<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________.
Commission file number: 0-14922
ABC DISPENSING TECHNOLOGIES, INC.
(Name changed from American Business Computers Corporation)
(Exact name of registrant as specified in its charter)
FLORIDA 59-2001203
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 KENNEDY ROAD AKRON, OHIO 44305
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(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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K: [ X ]
The aggregate market value of the voting stock held by non-affiliates
as of July 31, 1996 was $19,500,000.
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 July 31, 1996 was 17,109,160 shares.
Documents Incorporated by Reference
The Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders is incorporated by reference in Part III.
Total number of pags of this report: 27.
Index to Exhibits located on page 26.
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ITEM 1. BUSINESS
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CORE COMPETENCE
ABC's ("the Company") core competence is our ability to use existing
technology to create state-of-the-art dispensing systems. Our dispensing
systems have innumerable applications. Our dispensing systems are designed to
increase accuracy, efficiency, speed, flexibility, and functionality. Our
technology is transferable into any industry.
The Company concentrates on developing solutions for specific known
applications. The Company has a unique approach to creating new, innovative
solutions by combining first principles of physics with state-of-the-art
electronics. The Company designs its own computer controlled systems--both
hardware and software.
The core of our Company is our talented people and our 26 useful
patents and 14 patents pending. The Company is a technology and marketing firm.
However, two operational advantages the Company has over other technically
oriented firms are: (1) the ability to produce the systems we design, and (2)
our ability to offer field technical support (training, installation, and
emergency service).
NEW DIRECTIONS
ABC, as a technology firm, has, in the past, depended on our industry
partners to make our equipment commercially successful. The risk in this
approach is in our new technology itself, and our partners' ability, knowledge,
and motivation to market our equipment in a way favorable to ABC shareholders.
As of July 15, 1996 we began thoroughly examining the markets in which
we compete by inviting as many leaders in those markets as we can to DEFINE
their exact needs and problems, so we may design a more universally accepted
machine from our innovative concepts.
Marketing, market demand, and the customer will drive our R&D, Design,
and Commercialization. Exclusivity has restricted us in the past. Our new
mission focuses on driving an innovative dispensing solution through the broad
market in a universally and commercially viable fashion.
ABC will take advantage of strategic alliances with other companies
with whom we have had long standing relationships. We will exploit these
untapped opportunities so they are mutually profitable. Joint ventures and
co-production will grow the business and take advantage of economies of scale.
In addition to broadening the marketing of our equipment, we will
concentrate on maximizing our patent portfolio. This portfolio is a library of
useful technology. We will strive to sell and re-sell the various
configurations of that technology as useful parts and components to the wide
range of industries we may serve now--and in the future.
Our new mission embraces the concept of "milestone development." In
other words, we will discontinue R&D on new products at ABC's expense, based on
speculation of the possibility of a future order. We will work closely with
those companies who pay us in stages as we work from proof of concept through
field prototype to the ultimate, commercial version of the product. Generating
revenues in stages as we prove our ability helps ensure the commercial order or
alerts us early to the feasibility of the project. This method of R&D will help
keep expenses reasonable.
As we roll out new products, we will assist our customers and partners
in making their organizations comfortable and confident in their use of our
equipment and products. We will strive to assist them in making these products
commercially successful. We will support their effort with regard to
applications, maintenance, training, marketing, and sales.
We are dedicated to selling our dispensing technology at a profit--to
a wide range of industries.
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PRODUCTS
INDUSTRIAL
The Company sells two types of "tint" dispensers to The
Sherwin-Williams Company ("S-W"). Tints are color concentrates which are
typically dispensed into base white paints to create the entire spectrum of
colored paints. The first tint dispenser is an 11-tint system for high volume
retail paint stores, primarily earmarked for S-W company-owned stores. The
second dispenser is a lower priced, smaller, 11-tint system for lower volume
retail paint stores, primarily for S-W's private label customers.
Both S-W systems dispense tint precisely to meet pre-set color
formulas. These formulas are stored in the interfaced PC (computer). Both
systems also interface to "color matching" equipment which reads colored
surfaces and translates the reading into a PC color formula. These custom
formulas are then dispensed by our systems and saved by the PC for future
reference. This gives any consumer the ability to walk into an S-W store and
get the exact color they want...and come back later and match it.
Both tint dispensing systems offer cost, speed, size, and maintenance
advantages over competitive equipment.
In November 1995, we renegotiated our exclusivity contracts with S-W.
The tint equipment contract was extended to April 1997 and amended to allow us
to sell directly to retailers nationwide. As a result, we are introducing a
universal tint dispenser during calendar year 1996. This dispenser will meet
the needs of virtually all paint retailers in the U.S. and international
markets.
We also offer a high volume paint dispenser geared for industrial size
applications such as factory production line paint batching. This "Chemical
Coatings" system is designed to be "intrinsically safe" for dispensing solvent
based paints and other chemicals. Inks used in the printing industry are one of
the alternate applications of this technology. This Chemical Coating product
line offering is new, and we continue to develop its commercial use, calling on
industry leaders to match their needs.
During Fiscal Year 1996 ("FY96"), all paint product sales were
sales to The Sherwin-Williams Company, accounting for 80.9% of total Company
product revenues.
We placed two new industrial product offerings in field tests during
FY96. The first new industrial product is our "cement additives" dispenser,
which is being tested by a cement manufacturer for use by their concrete yards.
Cement additives are required by cement contractors to ensure a proper mix for
the variables of job type, weather, and other conditions.
The second new industrial product is a dairy farm antibacterial
sprayer, which combines two chemical elements in the form of a mist to
disinfect cows before the milking process begins. The antibacterial spray
itself is new and is being test-marketed along with our new sprayer.
Non-paint industrial product sales accounted for 0.2% of total Company
product revenues in FY96.
BEVERAGE
We currently market three types of beverage dispensers: juice, soft
drink, and liquor.
Our first juice dispenser entry generated a $7 million order in July
1995. We are poised to begin delivering this six ingredient dispenser in FY97.
We are joined in this venture by a national medical supplier and a juice
supplier. The juice supplier's product is a new preservative-free concentrate
which has been delayed due to quality and consistency problems. This new juice
concentrate is now being field tested simultaneously with our new juice
dispenser. This new combined product offering is being marketed by the national
medical supplier to hospitals, nursing homes, and other institutions. We are
assisting in the field test and planning for "roll-out."
Juice product sales accounted for 0.6% of total Company product
revenues in FY96.
We expect to introduce additional new juice dispensers in FY97. We
anticipate the juice market will be the highest growth segment for ABC within
the national beverage market in FY97.
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Our Classic (TM) line of soft drink dispensers evolved from the
original Omnitron (TM) system, which was developed for The Pepsi-Cola Company.
The advantages of this Classic line over conventional fountain dispensers are
speed, automatic portion control, reduced foam, control of carbonation and
flavor, and syrup savings. Our disadvantage is that the original cost of our
equipment is higher than conventional equipment. Our primary marketing success
has been in the theater industry, in which the advantages and subsequent
payback out-weigh the original cost disadvantage. We are looking for ways to
reduce the cost of our equipment.
Classic product sales accounted for 10.8% of total Company product
revenues in FY96.
Our UltraBar (TM) liquor dispensing system pours complex mixed drinks
quickly with a touch of the customized touch-sensitive drink menu. Advantages
are speed, accuracy, simplicity, full cash and inventory accountability, and
reduction of theft, spillage, overpours, errors, and giveaways.
Sales of UltraBar products accounted for 7.5% of total Company
product revenues in FY96.
Overall, total product sales accounted for 81.2% of total Company
revenues in FY96.
SERVICES
TECHNICAL SUPPORT
We offer the ability to perform on-site service for our installed base
of equipment in the U.S. We have committed to increase our head count of field
service technicians to improve our response time and reduce variable costs. We
also contract with third party service organizations to assist in servicing our
customers.
Service sales accounted for 15.1% of total Company revenues in FY96.
NEW PRODUCT DEVELOPMENT
We offer the ability to contract with new business partners to assist
in the development of new dispensing systems. As mentioned previously in our
"New Directions" section, we will develop new dispensers for emerging products
which require our technology; however, we will perform this development work in
phases, and each phase will generate revenues.
New product development sales accounted for 3.7% of total Company
revenues in FY96.
SALES BACKLOG
As of April 27, 1996, sales order backlog (unshipped product orders)
was $8.6 million, which includes the $7 million juice dispenser order received
on July 17, 1995. As of April 29, 1995, order backlog was $3.1 million.
INTERNATIONAL SALES
International sales for fiscal years 1996, 1995, and 1994 were 1, 3,
and 2 percent of total sales, respectively.
HUMAN RESOURCES
As of July 19, 1996, the Company had 49 full-time employees, the same
head count as last year. The Company has cash and stock option incentive plan
programs for substantially all full-time employees. The employees are not
represented by a union. Temporary workers are utilized in the production
process. A highly qualified labor pool exists in the immediate geographic area
should the Company need to expand our workforce.
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PATENTS
The Company has consistently sought patent protection for our
proprietary technology and products. To date, 26 patents are outstanding and an
additional 14 are pending. Patent coverage of our dispensing technology is
broad. Research and development expenditures for the fiscal years 1996, 1995,
and 1994 were $714,000, $606,000, and $386,000, respectively.
ENTITIES & FISCAL YEAR
"ABC" is comprised of three legal entities: the parent (public
entity)--ABC Dispensing Technologies, Inc. (a Florida corporation)
(NASDAQ:ABCC), the operating subsidiary--ABC Dispensing Technologies, Inc. (an
Ohio corporation), and a second subsidiary that holds the patents--ABC Tech
Corp. (an Ohio corporation).
"Fiscal Year 1996" ended April 27, 1996. The Company has adopted a
fiscal year ending on the Saturday closest to April 30. Each quarter consists
of 13 weeks.
ITEM 2. PROPERTIES
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The Company owns a single floor building of approximately 18,400
square feet of office, laboratory and production space located in Akron, Ohio.
The facility and adjacent land were purchased in June, 1994 by the Company from
Joseph W. Shannon, former Chairman of the Company, for $490,000. Prior to the
purchase, the facility and land were appraised for $535,000. The Company had
previously leased the facility from Mr. Shannon. This acquisition was partially
financed by a bank note; the balance on this note was $279,000 as of April 27,
1996.
The Company leases additional laboratory and warehouse space from
independent third parties on an as needed basis.
ITEM 3. LEGAL PROCEEDINGS
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On March 13, 1995, the Company and other defendants (officers and
directors and former directors of the Company) entered into a Stipulation of
Settlement (the "Settlement") with the Plaintiffs in a class action lawsuit
(the "Securities Litigation") that provided for the Settlement of the
Securities Litigation. The Settlement provided for a Gross Settlement Fund of
$1,850,000, plus 1,550,000 shares of the Company's common stock. The Company's
contribution to the Settlement Fund was $443,000 and 150,0000 shares. The
Stipulation defined the Plaintiff class as "all persons who purchased ABCC
common stock on the open market from January 24, 1990 through August 1, 1991,
inclusive." On June 19, 1995, the U.S. Federal District Court for the Southern
District of New York entered a Final Judgment approving the Settlement as
"fair, reasonable and adequate to members of the class." Pursuant to the terms
of the Final Judgment, on July 6, 1995, Plaintiffs' counsel were paid
attorneys' fees of $550,000 (plus $1,078 of accrued interest after taxes) on
the cash portion of the Settlement Fund and were reimbursed $244,394 for
expenses out of the Gross Settlement Fund. Plaintiffs' counsel also received
an aggregate of 465,000 shares of common stock of the Company awarded to
Plaintiffs' counsel from the Gross Settlement Fund as a portion of attorneys'
fees. These shares of common stock were distributed to Plaintiffs' counsel in
early February 1996.
On January 16, 1996, the U.S. Federal District Court ordered the
distribution by all defendants of the Net Settlement Fund consisting of
approximately $1,082,000 cash and 1,085,000 shares of common stock of the
Company to 1,469 authorized claimants. The distribution to authorized claimants
was made pursuant to the Order of the Court on about February 23, 1996. There
is no further action to be taken in connection with the Securities Litigation
since the Settlement has been effectuated in accordance with the Order of the
Court.
Refer to the Company's SEC Form 10-K for the fiscal year ended April
30, 1994 and the Company's SEC Form 10-Q for the period ended October 28, 1995
for additional information regarding the Securities Litigation.
The estimated legal fees and settlement costs have been accrued for
the above action. The remaining accrual as of April 27, 1996 was $95,000, as
certain legal fees remain unpaid. The accrual as of April 29, 1995 was
$1,498,000.
The Company presently is not involved as a defendant in any material
litigation.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The 1995 Annual Meeting of Shareholders of the Company was held at
Sheraton Suites, 1989 Front Street, Cuyahoga Falls, Ohio, on Friday, March 1,
1996, at 1:00 p.m. local time, for the following purposes:
1. To vote for the five (5) Director nominees to serve as Directors
until the 1996 Annual Meeting of Shareholders or until their successors are
elected and qualified:
Robert A. Cutting
Herbert L. Luxenburg
C. Rand Michaels
Herbert M. Pearlman
John E. Stieglitz
2. To consider and vote upon the adoption of the Company's 1995 Stock
Option Plan;
3. To consider and vote upon the change of the Company's name to "ABC
Dispensing Technologies, Inc."'
4. To consider and vote upon an increase in the number of shares of the
Company's authorized common stock to 50,000,000 shares;
5. To consider and vote upon reincorporation of the Company under the
laws of the State of Delaware by means of a merger of the Company into a newly
formed, wholly-owned subsidiary incorporated in the State of Delaware (the
"Merger").
The Shareholders voted "for" all the Director nominees listed above
and approved all the above proxy issues.
On July 15, 1996, Robert A. Cutting resigned from his position of
Director and Chief Executive Officer. The Company named Charles M. Stimac, Jr.,
as Director and Chief Executive Officer. Mr. Stimac, 44 years old, with more
than 20 years in the investment banking and brokerage industry with extensive
experience in sales and marketing, formerly was a Vice President with Roney &
Company, a member firm of the New York Stock Exchange.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
- -------------------------------------------------------------------------
MATTERS
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A. PRICE RANGE OF COMMON STOCK
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Bid and ask prices for the Company's common stock (symbol `ABCC') have
been quoted on the NASDAQ system since March 28, 1985. The table below shows
the range of bid prices of the common stock for the last two years as reported
by NASDAQ.
<TABLE>
<CAPTION>
COMMON STOCK (ABCC):
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Year Ended April 27, 1996 Prices: HIGH BID LOW BID
- --------------------------------------------------------------------------------
<S> <C> <C>
01/28/96 - 04/27/96 (Fourth Quarter) $2-1/8 $1-9/16
10/29/95 - 01/27/96 (Third Quarter) 3-3/16 1-7/8
07/30/95 - 10/28/95 (Second Quarter) 3-7/16 2-5/16
04/30/95 - 07/29/95 (First Quarter) 3-7/16 2-1/4
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK (ABCC):
- --------------------------------------------------------------------------------
Year Ended April 29, 1995 Prices: HIGH BID LOW BID
- --------------------------------------------------------------------------------
<S> <C> <C>
01/29/95 - 04/29/95 (Fourth Quarter) $3-1/2 $2-1/2
10/30/94 - 01/28/95 (Third Quarter) 3-3/4 2-3/4
07/31/94 - 10/29/94 (Second Quarter) 3-1/2 1-5/8
05/01/94 - 07/30/94 (First Quarter) 2-11/16 1-1/8
</TABLE>
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B. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
---------------------------------------------
<TABLE>
<CAPTION>
Approximate Number of
Record Holders
Title of Class (as of July 31, 1996)
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<S> <C>
Common Stock, $.01 par value 1,237
</TABLE>
C. DIVIDENDS
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The Company has never paid a dividend and has no current plans to do
so. Future dividend policy will be determined by the Board of Directors based
on the Company's earnings, financial condition, capital requirements, and other
existing conditions.
ITEM 6. SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED APRIL 27, APRIL 29, APRIL 30, APRIL 30, APRIL 30,
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
REVENUES (a) $ 5,312,000 $ 3,359,000 $ 5,010,000 $ 2,329,000 $ 2,971,000
NET LOSS $(1,324,000) $(2,681,000) $(1,378,000) $(3m359,000) $(3,440,000)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 16,414,000 15,669,000 14,155,000 13,820,000 13,801,000
NET LOSS PER SHARE $(0.08) $(0.17) $(0.10) $(0.24) $(0.25)
TOTAL ASSETS $4,020,000 $3,719,000 $4,190,000 $4,102,000 $6,886,000
LONG-TERM OBLIGATIONS $294,000 $278,000 $-0- $-0- $-0-
STOCKHOLDERS' EQUITY $1,085,000 $515,000 $2,194,000 $2,011,000 $5,323,000
DIVIDENDS DECLARED
PER SHARE OF COMMON STOCK $-0- $-0- $-0- $-0- $-0-
RESEARCH & DEVELOPMENT (a) $714,000 $606,000 $386,000 $391,000 $304,000
</TABLE>
(a) Research & Development costs for fiscal years 1993, 1994, 1995, and
1996 include costs subject to reimbursement under various agreements.
The amounts earned under these agreements are included in revenues for
the respective years.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company reports on a fiscal year which ends on the Saturday
closest to April 30. The current fiscal year ("FY96") ended April 27, 1996;
prior fiscal years ended April 29, 1995 ("FY95") and April 30, 1994 ("FY94").
SIGNIFICANT ORDER
On July 17, 1995, the Company received a $7 million initial order for
its new Institutional Juice Dispenser. This is the largest, single order the
Company has ever received. 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. This new Juice Dispenser is now in field test.
YEAR ENDED APRIL 27, 1996 COMPARED TO YEAR ENDED APRIL 29, 1995
The net loss was $1,324,000 for FY96 compared to $2,681,000 for FY95.
FY96 includes $366,000 positive adjustment as a result of the securities
litigation settlement. FY95 included a $1 million accrual for final settlement
costs and legal expenses. Total revenues for FY96 were $5,312,000 compared to
FY95 $3,359,000 revenues:
<TABLE>
<CAPTION>
Product sales: FY96 FY95
<S> <C> <C>
Industrial dispensers $3,500,000 $1,689,000
Beverage dispensers 814,000 854,000
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$4,314,000 $2,543,000
Service and development sales:
Industrial $ 474,000 $ 390,000
Beverage 524,000 426,000
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$ 998,000 $ 816,000
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Total Revenues: $5,312,000 $3,359,000
========== ==========
</TABLE>
The increase in industrial product sales is due to the increase in
shipments of tint dispensers to The Sherwin-Williams Company ("SW"). In
February 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. The TAC-CB was in joint development for two years with SW. The
Company shipped this order in May-October 1995. In December 1995, the Company
received a $1,758,000 order for TAC units.
The FY96 and FY95 history of Tint-A-Color orders and shipments is as follows:
<TABLE>
<CAPTION>
Model ORDER DATES SHIP DATES SALES VOLUME
- ----- ----------- ---------- ------------
<S> <C> <C> <C>
TAC March 1994 June-October 1994 $1,659,000
TAC-CB February 1995 May-October 1995 $ 990,000
TAC April 1995 July-October 1995 $1,856,000
TAC December 1995 April-July 1996 $1,758,000
</TABLE>
The FY96 gross profit on tint equipment sales was 29.2% as compared to
30.9% for FY95. The FY96 gross profit on beverage equipment sales was 39.8%
compared to 21.3% for FY95. The FY95 margin was affected by a $150,000
write-off of obsolete inventory; lowering the profit margin from 35.6% to
21.3%. The Company reviews the slow moving inventory items each quarter to
determine if an adjustment to the obsolescence reserve is required.
General and administrative expenses increased 5% primarily due to
adding (1) public relations personnel, (2) chairman's salary and office
support, and (3) supplemental legal counsel for public company matters.
Selling and marketing expenses increased 33% due to the international
marketing effort for both paint and beverage products.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YEAR ENDED APRIL 27, 1996 COMPARED TO YEAR ENDED APRIL 29, 1995 (CONTINUED)
Research and development expenses increased 18% as a result of
increased new product development activity. Numerous dispensing applications
were under development during FY96 and these development projects have
continued into FY97. These projects produced such new products as the
institutional juice dispenser, chemical coatings dispenser, and the cement
additives dispenser, to name a few.
The distribution of the Class Action settlement fund (see Note 12 to
the Consolidated Financial Statements) and the final valuation of the Company's
contributed common stock to the fund has allowed the Company to lower the
accrual for settlement costs and legal expenses by $366,000. The Company had
originally accrued $1,000,000 in FY95 to record estimated remaining settlement
costs and legal fees. The remaining accrual is now $95,000, which provides for
final payment of legal fees.
On December 11, 1995, the Company announced it had renegotiated
exclusivity contracts for the domestic paint and chemical coatings industries.
The paint contract was extended to April 1997 and amended to allow the Company
to market both high volume and small-scale automated paint dispensers directly
to paint retailers nationwide. Previously, the Company relied on S-W to market
the above dispensing systems.
In the chemical coatings market, the Company's technology offers
state-of-the-art efficiency and accuracy for dispensing precise measurements of
coatings and is designed to be intrinsically safe for dispensing solvent-based
chemicals. The Company's renegotiated chemical coatings agreement allows it to
market its unique dispensing system directly to automotive, printing, paint,
and other potential customers in North America. As a result of the release from
S-W exclusivity, the Company has agreed to rebate to S-W the $175,000 research
and development costs incurred by S-W. The Company has capitalized this cost as
an intangible asset and is amortizing this asset on a straight line basis over
a period of three years. The amortization expense during FY96 was $29,000.
SALES BACKLOG
As of April 27, 1996 sales order backlog (unshipped product orders)
was $8.6 million, which includes the $7 million Juice Dispenser order received
on July 17, 1995. As of April 29, 1995, order backlog was $3.1 million.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $488,000 as of April 27, 1996
from $1,309,000 as of April 29, 1995. Class Action settlement and fee payments
(see Note 12 to Consolidated Financial Statements) required $590,000 this year.
The Company also contributed 150,000 shares of common stock to the Class Action
settlement fund.
Operations required cash of $2,814,000. To aid in financing the cash
demands during this growth year, in June 1995. The Company issued $475,000 in
10% senior subordinated three year notes ("bridge loan"). Each unit ($25,000)
of this note was granted 12,500 three-year warrants at an exercise price of
$2.00. Interest payments were 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. The notes were paid in full in
February 1996.
In September 1995, the Company sold 278,000 registered common shares
at $2.25 per share in domestic private placements, for net proceeds of
$593,000. The Company also sold 291,667 restricted common shares at $1.20 per
share in a single foreign private placement in April 1996, for net proceeds of
$316,000.
Additional financing was received, throughout the year, via the
exercise of 214,000 warrants for the purchase of 214,000 common shares at the
exercise price of $2.00 per share for a total of $428,000. These warrants were
distributed in the August-September 1994 private placement of 1,000,000 common
shares.
In January 1996, the Company borrowed $500,000 from the Mezzanine
Financial Fund, L.P., a related party. This note is an asset-based 3-year
term loan of $500,000 bearing 18% A.P.R. Details of this loan are disclosed
in Note 5 to the Consolidated Financial Statements. The Company intends to
retire this debt during FY97 from the issuance of stock and the proceeds of
private placements.
In January 1996, the Company also has established an account
receivable-based credit line of $750,000 with Foothill Capital Corporation.
This credit line bears an interest rate of prime plus four points. This credit
line has been utilized since March 1996, and $458,000 was available under the
line at year end.
Fiscal year 1996 was a growth year for the Company. The year to date
revenues and backlog of orders is approximately 4 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 receivable to complete each business cycle. During this growth
period, the Company will utilize various funding alternatives; including: (1)
Accounts receivable credit lines, (2) Asset-based term loans, (3) Private
placements, (4) Warrant exercises, and (5) 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 marketing and R&D activities
which would adversely affect future operating results.
The current ratio was 1.09:1.0 as of April 27, 1996, compared to
.96:1.0 as of April 29, 1995.
At the Annual Stockholders meeting held March 1, 1996, the proposal to
increase the number of authorized common stock from 20,000,000 to 50,000,000
shares was approved.
1996 AUDIT
Ernst & Young, L.L.P. has audited the consolidated balance sheets of
the Company as of April 27, 1996 and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the three years in
the period ended April 27, 1996. In its report of August 8, 1996 to the Board
of Directors and of the Company it is stated that the financial statements have
been prepared assuming that the Company will continue as a going concern.
However, their report states that the "history of operating losses and limited
capital resources raise substantial doubt" about the Company's ability to
continue as a going concern (see Note 3 to the Consolidated Financial
Statements). Management recognizes the need to increase sales and raise
additional capital and has plans and programs intended to accomplish these
goals.
-10-
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
YEAR ENDED APRIL 29, 1995 COMPARED TO YEAR ENDED APRIL 30 1994
The net loss was $2,681,000 for FY95 compared to $1,378,000 for FY94.
Decreased revenues and the $1 million accrual for legal settlement expenses and
fees were responsible for the increased loss.
FY95 total revenues were $3,359,000 compared to FY94 total revenues of
$5,010,000. The decline in revenues was due primarily to reduction in shipments
of Tint-A-Color paint dispensers in FY95.
<TABLE>
<CAPTION>
Product Sales: FY95 FY94
<S> <C> <C>
Industrial dispensers $1,689,000 $3,408,000
Beverage dispensers 854,000 857,000
Other - 95,000
---------- ----------
$2,543,000 $4,360,000
</TABLE>
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-Feb 1994 $1,663,000
March 1994 June-October 1994 $1,659,000
April 1995 July-October 1995 $1,856,000
</TABLE>
The Company's gross profit on overall equipment sales decreased from
25.3% in FY94 to 21.8% in FY95 due to the $150,000 inventory obsolescence
reserve writeoff taken in the third quarter for slow-moving beverage products.
Without this additional reserve, the gross margin on overall equipment sales
for FY95 was 27.7%.
The Company offers technical field support for its products. Revenues
from this field support group was $686,000 for FY95 compared to $590,000 for
FY94.
General and administrative expenses increased 5% from FY94 primarily
as a result of increased public entity related costs, such as public relation
expenses.
Selling and marketing expenses increased 8% from FY94 due to 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.
Research and development expenses increased 57% from FY94 as a result
of increased new product development activity. (1) 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. (2) The activity-based costing system provides for any employee
incurring time on new product development to be accounted for as an "R&D
expense" regardless of their basic functional responsibilities. Therefore,
administrative personnel, if assigned a task on a new product development team,
can and have added to R&D expenses.
-11-
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES PAGE NO.
- -------------------------------------------------------------------------------------------------------
<S> <C>
REPORT OF INDEPENDENT AUDITORS 13
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of April 27, 1996 and April 29, 1995 14
Consolidated Statement of Operations for the Years ended April 27, 1996,
and April 29, 1995, and April 30, 1994 15
Consolidated Statement of Cash Flows for the Years ended April 27, 1996,
and April 29, 1995, and April 30, 1994 16
Consolidated Statement of Stockholders' Equity for the Years ended
April 27, 1996, and April 29, 1995, and April 30, 1994 17
Notes to Consolidated Financial Statements 18-23
SUPPLEMENTARY DATA:
Schedule II-Valuation and Qualifying Accounts 24
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
-12-
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ABC Dispensing Technologies, Inc.
We have audited the accompanying consolidated balance sheets of ABC Dispensing
Technologies, Inc. (name changed from American Business Computers Corporation)
as of April 27, 1996 and April 29, 1995 and the related consolidated statements
of operations, cash flows and stockholders' equity for each of the three fiscal
years in the period ended April 27, 1996. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ABC
Dispensing Technologies, Inc. at April 27, 1996 and April 29, 1995, and the
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended April 27, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 3, the Company's history of operating losses and limited capital resources
raise substantial doubt about its ability to continue as a going concern.
Managements' plans in regard to these matters are also described in Note 3. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that might result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Akron, Ohio
August 8, 1996
-13-
<PAGE> 14
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS APRIL 27, 1996 APRIL 29, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 488,000 $ 1,309,000
Accounts receivable, less allowance for doubtful accounts
of $136,000 in 1996 and $78,000 in 1995 (Note 5) 764,000 366,000
Inventories (Note 4) 1,703,000 1,219,000
------------ ------------
Total current assets 2,955,000 2,894,000
Property, plant, and equipment (Notes 5 and 10) 703,000 703,000
Other assets:
Intangible assets, less accumulated amortization of $480,000 in 1996
and $438,000 in 1995 169,000 37,000
Patents pending and deferred charges 193,000 85,000
------------ ------------
362,000 122,000
------------ ------------
TOTAL ASSETS $ 4,020,000 $ 3,719,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 875,000 $ 454,000
Line of credit (Note 5) 292,000 190,000
Note payable to related party (Note 5) 500,000 -
Current portion of long-term debt 25,000 10,000
Accrued liabilities:
Legal fees and settlement costs (Note 12) 148,000 1,635,000
Employee compensation and benefits 218,000 232,000
Warranty reserve 197,000 183,000
Other 353,000 202,000
Deferred income 33,000 20,000
------------ ------------
Total current liabilities 2,641,000 2,926,000
Long-term debt (Note 5) 294,000 278,000
Stockholders' equity (Note 7):
Common Stock, $.01 par value; authorized
50,000,000 shares; 16,984,160 shares issued
and outstanding (15,996,116 in 1995) 170,000 160,000
Additional paid-in capital 18,942,000 17,070,000
Retained earnings (deficiency) (17,882,000) (16,558,000)
------------ ------------
1,230,000 672,000
Less notes receivable - stockholders (146,000) (157,000)
------------ ------------
Total Stockholders' Equity 1,085,000 515,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,020,000 $ 3,719,000
============ ============
</TABLE>
See accompanying notes.
-14-
<PAGE> 15
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Products and services $ 5,057,000 $ 3,208,000 $ 4,710,000
Royalties 255,000 151,000 300,000
------------ ------------ ------------
5,312,000 3,359,000 5,010,000
Cost and expenses:
Products and services 4,610,000 3,053,000 4,583,000
General and administrative 1,106,000 1,049,000 999,000
Selling and marketing 540,000 406,000 375,000
Research and development 714,000 606,000 386,000
------------ ------------ -------------
6,970,000 5,114,000 6,343,000
------------ ------------ -------------
Loss from operations (1,658,000) (1,755,000) (1,333,000)
Other income (expense)
Securities and contract litigation
fees and settlement (Note 12) 366,000 (1,000,000) (50,000)
Investment income (loss) 78,000 77,000 (20,000)
Interest expense (134,000) (28,000) -
Other, net 24,000 25 ,000 25,000
------------ ------------ ------------
334,000 (926,000) (45,000)
------------ ------------ ------------
Net loss $ (1,324,000) $ (2,681,000) $ (1,378,000)
------------ ------------ ------------
Weighted average number of shares
outstanding 16,414,000 15,669,000 14,155,000
------------ ------------ ------------
Net loss per share $ (0.08) $ (0.17) $ (0.10)
------------ ------------ ------------
</TABLE>
See accompanying notes.
-15-
<PAGE> 16
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net loss $(1,324,000) $(2,681,000) $(1,378,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 110,000 99,000 139,000
Loss on disposal of assets - 6,000 88,000
Value of common stock issued to settle
litigation - 450,000 -
Changes in operating assets and liabilities:
Receivables (398,000) 220,000 (82,000)
Inventories (484,000) 129,000 681,000
Other assets (283,000) (13,000) 83,000
Accounts payable 421,000 149,000 (57,000)
Accrued liabilities (869,000) 163,000 (48,000)
Deferred income 13,000 (32,000) 10,000
----------- ---------- ----------
Total adjustments (1,600,000) 1,171,000 814,000
----------- ---------- ----------
Net cash used in operating activities (2,814,000) (1,510,000) (564,000)
INVESTING ACTIVITIES:
- ---------------------
Purchases of property, plant, and equipment (16,000) (671,000) (41,000)
Additions to patents - (11,000) (23,000)
----------- ---------- ----------
Net cash provided used in investing activities (16,000) (682,000) (64,000)
FINANCING ACTIVITIES:
- ---------------------
Proceeds from private placements 926,000 979,000 1,463,000
Proceeds from issuance of notes payable 1,267,000 490,000 -
Repayment of notes payable and loan costs (684,000) (12,000) -
Proceeds from stock issued for exercise of stock options
and warrants 500,000 23,000 98,000
----------- ---------- ----------
Net cash provided by financing activities 2,009,000 1,480,000 1,561,000
----------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (821,000) (712,000) 933,000
Cash and cash equivalents at beginning of year 1,309,000 2,021,000 1,088,000
----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 488,000 $1,309,000 $2,021,000
----------- ---------- ----------
</TABLE>
See accompanying notes.
-16-
<PAGE> 17
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended April 27, 1996, April 29, 1995, and April 30, 1994
<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 May 1, 1993 13,841,665 $138,000 $14,372,000 $(12,499,000) -
Private placements 1,077,343 11,000 1,452,000 - -
Exercise of stock options 62,031 1,000 97,000 - -
Net loss - - - (1,378,000) -
---------- -------- ----------- ------------ ---------
Balance at April 30, 1994 14,981,039 $150,000 $15,921,000 $(13,877,000) -
Private placements 1,000,000 10,000 1,126,000 - $(164,000)
Exercise of stock options 15,077 - 23,000 - -
Collection on notes receivable-
stockholders - - - - 7,000
Net loss - - - (2,681,000) -
---------- -------- ----------- ------------ ---------
Balance at April 29, 1995 15,996,116 $160,000 $17,070,000 $(16,558,000) $(157,000)
Private placements 569,667 6,000 909,000
Stock issued to settle litigation 150,000 1,000 466,000
Exercise of warrants 214,000 2,000 426,000
Exercise of stock options 54,377 1,000 71,000
Collection on notes receivable-
stockholders 11,000
Net loss - - - (1,324,000) -
---------- -------- ----------- ------------ ---------
16,984,160 $170,000 $18,942,000 $(17,882,000) $(146,000)
---------- -------- ----------- ------------ ---------
</TABLE>
See accompanying notes.
-17-
<PAGE> 18
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
ABC Dispensing Technologies, Inc. (name changed from American Business
Computers Corporation) designs proprietary dispensing systems which dispense
and blend liquids, powders and other ingredients to a uniform and high degree
of accuracy. The Company provides training, installation and product service
and also custom designs and manufactures its own proprietary dispensing
equipment to meet the needs of its customers which are located primarily in the
United States. To date, the Company has developed and is marketing dispensing
systems for the beverage, paint, chemical coatings, cement additives, and
animal-husbandry industries.
2. SIGNIFICANT ACCOUNTING POLICIES
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 ending
on April 27 and April 29, respectively. Fiscal 1994 was a calendar year end.
References to the years 1996, 1995 and 1994 refer to fiscal years ended April
27, 1996, April 29, 1995 and April 30, 1994, respectively.
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.
USE OF ESTIMATES - The preparation 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. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
FINANCIAL INSTRUMENTS - The carrying value of the Company's cash, accounts
receivable, accounts payable and notes payable are a reasonable estimate of
their fair value due to the short-term nature of these instruments. The
Company's long-term debt has variable interest rates and carrying value
approximates fair value at April 27, 1996.
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 - Property, plant and equipment are carried at
cost. Depreciation is provided primarily by use of the straight-line method
over the estimated useful lives of the assets, which are five years for
machinery and equipment and thirty years for buildings.
INTANGIBLE ASSETS - Intangible assets consist of patents and purchased selling
rights which are recorded at cost. Amortization is provided using 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 72, 59
and 70 percent of the Company's total revenues, for 1996, 1995 and 1994,
respectively.
PROVISION FOR WARRANTY CLAIMS - Estimated warranty costs are provided at the
time of sale of the warranted products.
STOCK-BASED COMPENSATION - The Company grants stock options for a fixed number
of shares to employees generally with an exercise price equal to the fair value
of the shares at the date of grant. The Company accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, " and, accordingly, recognizes no
compensation expense for the stock option grants.
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
shares outstanding.
-18-
<PAGE> 19
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." This requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amounts. The Company will adopt SFAS 121 in the
first quarter of fiscal 1997 and does not believe the effect of adoption will
be material.
RECLASSIFICATIONS - Certain reclassifications have been made to prior year
amounts to conform with current year classifications.
3. GOING CONCERN UNCERTAINTY
The Company has reported a net loss for each year of operation since its
inception except for 1989 and as of April 27, 1996 has an accumulated deficiency
of $17,882,000. The Company's cash flow from operating activities was a negative
$2,814,000 in 1996 and a negative $1,510,000 in 1995, and cash and cash
equivalents declined from $2,021,000 at the beginning of fiscal 1995 to $488,000
at April 27, 1996. Management expects that the Company will continue to incur
losses and use cash in operations in the near future. Fiscal 1997 operations
through June 29, 1996 have resulted in a net loss of $329,000.
Management recognizes the Company must generate additional funds to assure
continuation of operations. The Company has been successful in raising capital
from private investors and raised $3,368,000 over the past three years through
private placements. The Company is in the process of a private placement
offering to raise $2 million through 9% Senior Subordinated Debentures which are
convertible into common stock at $1.50 per share. Proceeds from this offering
will be used to repay a portion of the note payable from Mezzanine Financial
Fund, L.P., reduce accounts payable and provide additional working capital. No
assurances can be given that the Company will be successful in raising
additional capital. Further, there can be no assurance, assuming the Company
successfully raises additional funds, that the Company will achieve profitable
operations or positive cash flow. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. No adjustments to the
amounts or classification of assets and liabilities which could result from the
outcome of this uncertainty are reflected in the consolidated financial
statements.
4. INVENTORIES
At April 27, 1996 and April 29, 1995, inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw Materials $ 729,000 $ 527,000
Work-in-process 488,000 207,000
Finished goods 486,000 485,000
---------- ----------
$1,703,000 $1,219,000
========== ==========
</TABLE>
The above amounts are net of obsolescence reserves of $985,000 and $943,000 at
1996 and 1995, respectively.
5. FINANCING ARRANGEMENTS
Notes Payable
In June 1994, the Company purchased its headquarters facility in Akron, Ohio
for $490,000. A note payable was entered into during fiscal 1995 to partially
finance this purchase which was previously leased from the former chairman (see
footnote 7). The note payable has an adjustable interest rate (9.25% at April
27, 1996 and April 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. At April 27, 1996 the facility has a net book value of
$462,000.
-19-
<PAGE> 20
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FINANCING ARRANGEMENTS (CONTINUED)
At April 27, 1996 and April 29, 1995, notes payable consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Note payable to bank $278,000 $288,000
Other 41,000 -
-------- --------
319,000 288,000
Less amounts due within one year (25,000) ( 10,000)
-------- --------
Total long-term debt $294,000 $278,000
======== ========
</TABLE>
Maturaties of notes payable for the five years subsequent to April 27,
1996 are as follows: 1997--$25,000; 1998--$30,000; 1999--$24,000; 2000--$15,000
and 2001--$16,000.
Interest paid by the Company approximates interest expense for 1996 and 1995.
Mezzanine Note
On January 17, 1996, the Company obtained a $500,000 working capital
asset-secured loan from the Mezzanine Financial Fund, L.P. ("Mezzanine").
Interest is due monthly at the rate of 18% per annum. The terms of the loan
agreement require a $100,000 repayment of principal on each of the first and
second anniversaries of the closing of the loan. The balance of $300,000 is due
on the third anniversary. Mezzanine, at its option, may convert the principal
amount of the loan into common stock at a price of $3.00 per share, or, if the
entire loan is converted, 166,666 shares of common stock (including standard
anti-dilution provisions). In consideration for providing the loan, Mezzanine
received a five (5) year warrant to acquire shares of common stock at a price
equal to the lower of seventy percent (70%) of the 30-day average trading price
prior to closing of the loan, or $2.50 (the "Price"). The warrant exercise
price was therefore determined to be $2.04 per share. The number of shares
subject to the warrant will be determined by dividing the Price into an amount
equal to 10% of the average annual loan balance multiplied by the number of
years the loan is outstanding (the "Warrant Fee"). The resulting maximum number
of warrants that could be issued are 58,910. At Mezzanine's election, all or
any part of the Warrant Fee may be put to the Company upon repayment of the
loan for payment in cash in the amount equal to 70% of such Warrant Fee, paid
in equal monthly payments over the same number of months that the loan was
outstanding. Additionally, Mezzanine received a closing fee equal to 2% of the
amount of the loan and reimbursement for expenses associated with the making of
the loan. (See Note 13 regarding subsequent activity on this loan).
Herbert M. Pearlman, Chairman of the Board of Directors of the Company, is a
director, officer and principal stockholder of the general partner of
Mezzanine. Mr. Pearlman is also Chairman, chief executive officer and a
principal stockholder of Helm Resources, Inc., a publicly traded company which
holds an approximately 14% equity stake in Mezzanine.
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. Nineteen units were issued under the offering, providing the Company with
$475,000 in proceeds. The notes included 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. As a result of this
repayment provision the notes were paid in full on February 16, 1996.
Line Of Credit
On December 18, 1995, the Company established a $750,000 line of credit secured
by accounts receivable and other assets of the Company. At April 27, 1996,
$292,000 was outstanding and $458,000 of the line of credit was available. The
line of credit bears an interest rate of prime plus four points (12.25% at
April 27, 1996, which equals the weighted-average interest note for the period).
-20-
<PAGE> 21
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INCOME TAXES
Effective May 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes." The change had no impact on the accompanying financial
statements. 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 taxes at April 27, 1996 and
April 29, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 5,450,000 $ 4,709,000
Inventories 495,000 447,000
Other 255,000 363,000
----------- -----------
Total deferred tax asset 6,200,000 5,519,000
Valuation allowance for deferred taxes (6,200,000) (5,519,000)
----------- -----------
Net deferred taxes $ -0- $ -0-
=========== ===========
</TABLE>
At April 27, 1996 and April 29, 1995, the Company had Federal net operating loss
carryforwards for tax reporting purposes of approximately $14,800,000 which
expiresin the years 1997 to 2011. 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.
7. COMMON STOCK
STOCK OPTION PLANS
- ------------------
The Company has a non-qualified stock option plan which provides for the
issuance of up to 500,000 shares of common for non-employee directors, officers
and other key employees. All granted options are exercisable after six months
from the grant date provided the employee has at least one year of service.
Grant options expire five year after grant date, and all options were granted at
fair market value at the date of the grant.
Stock option transactions and prices are summarized as follows:
<TABLE>
<CAPTION>
OFFICERS' & EMPLOYEES' SHARES UNDER OPTION DIRECTORS' SHARES UNDER OPTION
FOR YEAR ENDED FOR YEAR ENDED FOR YEAR ENDED FOR YEAR ENDED
APRIL 27, 1996 APRIL 29, 1995 APRIL 27, 1996 APRIL 28, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 191,941 104,018 195,000 75,000
Granted 112,250 119,500 - 120,000
Exercised (14,377) (15,077) (40,000) -
Canceled (95,500) (16,500) (25,000) -
------- ------- ------- -------
Outstanding, end of year 194,314 191,941 130,000 195,000
------- ------- ------- -------
Exercise price per share $1.50 to $3.44 $1.50 to $3.44 $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, 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 (See Note 5).
On August 1, 1995, the Company granted warrants to Herbert M. Pearlman,
Chairman (200,000 at $3.00 per share), Robert A. Cutting, former President
(100,000 at $3.00 per share), and others (30,000 ranging from $2.00 to $3.00).
-21-
<PAGE> 22
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMON STOCK (CONTINUED)
On September 14, 1995, the Company issued 200,000 warrants at $3.50 per share
to Hussmann Corporation pursuant to the securities litigation settlement (see
footnote 12 to the Consolidated Financial Statements).
On November 1, 1995, the Company issued 500,000 warrants at $3.50 per
share to Pepsi-Cola Company pursuant to the securities litigation settlement
(see footnote 12).
On December 11, 1995, the Company issued 30,000 warrants at $2.25 per share
pursuant to a sale of common stock.
On January 17, 1996, the Company issued 58,910 warrants at $2.04 per share to
Mezzanine Financial Fund L.P. pursuant to the debt financing received by
Mezzanine (see footnote 5)
Warrant shares under and prices for the years ended April 27, 1996 and April
29, 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Outstanding at beginning of period 1,275,000 -
Granted 1,386,410 1,275,000
Exercised (214,000) -
Canceled - -
--------- ---------
Outstanding at end of period 2,447,410 1,275,000
--------- ---------
Exercise price per share $1.25 to $3.50 $2.00 to $3.50
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company leases office space for Herbert M. Pearlman from Helm
Resources, Inc. for approximately $21,000 per year. The lease is a
month-to-month lease cancelable at any time. Mr. Pearlman is Chairman, chief
executive officer and a principal stockholder of Helm Resources Inc. (see
footnote 4).
On June 24, 1994 the Company purchased the headquarters facility from Mr.
Joseph W. Shannon, former Chairman of the Company, for $490,000. The Company
had previously leased the facility from Mr. Shannon.
9. OPERATING LEASES
Aggregate rental expense for fiscal years 1996, 1995 and 1994 was $60,000,
$13,000 and $82,000, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at April 27, 1996 and
April 29, 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land $ 57,000 $ 57,000
Building and building improvements 572,000 572,000
Machinery and equipment 865,000 799,000
---------- ----------
1,494,000 1,428,000
Less accumulated depreciation (791,000) (725,000)
---------- ----------
$ 703,000 $ 703,000
========== ==========
</TABLE>
-22-
<PAGE> 23
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RETIREMENT BENEFITS
The Company sponsors a 401(k) plan which covers substantially all full-time
employees. Eligible employees may contribute up to 14% 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 4% of the participants'
compensation. The cost of the Company's matching contribution was approximately
$9,000 in each year during 1996, 1995 and 1994. The Company has the discretion
to make a profit-sharing contribution, but no such contribution has been made
by the Company.
12. LITIGATION SETTLEMENT/CONTINGENCIES
On March 13, 1995, the Company and other defendants (officers and directors and
former directors of the Company) entered into a Stipulation of Settlement (the
"Settlement") with the Plaintiffs in a class action lawsuit (the "Securities
Litigation") that provided for the Settlement of the Securities Litigation. The
Settlement provided for a Gross Settlement Fund of $1,850,000, plus 1,550,000
shares of the Company's common stock. The Company's contribution to the
Settlement Fund was $443,000 and 150,000 shares. The Stipulation defined the
Plaintiff class as "all persons who purchased ABCC common stock on the open
market from January 24, 1990 through August 1, 1991, inclusive." On June 19,
1995, the U.S. Federal District Court for the Southern District of New York
entered a Final Judgment approving the Settlement as "fair, reasonable and
adequate to members of the class." Pursuant to the terms of the Final Judgment,
on July 6, 1995, Plaintiffs' counsel were paid attorneys' fees of $550,000
(plus $1,078 of accrued interest after taxes) on the cash portion of the
Settlement Fund and were reimbursed $244,394 for expenses out of the Gross
Settlement Fund. Plaintiffs' counsel also received an aggregate of 465,000
shares of common stock of the Company awarded to Plaintiffs' counsel from the
Gross Settlement Fund as a portion of attorneys' fees. These shares of common
stock were distributed to Plaintiffs' counsel in early February 1996.
On January 16, 1996, the U.S. Federal District Court ordered the distribution
of the Net Settlement Fund consisting of approximately $1,082,000 cash and
1,085,000 shares of common stock of the Company to 1,469 authorized claimants.
The distribution to authorized claimants was made pursuant to the Order of the
Court on about February 23, 1996. There is no further action to be taken in
connection with the Securities Litigation since the Settlement has been
effectuated in accordance with the Order of the Court.
The estimated legal fees and settlement costs have been accrued for the above
action. At April 29, 1995, the accrual amounted to $1,498,000. During 1996,
$1,037,000 of this amount was settled in cash and securities, $366,000 was
reversed and credited to income and $95,000 remained in the accrual at April
27, 1996 to cover certain remaining legal fees.
The Company from time to time is subject to routine litigation incidental to
its business. The Company believes that any liability that may finally be
determined would not have a material adverse effect on its financial
statements.
13. SUBSEQUENT EVENTS
On July 24, 1996, the Company distributed 125,000 shares of common stock to The
Mezzanine Financial Fund, L.P. in satisfaction of $38,000 of interest charges
from May through September 1996 due Mezzanine under the credit facility it
provides the Company. Mezzanine will also credit the principal owned under the
credit facility to the extent that proceeds from the sale of these shares or the
market value of the shares at September 30, 1996 exceeds the amount of interest
due.
-23-
<PAGE> 24
ABC DISPENSING TECHNOLOGIES, INC. (CONSOLIDATED)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED APRIL 27, 1996
- -------------------------
Allowance for doubtful accounts $ 78,000 $ 40,000 $(18,000)(a) $136,000
======== ======== ======== ========
Allowance for inventory obsolescence $943,000 $ 80,000 $ 38,000(b) $985,000
======== ======== ======== ========
YEAR ENDED APRIL 29, 1995
- -------------------------
Allowance for doubtful accounts $128,000 $ 1,000 $ 51,000(a) $ 78,000
======== ======== ======== ========
Allowance for inventory obsolescence $816,000 $150,000 $ 23,000(b) $943,000
======== ======== ======== ========
YEAR ENDED APRIL 30, 1994
- -------------------------
Allowance for doubtful accounts $157,000 $118,000 $147,000(a) $128,000
======== ======== ======== ========
Allowance for inventory obsolescence $712,000 $265,000 $161,000(b) $816,000
======== ======== ======== ========
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
(b) Inventory written off and disposed.
-24-
<PAGE> 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding the Directors and Executive Officers of the
Company is incorporated herein by reference from the Company's definitive Proxy
Statement of the Annual Meeting of Stockholders to be held September 1996.
Certain information concerning the Executive Officers is also included below:
NAME POSITION
---- --------
Herbert M. Pearlman Chairman of the Board of Directors
Charles M. Stimac, Jr. President and Director
Gary T. Salhany Treasurer
William Lerner Secretary
Mr. Herbert M. Pearlman has been Chairman of the Board of Directors of the
Company since September 1994, replacing Mr. Joseph W. Shannon, who was Chairman
from February 1986 to September 1994.
Mr. Charles M. Stimac, Jr. has been President of the Company since July
15, 1996, replacing Mr. Robert A. Cutting, who was President of the Company
since April 1990 and was President of the Company's wholly-owned subsidiary,
ABC Dispensing Technologies, Inc., since September 1986.
Mr. Gary T. Salhany, CPA, MBA, has been Treasurer of the Company since
August 1986.
Mr. William Lerner has been Secretary of the Company since September 1994.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held September 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held September 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held September 1996.
-25-
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) The financial statements listed on the index set forth in Item 8 of
this Annual Report on Form 10-K are filed as part of this Annual Report.
(b) The following exhibits are incorporated by reference herein or annexed
to this Annual Report:
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.
11.1 Statement regarding computation of per share earnings (see Item 8 of
this Annual Report in Form 10-K).
21.1 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
24. Power of Attorney (see signature page).
27. Financial Data Schedule (for S.E.C. electronic filing only)
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.
(c) Current reports on Form 8-K during the quarter ended April 27, 1996.
None.
-26-
<PAGE> 27
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
ABC DISPENSING TECHNOLOGIES, INC.
By: /s/ CHARLES M. STIMAC, JR. By: /s/ GARY T. SALHANY
------------------------------- --------------------------
Charles M. Stimac, Jr. Gary T. Salhany
President Treasurer
Principal Executive Officer Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ---- ----
<S> <C> <C>
/s/ HERBERT M. PEARLMAN Chairman of the Board of Directors August 9, 1996
--------------------------
Herbert M. Pearlman
/s/ CHARLES M. STIMAC, JR. President & Director August 9, 1996
--------------------------
Charles M. Stimac, Jr.
/s/ HERBERT L. LUXENBURG Director August 9, 1996
--------------------------
Herbert L. Luxenburg
/s/ C. RAND MICHAELS Director August 9, 1996
--------------------------
C. Rand Michaels
/s/ John E. Stieglitz Director August 9, 1996
--------------------------
John E. Stieglitz
</TABLE>
-27-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 No. 33-39875; Post Effective Amendment No. 1 to Form S-2 No. 33-89596
and Post-Effective Amendment No. 1 to Form S-3 No. 33-89398 of ABC Dispensing
Technologies, Inc. (name changed from American Business Computers Corporation)
and in the related Prospectuses of our report dated August 8, 1996, with
respect to the consolidated financial statements and schedule of ABC Dispensing
Technologies, Inc. included in this annual report (Form 10-K) for the year
ended April 27, 1996.
ERNST & YOUNG LLP
Akron Ohio
August 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000748103
<NAME> ABC DISPENSING TECH.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-27-1996
<PERIOD-START> APR-30-1995
<PERIOD-END> APR-27-1996
<CASH> 488,000
<SECURITIES> 0
<RECEIVABLES> 900,000
<ALLOWANCES> 136,000
<INVENTORY> 1,703,000
<CURRENT-ASSETS> 2,955,000
<PP&E> 1,494,000
<DEPRECIATION> 791,000
<TOTAL-ASSETS> 4,020,000
<CURRENT-LIABILITIES> 2,641,000
<BONDS> 294,000
0
0
<COMMON> 170,000
<OTHER-SE> 915,000
<TOTAL-LIABILITY-AND-EQUITY> 4,020,000
<SALES> 4,656,000
<TOTAL-REVENUES> 5,312,000
<CGS> 3,279,000
<TOTAL-COSTS> 4,610,000
<OTHER-EXPENSES> 1,852,000
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 134,000
<INCOME-PRETAX> (1,324,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,324,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,324,000)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
