10-Q 1 j0124_10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JANUARY 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission file number: 0-14922 ABC DISPENSING TECHNOLOGIES, INC. (Name changed from American Business Computers Corporation) (Exact name of registrant as specified in its charter) Florida 59-2001203 ------------------------------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 451 Kennedy Road Akron, Ohio 44305 ------------------------------------------ -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (330) 733-2841 Securities registered pursuant to Section 12(b) of the Act:NONE ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01 ---------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: [ X ] Yes [ ] No The number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date is: Common Stock outstanding at March 1, 2001 was 23,269,976 shares. ABC DISPENSING TECHNOLOGIES, INC. AND SUBSIDIARIES

2 ABC DISPENSING TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See accompanying notes. 3 ABC DISPENSING TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (NINE MONTHS AND THREE MONTHS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000) (UNAUDITED)

See accompanying notes. 4 ABC DISPENSING TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

See accompanying notes. 5 ABC DISPENSING TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NINE MONTHS ENDED JANUARY 31, 2001) (UNAUDITED)

See accompanying notes 6 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF JANUARY 31, 2001 AND FOR THE NINE MONTHS ENDED JANUARY 31, 2001 IS UNAUDITED) The accompanying, unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United State of America applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the nine months ended January 31, 2001, are not necessarily indicative of the results that may be expected for the year ending April 30, 2001. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission on August 4, 2000. When used in this report, the words "estimate", "project", "intend", "expect", "believe" and similar expressions are used to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially. Such risks include, without limitation, substantial competition, future capital needs, uncertainty of additional financing, potential future dilution, dependence on key-personnel and uncertainty as to full scale commercialization of the company's products. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. There can be no assurances that the company's forward-looking statements will prove to be true. The company undertakes no obligation to publicly release updates or revisions to these statements. 1. SIGNIFICANT ACCOUNTING POLICIES In fiscal year 2000, the Company changed its fiscal year end from a 52-53 week period ending on the Saturday closest to April 30 to an April 30 year end, to more closely align closing periods with its major customers and vendors. This change has increased the number of days included in the financials for the nine months ending January 31, 2000, from 276 calendar days to 282 calendar days. An estimate of the impact of this six day change on a performa basis yields sales of #12,000, gross margin of $2,000 and allocated selling, general and administrative expenses of $18,000 resulting in a net loss of $16,000. 2. GOING CONCERN UNCERTAINTY The Company has reported a net loss for each year of operation since its inception except for 1989, and as of January 31, 2001, has an accumulated deficit of $28,893,000. The Company had negative cash flow from operating activities of $1,375,000, $1,453,000, and $1,594,000 for the years ended April 30, 2000, April 24, 1999, and April 25, 1998, respectively. For the nine months ended January 31, 2001, the Company had negative cash flow from operating activities of $824,000 and $1,285,000 for the nine months ended January 31, 2000. Management expects that the Company will continue to incur losses and use cash in operations in the near future. Management recognizes the Company must generate additional funds to ensure continuation of operations. The Company has been able to raise $6,573,000 in capital from private investors over the past four years through private placements of both preferred and common stock. The Company raised $1,500,000 during the fiscal year ended April 30, 2000 using interest bearing Notes Payable. The Company is continuing in it efforts to raise capital. The Company hopes to satisfy its short-term (i.e., the next 12-month period) capital requirements with the use of proceeds from the private placement of its 9% Convertible Cumulative Preferred Stock and notes payable. The Company is currently attempting to raise additional capital through an offering of its Convertible Preferred Stock. The exact terms of this offering have not been finalized. The company hopes to satisfy its longer-term capital needs with additional proceeds of offerings of the Company's equity and/or debt securities, improvements in operational cash flow, warrant exercise proceeds, and traditional credit facilities. There can be no assurance that at any time a sufficient market for the Company's equity offerings or debt financings will be available upon commercially reasonable terms, if at all. Further, there can be no assurance, assuming the Company does successfully raise additional capital, that the Company will achieve profitable operations or positive cash flow. These conditions raise substantial doubt about the Company's ability to continue as a going concern. No adjustments to the amounts or classification of assets and liabilities, which could result from the outcome of this uncertainty, are reflected in the consolidated financial statements. 7 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF JANUARY 31, 2001 AND FOR THE NINE MONTHS ENDED JANUARY 31, 2001 IS UNAUDITED) 3. INVENTORIES At January 31, 2001 and April 30, 2000, inventories consisted of the following:

The above amounts are net of obsolescence reserves of $479,000 at both January 31, 2001 and April 30, 2000. 4. FINANCING ARRANGEMENTS At January 31, 2001 and April 30, 2000, long-term debt consisted of the following:

The note payable to bank, which is secured by the Company's headquarters facility, has an adjustable interest rate (9.25% at January 31, 2001) which may not increase or decrease by more than 3% once every three years. On August 1, 1999, the Company renegotiated most of the 10% APR, short term notes to a 5 year, 10% APR Promissory Note that comes due on August 1, 2004. This note is collateralized with the intellectual property of the Company. In return for converting the short term notes to long term, the Company issued 5 year Warrants to Purchase 2,500,000 Shares of Common Stock at the then current market price of $.10 per share. The Warrants have been valued at $175,000 using the Black-Scholes Option Pricing Model, using the following weighted average assumptions: A Risk-Free interest rate of 6.355% and an expected volatility of 88.55%. A discount on the notes payable has been recorded for that amount which will be amortized on a straight line basis over the term of the notes. During the nine months ended January 31, 2001, the Company raised an additional $550,000 of capital using this long term Promissory Note. At January 31, 2001, the Company had raised $325,000 from short-term notes. The interest rate on these notes is 12%. $150,000 of the $325,000 was raised for the nine months ended January 31, 2001. 8 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF JANUARY 31, 2001 AND FOR THE NINE MONTHS ENDED JANUARY 31, 2001 IS UNAUDITED) 5. NET LOSS PER SHARE The following table sets forth the computation of net loss per share -- basic and diluted:

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 7,483,953 and 4,105,585 shares of Common Stock as of January 31, 2001 and January 31, 2000, respectively. 6. PREFERRED STOCK In September 1996 the shareholders of the Company approved an amendment to the Company's Certificate of Incorporation to authorize up to 5,000,000 shares of Preferred stock. To date, the Company has authorized 840 shares as Series A Preferred Stock, 160 shares of Series B Preferred Stock and 200 shares of Series C Preferred Stock. The Company offered shares of 9% convertible cumulative redeemable Preferred Stock, Series A ("Series A Preferred Stock") in exchange for the surrender of the Company's outstanding $25,000, 9% Convertible Subordinated Redeemable Notes due August 1, 1999 ("Notes"). As of January 31, 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 gross proceeds of $4,987,500 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 24, 1999, generating gross proceeds of $300,000. 9 ABC DISPENSING TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF JANUARY 31, 2001 AND FOR THE NINE MONTHS ENDED JANUARY 31, 2001 IS UNAUDITED) 6. PREFERRED STOCK (CONT.) 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 24, 1999, generating gross proceeds of $370,000. Series A, B, and C Preferred Shares pay dividends semi-annually each February 1, and August 1, commencing on February 1, 1997. The Company may elect to pay dividends in the form of Common Stock of the Company issued at 90% of the then current market price of the Common Stock. For the purposes of this calculation the "current market price" shall mean the average of the daily closing prices for each of the thirty consecutive business days prior to such dividend date. On June 11, 1999, the Company paid its February 1, 1999 Preferred Stock dividend requirement by issuing common stock. The total number of common shares issued for the dividend was 1,231,565. The shares were valued at $0.191 per share. On April 18, 2000, the Company paid its August 1, 1999 and February 1, 2000, Preferred Stock dividend requirements by issuing common stock. The total number of shares issued for August 1, 1999 was 924,408 and were valued at $0.2714 per share. The total number of shares issued for February 1, 2000 was 1,795,880 and were valued at $0.1404 per share. On October 3, 2000 the Company paid its August 1, 2000 Preferred Stock dividend requirement by issuing common stock. The total number of shares issued was 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 fourth quarter of FY 2001. The total number of shares to be issued is 5,471,822 and will be valued at $0.0461 per share. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED JANUARY 31, 2001 COMPARED TO THE NINE MONTHS ENDED JANUARY 31,2000 The net loss for the nine months ended January 31, 2001 was $1,149,000, an increase of $287,000, or 33.3% from the net loss of $862,000 for the nine months ended January 31, 2000.

Equipment sales for the first nine months of FY 2001, (ending January 31, 2001) decreased $179,000, or 51.3%, over the same period of the prior year. Sales of paint colorant dispensers decreased $132,000. Sales of the Royal Match(R) paint colorant dispensers have decreased because the equipment has not yet gained widespread market acceptance. Sales of beverage equipment decreased $47,000, the Company is not actively marketing its beverage equipment. Service revenues for the first nine months of FY 2001 decreased $121,000, or 11.1% from the same period of the prior year. The decrease resulted from a reduction of service agreements of $43,000 a decrease in service parts and charges of $71,000 due to completion of equipment upgrades for the period ending January 31, 2000, and a reduction in juice sales of 7,000.

For the first nine months of FY 2001 gross margin as a percentage of sales on equipment decreased 24.1 points from the same period of the prior year. The decrease resulted from lower unit prices due to a change in pricing strategy implemented during fiscal year 2001. For the first nine months of FY 2001 gross margin as a percentage of service revenues decreased 12.1 points over the same period of the prior year. The decrease resulted from a reduction of service agreements and a decrease in service parts and charges. GENERAL AND ADMINISTRATIVE For the first nine months of FY 2001 general and administrative expenses decreased $25,000, or 2.6%, to $943,000, as compared to the same period of FY 2000. This was due to fewer general and administrative resources being employed. SELLING AND MARKETING EXPENSES For the first nine months of FY 2001 selling and marketing expense decreased $2,000, or .1%, to $213,000, down from $215,000 for the same period of FY 2000. The decrease is due primarily to lower travel expenses. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) RESEARCH AND DEVELOPMENT For the first nine months of FY 2001, research and development expenses increased $55,000, or 122%, to $100,000. The increase is due to a reallocation of existing resources into software enhancement efforts required to modify the Royal Match(R) paint dispensing system to meet the needs of new customers. INTEREST EXPENSE For the first nine months of fiscal 2001 interest expense increased $88,000, or 68.2%, to $217,000. The increase is due to higher note payable balances. OTHER INCOME Other income increased $106,000 to $102,000 for the first nine months of FY 2001. The increase was due to adjustments needed to prior year estimates. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JANUARY 31, 2001 COMPARED TO THE THREE MONTHS ENDED JANUARY 31, 2000 The net loss for the three months ended January 31, 2001 was $398,000, an increase of $165,000, or 70.1% over the net loss of $233,000 for the three months ended January 31, 2000.

Equipment sales for the three months of fiscal 2001, ending January 31, 2001 decreased $86,000, or 72.9%, over the same period of the prior year. Sales of paint colorant dispensers decreased $105,000. Sales of the Royal Match(R) paint colorant dispensers have decreased because the equipment has not yet gained widespread market acceptance and suggested list prices for the equipment has been decreased by approximately 35%. Sales of beverage equipment increased $14,000, or 13% over the same period of the prior year, the Company is not actively marketing its beverage equipment but is supporting dealer sales in Canada and accepting orders from domestic customers. Service revenues for the three months ending January 31, 2001 decreased $98,000, or 24.5% from the same period of the prior year. The decrease is due to a reduction in beverage parts of $23,000 and paint parts of $32,000, and lower service agreement revenues of $43,000.

For the three months ended January 31 of fiscal 2001 gross margin as a percentage of sales on equipment decreased 16.8 points from the same period of the prior year. The decrease resulted from lower list price decreases due to a change in pricing strategy implemented during fiscal 2001. For the three months ended January 31 of fiscal 2001 gross margin as a percentage of service revenues decreased 23.8 points over the same period of the prior year. The decrease is attributable to lower service labor revenues. GENERAL AND ADMINISTRATIVE For the three months ended January 31 of fiscal 2001 general and administrative expenses increased $4,000, or 1.4%, to $290,000, as compared to the same period of fiscal 2000. This was due to a reallocation of existing resources. SELLING AND MARKETING EXPENSES For the three months ended January 31 of fiscal 2001 selling and marketing expense increased $8,000, or 11.6%, to $77,000 up from $69,000 for the same period of FY 2000. The increase is due to increased marketing travel associated with new accounts. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) RESEARCH AND DEVELOPMENT For the three months ended January 31 of fiscal 2001, research and development expenses increased $16,000, or 133%, to $28,000. The increase is due to a reallocation of existing resources into software enhancement efforts required to modify the Royal Match(R) paint dispensing system to meet the needs of new customers. INTEREST EXPENSE For the three months ended January 31 of fiscal 2001 interest expense increased $26,000, or 48.1%, to $80,000. This is a result of higher notes payable balances. OTHER INCOME/(EXPENSE) For the three months ended January 31 of fiscal 2001, other income improved $28,000 due to adjustments in accrued liabilities. LIQUIDITY AND CAPITAL RESOURCES The Company's cash balance decreased to $39,000 as of January 31, 2001 from $163,000 at April 30, 2000. Operations for the nine months ended January 31, 2001 required cash of $824,000 a decrease of $461,000, or 35.9%, when compared to the nine months ended January 31, 2000. The $824,000 use of cash was caused by a net loss of $1,149,000 and a decrease in accounts receivable of $225,000. Consistent with prior years, the Company's primary source of liquidity has been private placements of debt and equity derivative instruments. During the fiscal year ended April 30, 2000, the Company generated $1,500,000 from the private issuance of notes payable. In August, 1997, to raise additional capital, the Company began issuing short term promissory notes through a private placement. The notes are sold in multiples of $12,500, or fractions thereof, and accrue interest at the rate of 10%, with principal and interest due at maturity. The initial maturity date was June 30, 1998, however, the Company had the option, which it exercised, to extend the maturity date to December 31, 1998. The Company extended the maturity date through negotiations with Holders of the Notes and their representatives until December 31, 1999. On August 1, 1999, the Company renegotiated most of the 10% APR, short term notes to a 5 year, 10% APR Promissory Note that comes due on August 1, 2004. These notes are collatoralized with the intellectual property of the Company. In return for converting the short term note to long term, the Company issued 5 year Warrants to Purchase 2,500,000 Shares of Common Stock at the then current market price of $.10 per share. The Warrants have been valued at $175,000 using the Black-Scholes Option Pricing Model, using the following weighted average assumptions: A Risk-Free interest rate of 6.355% and an expected volatility of 88.55%. A discount on the notes payable has been recorded for that amount which will be amortized on a straight line basis over the term of the notes. During the quarter ended January 31, 2001, the Company raised an additional $250,000 of capital using this long term Promissory Note. As of January 31, 2001, the Company has issued notes in the aggregate of $2,600,000. The Company anticipates using proceeds of equity offerings, additional extensions, or other re-financing options to satisfy the notes. The Company intends to satisfy its short-term (i.e., the next 12-month period) capital requirements using the proceeds of offerings of its equity securities and the issuance of additional notes. The Company is currently attempting to raise at least $2,000,000 through an offering of its convertible preferred stock. Longer-term capital needs are anticipated to be satisfied by additional proceeds of offerings of the Company's equity and/or debt securities, improvements in operational cash flow, warrant exercise proceeds, and traditional credit facilities. There can be no assurance that at any time a sufficient market for the Company's equity offerings or debt financings will be available upon commercially reasonable terms, if at all. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) The Company's long-term capital plan is critically dependent upon the commercial success of its Products and, to the extent success is not timely achieved, its ability to implement significant cost reduction programs. Toward this end, Management has taken steps to increase revenue through sales and marketing efforts that include the redeployment of research and development resources of the Company to work closely with the Company's existing and prospective customers in the paint and beverage industry. If it becomes necessary to implement significant cost reduction programs, it is likely that such programs will involve a significant curtailment of marketing and research and development activities as well as payroll reductions which would likely have an adverse affect on future operating results. There can be no assurance that the Company will be successful in generating operating profit and sufficient operational cash flow through the commercial success of its products or any such cost reduction programs. If the Company is not successful in this regard, Management will have to consider alternative uses of its assets including the possible licensing or outright sale of one or more of its proprietary technologies. The current liquidity position of the Company and the inability of operations to generate positive cash flow raises doubt about the Company's ability to continue as a going concern (see Note 2 to the Financial Statements). 15 PART IV - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are incorporated by reference herein, via 10k filed on August 2, 1999, or annexed to this quarterly report. (3.1) Certificate of Incorporation of the Registrant. (3.2) Bylaws of the Registrant. (10.1) Employment agreement dated March 1, 1997 by and between the Registrant and Charles M. Stimac, Jr. (10.3) Amended 1995 Stock Option Plan. (11.1) Statement regarding computation of per share earnings (see Financial Statements at Item 1 of this Quarterly Report on Form 10-Q). (24.) Power of attorney (included on the signature page hereof). (c) Current reports on Form 8-K during the quarter ended January 31, 2001. During the first nine months of FY 2001, the Company filed no reports on Form 8-K. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ABC Dispensing Technologies, Inc. ------------------------------------ Date: March 16, 2001 /s/ Charles M. Stimac, Jr. ------------------- ----------------------------------------- Charles M. Stimac, Jr. President/CEO 17

ABC DISPENSING TECHNOLOGIES INC 10-Q