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
For the fiscal year ended April 30, 2000
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
ABC DISPENSING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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
----------------------------
(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: [ ]
The aggregate market value of the voting stock held by non-affiliates
as of July 14, 2000 was $4,158,784.
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 14, 2000 was 21,888,336 shares.
Documents Incorporated by Reference
The Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders is incorporated by reference in Part III.
Total number of pages of this report: 33
Index to Exhibits located on page 32
<PAGE>
ITEM 1. BUSINESS
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When used in this report, the words "estimate", "project", "intend",
"expect", "believe" and similar expressions are used to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. Such risks include, without
limitation, substantial competition, future capital needs, uncertainty of
additional financing, potential future dilution, dependence on key-personnel and
uncertainty as to full scale commercialization of the Company's products.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. There can be no assurances
that the Company's forward-looking statements will prove to be true. The Company
undertakes no obligation to publicly release updates or revisions to these
statements.
CORE COMPETENCE
The Company designs, manufactures and services state-of-the-art
dispensing systems that utilize standard micro-processing technology and
proprietary operating software. The current product offerings are specifically
designed to allow semi-skilled operators to efficiently dispense liquids in
varied environments. The Company's technology is protected by 24 patents and 1
patent pending. This technology is designed to provide users with a superior
ability to effectively dispense and control materials and minimize labor and
waste.
The Company's patent protected technology is complemented by a
talented, highly responsive workforce. These core assets allow the Company to
design, assemble, install and service dispensing equipment that intends to
provide the Company with uniquely beneficial capabilities to meet the needs of
its dispensing customers.
MARKET FOCUS
The Company has set a strategy to focus all of its existing resources
on its paint dispensing and juice dispensing product lines. These product lines
represent the Company's primary product development efforts during the past four
years. Revenues and profits from these lines may be reinvested to develop
additional applications for dispensing systems. The Company will consider new
development only under strict financial guidelines including advance customers'
commitments necessary to defray development expenses.
PRODUCTS
Paint and Coatings
The Company produces Royal Match(R) equipment, a pneumatic colorant
dispenser serving the architectural paint manufacturing and retailing
industries. Royal Match(R) is designed to accommodate the ever changing, more
environmentally friendly colorant formulations resulting from the mandatory
elimination of V.O.C. (Volatile Organic Compounds). Check Mate(R) operating
software, used for Royal Match(R), is user friendly with advanced functionality
and efficient keystroke and screen commands.
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ITEM 1. BUSINESS (Cont.)
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Products Paint & Coatings (Cont.)
Royal Match(R) is state-of-the-art technology designed to provide many years of
inexpensive operating use with the following:
<TABLE>
<CAPTION>
Features Benefits
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<S> <C>
Pneumatic flow control. Reduced operational cost.
Eliminates costly mechanical pumps and
manual calibration.
Modular Configuration: Up to 18 colorant reservoirs Customer flexibility over the long run. System
in 5, 7, or 9 quart capacities. matches customers needs.
Includes electronic inventory fill level monitoring. Automatic notification of product shortages.
Prevents dispense if sufficient colorant amounts
are unavailable.
Automatic, simultaneous dispense. Eight ingredients dispensed at a time for
efficient store operation.
Nozzle protection: Eliminates manual purging:
1.) Clear flush after each dispense. --Self cleaning--carries colorant to paint can and
prevents drying and clogging.
2.) Pneumatic nozzle cover. --Keeps tips moist--automatically slips on and
off for dispense.
3.) Colorant line strainer system. --Prevents colorant debris from clogging valves.
Electronic self-calibration System automatically adjusts during constant
recycle for changes in colorant rheology,
including: temperature and viscosity.
Proprietary, high tech easy to use Check Mate(R)
operating software. --Operates from a single screen.
--Simple operation 1) color 2) product
3) dispense.
--Save custom formulas.
--Adjust standard formulas-customize by
percentage increments up or down.
--Modification of data base at location-enter
and delete paint manufacturing formulas on site.
--Internet ready, allowing for electronic ordering,
diagnosis and troubleshooting by modem.
</TABLE>
The Company has designed Royal Match(R) with its Check Mate(R)
operating software to displace existing, mechanical displacement dispensing
3
<PAGE>
systems. The Company has adapted the applicability of Royal Match(R) to range
from the highest volume paint seller to the small operator who wants to
modernize. The Company has focused its marketing efforts in the U.S. and Western
Europe.
ITEM 1. BUSINESS (cont.)
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The Company has great confidence in its paint dispensing products and
service organization. The Company is currently in discussions with customers
that represent a majority of the domestic market, although the Company has no
assurance of sales. Units are installed and running or being specially prepared
for further testing at True Value, I.C.I., Wal-Mart, Akzo Nobel and others.
During the last year, the Company has enjoyed a continuing relationship with The
Home Depot as evidenced by renewed service agreements.
A 30-day, free trial program of the Royal Match(R) colorant system has
resulted in the sale of 53 units to ten smaller, independent paint companies. To
date, most of the customers who have evaluated the products have purchased the
equipment.
During the fiscal years ended April 30, 2000, and April 24, 1999, paint
product and service sales to The Home Depot represented 25%, and 52% of total
Company revenues, respectively.
The Company assembles its own equipment from standard industry parts
and custom assemblies made to the Company's specifications. The Company does not
foresee any shortage of materials needed to meet the demand of its customers.
Beverage
The Company currently assembles and markets two types of beverage
dispensers: juice and liquor.
Virtual Squeeze(R) is designed to be a complete fruit-juice program
being marketed primarily to the health care industry by major foodservice
companies, independent beverage companies and directly by the Company. The
package includes state-of-the-art, proprietary dispensing equipment,
shelf-stable bag-in-the box fruit-juice concentrates and service.
The joint venture agreement with Damon Industries, through which the
Company previously marketed the Virtual Squeeze(R) program, was terminated on
December 31, 1998. The Company is now solely responsible for all aspects of the
juice program. The fiscal year ended April 30, 2000 is the first complete fiscal
year with Virtual Squeeze operations being consolidated with the Company's
financials. Damon Industries remains a vendor of juice concentrates.
Direct marketing efforts during the year in Northeast Ohio have
resulted in the naming and utilization of approved and ongoing distribution by
SYSCO Foods, Alliant Foodservice, Avalon Distributing and Tasty Pure Foods. The
direct placement of units in this market and the support of the committed
distributors has generated significant interest in the marketplace. The unique
features of the program and attention to customer service have earned a loyal
customer base and have provided a blueprint for new market introduction.
The Company's electronically brix-controlled, high-volume, automatic
system is capable of consecutively pouring 400, four ounce drinks chilled to
under 40(Degree). This dispenser adds 30 inches of kitchen counter space.
Built-in "dishwasher-like" mandatory, periodic internal sanitization
functionality ensures safety and freshness while extending the reliability and
useful life of the dispenser. The button-actuated, patented nozzle inside the
convenient, moveable wand dispenses water and concentrate simultaneously and
repeatedly for up to six flavors. The space saving unit is totally
self-contained--electronics, power supply, compressor, chiller, and bins for up
to six bags of concentrate--all fitting within the small footprint.
Automatically blending two juices at a time provides an expanded universe of
flavors.
Other important aspects of the Virtual Squeeze(R) program are:
<TABLE>
<CAPTION>
Features Benefits
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<S> <C>
Large capacity chilling for drinks dispensed well below 40(Degree). Designed to meet requirements
of State and Federal
regulatory agencies regarding
serving temperature and
cleanliness. Allows for pour
and serve operations,
eliminating the need to chill
prior to serving.
Semi automatic mandatory sanitization set every 28 days. Management and State
inspectors are assured of the
safe dispensing of juice and
hydration products.
Shelf stable 200 oz. bag-in-box juice stored at room Bags are easy to handle, juice
temperature with capability to blend any two flavors. is high quality and easily
dispensed, minimizing labor
and product waste. Eliminates
the need for refrigerated or
frozen storage.
Self contained unit includes bag storage, increased Designed for large volume
counter space, with movable or stationary wand for hands free juice consumption. Kitchen
pouring, portion control and auto-dispense. space is maximized while
adding productivity and
efficiency to serving duties.
</TABLE>
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ITEM 1. BUSINESS (cont.)
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Program summary:
--Customer receives state-of-art dispenser, installation, and maintenance at no
charge for use with Virtual Squeeze juice.
--Help desk support for all customers--80% of calls answered without service
dispatch.
--Virtual Squeeze(R) juice delivered to customers by foodservice, independents
and the Company.
--Customer enjoys high tech package and competitive prices for juice and
hydration products.
The Company's immediate goal is the penetration of skilled nursing
facilities within the institutional juice market. In addition, an opportunity
also exists for hospitals, government facilities, prisons, military
installations and schools.
Because of the nature of the former joint venture with Damon
Industries, there is only one full year consolidation of sales and expenses in
the Company's financial statements. Financial results for the joint venture,
prior to January 1, 1999, are included as Equity in Loss of Joint Venture. The
Virtual Squeeze(R) juice program has generated total revenues of $421,309 during
the fiscal year ended April 30, 2000. This compares to total revenues of
$344,000 for the fiscal year ended April 24, 1999.
The Company's UltraBar(R) liquor dispensing system pours
multi-ingredient drinks quickly and consistently. Advantages of the system
include: speed, accuracy, cash and inventory accountability, and control of
theft, spillage, over-pours and giveaways.
Sales of UltraBar(R) products accounted for 8.7%, 3.2% and 5.2%, of
total Company revenues in FY 2000, FY 1999, and FY 1998, respectively.
The Company assembles its own equipment from standard industry parts
and custom assemblies made to the Company's specifications. The Company does not
foresee any shortage of materials needed to meet the demand of its customers.
SERVICE AND TECHNICAL SUPPORT
The Company has a geographically dispersed service organization that
has the ability to support the equipment sales of the Company in the United
States. The Company is continuing to analyze the need for additional service
technicians as the equipment base grows. A solid reputation regarding quick and
thorough service response is a contributing factor to the sales effort. The
Company is dedicated to providing the best ongoing support and service in its
respective markets.
Service sales accounted for 66.8%, 52.2%, and 11.4% of total Company
revenues in FY 2000, FY 1999 and FY 1998, respectively.
SALES BACKLOG
As of April 30, 2000 the sales order backlog (un-shipped product
orders) was $260,000. As of April 24, 1999 the sales order backlog was $44,000.
INTERNATIONAL SALES
Revenues from international sales were 6% of sales for fiscal 2000, and
3% for fiscal 1999. Primary international sales efforts center on liquor
equipment to Canada and Royal Match(R) colorant dispensers to Western Europe.
Royal Match(R) is being introduced to large paint manufacturers in
Europe. With the proliferation of V.O.C. free colorant and the resulting extra
wearing of conventional mechanical pumps, the appeal of Royal Match(R) should
increase. The sales process includes introduction of the Company, the technology
and the dispenser while building a confident relationship with the customer.
Formal testing is in progress.
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ITEM 1. BUSINESS (Cont.)
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COMPETITION
The markets for the Company's beverage and industrial products are
extremely competitive. The Company competes in both markets with organizations
that have greater financial resources, stronger name recognition, larger sales,
marketing and product development departments and greater economies of a scale
that cause their products to be more competitive in those regards. Such intense
competition may have a material adverse effect on the Company's ability to
achieve full scale commercialization of its products. Although the Company
believes that the appeal of its state-of-the-art technology countervails these
competitive disadvantages, no assurance can be made that the Company will be
able to compete successfully against current and future competitors.
The Company is one of four manufacturers that offer automatic, computer
controlled tint dispensers in the United States. Of the other three
manufacturers, one has an established presence in the U.S. market, the other two
being foreign companies trying to enter the domestic paint industry. The
technology of all of the competition is similar and is based on mechanical
displacement pumps. The Company believes that the design and features of its
dispensing equipment, in combination with the ability to provide nationwide,
on-site technical support gives the Company a distinct competitive advantage in
our respective markets.
The institutional juice market in the United States is estimated at $3
billion and is highly competitive. Competition in this market is fragmented and
diverse, ranging from small independent juice manufacturers, distributors, and
brokers to major economic concerns such as Sunkist(R) and Minute Maid(R). The
Company will compete in this market place with shelf stable juice products that
will be dispensed with a unit specifically designed to meet the needs of the
health care industry. The Company believes that Virtual Squeeze(R) is the only
dispenser specifically designed for bag in the box juice products.
HUMAN RESOURCES
As of July 14, 2000, the Company had 25 full-time employees. This
compares to 26 full-time employees at the same time last year. The workforce has
stabilized since the current focus on the commercialization of the existing
products was implemented. The employees are not represented by a union.
Temporary workers are utilized in the production process as needed. 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 its
proprietary technology and products. To date, 24 patents are outstanding and an
additional one is pending. Patent coverage of our dispensing technology is
broad. Research and development expenditures for the fiscal years 2000, 1999,
and 1998 were $127,000, $124,000, and $691,000, respectively. These
significantly reduced expenditures have been possible because of the focus
strategy implemented to concentrate on paint and juice dispensing, which are
basically developed.
Entities & Fiscal Year
The Company is comprised of three legal entities: the parent (public
entity)--ABC Dispensing Technologies, Inc., (a Florida corporation) (OTC
BB: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). ABC was formed in 1972.
The Company has changed its fiscal year end to April 30 to more closely
align closing periods with its major customers and vendors. This change
increased the number of days included in the financial statements from 364
calendar days to 370 calendar days in the period ended April 30, 2000. An
estimate of the impact of this six day change on a performance basis yields
sales of $12,000, gross margin of $2,000, and allocated selling, general and
administration expenses of $18,000 resulting in a net loss of $16,000.
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
property is encumbered by a mortgage in favor of an institutional lender. The
principal balance of the mortgage was $231,000 as of April 30, 2000.
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ITEM 3. LEGAL PROCEEDINGS
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The Company is subject to routine litigation incidental to its
business. The Company's most significant matters are as follows.
1. Tetrad Electronics, Inc. v. ABC Dispensing Technologies, Inc. in the
Summit County Common Pleas Court was instituted on December 14, 1998. Tetrad
Electronics is a vendor of the Company and alleges a total of $92,000 is due.
The Company has agreed to terms with the plaintiff and is making monthly
payments of $5,000 to satisfy this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the
fourth quarter of FY 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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A. PRICE RANGE OF COMMON STOCK
---------------------------
The Company's common stock currently trades on the Bulletin Board of the Over
the Counter Market under the symbol ABCC. The Company was de-listed from the
NASDAQ Small-Cap Market on October 7, 1998, as a result of an increase in
NASDAQ's equity requirements. The table below shows the range of bid prices of
the common stock for the last two years as reported by Over the Counter (OTC)
Market and NASDAQ reflecting inter-dealer prices, without retail mark-up or
markdowns, or commissions (and may not necessarily represent actual
transactions).
<TABLE>
<CAPTION>
Common Stock (ABCC):
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Year Ended April 30, 2000 Prices: High Bid Low Bid
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<S> <C> <C> <C> <C> <C> <C> <C>
02/01/99 - 04/30/00(Fourth Quarter) $17/32 $ 1/8
11/01/99 - 01/31/00 (Third Quarter) 15/64 5/64
08/26/99 - 10/31/99 (Second Quarter) 19/64 1/8
04/25/99 - 07/31/99 (First Quarter) 27/64 5/32
Common Stock (ABCC):
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Year Ended April 24, 1999 Prices: High Bid Low Bid
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01/24/99 - 04/24/99 (Fourth Quarter) $ 9/32 $ 7/64
10/25/98 - 01/23/99 (Third Quarter) 35/64 9/64
07/26/98 - 10/24/98 (Second Quarter) 31/32 4/32
04/26/98 - 07/25/98 (First Quarter) 28/32 20/32
</TABLE>
B. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
---------------------------------------------
<TABLE>
<CAPTION>
Approximate Number of
Record Holders
Title of Class as of July 14, 2000
-------------- -------------------
<S> <C> <C>
Common Stock, $.01 par value Approximately 1,100
</TABLE>
C. DIVIDENDS
---------
The Company has never paid a dividend on common stock and has no
current plans to do so. Future policy for common stock dividends will be
determined by the Board of Directors based on the Company's earnings, financial
condition, capital requirements, and other existing conditions.
D. EQUITY SALES
------------
The Company issued Series A Preferred Stock, a 9% convertible
cumulative redeemable instrument that is convertible into Common Stock at a
price of $1.00 per share. At conversion, each Preferred Share will entitle the
holder to warrants to purchase the same number of shares of Common Stock at a
price of $1.25 per share. For the fiscal year ended April 30, 2000, the Company
issued no shares and for the fiscal year ended April 24, 1999, the Company
issued 25 shares generating gross proceeds of $313,000.
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D. EQUITY SALES (Cont.)
--------------------
The Company issued Series B Preferred Stock, a 9% convertible
cumulative redeemable instrument that is convertible into Common Stock at a
price of $0.75 per share and is identical to Series A Preferred Stock in all
other aspects. The Company issued no shares for the fiscal year ended April 30,
2000 and for the fiscal year ended April 24, 1999, the Company issued 24 shares
generating gross proceeds of $300,000.
The Company issued Series C Preferred Stock, a 9% convertible
cumulative redeemable instrument with a conversion price of $0.25 per share.
There are no warrants attached to this issuance. The Company issued no shares
for the fiscal year ended April 30, 2000 and during the fiscal year ended April
24, 1999, the Company issued 37 shares generating gross proceeds of $370,000.
ITEM 6. SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
FOR THE FISCAL APRIL 30, APRIL 24, APRIL 25, APRIL 26, APRIL 27,
YEARS ENDED: 2000 1999 1998 1997 1996
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<S> <C> <C> <C> <C> <C>
REVENUES (a) $ 2,184,000 $1,710,000 $5,299,000 $3,073,000 $5,312,000
NET LOSS $(1,080,000) $(2,204,000) $(2,028,000) $(2,968,000) $(1,324,000)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 19,084,100 17,774,000 17,230,000 17,074,000 16,414,000
NET LOSS PER SHARE -
BASIC AND DILUTED (0.08) $(0.15) $(0.13) $(0.18) $(0.08)
TOTAL ASSETS $2,720,000 $2,622,000 $3,294,000 $3,350,000 $4,020,000
LONG-TERM OBLIGATIONS $2,267,000 $233,000 $257,000 $283,000 $294,000
STOCKHOLDERS' EQUITY $(1,013,000) $(139,000) $1,003,000 $1,635,000 $1,085,000
DIVIDENDS DECLARED
PER SHARE OF COMMON STOCK $-0- $-0- $-0- $-0- $-0-
RESEARCH & DEVELOPMENT (a) $127,000 $124,000 $691,000 $629,000 $714,000
</TABLE>
(a) Research & Development costs for fiscal years 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
Fiscal 2000 compared to Fiscal 1999
The net loss for FY 2000 was $1,080,000 representing a decreased loss
of $1,124,000, or 51.0% from the net loss of $2,204,000 for FY 1999. The net
loss for the fourth quarter of FY 2000 decreased $244,000, or 52.8%, to $218,000
from the $462,000 net loss for the fourth quarter of the prior year. The full
year decreased loss is primarily due to a 27.7 percent increase in sales and
significant cost reductions enacted during the year. The fourth quarter (FY 2000
vs FY 1999) loss improvement is primarily due to an increase in sales of
$353,000 or 90.1 percent and cost reduction initiatives taken during the year.
<TABLE>
<CAPTION>
Revenues FY 2000 FY 1999
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<S> <C> <C>
Equipment Sales - Net $ 724,000 $ 818,000
Service Revenues 1,460,000 892,000
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Total $ 2,184,000 $ 1,710,000
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS (Cont.)
---------------------
Revenues (Cont.)
Equipment sales for FY 2000 decreased $94,000, or 11.5% from FY 1999.
The decrease is primarily due to the completion of a significant order of the
Royal Match(R) product line during the first half of FY 1999. Beverage equipment
sales for FY 2000 increased $6,000, or 4.3% from FY 1999. This slight increase
is due to additional business generated in FY 2000 from the U.S. Government.
Equipment sales for the fourth quarter (FY 2000 vs FY 1999) increased $277,000,
or 182%. The increase is due to a significant order being completed in the
fourth quarter of FY 2000.
Juice sales in FY 2000 were $421,000, a monthly average of $35,110.
Juice sales per month, for the four months of FY 1999 after the Joint Venture
was terminated, averaged $23,425 Juice sales prior to the termination of the
joint venture were not consolidated, because of the nature of the joint venture
agreement. Prior to January 1, 1999, the financial results for the joint venture
are included as Equity in Loss of Joint Venture.
Service revenues for FY 2000 increased $568,000, or 63.7%, over FY
1999. The increase is due to a $175,000 increase in service agreement revenue
generated from paint units and increased juice sales of $328,000. Service
revenues for the fourth quarter for FY 2000 increased by $76,000, or 25.9%, over
the FY 1999. This was due primarily to an increase of $14,000 in service
agreement revenue on Royal Match(R) paint colorant dispensers, increased juice
sales of $14,000, and increased installation revenue of $22,000.
Gross Margins FY 2000 FY 1999
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Equipment 54.6% 31.4%
Service 33.7% (9.2)%
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Total 40.6% 10.2%
For FY 2000, gross margins as a percentage of sales on equipment
increased by 23.2 percentage points. This improvement is a result of price
improvement exceeding the higher costs associated with lower production levels.
For FY 2000, gross margins as a percentage of service revenues
increased 42.9 percentage points. This is a result of higher juice revenues and
margins, and a higher utilization of service personnel.
General and Administrative
General and Administrative expenses decreased $264,000, or 16.3%, to
$1,359,000. This has resulted from expense reduction programs, primarily payroll
related, that were initiated during FY 1999 and FY 2000.
Selling and Marketing expenses
Selling and marketing expenses decreased $81,000, or 21.7%, to
$292,000. This decrease is due to lower payroll and benefit costs of $29,000 and
lower allocation of administrative resources due to a reorganization of the
marketing function.
Research and Development expenses
For the Fiscal Year 2000, Research and Development expenses increased
$3,000, or 2.4%, to $127,000. This increase is attributable to development
efforts associated with the Check Mate(R) software systems required with the
Royal Match(R) product line.
Interest expense
Interest expense increased $1,000 or 0.5%, to $190,000 for FY 2000.
This was due to notes issued to finance operations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS (Cont.)
-----------------------------
Other income
For Fiscal Year 2000, other income decreased $114,000 to $1,000
compared to $115,000 for the fiscal year 1999. This was due to the liquidation
of the joint venture assets being included in FY 1999 results and amortization
of the value of warrants issued in return for a five year extension of short
term notes payable.
Fiscal 1999 compared to Fiscal 1998
The net loss for FY 1999 was $2,204,000 representing an increased loss
of $176,000, or 8.7% over the net loss of $2,028,000 for FY 1998. The net loss
for the fourth quarter of FY 1999 decreased $533,000, or 53.6%, to $462,000 from
the $995,000 net loss for the fourth quarter of the prior year. The full year
increased loss is primarily due to significantly lower sales partially off set
by lower operating expenses. The fourth quarter loss improvement is primarily
due to cost reduction initiatives taken during the year.
Revenues FY 1999 FY 1998
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Equipment Sales-Net $ 818,000 $4,694,000
Service Revenues 892,000 605,000
---------- ----------
Total $1,710,000 $5,299,000
Equipment sales for FY 1999 decreased $3,876,000, or 82.6% from FY
1998. The decrease is primarily due to the completion of a significant order of
the Royal Match(R) product during FY 1998. Beverage equipment sales for FY 1999
declined $229,000, or 81%, from FY 1998. The decrease is due to a de-emphasis of
liquor equipment marketing. Equipment sales for the fourth quarter of FY 1999
declined by $534,000, or 84.6%. The decrease is due to a significant order being
completed in the fourth quarter of FY 1998.
Juice sales in the FY 1999, for the account of the Company (as opposed
to the Joint Venture with Damon Industries) have been reported for the months of
January through April and included in service sales. Juice sales prior to the
termination of the joint venture were not consolidated, because of the nature of
the joint venture agreement. Prior to January 1, 1999, the financial results for
the joint venture are included as Equity in Loss of Joint Venture.
Service revenues for FY 1999 increased $287,000, or 47.4%, over FY
1998. The increase is due to a $372,000 increase in service agreement revenue
generated from paint units that were sold in FY 1998 and juice sales for January
through April of $117,000. These increases were partially off-set by lower
installation revenues that are generated with most new paint equipment sales.
Service revenues for the fourth quarter of FY 1999 increased by $112,000, or
61.5%, over the FY 1998. This was due primarily to an increase of $87,000 in
service agreement revenue on Royal Match(R) paint colorant dispensers, and juice
sales for the quarter of $91,000. These increases were partially off-set by
lower installation revenues that are generated with most new paint equipment
sales.
Gross Margins FY 1999 FY 1998
------- -------
Equipment 31.4% 30.5%
Service (9.2)% 5.5%
------ -------
Total 10.2% 27.6%
For FY 1999, gross margins as a percentage of sales on equipment
increased by 0.9 percentage points. This modest improvement is a result of price
improvement exceeding the higher costs associated with lower production levels.
For FY 1999, gross margins as a percentage of service revenues
decreased 14.7 percentage points. This is a result of higher employee costs
needed to service the expanding customer base of the Royal Match(R) products.
Many of these employee costs are due to new technicians being trained in our
technol
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS (cont.)
----------------------
General and Administrative
General and Administrative expenses decreased $119,000, or 6.8%, to
$1,623,000. This has resulted from expense reduction programs initiated during
the year and a reallocation of administrative resources from research and
development projects to indirect product costs, made possible with the
completion of development efforts for the juice products and fewer ongoing
development efforts for the Royal Match(R) products.
Selling and Marketing expenses
Selling and marketing expenses decreased $83,000, or 18.2% to $373,000.
This decrease is due primarily to reorganization of the management structure of
the sales force.
Research and Development expenses
For the FY 1999, Research and Development expenses decreased $567,000,
or 82.1%, to $124,000. This decline is directly attributable to development
completion of the juice and Royal Match(R) products. Development efforts have
continued in the CheckMate(R) software systems associated with the Royal
Match(R) product line.
Interest expense
Interest expense increased $29,000, or 18%, to $189,000 for FY 1999.
This was due to notes issued to finance operations.
Other income
For FY 1999, other income increased $115,000 to $73,000 compared to a
loss of $42,000 for the fiscal year 1998. This was due to lower operating losses
for the joint venture that was terminated on December 31, 1998 and the
liquidation of the joint venture assets.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------ -------------------------------------------------------------------------
OF OPERATIONS
-------------
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $163,000 as of April 30, 2000
from $65,000 at April 24, 1999. Operations for FY 2000 used cash of $1,375,000
which resulted from a net loss of $1,080,000, and net increases in operating
assets of $63,000, plus depreciation and amortization and non-cash charges of
$149,000, and decreases in net operating liabilities of $507,000. Net cash used
in investing activities was $3,000. Net cash provided by financing activities
was $1,476,000. The cash provided by financing activities is mainly attributable
to notes payable increases of $1,500,000. 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 and the
private issuance of a short and long term notes payable.
In August of 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 extended the
maturity date through negotiations with Holders of the Notes and their
representatives until December 31, 1999, and again until December 31, 2000. In
September, 1999, The Company renegotiated most of the short term notes payable
to five (5) year 10% APR Promissory Notes that come due on August 1, 2004. These
notes are collatoralized with the intellectual property of The Company. The
Company anticipates using proceeds of equity offerings, additional extensions or
other re-financing options to satisfy the notes..
The Company intends to satisfy its short-term (i.e., the next 12-month
period) capital requirements using the proceeds of offerings of its equity
securities and the issuance of additional notes. 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. 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 Note 3 to the Financial Statements).
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------ -------------------------------------------------------------------------
OF OPERATIONS
-------------
2000 Audit
Grant Thornton, LLP has audited the consolidated balance sheet of the
Company as of April 30, 2000, and the related consolidated statement of
operations, cash flows and stockholders' equity for the year ended April 30,
2000. In their report of July 13, 2000, to the Board of Directors and to the
Company, Grant Thornton LLP 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).
IMPACT OF YEAR 2000
There were no major unforseen complications concerning the Year 2000.
Network and Software upgrades prevented any significant operating issues to
materialize.
ITEM 7A. DISCLOSURES ABOUT MARKET RISK
-------- -----------------------------
There are no material risk elements associated with foreign currency,
interest rates and commodity prices. The building mortgage is the only variable
interest rate contract and does not present a material risk to the Company.
13
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES PAGE NO.
-------------------------------------------------------------------------------------------------------------------------------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 15
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of April 30, 2000 and April 24, 1999 16
Consolidated Statement of Operations for the Years ended April 30, 2000,
and April 24, 1999, and April 25, 1998 17
Consolidated Statement of Cash Flows for the Years ended April 30, 2000,
and April 24, 1999, and April 25, 1998 18
Consolidated Statement of Stockholders' Equity/(Deficit) for the Years ended
April 30, 2000, and April 24, 1999, and April 25, 1998 19
Notes to Consolidated Financial Statements 20-29
SUPPLEMENTARY DATA
Schedule II-Valuation and Qualifying Accounts 30
</TABLE>
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.
14
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
ABC Dispensing Technologies, Inc.
We have audited the accompanying consolidated balance sheets of ABC Dispensing
Technologies, Inc. and Subsidiaries as of April 30, 2000 and April 24, 1999, and
the related consolidated statements of operations, cash flows and stockholders'
equity (deficit) for each of the three years in the period ended April 30, 2000.
Our audits also included the financial statement schedule listed in the index at
Item 8. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ABC
Dispensing Technologies, Inc. and Subsidiaries at April 30, 2000 and April 24,
1999, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended April 30, 2000, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
The accompanying consolidated financial statements and schedule have been
prepared assuming that the Company will continue as a going concern. As more
fully described in Note 3, the Company's history of operating losses and limited
capital resources raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 3. The consolidated financial statements and schedule do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.
GRANT THORNTON LLP
Cleveland, Ohio
July 13, 2000
15
<PAGE>
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS April 30, 2000 April 24, 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 163,000 $ 65,000
Accounts receivable, less allowance for doubtful accounts
of $33,000 in 2000 and $60,000 in 1999 306,000 202,000
Inventories (Note 4) 1,281,000 1,497,000
--------- ---------
Total current assets 1,750,000 1,764,000
Property, plant and equipment (Notes 5 and 11) 662,000 745,000
Other assets:
Intangible assets, less accumulated amortization of
$495,000 in 2000 and $640,000 in 1999 17,000 22,000
Other 143,000 91,000
------- ---------
160,000 113,000
------- --------
Total Assets $ 2,572,000 $ 2,622,000
----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities
Current portion of long-term debt $ 19,000 $ 25,000
Short-term notes payable (Note 5) 175,000 725,000
Accounts payable 409,000 885,000
Accrued liabilities:
Accrued interest 226,000 67,000
Employee compensation and benefits 82,000 134,000
Warranty reserve 18,000 157,000
Other 235,000 171,000
Deferred income 302,000 364,000
------- -------
Total current liabilities 1,466,000 2,528,000
--------- ---------
Long-term debt (Note 5) 2,119,000 233,000
Stockholders' equity/(deficit) (Notes 7, 9):
Preferred Stock - Series A, 9% cumulative;
authorized 840 shares 399 shares issued
and outstanding
Series B, 9% cumulative authorized 160 shares
24 shares issued and outstanding
Series C, 9% cumulative authorized 200 shares
37 shares issued and outstanding
Total Preferred Stock 5,608,000 5,608,000
Common Stock, $.01 par value; authorized 50,000,000
shares; 21,888,336 and 17,936,483 shares issued 2000
and 1999, respectively 219,000 179,000
Additional paid-in capital 20,654,000 19,768,000
Accumulated deficit ( 27,492,000) ( 25,674,000)
------------- -------------
(1,011,000) ( 119,000)
Less Treasury Stock at Cost (2,000)
Less notes receivable - stockholders - ( 20,000)
------------- ---------------
Total Stockholders' Equity/(Deficit) ( 1,013,000) ( 139,000)
------------- --------------
Total Liabilities and Stockholders' Equity/(Deficit) $ 2,572,000 $ 2,622,000
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
16
<PAGE>
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
---------------------------------------------------------------
April 30, April 24, April 25,
2000 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Equipment Sales $ 724,000 $ 818,000 $4,694,000
Service revenues 1,460,000 892,000 605,000
--------- ---------- ----------
2,184,000 1,710,000 5,299,000
Cost and expenses:
Cost of equipment sold 329,000 703,000 3,604,000
Service expenses 968,000 975,000 632,000
General and administrative 1,359,000 1,623,000 1,742,000
Selling and marketing 292,000 373,000 456,000
Research and development 127,000 124,000 691,000
---------- ---------- ----------
3,075,000 3,798,000 7,125,000
--------- --------- ---------
Loss from operations ( 891,000) ( 2,088,000) (1,826,000)
Other income (expense)
Interest expense ( 190,000) ( 189,000) ( 160,000)
Equity in loss of joint venture - ( 42,000) ( 67,000)
Other, net 1,000 115,000 25,000
----- -------- ------
( 189,000) ( 116,000) ( 202,000)
----------- ------------- -----------
Net loss $(1,080,000) $( 2,204,000) $(2,028,000)
----------- ------------ -----------
---------------------------------------------------------------------------------------------------------------------------
Net loss per share - Basic and Diluted $ ( 0.08) $( 0. 15) $( 0.13)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
17
<PAGE>
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
------------------------------------------
April 30, April 24, April 25,
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
Operating activities:
--------------------
Net loss $(1,080,000) $(2,204,000) $(2,028,000)
Adjustments to reconcile net loss to net cash
used in operating activities: --
Deprecation and amortization 118,000 175,000 386,000
(Gain) / Loss on disposal of asset ( 1,000) 6,000
Gain on termination of Joint Venture) -- ( 79,000)
Loss on equity investment in Joint Venture -- 42,000 67,000
Warrants issued for services 31,000
Treasury stock issued as compensation
for legal services -- -- 37,000
Changes in operating assets and liabilities:
Receivables (104,000) 513,000 ( 381,000)
Inventories 216,000 (159,000) 141,000
Other assets (49,000) ( 21,000) 75,000
Accounts payable (477,000) 236,000 (228,000)
Accrued liabilities 32,000 ( 58,000) 98,000
Deferred income (62,000) 103,000 233,000
----------- ----------- -----------
Total adjustments (295,000) 751,000 434,000
----------- ----------- -----------
Net cash used in operating activities (1,375,000) (1,453,000) (1,594,000)
Investing activities
--------------------
Purchases of property, plant, and equipment (3,000) (3,000) ( 6,000)
Additions to patent -- -- ( 33,000)
Proceeds from sale of equipment -- 4,000 1,000
Investment in Joint Venture -- -- ( 255,000)
----------- ----------- -----------
Net cash used in investing activities (3,000) 1,000 ( 293,000)
Financing activities:
--------------------
(Payments) /Proceeds from Line of Credit - Net -- (201,000) 199,000
Proceeds from private placement of
Stock - Net -- 982,000 1,282,000
Proceeds from private placement of
notes payable 1,500,000 390,000 335,000
Repayment of long term debt (24,000) (35,000) ( 37,000)
Proceeds from collection of stockholders receivable -- 25,000 6,000
Proceeds from stock issued for exercise of stock
options and warrants -- 5,000 8,000
----------- ----------- -----------
Net cash provided by financing activities 1,476,000 1,166,000 1,793,000
----------- ----------- -----------
Net increase/(decrease) in cash and cash equivalents 98,000 ( 286,000) ( 94,000)
Cash and cash equivalents at beginning of year 65,000 351,000 445,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 163,000 $ 65,000 $ 351,000
----------- ----------- -----------
</TABLE>
See accompanying notes
18
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
Years ended April 30, 2000, April 24, 1999, and April 25, 1998
<TABLE>
<CAPTION>
Common
Number of Stock Additional Notes
Shares of $.01 Par Preferred Paid-in Accumulated Receivable- Treasury
Common Stock Value Stock Capital Deficit 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 9) 1,287,000
Commissions on Preferred Stock (5,000)
Preferred Stock Dividend
(Note 9) 469,704 5,000 381,000 (386,000)
Warrants Outstanding -
Original Issue Discount (Note 5) 63,000
Exercise of Stock Options 7,515 8,000
Collection on notes receivable-
stockholders 6,000
Net loss (2,028,000)
Issuance of Treasury Stock
(35,000 shares) issued for
legal services received 37,000
Balance at April 25, 1998 17,591,498 $ 176,000 $ 4,675,000 $ 19,461,000 $(23,264,000) $ (45,000) $ 0
------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock private
Placement (Note 9) 983,000
Commissions on Preferred Stock (1,000)
Preferred Stock Dividend
(Note 9) - 274,985 3,000 203,000 (206,000)
Warrants Outstanding
Original Issue Discount (Note 5) 50,000
Exercise of Stock Warrants 20,000 5,000
Collection on notes receivable
Stockholders 25,000
Net loss (2,204,000)
Preferred Stock Conversion 50,000 (50,000) 50,000
Balance at April 24, 1999 17,936,483 $ 179,000 $ 5,608,000 $ 19,768,000 $(25,674,000) $ (20,000) $ 0
------------------------------------------------------------------------------------------------------------------------------------
Warrants issued for services
and debt 206,000
Preferred Stock Dividend
(Note 9) 3,951,853 40,000 698,000 (738,000)
Acquire Treasury Stock
upon cancellation of stockholders
notes receivable (18,000) 20,000 (2,000)
Net loss (1,080,000)
Balance at April 30, 2000 21,888,336 $ 219,000 $ 5,608,000 $ 20,654,000 $(27,492,000) $ 0 $ (2,000)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
19
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business description
ABC Dispensing Technologies, Inc. (the "Company"), a Florida Corporation,
designs proprietary dispensing systems to dispense and blend liquids, powders
and other ingredients to a uniform, specification with a high degree of
accuracy. The Company provides training, installation and product service and
also custom designs and assembles its own proprietary dispensing equipment to
meet the needs of its customers which are located primarily in the United
States. The Company is currently focusing its marketing efforts on the Beverage
and Paint Industries.
2. Significant accounting policies
Year End - In fiscal year 2000, to more closely align closing periods
with its major customers and vendors, the Company changed its fiscal year end
from a 52-53 week period ending on the Saturday closest to April 30 to an April
30th year end. This change has increased the number of days included in the
financial statements from 364 calendar days in the 52 week period ended April
24, 1999 to 370 calendar days in the period ended April 30, 2000.
References to the years 2000, 1999 and 1998 refer to fiscal years ended
April 30, 2000, April 24, 1999 and April 25, 1998, respectively
Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries, ABC Dispensing Technologies, Inc.
(an Ohio Corporation) and ABC Tech Corp. Significant inter-company 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 Flow Statements - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. For the years ended April 30, 2000, April 24, 1999, and April 25,
1998, interest paid approximated $31,000 $143,000 and $160,000, respectively.
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 30, 2000.
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 three, five and
seven 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.
20
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Significant accounting policies (Cont.)
Revenue Recognition - Revenue on equipment sales is recognized when the
product is shipped and the 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.
Major Customer - Revenues from The Home Depot, Inc. were 25%, 52% and
89% of total revenues for the years ended April 30, 2000, April 24, 1999 and
April 25, 1998, respectively. The Company has no unfilled equipment purchase
orders from The Home Depot but anticipates to continue servicing the installed
equipment base.
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 and members of the board of directors generally
with an exercise price equal to the fair value of the shares at the date of
grant. As permitted by Statement of Financial Accounting Standards No. 123,
(SFAS 123), "Accounting for Stock Based Compensation", the Company is
recognizing compensation expense related to employee stock options pursuant to
Accounting Principles Board Opinion No. 25, (APB 25), "Accounting for Stock
Issued to Employees". However, as required by SFAS 123, the Company is
disclosing what the effects on net loss would have been had it adopted the fair
value approach prescribed by SFAS 123. The effects on net loss and net loss per
share had the Company adopted the expense recognition of SFAS 123, are shown in
note 7. Stock warrants granted to consultants and others are accounted for using
the fair value approach of SFAS 123.
Segment Reporting - Effective October 1998, the Financial Accounting
Standards Board issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". The Company operates in only one business
segment and, therefore, adoption of this standard has no effect on the Company's
financial disclosures. The Company's chief operating decision maker is the chief
executive officer who reviews a single set of financial data that encompasses
the Company's entire operation for the purpose of making operating decisions and
assessing performance.
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 30, 2000 has an accumulated
deficit of $27,492,000. The Company had negative cash flow from operating
activities of $1,375,000, $1,453,000, and $1,594,000 for the years ended April
30, 2000, April 24, 1999, and April 25, 1998, respectively. 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 able to raise $6,573,000 in
capital from private investors over the past four years through private
placements of both preferred and common stock. The Company raised $1,500,000
during the fiscal year ended April 30, 2000 using interest bearing Notes
Payable. The Company is continuing its efforts to raise capital. The Company
hopes to satisfy its short-term (i.e., the next 12-month period) capital
requirements with the use of proceeds from the private placement of its 9%
Convertible Commutative Preferred Stock and notes payable. The Company is
currently attempting to raise additional capital through an offering of such
Preferred Stock. The exact terms of this offering have not been finalized. The
Company hopes to satisfy its longer term capital needs with 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.
21
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Going concern uncertainty (Cont.)
Further, there can be no assurance, assuming the Company does
successfully raise additional capital, 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 30, 2000 and April 24, 1999, inventories consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
-------------------- -----------------
<S> <C> <C>
Raw Materials $ 742,000 $ 907,000
Work-in-process 225,000 275,000
Finished goods 314,000 315,000
-------------------- -----------------
$1,281,000 $1,497,000
==================== =================
</TABLE>
The above amounts are net of an obsolescence reserve of $479,000 and $474,000 at
April 30, 2000 and April 24, 1999, respectively.
5. Financing arrangements
At April 30, 2000 and April 24, 1999, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
-------------------- -----------------
<S> <C> <C>
Note payable to bank $ 231,000 $244,000
Note payable - Private party 1,902,000 -
(Less unamortized discount of $148,000 FY 2000)
Other 5,000 14,000
-------------------- -----------------
2,138,000 258,000
Less amounts due within one year (19,000) ( 25,000)
-------------------- -----------------
Total long-term debt $2,119,000 $233,000
==================== =================
</TABLE>
The note payable to bank, which is secured by the Company's
headquarters facility, has an adjustable interest rate (9.03% at April 30, 2000)
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 $4,013 are payable monthly with a final payment of $143,000
due October 1, 2005. At April 30, 2000, the collateralizing facility and
improvements thereto have a net book value of $424,000.
On August 1, 1999, the Company renegotiated most of the 10% APR, short
term notes to a 5 year, 10% APR Promissory Note that comes due on August 1,
2004. These notes are collatoralized with the intellectual property of the
Company. In return for converting the short term note to long term, the Company
issued 5 year Warrants to Purchase 2,500,000 Shares of Common Stock at then
current market price of $.10 per share. The Warrants have been valued at
$175,000 using the Black-Scholes Option Pricing Model, using the following
weighted average assumptions: A Risk-Free interest rate of 6.355% and an
expected volatility of 88.55%. A discount on the notes payable has been recorded
for that amount which will be amortized on a straight line basis over the term
of the notes.
Maturities of long-term debt for the four years subsequent to April 30,
2000 are as follows: 2001--$19,000; 2002--$19,000; 2003--$19,000,
2004--$2,071,000 and 2005--$23,000.
22
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Financing arrangements (Cont.)
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. 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. The Company further extended the maturity date through negotiations with
the note-holders until December 31, 1999, and again until December 31,2000.
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 $63,000 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 total of 124,000
warrants were issued in consideration for extending the initial maturity date,
per the terms of the notes, the Company issued to each note-holder an additional
5,000 warrants to purchase common stock of the Company at a price of $1.25. The
warrants have been valued at $50,000 using the Black-Scholes option pricing
model, using the following weighted-average assumptions: a risk free interest
rate of 6.50% and expected volatility of 287%. A total of 134,000 warrants were
issued to satisfy this extension. In August, 1999 the Company renegotiated
$1,660,000 of these notes to a five (5) year, 10% APR Promissory Note as
described above.
During the year ended April 24, 1999, The Company began issuing notes
payable through a private placement in multiples of $10,000 or fractions
thereof. The notes accrue interest at a rate of 10% with principal and interest
paid at maturity. A total of $390,000 were issued with $260,000 using the
building as collateral and $130,000 using the technology of the Company as
collateral. These notes were renegotiated to a five (5) year, 10% APR Promissory
Note as described above.
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 30, 2000
and April 24, 1999 are as follows:
2000 1999
----------- -----------
Net operating loss carry-forwards $ 9,125,000 $ 8,752,000
Inventories 239,000 237,000
Other 80,000 273,000
----------- -----------
Total deferred tax asset 9,444,000 9,262,000
Valuation allowance for deferred taxes (9,444,000) (9,262,000)
----------- -----------
Net deferred taxes $ 0 $ 0
=========== ===========
At April 30, 2000 and April 24, 1999, the Company had Federal net operating loss
carry-forwards for tax reporting purposes of approximately $24,000,000 and
$23,000,000, respectively. The net operating loss carry-forwards expire in the
years 2000 to 2014. 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. The change in the valuation
allowance for fiscal years 2000, 1999 and 1998 was $182,000, $1,161,000, and
$868,000, respectively.
23
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1,750,000 shares were reserved for issuance under the Company's
1995 Stock Option Plan and amendments thereto. 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 or
90 days after the Employee's or Director's relationship with the Company is
terminated. The Company also may grant incentive stock warrants, generally at
current market prices, to purchase the common stock of the Company to directors,
officers and key employees.
A summary of the Company's stock option plans and employee stock
warrants, and related information for the years ended April 30, 2000, April 24,
1999, and April 25, 1998, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------- ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise price Shares Exercise price Shares Exercise price
--------- -------------- -------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 2,074,085 $ 0.94 1,898,219 $ 1.39 1,518,323 $ 1.68
=========
Granted 1,162,900 $ 0.21 700,000 $ . 23 611,000 $ 1.07
Exercised 0 $ (7,515) $ 1.00
Canceled (306,500) $ 1.08 (524,134) $ 1.62 (223,589) $ 2.05
--------- --------- ---------
Outstanding - end of year 2,930,485 $ 0.64 2,074,085 $ . 94 1,898,219 $ 1.39
========= ========= =========
Exercisable at end of year 2,034,085 $ 0.81 1,230,085 $ 1.25 1,302,219 $ 1.48
========= ========= =========
Available for grant 1,736,796 1,623,796 1,379,662
========= ========= =========
Weighted average fair value of options
granted during the year $ 0.17 $ 0.22 $ 0.74
</TABLE>
The following table summarizes information about stock options and
employee stock warrants outstanding and exercisable by price range as of April
30, 2000:
<TABLE>
<CAPTION>
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> <C>
$0.10 - $1.125 2,208,639 7.64 $ 0.38 1,312,239 $ 0.46
$1.25 - $1.46 677,194 1.47 $ 1.34 677,194 $ 1.34
$2.06 - $3.38 44,652 1.52 $ 2.75 44,652 $ 2.75
2,930,485 2,034,085
========= =========
</TABLE>
24
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (Cont.)
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.
The Company has computed, for pro forma disclosure purposes, the value
of all options granted during the fiscal years ending April 30, 2000, April 24,
1999 and April 25, 1998, using the Black-Scholes option pricing model as
prescribed by SFAS 123 using the following weighted average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
-------- --------- ------
<S> <C> <C> <C>
Risk-free interest rate 6.28% 6.50% 6.37%
Dividend yield 0 % 0 % 0 %
Volatility 96% 287% 82%
Average life 7.15 years 5 Years 5 Years
</TABLE>
Using the Black-Scholes methodology, the total value of options granted
during fiscal 2000, 1999 and 1998 was $292,000, $126,000, and $257,000
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:
<TABLE>
<CAPTION>
April 30, 2000 April 24, 1999 April 25, 1998
-------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Loss As reported $ (1,080,000) $ (2,204,000) $ (2,028,000)
Pro forma $ (1,372,000) $ (2,330,000) $ (2,285,000)
Basic and Diluted
Earnings per share As reported $ (0.08) $ (0.15) $ (0.13)
Pro forma $ (0.10) $ (0.16) $ (0.16)
</TABLE>
25
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants
--------
On May 15, 1997, the Company granted 381,000 warrants with an exercise price of
$1.125 per share to 38 employees of the Company.
On August 22, 1997, the Company granted 15,000 warrants at $0.96 per share to an
employee of the Company.
On September 10, 1997, the Company granted 40,000 warrants to Frank E. Vaughn,
Director; 20,000 warrants to Herbert Luxenburg, Director; and 20,000 warrants to
C. Rand Michaels, Director at $0.844 per share.
On November 27, 1997, the Company granted 55,000 warrants at $1.063 per share to
an employee of the Company.
On January 29, 1998, the Company granted 40,000 warrants to Norbert Lewandowski,
Director; and 40,000 warrants to William L. Shanklin, Director at $1.125 per
share.
On October 9, 1998, the Company granted 20,000 warrants to each Member of the
Board of Directors at $.2969 per share. These include: Norbert Lewandowski,
Herbert Luxenburg, C. Rand Michaels, William L. Shanklin, and Frank E. Vaughn.
On January 14, 1999, the Company granted 25,000 warrants exercisable at $.35 per
share to a former employee with connection with a termination agreement.
On February 12, 1999, the Company granted 600,000 warrants exercisable at $.20
per share to Charles M. Stimac, Jr., President and CEO.
On June 30, 1999, the Company granted 100,000 warrants exercisable at $.20 per
share for compensation of consulting services.
On July 15, 1999, the company granted 12,500 warrants exercisable at $0.28 per
share to an employee of the Company.
On September 1, 1999 the company granted 529,400 warrants to all current
employees based on service and salary at an exercise price of $0.20 per share.
These warrants vest over a period of 3 years.
On September 1, 1999 the company granted 100,000 warrants exercisable at $0.20
per share to each member of the Board of Directors. These include: Frank Vaughn,
Norbert Lewandowski, Herbert Luxenburg, William L. Shanklin, and Charles M.
Stimac Jr.
On December 15, 1999 the company granted 2,500,000 warrants exercisable at $0.10
per share to a current investor in return for a five year extension of existing
Notes Payable.
On December 31, 1999 the company granted 100,000 warrants exercisable at $0.20
per share for compensation of consulting services.
On February 24, 2000 the Company granted 100,000 warrants exercisable at $0.28
per share to an employee of the Company.
Stock warrants granted to consultants and other non-employees are accounted for
using the fair value approach of SFAS 123. The following is a summary of stock
warrants issued for services and debt:
<TABLE>
<CAPTION>
FY 2000 FY 1999 FY 1998
------------------------ ------------ ---------------------- ------------ -------------------- ------------- --------------------
Shares Weighted Average Shares Weighted Average Shares Weighted Average
Exercise Price Exercise Price Exercise Price
------------------------ ------------ ---------------------- ------------ -------------------- ------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - 2,081,500 $2.37 1,818,500 $2.58 2,032,500 $2.60
beginning of year
------------------------ ------------ ---------------------- ------------ -------------------- ------------- --------------------
Granted 2,700,000 $.011 283,000 $1.06 -0- -0-
------------------------ ------------ ---------------------- ------------ -------------------- ------------- --------------------
Excercised 20,000 $2.00 214,000 $2.00
------------------------ ------------ ---------------------- ------------ -------------------- ------------- --------------------
Outstanding - 4,781,500 $1.09 2,081,500 $2.37 1,818,500 $2.58
end of year
------------------------ ------------ ---------------------- ------------ -------------------- ------------- --------------------
Exercisable - 4,781,500 $1.09 2,081,500 $2.37 1,818,500 $2.58
end of year
------------------------ ------------ ---------------------- ------------ -------------------- ------------- --------------------
</TABLE>
26
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Net loss per share
The following table sets forth the computation of net loss per share - basic and
diluted:
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------------
April 30, April 24, April 25,
2000 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net Loss $ (1,080,000) $ (2,204,000) $( 2,028,000)
Preferred Stock Dividends (503,000) (441,000) (243,000)
------------- ------------- ------------
Numerator for net loss per share - loss attributable
to common shareholders $ (1,583,000) $ (2,645,000) $( 2,271,000)
Denominator:
Denominator for basic and diluted earnings
per share - weighted-average shares 19,084,100 17,774,000 17,230,000
------------- ------------- ------------
Net loss per share -- basic and diluted $ (0.08) $ (0.15) $ ( 0.13)
============= ============= ============
</TABLE>
In the above computation of net loss per share, preferred stock
dividends include dividends accumulated during the fiscal year on cumulative
preferred stock. 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 7,771,985, 4,155,588, and
3,716,719 shares of Common Stock as of April 30, 2000, April 24, 1999, and April
25, 1998, respectively.
9. 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 840 shares as
Series A Preferred Stock, 160 shares of Series B Preferred Stock and 200 shares
of Series C 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 April 30, 2000, 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 $4,938,000 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 Series B Preferred Stock is convertible at the option of the holder
into Common Stock of the Company at a price of $.75 per share and is identical
to Series A Preferred Stock in all other aspects. The Company has authorized 160
shares and sold 24 shares as of April 30, 2000, generating gross proceeds of
$300,000.
The Series C Preferred Stock is a $10,000 denomination, 9% convertible
cumulative redeemable issue with a conversion price of $.25 per share. There are
no warrants attached to this issuance. The Company has authorized 200 shares and
sold 37 shares through April 30, 2000, generating gross proceeds of $370,000.
27
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Preferred stock (Cont.)
Series A, B, and C 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 October 7, 1997, the Company paid its February 1 and August 1, 1997
Preferred Stock dividend requirements by issuing common stock. The total number
of common shares issued for the February 1, 1997 dividend was 61,240. The shares
were valued at $1.094 per share. The total number of common shares issued for
the August 1, 1997 dividend was 179,828. The shares were valued at $0.844 per
share.
On April 15, 1998, the Company paid its February 1, 1998 Preferred
Stock dividend requirement by issuing common stock. The total number of common
shares issued for the February 1, 1998 dividend was 228,636. The shares were
valued at $0.733 per share.
On October 15, 1998, the Company paid its August 1, 1998 Preferred
Stock dividend requirement by issuing common stock. The total number of common
shares issued for the dividend was 274,985. The shares were common stock. The
shares were valued at $0.75 per share.
On June 11, 1999, the Company paid its February 1, 1999, Preferred
Stock dividend requirement by issuing common stock. The total number of common
shares issued for the dividend was 1,231,565. The shares were valued at $0.191
per share.
On April 18, 2000, the Company paid its August 1, 1999, and February 1,
2000, Preferred Stock dividend requirements by issuing common stock. The total
number of shares issued for August 1, 2000, was 924,408 and were valued at
$0.2714 per share. The total number of shares issued for February 1,2000, was
1,795,880 and were valued at $0.1404 per share.
10. Operating leases
Aggregate rental expense for fiscal years 2000, 1999, and 1998 was
$31,000, $45,000, and $53,000, respectively. The Company has no long term
operating leases
11. Property, plant and equipment
Property, plant and equipment consisted of the following at April 30,
2000 and April 24, 1999:
<TABLE>
<CAPTION>
2000 1999
----------- ------------
<S> <C> <C>
Land $ 57,000 $ 57,000
Building and building improvements 572,000 572,000
Machinery and equipment 1,123,000 1,120,000
------------ ------------
1,752,000 1,749,000
Less accumulated depreciation (1,090,000) (1,004,000)
------------ ------------
$ 662,000 $ 745,000
============ ============
</TABLE>
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 $12,000 in 2000, $15,000 in 1999, and $16,000 in 1998. The Company
has the discretion to make a profit-sharing contribution, but no such
contribution has been made by the Company.
28
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, other than the aforementioned suit, would not have a
material adverse effect on its financial statements.
Although there can be no assurance as to the ultimate disposition of
these matters and the lawsuits disclosed above, management of the Company
believes, based upon information available at this time, that the ultimate
outcome of these maters will not have a material adverse effect on the
operations and financial condition of the Company.
14. Joint venture agreement
On June 25, 1997, the Company entered into an agreement with Damon
Industries, a privately-owned national juice manufacturer with headquarters in
Sparks, Nevada, to form the "Virtual Squeeze(R)" joint venture. The purpose of
the joint venture was 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 manufactured
dispensing equipment and provided technical support to the joint venture, and
Damon manufactured fruit juice and provided marketing and administrative support
for the joint venture. The dispensing equipment was placed in a customer's
facility at no charge providing the customer committed to purchasing all of its
juice from the Virtual Squeeze(R). Resulting profits or losses from the juice
sales were split equally by the Company and Damon.
On December 31, 1998, the joint venture was terminated with the mutual
consent of both parties. Changes in the strategic direction of the two
organizations made it necessary to liquidate the joint venture assets. The
Company has taken full control of the product line and the joint venture assets.
Through December 31, 1998, the Company provided $269,000 of juice
dispensing equipment to the joint venture and incurred $109,000 in losses from
the joint venture's operations. Equipment and other assets the Company obtained
in the liquidation totaled $239,000, resulting in a gain of $79,000.
15. Subsequent events (Unaudited)
Subsequent to fiscal year end, April 30, 2000, and through July 26,
2000, the Company has received $150,000 from the issuance of a promissory notes
that bears interest 10% per annum. These funds will be used for necessary
operating expenses.
29
<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>
Year ended April 30, 2000
-------------------------
Allowance for doubtful accounts $ 60,000 $ 11,000 $ 16,000(a) $ 33,000
========= ========= ========= =========
Allowance for inventory obsolescence $ 474,000 $ 5,000 $ (b) $ 479,000
========= ========= ========= =========
Year ended April 24, 1999
-------------------------
Allowance for doubtful accounts $ 84,000 $ (22,000) $ 2,000(a) $ 60,000
========= ========= ========= =========
Allowance for inventory obsolescence $ 909,000 $ 5,000 $ 440,000(b) $ 474,000
========= ========= ========= =========
Year ended April 25, 1998
-------------------------
Allowance for doubtful accounts $ 191,000 $ 39,000 $ 146,000(a) $ 84,000
========= ========= ========= =========
Allowance for inventory obsolescence $ 838,000 $ 105,000 $ 34,000(b) $ 909,000
========= ========= ========= =========
</TABLE>
(a) Un-collectable accounts written off, net of recoveries.
(b) Inventory written off and/or disposed of.
30
<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. Certain information concerning the Executive Officers is also
included below:
Name Position
---- --------
Charles M. Stimac, Jr. President and Director
Herbert L. Luxenburg Director
Norbert J. Lewandowski Director
William L. Shanklin Director
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. Norbert J. Lewandowski has been a Director of the Company since
December 1998.
Dr. William L. Shanklin has been a Director of the Company since
December 1998.
Mr. C. Rand Michaels resigned his position as director of the Company
effective June 23, 1999.
Mr. Frank E. Vaughn resigned his position as director of the Company
effective February 2, 2000.
ITEM 11. EXECUTIVE COMPENSATION
-------- ----------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
Incorporated herein by reference from the Company's definitive Proxy
Statement.
31
<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:
3.1 Certificate of Incorporation of the Registrant.
3.2 By-law's of the Registrant.*
10.1 Employment agreement dated March 1, 1997 and between the Registrant
and Charles M. Stimac,Jr.*
10.2 Form of Director Option Agreement dated October 30, 1998.
10.3 Amended 1995 Stock Option Plan.*
10.4 Amendment #1 to Employment agreement between the Registrant and
Charles M. Stimac, Jr.
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.*
27. Financial Data Schedule (for S.E.C. electronic filing only)
*Incorporated by reference to a similarly numbered exhibit to the
registrants registration on form S-1 filed with the Commissior on April 8, 1998.
(c) Current reports on Form 8-K during the quarter ended April 30, 2000.
During the fourth quarter ended April 30, 2000, the Company filed no
reports on Form 8-K.
32
<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.
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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/S/ President & Director July ??, 2000
---------------------------
Charles M. Stimac, Jr.
/S/ Director July ??, 2000
---------------------------
Herbert L. Luxenburg
/S/ Director July ??, 2000
---------------------------
Norbert J. Lewandowski
/S/ Director July ??, 2000
---------------------------
William L. Shanklin
</TABLE>
33
