<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JULY 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
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 September 3, 1996 was 17,109,160 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 -July 27, 1996 and April 27, 1996 3
Consolidated statements of operations - Three months ended July 27, 1996 and
July 29, 1995 4
Consolidated statements of cash flows - Three months ended July 27, 1996 and July 29, 1995 5
Consolidated statement of stockholders' equity - Three months ended July 27, 1996 6
Notes to consolidated financial statements - July 27, 1996 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-13
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 14
Signature 15
</TABLE>
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<PAGE> 3
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
ASSETS July 27, 1996 April 27, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 96,000 $ 488,000
Trade receivables:
Accounts receivable, less allowance for doubtful accounts
of $146,000 as of July 27 and $136,000 as of April 27 824,000 770,000
Inventories (Note 3) 1,298,000 1,703,000
------------ ------------
Total current assets 2,218,000 2,961,000
Property, Plant, and Equipment (Note 9) 687,000 703,000
Other assets:
Intangible assets, less accumulated amortization of $498,000
as of July 27 and $480,000 as of April 27 155,000 167,000
Patents pending and deferred charges 164,000 193,000
------------ ------------
395,000 434,000
------------ ------------
TOTAL ASSETS $ 3,224,000 $ 4,020,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 736,000 $ 875,000
Line of credit 352,000 292,000
Note payable to related party 390,000 500,000
Current portion of long-term debt (Note 4) 25,000 25,000
Accrued liabilities:
Employee compensation and benefits (Notes 6 & 10) 314,000 218,000
Warranty reserve 189,000 197,000
Legal fees and settlement costs 155,000 148,000
Selling rights 88,000 124,000
Other 236,000 263,000
------------ ------------
Total current liabilities 2,474,000 2,642,000
Long-term debt (Note 5) 289,000 294,000
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
Additional paid-in capital 19,073,000 18,942,000
Retained earnings (deficiency) (18,651,000) (17,882,000)
------------ ------------
593,000 1,230,000
Less notes receivable - stockholders (143,000) (146,000)
------------ ------------
Total Stockholders' Equity 450,000 1,084,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,224,000 $ 4,020,000
============ ============
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 27, 1996 July 29, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Products and services $ 1,178,000 $ 1,126,000
Royalties -0- 72,000
----------- -----------
1,178,000 1,198,000
Cost and expenses:
Products and services 1,036,000 1,079,000
General and administrative 554,000 268,000
Selling and marketing 156,000 114,000
Research and development 178,000 163,000
----------- -----------
1,924,000 1,624,000
----------- -----------
Loss from operations (746,000) (426,000)
Other income (expense)
Interest (expense) (33,000) (72,000)
Interest income 4,000 134,000
Other income (expense), net 6,000 (5,000)
----------- -----------
(23,000) 57,000
----------- -----------
Net loss (Note 5) $ (769,000) $ (369,000)
=========== ===========
Weighted average number of shares outstanding 16,989,655 16,008,989
=========== ===========
Net loss per share $ (0.05) $ (0.02)
=========== ===========
</TABLE>
See accompanying notes.
-4-
<PAGE> 5
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 27, 1996 July 29, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(769,000) $ (369,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 32,000 20,000
Changes in operating assets and liabilities:
Receivables (60,000) (635,000)
Inventories 405,000 (434,000)
Patents pending and deferred charges 29,000 3,000
Accounts payable (139,000) 460,000
Accrued liabilities 68,000 (624,000)
Selling rights (36,000) -0-
Deferred income -0- (2,000)
--------- -----------
Total adjustments 299,000 (1,212,000)
--------- -----------
Net cash used in operating activities (470,000) (1,581,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to patents ( 6,000) -0-
Additions to property, plant, and equipment -0- (7,000)
--------- -----------
Net cash used in investing activities (6,000) (7,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement 131,000 430,000
Proceeds from line of credit 60,000 -0-
Proceeds from collection of stockholders receivables 3,000 3,000
Proceeds from stock issued for exercise of warrants
and options -0- 202,000
Payment of miscellaneous notes (5,000) -0-
Repayment of notes payable and loan costs (105,000) (192,000)
Net cash provided by financing activities 84,000 443,000
--------- -----------
Net decrease in cash and cash equivalents (392,000) (1,145,000)
Cash and cash equivalents at beginning of year 488,000 1,309,000
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 96,000 $ 164,000
========= ===========
</TABLE>
See accompanying notes.
-5-
<PAGE> 6
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended July 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 27, 1996 16,984,160 $170,000 $18,942,000 $(17,882,000) $(146,000)
Collection of note receivable-
stockholders 3,000
Issue of stock to Mezzanine Financial
Fund, L.P. (Note 4) 125,000 1,000 141,000
Private placement costs (10,000)
Net loss for the three months ended
July 27, 1996 (769,000)
---------- -------- ----------- ------------ ---------
Balance at July 27, 1996 17,109,160 $171,000 $19,073,000 $(18,651,000) $(143,000)
========== ======== =========== ============ =========
</TABLE>
See accompanying notes.
-6-
<PAGE> 7
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 three month period ended July 27, 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 July 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 70 and 77
percent of the Company's total revenues, for the three months ended July 27,
1996 and July 29, 1995, respectively.
PROVISION FOR WARRANTY CLAIMS - Estimated warranty costs are provided at the
time of sale of the warranted products.
-7-
<PAGE> 8
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 July 27, 1996 and April 27, 1996, inventories consisted of the following:
<TABLE>
<CAPTION>
July 27, 1996 April 27, 1996
<S> <C> <C>
Raw Materials $ 548,000 $ 729,000
Work-in-process 350,000 488,000
Finished goods 400,000 486,000
---------- ----------
$1,298,000 $1,703,000
========== ==========
</TABLE>
The above amounts are net of obsolescence reserves of $985,000 as of July 27,
1996 and 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 July
27, 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 July 27, 1996, the facility had a net book value of
$459,000.
At July 27, 1996 and April 27, 1996, notes payable consisted of the following:
<TABLE>
<CAPTION>
July 27, 1996 April 27, 1996
<S> <C> <C>
Note payable to bank (Headquarters facility purchase) $276,000 $278,000
Other (equipment purchases) 38,000 41,000
-------- --------
314,000 319,000
Less amounts due within one year (25,000) (25,000)
-------- --------
Total long-term debt $289,000 $294,000
======== ========
</TABLE>
Interest paid by the Company approximates interest expense for the quarters
ended July 27, 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> 9
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.
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 July 27, 1996,
$352,000 was outstanding and $398,000 of the line of credit was available. The
line of credit bears an interest rate of prime plus four points (12.25% at July
27, 1996, which equals the weighted-average interest rate for the period).
-9-
<PAGE> 10
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:
<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 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. 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.
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
July 27, 1996 July 29, 1995 July 27, 1996 July 29, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Outstanding, April 27, 1996 194,314 191,941 130,000 195,000
Granted - 32,000 - -
Exercised - (1,585) - -
Canceled - (91,500) - -
------- ------- ------- -------
Outstanding, July 27, 1996 194,314 130,856 130,000 195,000
------- ------- ------- -------
Exercise price per share $1.50 to $3.44 $1.63 to $3.44 $1.25 to $3.25 $1.25 to $3.25
</TABLE>
Warrant shares under and prices for the years ended July 27, 1996 and July 29,
1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Outstanding at beginning of period 2,447,410 1,275,000
Granted - 255,000
Exercised - (100,000)
Canceled - -
--------- ---------
Outstanding at end of period 2,447,410 1,430,000
========= =========
Exercise price per share $1.25 to $3.50 $1.25 to $3.38
</TABLE>
-10-
<PAGE> 11
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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 5).
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.
8. OPERATING LEASES
For the three months ended July 27, 1996 and July 29, 1995, aggregate rental
expense was $9,000, and $6,000, respectively.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following July 27, 1996 and
April 27, 1996:
<TABLE>
<CAPTION>
July 27, 1996 April 27, 1996
<S> <C> <C>
Land $ 57,000 $ 57,000
Building and building improvements 572,000 572,000
Machinery and equipment 863,000 865,000
---------- ----------
1,492,000 1,494,000
Less accumulated depreciation (805,000) (791,000)
---------- ----------
$ 687,000 $ 703,000
========== ==========
</TABLE>
10. 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 three
months ended July 27, 1996 and July 29, 1995 amounted to $2,000 and $3,000,
respectively. The Company has the discretion to make a profit-sharing
contribution, but no such contribution has been made by the Company.
-11-
<PAGE> 12
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 ends April 26, 1997, the prior
fiscal year ended April 27, 1996.
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.
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.
QUARTER ENDED JULY 27, 1996 COMPARED TO QUARTER ENDED JULY 29, 1995
The net loss was $769,000 for the current quarter ("Q96") compared to
$369,000 for the same period last year ("Q95"). Total revenues for Q96 were
$1,178,000 compared to Q95 revenues of $1,198,000:
<TABLE>
<CAPTION>
Product sales: July 27, 1996 July 29, 1995
<S> <C> <C>
Industrial dispensers $ 768,000 $ 763,000
Beverage dispensers 232,000 142,000
---------- ----------
$1,000,000 $ 905,000
Service and development sales:
Industrial $ 75,000 $ 187,000
Beverage 103,000 106,000
---------- ----------
$ 178,000 $ 293,000
---------- ----------
Total Revenues: $1,178,000 $1,198,000
========== ==========
</TABLE>
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. Please refer to the Annual Report on Form 10-K for the fiscal
year ended April 27, 1996 for the discussion of these strategies.
COST AND EXPENSE REVIEW
Gross profit on products sold was 20% for Q96 compared to 27% for Q95.
The cost of products sold include the expensing of previously capitalized
manufacturing overhead. Q96 overhead expense was $111,000 compared to Q95
overhead expense of $38,000. The remaining unabsorbed overhead is $190,000 as
of July 27, 1996 compared to $188,000 as of July 29, 1995.
General and administrative expense increased from $268,000 for Q95 to
$554,000 in Q96. The $145,000 severance cost of former President and CEO,
Robert A. Cutting, was recorded, accordingly, as an expense in Q96. No
severance expense was recorded in Q95. Secondly, overall payroll and expenses
have increased in Q96 compared to Q95. Management recognized the need to keep
operating expenses at a minimum; as a result, the full-time workforce was
reduced from 51 to 43 in August 1996. Finally, the activity-based costing
system also accounts for a portion of the variation in G&A from Q95 to Q96;
this variation reflects the higher volume of G&A activity in Q96.
Increased selling and marketing activities resulted in a 37% increase
in expenses in Q96 versus Q95.
Research & development expenses increased by 9% in Q96 versus Q95,
mainly due to the increase in R&D personnel.
-12-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $96,000 as of July 27, 1996 from
$488,000 as of April 27, 1996. Operating activities required cash of $474,000.
For short-term cash, the Company utilizes an accounts receivable-based
credit line. As of July 27, 1996, the Company had outstanding $352,000 on this
credit line. The interest rate is four points over the prime lending rate, or
12.25% as of July 27.
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 will credit 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.
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 July 27 was 0.87:1.00, compared to the current
ratio as of April 27, which was 1.09:1.00.
The quick ratio (cash and current receivables, divided by total
current liabilities) was 0.34:1.00 as of July 27, compared to 0.45:1.00 as of
April 27.
Management recognizes the need to 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 $3 million. As of September 6, 1996, the Company has secured
$1 million in convertible note commitments. The Company is attempting to raise
an additional $2 million in convertible notes by September 30, 1996. The 9%
Convertible Senior Subordinated Redeemable Notes are due August 1, 1999. Each
$25,000 note is convertible into shares of the Company's common stock at a
price of $1.25 per share, and redeemable common stock purchase warrants to
purchase the same number of shares at $1.50 per share for a period of five
years.
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.
Management also recognizes the need to keep operating expenses and
costs at a minimum. The full-time workforce was reduced from 51 to 43 in August
1996. Certain products are being reviewed to determine whether or not the
Company wishes to continue to offer them for sale, license the product
technology to others, or to discontinue their sale altogether.
Inventories were reduced to $1.3 million at July 27, from $1.7 million at
April 27, due to the shipment of Tint-A-Color dispensers to The
Sherwin-Williams Company.
-13-
<PAGE> 14
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
(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).
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.
-14-
<PAGE> 15
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: September 10, 1996 /s/ GARY T. SALHANY
--------------------- ---------------------------------
Gary T. Salhany Treasurer
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000748103
<NAME> ABC Dispensing Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-26-1997
<PERIOD-START> APR-28-1996
<PERIOD-END> JUL-27-1996
<CASH> 96,000
<SECURITIES> 0
<RECEIVABLES> 864,000
<ALLOWANCES> 146,000
<INVENTORY> 1,298,000
<CURRENT-ASSETS> 2,142,000
<PP&E> 1,492,000
<DEPRECIATION> 805,000
<TOTAL-ASSETS> 3,224,000
<CURRENT-LIABILITIES> 2,474,000
<BONDS> 1,042,000
0
0
<COMMON> 171,000
<OTHER-SE> 279,000
<TOTAL-LIABILITY-AND-EQUITY> 3,224,000
<SALES> 1,000,000
<TOTAL-REVENUES> 1,178,000
<CGS> 795,000
<TOTAL-COSTS> 1,036,000
<OTHER-EXPENSES> 888,000
<LOSS-PROVISION> 8,000
<INTEREST-EXPENSE> 33,000
<INCOME-PRETAX> (769,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (769,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (769,000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
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