<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 JANUARY 27, 1996
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
(a.k.a. ABC Dispensing Technologies, Inc.)
(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: (330) 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 March 11, 1996 was 16,692,493 shares.
-1-
<PAGE> 2
INDEX
ABC DISPENSING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Part I Financial Information Page No.
- --------------------------------------------------------------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -January 27, 1996
and April 29, 1995 3
Consolidated statements of operations - Three
months and nine months ended January 27, 1996 and
January 28, 1995 4
Consolidated statements of cash flows - Nine
months ended January 27, 1996 and January 28, 1995 5
Consolidated statement of stockholders' equity -
Nine months ended January 27, 1996 6
Notes to consolidated financial statements -
January 27, 1996 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. Submission of Matters to a Vote of Security Holders 15
Item 5. (Not Applicable)
Item 6. (A) Exhibits 16
(B) Reports on Form 8-k
Signature 17
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited Audited
ASSETS January 27, 1996 April 29, 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 650,000 $ 1,309,000
Trade receivables:
Accounts receivable, less allowance for doubtful accounts
of $117,000 as of January 27 and $78,000 as of April 29 260,000 285,000
Notes receivable 33,000 22,000
Inventories (Note 3) 1,326,000 1,219,000
------------ ------------
Total current assets 2,269,000 2,835,000
Property, Plant, and Equipment 1,493,000 1,428,000
Less accumulated depreciation and amortization (773,000) (725,000)
------------ ------------
720,000 703,000
Other assets:
Notes receivable 71,000 59,000
Patents, less accumulated amortization of $448,000 as of January 27
and $438,000 as of April 29 26,000 37,000
Patents pending and deferred charges 140,000 85,000
Selling rights, less accumulated amortization of $15,000
as of January 27 and $-0- as of April 29 160,000 -0-
------------ ------------
397,000 181,000
------------ ------------
TOTAL ASSETS $ 3,386,000 $ 3,719,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 397,000 $ 454,000
Notes payable (Note 4) 18,000 190,000
Current portion of long-term debt (Note 4) 120,000 10,000
Accrued liabilities:
Legal fees and settlement costs (Note 9) 155,000 1,635,000
Employee compensation and benefits (Note 8) 187,000 232,000
Warranty reserve 242,000 183,000
Selling rights 146,000 -0-
Other 264,000 222,000
------------ ------------
Total current liabilities 1,529,000 2,926,000
Long-term debt (Note 4) 693,000 278,000
Stockholders' equity (Note 6):
Common Stock, $.01 par value; authorized
20,000,000 shares; 16,692,493 shares issued
and outstanding (15,996,116 at April 29, 1995) 167,000 160,000
Additional paid-in capital 18,623,000 17,070,000
Retained earnings (deficiency) (17,477,000) (16,558,000)
------------ ------------
1,313,000 672,000
Less notes receivable - stockholders (149,000) (157,000)
------------ ------------
Total Stockholders' Equity 1,164,000 515,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,386,000 $ 3,719,000
============ ============
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months and Three Months Ended January 27, 1996 and January 28, 1995
<TABLE>
<CAPTION>
Nine Months Ended, Three Months Ended,
Jan. 27, 1996 Jan. 28, 1995 Jan. 27, 1996 Jan. 28, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Products and services $ 3,980,000 $ 2,845,000 $ 425,000 $ 462,000
Royalties 256,000 149,000 - 1,000
----------- ----------- ----------- -----------
4,236,000 2,994,000 425,000 463,000
Cost and expenses:
Products and services 3,683,000 2,598,000 527,000 516,000
General and administrative 921,000 674,000 344,000 198,000
Selling and marketing 367,000 350,000 112,000 152,000
Research and development 517,000 404,000 154,000 190,000
----------- ----------- ----------- -----------
5,488,000 4,026,000 1,137,000 1,056,000
Loss from operations (1,252,000) (1,032,000) (712,000) (593,000)
Other income (Expense):
Securities and contract litigation
fees and settlement costs (Note 9) 328,000 (1,000,000) 328,000 (1,000,000)
Investment income 71,000 56,000 3,000 24,000
Other income and expense, net (66,000) (15,000) (30,000) 17,000
----------- ----------- ----------- -----------
333,000 (959,000) 301,000 (959,000)
----------- ----------- ----------- -----------
Net loss (Note 5) $ (919,000) $(1,991,000) $ (411,000) $(1,552,000)
=========== =========== =========== ===========
Weighted average number of shares
outstanding 16,320,562 15,555,742 16,672,361 15,991,897
=========== =========== =========== ===========
Net loss per share $ (.06) $ (0.13) $ (0.02) $ (0.10)
=========== =========== =========== ===========
</TABLE>
Unaudited
See accompanying notes.
-4-
<PAGE> 5
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
January 27, 1996 January 28, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net loss $ (919,000) $(1,991,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 73,000 56,000
Changes in operating assets and liabilities:
Receivables 2,000 179,000
Inventories (107,000) 281,000
Patents pending and deferred charges (55,000) (7,000)
Accounts payable (57,000) (34,000)
Accrued liabilities (1,278,000) 523,000
----------- -----------
Total adjustments (1,422,000) 998,000
----------- -----------
Net cash used in operating activities (2,341,000) (993,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Additions to selling rights (175,000) -
Additions to property, plant, and equipment (65,000) (615,000)
Additions to patents 1,000 (9,000)
----------- -----------
Net cash used in investing activities (239,000) (624,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Proceeds of private placements 593,000 1,028,000
Proceeds from issuance of notes payable 1,007,000 490,000
Stock contribution to class action settlement fund 467,000 -
Proceeds from stock issued for exercise of warrants 428,000 -
Proceeds from stock issued for exercise of stock options 72,000 23,000
Proceeds from collection of stockholders receivables 8,000 -
Repayment of notes payable and loan costs (654,000) (23,000)
----------- -----------
Net cash provided by financing activities 1,921,000 1,518,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (659,000) (99,000)
Cash and cash equivalents at beginning of year 1,309,000 2,021,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 650,000 $ 1,922,000
=========== ===========
</TABLE>
Unaudited
See accompanying notes.
-5-
<PAGE> 6
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended January 27, 1996
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)
Private Placements (Note 6) 278,000 3,000 590,000
Exercise of warrants (Note 6) 214,000 2,000 426,000
Exercise of stock options (Note 6) 54,377 1,000 71,000
Collection of note receivable- 8,000
stockholders
Contribution to class-action 150,000 1,000 466,000
settlement fund (Note 9)
Net loss for the nine months ended (919,000)
January 27 1996
---------- -------- ----------- ------------ ---------
Balance at January 27, 1996 16,692,493 $167,000 $18,623,000 $(17,477,000) $(149,000)
========== ======== =========== ============ =========
</TABLE>
Unaudited
See accompanying notes.
-6-
<PAGE> 7
ABC DISPENSING TECHNOLOGIES, INC.
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 nine months ended January 27, 1996
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.
SELLING RIGHTS - Selling rights are recorded at cost. The Company has acquired
from The Sherwin-Williams Company the rights to sell a chemical coatings
dispensing product originally developed exclusively for The Sherwin-Williams
Company. Amortization is provided under the straight-line method over a period
of three years.
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 78 and 63
percent of the Company's total revenues, for the nine months ended January 27,
1996 and January 28, 1995, 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>
<S> <C> <C>
Composition of inventories: January 27, 1996 April 29, 1995
Raw materials $ 801,000 $ 527,000
Work-in-process 250,000 207,000
Finished goods 275,000 485,000
---------- ----------
$1,326,000 $1,219,000
========== ==========
</TABLE>
The above amounts are net of obsolescence reserves of $906,000 as of
January and $943,000 as of April.
-7-
<PAGE> 8
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FINANCING ARRANGEMENTS
- ---------------------------
BANK NOTE
In June 1994, the Company purchased its headquarters facility in Akron,
Ohio for $490,000.
The note payable to the 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
January 27, 1996) 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 $466,000.
Long-term debt consists of the following at January 27, 1996:
<TABLE>
<S> <C>
Note payable to bank $283,000
Less amounts due within one year (10,000)
--------
Total long-term debt $273,000
========
</TABLE>
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. 19 units were issued under the offering, providing the
Company with $475,000 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.
As a result of this repayment provision the notes were paid in full on February
16, 1996.
"MEZZANINE" NOTE
On January 17, 1996, the Company obtained a $500,000 working capital loan
from the Mezzanine Financial Fund, L.P. Interest is due monthly at the rate of
18% per annum. The terms of the Loan 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.
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.
-8-
<PAGE> 9
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $12,799,000 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.
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.
On August 1, 1995, the Company granted options to Gary T. Salhany,
Treasurer (30,000 options at $3.00 per share) and Thomas S. Green, V.P.-
Research and Development of ABC Dispensing Technologies, Inc. (30,000 options
at $3.00 per share).
<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 Nine Months Ended For Nine Months Ended For Nine Months Ended For Nine Months Ended
January 27, 1996 January 28, 1995 January 27, 1996 January 28, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Outstanding, Beginning of Year 191,941 104,018 195,000 75,000
Granted 112,750 114,000 - 120,000
Exercised (14,367) (15,077) (40,000) -
Cancelled (96,010) (17,500) (25,000) -
------- ------- ------- -------
Outstanding, End of Period 194,314 185,441 130,000 195,000
------- ------- ------- -------
Exercise Price Per Share $1.63 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 (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. 19 units were 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.
On August 1, 1995, the Company granted warrants to Herbert M. Pearlman,
Chairman (200,000 at $3.00 per share), Robert A. Cutting, President (100,000 at
$3.00 per share), and others (30,000 at varied prices).
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 9 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 9 to the Consolidated Financial Statements).
On December 11, 1995, the Company issued 30,000 warrants at $2.25 per
share pursuant to a sale of common stock (see next page).
-9-
<PAGE> 10
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. COMMON STOCK (CONTINUED)
- -----------------------------
<TABLE>
<CAPTION>
Shares Under Option For Nine Months
Ended January 27, 1996
<S> <C>
Outstanding, April 29, 1995 1,275,000
Granted 1,327,500
Exercised (214,000)
Cancelled -
---------
Outstanding, January 27, 1996 2,388,500
---------
Exercise price per share $1.25 to $3.50
</TABLE>
Sale of Common Stock
- --------------------
During the period October to December 1995, the Company sold 278,000
registered shares at $2.25 per share in private transactions.
7. OPERATING LEASES
- ---------------------
For the nine months ended January 27, 1996 and January 28, 1995, aggregate
rental expense for all operating leases, except those with terms of a month or
less, was $29,000, and $40,000, respectively.
8. RETIREMENT BENEFITS
- ------------------------
The Company sponsors a 401(k) plan which covers substantially all full-
time employees. Eligible employees may contribute up to 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 for the nine months ended January 27, 1996 and January 28, 1995
amounted to $9,000, and $6,000, respectively. The Company has the discretion
to make a profit-sharing contribution, but no such contribution has been made
by the Company.
9. LEGAL PROCEEDINGS
- ----------------------
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
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 $1,085,000
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 January 27, 1996 was $100,000, 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 litigation.
-10-
<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 and
residential levels. 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 INCOMING ORDERS
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. To
date, the Company has shipped four field test units and expects to ship an
additional 30 field test units in April 1996. Shipments of subsequent units
are expected to be spread over a period of 18 months.
On December 7, 1995, the Company received a $1.8 million order from The
Sherwin-Williams Company for Tint-A-Color dispensers. The Company expects to
begin shipping this order in April 1996. This incoming order brought the
Company's backlog to approximately $8.9 million as of January 27, 1996.
NINE MONTHS ENDED JANUARY 27, 1996 COMPARED TO NINE MONTHS ENDED JANUARY 28,
1995
The net loss was $919,000 for the current period compared to $1,991,000
for the same period last year. The current period includes a $328,000 positive
adjustment to reduce the Class Action settlement accrual to the required
amount. Total revenues for the current period were $4,236,000 compared to
prior year-to-date total revenues of $2,994,000.
<TABLE>
<CAPTION>
Equipment/royalty sales: YTD 96 YTD 95
<S> <C> <C>
Paint dispensers $3,019,000 $1,657,000
Beverage dispensers 489,000 687,000
---------- ----------
$3,508,000 $2,344,000
Services/component sales: YTD 96 YTD 95
Paint $ 296,000 $ 225,000
Beverage 345,000 351,000
Other 87,000 74,000
---------- ----------
$ 728,000 $ 650,000
</TABLE>
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NINE MONTHS ENDED JANUARY 27, 1996 COMPARED TO NINE MONTHS ENDED JANUARY 28,
1995 (CONTINUED)
The increase in paint services/component sales is due to the increased
number of installed paint dispensers now being serviced versus the same period
last year. 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 shipped this order in May-October
1995.
The FY95 and FY96 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 (Est.)April-July 1996 $1,855,000
</TABLE>
The Company's gross profit on overall equipment sales is 27.5% year-to-
date as compared to 21.7% for the same period last year. The difference is
attributed to a $150,000 inventory write-off taken in FY95.
General and administrative expenses increased 37% from the same period
last year 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 5% from the same period last year
due to the international marketing effort for both paint and beverage products.
Research and development expenses increased 28% from the same period last
year 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.
The distribution of the Class Action settlement fund (see Note 9 to the
Consolidated Financial Statements) and the valuation of the Company's
contributed common stock to the fund has allowed the Company to lower the
accrual by $328,000 for settlement costs and legal expenses. The Company had
originally accrued $1,000,000 in FY95 to record estimated remaining settlement
costs and legal fees. The remaining accrual is now $100,000, which provides
for final payments of legal fees.
The category Other Expense primarily represents loans interest expense and
the amortization of original issue discounts and loan fees.
SALES BACKLOG
As of January 27, 1996 sales order backlog (unshipped product orders) was
$8,891,000. As of January 28, 1995, backlog was $148,000.
QUARTER ENDED JANUARY 27, 1996 COMPARED TO QUARTER ENDED JANUARY 28, 1995
The net loss was $411,000 for the current quarter ("Q96"), compared to
$1,552,000 for the same period last year ("Q95"). Q96 included a $328,000
positive adjustment and Q95 included a $1,000,000 negative adjustment to the
accrual for Class Action settlement costs and legal expenses, respectively.
Total revenues for Q96 were $425,000 compared to Q95 revenues of $463,000.
<TABLE>
<CAPTION>
Equipment/royalty sales: Q96 Q95
<S> <C> <C>
Paint dispensers $ 69,000 $ 7,000
Beverage dispensers 132,000 275,000
-------- --------
$201,000 $282,000
</TABLE>
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
QUARTER ENDED JANUARY 27, 1996 COMPARED TO QUARTER ENDED JANUARY 28, 1995
(CONTINUED)
<TABLE>
<CAPTION>
Services/component sales: Q96 Q95
<S> <C> <C>
Paint $ 59,000 $ 71,000
Beverage 115,000 102,000
Other 50,000 8,000
-------- --------
$224,000 $181,000
</TABLE>
The Company's gross profit on overall equipment sales was 26.9% for Q96 as
compared to a negative 23.4% for Q95. The negative margin in Q95 was the
result of recording a $150,000 inventory write-off.
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 The
Sherwin-Williams Company ("Sherwin-Williams") 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 Sherwin-Williams' exclusivity, the Company has agreed to rebate to
Sherwin-Williams the $175,000 research and development costs incurred by
Sherwin-Williams. The Company has capitalized this cost as an intangible
asset, "Selling Rights," and is amortizing this asset on a straight line basis
over a period of three years. The amortization expense during Q96 was $15,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $650,000 as of January 27, 1996
from $1,309,000 as of April 29, 1995. Class Action settlement and fee payments
(see Note 9 to Consolidated Financial Statements) required $603,000 this year.
The Company also contributed 150,000 shares of common stock to the Class Action
settlement fund.
Operations required an additional $1,271,000. To aid in financing these
cash demands during this growth year, the Company issued $475,000 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. As of January 27, 1996, the Company has
repaid $457,000 on these notes; these repayments were triggered by the
issuance of common stock.
The Company sold 278,000 registered shares at $2.25 per share in private
transactions, for net proceeds of $593,000.
Additional financing was received 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.
The Company also borrowed $500,000 from the Mezzanine Financial Fund, L.P.
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 4 to the Consolidated Financial
Statements.
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.
Fiscal year 1996 is 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.
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.
-13-
<PAGE> 14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
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
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 $1,085,000
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 January 27, 1996 was $100,000, 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 litigation.
-14-
<PAGE> 15
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
(a) The Company held the Annual Meeting of Stockholders at Cuyahoga
Falls, Ohio, on March 1, 1996.
(b) The Annual Meeting involved voting for the following five
proposals:
(1) The following persons were elected directors to hold office
until the next Annual Meeting of Stockholders and until
their successors are duly elected:
Mr. Herbert M. Pearlman
Mr. Robert A. Cutting
Mr. Herbert L. Luxenburg
Mr. C. Rand Michaels
Mr. John E. Stieglitz
(2) The proposal to adopt the Company's 1995 Stock Option Plan was
Approved.
(3) The proposal to change the Company's name to "ABC Dispensing
Technologies, Inc." was Approved.
(4) The proposal to increase the number of the Company's
authorized common stock to 50,000,000 shares was Approved.
(5) The proposal to reincorporate the Company by means of merger
into a newly formed, wholly-owned subsidiary incorporated in
the State of Delaware was Approved. The Company reserves the
right not to effect this proposal.
-15-
<PAGE> 16
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) REPORTS ON FORM 8-K FILED IN THE QUARTER ENDED JANUARY 27, 1996.
Form 8-K was filed on January 5, 1996 to report the following event:
Effective November 10, 1995, the Company entered into a new Sales and
Exclusivity Agreement with The Sherwin-Williams Company ("Sherwin- Williams"),
which supersedes the Development and Manufacture Agreement dated July 27, 1992
and the L.C.R.U. Tint System Development and Manufacture Agreement dated
September 14, 1993.
Effective December 6, 1995, the Company and Sherwin-Williams agreed to
terminate the Chemical Coatings Development Agreement dated October 14, 1993.
The Company will rebate the research and development revenues billed to
Sherwin-Williams under the original agreement.
-16-
<PAGE> 17
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.
ABC Dispensing Technologies, Inc.
---------------------------------
(Registrant)
Date:
-------------- --------------------------------
Gary T. Salhany
Treasurer
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-27-1996
<PERIOD-START> APR-30-1995
<PERIOD-END> JAN-27-1996
<CASH> 631,000
<SECURITIES> 19,000
<RECEIVABLES> 481,000
<ALLOWANCES> 117,000
<INVENTORY> 1,326,000
<CURRENT-ASSETS> 2,269,000
<PP&E> 1,493,000
<DEPRECIATION> 773,000
<TOTAL-ASSETS> 3,386,000
<CURRENT-LIABILITIES> 1,529,000
<BONDS> 831,000
<COMMON> 167,000
0
0
<OTHER-SE> 997,000
<TOTAL-LIABILITY-AND-EQUITY> 3,386,000
<SALES> 3,759,000
<TOTAL-REVENUES> 4,236,000
<CGS> 2,651,000
<TOTAL-COSTS> 3,683,000
<OTHER-EXPENSES> 1,781,000
<LOSS-PROVISION> 24,000
<INTEREST-EXPENSE> 66,000
<INCOME-PRETAX> (919,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (919,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (919,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
