<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JULY 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 0-14922
AMERICAN BUSINESS COMPUTERS CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-2001203
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 Kennedy Road Akron, Ohio 44305
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant s telephone number, including area code: (216) 733-2841
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
----------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: [X] Yes [ ] No
The number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date is:
Common Stock outstanding at September 8, 1995 was 16,127,701 shares.
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<PAGE> 2
INDEX
AMERICAN BUSINESS COMPUTERS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Part I Financial Information Page No.
--------------------------------------------------------------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - July 29, 1995
and April 29, 1995 3
Consolidated statements of operations - Three
months ended July 29, 1995 and July 30, 1994 4
Consolidated statements of cash flows - Three
months ended July 29, 1995 and July 30, 1994 5
Consolidated statement of stockholders equity -
Three months ended July 29, 1995 6
Notes to consolidated financial statements -
July 29, 1995 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
Part II Other Information
--------------------------------------------------------------------------
Item 1. Legal Proceedings 14
Item 2. (Not Applicable)
Item 3. (Not Applicable)
Item 4. (Not Applicable)
Item 5. (Not Applicable)
Item 6. (A) Exhibits 15
(B) Reports on Form 8-k
Signature 16
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
AMERICAN BUSINESS COMPUTERS CORPORATION
CONSOLIDATED BALANCE SHEETS
Unaudited
ASSETS July 29, 1995 April 29, 1995
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 164,000 $ 1,309,000
Trade receivables:
Accounts receivable, less allowance for doubtful accounts
of $86,000 as of July 29 and $78,000 as of April 29 927,000 285,000
Notes receivable 21,000 22,000
Inventories (Note 3) 1,653,000 1,219,000
------------ ------------
Total current assets 2,765,000 2,835,000
Property, Plant, and Equipment 1,435,000 1,428,000
Less accumulated depreciation and amortization (741,000) (725,000)
------------ ------------
694,000 703,000
Other assets:
Notes receivable 53,000 59,000
Patents, less accumulated amortization of $441,000 as of July 29
and $438,000 as of April 29 33,000 37,000
Patents pending and deferred charges 82,000 85,000
------------ ------------
168,000 181,000
------------ ------------
TOTAL ASSETS $ 3,627,000 $ 3,719,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 914,000 $ 454,000
Notes payable 460,000 190,000
Current portion of long-term debt (Note 4) 10,000 10,000
Accrued liabilities:
Legal fees and settlement costs (Note 9) 1,033,000 1,635,000
Employee compensation and benefits (Note 8) 199,000 232,000
Warranty reserve 191,000 183,000
Other 205,000 202,000
Deferred income 18,000 20,000
------------ ------------
Total current liabilities 3,030,000 2,926,000
Long-term debt (Note 4) 276,000 278,000
Stockholders' equity (Note 6):
Common Stock, $.01 par value; authorized
20,000,000 shares; 16,097,701 shares issued
and outstanding (15,996,116 at April 29, 1995) 161,000 160,000
Additional paid-in capital 17,241,000 17,070,000
Retained earnings (deficiency) (16,927,000) (16,558,000)
------------ ------------
475,000 672,000
Less notes receivable - stockholders (154,000) (157,000)
------------ ------------
Total Stockholders' Equity 321,000 515,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,627,000 $ 3,719,000
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 4
AMERICAN BUSINESS COMPUTERS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 29, 1995 July 30, 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Products and services $ 1,126,000 $ 1,159,000
Royalties 72,000 70,000
----------- -----------
1,198,000 1,229,000
Cost and expenses:
Products and services 1,079,000 1,039,000
General and administrative 268,000 253,000
Selling and marketing 114,000 96,000
Research and development 163,000 86,000
----------- -----------
1,624,000 1,474,000
----------- -----------
Loss from operations (426,000) (245,000)
Other income (expense)
Investment income 62,000 19,000
Other income (expense), net (5,000) 2,000
----------- -----------
57,000 21,000
----------- -----------
Net loss (Note 5) $ (369,000) $ (224,000)
=========== ===========
Weighted average number of shares
outstanding 16,008,989 15,100,262
=========== ===========
Net loss per share $ (0.02) $ (0.01)
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 5
AMERICAN BUSINESS COMPUTERS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 29, 1995 July 30, 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
------------------------------------
Net loss $ (369,000) $ (224,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 20,000 21,000
Changes in operating assets and liabilities:
Receivables (635,000) (595,000)
Inventories (434,000) (73,000)
Patents pending and deferred charges 3,000 11,000
Accounts payable 460,000 298,000
Accrued liabilities (624,000) (68,000)
Deferred income (2,000) (19,000)
----------- ----------
Total adjustments (1,212,000) (425,000)
----------- ----------
Net cash used in operating activities (1,581,000) (649,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
------------------------------------
Additions to property, plant, and equipment (7,000) (581,000)
----------- ----------
Net cash used in investing activities (7,000) (581,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
------------------------------------
Proceeds from issuance of notes payable 460,000 490,000
Proceeds from stock issued for exercise of warrants 200,000 -
Proceeds from collection of stockholders receivables 3,000 -
Proceeds from stock issued for exercise of stock options 2,000 -
Repayment of notes payable and loan costs (192,000) -
Costs of private placements (30,000) -
----------- ----------
Net cash provided by financing activities 443,000 490,000
----------- ----------
Net decrease in cash and cash equivalents (1,145,000) (740,000)
Cash and cash equivalents at beginning of year 1,309,000 2,021,000
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 164,000 $1,281,000
=========== ==========
</TABLE>
See accompanying notes.
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<PAGE> 6
AMERICAN BUSINESS COMPUTERS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended July 29, 1995
Unaudited
<TABLE>
<CAPTION>
Number of Common Stock Additional Retained Notes
Shares of $.01 Par Paid-in Earnings Receivable-
Common Stock Value Capital (Deficiency) Stockholders
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 29, 1995 15,996,116 $160,000 $17,070,000 $(16,558,000) $(157,000)
Exercise of warrants (Note 6) 100,000 1,000 199,000
Exercise of stock options (Note 6) 1,585 - 2,000
Collection of note receivable- 3,000
stockholders
Private placement costs (30,000)
Net loss for the three months ended
July 29, 1995 (369,000)
---------- -------- ----------- ------------ ---------
Balance at July 29, 1995 16,097,701 $161,000 $17,241,000 $(16,927,000) $(154,000)
========== ======== =========== ============ =========
</TABLE>
SEE ACCOMPANYING NOTES.
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<PAGE> 7
AMERICAN BUSINESS COMPUTERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
-----------------------------
ABC ("the Company") is a technology firm. Our core competence is our
ability to use existing technology and to create new technology to develop
dispensing systems and mechanisms. Our interpretation of dispensing systems
and the related technology is unrestricted. The Company is not limited to
dispensing liquids; the Company will dispense virtually any substance. The
Company is not limited to pneumatic or electronic technology, the Company will
utilize any technology including mechanical, electro-mechanical, hydraulic, and
sonic.
2. SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------
BASIS OF PRESENTATION - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended July 29, 1995 are not
necessarily indicative of the results that may be expected for the year ended
April 27, 1996.
YEAR END - Effective May 1, 1994, the Company changed the fiscal year end to
the Saturday closest to April 30, which results in a fifty-two or fifty-three
week year. Both fiscal 1996 and fiscal 1995 consist of fifty-two weeks. The
thirteen week quarters for fiscal 1996 end July 29, October 28, January 27, and
April 27. The thirteen week quarters for fiscal 1995 ended July 30, October
29, January 28, and April 29.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and its subsidiaries, ABC Dispensing Technologies, Inc. and ABC
TechCorp. Significant intercompany transactions and balances have been
eliminated in consolidation.
CASH EQUIVALENTS - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT - In the normal course of business, the Company enters
into transactions to meet the financing needs of customers. The Company
performs ongoing credit evaluations of customers' financial condition and
generally requires collateral from customers who finance purchases beyond
thirty days. The Company's exposure to credit risk associated with
nonperformance on these transactions is limited to amounts reflected in the
Company's consolidated financial statements, less the value, if any, of the
secured equipment.
INVENTORIES - Inventories are valued at the lower of cost or market, using the
first-in, first-out (FIFO) method.
PROPERTY, PLANT, AND EQUIPMENT - These assets are recorded at cost.
Depreciation is provided primarily by use of the straight-line method over the
estimated useful lives of the assets.
PATENTS - Patents are recorded at cost. Amortization is provided under the
straight-line method over a period of five years or less.
REVENUE RECOGNITION - Revenue on equipment sales is recognized when the product
is shipped and title transfers, including equipment that requires subsequent
installation. Revenue for development services and for service and support is
recognized when the service is performed unless there is a service contract.
Revenue from service contracts is recognized ratably over the contract term,
generally one year. Royalty income is recognized in accordance with the terms
of the royalty agreement, which generally provides that royalties are based on
units shipped.
MAJOR CUSTOMER - Revenues from The Sherwin-Williams Company were 77 and 67
percent of the Company's total revenues, for the three months ended July 29,
1995 and July 30, 1994, respectively.
PROVISION FOR WARRANTY CLAIMS - Estimated warranty costs are provided at the
time of sale of the warranted products.
NET LOSS PER SHARE - Net loss per share is computed on the basis of weighted
average number of shares outstanding for the period. Common stock equivalents
are not material, and therefore, are not included in the computation of primary
earnings per share.
3. INVENTORIES
--------------------
<TABLE>
<CAPTION>
Composition of inventories: July 29, 1995 April 29, 1995
<S> <C> <C>
Raw materials $ 530,000 $ 527,000
Work-in-process 639,000 207,000
Finished goods 484,000 485,000
---------- ----------
$1,653,000 $1,219,000
========== ==========
</TABLE>
The above amounts are net of obsolescence reserves of $930,000 as of July and
$943,000 as of April.
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<PAGE> 8
AMERICAN BUSINESS COMPUTERS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Financing Arrangements
-------------------------------
BANK NOTE
Long-term debt consists of the following at July 29, 1995:
<TABLE>
<S> <C>
Note payable to bank $286,000
Less amounts due within one year (10,000)
--------
Total long-term debt $276,000
========
</TABLE>
The note payable to bank was entered into during fiscal 1995 to
partially finance the purchase of the headquarters facility which was
previously leased. The note payable has an adjustable interest rate ( 9.25% at
July 29, 1995) which may not increase or decrease by more than 2% once every
three years. The maximum increase or decrease is 6% over the life of the loan.
Principal and interest payments of $3,026 are payable monthly with the balance
of $143,000 due October 1, 2005. The note payable is secured by the
headquarters facility. The facility has a net book value of $473,000.
Maturities of long-term debt for the five years subsequent to April
29, 1995 are as follows: 1996--$10,000; 1997--$11,000; 1998--$12,000;
1999--$13,000 and 2000--$15,000.
"BRIDGE" NOTES
On June 13, 1995, the Company initiated a private offering to sell 20
units of $25,000 10% Senior Subordinate Notes due June 1, 1998 and three year
redeemable warrants to purchase 12,500 shares of the Company's common stock at
$2 per share. The transaction was exempt from registration under the
Securities Act of 1933. The offering will extend to September 30, 1995. As of
July 27, 1995, 18 units have been issued under the offering, providing the
Company with $460,000 in proceeds. The Notes include a repayment provision
requiring the Company to apply 40% of the net proceeds received by it from the
sale of any of its Common Stock other than Common Stock issued upon the
exercise of employee, director, or consultant stock options, to the pro-rata
repayment of the Notes within sixty (60) days of the receipt of such proceeds.
The Company has classified these Notes as short-term because of this repayment
provision.
5. INCOME TAXES
---------------------
Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of Company assets and
liabilities. The components of the Company's deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
As of April 29, 1995
<S> <C>
Net operating loss carryforwards $ 4,709,000
Inventory 447,000
Other 363,000
-----------
Total deferred tax assets 5,519,000
Valuation allowance for deferred taxes (5,519,000)
-----------
Net deferred taxes $ -0-
===========
</TABLE>
At April 29, 1995, the Company had Federal net operating loss
carryforwards for tax reporting purposes of approximately $12,208,000 which
expire in the years 1996 to 2010. It is uncertain if benefits relating to
these deferred tax assets are realizable and accordingly, a valuation allowance
equal to the amount of such deferred tax assets has been recorded.
-8-
<PAGE> 9
6. COMMON STOCK
---------------------
Stock Option Plans
------------------
On February 16, 1990, the Board of Directors adopted the American
Business Computers Corporation 1990 Non-qualified Stock Option Plan (the "1990
Plan") for directors, officers and employees of the Company, its subsidiaries
and affiliates. The 1990 Plan was approved by the affirmative vote of the
Company's stockholders at the Annual Meeting on August 24, 1990 authorizing
500,000 shares. All granted options expire five years after grant date; all
options were granted at the fair market value at the date of the grant.
<TABLE>
<CAPTION>
Stock option transactions
under the 1990 plan: Officers' & Employees' Officers' & Employees' Directors' Directors'
Shares Under Option Shares Under Option Shares Under Option Shares Under Option
For Three Months Ended For Three Months Ended For Three Months Ended For Three Months Ended
July 29, 1995 July 30, 1994 July 29, 1995 July 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Outstanding, April 29, 1995 191,941 104,018 195,000 75,000
Granted 32,000 107,000 - 120,000
Exercised (1,585) - - -
Cancelled (91,500) - - -
------- ------- ------- -------
Outstanding, July 29, 1995 130,856 211,018 195,000 195,000
-------------- -------------- -------------- --------------
Exercise Price Per Share $1.63 to $3.44 $1.50 to $1.63 $1.25 to $3.25 $1.25 to $3.25
</TABLE>
Warrants
--------
On May 2, 1995, the Company granted David B. Hudson, V.P. - Domestic
Beverage Sales, and Keith P. Jordan, National Account Manager (both of ABC
Dispensing Technologies, Inc.), warrants to purchase 20,000 and 10,000
restricted shares of common stock, respectively, at $3.38 per share; the
warrants expire May 2, 2000.
On June 13, 1995, the Company initiated a private offering to sell 20
units of $25,000 10% Senior Subordinate Notes due June 1, 1998 and three year
redeemable warrants to purchase 12,500 shares of the Company's common stock at
$2 per share. The transaction was exempt from registration under the
Securities Act of 1933. The offering will extend to September 30, 1995. As of
July 29, 1996, 18 units have been issued under the offering, providing the
Company with $460,000 in proceeds, net of the original issue discount. The
notes include a repayment provision requiring the Company to apply 40% of the
net proceeds received by it from the sale of any of its Common Stock other than
Common Stock issued upon the exercise of employee, director, or consultant
stock options, to the pro-rata repayment of the Notes within sixty (60) days of
the receipt of such proceeds.
Shares Under Option
<TABLE>
<CAPTION>
For Three Months
Ended July 29, 1995
<S> <C>
Outstanding, April 29, 1995 1,275,000
Granted 255,000
Exercised (100,000)
Cancelled -
---------
Outstanding, July 29, 1995 1,430,000
==============
Exercise price per share $1.25 to $3.38
</TABLE>
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<PAGE> 10
7. OPERATING LEASES
-------------------------
For the three months ended July 29, 1995 and July 30, 1994, aggregate
rental expense for all operating leases, except those with terms of a month or
less, was $6,000, and $22,000, respectively.
8. RETIREMENT BENEFITS
----------------------------
The Company sponsors a 401(k) plan which covers substantially all
full-time employees. Eligible employees may contribute up to 15% of their
compensation to this plan. The Company has agreed to match participants'
contributions at the rate of 25 cents on the dollar up to a maximum of 3% of
the participants' compensation. The cost of the Company's matching
contribution for the three months ended July 29, 1995 and July 30, 1994
amounted to $3,000, and $2,000, respectively. The Company has the discretion
to make a profit-sharing contribution, but no such contribution has been made
by the Company.
9. CONTINGENCIES
----------------------
A. SECURITIES LITIGATION
On March 2, 1995 the Company reported it had reached a settlement with
the plaintiffs in a class action lawsuit, filed originally in 1991. The
Federal Court approved the settlement on June 16, 1995. The plaintiffs are
current and former shareholders who purchased shares during the period January
24, 1990 through August 1, 1991. The settlement provides for the payment to
the plaintiff class of a minimum aggregate of $6,500,000 in cash and shares of
the Company's common stock. The cash portion of the settlement will consist of
$1,850,000, of which approximately $1,400,000 has been funded by certain of the
named individual defendants who are current or former officers or directors,
with the Company funding the remaining $450,000 on June 8, 1995. The stock
portion of the settlement will consist of 1,550,000 shares of the Company's
common stock, subject to adjustment if the per-share price falls below $3.00 or
rises above $4.50. The Company will fund 150,000 shares, with the Pepsi-Cola
Company funding 1,000,000 shares and Hussmann Corporation funding 400,000
shares. Pepsi-Cola and Hussmann were co-defendants in the litigation. The
Company will grant common stock purchase warrants having a term of five years
to Pepsi for 500,000 shares and to Hussmann for 200,000 shares, at an exercise
price of $3.50 per share. The warrants are callable after three years if the
price of the Company's common stock is in excess of $10.00 per share.
Refer to Form 10-K for the fiscal year ended April 30, 1994 for more
information on this litigation.
B. CONTRACT LITIGATION
On December 22, 1994, the Company reported it had reached a definitive
settlement agreement with the Pepsi-Cola Company relating to litigation that
had been pending since 1993 in the United States District Court for the
Northern District of Ohio in Akron. The Company sought to recover damages for
substantial breaches of contract by Pepsi with respect to the development,
manufacture, and sales of the Omnitron, Minitron, Midtron, and Advanced
Omnitron soft drink dispensing systems. Pepsi has agreed for a period of five
years to offer its customers using the Company's beverage dispensing equipment
its standard marketing, merchandising or equipment allowances, which will help
the Company build its beverage dispensing sales. Pepsi has agreed to give any
application for approval of the Company's fountain equipment and soft drink
dispensing equipment fair consideration in accordance with its supplier
approval procedures, with Pepsi retaining the right to approve within its sole
discretion. Pepsi is also under no obligation to recommend, encourage, or
promote the sale or use of the Company's products.
Refer to Form 10-K for the fiscal year ended April 30, 1994 for more
information on this litigation.
As of September 8, 1995, Pepsi owned 2,000,000 common shares of the
Company, or 12.4% of the total outstanding stock. Subsequent to Pepsi's
funding of 1,000,000 shares to the Securities Litigation settlement, Pepsi's
ownership will be reduced to approximately 5.7%.
C. LEGAL FEE AND SETTLEMENT COST ACCRUAL
The estimated legal fees and settlement costs have been accrued for
both of the above actions. The accrual as of July 29, 1995 was $896,000. The
accrual as of April 29, 1995 was $1,498,000.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company reports on a fiscal year end on the Saturday closest to
April 30. Fiscal year 1996 will end on April 27. The quarters end on July 29,
1995, October 28, 1995, January 27, 1996 and April 27, 1996 respectively.
DESCRIPTION OF BUSINESS
ABC ("the Company") is a technology firm. Our core competence is our
ability to use existing technology and to create new technology to develop
dispensing systems and mechanisms. Our interpretation of dispensing systems
and the related technology is unrestricted. The Company is not limited to
dispensing liquids; the Company will dispense virtually any substance. The
Company is not limited to pneumatic or electronic technology, the Company will
utilize any technology including mechanical, electro-mechanical, hydraulic, and
sonic.
Dispensing pervades nearly every industry. Dispensing plays a key
role in some of the world's largest industries: for example, transportation,
medical/pharmaceutical, and food service, to name a few. In addition to a
growing, global demand for dispensing systems for fuel, drugs, and beverages,
there is a need for dispensing systems in the construction industry for
concrete additives, the graphics industry for printing ink, and the paint
industry for tints and bases. Everyday each of us uses water in our homes,
without thinking of it as a dispensing system--but it is. The industrial use
of water for cooling, heating, and cleaning also requires a dispensing system.
Dispensing systems are an ubiquitous part of most individual's and business'
daily routines. Dispensing occurs at the manufacturing, wholesale, retail
levels, and residential. The current trend in corporate downsizing could
create additional opportunities for outsourced research and development.
Our strategy is to develop dispensing systems and components in
partnership with industry leaders who have significant market shares and
effective marketing organizations. These new dispensing systems are to be
marketed by our business partners. Our joint efforts will maximize our
technological strengths and capitalize on the marketing strengths of our
industry leading partners.
As a research and development company, the Company faces certain
inherent risks: (1) new product ideas may not advance beyond the development
stage; (2) new products could be technically successful but fail commercially;
(3) successful new products could develop unplanned warranty expenses or face
recall; (4) new products could be replaced by more advanced competitive
products, and (5) sufficient funds may not be available to complete the
development of new products.
SIGNIFICANT EVENT
On July 17, 1995, the Company received a $7 million initial order for
its new Juice Dispenser. This is the largest single order the Company has ever
received and brought the Company's backlog to a record $9.4 million as of July
17, 1995. The microprocessor-driven system mixes and dispenses from juice
concentrates, ensuring a controlled mixture and an accurate, standard portion.
The Company filed for a patent on the controlling electronics and software.
Shipments of this new product are expected to begin in the November-December
1995 time-frame and are expected to spread over a period of 18 months.
QUARTER ENDED JULY 29, 1995 COMPARED TO QUARTER ENDED JULY 30, 1994
The net loss was $369,000 for the current quarter ("Q95") compared to
$224,000 for the same period last year ("Q94"). Q95 total revenues were
$1,198,000 compared to Q94 total revenues of $1,229,000.
<TABLE>
<CAPTION>
Equipment/royalty sales: Q95 Q94
<S> <C> <C>
Paint dispensers $763,000 $ 777,000
Soft drink dispensers 127,000 141,000
ComputerBar dispensers 15,000 95,000
-------- ----------
$905,000 $1,013,000
</TABLE>
The variance in ComputerBar revenues is due to the sporadic nature of
incoming orders for this product line. Typically, 1-2 orders of widely varying
size are received each quarter.
<TABLE>
<CAPTION>
Services/component sales: Q95 Q94
<S> <C> <C>
Paint $163,000 $ 85,000
Beverage 106,000 94,000
Other 24,000 37,000
-------- --------
$293,000 $216,000
</TABLE>
-11-
<PAGE> 12
The increase in Paint services/component sales is due to the increased
number of installed paint dispensers now being serviced in Q95 versus Q94. On
February 13, 1995, the Company received a $990,000 initial order of "TAC-CB"
units, the down-sized, lower-cost tint dispenser designed expressly for paint
retailers and chains. The TAC-CB was in joint development for two years with
Sherwin-Williams. The Company began shipping this new unit in May 1995.
On April 3, 1995 the Company received a $1,856,000 reorder of the
"Tint-A-Color" tint dispenser from Sherwin-Williams. The Company began shipping
this order in July 1995.
The history of Tint-A-Color orders and shipments is as follows:
<TABLE>
<CAPTION>
Order dates Ship dates Sales Volume
<S> <C> <C>
February 1993 April-October 1993 $1,637,000
June 1993 October 1993-February 1994 $1,663,000
March 1994 June-October 1994 $1,659,000
April 1995 July-October 1995 $1,856,000
</TABLE>
At the end of Q95, the combined backlog of TAC and TAC-CB was
$2,171,000. This entire backlog is expected to ship in the second quarter
ending October 28, 1995.
The Company's gross profit on overall equipment sales was 25.1% in Q95
as compared to 29.2% in Q94 due to a difference in product mix. Paint
equipment sales in Q95 were comprised of primarily TAC-CB units which carry a
lower price and lower margin than TAC units. Q94 paint equipment sales were
comprised of entirely TAC units.
General and administrative expenses increased 6% from Q94 primarily as
a result of increased public entity related costs, such as increased public
relation expenses.
Selling and marketing expenses increased 19% from Q94 with the
following additions: (1) In November 1994, Randolph D. Letsch was recruited as
V.P. Paint Sales of ABC Dispensing Technologies, Inc., the Company's operating
subsidiary. Mr. Letsch joined the Company from Sherwin-Williams where he was
Director of Sales, OEM and National Accounts, a position he held since 1986.
The Company's intent was to acquire marketing expertise needed to expand the
commercialization of paint dispensing both domestically and internationally;
(2) In February 1995, the Company promoted David B. Hudson to V.P. Sales -
Domestic Beverage Equipment of ABC Dispensing Technologies, Inc. to enhance the
beverage marketing efforts; (3) In March 1995, the Company recruited Keith P.
Jordan from Pepsi-Cola Company, Houston, to enhance both beverage and new
product marketing efforts; (4) an international marketing effort has begun for
both paint and beverage products.
Research and development expenses increased 90% from Q94 as a result
of increased new product development activity. Numerous dispensing
applications were under development during FY95 and these development projects
have continued into FY96. The Juice Dispenser and TAC-CB were two such
projects.
SALES BACKLOG
At the end of Q95, sales order backlog (unshipped product orders) was
$9,327,000. at the end of Q94, backlog was $997,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $164,000 as of July 29, 1995
from $1,309,000 as of April 29, 1995. Litigation settlement and fee payments
(see Note 9 to Consolidated Financial Statements) required $602,000 during the
quarter. The Company has a remaining accrual of $896,000 for additional
estimated litigation settlement costs and fees to be incurred in the second and
third quarters.
Operations required an additional $979,000; the two major reasons
were: (1) the Company acquired production inventory to fill the backlog of
TAC-CB and TAC orders; net inventories increased $434,000, (2) with the
increase in shipments, accounts receivable increased $635,000 during the
quarter.
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To aid in financing this cash demand during this growth quarter, the
Company issued $460,000 in 10% senior subordinated notes ("bridge loan") due
June 1, 1998. Each unit ($25,000) of this note was granted 12,500 three-year
warrants at an exercise price of $2.00. Interest payments are due
semi-annually on June 1 and December 1. The Company also agreed to use 40% of
the net proceeds of the issuance of Common Stock (other than via
employee/director stock options) to prepay the notes within 60 days of the
receipt of such proceeds.
Additional financing was received via the exercise of 100,000 warrants
for the purchase of 100,000 common shares at the exercise price of $2.00 per
share for a total of $200,000. These warrants were acquired in the
August-September 1994 private placement of 1 million common shares. (See Note 6
to the Consolidated Financial Statements).
The Company has excellent relationships with its suppliers and was
able to gain extended payment terms as a result. The Company intends to secure
short-term financing (credit line) to reduce the dependence on suppliers.
Fiscal year 1996 is a growth year for the Company. The first quarter
revenues and current backlog of orders is approximately 3 times the total
revenues of the Company for Fiscal year 1995. The Company must complete the
development of certain new products, acquire inventory, build and ship finished
products, and collect its receivables to complete each business cycle. The
Company also anticipates the need for capital expenditures, mostly R&D related,
in the range of $300,000 to $600,000 for Fiscal year 1996. This will require
additional funding. During this growth period, the Company has sought
additional alternative sources of cash through:
a. Accounts receivable and inventory credit lines
b. Private placements
c. Warrant exercises
d. Employee/director stock option exercises
If the above sources of cash do not become available or are not
sufficient, the Company may be forced to curtail R&D activities which would
adversely affect future operating results.
Of the 20 million authorized shares of common stock, 16 million are
issued and outstanding, 2.2 million are committed for warrants, 400,000 are
committed for employee/director stock options, and 150,000 is committed to the
class action settlement fund. Approximately 1.2 shares remain uncommitted. The
Company will seek authorization in the upcoming Proxy from the shareholders for
additional shares of common stock.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
--------------------------
A. SECURITIES LITIGATION
On March 2, 1995 the Company reported it had reached a settlement with
the plaintiffs in a class action lawsuit, filed originally in 1991. The
Federal Court approved the settlement on June 16, 1995. The plaintiffs are
current and former shareholders who purchased shares during the period January
24, 1990 through August 1, 1991. The settlement provides for the payment to
the plaintiff class of a minimum aggregate of $6,500,000 in cash and shares of
the Company's common stock. The cash portion of the settlement will consist of
$1,850,000, of which approximately $1,400,000 has been funded by certain of the
named individual defendants who are current or former officers or directors,
with the Company funding the remaining $450,000 on June 8, 1995. The stock
portion of the settlement will consist of 1,550,000 shares of the Company's
common stock, subject to adjustment if the per-share price falls below $3.00 or
rises above $4.50. The Company will fund 150,000 shares, with the Pepsi-Cola
Company funding 1,000,000 shares and Hussmann Corporation funding 400,000
shares. Pepsi-Cola and Hussmann were co-defendants in the litigation. The
Company will grant common stock purchase warrants having a term of five years
to Pepsi for 500,000 shares and to Hussmann for 200,000 shares, at an exercise
price of $3.50 per share. The warrants are callable after three years if the
price of the Company's common stock is in excess of $10.00 per share.
Refer to Form 10-K for the fiscal year ended April 30, 1994 for more
information on this litigation.
B. CONTRACT LITIGATION
On December 22, 1994, the Company reported it had reached a definitive
settlement agreement with the Pepsi-Cola Company relating to litigation that
had been pending since 1993 in the United States District Court for the
Northern District of Ohio in Akron. The Company sought to recover damages for
substantial breaches of contract by Pepsi with respect to the development,
manufacture, and sales of the Omnitron, Minitron, Midtron, and Advanced
Omnitron soft drink dispensing systems. Pepsi has agreed for a period of five
years to offer its customers using the Company's beverage dispensing equipment
its standard marketing, merchandising or equipment allowances, which will help
the Company build its beverage dispensing sales. Pepsi has agreed to give any
application for approval of the Company's fountain equipment and soft drink
dispensing equipment fair consideration in accordance with its supplier
approval procedures, with Pepsi retaining the right to approve within its sole
discretion. Pepsi is also under no obligation to recommend, encourage, or
promote the sale or use of the Company's products.
Refer to Form 10-K for the fiscal year ended April 30, 1994 for more
information on this litigation.
As of September 8, 1995, Pepsi owned 2,000,000 common shares of the
Company, or 12.4% of the total outstanding stock. Subsequent to Pepsi's
funding of 1,000,000 shares to the Securities Litigation settlement, Pepsi's
ownership will be reduced to approximately 5.7%.
C. LEGAL FEE AND SETTLEMENT COST ACCRUAL
The estimated legal fees and settlement costs have been accrued for
both of the above actions. The accrual as of July 29, 1995 was $896,000. The
accrual as of April 29, 1995 was $1,498,000.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) EXHIBITS
4.1 Form of Senior Subordinate Promissory Note due June 1, 1998 issued in
connection with a private placement of the Registrants Securities (the
"1995 Private Placement").
4.2 Form of Common Stock Purchase Warrant issued in connection with the
1995 Private Placement.
10.1 Development and Manufacture Agreement dated July 27, 1992 between the
Company and The Sherwin-Williams Company relating to the Tint-A-Color
System.*
10.2 L.C.R.U. Tint System Development and Manufacture Agreement dated
September 14, 1993 between the Company and The Sherwin-Williams Company
relating to a lower priced, less automated version of the
Tint-A-Color System.*
10.3 Form of Warrant Agreement to be delivered by the Company to each of
PepsiCo, Inc., and Hussmann Corporation in connection with the
settlement of the Securities Litigation.
21.1 Subsidiaries of the Registrant.
24. Power of Attorney (see signature page).
99.1 Stipulation of Settlement entered as of March 13, 1995 in connection
with the Securities Litigation.
*A portion of this exhibit has been omitted pursuant to an application for
confidential treatment filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934,
as amended.
(b) REPORT ON FORM 8-K FILED IN THE QUARTER ENDED JULY 29, 1995.
Form 8-K was filed on July 3, 1995 to report the following events:
(1) On June 16, 1995, the United States District Court for the
Southern District of New York approved and adjudged as "fair, reasonable and
adequate" the terms of a settlement in a class action lawsuit, filed originally
in 1991. No objections to any aspects of the settlement were filed with the
Court prior to the entry of the Final Order of Judgement. With this
settlement, the Company has no further litigation pending against it. The
settlement provides for the payment to the plaintiff class of a minimum
aggregate of $6,500,000 in cash and shares in the Company's common stock. The
Company will contribute approximately $450,000 and 150,000 shares as its
portion of the settlement with the other defendants contributing the balance.
(2) On June 14, 1995, the Company offered 20 units of a Private
Placement (aggregating $500,000) to "Accredited Investors." Each unit
consisted of (a) a $25,000 10% Senior Subordinated Note due June 1, 1998 and
(b) a three year redeemable warrant to purchase 12,500 shares of the Company's
common stock at an exercise price of $2.00 per share. (The exercise price
could fall below $2.00 per share in year 3 under certain conditions.) Interest
payments on the Notes shall be made semi-annually on each June 1 and December 1
commencing December 1, 1995 at the rate of 10% per annum or, if the holder
elects to receive interest payments in Common Stock, at the rate of 12% per
annum. The Company will use 40% of the net proceeds of any future issuance of
the shares of Common Stock (other than shares issued to employees, directors,
consultants upon the exercise of Common Stock options) to prepay the Notes
within sixty (60) days of the receipt of such proceeds.
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<PAGE> 16
SIGNATURE
Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMERICAN BUSINESS COMPUTERS CORPORATION
-------------------------------------------
(REGISTRANT)
DATE: 9/13/95 GARY T. SALHANY
------------------- -------------------------------------------
Gary T. Salhany
Treasurer
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