<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JULY 25, 1998
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, 1998 was 17,591,498 shares.
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<PAGE> 2
INDEX
ABC DISPENSING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Part I Financial Information Page No.
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<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - July 25, 1998 and April 25, 1998 3
Consolidated statements of operations - Three months ended July 25, 1998 and
July 26, 1997 4
Consolidated statements of cash flows - Three months ended July 25, 1998 and July 26, 1997 5
Consolidated statement of stockholders' equity - Three months ended July 25, 1998 6
Notes to consolidated financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12
Part II Other Information
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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 13
Signature 14
</TABLE>
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<PAGE> 3
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
ASSETS July 25, 1998 April 25, 1998
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,000 $ 351,000
Trade receivables:
Accounts receivable, less allowance for doubtful accounts of
$86,000 and $84,000 as of July 25 and April 25, respectively 381,000 708,000
Inventories (Note 2) 1,508,000 1,290,000
----------- -----------
Total current assets 1,908,000 2,349,000
Property, Plant, and Equipment 628,000 644,000
Other assets:
Investment in Joint Venture (Note 6) 237,000 202,000
Intangible assets, less accumulated amortization of $635,000
and $633,000 as of July 25 and April 25, respectively 27,000 29,000
Patents pending and deferred charges 57,000 70,000
------------- -------------
321,000 301,000
------------- -------------
TOTAL ASSETS $ 2,857,000 $ 3,294,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt $ 33,000 $ 36,000
Short-term notes payable (Note 3) 272,000 300,000
Line of credit (Note 3) 65,000 201,000
Accounts payable 531,000 649,000
Accrued liabilities:
Accrued Interest 30,000 22,000
Employee compensation and benefits 173,000 199,000
Warranty reserve 174,000 169,000
Other 193,000 197,000
Deferred income 311,000 261,000
------------- -------------
Total current liabilities 1,782,000 2,034,000
Long-term debt 248,000 257,000
Stockholders' equity (Note 5):
Preferred Stock - Series A, 9% cumulative;
authorized 480 shares, 399 and 374 shares issued
and outstanding at July 25 and April 25, respectively 4,988,000 4,675,000
Common Stock, $.01 par value; authorized 50,000,000
shares; 17,591,498 shares issued and outstanding at
July 25 and April 25 176,000 176,000
Additional paid-in capital 19,511,000 19,461,000
Retained earnings (deficiency) (23,804,000) (23,264,000)
------------- -------------
871,000 1,048,000
Less notes receivable - stockholders (44,000) (45,000)
------------- -------------
Total Stockholders' Equity 827,000 1,003,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,857,000 $ 3,294,000
============= =============
</TABLE>
See accompanying notes.
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<PAGE> 4
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 25, 1998 July 26, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Equipment sales $ 470,000 $ 1,191,000
Service revenues 186,000 145,000
----------- -----------
656,000 1,336,000
Cost and expenses:
Cost of equipment sold 328,000 834,000
Service expenses 256,000 185,000
General and administrative 387,000 448,000
Selling and marketing 111,000 113,000
Research and development 83,000 143,000
----------- -----------
1,165,000 1,723,000
----------- -----------
Loss from operations (509,000) (387,000)
Other income (expense)
Interest expense (48,000) (18,000)
Equity in loss of joint venture (24,000) -
Other, net 41,000 60,000
----------- -----------
(31,000) 42,000
----------- -----------
Net loss $ (540,000) $ (345,000)
=========== ===========
Net loss per share - Basic and Diluted (Note 4) $ (0.04) $ (0.03)
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 5
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
July 25, 1998 July 26, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities: $(438,000) $(941,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (3,000) (1,000)
Investment in joint venture (59,000) (5,000)
--------- ---------
Net cash used in investing activities (62,000) (6,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement 313,000 150,000
Proceeds from (repayments of) line of credit (134,000) 465,000
Proceeds from collection of stockholders receivables 1,000 1,000
Repayment of notes payable and loan costs (12,000) (11,000)
--------- ---------
Net cash provided by financing activities 168,000 605,000
--------- ---------
Net decrease in cash and cash equivalents (332,000) (342,000)
Cash and cash equivalents at beginning of year 351,000 445,000
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,000 $ 103,000
========= =========
</TABLE>
See accompanying notes.
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<PAGE> 6
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended July 25, 1998
Unaudited
<TABLE>
<CAPTION>
Common
Number of Stock Additional Retained Notes
Shares of $.01 Par Preferred Paid-in Earnings Receivable
Common Stock Value Stock Capital (Deficiency) Stockholders
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 25, 1998 17,591,498 $176,000 $4,675,000 $19,461,000 $(23,264,000) $(45,000)
Preferred Stock private
placement (Note 5) 313,000
Warrants Outstanding -
Original Issue Discount 50,000
(Note 3)
Collection on notes receivable-
stockholders 1,000
Net loss (540,000)
--------------------------------------------------------------------------------------------
BALANCE AT JULY 25, 1998 17,591,498 $176,000 $4,988,000 $19,511,000 $(23,804,000) $(44,000)
==================================================================================================================================
</TABLE>
See accompanying notes.
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<PAGE> 7
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 25, 1998 AND FOR THE THREE
MONTHS ENDED JULY 25, 1998 IS UNAUDITED)
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applicable
to interim financial statements. Accordingly, they do not include all of the
information and notes required for complete financial statements. In the opinion
of management, all adjustments and reclassifications considered necessary for a
fair and comparable presentation have been included and are of a normal
recurring nature. Operating results for the three months ended July 25, 1998,
are not necessarily indicative of the results that may be expected for the year
ending April 24, 1999. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Form
10-K filed with the Securities and Exchange Commission on July 24, 1998.
1. 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 25, 1998 has an accumulated retained
earnings deficiency of $23,804,000. The Company had negative cash flow from
operating activities of $437,000 for the three months ended July 25, 1998 and
$1,594,000 for the year ended April 25, 1998. Cash and cash equivalents declined
from $445,000 at the beginning of fiscal 1998 to $19,000 at July 25, 1998.
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 $5,902,000 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.
The Company intends to satisfy its short-term (i.e., the next 12-month period)
capital requirements using advances from its line of credit and through the
proceeds of offerings of its equity securities. The Company is currently
attempting to raise at least $2,000,000 through an offering of its Convertible
Preferred Stock. The exact terms of this offering have not been finalized.
Longer term capital needs are anticipated to be satisfied by additional proceeds
of offerings of the Company's equity and/or debt securities, improvements in
operational cash flow, warrant exercise proceeds, and traditional credit
facilities. There can be no assurance that at any time a sufficient market for
the Company's equity offerings or debt financings will be available upon
commercially reasonable terms, if at all.
2. INVENTORIES
At July 25, 1998 and April 25, 1998, inventories consisted of the following:
<TABLE>
<CAPTION>
July 25, 1998 April 25, 1998
----------------- -------------------
<S> <C> <C>
Raw Materials $ 900,000 $ 785,000
Work-in-process 350,000 293,000
Finished goods 258,000 212,000
----------------- -------------------
$1,508,000 $1,290,000
================= ===================
</TABLE>
The above amounts are net of obsolescence reserves of $915,000 and $909,000 at
July 25 and April 25, respectively.
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<PAGE> 8
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 25, 1998 AND FOR THE THREE
MONTHS ENDED JULY 25, 1998 IS UNAUDITED)
3. FINANCING ARRANGEMENTS
Short Term Notes Payable
In August, 1997 the Company began issuing notes payable through a private
placement in multiples of $12,500, or fractions thereof. As of July 25, 1998,
the Company has issued notes in the aggregate of $335,000. The notes accrue
interest at the rate of 10%, with principal and interest paid at maturity. The
initial maturity date was June 30, 1998, however, the Company had the option,
which it exercised, to extend the maturity date to December 31, 1998. Attached
to the notes are redeemable common stock purchase warrants to purchase 5,000
shares of the Company's common stock at a price of $1.25 per share. The warrants
are exercisable for a period of five years commencing on the date of issuance.
The warrants have been valued at $113,000 using the Black-Scholes option pricing
model using the following weighted-average assumptions: a risk free interest
rate of 6.37% and expected volatility of .82%. A discount on notes payable has
been recorded for that amount. The discount, which is being amortized over the
life of the Notes, as extended, was $63,000 as of July 25, 1998. In
consideration for extending the initial maturity date, per the terms of the
notes, the Company issued to each noteholder an additional 5,000 warrants to
purchase common stock of the Company at a price of $1.25.
Line of Credit
On December 18, 1995, the Company established a line of credit which is secured
by accounts receivable and other assets of the Company. The credit line, as
adjusted, provides for a maximum of $500,000 borrowing capacity to the Company.
At July 25, 1998, $65,000 was outstanding under the line of credit and due to
formula restrictions, no funds were available to be advanced thereunder. At July
25, 1998, $201,000 was outstanding and due to formula restrictions no funds were
available to be advanced thereunder. The line of credit bears an interest rate
of prime plus four points (12.50% at July 25, 1998 and April 25, 1998). The
weighted-average interest rate for the three months ended July 25, 1998 and the
year ended April 25, 1998 was 12.50%. The credit line matures December 31, 1998.
The Company plans to seek extension of the credit line every 12 months until the
Company's cash flows from operations are sufficient to satisfy its short-term
cash requirements.
4. NET LOSS PER SHARE
The following table sets forth the computation of net loss per share - basic and
diluted:
<TABLE>
<CAPTION>
3 Months Ended
----------------------------------
July 25, July 26,
1998 1997
<S> <C> <C>
Numerator:
Net Loss $ (540,000) $ (345,000)
Preferred Stock Dividends (103,000) (76,000)
------------ ------------
Numerator for net loss per share - loss attributable
to common shareholders $ (643,000) $ (421,000)
Denominator:
Denominator for basic and diluted earnings
per share - weighted-average shares 17,591,498 17,079,279
------------ ------------
Net loss per share -- basic and diluted $ (0.04) $ (0.03)
============ ============
</TABLE>
The effect of potentially dilutive securities have not been included in the
above computations since such securities would have been anti-dilutive for the
periods presented. These potentially dilutive securities consisted of options
and warrants to purchase 3,244,719 and 2,853,234 shares of Common Stock as of
July 25, 1998 and July 26, 1997, respectively.
-8-
<PAGE> 9
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 25, 1998 AND FOR THE THREE
MONTHS ENDED JULY 25, 1998 IS UNAUDITED)
5. PREFERRED STOCK
In September 1996 the shareholders of the Company approved an amendment to the
Company's Certificate of Incorporation to authorize up to 5,000,000 shares of
Preferred stock. To date, the Company has authorized 480 shares as Series A
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 25, 1998, through private placements, the Company issued 399 shares
of Series A Preferred Stock in exchange for notes or $12,500 cash per share,
generating gross proceeds of $4,988,000 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.
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. 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 July 16, 1998, the Company's Board of Directors declared the August 1, 1998
Preferred Stock Dividend. The dividend will be paid in Common Stock of the
Company. A total of 274,985 common shares will be issued to satisfy the dividend
requirements. The common shares were valued at $0.75 per share to calculate the
number of common shares to be issued.
6. 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 the "Virtual Squeeze" joint venture. 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. Resulting profits or losses from the
juice sales will be split equally by the Company and Damon.
Through July 25, 1998, the Company has provided $328,000 of juice dispensing
equipment to joint venture and has incurred $91,000 in losses from the joint
venture's operations for a net investment of $237,000. The Company is to be
reimbursed for the cost of the equipment through revenues from juice sales made
by Virtual Squeeze.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED JULY 25, 1998 COMPARED TO THE QUARTER ENDED JULY 26, 1997
The net loss for the three months ended July 25, 1998 was $540,000, an increase
of $195,000, or 56.5% over the net loss of $345,000 for the same period of the
prior year.
<TABLE>
<CAPTION>
REVENUES Three Months Ended
July 25, July 26,
1998 1997
<S> <C> <C>
Equipment sales $ 470,000 $ 1,191,000
Service revenues 186,000 145,000
-------- -----------
Total $ 656,000 $ 1,336,000
======== ==========
</TABLE>
Equipment sales for the first three months of fiscal 1999 decreased $721,000, or
60.5%, over the same period of the prior year. Sales of paint colorant
dispensers and beverage equipment decreased $516,000 and $205,000, respectively.
Sales of the Royal Match(TM) paint colorant dispensers have decreased because
the equipment has not yet gained widespread market acceptance. Sales of beverage
equipment decreased because the Company is not actively marketing its beverage
equipment.
Service revenues for the first three months of fiscal 1999 increased $41,000, or
28.2% from the same period of the prior year. The increase is attributable to
service contract revenues on Royal Match(TM) paint colorant dispensers.
<TABLE>
<CAPTION>
GROSS MARGINS Three Months Ended
July 25, July 26,
1998 1997
<S> <C> <C>
Equipment 42.4% 33.0%
Service (25.2)% (28.3)%
Total 23.3% 26.3%
</TABLE>
For the first three months of fiscal 1999 gross margin as a percentage of sales
on equipment increased 9.4 points over the same period of the prior year. The
increase resulted from higher margins obtained from sales of the Royal Match(TM)
paint dispensers.
For the first three months of fiscal 1999 gross margin as a percentage of
service revenues increased 3.1 points over the same period of the prior year.
The increase is attributable to service contract revenues on Royal Match(TM)
paint colorant dispensers.
GENERAL AND ADMINISTRATIVE
For the first three months of fiscal 1999 general and administrative expenses
decreased $61,000, or 13.6%, to $387,000 down from $448,000 for the same period
of the prior year. Amortization of deferred charges of $85,000 and consulting
fees of $20,000 incurred during the first three months of fiscal 1998 are
responsible for the decrease. These decreases were partially offset by an
increase in payroll expense of $39,000 during the first three months of fiscal
1999.
SELLING AND MARKETING EXPENSES
For the first three months of fiscal 1999 selling and marketing expense
decreased $2,000, or 1.7%, to $111,000, down from $113,000 for the same period
of the prior year.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESEARCH AND DEVELOPMENT
For the first three months of fiscal 1999, research and development expenses
decreased $60,000, or 42%, to $83,000, down from $143,000 for the same period of
the prior year. The decrease is due to the Royal Match(TM) paint colorant
dispenser and the Virtual Squeeze(TM) juice dispenser being virtually completed
during the fourth quarter of fiscal 1998.
INTEREST EXPENSE
For the first three months of fiscal 1999 interest expense increased $30,000, or
166.6%, to $48,000, up from $18,000 for the same period of the prior year. The
increase is due to higher debt balances in the current period and amortization
of the discount on notes payable (see note 3).
EQUITY IN LOSS OF JOINT VENTURE
The Company's equity in the loss of the Virtual Squeeze(TM) joint venture for
the first three months of fiscal 1999 was $24,000. The joint venture only had
two months of operations during the first three months of fiscal 1998. The
Company's equity in the loss of the joint venture for that period was $18,000.
The losses are attributable to the start up costs and marketing expenses of the
joint venture.
OTHER INCOME
Other income decreased $19,000, or 31.6%, to $41,000 for the first three months
of fiscal 1999, down from $60,000 for the same period of the prior year. Other
income for the current period is primarily attributable to a distribution of
excess earnings on fund assets by the Ohio Bureau of Workers Compensation. Other
income for the first quarter of fiscal 1998 related to the reversal of estimated
liabilities and related expenses which were recorded by the Company in fiscal
1997. The underlying matters were ultimately settled without cost to the Company
in that year.
-11-
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $19,000 as of July 25, 1998 from
$445,000 at April 27, 1997. Operations for the first quarter of fiscal 1999 used
cash of $437,000. Net cash used by investing activities was $62,000 which
included advances of $59,000 to the Virtual Squeeze Joint Venture and $3,000 in
additions to the machinery and equipment. Net cash provided by financing
activities was $167,000. The cash provided by financing activities is
attributable to $313,000 in private placements of Preferred Stock which was
offset by net repayments of $156,000 on the Company's line of credit and notes
payable. The Company currently has no material commitments for capital
expenditures.
Consistent with prior years, the Company's primary source of liquidity has been
private placements of equity and equity derivative instruments. From August 1,
1996, to October 30, 1996, the Company issued 132 shares of Series A Preferred
Stock in exchange for the surrender of the Company's outstanding $25,000, 9%
Convertible Subordinated Redeemable Notes Payable in the aggregate principal
amount of $1,650,000. From August 1, 1996, through August 18, 1998, the Company
issued 275 shares of Series A Preferred Stock in exchange for $12,500 cash per
share, generating $3,438,000 cash (see footnote 5 to the financial statements).
In August, 1997, to raise additional capital, the Company began issuing short
term promissory notes through a private placement. The notes are sold in
multiples of $12,500, or fractions thereof, and accrue interest at the rate of
10%, with principal and interest due at maturity. The initial maturity date was
June 30, 1998, however, the Company had the option, which it exercised, to
extend the maturity date to December 31, 1998. The Company anticipates using
proceeds of one or more equity offerings to satisfy its obligation under the
Notes at the extended maturity date. If the Company is not successful is raising
such proceeds, it may seek to further extend the maturity date through
negotiations with Holders of the Notes and their representatives. As of July 25,
1998, the Company has issued notes in the aggregate of $335,000.
The Company maintains an accounts receivable credit line to meet short-term cash
requirements (see footnote 3 to financial statements). The credit line bears an
interest rate of prime plus four points. The credit line provides for a maximum
of $500,000 borrowing capacity to the Company. As of July 25, 1998, $65,000 was
outstanding under the line of credit and due to collateral requirements no funds
were available to be advanced thereunder. The credit line matures December 31,
1998 The Company plans to seek extension of the credit line every 12 months
until the Company's cash flows from operations are sufficient to satisfy its
short-term cash requirements. If the Company is unable to extend the credit line
maturity date, it will be forced to more heavily rely on the proceeds of the
debt and/or equity placements.
The Company intends to satisfy its short-term (i.e., the next 12-month period)
capital requirements using advances from its line of credit and through the
proceeds of offerings of its equity securities. The Company is currently
attempting to raise at least $2,000,000 through an offering of its Convertible
Preferred Stock. The exact terms of this offering have not been finalized.
Longer term capital needs are anticipated to be satisfied by additional proceeds
of offerings of the Company's equity and/or debt securities, improvements in
operational cash flow, warrant exercise proceeds, and traditional credit
facilities. There can be no assurance that at any time a sufficient market for
the Company's equity offerings or debt financings will be available upon
commercially reasonable terms, if at all.
The Company's long-term capital plan is critically dependent upon the commercial
success of its Products and, to the extent success is not timely achieved, its
ability to implement significant cost reduction programs. Toward this end,
Management has taken steps to increase revenue through sales and marketing
efforts that include the redeployment of research and development resources of
the Company to work closely with the Company's existing and prospective
customers in the paint and beverage industry to refine the Company's products
and maximize their commercialization. If it becomes necessary to implement
significant cost reduction programs, it is likely that such programs will
involve a significant curtailment of marketing and research and development
activities as well as payroll reductions which would likely have an adverse
affect on future operating results. There can be no assurance that the Company
will be successful in generating operating profit and sufficient operational
cash flow through the commercial success of its products or any such cost
reduction programs. If the Company is not successful in this regard, Management
will have to consider alternative uses of its assets including the possible
licensing or outright sale of one or more of its proprietary technologies.
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 footnote 1 to the financial statements).
-12-
<PAGE> 13
PART IV - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are incorporated by reference herein or annexed to
this quarterly report:
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
5.1 Opinion of St. John & Wayne, L.L.C. as to the legality of the
securities to be registered.
10.1 Employment agreement dated March 1, 1997 by and between the Registrant
and Charles M. Stimac, Jr.
10.3 Amended 1995 Stock Option Plan.
11.1 Statement regarding computation of per share earnings (see Financial
Statements at Item 1 of this Quarterly Report on Form 10-Q).
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of St. John & Wayne, L.L.C. (included in Exhibit 5.1)
24. Power of attorney (included on the signature page hereof).
27. Financial Data Schedule (for S.E.C. electronic filing only)
(b) Current reports on Form 8-K during the quarter ended July 25, 1998.
During the first quarter of Fiscal 1999, the Company filed no reports
on Form 8-K.
-13-
<PAGE> 14
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 8, 1997 /s/ Charles M. Stimac, Jr.
--------------------- -----------------------------------
Charles M. Stimac, Jr.
President/CEO
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