Part I Financial Information Page No. ------------------------------------------------------------------------------------------------------------------- Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - January 31, 2001 and April 30, 2000 3 Condensed consolidated statements of operations - Nine months ended January 31,2001 and January 31, 2000 and three months ended January 31, 2001 and January 31, 2000 4 Condensed consolidated statements of cash flows - Nine months ended January 31, 2001 and January 31, 2000 5 Condensed consolidated statement of stockholders' equity - Nine months ended January 31, 2001 6 Notes to condensed consolidated financial statements 7-FORM 10 ~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11~~-15 Part II Other Information ------------------------------------------------------------------------------------------------------------------- Item 1. (Not Applicable) Item 2. (Not Applicable) Item 3. (Not Applicable) Item 4. (Not Applicable) Item 5. (Not Applicable) Item 6. (A) Exhibits and Reports 16 Signature 17Q

~~ASSETS~~SECURITIES JANUARY 31, 2001 APRIL 30, 2000 --------------------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 39,000 $ 163,000 Accounts receivable, less allowance for doubtful accounts of $21,000 as of January 31 and $33,000 as of April 30 81,000 306,000 Inventories (Note 3) 1,243,000 1,281,000 ----------- ----------- Total current assets 1,363,000 1,750,000 Property, plant, and equipment 577,000 662,000 Other assets 128,000 160,000 ----------- ----------- TOTAL ASSETS $2,068,000 $2,572,000 --------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND ~~STOCKHOLDERS' EQUITY/(DEFICIT) Current Liabilities Current portion of long-term debt $ 19~~EXCHANGE COMMISSION Washington,~~000~~ $ 19,000 Short-term notes payable (Note 4) 325,000 175,000 Accounts payable 356,000 409,000 Accrued liabilities: Accrued interest 423,000 226,000 Employee compensation and benefits 120,000 82,000 Warranty reserve 2,000 18,000 Other 118,000 235,000 Deferred income 188,000 302,000 ----------- ----------- Total current liabilities 1,551,000 1,466,000 Long-term debt 2,679,000 2,119,000 Stockholders' equity/(deficit) (Note 6): Preferred Stock - Series A, 9% cumulative; authorized 840 shares, 399 issued, 395 outstandingD. ~~Series B, 9% cumulative authorized 160 shares 24 shares issued and outstanding. Series~~ C~~, 9% cumulative authorized 200 shares 37 shares issued and outstanding~~. 5,608,000 5,608,000 Common Stock, $.01 par value; authorized 50,000,000 shares; 23,269,976 shares issued and outstanding at January 31, 2001 and 21,888,336 shares issued and outstanding at April 30, 2000 233,000 219,000 Additional paid-in capital 20,892,000 20,654,000 Accumulated deficit (28,893,000) (27,492,000 ----------- ----------- (2,160,000) (1,011,000 Treasury stock at cost (2,000) (2,000 ----------- ----------- Total Stockholders' Equity/(Deficit) (2,162,000) (1,013,000) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) $2,068,000 $2,572,00020549

Nine Months Ended Three Months Ended January 31, 2001 January 31, 2000 January 31, 2001 January 31, 2000 ---------------------------------------------------------------------------------------------------------------------------- Revenues: Equipment sales $ 170,000 $ 349,000 $ 32,000 $ 118,000 Service revenues 969,000 1,090,000 302,000 400,000 ------------ ------------ ------------ ------------ Total revenues 1,139,000 1,439,000 334,000 518,000 Cost and expenses: Cost of equipment sold 134,000 204,000 21,000 43,000 Service expenses 783,000 736,000 264,000 287,000 General and administrative 943,000 968,000 290,000 286,000 Selling and marketing 213,000 215,000 77,000 69,000 Research and development 100,000 45,000 28,000 12,000 ------------ ------------ ------------ ------------ Total cost and expenses 2,173,000 2,168,000 680,000 697,000 Loss from operations (~~1,034,000)~~Mark ~~(729,000~~One) ~~(346,000)~~ý ~~(179,000)~~QUARTERLY ~~Other~~REPORT ~~income~~PURSUANT ~~and~~TO ~~expense:~~SECTION ~~Interest~~13 ~~expense~~OR 15(~~217,000~~d) ~~(129,000)~~OF ~~(80,000)~~THE ~~(54,000)~~SECURITIES ~~Other~~EXCHANGE ~~income~~ACT ~~102,000~~OF ~~(4,000)~~1934 ~~28,000~~FOR (THE -PERIOD )ENDED ~~------------~~JULY ~~------------ ------------ ------------ Total other income/(expense) (115~~31,~~000)~~ (133,000) (52,000) (54,000) Net loss $ (1,149,000) $ (862,000) $ (398,000) $ (233,000) ============ ============ ============ ============ Net loss per share - Basic and Diluted (Note 5) $ (0.06) $ (0.06) $ (0.02) $ (0.01) ============ ============ ============ ============2001

Nine Months Ended Nine Months Ended January 31, 2001 January 31, 2000 --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES ------------------------------------ Net cash from operating activities $ (824,000) $(1,285,000) CASH FLOWS USED IN INVESTING ACTIVITIES --------------------------------------- Purchases of property, plant and equipment - (8,000) ----------- ----------- Net cash used in investing activities (8,000) CASH FLOWS FROM FINANCING ACTIVITIES ------------------------------------ Net proceeds from issuance of notes payable 700,000 1,250,000 Proceeds from collection of stockholders receivable - 20,000 Other - 66,000 ----------- ----------- Net cash provided by financing activities 700,000 1,336,000 ----------- ----------- Net (decrease)/increase in cash and cash equivalents (124,000) 43,000 Cash and cash equivalents at beginning of period 163,000 65,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 39,000 $ 108,000 ------------------------------------------ =========== ===========OR

~~Common~~o ~~Number~~TRANSITION ofREPORT ~~Stock~~PURSUANT ~~Additional~~TO ~~Retained~~SECTION ~~Shares~~13 ofOR ~~$.01 Par Preferred Paid-in Earnings Treasury Common Stock Value Stock Capital~~ 15(~~Deficiency~~d) ~~Stock~~OF ~~Total~~THE ~~------------------------------------------------------------------------------------------------------~~SECURITIES ~~Balance~~EXCHANGE atACT ~~April~~OF 30, 2000 21,888,336 $219,000 $5,608,000 $20,654,000 $(27,492,000) $ (2,000) $(1,013,000) Preferred Stock Dividend 1,381,640 14,000 238,000 (252,000) ( -0-) Net loss (1,149,000) (1,149,000) ------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 31, 2001 23,269,976 $233,000 $5,608,000 $20,892,000 $(28,893,000) $ (2,000) $(2,162,000) ======================================================================================================1934

~~January~~For ~~31,~~the ~~2001~~transition ~~April~~period ~~30,~~from ~~2000~~__________ ~~-----------------~~to ~~--------------- Raw Materials $713,000 $742,000 Work-in-process 210,000 225,000 Finished goods 320,000 314,000 ----------------- --------------- $1,243,000 $1,281,000 ================= ===============~~__________.

~~January~~Commission ~~31,~~file ~~2001~~number: ~~April 30, 2000~~ 0----------------- --------------- Note payable to bank $221,000 $231,000 Note payable - Private party 2,475,000 1,902,000 (Less unamortized discount of $125,000 and $148,000 for January and April respectfully) Other 2,000 5,000 ----------------- --------------- 2,698,000 2,138,000 Less amounts due within one year (19,000) (19,000) ----------------- --------------- Total Long-term debt $2,679,000 $2,119,000 ================= ===============14922

~~Nine~~ABC DISPENSING ~~Months Ended Three Months Ended January 31~~TECHNOLOGIES, January 31, January 31, January 31, 2001 2000 2001 2000 Numerator: Net Loss $ (1,149,000) $ (862,000) $(398,000) $ (233,000) Preferred Stock Dividends (252,000) (252,000) ( - ) ( - ) --------- --------- -------------- ------------- Numerator for net loss per share - loss attributable to common shareholders $ (1,401,000) $ (1,114,000) $(398,000) $ (233,000) Denominator: Denominator for basic and diluted earnings per share - weighted-average shares 22,502,627 19,036,896 23,256,082 19,175,223 ---------- ---------- ---------- ------------- Net loss per share -- basic and diluted $ (0INC.~~06) $~~ (~~0.06)~~Exact $name ~~(0.02)~~of $registrant ~~(0.01)~~as ~~==============~~specified ~~==============~~in its ~~=============== =============~~charter)

REVENUES Nine Months Ended ----------------- January 31, January 31, 2001 2000 Equipment sales $ 170,000 $ 349,000 Service revenues 969,000 1,090,000 ---------- ---------- TOTAL $1,139,000 $1,439,000 ========== =========

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)

~~GROSS~~ Indicate by ~~MARGINS~~check ~~Nine~~mark ~~Months~~whether ~~Ended~~the ~~-----------------~~registrant ~~January~~(1) ~~31,~~has ~~January~~filed ~~31,~~all ~~2001~~reports ~~2000~~required ~~Equipment~~to ~~22.0%~~be filed ~~46.1%~~by ~~=====~~Section ~~=====~~13 ~~Service~~or ~~20.5%~~15(d) ~~32.6%~~of ~~=====~~the ~~=====~~Securities ~~TOTAL~~Exchange ~~20.8%~~Act ~~35.7%~~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: ý Yes o No

~~REVENUES~~ The number ~~Three~~of ~~Months~~shares ~~Ended~~outstanding ~~------------------~~of ~~January~~each ~~31,~~of ~~January~~the ~~31,~~registrant’s ~~2001~~classes ~~2000~~of ~~Equipment~~common stock ~~sales~~as ~~$32,000~~of ~~$118,000~~the ~~Service~~latest ~~revenues~~practicable ~~302,000~~date ~~400,000 -------- -------- Total $334,000 $518,000 ======== ========~~is:

~~GROSS~~ Common Stock ~~MARGINS~~outstanding ~~Three~~at ~~Months~~September ~~Ended~~5, ~~------------------~~2001 ~~January~~was 3123, ~~January 31~~269,976 ~~2001 2000 Equipment 46~~shares.~~8% 63.6% ===== ===== Service 12.5% 36.3% ===== ===== Total 16.7% 36.3% ===== =====~~

Index

ABC Dispensing Technologies, Inc. and Subsidiaries

Part I	Financial Information

Item 1.	Condensed Financial Statements (Unaudited)

	Consolidated balance sheets – July 31, 2001 and April 30, 2001

	Consolidated statements of operations - Three months ended July 31, 2001 and July 31, 2000

	Consolidated statements of cash flows –Three months ended July 31, 2001 and July 31, 2000

	Consolidated statement of stockholders’ equity - Three months ended July 31, 2001

	Notes to consolidated financial statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part II	Other Information

Item 1.	(Not Applicable)

Item 2.	(Not Applicable)

Item 3.	(Not Applicable)

Item 4.	(Not Applicable)

Item 5.	(Not Applicable)

Item 6.	(A) Exhibits and Reports

Signature

ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS

			(Unaudited)			(Audited)
ASSETS			July 31, 2001			April 30, 2001

Current Assets
	Cash and cash equivalents		$	48,000		$	204,000
	Accounts receivable, less allowance for doubtful accounts of $152,000 as of July 31 and $159,000 as of April 30		200,000			138,000
	Inventories (Note 2)		998,000			1,014,000
	Prepaid Expenses		63,000			68,000

	Total current assets		1,309,000			1,424,000

Property, plant, and equipment			532,000			549,000

Other assets
	Intangible assets, less accumulated amortization of $501,000 for both July 30 and April 30		11,000			11,000
	Other		44,000			47,000

			55,000			58,000


Total Assets			$	1,896,000		$	2,031,000


LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities:
	Current portion of long-term debt		$	19,000		$	19,000
	Short-term notes payable		175,000			175,000
	Accounts payable		473,000			302,000
Accrued liabilities:
	Accrued interest		605,000			511,000
	Employee compensation and benefits		118,000			82,000
	Warranty reserve		4,000			5,000
	Other		93,000			206,000
	Deferred income		318,000			329,000

		Total current liabilities	1,805,000			1,629,000

Long-term debt (Note 3):			3,297,000			3,192,000
Stockholders' equity/(deficit) (Note 5):
	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; 23,269,976 shares issued and outstanding at July 31 and April 30		233,000			233,000
	Additional paid-in capital		20,911,000			20,911,000
	Accumulated deficit		(29,956,000		)	(29,540,000		)

			(3,204,000		)	(2,788,000		)
	Less Treasury Stock at cost:		(2,000		)	(2,000		)

		Total Stockholders’ Equity/(Deficit)	(3,206,000		)	(2,790,000		)

Total Liabilities and Stockholders' Equity/(Deficit)			$	1,896,000		$	2,031,000

See accompanying notes.

ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended July 31, 2001 and July 31, 2000
(Unaudited)

		Three Months Ended
		July 31, 2001			July 31, 2000

Revenues:
	Equipment sales	$	71,000		$	58,000
	Service revenues	320,000			329,000

	Total revenues	391,000			387,000

Cost and expenses:
Cost of equipment sold		42,000			44,000
Service expenses		308,000			259,000
General and administrative		259,000			336,000
Selling and marketing		83,000			70,000
Research and development		14,000			37,000


Total cost and expenses:		706,000			746,000


Loss from operations:		(315,000		)	(359,000		)

Other income (expense):
Interest expense		(102,000		)	(68,000		)
Other		1,000			35,000

		(101,000		)	(33,000		)

Net loss:		$	(416,000	)	$	(392,000	)


Net loss per share:
Basic and diluted (Note 4)		$	(0.02	)	$	(0.02	)

See accompanying notes

ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

		Three Months Ended
		July 31, 2001			July 31, 2000

Cash flows from operating activities:
Net cash used in operating activities:		$	(247,000	)	$	(231,000	)

Cash flows from investing activities:
	Additions to property, plant, and equipment	(4,000		)	-

Net cash used in investing activities		(4,000		)

Cash flows from financing activities:
	Proceeds from private placement of notes payable	100,000			100,000
	Other	(5,000		)	-


Net cash provided by financing activities		95,000			100,000


Net decrease in cash and cash equivalents		(156,000		)	(131,000		)
Cash and cash equivalents at beginning of year		204,000			163,000


Cash and cash equivalents at end of period		$	48,000		$	32,000

See accompanying notes.

ABC DISPENSING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Three months ended July 31, 2001 unaudited)

	Number of Shares of Common Stock	Stock $.01 Par Value		Preferred Stock		Additional Paid-in Capital		Accumulated Deficit			Treasury Stock

Balance at April 30, 2001	23,269,976	$	233,000	$	5,608,000	$	20,911,000	$	(29,540,000	)	$	(2,000	)

Net loss								(416,000		)

Balance at July 31, 2001	23,269,976	$	233,000	$	5,608,000	$	20,911,000	$	(29,956,000	)	$	(2,000	)

See accompanying notes.

ABC DISPENSING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of July 31, 2001 and for the three months ended July 31, 2000 is unaudited)

The accompanying, unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three months ended July 31, 2001, are not necessarily indicative of the results that may be expected for the year ending April 30, 2002. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission on July 31, 2001.

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. Going concern uncertainty

The company has reported a net loss for each year of operation since its inception except for 1989, and as of July 31, 2001, has an accumulated deficit of $29,956,000. The Company had negative cash flow from operating activities of $995,000, $1,375,000 and $1,453,000, for the years ended April 30, 2001, April 20, 2000, and April 24, 1999, respectively. For three months ended July 31, 2001, the Company had negative cash flow from operating activities of $247,000. 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, 2001 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.

2. Inventories

At July 31, 2001 and April 30, 2001, inventories consisted of the following:

	July 31, 2001		April 30, 2001

Raw Materials	598,000		$	608,000
Work-in-process	140,000		142,000
Finished goods	260,000		264,000

Total	$	998,000	$	1,014,000

The above amounts are net of obsolescence reserves of $622,000 at both July 31, 2001 and April 30, 2001.

3. Financing arrangements

At July 31, 2001 and April 30, 2001, long-term debt consisted of the following:

	July 31, 2001			April 30, 2001

Note payable to bank	$	208,000		$	213,000
Note payable – Private party	3,104,000			2,997,000
(Less unamortized discount of $107,000 and $114,000 for July 31,2001 and April 30, 2001, respectively)
Other	4,000			1,000

	3,316,000			3,211,000
Less amounts due within one year	(19,000		)	(19,000		)


Total Long-term debt	$	3,297,000		$	3,192,000

The note payable to bank, which is secured by the Company’s headquarters facility, has an adjustable interest rate (9.03% at July 31, 2001) which may not increase or decrease by more than 3% once every three years. On August 2, 2001, the Company renegotiated $500,000 of Notes Payable in order to obtain $150,000 of additional capital. The total was secured by a second mortgage on the Company’s headquarters facility.

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 three months ended July 31, 2001, the Company raised an additional $100,000 of capital using this long term Promissory Note.

4. Net loss per share

The following table sets forth the computation of net loss per share – basic and diluted:

	Three Months Ended
	July 31, 2001			July 31, 2000

Numerator:
Net loss	$	(416,000	)	$	(392,000	)
Preferred Stock Dividends	-			-

Numerator for net loss per share – loss attributable to common shareholders	$	(416,000	)	$	(392,000	)

Denominator:
Denominator for basic and diluted
Earnings/share-weighted - average shares	23,269,976			21,888,336


Net loss per share - basic diluted	$	(0.02	)	$	(0.02	)

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 7,223,387 and 7,771,985 shares of Common Stock as of July 31, 2001 and July 31, 2000, respectively.

5. Preferred stock

In September 1996 the shareholders of the Company approved an amendment to the Company’s Certificate of Incorporation to authorize up to 5,000,000 shares of Preferred stock. To date, the Company has authorized 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”).

Through private placements, the Company has issued 399 shares of Series A Preferred Stock in exchange for notes or $12,500 cash per share, generating gross proceeds of $4,988,000 to the Company.

The Series A Preferred Stock is convertible at the option of the holder, in whole or in part, at any time after March 1, 1997 (the “Initial Conversion Date”) into Common Stock of the Company at a price per share of Common Stock equal to (i) $1.00 per share, or (ii) such adjusted price as may form time to time be adjusted (the “Conversion Price”). If converted into Common Stock, each Preferred Share will entitle the holder to receive warrants to purchase a number of shares of Common Stock at a price of $1.25 per share, equal to the number of shares of Common Stock into which the Preferred Shares were converted. The warrants will be valid for a period of five years commencing from the date of issuance.

The Series B Preferred Stock is convertible at the option of the holder into Common Stock of the Company at a price of $.75 per share and is identical to Series A Preferred Stock in all other aspects. The Company has authorized 160 shares and sold 24 shares, 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, 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.

The Company plans to issue common stock to satisfy the February 1, 2001, Preferred Stock dividend during the second quarter of fiscal 2002. The total number of shares to be issued is 5,471,822 and will be valued at $0.0461 per share.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months ended July 31, 2001 compared to the three months ended July 31, 2000

The net loss for the three months ending July 31, 2001 was $416,000, an increase of $24,000, or 6.1% over the net loss of $392,000 for the three months ending July 31, 2000.

Revenues		Three Months Ended

		July 31,		July 31,
		2001		2000

Equipment sales		$	71,000	$	58,000
Service revenues		320,000		329,000

	Total	$	391,000	$	387,000

Equipment sales for the three months ending July 31, 2001, increased $13,000, or 22.4%, over the same period of the prior year. A sale of beverage equipment was responsible for this increase.

Service revenues for the three months ending July 31, 2001, decreased $9,000, or 2.7% from the same period of the prior year. The decrease is due to a reduction in parts sales of $25,000 and an increase in service contracts and travel of $16,000.

Gross margins		Three Months Ended

		July 31,		July 31,
		2001		2000

Equipment		45.1	%	20.8	%

Service		9.4	%	25.4	%

	Total	15.9	%	24.7	%

For the three months ending July 31, 2001, gross margin as a percentage of sales on equipment increased 24 points over the same period of the prior year. The increase resulted from higher sales of beverage equipment.

For the three months ending July 31, 2001, gross margin as a percentage of service revenues decreased 16 points over the same period of the prior year. The decrease is attributable to a change in distribution of service employees from administrative costs to service.

General and administrative

For the three months ending July 31, 2001, general and administrative expenses decreased $77,000, or 22.9%, to $259,000, as compared to the same period of the prior year. This was due to a reallocation of existing resources.

Selling and marketing expenses

For the three months ending July 31, 2001, selling and marketing expense increased $13,000, or 18.6%, to $83,000, up from $70,000 for the same period of the prior year. The increase is due primarily to increased travel and expenses associated with developing new equipment customers.

Research and development

For the first three months ending July 31, 2001, research and development expenses decreased $23,000, or 62.1%, to $14,000. The decrease is due to a reduction in personnel required for research activities.

Interest expense

For the first three months ending July 31, 2001, interest expense increased $34,000, or 50.0%, to $102,000. This is a result of higher notes payable balances.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash balance decreased to $48,000 as of July 31, 2001 from $204,000 at April 30, 2001. Operations for the three months ended July 31, 2001, required cash of $247,000, an increase of $16,000, or 6.9%, when compared to the three months ended July 31, 2000. The $247,000 use of cash was caused by a net loss of $416,000, primarily offset by an increase in accounts payable of $171,000.

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. During the fiscal year ended April 30, 2001, the Company generated $1,060,000 from the private issuance of Notes payable. During the quarter ended July 31, 2001, the Company generated $100,000 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 July 31, 2001, the Company raised an additional $100,000 of capital using this long term Promissory Note. As of July 31, 2001, the Company has issued notes in the aggregate of $3,385,000. The Company anticipates using proceeds of equity offerings, additional extensions or other re-financing options to satisfy the notes.

The Company intends to satisfy its short-term (i.e., the next 12-month period) capital requirements using the proceeds of offerings of its equity securities and the issuance of additional notes. The Company is currently attempting to raise at least $2,000,000 through an offering of its convertible preferred stock. The exact terms of this offering have not been finalized. Longer-term capital needs are anticipated to be satisfied by additional proceeds of offerings of the Company’s equity and/or debt securities, improvements in operational cash flow, warrant exercise proceeds, and traditional credit facilities. There can be no assurance that at any time a sufficient market for the Company's equity offerings or debt financings will be available upon commercially reasonable terms, if at all.

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 1 to the Financial Statements).

PART II - OTHER INFORMATION

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)	The financial statements listed on the index set forth in Item 1 of this Quarterly report on Form 10-Q are filed as part of this Quarterly Report.

(b)	The following exhibits are incorporated by reference herein or annexed to this quarterly report:

3.1	Certificate of Incorporation of the Registrant.

3.2	Bylaws of the Registrant.*

10.1	Employment agreement dated March 1, 1997 by and between the Registrant and Charles M. Stimac, Jr.*

10.2	Form of Director Option Agreement dated October 30, 1998.

10.3	Amended 1995 Stock Option Plan.*

10.4	Amendment #1 to Employment agreement between the Registrant and Charles M. Stimac, Jr.

11.1	Statement regarding computation of per share earnings (see Financial Statements at Item 1 of this Quarterly Report on Form 10-Q).


*	Incorporated by reference to a similarly numbered exhibit to the registrant’s registration on form S-1 filed with the Commission on April 8, 1998.

(c)	Current reports on Form 8-K during the quarter ended July 31, 2001.

	During the first quarter of Fiscal 2002, the Company filed no reports on Form 8-K.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ABC Dispensing Technologies, Inc.


Date:	September 12, 2001	/s/ Charles M. Stimac, Jr.
		Charles M. Stimac, Jr.
		President/CEO

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