collectively, the "Confidential Information") shall not be published,
disclosed, or made accessible by him to any other person, firm or corporation
either during or after the Employment Period or used by him except during the
Employment Period in the business and for the benefit of the Company without the
prior written consent of the Company. The Employee shall return all tangible
evidence of such Confidential Information to the Company prior to or at the end
of the Employment Period.

5. RIGHTS OF THE COMPANY.

(a) Any interest in copyrights, copyrightable works,
developments, discoveries, designs and processes, patents, patent applications,
inventions and technological innovations (collectively, "Inventions") which the
Employee (i) owns, conceives of or develops, alone or with others, (A) relating
to the business of the Company or its subsidiaries or any business in which the
Company (or its subsidiaries) contemplates being engaged or (B) which anticipate
research or development of the Company or its subsidiaries, or (ii) conceives of
or develops utilizing the time, material, facilities or information of the
Company or its subsidiaries, in either case during the Employment Period, shall
belong to the Company.

(b) As soon as the Employee owns, conceives of or develops any
Invention, the Employee shall immediately communicate such fact in writing to
the Board of Directors of the Company. Upon the request of the Company, the
Employee shall, without further compensation but at the Company's expense
(subject to clause (i) below) execute all such assignments and other documents
(including applications for trademarks, copyrights and patents and assignments
thereof) and

-6-

<PAGE>

take all such other action as the Company may reasonably request, including
obtaining spousal consents or waivers, (i) to vest in the Company all right,
title and interest of the Employee in and to such Inventions, free and clear of
all liens, mortgages, security interests, pledges, charges and encumbrances (the
Employee to take such action, at his expense, as is necessary to remove all such
liens) and (ii) if patentable or copyrightable, to obtain patents or copyrights
(including extensions and renewals) therefor in any and all jurisdictions in and
outside the United States in the name of the Company or in such other name(s) as
the Company shall determine.

6. INSURANCE. The Employee agrees to submit to such medical
examinations as may be reasonably required by the Company to enable the Company
to obtain the term life insurance policy referred to in Section 2(d)(ii) and, at
its option, key man life insurance on the life of the Employee in such amount
and with such insurer as the Company may determine in its sole discretion.

7. EMPLOYMENT PERIOD. (a) Unless extended in accordance with Section
7(b), the Employment Period shall commence on the date of this Agreement and
shall continue for a term ending on March 14, 2001:

(b) The Company may extend the term of this Agreement beyond
March 14, 2001 for one or two more years at its sole option, by giving written
notice to the Employee of such extension. Such notice shall be given not later
than June 14, 2000 and shall state the new ending date of the term of this
Agreement (either March 14, 2002 or March 14, 2003).

(c) Notwithstanding Sections 7(a) and 7(b), the term of this
Agreement shall end on the date on which any of the following events occur (the
date the term of this Agreement ends as a result of the expiration of the term
as provided in Sections 7(a) or 7(b) or the occurrence of the events set forth
below is referred to as the "Termination Date");

-7-

<PAGE>

(i) the death of the Employee;

(ii) the voluntary resignation of the Employee;

(iii) the termination by the Board of Directors of the
Employee's employment for Disability (as hereinafter
defined);

(iv) the termination by the Board of Directors of the
Employee's employment for Cause (as hereinafter defined);
or

(v) the termination by the Board of Directors of the
Employee's employment Without Cause (as hereinafter
defined).

8. DEFINITIONS RELATING TO TERMINATION

(a) DISABILITY

The term "Disability" shall mean any physical or mental
condition of the Employee which, in the reasonable discretion of the Board of
Directors, after consultation with the Employee's physician, materially impairs
the Employee's ability to render the services to be performed by him hereunder
for a period of 90 consecutive days or for at least 120 days in any consecutive
180 day period.

(b) CAUSE

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 Employee's failure or refusal to perform specific written
directives consistent with his duties and responsibilities as set
forth in Section 1 hereof, which lack of performance is not cured
within 15 days after written notice thereof or 30 days if at the
15th day and thereafter the Employee is diligently attempting to
cure;

(ii) Excessive use of alcohol or the use of illegal drugs, interfering
with performance of the Employee's obligations under this
Agreement;

(iii) Conviction of a felony or of any crime involving moral turpitude
or fraud;

-8-

<PAGE>

(iv) The commission by the Employee of an act of embezzlement or other
similar act;

(v) The commission by the Employee of any willful or intentional act
which the Employee reasonably should have contemplated would have
the effect of injuring the reputation, financial condition,
business or business relationships of the Company and/or the
Employee; or

(vi) Any material breach (not covered by any of the clauses (i)
through (v) hereof) of any of the provisions of this Agreement,
if such breach is not cured within 30 days after written notice
thereof to by the Board of Directors.

If the Employee terminates his employment with the Company other than for Good
Reason (as hereinafter defined), the cessation of employment will be treated as
a termination for Cause.

The term "Without Cause" shall mean a determination of the

Board of Directors to terminate the Employee for any
reason other than death, Disability or Cause.

(d) GOOD REASON

The term "Good Reason" shall mean (i) any removal of the
Employee while he is employed hereunder from his position as an officer of the
Company, except in connection with termination or suspension of the Employee's
employment for death, Disability or Cause, (ii) a breach by the Company of any
material provision of this Agreement or (iii) the voluntary resignation of the
Employee within 90 days after the occurrence of a Change of Control (as defined
in Section 8(e)).

(e) CHANGE OF CONTROL.

A "Change of Control" shall be deemed to have occurred if:

-9-

<PAGE>

(i) any "person" (as defined in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1994, as amended (the "Exchange
Act") becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding
securities;

(ii) there shall cease to be a majority of the Board of
Directors comprised as follows: individuals who on the date of
this Agreement constitute the Board of Directors, the Employee
and any new director(s) whose election by the Board of Directors
or nomination for election by the Company's stockholders was
approved by a vote of at 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

(iii) the stockholders 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 (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least fifty percent (50%) 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 stockholders of the Company approve a plan of complete
liquidation of the Company or an

-10-

<PAGE>

agreement for the sale or disposition by the Company of all or
substantially all the Company's assets.

9. EFFECT OF TERMINATION.

(a) If the Employee's employment is terminated for Disability,
for Cause or upon his death, the Employee or his estate shall be paid his Base
Salary and other benefits hereunder through the Termination Date.

(b) If the Employee terminates his employment by voluntarily
resigning for Good Reason, the Employee shall be paid his Base Salary and other
benefits through the date which is 180 days after the Termination Date.

(c) If the Employee's employment is terminated Without Cause, the
Company shall until the end of the term of this Agreement then in effect (either
March 14, 2001, March 14, 2002 or March 14, 2003) continue to (i) pay the
Employee his salary and (ii) provide the Employee and the Employee's family,
hospital, major medical and dental insurance equivalent to the insurance
provided on the Termination Date.

(d) Irrespective of the basis for the termination of the
Employee's employment, all benefits, if any, other than base salary, insurance
(as described in Section 9(c)) and rights under stock options, shall cease as of
the Termination Date, other than COBRA rights which shall continue to the extent
provided thereunder.

10. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or any breach or termination thereof, shall be settled by
arbitration in New York, New York in accordance with the laws of the State of
New York and rules then obtaining of the American Arbitration Association or any
successor thereto. Within ten (10) days after a request for arbitration by one
party to the other, the Company and the Employee shall each select one
arbitrator. Within ten

-11-

<PAGE>

(10) days after the second of such arbitrators has been selected, the two
arbitrators thereby selected shall choose a third arbitrator who shall be the
Chairman of the panel. If the first two arbitrators selected cannot agree upon a
third arbitrator, the American Arbitration Association shall name the third
arbitrator. The arbitration shall be held in New York, New York. The arbitrators
may grant injunctions or other relief in such dispute or controversy. In the
arbitration, the parties shall be entitled to pre-hearing discovery. The
decision of the arbitrators shall be final, conclusive and binding on the
parties to the arbitration. In connection with such arbitration and the
enforcement of any award rendered as a result thereof, the parties hereto
irrevocably consent to the personal jurisdiction of the federal and state courts
located in New York, and further consent that any process or notice of motion or
other application to the said Courts or judges thereof may be served inside or
outside the State of New York by registered mail or personal service, provided a
time period of at least twenty (20) days for appearance is allowed. Since a
breach of the provisions of Sections 3, 4 and 5 may result in irreparable injury
to the Company and may not adequately be compensated by money damages, the
Company shall be entitled, in addition to any other right and remedy available
to it, to an injunction issued by the foregoing courts or in the Arbitration
proceeding restraining such breach or a threatened breach (and in either case no
bond or other security shall be required in connection therewith) and the
Employee hereby consents to the issuance of such injunction. This Section 10
shall survive the termination (by expiration or otherwise) of this Agreement.

11. MODIFICATION. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.

-12-

<PAGE>

12. NOTICES. Any notice or communication to be given hereunder by any
party to the other shall be in writing and shall be deemed to have been given
when personally delivered or transmitted by facsimile, or three (3) days after
the date sent by registered or certified mail, postage prepaid, as follows:

(a) if to the Company, addressed to it at:

2500 Westchester Avenue
Suite 304
Purchase, New York 10577
Attention: Board of Directors

with copies to:

Wolf, Block, Schorr and Solis-Cohen LLP
250 Park Avenue
New York, New York 10177
Attn: Martin R. Bring, Esq.

(b) if to the Employee, addressed to him at:

275 Longpoint Road
Crownsville, Maryland 21032

or to such other persons or addresses as may be designated in writing by the
party to receive such notice.

13. WAIVER. Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.

14. ASSIGNMENT. The Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise. The Company may
assign its rights and obligations

-13-

<PAGE>

hereunder to any of its subsidiaries or affiliates. The Company will provide
notice of such assignment to the Employee.

15. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Employee and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of the
Company and its successors and assigns.

16. HEADINGS. The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.

17. JURISDICTION. The validity and interpretation of this Agreement
shall be construed in accordance with and be governed by the laws of the State
of New York.

18. ATTORNEY'S FEES. If a legal action or other proceeding is brought
for enforcement of this Agreement because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorney's fees and costs incurred, in addition to any other relief
to which they may be entitled.

19. SEVERABILITY. The provisions of this Agreement are severable and
should any provision hereof be void, voidable or unenforceable under any
applicable law, such void, voidable or unenforceable provision shall not affect
or invalidate any other provision of this Agreement, which shall continue to
govern the relative rights and duties of the parties as though the void,
voidable or unenforceable provision were not a part hereof.

20. SURVIVAL. All warranties, representations, indemnities, covenants
and other agreements of the parties hereto shall survive the execution, delivery
and termination of this Agreement and shall, notwithstanding the execution,
delivery and termination of this Agreement, continue in full force and effect.

-14-

<PAGE>

21. ACKNOWLEDGMENT. The Employee specifically acknowledges that:
the Employee has read and understands all of the terms of this Agreement; in
executing this Agreement, the Employee does not rely on any inducements,
agreements, promises or representations of the Company or any agent of the
Company, other than the terms and conditions specifically set forth in this
Agreement; the Employee has had an opportunity to consult with independent
counsel with respect to the execution of this Agreement; and that the Employee
has made such investigation of the facts pertaining to this Agreement and of all
the matters pertaining hereto as he deems necessary.

22. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement on the day and year first above written.

INTERNATIONAL DISPENSING CORPORATION

By: /s/ Jeffrey Lewenthal
--------------------------
Jeffrey Lewenthal
Executive Vice President

/s/ Gary Allanson
--------------------------
Gary Allanson

-15-

<PAGE>

Terms of Options

Granted on the Date of this Agreement
- -------------------------------------

Number of Shares: 400,000

Exercisability: 300,000 shares are exercisable from and after
March 15, 1999; the remaining 100,000 shares shall
become exercisable from and after July 1, 2000.

Exercise Price: The average of high bid and low asked prices per
share of the Company's Common Stock in the over-
the-counter market on March 15, 1999.

Term of Options: Seven (7) years for the options to purchase
300,000 shares and ten (10) years for the options
to purchase 100,000 shares.

Termination: The option will terminate on the termination of
the Employee's employment with the Company for any
reason provided that, except in the case of a
termination for Cause (in which case no portion of
the option may be exercised), it may be exercised
within three months after such date to the extent
exercisable on the date of termination, or within
one year after the date of termination of
employment due to death or Disability to the
extent exercisable on the date of such a
termination.

To be Granted Effective March 15, 2001
if the Term of this Agreement is Extended
- -----------------------------------------

Number of Shares: 100,000

Exercisability: If the term of this Agreement is extended by only
one year, then all 100,000 shares shall be
exercisable from and after March 1, 2002; if the
term of this Agreement is extended by two years,
then 50,000 shall be exercisable from and after
March 15, 2002 and the remaining 50,000 shares
shall be exercisable from and after March 1, 2003.

-16-

<PAGE>

Exercise Price: The average of the high bid and low asked prices
per share of the Company's Common Stock in the
principal market on which such stock is quoted or
traded on March 15, 2001.

Term of Option: Five (5) years

Termination: Same as for options granted on date of this
Agreement.

-17-

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001016739
<NAME> INTERNATIONAL DISPENSING CORPORATION

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,270,527
<SECURITIES> 0
<RECEIVABLES> 50,695
<ALLOWANCES> 50,695
<INVENTORY> 0
<CURRENT-ASSETS> 1,314,072
<PP&E> 25,399
<DEPRECIATION> 8,314
<TOTAL-ASSETS> 1,361,190
<CURRENT-LIABILITIES> 92,297
<BONDS> 0
0
0
<COMMON> 9,567
<OTHER-SE> 1,259,326
<TOTAL-LIABILITY-AND-EQUITY> 1,361,190
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,301,191
<LOSS-PROVISION> 50,695
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,219,463)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,219,463)
<DISCONTINUED> (718,927)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,938,390)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)

</TABLE>