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 OCTOBER 26, 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
ABC DISPENSING TECHNOLOGIES, INC.
(Name changed from American Business Computers Corporation)
(Exact name of registrant as specified in its charter)
Florida 59-2001203
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 Kennedy Road Akron, Ohio 44305
--------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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 November 21, 1996 was 17,109,160.
-1-
<PAGE>
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 -October 26, 1996 and April 27, 1996 3
Consolidated statements of operations - Six months ended October 26, 1996 and
October 28, 1995 4
Consolidated statements of cash flows - Six months ended October 26, 1996 and
October 28, 1995 5
Consolidated statement of stockholders' equity - Six months ended October 26, 1996 6
Notes to consolidated financial statements - October 26, 1996 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-14
Part II Other Information
- -----------------------------------------------------------------------------------------------------------
Item 1. (Not Applicable)
Item 2. (Not Applicable)
Item 3. (Not Applicable)
Item 4. (Not Applicable)
Item 5. (Not Applicable)
Item 6. (A) Exhibits and Reports 15
Signature 16
</TABLE>
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<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
ASSETS October 26, 1996 April 27, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 472,000 $ 488,000
Trade receivables:
Accounts receivable, less allowance for doubtful accounts
of $152,000 as of October 26 and $136,000 as of April 27 337,000 666,000
Notes receivable (short-term) 33,000 28,000
Inventories (Note 3) 1,156,000 1,703,000
------------ ------------
Total current assets 1,998,000 2,885,000
Property, Plant, and Equipment (Note 10) 1,507,000 1,491,000
Less accumulated depreciation (821,000) (788,000)
------------ ------------
686,000 703,000
Other assets:
Notes receivable (long-term) 86,000 70,000
Intangible assets, less accumulated amortization of $516,000
as of October 26 and $480,000 as of April 27 138,000 169,000
Patents pending and deferred charges 145,000 193,000
------------ ------------
Total other assets 369,000 432,000
Total Assets $ 3,053,000 $ 4,020,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 684,000 $ 876,000
Line of credit 225,000 292,000
Note payable to related party (Note 4) (110,000) 500,000
Current portion of long-term debt (Note 4) 18,000 25,000
Accrued liabilities:
Legal fees and settlement costs 151,000 148,000
Employee compensation and benefits 306,000 218,000
Warranty reserve 192,000 197,000
Other 271,000 353,000
Deferred income 19,000 33,000
------------ ------------
Total current liabilities 1,756,000 2,642,000
Long-term debt (Note 4) 298,000 294,000
Stockholders' equity:
Common Stock, $.01 par value; authorized
50,000,000 shares; 17,109,160 shares issued
and outstanding (16,984,160 at April 27, 1996) 171,000 170,000
Preferred Stock (Note 6) 1,225,000 0
Additional paid-in-capital 19,010,000 18,942,000
Retained earnings (deficiency) (19,266,000) (17,882,000)
------------ ------------
1,140,000 1,230,000
Less notes receivable - stockholders (141,000) (146,000)
------------ ------------
Total Stockholders' Equity 999,000 1,084,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,053,000 $ 4,020,000
============ ============
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Six months and three months ended October 26, 1996 and October 28, 1995
Unaudited
Six Months Ended Three Months Ended
Oct. 26, 1996 Oct. 28, 1995 Oct. 26, 1996 Oct. 28, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Products and services $ 2,138,000 $ 3,555,000 $ 960,000 $ 2,429,000
Royalties 0 256,000 0 184,000
------------ ------------ ------------ ------------
Total revenues 2,138,000 3,811,000 960,000 2,613,000
Cost and expenses:
Products and services 1,763,000 3,156,000 727,000 2,077,000
General and administrative 1,013,000 577,000 459,000 309,000
Selling and marketing 305,000 255,000 149,000 141,000
Research and development 391,000 363,000 213,000 200,000
------------ ------------ ------------ ------------
Total cost and expenses 3,472,000 4,351,000 1,548,000 2,727,000
Loss from operations (1,334,000) (540,000) (588,000) (114,000)
Other income:
Investment income/(expense) 9,000 61,000 42,000 2,000
Interest income/(expense) (62,000) (41,000) (66,000) (31,000)
Other income/(expense) 3,000 12,000 (3,000) 4,000
------------ ------------ ------------ ------------
Total other income/(expense) (50,000) 32,000 (27,000) (25,000)
Net loss (Note 5) ($ 1,384,000) ($ 508,000) ($ 615,000) ($ 139,000)
------------ ------------ ------------ ------------
Weighted average number of
shares outstanding 17,114,655 16,140,467 16,989,655 16,272,087
------------ ------------ ------------ ------------
Net loss per share ($ 0.08) ($ 0.03) ($ 0.04) ($ 0.01)
============ ============ ============ ============
</TABLE>
See accompanying notes.
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<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
October 26, 1996 October 28, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net loss ($1,384,000) ($ 508,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 69,000 39,000
Changes in operating assets and liabilities:
Receivables 308,000 (885,000)
Inventories 547,000 111,000
Patents pending and deferred charges 48,000 (50,000)
Accounts payable (192,000) 298,000
Accrued liabilities 4,000 (1,035,000)
Deferred income (14,000) (17,000)
----------- -----------
Total adjustments 770,000 (1,539,000)
----------- -----------
Net cash used in operating activities (614,000) (2,047,000)
Cash flows from investing activities:
- -------------------------------------
Additions to patents (5,000) (37,000)
Additions to property, plant, and equipment (16,000) 0
----------- -----------
Net cash used in investing activities (21,000) (37,000)
Cash flows from financing activities:
- -------------------------------------
Proceeds from issuance of preferred stock 1,225,000 0
Proceeds (costs) of private placement 68,000 584,000
Proceeds from collection of stockholders' receivable 5,000 6,000
Proceeds from miscellaneous note 4,000 0
Repayment of line of credit (67,000) 0
Repayment of notes payable and loan costs (616,000) (398,000)
Proceeds from issuance of notes payable 0 475,000
Stock contribution to class action settlement fund 0 450,000
Proceeds from stock issued for exercise of warrants 0 428,000
Proceeds from stock issued for exercise of stock options 0 65,000
----------- -----------
Net cash provided by financing activities 619,000 1,619,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (16,000) (465,000)
Cash and cash equivalents at beginning of year 488,000 1,309,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 472,000 $ 844,000
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended October 26, 1996
Unaudited
<TABLE>
<CAPTION>
Number of Common Stock Additional Retained Notes
Shares of $.01 Par Preferred Paid-in Earnings Receivable-
Common Stock Value Stock Capital (Deficiency) Stockholders
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 27, 1996 16,984,160 $170,000 $0 $18,942,000 $(17,882,000) $(146,000)
Collection of notes receivable-
stockholders' 5,000
Issue of stock to Mezzanine
Financial Fund, L.P.(Note 4) 125,000 1,000 141,000
Preferred Stock private
placement (Note 6) 1,225,000
Private placement costs (73,000)
Net loss for the six months
ended October 26, 1996 (1,384,000)
---------- -------- ---------- ----------- ------------ ---------
Balance at October 26, 1996 17,109,160 $171,000 $1,225,000 $19,010,000 $(19,266,000) $(141,000)
========== ======== ========== =========== ============ =========
</TABLE>
See accompanying notes.
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<PAGE>
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
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 six month period ended October 26, 1996 are
not necessarily indicative of the results that may be expected for the year
ended April 26, 1997. For further information, refer to the Form 10-K for the
year ended April 27, 1996.
YEAR END - The Company `s fiscal year-end is the Saturday closest to April 30,
which results in a fifty-two or fifty-three week year. Both fiscal 1997 and
fiscal 1996 consist of fifty-two weeks ending on April 26 and April 27,
respectively. References to the years 1997 and 1996 refer to fiscal years ended
April 26, 1997 and April 27, 1996, 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 October 26, 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 and 84
percent of the Company's total revenues, for the six months ended October 26,
1996 and October 28, 1995, respectively.
PROVISION FOR WARRANTY CLAIMS - Estimated warranty costs are provided at the
time of sale of the warranted products.
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<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RECLASSIFICATIONS - Certain reclassifications have been made to prior year
amounts to conform with current year classifications.
3. INVENTORIES
At October 26, 1996 and April 27, 1996, inventories consisted of the following:
October 26, 1996 April 27, 1996
---------------- --------------
Raw Materials $ 605,000 $ 729,000
Work-in-process 153,000 488,000
Finished goods 398,000 486,000
---------- ----------
$1,156,000 $1,703,000
========== ==========
The above amounts are net of obsolescence reserves of $926,000 as of October 26,
1996 and $985,000 as of April 27, 1996.
4. 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 October
26, 1996 and April 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. At October 26, 1996, the facility had a net book value of
$455,000.
At October 26, 1996 and April 27, 1996, notes payable consisted of the
following:
October 26, 1996 April 27, 1996
---------------- --------------
Note payable to bank (Headquarters
facility purchase) $273,000 $278,000
Other (equipment purchases) 43,000 41,000
-------- --------
316,000 319,000
Less amounts due within one year (18,000) (25,000)
-------- --------
Total long-term debt $298,000 $294,000
======== ========
Interest paid by the Company approximates interest expense for the quarters
ended October 26, 1996 and July 29, 1995.
Maturities 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.
-8-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FINANCING ARRANGEMENTS (CONTINUED)
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.
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, plus Mezzanine will credit the principal owned 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.
On September 23, 1996, the Company paid the Mezzanine Financial Fund, L.P.
(Mezzanine) in the amount of $500,000. Prior to this date, the Company delivered
125,000 common shares to Mezzanine of which 30,000 shares were sold to pay past
due interest. In addition, another 60,000 shares were sold by Mezzanine in
September and October 1996, the proceeds, net of commission, used to pay off the
remaining interest of approximately $10,000 and agreed to enhancement fee of
approximately $23,000. The Company is currently in the process of obtaining the
return of the remaining shares and/or cash proceeds.
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 October 26, 1996,
$225,000 was outstanding and $525,000 of the line of credit was available. The
line of credit bears an interest rate of prime plus four points (12.25% at
October 26, 1996, which equals the weighted-average interest rate for the
period).
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ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES
The components of the Company's deferred income taxes at April 27, 1996 and
April 29, 1995 are as follows:
1996 1995
-------------- --------------
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-
============== ==============
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
expires in 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.
6. PREFERRED STOCK
The shareholders of the Company have approved a proposal by the Board of
Directors to authorize 5,000,000 shares of Preferred Stock. The Preferred Shares
are 9% Convertible Cumulative Redeemable Preferred Stock, Series A. As of
December 6, the Company has received commitments totaling $2,150,000.
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 stock 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 years after grant date. All options were
granted at fair market value at the date of the grant. Options that expire in
May 1997 will be granted a one year extension.
Stock option transactions and prices are summarized as follows:
<TABLE>
<CAPTION>
Officers' & Employees' Shares Under Option Directors' Shares Under Option
For Six Months Ended For Six Months Ended For Six Months Ended For Six Months Ended
October 26, 1996 October 28, 1995 October 26, 1996 October 28, 1995
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Outstanding, April 27, 1996 194,314 191,941 130,000 195,000
Granted - 97,250 20,000 -
Exercised - ( 10,049) - ( 40,000)
Canceled - (121,828) - -
------- -------- ------- --------
Outstanding October 26, 1996 194,314 157,314 150,000 155,000
------- -------- ------- --------
Exercise price per share $1.50 to $3.44 $1.63 to $3.44 $1.25 to $3.25 $1.25 to $3.25
Warrant shares under and prices for the years ended October 26, 1996 and October 28, 1995 are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Outstanding at beginning of period 2,447,410 1,275,000
Granted 85,000 255,000
Exercised - (100,000)
Canceled - -
========= =========
Outstanding at end of period 2,532,410 1,430,000
========= =========
Exercise price per share $1.25 to $3.50 $1.25 to $3.38
</TABLE>
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<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS
The Company pays an allocation to Helm Resources for the costs of Mr. Herbert M.
Pearlman for office space and direct expenses totaling approximately $21,000 per
year for services rendered by Mr. Pearlman to the Company. Mr. Pearlman is
Chairman, chief executive officer and a principal stockholder of Helm Resources
Inc. (see footnote 4). This arrangement was terminated effective October 1,
1996.
9. OPERATING LEASES
For the six months ended October 26, 1996 and October 28, 1995, aggregate rental
expense was $18,000, and $20,000, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following October 26, 1996 and
April 27, 1996:
October 26, 1996 April 27, 1996
Land $ 57,000 $ 57,000
Building and building improvements 573,000 572,000
Machinery and equipment 877,000 865,000
----------- -----------
1,507,000 1,494,000
Less accumulated depreciation (821,000) (791,000)
----------- -----------
$ 686,000 $ 703,000
=========== ===========
11. RETIREMENT BENEFITS
The Company sponsors a 401(k) plan which covers substantially all full-time
employees. Eligible employees may contribute up to 12% 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 three
months ended October 26, 1996 and October 28, 1995 amounted to $8,000 and
$5,000, respectively. The Company has the discretion to make a profit-sharing
contribution, but no such contribution has been made by the Company.
-11-
<PAGE>
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 year ends April 26, 1997, the prior year ended April 27,
1996.
FAILURE TO MEET NASDAQ STOCK LISTING MINIMUM REQUIREMENTS
The Company has failed to meet the NASDAQ capital and surplus requirement,
as set forth in NASD Marketplace Rule 4310(c)(03). The NASDAQ Listing
Qualifications Panel has granted the Company an exception regarding this
requirement. The exception requires that the Company must make a public filing
with the SEC and NASDAQ on or before December 2, 1996. The filing must contain a
balance sheet no older than October 31, 1996 with pro forma adjustments for any
significant transactions occurring on or before the filing date. The filing must
evidence minimum capital and surplus in excess of $1,800,000, as well as
compliance with all other criteria necessary for continued listing. The Company
has met the December 2 requirement with a capital and surplus balance of
$2,437,000.
The exception further requires that the Company must make a second public
filing with the SEC and NASDAQ on or before January 3, 1997. The second filing
must contain a balance sheet no older than November 30, 1996 with pro forma
adjustments for any significant transactions occurring on or before the filing
date. The filing must evidence minimum capital and surplus in excess of
$2,400,000, as well as compliance with all other criteria necessary for
continued listing. In the event the Company fails to comply with any of the
terms of this exception, its securities will be immediately deleted from The
NASDAQ Stock Market. However, the Company believes that it will be able to
continue to meet the NASDAQ maintenance schedule
IMPLEMENTATION OF A STRATEGIC PLAN
The Company recognizes the need to increase sales as quickly as possible
and also the need to review and implement long-term marketing and sales
strategies. With this in mind the Company has developed, with the assistance of
an accredited marketing consultant, a Strategic Plan for November 1, 1996
through April 30, 1998. Corporate growth strategies include: 1) market
penetration, 2) market expansion, 3) product development and 4) diversification.
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. The order may be
incorporated into a new joint venture yet to be detailed, however, the Company
has not yet received finalized delivery dates or installation sites. These are
still pending field test results and other considerations.
COMPANY ANNOUNCES JOINT-VENTURE AGREEMENT
On October 22, 1996 the Company announced a preliminary agreement to form
a joint venture with Wm. H. Leahy Associates, a privately owned national
foodservice marketing company based in Chicago. The partnership combines ABC's
proprietary dispensing technology and equipment with a specially formulated
fresh-fruit concentrate developed by Leahy for sale to the institutional food
marketplace. The proposed agreement calls for the two companies to share ongoing
revenues and profits on a basis to be determined after completion of field
testing, which is expected to be concluded in January 1997.
COMPANY APPOINTS NEW PRESIDENT
On July 16, 1996, the Company appointed Charles M. Stimac, Jr. as
President and Chief Executive Officer to succeed Robert A. Cutting. Mr. Stimac,
45 years old, has more than 20 years experience in the investment banking and
brokerage industry and has extensive experience in sales and marketing. Mr.
Stimac was formerly a Vice President with Roney & Company, a member firm of the
New York Stock Exchange.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
COMPANY ANNOUNCES CHANGE OF CFO
On October 1, 1996, the Company appointed consultant and turn-around
specialist Walter W. Crate, on an interim basis, the responsibilities of Chief
Financial Officer and Assistant to the President. Mr. Crate succeeds Gary T.
Salhany, who resigned as CFO to pursue other interests. Mr. Crate's career has
included serving as chief operating officer of a $100 million, multi-national
holding company and as managing director of the Chicago office of Citicorp
Investment Bank. Mr. Crate has been involved in the acquisition of 25 companies,
and he has acted in advisory capacity to management and equity investors in the
turnaround of under-performing assets.
COMPANY APPOINTS DIRECTOR OF MARKETING/VICE PRESIDENT OF ENGINEERING
On October 17, 1996, Brian C. Sanders joined the Company in the
newly-established dual positions of Director of Marketing and Vice President of
Engineering--Paint and Industrial Division. Mr. Sanders was the founder and
president of ULTRABLEND Systems, Inc., which specializes in the research and
development, production and marketing of point-of-sale equipment for the paint
and coatings industry. He holds an engineering degree from Syracuse University.
COMPANY APPOINTS EUROPEAN DIRECTOR OF SALES AND SUPPORT SERVICES
On November 5, 1996, Nigel Whittaker was appointed to the newly
established position of Director of Sales and Support Services for Europe. Mr.
Whittaker, who is based in Manchester, England, will implement and supervise a
sales, marketing, and support organization exclusively for ABC's proprietary new
modular, 18 canister, automatic tinting dispenser, and related products, which
are being introduced in the U.S. this fall. His previous experience includes
serving as Managing Director of ULTRABLEND Systems (Europe) Ltd. and as
President of Applied Color Systems, Inc., based in Princeton, New Jersey, where
he spearheaded the sales and support growth for that company's Datacolor
International product line throughout the North and South American continents.
SIX MONTHS ENDED OCTOBER 26, 1996 COMPARED TO SIX MONTHS ENDED OCTOBER 28, 1995
The net loss was $1,384,000 for the six months ended October 26, 1996
compared to $615,000 for the same period last year. Total revenues for the six
months ended October 26, 1996 was $2,138,000 compared to $3,811,000 for the same
period last year.
Product sales: October 26, 1996 October 28, 1995
Industrial dispensers $1,458,000 $2,950,000
Beverage dispensers 354,000 357,000
---------- ----------
1,812,000 3,307,000
---------- ----------
Service and development sales:
Industrial 105,000 237,000
Beverage 191,000 230,000
Other 30,000 37,000
---------- ----------
326,000 504,000
Total revenues $2,138,000 $3,811,000
========== ==========
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
COST AND EXPENSE REVIEW
Gross profit on products sold is 26% year-to-date compared to 28% for the
same period last year. The cost of products sold include the amortizing of
previously capitalized selling rights. Year-to-date overhead expense is $74,000
compared to prior year overhead expense of $86,000. The remaining unabsorbed
overhead is $226,000 as of October 26, 1996 compared to $144,000 as of October
28, 1995.
General and administrative expenses increased from $577,000 through
October 28, 1995 to $1,013,000 through October 26, 1996. Severance expense of
$221,000 was recorded for former President and CEO, Robert A. Cutting, and
former CFO Gary T. Salhany. No severance expense was recorded during the same
period last year. Secondly, overall payroll and expenses have increased in the
current year versus the prior year. In addition, the activity-based costing
system accounts for a portion of the variation in general and administrative
expenses from last year to this year; this variation reflects the higher volume
of general and administrative activity in the current year.
Increased selling and marketing activities resulted in a 20% increase in
expenses for the six months ended October 26, 1996 versus the six months ended
October 28, 1995.
Research and development expenses increased by 8% for the six months ended
October 26, 1996 versus the six months ended October 28, 1995. This increase is
mainly due to the increase in research and development personnel.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased slightly from $488,000 on April 27,
1996 to $472,000 on October 26, 1996. Operating activities required cash of
$614,000, however the Company was able to provide $619,000 through financing
activities.
For short-term cash, the Company utilizes an accounts receivable-based
credit line. As of October 26, 1996, the Company had $225,000 outstanding on
this credit line. The interest rate is four points over the prime lending rate,
or 12.25% as of October 26.
In September 1996, the Company effected a private placement of 9%
Convertible Senior Subordinated Redeemable Notes. As of December 6, 1996,
$2,150,000 has been received. Substantially all the note holders have agreed to
surrender the notes in exchange for Convertible Preferred Stock (see Note 6).
The Company has used the proceeds to pay related selling commissions and
expenses, and in addition, to fully satisfy and terminate the $500,000 credit
facility provided by Mezzanine. (see below)
On July 24, the Company distributed 125,000 common shares to The Mezzanine
Financial Fund, L.P. in satisfaction of $38,000 of interest charges from May
through September 1996 due Mezzanine under the January 1996 loan provided to the
Company; Mezzanine has credited the principle owed 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. In addition, the Company wired funds of
$500,000 on September 23, 1996 to Mezzanine in full satisfaction of the original
$500,000 principle balance.
The Company has negotiated extended payment terms from many of its vendors
to enable the Company to continue production runs and meet shipping deadlines.
The current ratio as of October 26 was 1.14:1.00, compared to the current
ratio of April 27, which was 1.09:1.00.
The quick ratio as of October 26 (cash and current receivables, divided by
total current liabilities) was 0.48:1.00 as of October 26, compared to 0.45:1.00
as of April 27.
Inventories were reduced to $1.1 million at October 26, from $1.7 million
at April 27, due to the shipment of Tint-A-Color dispensers to The
Sherwin-Williams Company.
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.
-14-
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
- -----------------------------
(a) Exhibits
4.1 Form of 9% Convertible Senior Subordinated Redeemable Notes due August 1,
1999 issued in connection with a private placement of the Registrants
Securities (the "1996 Private Placement").
4.2 Form of Common Stock Purchase Warrant issued in connection with the 1996
private placement.
24. Power of Attorney (see signature page).
27. Financial Data Schedule (for S.E.C. electronic filing only)
-15-
<PAGE>
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: December 9, 1996 /s/ Charles M. Stimac, Jr
---------------- ---------------------------------
Charles M. Stimac, Jr.
President/CEO
-16-
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<NAME> ABC DISPENSING TECHNOLOGIES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-26-1997
<PERIOD-START> APR-28-1996
<PERIOD-END> OCT-26-1996
<CASH> 472,000
<SECURITIES> 0
<RECEIVABLES> 489,000
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1,225,000
<COMMON> 171,000
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