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, 2001 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 --------------------------------------- ------------------ (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 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 13, 2001 was $1,628,898. 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 13, 2001 was 23,269,976 shares. Documents Incorporated by Reference The Registrant's Proxy Statement for the 2001 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 ITEM 1. BUSINESS 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. 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. 2 ITEM 1. BUSINESS (CONT.) PRODUCTS PAINT AND COATINGS (CONT.) Royal Match(R) is state-of-the-art technology designed to provide many years of inexpensive operating use with the following:

~~Features~~FEATURES ~~Benefits~~BENEFITS -------- -------- Pneumatic flow control. ~~Reduced operational cost.~~ Eliminates costly mechanical pumps and manual calibration, reducing operation costs. Modular Configuration: Up to 18 ~~colorant~~System ~~reservoirs~~matches ~~Customer~~customers ~~flexibility~~needs ~~over~~to ~~the~~colorant ~~long~~reservoirs ~~run. System~~ in 5, 7, or 9 equipment configuration. Automatic quart capacities. ~~matches~~notification ~~customers~~of ~~needs~~product shortages. Includes electronic inventory fill ~~level monitoring. Automatic notification of product shortages.~~ Prevents ~~dispense~~dispensing if sufficient level monitoring. colorant amounts are unavailable. Automatic, simultaneous dispense. Eight ingredients dispensed at a time for efficient store operation. Dual colorant dispensing provides for quicker dispensing of high volume colorants. 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~~periodic 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. Goal is to provide software for operation by untrained users. --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.

The Company has designed Royal Match(R) with its Check Mate(R) operating software to displace existing, mechanical displacement dispensing systems. The Company has adapted the applicability of Royal Match(R) to range from 3 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.) The Company has great confidence in its paint dispensing products and service organization. The Company is currently in discussions with potential customers that comprise a substantial portion 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 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. During the fiscal years ended April 30, 2001, and April 30, 2000, paint product and service sales to The Home Depot represented 36%, and 25% of total Company revenues, respectively. A 30-day, free trial program of the Royal Match(R) colorant system has resulted in the sale of 56 units to thirteen smaller, independent paint companies. To date, most of the customers who have evaluated the products have purchased the equipment. 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 program includes state-of-the-art, proprietary dispensing equipment, shelf-stable bag-in-the box fruit-juice concentrates and service. Direct marketing efforts during the year in Northeast Ohio have resulted in the utilization of approved and ongoing distribution by Alliant Foodservice, Avalon Distributing, SYSCO Foods, and Tasty Pure Foods. The direct placement of units in this market and the support of the committed distributors has generated interest in the marketplace. The unique features of the program and attention to customer service have provided us a loyal customer base and 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:

~~Features~~FEATURES ~~Benefits~~BENEFITS -------- -------- Large capacity chilling for drinks ~~dispensed well below 40(Degree).~~ Designed to meet requirements of State dispensed well below 40(Degree). 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 Management and State inspectors are 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 is high juice stored at room quality and 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~~juice ~~space~~storage, ~~with~~increased ~~movable~~counter orspace, ~~stationary wand for hands free juice~~ consumption. Kitchen ~~pouring,~~space ~~portion~~is ~~control~~maximized ~~and~~with ~~auto-dispense.~~movable ~~space~~or isstationary ~~maximized~~wand for while adding productivity and efficiency hands freepouring, portion control to serving duties. and auto-dispense.

4 ITEM 1. BUSINESS (CONT.) 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 --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. The Virtual Squeeze Program has generated total revenues of $382,000, $421,000 and $344,000 in FY 2001, FY 2000 and FY 1999, respectively. 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 5.3%, 8.7% and 3.2%, of total Company revenues in FY 2001, FY 2000, and FY 1999, 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. We believe we have a solid reputation regarding quick and thorough service response, which 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 85.1%, 66.8% and 52.2% of total Company revenues in FY 2001, FY 2000 and FY 1999, respectively. SALES BACKLOG As of April 30, 2001 the sales order backlog (un-shipped product orders) was $90,000. As of April 30, 2000 the sales order backlog was $260,000. INTERNATIONAL SALES Revenues from international sales were 2% of sales for FY 2001, and 6% for FY 2000. 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. 5 ITEM 1. BUSINESS (CONT.) 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 can countervail 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 17, 2001, the Company had 26 full-time employees. This compares to 25 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 2001, 2000, and 1999 were $114,000, $127,000 and $124,000, respectively. 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. For the year ended in April 2000, the Company changed its fiscal year end to April 30 from a 52-53 week period ended on the last Saturday in April. This change, which was made to more closely align closing periods with its major customers and vendors, resulted in 370 calendar days included in the financial statements for the period ended April 30, 2000. The estimated impact of this change would not be material to the Company's reported results of operations or financial position. ITEM 2. PROPERTIES 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 $213,000 as of April 30, 2001. 6 ITEM 3. LEGAL PROCEEDINGS The Company is subject to routine litigation incidental to its business. There are no known open litigation issues at this time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of FY 2001. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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 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).

~~Common~~COMMON ~~Stock~~STOCK (ABCC): ~~-------------------------------------------------------------------------------------------------------------------~~YEAR ~~Year~~ENDED ~~Ended~~APRIL ~~April~~ 30, ~~2000~~2001 ~~Prices~~PRICES: High Bid Low Bid ----------------------------------------------------- -------- -------~~-----------------------------------------------~~ 02/01/9901 - 04/30/0001 (Fourth Quarter) $17 1/328 $ 13/864 11/01/9900 - 01/31/0001 (Third Quarter) 156/64 51/64 08/2601/9900 - 10/31/9900 (Second Quarter) 193/6416 12/832 0405/2501/9900 - 07/31/9900 (First Quarter) 275/6416 511/3264 ~~Common~~COMMON ~~Stock~~STOCK (ABCC): ~~-------------------------------------------------------------------------------------------------------------------~~YEAR ~~Year~~ENDED ~~Ended~~APRIL ~~April 24~~30, ~~1999~~2000 ~~Prices~~PRICES: High Bid Low Bid ----------------------------------------------------- -------- -------~~-----------------------------------------------~~ 02/01/~~24/99~~00 - 04/2430/99 00(Fourth Quarter) $ 917/32 $ 71/648 1011/2501/9899 - 01/2331/9900 (Third Quarter) 3515/64 95/64 0708/26/9899 - 10/2431/9899 (Second Quarter) 3119/3264 41/328 04/2625/9899 - 07/2531/9899 (First Quarter) 2827/3264 205/32

B. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

Approximate Number of Record Holders Title of Class as of July 1413, 2000 -------------- --------------------- Common Stock, $.01 par value Approximately 1,100

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 issues 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, 2001, and April 30, 2000, the Company issued no shares. 7 D. EQUITY SALES (CONT.) The Company issues 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 years ended April 30, 2001 and 2000. The Company issues 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 years ended April 30, 2001 and 2000. ITEM 6. SELECTED FINANCIAL DATA

FOR THE FISCAL APRIL 30, APRIL 2430, APRIL 2524, APRIL 2625, APRIL 2726, YEARS ENDED: 2001 2000 1999 1998 1997 ~~1996~~ ---------------------------------------------------------------------------------------------------------------------------- REVENUES (a) $ 1,671,000 $ 2,184,000 $ 1,710,000 $ 5,299,000 $ 3,073,000 ~~$5,312,000~~ NET LOSS $ (1,~~080~~796,000) $ (21,~~204~~080,000) $ (2,~~028~~204,000) $ (2,~~968~~028,000) $ (12,~~324~~968,000) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,700,396 19,084,100 17,774,000 17,230,000 17,074,000 ~~16,414,000~~ NET LOSS PER SHARE - BASIC AND DILUTED $ (0.0810) $ (0.1508) $ (0.1315) $ (0.1813) $ (0.0818) TOTAL ASSETS $ 2,~~720~~031,000 $ 2,~~622~~572,000 $3 2,~~294~~622,000 $ 3,~~350~~294,000 $4 3,~~020~~350,000 LONG-TERM OBLIGATIONS $ 3,325,000 $ 2,~~267~~286,000 $ 233,000 $ 257,000 $ 283,000 ~~$294,000~~ STOCKHOLDERS' EQUITY (Deficit) $ (2,790,000) $ (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) $ 114,000 $ 127,000 $ 124,000 $ 691,000 $ 629,000 ~~$714,000~~

(a) Research & Development costs for fiscal year 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 AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL 2001 COMPARED TO FISCAL 2000 The net loss for FY 2001 was $1,796,000 representing an increased loss of $716,000 or 66.3% from the net loss of $1,080,000 for FY 2000. FY 2001 increased loss is primarily due to a 65.6% decrease in equipment sales and a significant increase in interest expense.

~~Revenues~~REVENUES FY ~~2000~~2001 FY ~~1999~~2000 ------- ------- Equipment Sales - Net $ ~~724~~249,000 $ ~~818~~724,000 Service Revenues 1,~~460~~422,000 ~~892~~1,460,000 ----------- ----------- Total $ 21,~~184~~671,000 $ 12,~~710~~184,000

8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) REVENUES (CONT.) Equipment sales for FY 2001 decreased due to not having any large single orders for the year. Large orders for Royal Match paint equipment and Beverage equipment for the U.S. Government occurred during FY 2000. Juice sales in FY 2001 were $382,000 a decrease of $39,000 or 9.3% from FY 2000. This reduction is due to fewer units in the field and vendors buying habits. Service revenues decreased $38,000 for FY 2001 from FY 2000 or 2.6%. This decrease was due to fewer service agreements for the paint machines of $45,000 and an increase of parts sales for beverage and paint machines of $45,000 and the decrease in juice sales of $39,000.

~~ITEM~~GROSS 8.MARGINS ~~FINANCIAL~~FY ~~STATEMENTS~~2001 ~~AND~~FY ~~SUPPLEMENTARY~~2000 ~~DATA~~ ------- -------~~------------------------------------~~ ~~INDEX~~Equipment TO(33.7)% ~~CONSOLIDATED~~54.6% ~~FINANCIAL~~Service ~~STATEMENTS~~23.2 ~~AND~~% ~~SCHEDULES PAGE NO~~33.7% ---- ----~~-----------------------------------------------------------------------------------------------------------------------~~ ~~REPORT~~Total OF14.7 ~~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 3040.6%

For FY 2001, gross margins as a percentage of sales on equipment decreased by 88.3 percentage points. The decrease was due to lower sales volume resulting in a lesser ability to absorb fixed expenses and an increase in obsolescence expense. For FY 2001, gross margins as a percentage of service revenues decreased 10.5 percentage points. The decrease was due to a lower volume in service contract sales and smaller juice sales. GENERAL AND ADMINISTRATIVE General and Administrative expenses increased to $61,000 or a 4.5 percentage points. The increase was due to an increase in bad debt expense of $127,000, partially offset by an overall decrease in general and administrative expenses. SELLING AND MARKETING EXPENSES Selling and marketing expenses increased $26,000, or 8.9 percentage points. This increase was due to increasing our marketing campaign to promote our juice machines and paint machines. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses decreased $13,000 or 10.2 percentage points. The reduction was due to expense control and fewer development projects. INTEREST EXPENSE Interest expense increased $114,000 or 60.0%, to $304,000 for FY 2001. This was due to notes issued to finance operations. OTHER INCOME Other income, net increased $128,000 due to adjustments from prior year estimates and reducing sales tax accruals that had been on the records for over two years based on resolution of these taxes. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) 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.

~~ABC~~REVENUES ~~DISPENSING~~FY ~~TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS ASSETS April 30,~~ 2000 ~~April~~FY ~~24,~~ 1999 -------~~---------------------------------------------------------------------------------------------------------------------~~ 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 --------- ~~---------~~Equipment 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 Sales-~~------~~Net ~~--------- 160,000 113,000 ------- -------- Total Assets~~ $ 2724,~~572,~~000 $ 2818,~~622,~~000 ~~----------------------------------------------------------------------------------------------------------------------------~~Service ~~LIABILITIES~~Revenues 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~~460,000 2892,~~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~~184,000 $ 21,~~622~~710,000 ~~----------------------------------------------------------------------------------------------------------------------------~~

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.

~~ABC~~GROSS ~~DISPENSING~~MARGINS ~~TECHNOLOGIES,~~FY ~~INC.~~2000 ~~CONSOLIDATED~~FY ~~STATEMENTS~~1999 ~~OF OPERATIONS Years Ended~~ -------~~--------------------------------------------------------~~ ~~April 30, April 24, April 25, 2000 1999 1998~~ -------~~--------------------------------------------------------~~ ~~Revenues:~~ Equipment ~~Sales~~54.6% ~~$ 724,000 $ 818,000 $~~31.4~~,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 33.7~~,125,000~~% ~~--------- --------- --------- Loss from operations~~ ( ~~891,000) (~~ 9.2~~,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~~ ----- ----~~----~~ ~~------~~Total ( 189,000) ( 116,000) ( 202,000) ----------- ------------- ----------- Net loss $(1,080,000) $( 2,204,000) $(2,028,000) ----------- ------------ ----------- --------------------------------------------------------------------------------------------------------------------------- Net loss per share - Basic and Diluted $ ( 040.~~08)~~6% ~~$( 0~~10.2 ~~15) $( 0.13) ---------------------------------------------------------------------------------------------------------------------------~~%

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. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) FISCAL 2000 COMPARED TO FISCAL 1999 (CONT.) 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. 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. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) LIQUIDITY AND CAPITAL RESOURCES The Company's cash balance increased to $204,000 as of April 30, 2001 from $163,000 at April 30, 2000. Operations for FY 2001 used cash of $995,000 which resulted from a net loss of $1,796,000, plus depreciation and amortization and non-cash charges of $160,000, and increases in net operating liabilities of $641,000. Net cash provided by financing activities was $1,038,000. The cash provided by financing activities is mainly attributable to notes payable increases of $1,060,000. 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 instruments and the private issuance of 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 is hopeful, although there are no assurances that it can satisfy the notes through either proceeds from future equity offerings, additional extensions or other re-financing options. The Company hopes 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. Aside from potential improvements in operational cash flow, the Company may attempt to satisfy its longer-term capital needs with proceeds from future equity dept offerings, 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 raise doubt about the Company's ability to continue as a going concern (see Note 3 to the Financial Statements). 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) 2001 AUDIT Grant Thornton, LLP has audited the consolidated balance sheet of the Company as of April 30, 2001, and the related consolidated statement of operations, cash flows and stockholders' equity for the year ended April 30, 2001. In their report of July 12, 2001, 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). 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 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~ABC~~INDEX ~~DISPENSING~~TO ~~TECHNOLOGIES, INC.~~ CONSOLIDATED FINANCIAL STATEMENTS OFAND ~~CASH~~SCHEDULES ~~FLOWS~~PAGE ~~Year~~NO ~~ended~~ ------------------------------------------ ~~April 30, April 24, April 25, 2000 1999 1998~~ --------------~~----------------------------~~ ~~Operating activities:~~ -------~~-------------~~ ~~Net~~REPORT ~~loss~~OF ~~$(1,080,000)~~INDEPENDENT ~~$(2,204,000)~~CERTIFIED ~~$(2,028,000)~~PUBLIC ~~Adjustments~~ACCOUNTANTS to15 ~~reconcile~~FINANCIAL ~~net loss to net cash used in operating activities~~STATEMENTS: --Consolidated ~~Deprecation~~Balance ~~and~~Sheets ~~amortization~~as ~~118,000~~of ~~175,000~~April ~~386~~30,~~000~~ ~~(Gain)~~2001 /and ~~Loss~~April ~~on disposal of asset ( 1~~30,~~000)~~ ~~6,000~~2000 ~~Gain~~16 onConsolidated ~~termination~~Statements of ~~Joint~~Operations ~~Venture)~~for --the (Years ~~79,000)~~ended ~~Loss~~April ~~on equity investment in Joint Venture -- 42~~30,~~000~~ 672001,~~000~~ ~~Warrants~~and ~~issued~~April ~~for services 31~~30,~~000~~ ~~Treasury stock issued as compensation for legal services -- -- 37~~2000,~~000~~ ~~Changes in operating assets~~ and ~~liabilities:~~April ~~Receivables (104~~24,~~000)~~ ~~513,000~~1999 (17 ~~381,000)~~Consolidated ~~Inventories~~Statements ~~216,000~~of ~~(159,000)~~Cash ~~141,000~~Flows ~~Other~~for ~~assets~~the ~~(49,000)~~Years (ended ~~21,000)~~April 7530,~~000~~ ~~Accounts payable (477~~2001,~~000)~~ ~~236,000~~and ~~(228,000)~~April ~~Accrued liabilities 32~~30,~~000~~ ~~( 58~~2000,~~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~~April (324,~~000)~~ ~~(3,000)~~1999 (18 ~~6,000)~~Consolidated ~~Additions~~Statements ~~to patent -- -- ( 33,000) Proceeds from sale~~ of ~~equipment~~Stockholders' -- 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) Equity/~~Proceeds from Line of Credit - Net --~~ (~~201,000~~Deficit) ~~199,000~~for ~~Proceeds~~the ~~from~~Years ~~private~~ended ~~placement~~April ~~of Stock - Net -- 982~~30,~~000~~ 12001,~~282,000~~ ~~Proceeds~~and ~~from~~April ~~private placement of notes payable 1~~30,~~500,000~~ ~~390~~2000,~~000~~ ~~335,000~~and ~~Repayment~~April ~~of long term debt (~~24,~~000)~~ ~~(35,000)~~1999 (19 ~~37,000)~~Notes ~~Proceeds~~to ~~from~~Consolidated ~~collection~~Financial ofStatements ~~stockholders receivable~~ 20--29 ~~25,000~~SUPPLEMENTARY ~~6,000~~DATA ~~Proceeds~~Schedule ~~from stock issued for exercise of stock options and warrants~~ II--Valuation ~~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~~Qualifying ~~equivalents~~Accounts 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 ----------- ----------- -----------30

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 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, 2001 and April 30, 2000, 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, 2001. 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, 2001 and April 30, 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2001, 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 12, 2001 15 ABC DISPENSING TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS

~~Common~~ASSETS ~~Number~~APRIL of30, ~~Stock~~2001 ~~Additional~~APRIL ~~Notes~~30, ~~Shares~~2000 ~~of $.01 Par Preferred Paid~~-~~in Accumulated Receivable~~- ~~Treasury Common Stock Value Stock Capital Deficit Stockholders Stock~~ ----------------------------------------------------------------------------------------------------------------------~~--------------~~ ~~Balance~~Current atAssets ~~April~~Cash ~~26,~~and ~~1997~~cash ~~17,114~~equivalents ~~279~~ $ ~~171~~204,000 $ 3163,~~388,~~000 $Accounts 19receivable,~~014~~ less allowance for doubtful accounts of $159,000 in 2001 and $~~(20~~33,~~850,~~000) $in ~~(51~~2000 138,000) ~~(37~~306,000) ~~Preferred~~Inventories ~~Stock private placement~~ (Note 94) 1,~~287~~014,000 ~~Commissions~~1,281,000 onPrepaid ~~Preferred~~Expenses ~~Stock~~68,000 (5100,000) ~~Preferred~~----------- ~~Stock~~----------- ~~Dividend~~Total ~~(Note~~current 9)assets ~~469~~1,~~704 5~~424,000 ~~381~~1,850,000 ~~(386~~Property,~~000)~~ ~~Warrants~~plant ~~Outstanding~~and -equipment ~~Original Issue Discount~~ (~~Note~~Notes 5 and 11) 63549,000 ~~Exercise of Stock Options 7~~662,~~515 8,~~000 ~~Collection~~Other onassets: ~~notes~~Intangible ~~receivable- stockholders 6~~assets,~~000~~ ~~Net~~less ~~loss~~accumulated ~~(2,028,000)~~amortization ~~Issuance~~ of ~~Treasury Stock (35~~$501,000 ~~shares)~~in ~~issued~~2001 ~~for~~and ~~legal services received 37~~$495,000 ~~Balance~~in at2000 ~~April 25~~11,000 ~~1998~~ 17,~~591,498~~000 $Other ~~176~~47,000 ~~$ 4~~43,~~675,~~000 $----------- ~~19,461,000~~----------- ~~$(23~~58,~~264,~~000) ~~$ (45~~60,000) ~~$ 0~~ ----------- ----------- TOTAL ASSETS $ 2,031,000 $ 2,572,000 ------------------------------------------------------------------------------------------------------------------------ ~~Preferred~~LIABILITIES ~~Stock~~AND ~~private~~STOCKHOLDERS' ~~Placement~~ EQUITY/(~~Note 9~~DEFICIT) ~~983,000~~Current ~~Commissions~~Liabilities onCurrent ~~Preferred~~portion ~~Stock~~of ~~(1,000) Preferred Stock Dividend (Note 9)~~ long-term ~~274,985~~debt ~~3,000~~$ ~~203~~19,000 ~~(206~~$ 19,000) ~~Warrants~~Short-term ~~Outstanding~~notes ~~Original~~payable ~~Issue Discount~~ (Note 5) 50175,000 ~~Exercise~~175,000 ofAccounts ~~Stock~~payable ~~Warrants 20~~302,000 5409,000 ~~Collection~~Accrued onliabilities: ~~notes~~Accrued ~~receivable~~interest ~~Stockholders 25~~511,000 ~~Net loss (2~~226,~~204,~~000) ~~Preferred~~Employee ~~Stock~~compensation ~~Conversion~~and ~~50,000~~benefits ~~(50~~82,000) 5082,000 ~~Balance~~Warranty atreserve ~~April 24~~5,000 ~~1999 17~~18,~~936,483~~000 $Other ~~179~~206,000 ~~$ 5~~235,~~608,~~000 $Deferred ~~19,768,000~~income ~~$(25~~329,~~674,~~000) ~~$ (20~~302,000) ~~$ 0~~ ----------- ----------- Total current liabilities 1,629,000 1,466,000 ----------- ----------- Long-~~---------------------------------------------------------------------------------------~~term ~~Warrants~~debt ~~issued~~(Note ~~for~~5) ~~services~~3,192,000 ~~and~~2,119,000 ~~debt~~Stockholders' ~~206~~equity/(deficit) (Notes 7,~~000~~ 9): Preferred Stock ~~Dividend~~- ~~(Note~~Series A, 9)% ~~3,951,853~~cumulative; ~~40,000~~authorized ~~698~~840 shares; 399 shares issued and outstanding Series B,~~000~~ ~~(738~~9% cumulative authorized 160 shares; 24 shares issued and outstanding Series C,~~000)~~ ~~Acquire~~9% ~~Treasury~~cumulative ~~Stock~~authorized ~~upon~~200 ~~cancellation~~shares; of37 ~~stockholders~~shares ~~notes~~issued ~~receivable~~and ~~(18~~outstanding; Total Preferred Stock 5,608,000) 205,608,000 (2Common Stock,~~000)~~ ~~Net~~$.01 ~~loss~~par (1value; authorized 50,~~080~~000,000) ~~Balance~~shares; 23,269,976 and 21,888,336 shares issued and outstanding at April 30, ~~2000~~2001 21and 2000,~~888,336~~ $respectively 233,000 219,000 $Additional 5paid-in capital 20,~~608~~911,000 $ 20,654,000 $Accumulated deficit (29,540,000) (27,492,000) $----------- 0----------- $(2,788,000) (1,011,000) Less Treasury Stock at Cost (2,000) (2,000) Total Stockholders' Equity/(Deficit) (2,790,000) (1,013,000) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) $ 2,031,000 $ 2,572,000 ------------------------------------------------------------------------------------------------------------------------

See accompanying notes. 16 ABC DISPENSING TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

~~2000~~YEARS ~~1999~~ENDED ------------------------------------------------ APRIL 30, APRIL 30, APRIL 24, 2001 2000 1999 ------------ ------------- ~~Raw~~----------- ~~Materials~~Revenues: Equipment Sales $ ~~742~~249,000 $ ~~907~~724,000 ~~Work~~$ 818,000 Service revenues 1,422,000 1,460,000 892,000 -in-~~process~~--------- ~~225~~----------- ----------- 1,671,000 ~~275~~2,184,000 ~~Finished~~1,710,000 ~~goods~~Cost ~~314~~and expenses: Cost of equipment sold 338,000 ~~315~~329,000 703,000 Service expenses 1,102,000 968,000 975,000 General and administrative 1,420,000 1,359,000 1,623,000 Selling and marketing 318,000 292,000 373,000 Research and development 114,000 127,000 124,000 ----------- ----------- ----------- 3,292,000 3,075,000 3,798,000 ----------- ----------- ----------- Loss from operations (1,621,000) (891,000) (2,088,000) Other income (expense) Interest expense (304,000) (190,000) (189,000) Equity in loss of joint venture - - (42,000) Other, net 129,000 1,000 115,000 ----------- ----------- ----------- (175,000) (189,000) (116,000) ----------- ----------- ----------- NET LOSS $(1,~~281~~796,000) $(1,~~497~~080,000) ~~====================~~$(2,204,000) ~~=================~~----------- ----------- ----------- ------------------------------------------------------------------------------------------------------------- NET LOSS PER SHARE - BASIC AND DILUTED $ ( 0.10) $ ( 0.08) $ ( 0.15) -------------------------------------------------------------------------------------------------------------

See accompanying notes 17 ABC DISPENSING TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED -------------------------------------------------------- APRIL 30, APRIL 30, APRIL 24, 2001 2000 1999 ------------- ------- ------ ------------- ~~Note~~OPERATING ~~payable~~ACTIVITIES: toNet ~~bank~~loss $ ~~231~~(1,796,000) $~~244~~ (1,080,000) ~~Note~~$ ~~payable~~(2,204,000) -Adjustments ~~Private~~to ~~party~~reconcile 1net loss to net cash used in operating activities: Deprecation and amortization 141,~~902~~000 118,000 175,000 Gain on disposal of asset - - (~~Less~~1,000) ~~unamortized~~Gain ~~discount~~on termination of ~~$148~~Joint Venture - - (79,000) FYLoss ~~2000~~on equity investment in Joint Venture - - 42,000 Warrants issued for services 19,000 31,000 - Changes in operating assets and liabilities: Receivables 168,000 (104,000) 513,000 Inventories 282,000 216,000 (159,000) Other 5assets 28,000 14(49,000) (21,000) Accounts payable (107,000) (477,000) 236,000 Accrued liabilities 243,000 32,000 (58,000) Deferred income 27,000 (62,000) 103,000 ------------ ------------ ------------ Total adjustments 801,000 (295,000) 751,000 ------------ 2------------ ------------ Net cash used in operating activities (995,~~138~~000) (1,375,000) ~~258~~(1,453,000) ~~Less~~INVESTING ~~amounts~~ACTIVITIES ~~due~~Purchases ~~within~~of ~~one~~property, ~~year~~plant, and equipment (192,000) (3,000) 25(3,000) Proceeds from sale of equipment - - 4,000 ------------ ------------ ------------ Net cash used in investing activities (2,000) (3,000) 1,000 FINANCING ACTIVITIES: (Payments) /Proceeds from Line of Credit - Net - - (201,000) Proceeds from private placement of Stock - Net - ~~Total~~- ~~long~~982,000 Proceeds from private placement of - - - notes payable 1,060,000 1,500,000 390,000 Repayment of long term debt $2(22,~~119~~000) (24,000) (35,000) Proceeds from collection of stockholders receivable - - 25,000 Proceeds from stock issued for exercise of stock options and warrants - - 5,000 ------------ ------------ ------------ Net cash provided by financing activities 1,038,000 1,476,000 1,166,000 ------------ ------------ ------------ Net increase/(decrease) in cash and cash equivalents 41,000 98,000 (286,000) Cash and cash equivalents at beginning of year 163,000 65,000 351,000 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $~~233~~ 204,000 ~~====================~~$ ~~=================~~163,000 $ 65,000 ------------------------------------------------------------------------------------------------------------------------------

See accompanying notes 18 ABC DISPENSING TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT) YEARS ENDED APRIL 30, 2001, APRIL 30, 2000, AND APRIL 24, 1999

~~2000~~Common ~~1999~~Number ~~1998~~of Stock Additional Notes Shares of $.01Par Preferred Paid-in Accumulated Receivable- Treasury Common Stock Value Stock Capital Deficit Stockholders Stock ------------------------- ------------------------ --------------------------------------------------------------------------------- ~~Weighted~~BALANCE ~~Weighted~~AT ~~Weighted~~APRIL ~~Average~~25, ~~Average~~1998 ~~Average~~17,591,498 ~~Shares~~$176,000 ~~Exercise~~$4,675,000 ~~price~~$19,461,000 ~~Shares~~$(23,264,000) ~~Exercise~~$(45,000) ~~price~~$0 ~~Shares Exercise price~~ --------- -------------- -------- -------------- ------ ------------------------------------------------------------------------------- ~~Outstanding~~Preferred -Stock ~~beginning~~private ofPlacement ~~year~~(Note 29) 983,~~074,085~~000 $Commissions ~~0.94~~on Preferred Stock (1,~~898,219~~000) $Preferred ~~1.39~~Stock ~~1,518,323~~Dividend $(Note ~~1.68~~9) ~~=========~~- ~~Granted~~274,985 13,~~162~~000 203,~~900~~000 $(206,000) ~~0.21~~Warrants ~~700~~Outstanding Original Issue Discount (Note 5) 50,000 $Exercise .of 23Stock ~~611~~Warrants 20,000 $5,000 ~~1.07~~Collection ~~Exercised~~on 0notes $receivable Stockholders 25,000 Net loss (72,~~515~~204,000) $Preferred ~~1.00~~Stock ~~Canceled~~Conversion 50,000 (~~306~~50,~~500~~000) 50,000 BALANCE AT APRIL 24, 1999 17,936,483 $179,000 ~~1.08~~$5,608,000 $19,768,000 $(~~524~~25,~~134~~674,000) $ ~~1.62~~ (~~223~~20,~~589~~000) $0 ~~2.05~~ --------- --------- --------- ~~Outstanding~~ ------------------------------------------------------------------------------------------------------- ~~end~~Warrants ofissued ~~year~~for ~~2,930,485~~services $and ~~0.64~~debt 2206,~~074,085~~000 $Preferred .Stock 94Dividend 1(Note 9) 3,~~898~~951,~~219~~853 $40,000 ~~1.39~~698,000 ~~=========~~(738,000) ~~=========~~Acquire ~~=========~~Treasury ~~Exercisable~~Stock atupon ~~end~~cancellation of ~~year~~stockholders 2notes receivable (18,~~034~~000) 20,~~085~~000 $(2,000) ~~0.81~~Net loss (1,~~230~~080,~~085~~000) $BALANCE ~~1.25~~AT 1APRIL 30,~~302~~ 2000 21,888,336 $219,000 $5,608,000 ~~1.48~~$20,654,000 ~~=========~~$(27,492,000) ~~=========~~$0 ~~=========~~$(2,000) ~~Available~~---------------------------------------------------------------------------------------------------------------------------------- Warrants Issued for ~~grant~~Services 119,~~736,796~~000 Preferred Stock Dividend (Note 9) 1,~~623~~381,~~796~~640 114,~~379~~000 238,~~662~~000 ~~=========~~(252,000) ~~=========~~Net ~~=========~~loss ~~Weighted~~(1,796,000) ~~average~~0 ~~fair~~0 ~~value~~BALANCE ofAT ~~options~~APRIL ~~granted~~30, ~~during~~2001 ~~the~~23,269,976 ~~year~~$233,000 $5,608,000 ~~0.17~~$20,911,000 $( 29,540,000) $0~~.22~~ $(2,000) ~~0.74~~----------------------------------------------------------------------------------------------------------------------------------

See accompanying notes 19 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 2001, 2000 and 1999 refer to fiscal years ended April 30, 2001, April 30, 2000 and April 24, 1999, 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, 2001, April 30, 2000 and April 24, 1999, interest paid approximated $24,000, $31,000 and $143,000, respectively. FINANCIAL INSTRUMENTS - The carrying value of the Company's cash, accounts receivable, accounts payable and short term 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 or fixed interest rates of 10%. The carrying value of the long-term debt approximates fair value at April 30, 2001. 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 by use of the straight-line method over the estimated useful lives of the assets, which are three, five and ten 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 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 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. MAJOR CUSTOMER - Revenues from The Home Depot, Inc. were 36%, 25% and 52% of total revenues for the years ended April 30, 2001, April 30, 2000 and April 24, 1999, respectively. 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 - The Company operates in only one business segment. 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, 2001 has an accumulated deficit of $29,540,000. The Company had negative cash flow from operating activities of $995,000 and $1,375,000 for the years ended April 30, 2001 and April 30, 2000, 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 $7,633,000 in capital from private investors over the past five years through private placements of equity instruments and the private issuance of short and long-term notes payable. The Company raised $1,060,000 during the fiscal year ended April 30, 2001 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 Cumulative 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 of offerings of its equity securities and notes payable available upon commercially reasonable terms, if at all. 21 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 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, 2001 and April 30, 2000 inventories consisted of the following:

~~Outstanding~~2001 ~~Exercisable~~2000 -----------------~~----------------------------~~ ---------------~~---------------~~ ~~Weighted~~Raw ~~Average~~Materials ~~Remaining~~$608,000 ~~Weighted~~$742,000 ~~Weighted~~Work-in-process ~~Contractual~~142,000 ~~Average~~225,000 ~~Average~~Finished ~~Range~~goods of264,000 ~~exercise~~314,000 ~~prices Shares Life Exercise Price Shares Exercise Price~~ -----------------~~-------~~ -------- -------~~-------~~ ~~-------------- -------- --------------~~ $~~0.10~~ ~~- $~~1~~.125 2~~,~~208~~014,~~639~~000 ~~7.64~~ $ ~~0.38~~ 1,~~312~~281,~~239~~000 ~~$ 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~~ ================= ===============

The above amounts are net of an obsolescence reserve of $622,000 and $479,000 at April 30, 2001 and April 30, 2000, respectively. 5. FINANCING ARRANGEMENTS At April 30, 2001 and April 30, 2000 long-term debt consisted of the following:

2001 2000 ~~1999 1998~~ ---------------- --------- ------ ~~Risk-free~~Note ~~interest~~payable ~~rate~~to ~~6.28%~~bank ~~6.50%~~$ ~~6.37%~~213,000 ~~Dividend~~$ ~~yield~~231,000 0Note %payable 0- %Private 0party %2,997,000 ~~Volatility~~1,902,000 ~~96%~~(Less ~~287%~~unamortized ~~82%~~discount ~~Average~~of ~~life~~$114,000 7and $148,000 FY 2001 and FY 2000, respectively.15) ~~years~~Other 1,000 5,000 ~~Years~~---------------- 5--------------- ~~Years~~3,211,000 2,138,000 Less amounts due within one year (19,000) (19,000) ---------------- --------------- Total long-term debt $3,192,000 $2,119,000 ================ ===============

The note payable to bank, which is secured by the Company's headquarters facility, has an adjustable interest rate (9.03% at April 30, 2001) 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 the remaining balance due October 1, 2005. At April 30, 2001, the collateralizing facility and improvements thereto have a net book value of $461,000. 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 five years subsequent to April 30, 2001 are as follows: 2002--$19,000; 2003--$19,000, 2004--$3,018,000 and 2005--$23,000 and 2006--$132,000. 22 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 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, 2001 and April 30, 2000 are as follows:

~~April~~2001 ~~30,~~ 2000 ~~April 24, 1999 April 25, 1998~~ ------------ -- --------- Net operating loss carry-forwards $ 9,505,000 $ 9,125,000 Inventories 307,000 239,000 Other 349,000 80,000 ---- -------- ----------- ~~Net~~Total ~~Loss~~deferred Astax ~~reported~~asset ~~$ (1~~10,~~080~~161,000) ~~$ (2~~9,~~204~~444,000) $Valuation ~~(2,028,000)~~allowance ~~Pro~~for ~~forma~~deferred $taxes (110,~~372~~161,000) $ (29,~~330~~444,000) $------------ ~~(2,285,000)~~----------- ~~Basic~~Net ~~and~~deferred ~~Diluted~~taxes ~~Earnings per share As reported~~ $ (0~~.08)~~ $ (0~~.15)~~ $============ ~~(0.13) Pro forma $ (0.10) $ (0.16) $ (0.16)~~===========

At April 30, 2001, the Company had Federal net operating loss carry-forwards for tax reporting purposes of approximately $24,000,000. The net operating loss carry-forwards expire in varying amounts through the fiscal year ended April 30, 2020. 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 2001, 2000 and 1999 was $717,000, $182,000 and $1,161,000, respectively. 23 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 7. STOCK OPTIONS AND WARRANTS 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, 2001, April 30, 2000, and April 24, 1999, is as follows:

FY2001 2000 FY 1999 ~~FY 1998~~ ------------------------ ---~~---------~~ ---------------------- --~~----------~~ -------------------- ---~~----------~~ ~~--------------------~~Weighted ~~Shares~~Weighted Weighted Average ~~Shares~~Average ~~Weighted~~ Average Shares ~~Weighted Average~~ Exercise Price Shares Exercise Price Shares Exercise Price ---------~~---------------~~ ------------ --~~--------------------~~ --------~~----~~ --------------~~------~~ ------~~-------~~ --------------~~------~~ Outstanding - beginning of year 2,~~081~~930,~~500~~485 $2 0.3764 12,~~818~~074,~~500~~085 $2 0.5894 21,~~032~~898,~~500~~219 $2 1.6039 ~~beginning of year~~ ---------~~---------------~~ --------~~----~~ ~~----------------------~~Granted ~~------------~~1,790,000 ~~--------------------~~$ ~~-------------~~0.08 ~~-------------------- Granted 2~~1,~~700~~162,~~000~~900 $ 0.~~011~~21 ~~283~~700,000 $~~1.06~~ -0-.23 -Exercised 0- ~~------------------------~~$ ~~------------~~$ ~~----------------------~~$ ~~------------~~Canceled ~~--------------------~~(472,098) ~~-------------~~$ ~~--------------------~~1.08 ~~Excercised 20~~(306,~~000~~500) $2 1.0008 ~~214~~(524,~~000~~134) $2 1.0062 ---------~~---------------~~ ---------~~---~~ ---------~~-------------~~ ~~------------~~Outstanding -~~-------------------~~ ~~-------------~~end ~~--------------------~~of ~~Outstanding~~year - 4,~~781~~248,~~500~~387 $1 0.0935 2,~~081~~930,~~500~~485 $2 0.3764 12,~~818~~074,~~500~~085 $2 0.5894 ~~end~~========= of========= ~~year~~========= ~~------------------------~~Exercisable ~~------------~~at ~~----------------------~~end ~~------------~~of ~~--------------------~~year ~~------------- -------------------- Exercisable - 4~~3,~~781~~687,~~500~~720 $1 0.0938 2,~~081~~034,~~500~~085 $2 0.3781 1,~~818~~230,~~500~~085 $2 1.5825 ~~end~~========= ========= ========= Available for grant 1,933,009 1,736,796 1,623,796 ========= ========= ========= Weighted average fair value of ~~year~~options ~~------------------------~~granted ~~------------~~during ~~----------------------~~the ~~------------~~year ~~--------------------~~$ ~~-------------~~0.08 ~~--------------------~~$ 0.17 $ 0.22

The following table summarizes information about stock options and employee stock warrants outstanding and exercisable by price range as of April 30, 2001:

~~Years~~Outstanding ~~Ended~~Exercisable -------------------------------------------- --------------- ~~April 30, April 24, April 25, 2000 1999 1998~~ ------------------ Weighted Average Remaining Weighted Weighted Contractual Average Average Range of Exercise Prices Shares Life Exercise Price Shares Exercise Price ------------------------ --------- ----------- ~~Numerator: Net Loss $ (1,080,000) $ (2,204,000) $( 2,028,000) Preferred Stock Dividends (503,000) (441,000) (243,000)~~ -------------- ---------- --- ----------- $ 0.08 - ~~Numerator~~$ ~~for~~0.14 ~~net~~1,760,000 ~~loss~~9.61 ~~per~~$ ~~share~~0.08 -1,700,000 ~~loss~~$ ~~attributable~~0.08 to$ ~~common~~0.20 ~~shareholders~~- $ (0.28 1,~~583~~576,000) 7.77 $ (20.21 1,~~645~~075,~~000)~~333 $( 20.21 $ 0.41 - $ 0.84 100,~~271,~~000) ~~Denominator:~~7.25 ~~Denominator~~$ ~~for~~0.50 ~~basic~~100,000 ~~and~~$ ~~diluted~~0.50 ~~earnings~~$ ~~per~~1.00 ~~share~~ - ~~weighted-average~~$ ~~shares~~1.38 19812,~~084,100~~387 1.17~~,774,000~~ 17$ 1.24 812,~~230,000~~387 ~~-------------~~$ 1.24 ---------~~----~~ ---------~~---~~ ~~Net~~4,248,387 ~~loss~~3,687,720 ~~per share -- basic and diluted $ (0.08) $ (0.15) $ ( 0.13)~~ =========~~====~~ =========~~==== ============~~

24 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 7. STOCK OPTIONS AND WARRANTS (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 option 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, 2001, April 30, 2000 and April 24, 1999, using the Black-Scholes option pricing model as prescribed by SFAS 123 using the following weighted average assumptions:

2001 2000 1999 -------- --- ------ -------- ~~Land~~Risk-free $interest ~~57,000~~rate $5.28% ~~57,000~~6.28% ~~Building~~6.50% ~~and~~Dividend ~~building~~yield ~~improvements~~0 ~~572,000~~% ~~572,000~~0 ~~Machinery~~% ~~and~~0 ~~equipment~~% ~~1,123,000~~Volatility ~~1,120,000~~117% ~~------------~~96% ~~------------~~287% ~~1,752,000~~Average ~~1,749,000~~life ~~Less~~9.75 ~~accumulated~~years ~~depreciation~~7.15 ~~(1,090,000)~~Years ~~(1,004,000)~~5 ~~------------ ------------ $ 662,000 $ 745,000 ============ ============~~Years

Using the Black-Scholes methodology, the total value of options granted during fiscal 2001, 2000 and 1999 was $141,000, $199,000, and $126,000 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:

~~ABC~~April ~~DISPENSING TECHNOLOGIES~~30, ~~INC.~~2001 ~~(CONSOLIDATED)~~April ~~SCHEDULE~~30,2000 IIApril -24, ~~VALUATION~~1999 ~~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~~ -------------~~------------------------------------------------------------------------------~~ ~~Year ended April 30, 2000~~ --------------~~-----------~~ ~~Allowance~~Net ~~for~~Loss ~~doubtful~~As ~~accounts~~reported $ 60(1,~~000 $ 11~~796,000) $ 16(1,080,000(a) $ 33(2,~~000 ========= ========= ========= ========= Allowance for inventory obsolescence $ 474~~204,000) $Pro ~~5,000~~forma $ (~~b) $ 479~~1,~~000 ========= ========= ========= ========= Year ended April 24~~998, ~~1999 ------------------------- Allowance for doubtful accounts $ 84,~~000) $ (221,372,000) $ (2,330,000(a) $Basic ~~60,000~~and ~~=========~~Diluted ~~=========~~Earnings ~~=========~~per ~~=========~~share ~~Allowance~~As ~~for~~reported ~~inventory obsolescence~~ $ ~~909,000~~(0.10) $ ~~5,000~~(0.08) $ ~~440,000~~(b0.15) $Pro ~~474,000~~forma ~~========= ========= ========= ========= Year ended April 25, 1998 ------------------------- Allowance for doubtful accounts~~ $ ~~191,000 $ 39,000 $ 146,000~~(a0.11) $ ~~84,000 ========= ========= ========= ========= Allowance for inventory obsolescence $ 838,000 $ 105,000 $ 34,000~~(b0.10) $ ~~909,000 ========= ========= ========= =========~~(0.16)

25 ABC DISPENSING TECHNOLOGIES, INC. NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 7. STOCK OPTIONS AND WARRANTS (CONT.) WARRANTS 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 in 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. On June 30, 2000 the company granted 100,000 warrants exercisable at $0.11 per share for compensation of consulting services. On December 31, 2000 the company granted 100,000 warrants exercisable at $0.11 per share for compensation of consulting services. 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:

~~Name~~FY ~~Title~~2001 ~~Date~~FY 2000 FY 1999 ---- ----- ------------------------------------------------------------------------------------------------------------------------- ~~/S/~~SHARES ~~President~~WEIGHTED &AVERAGE ~~Director~~SHARES ~~July~~WEIGHTED ~~??,~~AVERAGE ~~2000~~SHARES WEIGHTED AVERAGE EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE ---------------------------------------------------------------------------------------------------------------------------------- ~~Charles~~OUTSTANDING M- 4,781,500 $1.09 ~~Stimac~~2,081,500 Jr$2.37 ~~/S/~~1,818,500 ~~Director~~$2.58 ~~July~~BEGINNING ~~??,~~OF ~~2000~~YEAR ---------------------------------------------------------------------------------------------------------------------------------- ~~Herbert~~GRANTED L200,000 $0.11 ~~Luxenburg~~2,700,000 $0.11 283,000 $1.06 ---------------------------------------------------------------------------------------------------------------------------------- EXERCISED/S/ ~~Director~~(2,036,500) ~~July~~$2.39 ??20,000 ~~2000~~$2.00 CANCELLED ---------------------------------------------------------------------------------------------------------------------------------- ~~Norbert~~OUTSTANDING J.- ~~Lewandowski~~2,945,000 ~~/S/~~$0.13 ~~Director~~4,781,500 ~~July~~$1.09 ??2,081,500 ~~2000~~$2.37 END OF YEAR ---------------------------------------------------------------------------------------------------------------------------------- ~~William~~EXERCISABLE L- 2,945,000 $0.13 ~~Shanklin~~4,781,500 $1.09 2,081,500 $2.37 END OF YEAR ----------------------------------------------------------------------------------------------------------------------------------

ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 8. NET LOSS PER SHARE The following table sets forth the computation of net loss per share - basic and diluted:

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 7,193,387, 7,711,985, and 4,155,585 shares of Common Stock as of April 30, 2001, April 30, 2000, and April 24, 1999, 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, 2001, through private placements, the Company issued 399 shares of Series A Preferred Stock in exchange for notes or $12,500 cash per share, generating net 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 from 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, 2001, 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, 2001, 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 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 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, 1999, was 924,408 and were 27 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 dividend requirement by issuing Common Stock. The total number of shares issued were 1,381,640 and were valued at $0.1826 per share. The Company plans to issue common stock to satisfy the February 1, 2001, Preferred Stock dividend during the first quarter of FY 2002. The total number of shares to be issued is 5,471,822 and will be valued at $0.0461 per share. 10. OPERATING LEASES Aggregate rental expense for fiscal years 2001, 2000, and 1999 was $20,000, $31,000, and $45,000, 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, 2001 and April 30,2000:

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 $10,000 in 2001, $12,000 in 2000, and $15,000 in 1999. The Company has the discretion to make a profit-sharing contribution, but no such contribution has been made by the Company. 28 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.) 13. LITIGATION SETTLEMENT/CONTINGENCIES The Company, from time to time, is subject to routine litigation incidental to its business. The Company believes that any liability that may finally be determined, would not have a material adverse effect on the operations and financial conditions of the Company. 14. SUBSEQUENT EVENTS (UNAUDITED) Subsequent to fiscal year end, April 30, 2001, and through July 5, 2001, the Company has received $250,000 from the issuance of promissory notes that bear interest at 10% per annum. These funds will be used for necessary operating expenses. 15. QUARTERLY FINANCIAL DATA (UNAUDITED)

*-Fourth quarter 2001 net loss includes $150,000 charge for inventory obsolescence. 29 ABC DISPENSING TECHNOLOGIES, INC. (CONSOLIDATED) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

(a) Uncollectible accounts written off, net of recoveries. (b) Inventory written off and/or disposed of. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 30 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:

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 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.* *Incorporated by reference to a similarly numbered exhibit to the registrants registration on for S-1 filed with the Commissar on April 8, 1998. (c) Current reports on Form 8-K during the quarter ended April 30, 2001. During the fourth quarter ended April 30, 2001, the Company filed no reports on Form 8-K. 32 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.

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