UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________to_______________
Commission file number 0-21489
International Dispensing Corporation
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3856324
------------------------------- -------------------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2500 Westchester Avenue, Suite 304, Purchase, New York 10577
------------------------------------------------------------
(Address of principal executive offices)
(914) 251-0336
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(Issuer's telephone number)
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes or common
equity, as of the latest practicable date: 9,566,668 shares of Common Stock as
of July 28, 1999
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
International Dispensing Corporation
(A Development Stage Company)
Table of Contents
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Balance Sheets at June 30, 1999 (unaudited) 3
and December 31, 1998
Statements of Operations for the Six and Three Months 4
Ended June 30, 1999 and 1998 and for the Period from
Inception (October 10, 1995) through June 30, 1999
Statements of Cash Flows for the Six Months Ended 5
June 30, 1999 and 1998 and for the Period from Inception
(October 10, 1995) through June 30, 1999
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II - OTHER INFORMATION 10
2
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
BALANCE SHEET
June 30, 1999 December 31,
(unaudited) 1998
----------- -----------
Assets
Current Assets:
Cash and cash equivalents .................... $ 544,975 $ 1,270,527
Accounts receivable .......................... 5,675
Loans receivable ............................. 31,000
Prepaid expenses ............................. 46,109 43,545
----------- -----------
Total current assets 627,759 1,314,072
Fixed Assets:
Office equipment ............................. 30,882 3,480
Automobile ................................... 21,919 21,919
Accumulated Depreciation and Amortization .... (11,914) (8,314)
----------- -----------
Net fixed assets 40,887 17,085
Other Assets ................................... 23,035 30,033
----------- -----------
Total Assets $ 691,681 $ 1,361,190
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ............................. 39,013 19,791
Accrued expenses ............................. 6,001 72,506
----------- -----------
Total current liabilities .................... 45,014 92,297
----------- -----------
Total liabilities 45,014 92,297
Commitments & contingencies
Stockholders' Equity:
Preferred stock, $.001 par value; ............ -- --
2,000,000 shares authorized, no
shares issued or outstanding
Common stock, $.001 par value; ............... 9,567 9,567
40,000,000 shares authorized;
9,566,668 issued and outstanding
as of December 31, 1998 and June 30,
1999 respectively
Additional paid-in capital ................... 9,895,286 9,895,286
Deficit accumulated during ................... (9,258,186) (8,635,960)
development stage
----------- -----------
Total stockholders' equity 646,667 1,268,893
----------- -----------
Total liabilities and stockholders' equity $ 691,681 $ 1,361,190
=========== ===========
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
Cumulative
Six Months Three Months from Inception
ended ended October 10, 1995
----------------------------- ----------------------------- through
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Expenses
General and Adminstrative ........................ $ 691,842 $ 646,964 $ 415,871 $ 345,368 $ 4,521,081
Depreciation and Amortization .................... 3,600 3,000 1,800 1,500 20,056
----------- ----------- ----------- ----------- -----------
Total operating expenses 695,442 649,964 417,671 346,868 4,541,137
----------- ----------- ----------- ----------- -----------
Loss from operations (695,442) (649,964) (417,671) (346,868) (4,541,137)
Other income (expense)
Interest Expense ................................. -- -- -- -- (66,665)
Interest Income .................................. 22,391 61,759 8,520 26,975 392,718
Miscellaneous income ............................. 50,825 -- -- -- 50,825
----------- ----------- ----------- ----------- -----------
Net loss before extraordinary loss
and discontinued operations ($ 622,226) ($ 588,205) ($ 409,151) ($ 319,893) ($4,164,259)
Extraordinary loss on retirement of debt ........... -- -- -- -- (250,000)
Loss from discontinued operations .................. -- (145,925) -- (125,783) (843,927)
----------- ----------- ----------- ----------- -----------
Net loss ................................... ($ 622,226) ($ 734,130) ($ 409,151) ($ 445,676) ($5,258,186)
=========== =========== =========== =========== ===========
Basic and diluted loss per share ................... ($ 0.06) ($ 0.08) ($ 0.04) ($ 0.05)
Basic and diluted weighted average
shares outstanding ................................. 9,566,668 9,566,668 9,566,668 9,566,668
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
from Inception
Six months Six Months October 10, 1995
ended ended through
June 30, 1999 June 30, 1998 June 30, 1999
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss .................................................................. $ (622,226) $ (442,280) $(5,258,186)
Adjustment for(income) loss from discontinued operations .................. -- (145,925) 843,927
----------- ----------- -----------
Net loss from continuing operations ....................................... (622,226) (588,205) (4,414,259)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ........................................... 3,600 2,999 20,054
Compensation from stock grant ........................................... -- -- 25,279
Non-cash compensation ................................................... -- -- 76,238
Loss on retirement of debt .............................................. -- -- 250,000
Changes in operating assets and liabilities:
Increase in accounts receivable ....................................... (5,675) (343,670) (5,675)
(Increase) decrease in prepaid expenses ............................... (2,564) 34,000 (46,109)
Increase in other assets .............................................. (24,002) (618,627) (48,235)
Increase (decrease) in accrued expenses (66,505) ...................... 1,340 -19,278
Increase in accounts payable .......................................... 19,222 39,013
----------- ----------- -----------
Net cash used in continuing operating activities .......................... (698,150) (1,512,163) (4,122,972)
Net cash provided by (used in) discontinued operations .................... -- 145,925 (843,927)
Net cash used by operating activities ..................................... (698,150) (1,366,238) (4,966,899)
Cash flows from operating activities:
Purchase of fixed assets ................................................ (27,402) -- (60,941)
Purchase of license ..................................................... -- -- (4,000,000)
----------- ----------- -----------
Net cash used in investing activities ..................................... (27,402) -- (4,060,941)
Cash flows from financing activities:
Proceeds from private placement ......................................... -- -- 2,100,000
Proceeds from issuance of convertible debt .............................. -- -- 150,000
Repayment of promissory note ............................................ -- -- (300,000)
Repayment of bridge loans ............................................... -- -- (1,050,000)
Repayment of convertible debt ........................................... -- -- (100,000)
Proceeds from initial public offering ................................... -- -- 8,772,815
----------- ----------- -----------
Net cash provided from financing activities ............................... -- -- $ 9,572,815
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (725,552) (1,366,238) 544,975
Cash and cash equivalents, beginning of period ............................ 1,270,527 3,138,204 --
----------- ----------- -----------
Cash and cash equivalents,end of period ................................... $ 544,975 $ 1,771,966 $ 544,975
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................................. -- -- $ 66,665
Non-cash investing and financing activities:
Issuance of common stock ................................................ -- -- $ 5,800
Purchase of license from affiliate ...................................... -- -- $ 4,000,000
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
INTERNATIONAL DISPENSING CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Information as of and for the period ended
June 30, 1999 is unaudited)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The balance sheet as of June 30, 1999 and statements of operations and
statements of cash flows for the three months then ended have been prepared by
International Dispensing Corporation (the "Company") without audit. The results
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998. Results of operations for the six month period is not
necessarily indicative of the operating results for the full year. Interim
statements are prepared on a basis consistent with year end statements.
In the opinion of management, the unaudited interim financial
statements furnished herein include all adjustments necessary for a fair
presentation of the results of operations of the Company. All such adjustments
are of a normal recurring nature.
2. GOING CONCERN
The Company's development stage activities have resulted in an
accumulated deficit from inception to June 30, 1999, in excess of $9.6 million
(including a discontinued operation in China of $844,000, see Note 3), and
losses are continuing. Since its inception, the Company has not generated any
revenue from operations. The Company's primary source of funds since inception
has been from the sale of its common stock. Consequently, there is doubt about
the Company's ability to continue as a going concern. Management is attempting
to raise additional capital through a private placement of securities to provide
funding to allow it to continue development of its licensed technology.
Notwithstanding, the Company believes that with the completion of the production
injection mold for its Gravity Feed Valve Assembly, scheduled for the fourth
quarter of 1999, it will generate sales revenue in the fourth quarter of 1999.
3. 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 was 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 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 and 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. For the six months ended June 30, 1998,
the Company's results of operations have been classified as discontinued
operations.
It is the Company's intent to pursue payment of reimbursement of
expenses incurred in the Company's China undertaking from Well Men.
6
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company was incorporated in Delaware in October 1995 under the name
ReSeal Food Dispensing Systems, Inc. and changed its name to International
Dispensing Corporation on September 12, 1996. The Company was formed primarily
for the purpose of commercializing and marketing certain proprietary and
patented delivery and dispensing technologies (the "Technologies") licensed from
ReSeal International Corporation ("RIC"), which Technologies consist of barrier
oriented, closed delivery and dispensing systems (the "Systems") composed of:
(i) self-adjusting reservoir bodies, (ii) patented, barrier capable,
unidirectional flow valves (the "Valve Assemblies"), and (iii) as required,
mechanisms to activate and facilitate the product delivery and flow functions.
When utilized in dispensing a flowable food and beverage product like milk,
juice, wine, etc., the Systems are designed to maintain the sterility, purity
and freshness of such product throughout its use life, with the possibility of
eliminating or reducing the need for adding preservatives to the product to keep
it fresh and/or refrigeration throughout its use life. The self-adjusting
reservoir body of a System is designed to shrink in proportion to the amount of
the product being dispensed through the Valve Assembly. The Valve Assemblies are
designed to dispense a product without letting either air or contaminants flow
back into the internal reservoir in which the remaining product is held. The
Company believes that by maintaining the purity of the product that remains in
the container, the Systems will provide higher levels of freshness for
significantly longer periods of time and, if preservatives are eliminated, the
level of purity, of a wide array of packaged flowable products.
The Company is primarily focusing its marketing activities on the
application of the licensed technologies in the Field of Use (as defined below)
as set forth in that certain Amended and Restated License Agreement, between the
Company and RIC, which encompasses the food and beverage industries as broadly
defined. "Field Of Use" means the use of the Technology to make, use, lease,
sell or distribute (a) any food or beverage dispensers or containers that embody
the Technology or the manufacture, use, lease, sale or distribution of which
uses the Technology (collectively the "Product") intended for use in an
industrial or commercial place of business in the preparation of food or
beverage at such place of business, (b) any food or beverage Product intended
for use in an industrial or commercial place of business by a customer
purchasing food or beverage at such place of business for consumption on or off
the premises of such place of business, or (c) any food or beverage Product
intended to be sold to or by food or beverage wholesale price discounters,
retailers and similar establishments that sell food or beverage to consumers.
Within such categories, the applications of the licensed technologies can be
divided into a number of potential markets, including but not limited to the
following: (i) beverages, which include milk/cream, coffee, tea (hot and cold),
hot chocolate, juices, sweeteners, baby formula, baby food (in puree form),
wines and water; (ii) foods, which include soups, liquid eggs, liquid butter,
sauces, yogurt, melted cheese (nachos), baby foods and hot toppings in liquid
form; and (iii) condiments, which include ketchup, barbecue sauce, mayonnaise,
salad dressing, oils and mustard.
The prototype tooling for production of prototype Valve Assemblies has
been completed. Initial prototype Valve Assemblies have been produced and
subjected to independent laboratory testing. Such laboratory testing is
continuing. In addition, the Company has supplied specific prototype Systems to
customers for consumer testing. Additional customers will also be supplied with
prototype systems. In June of 1999, the Company placed an order for a single
cavity steel production tool, and semi-automated assembly equipment for its
valve assemblies to be delivered in the fourth quarter of 1999.
7
<PAGE>
On November 10, 1997, the Company entered into a Joint Systems
Development Agreement with Packaging Systems, L.L.C., the parent company of
Rapak, Inc. The resulting products of this strategic alliance will be Bag-in-Box
with unique Valve/Pump Technology food and beverage delivery systems that will
be marketed to the food and beverage industries throughout the United States.
On December 23, 1997, the Company entered into an agreement with Well
Men Industrial Company Limited, a Hong Kong registered corporation ("Well Men"),
pursuant to which Well Men granted to the Company an exclusive right to market
and sell in China certain Well Men products. Well Men also assigned to the
Company for the purpose of commercializing such Well Men products, all of Well
Men's patents and patent applications relating to such Well Men products. The
agreement was for an initial term of ten years. The Company opened a
representative office in China to promote the sales of these products and to
establish the name of the Company. Operations commenced in March, 1998.
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 took a
charge in the fourth quarter of 1998 of $718,926 representing costs and expenses
incurred by the Company in its China venture.
The Company intends to pursue payment of a $332,750 receivable arising
from sales to a Chinese customer which purchased water heaters and pitchers from
the Company in 1998, as well as reimbursement from Well Men of expenses incurred
by the Company in its China venture.
RESULT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUE - The Company has not generated any revenue from operations
since its inception.
OPERATING EXPENSES - For the six months ended June 30, 1999, the
Company had operating expenses of $691,842, which included $163,671 in research
and development related expenses, versus operating expenses of $646,964 for the
six month period ended June 30, 1998. This increase of $44,878, or 6.9% over the
comparable period last year, is due primarily to an increase in research and
development related expenses, and the hiring of a new President/CEO on March 15,
1999.
NET LOSS - For the six months ended June 30, 1999, the Company had a
net loss of $622,226 versus a net loss of $734,150 for the six months ended June
30, 1998. This decrease in net loss of $111,924, or 15.2% over the comparable
period last year, is due to the Company having incurred a loss from discontinued
operations of $145,925 for the six month period ended June 30, 1998,
attributable to its China venture.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
OPERATING EXPENSES - For the three months ended June 30, 1999, the
Company had operating expenses of $415,871, which included $85,252 in research
and development related expenses, versus operating expenses of $345,368 for the
three month period ended June 30, 1998. This increase of $70,503 or 20.4% over
the comparable period last year, is due primarily to an increase in research and
development related expenses, and the hiring of a new President/CEO on March 15,
1999.
8
<PAGE>
NET LOSS - For the three months ended June 30, 1999, the Company had a
net loss of $409,151 versus a net loss of $445,676 for the three months ended
June 30, 1998. This decrease in net loss of $36,525, or 8.2% over the same time
period last year, is due primarily to the reduction in operating expenses.
The Company has reported a net loss from operations of $ 5,258,186
since inception.
FINANCIAL CONDITION
As reflected in the financial statements, the Company has experienced
continuing net losses and negative cash flows from operations through June 30,
1999. The Company's ability to continue as a going concern is dependent upon its
ability to obtain additional financing and to produce and market its products.
As of June 30, 1999, the Company had liquid assets of $691,681.
In a private placement concluded in February 1996, the Company obtained
aggregate capital of $2,250,000 through the issuance by the Company of
convertible notes, options and the sale of Common Stock.
In October 1996, the Company sold, in an initial public offering,
833,334 Units, each Unit consisting of two shares of Common Stock and two
redeemable Class A purchase warrants for $12.00 per Unit. Each warrant entitles
the holder to purchase one share of the Company's Common Stock for $7.00 during
the four year period commencing October 3, 1997. The warrants are redeemable by
the Company at $.05 per warrant any time after October 3, 1997 if certain
conditions are met. The net proceeds, which the Company received from the
offering, amounted to approximately $8.8 million.
As of June 30, 1999, the Company had working capital of $544,975.
During the first two quarters of Fiscal 1999, the Company was spending at a rate
of approximately $115,000 per month. The Company expects that such rate will
increase to approximately $135,000 per month commencing in the third quarter of
Fiscal 1999. Such increase will be primarily due to the commencement of
production of the Valve Assemblies.
The Company expects that it will require additional capital to finance
its operations after the third quarter of Fiscal 1999. The Company is seeking a
minimum of $1.5 million in financing. If the Company is not able to obtain
additional funds on terms and conditions satisfactory to the Company, the
Company will have to delay the acquisition of production and prototype tooling
for the Company's Valve Assemblies.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders of the Company was held on June 18,
1999. The stockholders elected Claude K. Lee and Gary R. Allanson as Class 1
directors to serve for a term expiring at the 2002 Meeting of Stockholders
(7,179,134 shares voting in favor of the election of Claude K. Lee, 56,912
shares withholding votes for Claude K. Lee, 7,169,134 shares voted in favor of
the election of Gary R. Allanson and 66,912 shares withholding votes for Gary R.
Allanson).
The stockholders also approved a proposal to amend the Company's 1998
Stock Option Plan to increase from 650,000 to 850,000 the aggregate number of
shares of the Company's Common Stock which may be issued upon exercise of all
options under the 1998 Stock Option Plan. The number of votes cast in favor was
6,694,157, the number votes cast against was 530,124 and the number of
abstentions was 11,765. Finally, the stockholders approved a proposal to amend
the Company's Director Option Plan to increase from 250,000 to 450,000 the
maximum aggregate number of shares of the Company's Common Stock which may be
optioned and sold under said Plan, and further amend the Company's Director Plan
to provide that each outside director, provided that he or she is then serving
as director, be automatically granted an option to purchase 20,000 shares of
Common Stock on each anniversary of the date such outside director was first
elected as a director. The number of votes cast in favor was 5,747,575, the
number of votes cast against was 1,442,106 and the number of abstentions was
46,365.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Forms 8-K have been filed for the quarter
for which this report is being filed.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL DISPENSING
CORPORATION
Date: July 28, 1999 /s/ Gary R. Allanson
-------------------------------------
Gary R. Allanson
Chief Executive Officer and President
(Principal Executive Officer)
Date: July 28, 1999 /s/ Jeffrey D. Lewenthal
-------------------------------------
Jeffrey D. Lewenthal
Chief Financial Officer and Treasurer
(Principal Accounting and Financial
Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE JUNE 30, 1999 QUARTERLY REPORT FILED ON
FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 544,975
<SECURITIES> 0
<RECEIVABLES> 36,675
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 627,759
<PP&E> 52,801
<DEPRECIATION> 11,914
<TOTAL-ASSETS> 691,681
<CURRENT-LIABILITIES> 45,014
<BONDS> 0
0
0
<COMMON> 9,567
<OTHER-SE> 637,100
<TOTAL-LIABILITY-AND-EQUITY> 691,681
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 695,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (622,226)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (622,226)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>