FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED OCTOBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 0-14922
ABC DISPENSING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2001203
---------------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
451 KENNEDY ROAD AKRON, OHIO 44305
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 733-2841
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: [X] Yes [ ] No
The number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date is:
Common Stock outstanding at November 28, 2000 was 23,269,976 shares.
1
<PAGE>
INDEX
ABC DISPENSING TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Part I Financial Information Page No.
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Item 1. Condensed Financial Statements (Unaudited)
Consolidated balance sheets - October 31, 2000 and April 30, 2000 3
Consolidated statements of operations - Six months ended October 31, 2000 and
October 31, 1999, and the three months ended October 31, 2000 and October 31, 1999 4
Consolidated statements of cash flows - Six months ended October 31, 2000 and Oct. 31, 1999 5
Consolidated statement of stockholders' equity - Six months ended October 31, 2000 6
Notes to consolidated financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14
Part II Other Information
-----------------------------------------------------------------------------------------------------------------------------------
Item 1. (Not Applicable)
Item 2. (Not Applicable)
Item 3. (Not Applicable)
Item 4. (Not Applicable)
Item 5. (Not Applicable)
Item 6. (A) Exhibits and Reports 15
Signature 16
</TABLE>
2
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS OCTOBER 31, 2000 APRIL 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 103,000 $ 163,000
Accounts receivable, less allowance for doubtful accounts
of $36,000 as of October 31 and $33,000 as of April 30 121,000 306,000
Inventories (Note 3) 1,279,000 1,281,000
--------- ---------
Total current assets 1,503,000 1,750,000
Property, plant, and equipment 602,000 662,000
Other assets 127,000 160,000
------- -------
TOTAL ASSETS $ 2,232,000 $ 2,572,000
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities:
Current portion of long-term debt $ 19,000 $ 19,000
Short-term notes payable (Note 4) 175,000 175,000
Accounts payable 404,000 409,000
Accrued liabilities:
Accrued interest 348,000 226,000
Employee compensation and benefits 109,000 82,000
Warranty reserve 11,000 18,000
Other 128,000 235,000
Deferred income 278,000 302,000
-------- -------
Total current liabilities 1,472,000 1,466,000
Long-term debt (Note 4): 2,524,000 2,119,000
Stockholders' equity/(deficit) (Note 6):
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 5,608,000 5,608,000
Common Stock, $.01 par value; authorized 50,000,000
shares; 23,269,976 shares issued 233,000 219,000
Additional paid-in capital 20,892,000 20,654,000
Accumulated deficit (28,495,000) (27,492,000)
----------- -----------
(1,762,000) (1,011,000)
Less treasury stock at cost: (2,000) (2,000)
--------
Total Stockholders' Equity/(Deficit) (1,764,000) (1,013,000)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) $ 2,232,000 $ 2,572,000
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Six months and three months ended October 31, 2000 and 1999
(Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999 OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
Equipment sales $ 138,000 $ 231,000 $ 80,000 $ 171,000
Service revenues 667,000 690,000 338,000 394,000
-------- ------- ------- -------
Total revenues 805,000 921,000 418,000 565,000
COST AND EXPENSES:
Cost of equipment sold 113,000 162,000 69,000 134,000
Service expenses 519,000 449,000 260,000 232,000
General and administrative 653,000 682,000 317,000 286,000
Selling and marketing 136,000 146,000 66,000 71,000
Research and development 72,000 33,000 35,000 14,000
------ ------ ------ ------
TOTAL COST AND EXPENSES: 1,493,000 1,472,000 747,000 737,000
--------- --------- ------- -------
LOSS FROM OPERATIONS: (688,000) (551,000) (329,000) (172,000)
Other income (expense) (63,000) (78,000) (30,000) (46,000)
NET LOSS: $(751,000) $(629,000) $(359,000) $(218,000)
---------- ---------- ---------- ----------
NET LOSS PER SHARE:
Basic and diluted (Note 5) $ (0.05) $ (0.04) $ (0.03) $ (0.02)
------- ------- ------- -------
</TABLE>
4
See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
October 31, 2000 October 31, 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities: $ (460,000) $ (788,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (3,000)
Investment in joint venture - -
------------- ---------
Net cash used in investing activities - (3,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement - -
Proceeds from collection of stockholders receivables - -
Proceeds/(repayment) of notes payable 400,000 730,000
Other 70,000
------- -------
Net cash provided by financing activities 400,000 800,000
------- -------
Net decrease in cash and cash equivalents (60,000) 9,000
Cash and cash equivalents at beginning of year 163,000 65,000
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 103,000 $ 74,000
======== =======
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
5
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Six months ended October 31, 2000 unaudited)
<TABLE>
<CAPTION>
Number of Stock Additional
Shares of $.01 Par Preferred Paid-in Accumulated Treasury
Common Stock Value Stock Capital Deficit Stock
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 2000 21,888,336 $219,000 $5,608,000 $20,654,000 $(27,492,000) $(2,000)
-----------------------------------------------------------------------------------------------
Preferred stock dividend 1,381,640 14,000 238,000 (252,000)
Net loss (751,000)
BALANCE AT OCTOBER 31, 2000 23,269,976 $233,000 $5,608,000 $20,892,000 $(28,495,000) $(2,000)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
6
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of October 31, 2000 and for the six months ended
October 31, 2000 is unaudited)
The accompanying, unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
applicable to interim financial statements. Accordingly, they do not include all
of the information and notes required for complete financial statements. In the
opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the six months ended October 31,
2000, are not necessarily indicative of the results that may be expected for the
year ending April 30, 2001. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K filed with the Securities and Exchange Commission on August
4, 2000.
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.
1. SIGNIFICANT ACCOUNTING POLICIES
In fiscal year 2000, the Company changed its fiscal year end from a 52-53
week period ending on the Saturday closest to April 30 to an April 30 year end,
to more closely align closing periods with its major customers and vendors. This
change has increased the number of days included in the financials for the six
months ending October 31, 1999, from 91 calendar days to 97 calendar days. An
estimate of the impact of this six day change on a performa basis yields sales
of $12,000, gross margin of $2,000 and allocated selling, general and
administrative expenses of $18,000 resulting in a net loss of $16,000.
2. GOING CONCERN UNCERTAINTY
The Company has reported a net loss for each year of operation since its
inception except for 1989, and as of October 31, 2000, has an accumulated
deficit of $28,495,000. 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. For the six months
ended October 31, 2000, the Company had negative cash flow from operating
activities of $460,000 and $788,000 for the six months ended October 31, 1999.
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 ensure
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 in it 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 Cumulative Preferred Stock and notes payable. The Company is
currently attempting to raise additional capital through an offering of its
Convertible 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. 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.
ABC DISPENSING TECHNOLOGIES, INC.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of October 31, 2000 and for the six months ended
October 31, 2000 is unaudited)
3. INVENTORIES
At October 31, 2000 and April 30, 2000, inventories consisted of the
following:
<TABLE>
<CAPTION>
OCTOBER 31, 2000 APRIL 30, 2000
---------------- --------------
<S> <C> <C>
Raw Materials $740,000 $742,000
Work-in-process 220,000 225,000
Finished goods 319,000 314,000
------- -------
TOTAL $1,279,000 $1,281,000
The above amounts are net of obsolescence reserves of $479,000 at both October 31, 2000 and April 30, 2000.
4. FINANCING ARRANGEMENTS
At October 31, 2000 and April 30, 2000, long-term debt consisted of the
following:
OCTOBER 31, 2000 APRIL 30, 2000
---------------- --------------
Note payable to bank $223,000 $231,000
Note payable - Private party 2,316,000 1,902,000
(Less unamortized discount of $134,000 and $148,000 for
October and April respectfully)
Other 4,000 5,000
----- -----
2,543,000 2,138,000
Less amounts due within one year (19,000) (19,000)
-------- --------
TOTAL LONG-TERM DEBT $2,524,000 $2,119,000
---------- ----------
</TABLE>
The note payable to bank, which is secured by the Company's headquarters
facility, has an adjustable interest rate (9.25% at October 31, 2000) which may
not increase or decrease by more than 3% once every three years.
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 the 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. During
the six months ended October 31, 2000, the Company raised an additional $400,000
of capital using this long term Promissory Note.
5. NET LOSS PER SHARE
The following table sets forth the computation of net loss per share --
basic and diluted:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999 OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net loss $ (751,000) $ (629,000) $ (359,000) $ (218,000)
Preferred Stock Dividends (252,000) (226,000) (252,000) (226,000)
--------- --------- --------- ---------
Numerator for net loss per share - loss
attributable to common shareholders $(1,003,000) $ (855,000) $ (611,000) $ (444,000)
DENOMINATOR:
Denominator for basic and diluted
Earnings/share-weighted-ave. shares 22,118,609 19,168,049 23,269,976 22,348,883
---------- ---------- ---------- ----------
Net loss per share - basic diluted $ (0.05) $ (0.04) $ (0.03) $ (0.02)
------- ------- ------- -------
</TABLE>
The effect of potentially dilutive securities have not been included in the
above computations since such securities would have been anti-dilutive for the
periods presented. These potentially dilutive securities consisted of options
and warrants to purchase 7,771,985 and 5,765,500 shares of Common Stock as of
October 31, 2000 and October 31, 1999, respectively.
8
<PAGE>
ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of October 31, 2000 and for the six months ended
October 31, 2000 is unaudited)
6. 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 October 31, 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 $4,988,000 to the Company.
The Series A Preferred Stock is convertible at the option of the holder, in
whole or in part, at any time after March 1, 1997 (the "Initial Conversion
Date") into Common Stock of the Company at a price per share of Common Stock
equal to (i) $1.00 per share, or (ii) such adjusted price as may form time to
time be adjusted (the "Conversion Price"). If converted into Common Stock, each
Preferred Share will entitle the holder to receive warrants to purchase a number
of shares of Common Stock at a price of $1.25 per share, equal to the number of
shares of Common Stock into which the Preferred Shares were converted. The
warrants will be valid for a period of five years commencing from the date of
issuance.
The 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.
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 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, 1999 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.
On October 3, 2000 the Company paid its August 1, 2000 Preferred Stock
dividends requirements by issuing common stock. The total number of shares
issued was 1,381,640 and were valued at $0.1826 per share.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 2000 COMPARED TO THE SIX MONTHS ENDED OCTOBER 31,
1999
The net loss for the six months ended October 31, 2000 was $751,000, an
increase of $122,000, or 19.4% over the net loss of $629,000 for the six months
ended October 31, 1999.
REVENUES Six Months Ended
--------------------------------------
October 31, October 31,
2000 1999
---- ----
Equipment sales $ 138,000 $ 231,000
Service revenues 667,000 690,000
-------- ---------
Total $ 805,000 $ 921,000
======== ========
Equipment sales for the first six months of fiscal 2001, ending October 31,
2000 decreased $93,000, or 40.3%, over the same period of the prior year. Sales
of paint colorant dispensers decreased $110,000. Sales of the Royal Match(R)
paint colorant dispensers have decreased because the equipment has not yet
gained widespread market acceptance and suggested list prices for the equipment
has been decreased by approximately 35%. Sales of beverage equipment increased
$17,000, or 19% over the same period of the prior year, the Company is not
actively marketing its beverage equipment but is supporting dealer sales in
Canada and accepting orders from domestic customers.
Service revenues for the first six months of fiscal 2001 decreased $23,000,
or 3.3% from the same period of the prior year. The decrease is due to a
reduction in beverage parts of $15,000 and paint parts of $12,000.
GROSS MARGINS Six Months Ended
-----------------------------
October 31, October 31,
2000 1999
---- ----
Equipment 16.3% 44.3%
==== ====
Service 36.6% 34.9%
==== ====
Total 33.1% 37.1%
==== ====
For the first six months of fiscal 2001 gross margin as a percentage of
sales on equipment decreased 28 points over the same period of the prior year.
The decrease resulted from lower list prices due to a change in pricing strategy
implemented during fiscal 2001.
For the first six months of fiscal 2001 gross margin as a percentage of
service revenues increased 1.7 points over the same period of the prior year.
The increase is attributable to lower service labor and benefit costs and lower
parts costs.
GENERAL AND ADMINISTRATIVE
For the first six months of fiscal 2001 general and administrative expenses
decreased $29,000, or 4.3%, to $653,000, as compared to the same period of
fiscal 2000. This was due to headcount reductions and allocation of
administrative resources to marketing and direct product related activities.
SELLING AND MARKETING EXPENSES
For the first six months of fiscal 2001 selling and marketing expense
decreased $10,000, or 6.9%, to $136,000, down from $146,000 for the same period
of FY 2000. The decrease is due primarily to reorganization of the management
structure of the sales force.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESEARCH AND DEVELOPMENT
For the first six months of fiscal 2001, research and development expenses
increased $39,000, or 118.2%, to $72,000. The increase is due to a reallocation
of existing resources into software enhancement efforts required to modify the
Royal Match(R) paint dispensing system to meet the needs of new customers.
INTEREST EXPENSE
For the first six months of fiscal 2001 interest expense increased $62,000,
or 82.7%, to $137,000. This is a result of higher notes payable balances.
OTHER INCOME/(EXPENSE)
For the first six months of fiscal 2001 other income improved $15,000 to a
net expense of $63,000. Higher interest expense was off set by adjustments
associated with prior year adjustments.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2000 COMPARED TO THE THREE MONTHS ENDED
OCTOBER 31, 1999
The net loss for the three months ended October 31, 2000 was $392,000, an
increase of $174,000, or 79.8% over the net loss of $218,000 for the three
months ended October 31, 1999.
REVENUES Three Months Ended
--------------------------------------
October 31, October 31,
2000 1999
Equipment sales $ 80,000 $ 171,000
Service revenues 338,000 394,000
-------- ---------
Total $ 418,000 $ 565,000
======== ========
Equipment sales for the three months of fiscal 2001, ending October 31,
2000 decreased $91,000, or 53.2%, over the same period of the prior year. Sales
of paint colorant dispensers decreased $105,000. Sales of the Royal Match(R)
paint colorant dispensers have decreased because the equipment has not yet
gained widespread market acceptance and suggested list prices for the equipment
has been decreased by approximately 35%. Sales of beverage equipment increased
$14,000, or 13% over the same period of the prior year, the Company is not
actively marketing its beverage equipment but is supporting dealer sales in
Canada and accepting orders from domestic customers.
Service revenues for the three months ending October 31, 2000 decreased
$56,000, or 14.2% from the same period of the prior year. The decrease is due to
a reduction in beverage parts of $23,000 and paint parts of $32,000.
GROSS MARGINS Three Months Ended
-----------------------------
October 31, October 31,
2000 1999
Equipment 13.1% 39.2%
==== ====
Service 32.1% 36.7%
==== ====
Total 28.5% 37.5%
==== ====
For the three months ended October 31 of fiscal 2001 gross margin as a
percentage of sales on equipment decreased 26.1 points over the same period of
the prior year. The decrease resulted from lower list price decreases due to a
change in pricing strategy implemented during fiscal 2001.
For the three months ended October 31 of fiscal 2001 gross margin as a
percentage of service revenues decreased 4.6 points over the same period of the
prior year. The decrease is attributable to lower service labor revenues.
GENERAL AND ADMINISTRATIVE
For the three months ended October 31 of fiscal 2001 general and
administrative expenses increased $31,000, or 10.8%, to $317,000, as compared to
the same period of fiscal 2000. This was due to a reallocation of existing
resources.
SELLING AND MARKETING EXPENSES
For the three months ended October 31 of fiscal 2001 selling and marketing
expense decreased $5,000, or 7.0%, to $66,000, down from $71,000 for the same
period of FY 2000.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESEARCH AND DEVELOPMENT
For the three months ended October 31 of fiscal 2001, research and
development expenses increased $21,000, or 150%, to $35,000. The increase is due
to a reallocation of existing resources into software enhancement efforts
required to modify the Royal Match(R) paint dispensing system to meet the needs
of new customers.
INTEREST EXPENSE
For the three months ended October 31 of fiscal 2001 interest expense
increased $26,000, or 60.5%, to $69,000. This is a result of higher notes
payable balances.
OTHER INCOME/(EXPENSE)
For the three months ended October 31 of fiscal 2001, other income improved
$16,000, to a net expense of $30,000 from a net expense of $46,000 for the same
period of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $103,000 as of October 31, 2000
from $163,000 at April 30, 2000. Operations for the six months ended October 31,
2000 required cash of $460,000, a decrease of $328,000, or 41.6%, when compared
to the six months ended October 31, 1999. The $460,000 use of cash was caused by
a net loss of $751,000 offset by decreased receivables of $185,000, decrease
accounts payable of $5,000 and depreciation and amortization of $60,000.
Consistent with prior years, the Company's primary source of liquidity has
been private placements of equity and debt instruments. During the fiscal year
ended April 30, 2000, the Company generated $1,500,000 from the private issuance
of Notes payable.
In August, 1997, to raise additional capital, the Company began issuing
short term promissory notes through a private placement. The notes are sold in
multiples of $12,500, or fractions thereof, and accrue interest at the rate of
10%, with principal and interest due at maturity. The initial maturity date was
June 30, 1998, however, the Company had the option, which it exercised, to
extend the maturity date to December 31, 1998. The Company extended the maturity
date through negotiations with Holders of the Notes and their representatives
until December 31, 1999. 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
the 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. During the quarter ended October 31, 2000, the Company raised an
additional $300,000 of capital using this long term Promissory Note. As of
October 31, 2000, the Company has issued notes in the aggregate of $2,450,000.
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.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONT.)
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 2 to the Financial Statements).
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The financial statements listed on the index set forth in Item 1 of
this Quarterly report on Form 10-Q are filed as part of this Quarterly
Report.
(b) The following exhibits are incorporated by reference herein or annexed
to this quarterly report:
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.*
10.1 Employment agreement dated March 1, 1997 by 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 Financial
Statements at Item 1 of this Quarterly Report on Form 10-Q).
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 Commission on
April 8, 1998.
(c) Current reports on Form 8-K during the quarter ended October 31,
2000.
During the first quarter of Fiscal 2001, the Company filed no reports
on Form 8-K.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABC DISPENSING TECHNOLOGIES, INC.
---------------------------------
Date: SEPTEMBER 12, 2000 /S/ CHARLES M. STIMAC, JR.
------------------------------ ----------------------------------
Charles M. Stimac, Jr.
President/CEO
16
