FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________.
Commission file number: 0-14922
Florida 59-2001203
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 Kennedy Road Akron, Ohio 44305
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (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
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [ X ]
The aggregate market value of the voting stock held by non-affiliates as
of July 31, 1997 was $16,426,764.
The number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date is:
Common Stock outstanding at July 31, 1996 was 17,107,770 shares.
Documents Incorporated by Reference
The Registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders is
incorporated by reference in Part III.
Total number of pages of this report: 28.
Index to Exhibits located on page 27.
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ITEM 1. BUSINESS
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CORE COMPETENCE
ABC Dispensing Technology, Inc.'s (the "Company" or "ABC") core competence
is its ability to creatively use existing technology to develop state-of-the-art
dispensing systems. The Company's dispensing systems are designed to increase
accuracy, efficiency, speed, flexibility, and functionality. The Company's
technology is transferable into many industries. The Company concentrates on
developing solutions for specific, known applications. The Company has a unique
approach to creating new, innovative solutions by combining first the principles
of physics with state-of-the-art electronics. The Company designs its own
computer controlled systems--both hardware and software.
The core of the Company is its talented people and 29 useful patents and
14 patents pending. The Company is a technology and marketing firm. However, two
operational advantages the Company has over other technically oriented firms
are: (1) the ability to produce the systems we design, and (2) the ability to
offer field technical support (training, installation, and service).
NEW DIRECTIONS
ABC, as a technology firm, has depended on industry partners to make the
Company's equipment commercially successful. The risk in this approach is
centered around possible different goals and objectives between ABC and its
partners. As of July 15, 1996 the Company began thoroughly examining the markets
in which ABC competes. This examination included inviting as many leaders in
those markets as ABC can to define their exact needs and problems. A complete
understanding of ABC customers' needs will allow the Company to design a more
universally accepted machines from the Company's innovative concepts.
Marketing, market demand, and the customer will drive ABC's RESEARCH &
DEVELOPMENT, Design, and Commercialization. Exclusivity has restricted the
Company in the past. The Company's new mission focuses on driving an innovative
dispensing solution through the broad market in a universally and commercially
viable fashion.
ABC will take advantage of strategic alliances with other companies with
whom ABC may have had long standing relationships. The Company will exploit
these untapped opportunities so they are mutually profitable. Joint ventures and
co-production will grow the business and take advantage of economies of scale.
In addition to broadening the marketing of ABC's equipment, the Company
will concentrate on maximizing its patent portfolio. This portfolio is a library
of useful technology. The Company will strive to sell and re-sell the various
configurations of that technology as useful parts and components to the wide
range of industries we serve now--and in the future.
The Company's new mission embraces the concept of "milestone development."
In other words, ABC will discontinue RESEARCH & DEVELOPMENT on new products at
ABC's expense, based on speculation of the possibility of a future order. ABC
will work closely with those companies who pay ABC in stages as the Company
works from proof of concept through field prototype to the ultimate, commercial
version of the product. Generating revenues in stages as the Company proves its
ability helps ensure the commercial order or alerts the Company early to the
feasibility of the project. This method of RESEARCH & DEVELOPMENT will help keep
expenses reasonable.
As the Company rolls out new products, the Company will assist our
customers and partners in making their organizations comfortable and confident
in their use of our equipment and products. ABC will strive to assist them in
making these products commercially successful. ABC will support their effort
with regard to applications, maintenance, training, marketing, and sales.
The Company is dedicated to selling dispensing technology at a profit--to
a wide range of industries.
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PRODUCTS
Industrial
During the past year, the Company has successfully developed a universal
line of tint dispenser designed in a modular fashion that provides the
flexibility to control from 9 to 18 different colorants. This will allow the
Company to address the current needs of all of the world's major paint
retailers. As a result, the Company has obtained a purchase order from The Home
Depot, North America's largest home improvement retailer. The multi-million
dollar order is for 300 self-calibrating units, (Royal Match(TM) ) that will be
installed in new stores and used to upgrade dispensing capabilities in existing
stores. Commercial shipments of this equipment began in May, 1997. System
Advantages:
1. Elimination of daily purging.
2. Self-calibration to adjust for changes in tint rehology including
temperature, density and viscosity.
3. Limited moving parts to minimize maintenance requirements.
4. Self-cleaning dispensing of clear flush after each dispense cycle.
During Fiscal Year 1997 ("FY97"), all paint product sales were sales to
The Sherwin-Williams Company, accounting for 54% of total Company revenues.
Other Industrial dispensers that have been partially developed through
field test, including Concrete Additives, Chemical Coatings and an Antibacterial
dairy sprayer. These products are not being further developed until a customer
order can be obtained. The Company will continue to obtain customer feedback on
features, market size, and economics of these projects. However, the Company's
new focus on product commercialization prevents any major development efforts on
these products.
BEVERAGE
The Company currently markets two types of beverage dispensers: juice and
liquor.
On June 25, 1997 the Company announced the creation of "Virtual Squeeze,"
(TM) a 50-50 joint venture agreement with Damon Industries Inc., a Nevada based
juice manufacturer and distributor. Virtual Squeeze has targeted the $3 Billion
institutional juice market with a self-contained, refrigerated dispenser
designed to use shelf stable, bag in the box concentrates. Current plans provide
for the free installation and service of the dispensing equipment provided that
only "Virtual Squeeze" products are used. The equipment is the only specifically
designed juice dispenser using shelf stable products.
System advantages:
1. High volume dispensing of chilled juices.
2. No refrigerated storage required.
3. Preprogrammed, automated sanitization routines.
4. Pre-set portion dispensing.
5. Automated flavor blending.
The current marketing strategy has a three pronged approach: Direct sales
efforts targeted at nursing home chains and buying groups, distributor
recruitment of existing businesses currently servicing the health care industry,
and marketing directly to Food Service Distributors.
During Fiscal 1997, ABC discontinued the ongoing marketing efforts of the
Classic(TM) line of soft drink dispensers. This decision was made because of
narrow margins and resistance from the major soft drink suppliers to support the
equipment. The Company is continuing to look for opportunities to capitalize on
our technical superiority in the soft drink market. Options currently being
considered include, strategic partnerships, technology licenses, and outright
sale.
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Sales of Classic(TM) products accounted for 12.2% of total Company
revenues in FY97.
The Company's UltraBar(TM) liquor dispensing system pours complex mixed
drinks quickly with a touch of the customized touch-sensitive drink menu.
Advantages are speed, accuracy, simplicity, full cash and inventory
accountability, and reduction of theft, spillage, overpours, errors, and
giveaways.
Sales of UltraBar(TM) products accounted for 10.1% of total Company
revenues in FY97.
Overall, total product sales accounted for 76.3% of total Company revenues
in FY 1997.
SERVICES
SERVICE/TECHNICAL SUPPORT
The Company offers the ability to perform on-site service for the
Company's installed base of equipment in the U.S. The Company has committed to
increase the head count of field service technicians to improve our response
time and reduce variable costs. The Company also contracts with third party
service organizations to assist in servicing customers.
ABC utilizes its current technical service organization to perform third
party installation and service for other electronic equipment manufacturers.
Service sales accounted for 21% of total Company revenues in FY97.
NEW PRODUCT DEVELOPMENT
We offer the ability to contract with new business partners to assist in
the development of new dispensing systems. As mentioned previously in our "New
Directions" section, we will develop new dispensers for emerging products which
require our technology; however, we will perform this development work in
phases, and each phase will generate revenues.
New product development sales accounted for 2.7% of total Company revenues
in FY97.
SALES BACKLOG
As of April 26, 1997, the sales order backlog (unshipped product orders)
was $11.4 million. As of April 27, 1996, order backlog was $8.6 million. Both
years include the $7 million Juice Dispenser order received on July 17, 1995.
This order will be included in the "Virtual Squeeze" joint venture if the
purchaser proceeds with its product roll-out.
INTERNATIONAL SALES
International sales for fiscal years 1997, 1996, and 1995 were 1, 1, and 3
percent of total sales, respectively. Primary international sales efforts center
on liquor equipment to Canada and Industrial Sales to South America and Europe.
HUMAN RESOURCES
As of August 4, 1997, the Company had 44 full-time employees, five fewer
than the same time last year. The Company has cash and stock option incentive
plan programs for substantially all full-time employees. In fiscal year 1997,
the Company has increased the employee option program to provide greater degrees
of employee ownership and to help ensure a stable workforce. The employees are
not represented by a union. Temporary workers are utilized in the production
process. A highly qualified labor pool exists in the immediate geographic area
should the Company need to expand its workforce.
PATENTS
The Company has consistently sought patent protection for our proprietary
technology and products. To date, 29 patents are outstanding and an additional
12 are pending. Patent coverage of our dispensing technology is broad. Research
and development expenditures for the fiscal years 1997, 1996, and 1995 were
$629,000, $714,000 and $606,000, respectively.
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ENTITIES & FISCAL YEAR
"ABC" is comprised of three legal entities: the parent (public
entity)--ABC Dispensing Technologies, Inc., (a Florida corporation)
(NASDAQ:ABCC), the operating subsidiary--ABC Dispensing Technologies, Inc. (an
Ohio corporation), and a second subsidiary that holds the patents--ABC Tech
Corp. (an Ohio corporation).
"Fiscal Year 1997" ended April 26, 1997. The Company has adopted a fiscal
year ending on the Saturday closest to April 30. Each quarter consists of 13
weeks.
ITEM 2. PROPERTIES
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The Company owns a single floor building of approximately 18,400 square
feet of office, laboratory, and production space located in Akron, Ohio. The
facility and adjacent land were purchased in June, 1994 by the Company from
Joseph W. Shannon, former Chairman of the Company, for $490,000. Prior to the
purchase, the facility and land were appraised for $535,000. The Company had
previously leased the facility from Mr. Shannon. This acquisition was partially
financed by a bank note; the balance on this note was $268,000 as of April 26,
1997.
The Company leases additional laboratory and warehouse space from
independent third parties on an as needed basis.
ITEM 3. LEGAL PROCEEDINGS
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The Company presently is not involved as a defendant in any material
litigation.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The 1996 Annual Meeting of Shareholders of the Company was held at
Sheraton Suites, 1989 Front Street, Cuyahoga Falls, Ohio, on Friday, September
27, 1996, at 1:00 p.m. eastern standard time, for the following purposes:
1. To vote for the five (5) Director nominees to serve as Directors
until the 1997 Annual Meeting of Shareholders or until their successors are
elected and qualified:
Herbert M. Pearlman
Charles M. Stimac, Jr.
Herbert L. Luxenburg
C. Rand Michaels
John E. Stieglitz
2. To consider and vote upon an amendment to the Company's Certificate
of Incorporation to authorize the creation and issuance of a class of equity
designated as Preferred Stock.
The Shareholders voted "for" all the Director nominees listed above and
approved all the above proxy issues.
On July 15, 1996, Robert A. Cutting resigned from his position of Director
and Chief Executive Officer. The Company named Charles M. Stimac, Jr., as
Director and Chief Executive Officer. Mr. Stimac, 45 years old, with more than
20 years in the investment banking and brokerage industry with extensive
experience in sales and marketing, formerly was a Vice President with Roney &
Company, a member firm of the New York Stock Exchange.
On February 5, 1997, Herbert M. Pearlman and John E. Stieglitz resigned
from their positions as Directors of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
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MATTERS
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A. PRICE RANGE OF COMMON STOCK
Bid and ask prices for the Company's common stock (symbol `ABCC') have
been quoted on the NASDAQ system since March 28, 1985. The table below shows the
range of bid prices of the common stock for the last two years as reported by
NASDAQ.
Common Stock (ABCC):
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Year Ended April 26, 1997 Prices: High Bid Low Bid
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01/26/97 - 04/26/97 (Fourth Quarter) $2 - 1/4 $1 - 1/16
10/27/96 - 01/25/97 (Third Quarter) 2 - 1/16 11/16
07/28/96 - 10/26/96 (Second Quarter) 1 - 7/16 13/16
04/28/96 - 07/27/96 (First Quarter) 2 - 1/8 1 - 3/16
Common Stock (ABCC):
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Year Ended April 27, 1996 Prices: High Bid Low Bid
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01/28/96 - 04/27/96 (Fourth Quarter) $2 - 1/8 $1 - 9/16
10/29/95 - 01/27/96 (Third Quarter) 3 - 3/16 1 - 7/8
07/30/95 - 10/28/95 (Second Quarter) 3 - 7/16 2 - 5/16
04/30/95 - 07/29/95 (First Quarter) 3 - 7/16 2 - 1/4
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B. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
---------------------------------------------
Approximate Number of
Record Holders
Title of Class as of July 31, 1997
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Common Stock, $.01 par value 1,359
C. DIVIDENDS
The Company has never paid a dividend and has no current plans to do so.
Future dividend policy will be determined by the Board of Directors based on the
Company's earnings, financial condition, capital requirements, and other
existing conditions.
ITEM 6. SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED APRIL 26, APRIL 27, APRIL 29, APRIL 30, APRIL 30,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
REVENUES (a) $3,073,000 $5,312,000 $3,359,000 $5,010,000 $2,329,000
NET LOSS $(2,968,000) $(1,324,000) $(2,681,000) $(1,378,000) $(3,359,000)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 17,074,000 16,414,000 15,669,000 14,155,000 13,820,000
NET LOSS PER SHARE $(0.17) $(0.08) $(0.17) $(0.10) $(0.24)
TOTAL ASSETS $3,350,000 $4,020,000 $3,719,000 $4,190,000 $4,102,000
LONG-TERM OBLIGATIONS $283,000 $294,000 $-0- $-0- $-0-
STOCKHOLDERS' EQUITY $1,635,000 $1,085,000 $515,000 $2,194,000 $2,011,000
DIVIDENDS DECLARED
PER SHARE OF COMMON STOCK $-0- $-0- $-0- $-0- $-0-
RESEARCH & DEVELOPMENT (a) $629,000 $714,000 $606,000 $386,000 $391,000
(a) Research & Development costs for fiscal years 1993, 1994, 1995, 1996 and 1997 include costs
subject to reimbursement under various agreements. The amounts earned under these agreements are
included in revenues for the respective years.
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
With the completion of the first year of a new management structure at the
Company, a new focus on project commercialization has emerged. No longer are
resources committed to new projects without financial commitment from the
customer. Development projects are now being limited to concepts that are
financially supported by the requesting organizations. The Company's focus can
best be illustrated with the fact that only two development projects are
currently underway and will continue on through successful market acceptance.
During the year the Company discontinued the production of the
Omnitron(TM) soft drink dispenser. The limited production quantities and
resistance from the soft drink suppliers prevented the Omnitron(TM) from broad
market acceptance. The Company is continuing to explore the possibilities of
using this technology in other applications and licensing in the soft drink
industry.
SIGNIFICANT ORDER
On February 12, 1997, the Company announced that it received an initial
multi-million dollar order for its new, self-calibrating, universal paint-tint
dispensing system. The order was received from The Home Depot, Inc., North
America's largest home improvement retailer. The order is for 300 units of ABC's
new automatic tinting system, tradenamed "Royal Match." Commercial delivery
commenced in May, 1997, and will be completed during fiscal year 1998. This is
the initial phase of an anticipated rollout to The Home Depot's entire 500-plus
store network in 34 states and three Canadian provinces, with one to three units
of the tinting system expected to be installed per store. The unit has been
designed to interface with The Home Depot's networked POS system.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 26, 1997 COMPARED TO YEAR ENDED APRIL 27, 1996
The net loss was $2,968,000 for FY97 compared to $1,324,000 for FY96.
Reduced sales in paint dispensers and costs associated with the reorganization
of management, customer base, and development efforts were responsible for the
increased loss.
FY97 total revenues were $3,073,000 compared to FY96 total revenues of
$5,312,000. A decline in sales of paint dispensers to The Sherwin-Williams
Company and withdrawal from the soft drink market caused this decrease.
Product Sales:
FY97 FY96
Industrial dispensers $2,002,000 $3,500,000
Beverage dispensers 791,000 814,000
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$2,793,000 $4,314,000
Service and development sales:
Industrial dispensers $ 96,000 $ 474,000
Beverage dispensers 184,000 524,000
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$ 280,000 $ 998,000
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Total Revenues $3,073,000 $5,312,000
========= ==========
The decrease in Industrial sales were a result of a realignment of our
customer base from one customer (Sherwin-Williams) to the total retail paint
industry. Broad customer interest in our dispensing technology has been received
and a focus of our research and development resources has resulted in The Home
Depot order and numerous requests for evaluation of our "Royal Match" system. It
was necessary to realign our customer base because of limited sales growth
potential and the need for improved margins.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The decrease in beverage sales was caused primarily by our withdraw from
the soft drink market. Narrow gross margins and resistance from the major soft
drink suppliers to support our equipment made this decision unavoidable.
General and administrative expenses increased because of management
reorganization costs that generated severance fees, consultant fees, and a
strategic decision to focus the Company's resources on completing
commercialization of two major projects. This focus resulted in an increase in
general and administrative payroll and benefits of $259,000, even though total
Company payroll and benefits declined by $188,000.
Selling and marketing expenses were greater than last year because of an
increased Industrial sales force and for major commitments to presenting the
technology of the Company at trade shows and industry councils.
Research and development expenses were down because fewer active projects
led to lower allocated expenses from all functional areas.
YEAR ENDED APRIL 27, 1996 COMPARED TO YEAR ENDED APRIL 29, 1995
The net loss was $1,324,000 for FY96 compared to $2,681,000 for FY95. FY96
included $366,000 positive adjustment as a result of a securities litigation
settlement. FY95 included a $1 million accrual for final settlement costs and
legal expenses. Total revenues for FY96 were $5,312,000 compared to FY95
$3,359,000 revenues:
Product sales: FY96 FY95
Industrial dispensers $3,500,000 $1,689,000
Beverage dispensers 814,000 854,000
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$4,314,000 $2,543,000
========== ==========
The increase in industrial product sales was due to an increase in shipments of
tint dispensers to The Sherwin-Williams Company (S-W). In February 1995, the
Company received a $990,000 initial order of "TAC-CB" units, the down-sized,
lower cost tint dispenser designed specifically for paint retailers. The TAC-CB
was in joint development for two years with S-W. The Company shipped the order
from May to October of 1995. In December 1995, the Company received a $1,758,000
order for TAC units from S-W.
The FY96 and FY95 history of Tint-A-Color orders and shipments is as follows:
Model Order Dates Ship Dates Sales Volume
- ----- ----------- ---------- ------------
TAC March 1994 June-October 1994 $1,659,000
TAC-CB February 1995 May-October 1995 $ 990,000
TAC April 1995 July-October 1995 $1,856,000
TAC December 1995 April-July 1995 $1,758,000
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1996 VS 1995 Continued
FY96 gross profit on tint equipment sales was 29.2% as compared to 30.9%
for FY95. The FY96 gross profit on beverage equipment sales was 39.8% compared
to 21.3% for FY95. The FY95 margin was affected by a $150,000 write-off of
obsolete inventory; lowering the profit margin from 35.6% to 21.3%. The Company
reviews the slow moving inventory items each quarter to determine if an
adjustment to the obsolescence reserve is required.
General and administrative expenses increased 5% primarily due to adding
(1) public relations personnel, (2) chairman's salary and office support, and
(3) supplemental legal counsel for public company matters.
Selling and marketing expenses increased 33% due to the international
marketing effort for both paint and beverage products.
Research and development expenses increased 18% as a result of increased
new product development activity. Numerous dispensing applications were under
development during FY96 and these development projects continued into FY97.
These projects produced such new products as the institutional juice dispenser,
chemical coatings dispenser, and the cement additives dispenser, to name a few.
The distribution of the Class Action settlement fund (see Note 13 to the
Consolidated Financial Statements) and the final valuation of the Company's
contributed common stock to the fund allowed the Company to lower the accrual
for settlement costs and legal expenses by $366,000. The Company had originally
accrued $1,000,000 in FY95 to record estimated remaining settlement costs and
legal fees. The remaining accrual at April 27, 1996, was $95,000.
The Company renegotiated its chemical coatings agreement in FY 1996 and
obtained a release from exclusivity with the Sherwin-Williams Company (S-W). In
consideration for release from S-W exclusivity, the Company agreed to rebate to
S-W the $175,000 research and development costs incurred by S-W. The Company has
capitalized this cost as an intangible asset and is amortizing this asset on a
straight line basis over a period of three years. The amortization expense
during FY96 was $29,000.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $488,000 as of April 26, 1997 from
$1,309,000 as of April 27, 1996.
Operations required cash of $2,684,000. To provide necessary financing the
Company issued 261 shares of Series A Preferred Stock in exchange for notes of
$12,500 cash per share, generating $3,265,000 cash. (see footnote 8) Near term
cash requirements will be obtained using this same Preferred Stock vehicle.
In January 1996 the Company established an accounts receivable-based
credit line with Foothill Capital Corporation. The credit line bears an interest
rate of prime plus four points. As of 04/26/97 the credit limit was set at
$450,000 with an outstanding balance of $1,873.
If the above sources of cash do not become available or are not
sufficient, the Company may be forced to curtail marketing and RESEARCH &
DEVELOPMENT activities which would adversely affect future operating results.
The current ratio was 1.49:1.0 as of April 26, 1997, compared to 1.09:1.0
as of April 27, 1996.
1997 AUDIT
Grant Thornton, L.L.P. has audited the consolidated balance sheet of the
Company as of April 26, 1997, and the related consolidated statement of
operations, cash flows and stockholders' equity for the year ended April 26,
1997. In its report of August 8, 1996, to the Board of Directors and to the
Company it is stated that the financial statements have been prepared assuming
that the Company will continue as a going concern. However, their report states
that the "history of operating losses and limited capital resources raise
substantial doubt" about the Company's ability to continue as a going concern
(see Note 3 to the Consolidated Financial Statements). Management recognizes the
need to increase sales and raise additional capital and has plans and programs
intended to accomplish these goals.
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<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES PAGE NO.
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FINANCIAL STATEMENTS:
<S> <C>
Consolidated Balance Sheets as of April 26, 1997 and April 27, 1996 14
Consolidated Statement of Operations for the Years ended April 26, 1997,
and April 27, 1996, and April 30, 1994 15
Consolidated Statement of Cash Flows for the Years ended April 26, 1997,
and April 27, 1996, and April 30, 1994 16
Consolidated Statement of Stockholders' Equity for the Years ended
April 26, 1997, and April 27, 1996, and April 30, 1994 17
Notes to Consolidated Financial Statements 18-23
SUPPLEMENTARY DATA:
Schedule II-Valuation and Qualifying Accounts 24
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
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ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
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ASSETS
April 26, 1997 April 27, 1996
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<S> <C> <C>
Current Assets
Cash and cash equivalents $ 445,000 $ 488,000
Accounts receivable, less allowance for doubtful accounts
of $191,000 in 1997 and $136,000 in 1996 (Note 5) 327,000 764,000
Inventories (Note 4) 1,431,000 1,703,000
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Total current assets 2,203,000 2,955,000
Property, plant, and equipment (Note 5 and 11) 704,000 703,000
Other assets:
Intangible assets, less accumulated amortization of
$552,000 in 1997 and $480,000 in 1996 102,000 169,000
Patents pending and deferred charges 341,000 193,000
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443,000 362,000
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Total Assets $ 3,350,000 $ 4,020,000
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 877,000 $ 875,000
Line of credit (Note 5) 2,000 292,000
Note payable to related party (Note 5) -- 500,000
Current portion of long-term debt 36,000 25,000
Accrued liabilities:
Legal fees and settlement costs (Note 13) -- 148,000
Employee compensation and benefits 224,000 218,000
Warranty reserve 88,000 197,000
Other 177,000 353,000
Deferred income 28,000 33,000
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Total current liabilities 1,432,000 2,641,000
Long-term debt (Note 5) 283,000 294,000
Stockholders' equity (Note 7):
Preferred Stock, 9% cumulative; authorized 320 shares 3,388,000 --
271 shares issued
Common Stock, $.01 par value; authorized 50,000,000
shares; 17,114,279 shares issued (16,984,160 in 1996) 171,000 170,000
Additional paid-in capital ($36,785 restricted for cost of
treasury shares held) 19,014,000 18,942,000
Retained earnings (deficiency) (20,850,000) (17,882,000)
------------ ------------
1,723,000 1,230,000
Less notes receivable - stockholders (51,000) (146,000)
Less cost of treasury stock, 35,000 shares (37,000) --
------------ ------------
Total Stockholders' Equity 1,635,000 1,085,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,350,000 $ 4,020,000
========================================================================================================
</TABLE>
See accompanying notes.
-14-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended April 26, April 27, April 29,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Products and services $ 3,073,000 $ 5,057,000 $ 3,208,000
Royalties -- 255,000 151,000
------------ ------------ ------------
3,073,000 5,312,000 3,359,000
Cost and expenses:
Products and services 2,839,000 4,610,000 3,053,000
General and administrative 1,997,000 1,106,000 1,049,000
Selling and marketing 700,000 540,000 406,000
Research and development 629,000 714,000 606,000
------------ ------------ ------------
6,165,000 6,970,000 5,114,000
------------ ------------ ------------
Loss from operations (3,092,000) (1,658,000) (1,755,000)
Other income (expense)
Securities and contract litigation
fees and settlement (Note 13) -- 366,000 (1,000,000)
Investment income 4,000 78,000 77,000
Interest expense (138,000) (134,000) (28,000)
Other, net 258,000 24,000 25,000
------------ ------------ ------------
124,000 (334,000) (926,000)
------------ ------------ ------------
Net loss $ (2,968,000) $ (1,324,000) $ (2,681,000)
====================================================================================================
Weighted average number of shares
outstanding 17,074,000 16,414,000 14,155,000
---------- ---------- ----------
Net loss per share $ (0.17) $ (0.08) $ (0.17)
====================================================================================================
</TABLE>
See accompanying notes.
-15-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended April 26, April 27, April 29,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
- ---------------------
Net loss $(2,968,000) $(1,324,000) $(2,681,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deprecation and amortization 313,000 110,000 99,000
Loss on disposal of assets -- -- 6,000
Value of common stock issued to settle
litigation -- -- 450,000
Changes in operating assets and liabilities:
Receivables 437,000 (398,000) 220,000
Inventories 272,000 (484,000) 129,000
Other assets (307,000) (283,000) (13,000)
Accounts payable 2,000 421,000 149,000
Accrued liabilities (428,000) (869,000) 163,000
Deferred income (5,000) 13,000 (32,000)
----------- ----------- -----------
Total adjustments 284,000 (1,490,000) 1,171,000
----------- ----------- -----------
Net cash used in operating activities (2,684,000) (2,814,000) (1,510,000)
Investing activities:
- ---------------------
Purchases of property, plant, and equipment (69,000) (16,000) (671,000)
Additions to patent (4,000) -- (11,000)
Investment in Joint Venture (14,000) -- --
----------- ----------- -----------
Net cash provided used in investing activities (87,000) (16,000) (682,000)
Financing activities:
- ---------------------
Proceeds from private placements 3,388,000 926,000 979,000
Private placement costs (73,000) -- --
Proceeds from issuance of common stock 140,000 -- --
Proceeds from issuance of notes payable 29,000 1,267,000 490,000
Repayment of notes payable and loan costs (820,000) (684,000) (12,000)
Proceeds from collection of stockholders receivable 95,000 -- --
Proceeds from stock issued for exercise of stock
options and warrants 6,000 500,000 23,000
Purchase of treasury shares (37,000) -- --
----------- ----------- -----------
Net cash provided by financing activities 2,728,000 2,009,000 1,480,000
----------- ----------- -----------
Net (decrease)/increase in cash and cash equivalents (43,000) (821,000) (712,000)
Cash and cash equivalents at beginning of year 488,000 1,309,000 2,021,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 445,000 $ 488,000 $ 1,309,000
==============================================================================================================
</TABLE>
See accompanying notes.
-16-
<PAGE>
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended April 26, 1997, April 27, 1996, and April 29, 1995
Common
Number of Stock Additional Retained Notes
Shares of $.01 Pa Preferred Paid-in Earnings Receivable Treasury
Common Stock Value Stock Capital (Deficiency) Stockholders Stock
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994 14,981,039 $150,000 $15,921,000 $(13,877,000)
Private placements 1,000,000 10,000 1,126,000 $(164,000)
Exercise of stock options 15,077 23,000
Collection on notes receivable-
stockholders 7,000
Net loss (2,681,000)
------------------------------------------------------------------------------------------
Balance at April 29, 1995 15,996,116 $160,000 $17,070,000 $(16,558,000) $(157,000)
Private placements 569,667 6,000 909,000
Stock issued to settle litigation 150,000 1,000 466,000
Exercise of warrants 214,000 2,000 426,000
Exercise of stock options 54,377 1,000 71,000
Collection on notes receivable-
stockholders 11,000
Net loss (1,324,000)
------------------------------------------------------------------------------------------
Balance at April 27, 1996 16,984,160 $170,000 $18,942,000 $(17,882,000) $(146,000)
Preferred Stock private
placement (Note 6) $3,388,000
Private placement costs (73,000)
Issuance of Stock to Mezzanine
Financial Fund, L.P. (Note 5) 125,000 1,000 141,000
Exercise of Stock Options 5,000 6,000
Collection on notes receivable-
stockholders 95,000
Net loss (2,968,000)
Treasury Stock (Note 6) $(37,000)
------------------------------------------------------------------------------------------
Balance at April 27, 1996 17,114,000 $171,000 $3,388,000 $19,014,000 $(20,850,000) $(51,000) $(37,000)
===============================================================================================================================
</TABLE>
See accompanying notes.
-17-
<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 focused its development and marketing efforts on the
Beverage and Paint Industries.
2. SIGNIFICANT ACCOUNTING POLICIES
YEAR END - Effective May 1, 1994, the Company changed the fiscal year-end to the
Saturday closest to April 30, which results in a fifty-two or fifty-three week
year. Fiscal 1997, fiscal 1996 and fiscal 1995 consisted of fifty-two weeks
ending on April 26, April 27, and April 29, respectively. References to the
years 1997, 1996 and 1995 refer to fiscal years ended April 26, 1997, April 27,
1996, and April 29, 1995, respectively.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and its subsidiaries, ABC Dispensing Technologies, Inc. and ABC Tech
Corp. 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 market value at April 26, 1997.
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 54, 72, and 59
percent of the Company's total revenues, for 1997, 1996, and 1995, respectively.
PROVISION FOR WARRANTY CLAIMS - Estimated warranty costs are provided at the
time of sale of the warranted products.
-18-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Additional disclosures
relating to stock option activity which are required by Statement of Financial
Accounting Standards No. 123 - "Accounting for Stock Based Compensation" are
included in footnote 7.
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
LONG-LIVED ASSETS - In 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. The
adoption of SFAS No. 121 had no effect on the financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to prior year
amounts to conform with current year classifications.
3. GOING CONCERN UNCERTAINTY
The Company has reported a net loss for each year of operation since its
inception except for 1989, and as of April 26, 1997 has an accumulated
deficiency of $20,850,000. The Company's cash flow from operating activities was
a negative $2,684,000 in 1997 and a negative $2,814,000 in 1996, and cash and
cash equivalents declined from $2,021,000 at the beginning of fiscal 1995 to
$445,000 at April 26, 1997. Management expects that the Company will continue to
incur losses and use cash in operations in the near future.
Management recognizes the Company must generate additional funds to assure
continuation of operations. The Company has been successful in raising capital
from private investors and raised $5,220,000 over the past three years through
private placements of both preferred and common stock. The Company is continuing
in it efforts to raise capital through private placements of 9% Convertible
Cumulative Preferred Stock. The Preferred Stock is convertible into common stock
at $1 per share. Proceeds from private placements will be used to reduce
accounts payable and provide additional working capital. No assurances can be
given that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds, that the Company will achieve profitable operations or
positive cash flow. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. No adjustments to the amounts or
classification of assets and liabilities which could result from the outcome of
this uncertainty are reflected in the consolidated financial statements.
4. INVENTORIES
At April 26, 1997 and April 27, 1996, inventories consisted of the following:
1997 1996
----------- ---------
Raw Materials $ 927,000 $ 729,000
Work-in-process 118,000 488,000
Finished goods 386,000 486,000
----------- -----------
$ 1,431,000 $ 1,703,000
=========== ===========
The above amounts are net of obsolescence reserves of $838,000 and $985,000 at
1997 and 1996, respectively.
-19-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FINANCING ARRANGEMENTS
NOTES PAYABLE
In June 1994, the Company purchased its headquarters facility in Akron, Ohio for
$490,000. A note payable was entered into during fiscal 1995 to partially
finance this purchase which was previously leased from the former chairman. The
note payable has an adjustable interest rate (9.25% at April 26, 1997 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 April 26, 1997 the facility has a net book value of $555,000.
5. FINANCING ARRANGEMENTS (CONTINUED)
At April 26, 1997 and April 27, 1996, notes payable consisted of the following:
1997 1996
--------- ---------
Note payable to bank $268,000 $278,000
Other 51,000 41,000
--------- ---------
319,000 319,000
Less amounts due within one year (36,000) (25,000)
========= =========
Total long-term debt $283,000 $294,000
========= =========
Maturaties of notes payable for the five years subsequent to April 26, 1997 are
as follows: 1998--$35,000; 1999--$32,000; 2000--$20,000; 2001--$16,000 and
2002--$17,000.
Interest paid by the Company approximates interest expense for 1997 and 1996.
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. 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 16,653.
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 Mezzanine. Mezzanine subsequently
sold 90,000 of the shares to satisfy interest charges from April through
September, 1996, prepayment penalties and other fees. On September 24, 1994, the
Company repaid the $500,000 principal balance of the loan in full. On December
31, 1996, the loan agreement was terminated and Mezzanine returned 35,000 shares
of Common Stock to the Company. The company is holding the 35,000 shares in
treasury.
HERBERT M. PEARLMAN, who resigned as Chairman of the Board of Directors of the
Company on February 5, 1997, 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.
-20-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. In February, 1996, the
line of credit was reduced from $750,000 to $450,000. At April 26, 1997, $2,000
was outstanding and $448,000 of the line of credit was available. The line of
credit bears an interest rate of prime plus four points (12.50% at April 26,
1997), which equals the weighted-average interest rate for the period).
6. INCOME TAXES
Effective May 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes." The change had no impact on the accompanying financial
statements. Deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of Company assets and
liabilities.
The components of the Company's deferred income taxes at April 26, 1997 and
April 27, 1996 are as follows:
1997 1996
-------------- -------------
Net operating loss carryforwards $ 6,650,000 $ 5,450,000
Inventories 413,000 495,000
Other 170,000 255,000
-------------- -------------
Total deferred tax asset 7,233,000 6,200,000
Valuation allowance for deferred taxes (7,233,000) (6,200,000)
-------------- -------------
Net deferred taxes $ -0- $ -0-
============== =============
At April 26, 1997 and April 27, 1996, the Company had Federal net operating loss
carryforwards for tax reporting purposes of approximately $17,500,000 and
$14,800,000, respectively. The net operating loss carryforwards expire in the
years 1998 to 2012. It is uncertain if benefits relating to these deferred tax
assets are realizable and accordingly, a valuation allowance equal to the amount
of such deferred tax assets has been recorded.
7. COMMON STOCK
Stock Option Plans
- ------------------
The Company has a non-qualified stock option plan which provides for the
issuance of up to 500,000 shares of common for non-employee directors, officers
and other key employees. All granted options are exercisable after six months
from the grant date provided the employee has at least one year of service.
Grant options expire five years after grant date, and all options were granted
at fair market value at the date of the grant.
Stock option transactions and prices are summarized as follows:
<TABLE>
<CAPTION>
Officers' & Employees' Shares Under Option Directors' Shares Under Option
For Year Ended For Year Ended For Year Ended For Year Ended
April 26, 1997 April 27, 1996 April 26, 1997 April 28, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 191,941 104,018 195,000 75,000
Granted 112,250 119,500 - 120,000
Exercised ( 14,377) ( 15,077) ( 40,000) -
Canceled ( 95,500) ( 16,500) ( 25,000) -
--------- --------- --------- -------
Outstanding, end of year 194,314 191,941 130,000 195,000
======= ------- ------- -------
Exercise price per share $1.50 to $3.44 $1.50 to $3.44 $1.25 to $3.25 $1.25 to $3.25
</TABLE>
-21-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants
- --------
On May 2, 1995, the Company granted David B. Hudson, V.P. - Domestic Beverage
Sales, and Keith P. Jordan, National Account Manager, warrants to purchase
20,000 and 10,000 restricted shares of common stock, respectively, at $3.38 per
share; the warrants expire May 2, 2000.
On June 13, 1995, the Company initiated a private offering to sell 20 units of
$25,000 10% Senior Subordinate Notes due June 1, 1998 and three year redeemable
warrants to purchase 12,500 shares of the Company's common stock at $2 per share
(See Note 5).
On August 1, 1995, the Company granted warrants to Herbert M. Pearlman, Chairman
(200,000 at $3.00 per share), Robert A. Cutting, former President (100,000 at
$3.00 per share), and others (30,000 ranging from $2.00 to $3.00).
7. COMMON STOCK (CONTINUED)
On September 14, 1995, the Company issued 200,000 warrants at $3.50 per share to
Hussmann Corporation pursuant to the securities litigation settlement (see
footnote 12 to the Consolidated Financial Statements).
On November 1, 1995, the Company issued 500,000 warrants at $3.50 per share to
Pepsi-Cola Company pursuant to the securities litigation settlement (see
footnote 12).
On December 11, 1995, the Company issued 30,000 warrants at $2.25 per share
pursuant to a sale of common stock.
On January 17, 1996, the Company issued 58,910 warrants at $2.04 per share to
Mezzanine Financial Fund L.P. pursuant to the debt financing received by
Mezzanine (see footnote 5)
Warrant shares under and prices for the years ended April 26, 1997 and April 27,
1996 are summarized as follows:
1996 1995
------------- --------------
Outstanding at beginning of period 1,275,000 -
Granted 1,386,410 1,275,000
Exercised (214,000) -
Canceled - -
============= ==============
Outstanding at end of period 2,447,410 1,275,000
============= ==============
Exercise price per share $1.25 to $3.50 $2.00 to $3.50
8. PREFERRED STOCK
The shareholders of the Company have approved an amendment to the Company's
Certificate of Incorporation to authorize 5,000,000 shares of Preferred stock.
The company offered shares of 9% Convertible Cumulative Redeemable Preferred
Stock, Series A ("Series A Preferred Stock") in exchange for the surrender of
the Company's outstanding $25,000, 9% Convertible Subordinated Redeemable Notes
due August 1, 1999 ("Notes").
As of June 17, 1997, through private placements, the Company issued 283 shares
of Series A Preferred Stock in exchange for notes or $12,500 cash per share,
generating gross proceeds of $3,538,000 to the Company.
The Series A Preferred Stock is convertible at the option of the holder, in
whole or in part, at any time after March 1, 1997 (the "Initial Conversion
Date") into Common Stock of the Company at a price per share of Common Stock
equal to (i) $1.00 per share, or (ii) such adjusted price as may form time to
time be adjusted (the "Conversion Price"). If converted into Common Stock, each
Preferred Share will entitle the holder to receive warrants to purchase a number
of shares of Common Stock at a price of $1.25 per share, equal to the number of
shares of Common Stock into which the Preferred Shares were converted. The
warrants will be valid for a period of five years commencing from the date of
issuance.
22
<PAGE>
The Preferred Shares pay dividend semi-annually each February 1, and August 1,
commencing on February 1, 1997. The Company may elect to pay dividends in the
form of Common Stock of the Company issued at 90% of the then current market
price of the Common Stock. A cash adjustment shall be paid for any fractional
shares that are due under the dividend calculation. For the purposes of this
calculation the "current market price" shall mean the average of the daily
closing prices for each of the thirty consecutive business days prior to such
dividend date.
On May 30, 1997, the Board of Directors declared a dividend of 514 shares of
Common Stock and $0.39 cash payable on July 1, 1997, to shareholders of record
as of the close of business on June 13, 1997. As of August 1, 1997, the company
is in arrears with respect to the dividend declared on May, 30, 1997.
9. RELATED PARTY TRANSACTIONS
From February, 1995, to August, 1996, the Company leased office space for
Herbert M. Pearlman from Helm Resources, Inc. for approximately $21,000 per
year. Mr. Pearlman is Chairman, Chief Executive Officer and a principal
stockholder in Helm Resources, Inc. (see footnote 4). Mr. Pearlman resigned as
Chairman of the Board of Directors of the Company on February 5, 1997.
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.
10. OPERATING LEASES
Aggregate rental expense for fiscal years 1997, 1996 and 1995 was $48,000,
$60,000 and $13,000, respectively.
11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at April 26, 1997 and
April 27, 1996:
1997 1996
--------------- -------------
Land $ 57,000 $ 57,000
Building and building improvements 572,000 572,000
Machinery and equipment 934,000 865,000
--------------- -------------
1,563,000 1,494,000
Less accumulated depreciation (859,000)) (791,000))
--------------- -------------
$ $
704,000 703,000
=============== =============
12. RETIREMENT BENEFITS
The Company sponsors a 401(k) plan which covers substantially all full-time
employees. Eligible employees may contribute up to 14% of their compensation to
this plan. The Company has agreed to match participants' contributions at the
rate of 25 cents on the dollar up to a maximum of 4% of the participants'
compensation. The cost of the Company's matching contribution was approximately
$13,000 in 1997, and $9,000 in each year during 1996 and 1995. The Company has
the discretion to make a profit-sharing contribution, but no such contribution
has been made by the Company.
13. LITIGATION SETTLEMENT/CONTINGENCIES
On March 13, 1995, the Company and other defendants (officers and directors and
former directors of the Company) entered into a Stipulation of Settlement (the
"Settlement") with the Plaintiffs in a class action lawsuit (the "Securities
Litigation") that provided for the Settlement of the Securities Litigation. The
Settlement provided for a Gross Settlement Fund of $1,850,000, plus 1,550,000
shares of the Company's common stock. The Company's contribution to the
Settlement Fund was $443,000 and 150,000 shares. The Stipulation defined the
Plaintiff class as "all persons who purchased ABCC common stock on the open
market from January 24, 1990 through August 1, 1991, inclusive." On June 19,
1995, the U.S. Federal District Court for the Southern District of New York
entered a Final Judgment approving the Settlement as "fair, reasonable and
adequate to members of the class." Pursuant to the terms of the Final Judgment,
on July 6, 1995, Plaintiffs' counsel were paid attorneys' fees of $550,000 (plus
$1,078 of accrued interest after taxes) on the cash portion of the Settlement
Fund and were reimbursed $244,394 for expenses out of the Gross Settlement Fund.
Plaintiffs' counsel also received an aggregate of 465,000 shares of common stock
of the Company awarded to Plaintiffs' counsel from the Gross Settlement Fund as
a portion of attorneys' fees. These shares of common stock were distributed to
Plaintiffs' counsel in early February 1996.
23
<PAGE>
On January 16, 1996, the U.S. Federal District Court ordered the distribution of
the Net Settlement Fund consisting of approximately $1,082,000 cash and
1,085,000 shares of common stock of the Company to 1,469 authorized claimants.
The distribution to authorized claimants was made pursuant to the Order of the
Court on about February 23, 1996. There is no further action to be taken in
connection with the Securities Litigation since the Settlement has been
effectuated in accordance with the Order of the Court.
The estimated legal fees and settlement costs have been accrued for the above
action. At April 27, 1996, the accrual amounted to $1,498,000. During 1996,
$1,037,000 of this amount was settled in cash and securities, $366,000 was
reversed and credited to income and $95,000 remained in the accrual at April 26,
1996 to cover certain remaining legal fees. In 1997, the remaining $95,000
accrual was reversed and credited to income.
The Company from time to time is subject to routine litigation incidental to its
business. The Company believes that any liability that may finally be determined
would not have a material adverse effect on its financial statements.
14. SUBSEQUENT EVENTS
On June 25, 1997, the Company entered into a joint venture agreement with Damon
Industries, a privately-owned national juice manufacturer with headquarters in
Sparks, Nevada, to form "Virtual Squeeze", a 50-50 business enterprise. The
purpose of the joint venture is to provide shelf-stable juice products and
state-of-the-art dispensing technology to health care facilities with high
volume juice consumption. Under the agreement, the Company will manufacture
dispensing equipment and provide technical support to the joint venture, and
Damon will manufacture fruit juice and provide marketing and administrative
support for the joint venture. The joint venture will finance the dispensing
equipment through sale/leaseback arrangements. The dispensing equipment will be
placed in a customer's facility at no charge providing the customer commits to
purchasing all of its juice from the Virtual Squeeze. The revenue from the juice
sales will cover the cost of equipment, juice, and operating expenses of the
joint venture. Resulting profits from the juice sales will be split 50-50 by the
Company and Damon.
24
<PAGE>
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC. (CONSOLIDATED)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------
- --------------
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- ----------------------------------------------------------------------------------------------------------------------
- --------------
<S> <C> <C> <C> <C> <C>
Year ended April 26, 1997
Allowance for doubtful accounts $136,000 $ 141,000 $ < 86,000>(a) $191,000
======== ========== ============== ========
Allowance for inventory obsolescence $985,000 -- $ 147,000(b) $838,000
======== ========== ============== ========
Year ended April 27, 1996
Allowance for doubtful accounts $ 78,000 $ 40,000 $ (86,000)(a) $136,000
======== ========== ============== ========
Allowance for inventory obsolescence $943,000 $ 80,000 $ 38,000 (b) $985,000
======== ========== ============== ========
Year ended April 29, 1995
Allowance for doubtful accounts $128,000 $ 1,000 $ 51,000(a) $ 78,000
======== ========== ============== ========
Allowance for inventory obsolescence $816,000 $ 150,000 $ 23,000(b) $943,000
======== ========== ============== ========
</TABLE>
(a) Uncollectable accounts written off, net of recoveries.
(b) Inventory written off and disposed.
-25-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information regarding the Directors and Executive Officers of the Company
is incorporated herein by reference from the Company's definitive Proxy
Statement of the Annual Meeting of Stockholders to be held September 1996.
Certain information concerning the Executive Officers is also included below:
Name Position
---- --------
Charles M. Stimac, Jr. President and Director
Herbert L. Luxenburg Director
C. Rand Michaels Director
William Lerner Secretary
Mr. Charles M. Stimac, Jr. has been President of the Company since July
15, 1996, replacing Mr. Robert A. Cutting, who was President of the Company
since April 1990 and was President of the Company's wholly-owned subsidiary, ABC
Dispensing Technologies, Inc., since September 1986.
Mr. Herbert L. Luxenburg has been a Director of the Company since
September, 1988.
Mr. C. Rand Michaels has been a Director of the Company since September,
1986.
Mr. William Lerner has been Secretary of the Company since September 1994.
On February 5, 1997, Herbert M. Pearlman and John E. Stieglitz resigned
their positions as directors of the Company.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held September 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held September 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held September 1997.
-26-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) The financial statements listed on the index set forth in Item 8 of this
Annual Report on Form 10-K are filed as part of this Annual Report.
(b) The following exhibits are incorporated by reference herein or annexed to
this Annual Report:
11.1 Statement regarding computation of per share earnings (see Item 8 of this
Annual Report in Form 10-K).
21.1 Subsidiaries of the Registrant.
24. Power of Attorney (see signature page).
27. Financial Data Schedule (for S.E.C. electronic filing only)
*A portion of this exhibit has been omitted pursuant to an application for
confidential treatment filed with the Securities and Exchange Commission
pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
(c) Current reports on Form 8-K during the quarter ended April 26, 1997.
Form 8-K was filed on March 26, 1997, to disclose a change in auditors
from Ernst & Young, L.L.P. to Grant Thronton, L.L.P.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ABC DISPENSING TECHNOLOGIES, INC.
By: /S/ Charles M. Stimac, Jr.
-------------------------------
Charles M. Stimac, Jr.
President
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/S/ Charles M. Stimac, Jr. President & Director August 9, 1996
-------------------------------
Charles M. Stimac, Jr.
/S/ Director August 9, 1996
-------------------------------
Herbert L. Luxenburg
/S/ Director August 9, 1996
-------------------------------
C. Rand Michaels
-28-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000748103
<NAME> ABC DISPENSING TECH.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-26-1997
<PERIOD-START> APR-28-1996
<PERIOD-END> APR-26-1997
<CASH> 445,000
<SECURITIES> 0
<RECEIVABLES> 518,000
<ALLOWANCES> 191,000
<INVENTORY> 1,431,000
<CURRENT-ASSETS> 2,203,000
<PP&E> 1,563,000
<DEPRECIATION> 859,000
<TOTAL-ASSETS> 3,350,000
<CURRENT-LIABILITIES> 1,432,000
<BONDS> 283,000
0
3,388,000
<COMMON> 171,000
<OTHER-SE> (1,924,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,020,000
<SALES> 3,073,000
<TOTAL-REVENUES> 3,073,000
<CGS> 1,846,000
<TOTAL-COSTS> 2,839,000
<OTHER-EXPENSES> 3,064,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,000
<INCOME-PRETAX> (2,968,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,968,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,968,000)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
