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 26, 1997
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 1, 1997 was 17,079,279 shares.
-1-
<PAGE>
Index
ABC Dispensing Technologies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Part I Financial Information Page No.
___________________________________________________________________________________________________________________
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -July 26, 1997 and April 26, 1997 3
Consolidated statements of operations - Three months ended July 26, 1997 and
July 27, 1996 4
Consolidated statements of cash flows - Three months ended July 26, 1997 and July 27, 1996 5
Consolidated statement of stockholders' equity - Three months ended July 26, 1997 6
Notes to consolidated financial statements 7-13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-15
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 16
Signature 17
</TABLE>
-2-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
ASSETS July 26, 1997 April 26, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 103,000 $ 445,000
Trade receivables:
Accounts receivable, less allowance for doubtful accounts
of $70,000 as of July 26 and $191,000 as of April 26 839,000 327,000
Inventories (Note 4) 1,261,000 1,431,000
------------ ------------
Total current assets 2,203,000 2,203,000
Property, Plant, and Equipment (Note 11) 687,000 704,000
Other assets:
Intangible assets, less accumulated amortization of $568,000
as of July 26 and $552,000 as of April 26 85,000 102,000
Patents pending and deferred charges 250,000 341,000
------------ ------------
335,000 443,000
------------ ------------
Total Assets $ 3,225,000 $ 3,350,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 570,000 $ 877,000
Line of credit 467,000 2,000
Current portion of long-term debt (Note 5) 38,000 36,000
Accrued liabilities:
Employee compensation and benefits (Notes 7 & 12) 194,000 224,000
Warranty reserve 80,000 88,000
Other 163,000 177,000
Deferred income 2,000 28,000
------------ ------------
Total current liabilities 1,514,000 432,000
Long-term debt (Note 5) 270,000 283,000
Stockholders' equity (Note 7):
Preferred Stock, 9% cumulative; authorized 320 shares
271 shares issued 3,538,000 3,388,000
Common Stock, $.01 par value; authorized 50,000,000
shares; 17,114,279 shares issued 171,000 171,000
Additional paid-in capital ($36,785 restricted for the cost of
treasury shares held) 19,014,000 19,014,000
Retained earnings (deficiency) (21,195,000) (20,850,000)
------------ ------------
1,528,000 1,723,000
Less notes receivable - stockholders (50,000) (51,000)
Less cost of treasury stock, 35,000 shares (37,000) (37,000)
------------ ------------
Total Stockholders' Equity 1,441,000 1,635,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,225,000 $ 3,350,000
------------ ------------
</TABLE>
See accompanying notes.
-3-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 26, 1997 July 27, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Products and services $ 1,336,000 $ 1,178,000
Royalties -0- -0-
------------ ------------
1,336,000 1,178,000
Cost and expenses:
Products and services 927,000 1,036,000
General and administrative 398,000 554,000
Selling and marketing 113,000 156,000
Research and development 285,000 178,000
------------ ------------
1,723,000 1,924,000
------------ ------------
Loss from operations (387,000) (746,000)
Other income (expense)
Interest expense (22,000) (33,000)
Interest income 4,000 4,000
Other income (expense), net 60,000 (6,000)
------------ ------------
42,000 23,000
------------ ------------
Net loss $ (345,000) $ (769,000)
============ ============
Weighted average number of shares outstanding 17,079,279 16,989,655
============ ============
Net loss per share $ (0.02) $ (0.05)
============ ============
</TABLE>
See accompanying notes.
-4-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 26, 1997 July 27, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net loss $(345,000) $(769,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 121,000 32,000
Changes in operating assets and liabilities:
Receivables (512,000) (60,000)
Inventories 170,000 (405,000)
Patents pending and deferred charges 10,000 29,000
Accounts payable (307,000) (139,000)
Accrued liabilities (52,000) 68,000
Selling rights -- (36,000)
Deferred income (26,000) -0-
--------- ---------
Total adjustments (596,000) 299,000
--------- ---------
Net cash used in operating activities (941,000) (470,000)
Cash flows from investing activities:
- -------------------------------------
Additions to patents -- (6,000)
Additions to property, plant, and equipment (1,000) -0-
Investment in Virtual Squeeze (5,000) --
--------- ---------
Net cash used in investing activities (6,000) (6,000)
Cash flows from financing activities:
- -------------------------------------
Proceeds from private placement 150,000 131,000
Proceeds from line of credit 465,000 60,000
Proceeds from collection of stockholders receivables 1,000 3,000
Payment of miscellaneous notes -- (5,000)
Repayment of notes payable and loan costs (11,000) (105,000)
--------- ---------
Net cash provided by financing activities 605,000 84,000
--------- ---------
Net decrease in cash and cash equivalents (342,000) (392,000)
Cash and cash equivalents at beginning of year 445,000 448,000
--------- ---------
Cash and cash equivalents at end of period $ 103,000 $ 96,000
========= =========
</TABLE>
See accompanying notes.
-5-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended July 26, 1997
Unaudited
<TABLE>
<CAPTION>
Common
Number of Stock Additional Retained Notes
Shares of $.01 Par 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 26, 1997 17,114,279 $171,000 $3,388,000 $19,014,000 $(20,850,000) $(51,000) $(37,000)
Preferred Stock private
placement (Note 8) $ 150,000
Collection on notes receivable-
stockholders 1,000
Net loss (345,000)
--------------------------------------------------------------------------------------
Balance at July 26, 1997 17,114,279 $171,000 $3,583,000 $19,014,000 $(21,195,000) $(51,000) $(37,000)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
-6-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
ABC Dispensing Technologies, Inc. (the "Company") designs proprietary dispensing
systems to 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
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 26, 1997 are
not necessarily indicative of the results that may be expected for the year
ended April 25, 1998. For further information, refer to the Form 10-K for the
year ended April 26, 1997.
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 1998 and
fiscal 1997 consist of fifty-two weeks ending on April 25, and April 26,
respectively. References to the years 1998 and 1997 refer to fiscal years ended
April 25, 1998, and April 26, 1997, 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 July 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. 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.
-7-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MAJOR CUSTOMERS - Revenues from The Home Depot, Inc. was 72 percent of total
revenues for the three months ended July 26, 1997. Revenues from The
Sherwin-Williams Company were 70 percent of the Company's total revenues for the
three months ended July 27, 1996. The Company currently has no orders from The
Sherwin-Williams Company, and in the future expects revenues from sales to The
Sherwin-Williams Company to decrease significantly.
PROVISION FOR WARRANTY CLAIMS - Estimated warranty costs are provided at the
time of sale of the warranted products.
STOCK-BASED COMPENSATION - The Company grants stock options for a fixed number
of shares to employees generally with an exercise price equal to the fair value
of the shares at the date of grant. The Company accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, " and, accordingly, recognizes no
compensation expense for the stock option grants. 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 note 7.
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.
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. This statement
simplifies the standards for computing earnings per share ("EPS") and makes them
comparable to international EPS standards. This statement is effective for
financial statements issues for periods ending after December 15, 1997. The
Company does not believe that the adoption of SFAS No. 128 will have a
significant impact on reported EPS.
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.
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 July 26, 1997, has an accumulated retained
earnings deficiency of $21,195,000. The Company's cash flow from operating
activities was a negative $941,000 for the three months ended July 26, 1997, and
a negative $2,684,000 for the year ended April 26, 1997. Cash and cash
equivalents declined from $1,309,000 at the beginning of fiscal 1996 to $103,000
at July, 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 $5,370,000 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.
-8-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
At July 26, 1997 and April 26, 1997, inventories consisted of the following:
July 26, 1977 April 26, 1997
------------- --------------
Raw Materials $ 870,000 $ 927,000
Work-in-process 77,000 118,000
Finished goods 314,000 386,000
----------- -----------
$1,261,000 $ 1,431,000
=========== ===========
The above amounts are net of obsolescence reserves of $838,000 at July 26, 1997,
and April 26, 1997, respectively.
5. FINANCING ARRANGEMENTS
NOTES PAYABLE
In June 1994, the Company purchased its headquarters facility in Akron, Ohio for
$490,000. A note payable was entered into during fiscal 1995 to partially
finance this purchase which was previously leased from the former chairman. The
note payable has an adjustable interest rate (9.25% at July 26, 1997, and April
26, 1997) 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 26, 1997, the facility and improvements thereto have a net
book value of $555,000.
At July 26, 1997 and April 26, 1997, notes payable consisted of the following:
July 26, 1997 April 26, 1997
-------------- --------------
Note payable to bank $265,000 $268,000
Other 43,000 51,000
-------------- ------------
308,000 319,000
Less amounts due within one year ( 38,000) ( 36,000)
-------------- ------------
Total long-term debt $270,000 $283,000
============== ============
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 the quarters
ended July 26, 1997 and July 27, 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 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 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.
-9-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. FINANCING ARRANGEMENTS (CONTINUED)
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.
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. As of June 30, 1997 the
line of credit was increased to $500,000. At July 26, 1997, $467,000 was
outstanding. The line of credit bears an interest rate of prime plus four points
(12.50% at July 26, 1997), which equals the weighted-average interest rate for
the period.
6. INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of Company assets and liabilities.
The components of the Company's deferred income 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 non-qualified stock option plans under which directors, officers
and key employees may be granted incentive stock options for the purchase of the
Company's common stock An aggregate of 500,000 shares of the Company's common
stock were reserved for issuance under the Company's 1990 Stock Option Plan and
750,000 shares were reserved for issuance under the Company's 1995 Stock Option
Plan. 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. The Company also may grant incentive stock warrants
to directors, officers and key employees. The stock warrants can be redeemed to
purchase the common stock of the Company.
-10-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMON STOCK (CONTINUED)
<TABLE>
<CAPTION>
A summary of the Company's stock option plans and employee stock warrants, and related
information for the three months ended July 26, 1997, and July 27, 1996, is as follows:
July 26, 1997 July 27, 1996
----------------------------------------------------------
Weighted Weighted
Average Average
Shares Exercise price Shares Exercise Price
---------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 1,518,323 $ 2.46 510,966 $ 2.46
Granted 365,000 $ 1.13 300,000 $ 1.38
---------- -------
Outstanding at end of period 1,883,323 $ 2.20 810,966 $ 2.06
========== =======
Exercisable at end of period 1,089,652 $ 1.89 560,966 $ 2.38
========== =======
Available for grant 341,677 894,034
========== =======
Weighted average fair value of options
granted during the period $ 1.13 $ 1.38
The following table summarizes information about stock options and employee stock warrants
outstanding and exercisable by price range as of July 26, 1997:
Outstanding Exercisable
---------------------------------------- -------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of exercise prices Shares Life Exercise Price Shares Exercise Price
- ----------------------- --------- ---------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.63 1,520,421 4.07 $ 1.26 726,750 $ 1.33
$2.00 - $2.50 41,652 3.57 $ 2.17 41,652 $ 2.17
$2.50 - $3.44 321,250 2.67 $ 3.09 321,250 $ 3.09
--------- --------
1,883,323 1,089,652
========= =========
</TABLE>
Accounting for Stock Based Compensation
- ---------------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee stock based compensation. The exercise price of each
stock options and employee stock warrant equals the market price of the
Company's stock on the date of grant. Accordingly, no compensation cost has been
recognized for the plans.
During 1995, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123). SFAS 123 defines a fair valued based method of accounting for an
employee stock option and similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, SFAS 123 allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed in APB 25.
Entities that elect to continue using APB 25 must make pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting defined in SFAS 123 had been adopted.
-11-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMON STOCK (CONTINUED)
The Company has computed, for pro forma disclosure purposes, the value of all
options granted during the three months ended July 26, 1997, and July 27, 1996,
using the Black-Scholes option pricing model as prescribed by SFAS 123 using the
following weighted average assumptions:
Risk-free interest rate 6.54%
Dividend yield 0 %
Volatility 79%
Average life 5 years
Using the Black-Scholes methodology, the total value of options granted during
the three months ended July 26, 1997, and July 27, 1996, was $284,000 and
$51,000, respectively. If the Company had accounted for its stock-based
compensation plans in accordance with SFAS 123, the Company's net loss and net
loss per share would approximate the pro forma disclosures below:
July 26, 1997 July 27, 1996
------------- -------------
Net Loss As reported $ (345,000) $ (769,000)
Pro forma $ (457,000) $ (779,000)
Primary earnings per share As reported $ (0.02) $ (0.05)
Pro forma $ (0.03) $ (0.05)
Warrants
- --------
On May 15, 1997, the Company issued 365,000 warrants at $1.125 per share to 38
employees of the Company.
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 July 26, 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.
-12-
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. PREFERRED STOCK (CONTINUED)
The Preferred Shares pay dividends 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 Preferred Stock 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
September 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 5). Mr. Pearlman resigned as
Chairman of the Board of Directors of the Company on February 5, 1997.
10. OPERATING LEASES
For the three months ended July 26, 1997, and July 27, 1996, aggregate rental
expense was $3,000 and $9,000, respectively.
11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at July 26, 1997 and
April 26, 1997:
July 26, 1997 April 26, 1997
---------------- --------------
Land $ 57,000 $ 57,000
Building and building improvements 572,000 572,000
Machinery and equipment 933,000 934,000
----------- -----------
1,562,000 1,563,000
Less accumulated depreciation (875,000) (859,000)
----------- -----------
$ 687,000 $ 704,000
=========== ===========
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 for the three
months ended July 26, 1997, and July 27, 1996, was $3,000. 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
The Company from time to time is subject to routine litigation incidental to its
business. The Company believes that any liability that may finally be determined
would not have a material adverse effect on its financial statements.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
JOINT VENTURE AGREEMENT
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.
RESULTS OF OPERATIONS
Quarter ended July 26, 1997 compared to quarter ended July 27, 1996
The net loss for the quarter ended July 26, 1997 was $345,000, down 55% from the
$769,000 loss for the same period of the prior year.
REVENUES
Total revenues for the current quarter increased $158,000, or 13.4%, to
$1,336,000 from $1,178,000 for the first quarter of the prior year. The increase
in revenues was attributable to revenues from sales of industrial dispensers
increasing $193,000, or 25%, to $961,000 in the first quarter from $768,000 in
the first quarter of Fiscal 1997. This increase was partially offset by sales of
beverage equipment decreasing $12,000, or 5%, to $220,000 in the current quarter
from $232,000 in the first quarter of the prior year. Additionally, Service
Sales decreased $23,000, or 13%, to $155,000, down from $178,000 in the prior
year.
EXPENSES
Product and Service costs decreased $109,000, or 10.5%, to $927,000 in the first
quarter, down from $1,036,000 in the first quarter of the prior year. Increased
gross margin on paint colorant dispensers responsible for $107,000 of the
decrease.
General and Administrative expenses decreased $156,000, or 28%, to $398,000 in
the first quarter, down from $554,000 in the same period of the prior year. The
first quarter of the prior year included $145,000 in severance expenses that
caused general and administrative expenses to be higher than usual for that
period. The remaining decrease of $11,000 is attributable to individually
immaterial decreases and offsetting individually immaterial increases in various
expense accounts.
Selling and Marketing expenses decreased $43,000, or 27.5%, to $113,000, from
$156,000 in the same period of the prior year. The decrease is attributable to
lower sales and marketing salaries.
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Research and Development expenses increased $107,000, or 60%, to $285,000, from
$178,000 in the first quarter of the prior year. The increase is attributable to
work performed to develop the Royal Match Paint Colorant Dispenser.
Interest expense decreased $11,000, or 33%, to $22,000, down from $33,000 in the
first quarter of the prior year. Decreased debt levels are attributable to the
decrease in interest expense.
OTHER INCOME
Other income increased $54,000, or 933%, to 60,000, from $6,000 in the first
quarter of the prior year. The increase is attributable to the reversal of a
liability and related expense that were recorded but never incurred in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $103,000 as of July 26, 1997 from
$1,309,000 as of April 29, 1995.
Operations during the three months ended July 27, 1997 required cash of $941,000
which resulted from a net loss of $345,000, an increase in net operating assets
of $332,000, a decrease in net operating liabilities of $385,000, offset by
depreciation and amortization of $121,000.
Consistent with prior years, the Company's primary source of liquidity has been
private placements of equity instruments. From August 1, 1996, through July 26,
1997, the Company issued 283 shares of Series A Preferred Stock in exchange for
notes of $12,500 cash per share, generating $3,538,000 cash (see footnote 8).
Near term cash requirements will be obtained using this same Preferred Stock
vehicle.
In addition to private placements of equity, management uses an accounts
receivable-based credit line to meet short-term cash requirements (see note 5 to
the financial statements). The credit line bears an interest rate of prime plus
four points. As of July 26, 1997, the credit limit was set at $500,000 with an
outstanding balance of $467,000.
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. Additionally, if
management is successful in raising additional funds, there is no guarantee that
the company will achieve profitable operations, or positive cash flow.
The current liquidity position of the Company and the inability of operations to
generate positive cash flow raises doubt about the company's ability to continue
as a going concern (see note 3 to the financial statements). Management
recognizes these weaknesses and is taking aggressive steps to increase revenues
through increased sales and marketing efforts.
-15-
<PAGE>
PART IV - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11. Statement regarding computation of per share earnings (see Financial
Statements at Item 1 of this Quarterly Report on Form 10-Q).
27. Financial Data Schedule (for S.E.C. electronic filing only)
(b) Current reports on Form 8-K during the quarter ended July 26, 1997.
During the first quarter of Fiscal 1998, the Company filed no reports on
Form 8-K.
-16-
<PAGE>
SIGNATURE
Pursuant to the 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.
-------------------------------------------
Date: September 15, 1997
/s/ Charles M. Stimac, Jr.
-------------------------------------------
Charles M. Stimac, Jr.
President/CEO
-17-
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-25-1998
<PERIOD-START> APR-27-1997
<PERIOD-END> JUL-26-1997
<CASH> 103,000
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<RECEIVABLES> 909,000
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3,538,000
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