<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 1O-KSB
(Mark One)
|X|  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934.
For the fiscal year ended December 31, 2000
                          -----------------
                                       OR

|_|  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934.
For the transition period from          to
                              ---------    ---------

                         Commission file number: 0-21489

                      INTERNATIONAL DISPENSING CORPORATION
                      ------------------------------------
                 (Name of Small Business Issuer in Its Charter)
             Delaware                                       13-3856324
---------------------------------                  -----------------------------
  (State or Other Jurisdiction                           (I.R.S. Employer
of Incorporation or Organization)                       Identification No.)


I-97 Business Park, 1111 Benfield Blvd., Suite 230,
              Millersville, Maryland                              21108
---------------------------------------------------         ----------------
    (Address or Principal Executive Offices)                    (Zip Code)

                                 (410) 729-0125
          -------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section l2(b) of the Exchange Act:      None

Securities registered under Section l2(g) of the Exchange Act:
                     Common Stock, $.001 par value per share
                     ---------------------------------------
                                (Title of Class)

         Check whether the registrant: (1) filed all reports required to be
filed by Section 13 or l5(d) of the Exchange Act during the past 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. Yes
|X|No |_|

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB. |_|

        The registrant did not have any revenues for the fiscal year ended
December 31, 2000.

         The aggregate market value of the registrant's voting stock held by
non-affiliates computed by reference to the average bid and asked price of such
stock as of March 23, 2001 as reported on the National Association of Securities
Dealers OTC Bulletin Board was approximately $5,025,000. (Aggregate market value
has been estimated solely for the purposes of this report. For the purpose of
this report it has been assumed that all officers and directors of the
registrant are affiliates of the registrant. The statements made herein shall
not be construed as an admission for determining the affiliate status of any
person.)

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

   There were 9,728,396 shares of Common Stock outstanding as of March 23, 2001.

   Transitional Small Business Disclosure Format (check one):  Yes |_|  No |X|

   Documents Incorporated by Reference:  None


<PAGE>

THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS BOTH HISTORICAL AND "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. WORDS SUCH AS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS",
"FUTURE", AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. ANY SUCH
"FORWARD-LOOKING" STATEMENTS IN THIS REPORT REFLECT THE COMPANY'S CURRENT VIEWS
WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE, AND ARE SUBJECT TO A
VARIETY OF FACTORS THAT COULD CAUSE THE ACTUAL RESULTS OR PERFORMANCE TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR FROM THE ANTICIPATED RESULTS OR
PERFORMANCE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. BECAUSE OF
SUCH FACTORS, THERE CAN BE NO ASSURANCE THAT THE ACTUAL RESULTS OR DEVELOPMENTS
ANTICIPATED BY THE COMPANY WILL BE REALIZED OR, EVEN IF SUBSTANTIALLY REALIZED,
THAT THEY WILL HAVE THE ANTICIPATED RESULTS. THE RISKS AND UNCERTAINTIES THAT
MAY AFFECT THE COMPANY'S BUSINESS INCLUDE, BUT ARE NOT LIMITED TO: ECONOMIC
CONDITIONS, GOVERNMENTAL REGULATIONS, TECHNOLOGICAL ADVANCES, PRICING AND
COMPETITION, ACCEPTANCE BY THE MARKETPLACE OF NEW PRODUCTS, RETENTION OF KEY
PERSONNEL, THE SUFFICIENCY OF FINANCIAL RESOURCES TO SUSTAIN AND EXPAND THE
COMPANY'S OPERATIONS, AND OTHER FACTORS DESCRIBED IN THIS REPORT AND IN PRIOR
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS SHOULD NOT PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF, AND SHOULD BE AWARE THAT EXCEPT AS MAY BE OTHERWISE LEGALLY
REQUIRED OF THE COMPANY, THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE
ANY SUCH FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT MAY
ARISE AFTER THE DATE HEREOF.

                                     PART I
ITEM 1.  DESCRIPTION OF BUSINESS.


PRODUCTS AND TECHNOLOGIES

International Dispensing Corporation (the "Company"), designs and manufactures
proprietary packaging and dispensing solutions for flowable foods, beverages,
pharmaceuticals and non-food products. The Company's innovative packaging
solutions are derived from two sources. First, the Company has licensed in
perpetuity on a royalty-free basis a portfolio of patents relating to technology
that can be used for food and beverage applications worldwide. Second, the
Company has developed and filed for patent protection on three new technologies.
The Company's new dispensing and packaging technologies are a Gravity Flow Valve
("GFV"), Fresh Flow System and Beverage Carafe. The Company is seeking to market
its new technologies across the flowable food, beverage, pharmaceutical and
non-food packaging and dispensing categories. The Company anticipates that the
GFV and Beverage Carafe will generate revenues in the second half of 2001. The
Company is also in the process of completing development of a portion control
pump (the "Portion Control Pump") that is a derivative of the GFV. The Portion
Control Pump is in the first phase of a three phase development cycle.

The Company's proprietary packaging solutions can be adapted to three distinct
packaging platforms: flexible packaging, rigid packaging and fountain dispensing
systems. These platforms deliver an array of products, including dairy, juice,
coffee, tea, and non-carbonated beverage concentrates, pharmaceuticals and
nonfood products. The Company was incorporated under the laws of Delaware in
October 1995.

FLEXIBLE PACKAGING

Flexible packages typically use a plastic bag or pouch that may contain flowable
foods or non-carbonated beverages, pharmaceuticals or nonfood products.

The GFV is a proprietary, disposable gravity flow valve that offers food,
beverage and pharmaceutical products an aseptic (free from microorganisms),
tamper-evident, dispensing solution. The GFV has been designed and manufactured
to withstand 5 mega-rads of irradiation and temperatures of 280 degrees
Fahrenheit in the steam sterilization process. The GFV has been designed to fit
on either a flexible bag or pouch and provide a flowable food, beverage or


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pharmaceutical product with a tamper evident safety seal, closure and an aseptic
dispensing mechanism. The GFV is unique because it can withstand the rigors of
the aseptic filling process and once fitted to a bag or pouch will maintain the
sterility of a commercially sterile or aseptic product contained in the bag or
pouch.

The GFV is unique because it can be customized to meet an array of product
specifications and applications. The GFV can be manufactured to provide an
increased or decreased flow rate depending upon the product requirements. For
example, for a milk or cream dispenser the GFV can be manufactured to deliver
one ounce per second or for a juice dispenser the GFV can be customized to
deliver three ounces per second. The GFV's components and materials were
carefully selected to accommodate a wide range of filling and dispensing
temperatures as well as FDA requirements. The GFV can be adapted to fit onto a
variety of bags or pouches depending upon the customer's preference.

The GFV represents a major packaging innovation for the flexible packaging
industry. This innovation will open new markets for makers of flexible bags and
pouches. The Company's new GFV dispensing technology will enable non-preserved,
aseptic and commercially sterile flowable foods and non-carbonated beverages to
be safely dispensed from flexible bags and pouches. The GFV offers non-preserved
products three packaging benefits: an aseptic closure; an aseptic dispensing
system; and a tamper-evident closure. The GFV is designed with oxygen and
bacteria barriers that maintain the quality standards of the product during the
shipping, product handling and the dispensing phases of a product's life cycle.
The GFV eliminates the need for secondary handling of food and beverage
products, reduces the risk of product contamination and improves product yields.

Leading national and regional food, beverage and nonfood companies as well as
leading flexible packaging and fitment companies are currently evaluating and
testing the GFV. The Company anticipates that the GFV will generate revenue in
the second half of 2001.

RIGID PACKAGING

Rigid packaging typically is constructed of a plastic material that holds
non-carbonated beverages and flowable foods, including nacho cheese, salad
dressings, yogurts, puddings, sauces and condiments. The Company is working to
complete the development of the Portion Control Pump that would safely dispense
flowable foods in predictable quantities from either a flexible or rigid
package. The Portion Control Pump also helps maintain product freshness and is
designed to work with the characteristics of specific products such as
viscosity, particulate and portion size.

The Company has met with several major food and beverage manufacturers and
expects to manufacture the Portion Control Pump in commercial quantities once a
final contract is entered into with a customer for a specific product
application.

DISPENSING SYSTEMS

The majority of non-carbonated beverages dispensing systems currently rely on
peristaltic pumps to evacuate products from a plastic bag or pouch. (A
peristaltic pump is either a mechanical or electrical positive displacement
device that is embedded in a dispensing system.) The current technology limits
the range of non-carbonated beverages that can be dispensed through a post-mix
unit. The Company has developed an innovative technology called the Fresh Flow
System that evacuates non-carbonated beverage concentrates from a plastic bag or
pouch without using a peristaltic pump.


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The Company's new technology expands the variety of non-carbonated beverages
that can be dispensed by post-mix equipment. By utilizing the Fresh Flow System,
a dispensing equipment manufacturer will have the opportunity to benefit from
its exclusive sale to end users of flexible bags or pouches that incorporate the
Fresh Flow System.

The Company is presently in discussions with leading beverage companies and
mid-sized dispensing equipment manufacturers. To effectively commercialize the
Fresh Flow System the Company must team with either a beverage Company and/or a
dispensing equipment manufacturer.

BEVERAGE CARAFE

The Company is manufacturing a disposable Beverage Carafe that can safely
transport up to 96 ounces of a hot or cold non-carbonated beverage and maintain
the temperature of the beverage for up to 2.5 hours. According to the National
Coffee Association, approximately 124 million cups of coffee are sold daily and
approximately 75% of that beverage is served "away from home". The disposable
Beverage Carafe allows consumers, food service providers and convenience outlets
to safely transport 96 ounces of a hot or cold beverage (8 to 10 cups of
coffee). The Company's Beverage Carafe package design is also under review by
Non-Food Companies as a carrier for non-food applications such as anti-freeze,
motor oil, transmission oil, pet food and windshield wiper fluid. The benefit of
the Company's package design for non-food applications is the significant
reduction in bulk waste versus current non-food packaging.

The Company is in discussions with potential customers that include specialty
coffee retailers, food service providers, convenience outlet retailers, beverage
companies and non-food companies. The Company anticipates that the Beverage
Carafe will generate sales revenues in the second half of 2001.

MARKETING FOCUS

The Company has developed a three-pronged marketing strategy. The first
dimension of the strategy is directed toward leading food, beverage and
pharmaceutical companies. These marketing efforts are focused across three types
of companies: national, international, as well as small to mid-sized regional
companies. The Company is offering potential customers a packaging and
dispensing innovation that will allow them to accelerate topline growth and
expand market penetration of aseptic, commercially sterile or non-preserved
products. The GFV will allow 100% juice beverages, aseptic dairy products,
neutracuticals, and other non-preserved flowable foods and non-carbonated
beverages to be dispensed from a flexible bag or pouch.

The second dimension of the strategy is directed toward leading food service
companies and the restaurant industry. The food service and restaurant industry
is demanding that food and beverage companies offer packaging and dispensing
innovations that guarantee product quality and food safety across the supply
chain. The GFV offers the food service and restaurant industry a turnkey
aseptic, tamper evident dispensing solution.

The third dimension in the Company's strategy is a low cost, B2B e-commerce
strategy that connects the Company to potential customers worldwide via the
Internet. The Company has received permission and has linked the Company's web
site (www.idcdispensing.com) with multiple packaging auction and packaging
network web sites. Web sites such as Packaging Network.com, Packaging
Strategies.com as well as other food, beverage, grocery, chemical and
pharmaceutical web sites offer the Company the opportunity to post the Company's
product specifications and capabilities. The Company believes that this low cost
B2B e-commerce strategy has created awareness of the Company's products and
capabilities worldwide.


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The Company is also engaged in the direct selling and marketing of its products
and technology to food, beverage, pharmaceutical and nonfood companies as well
as selling to the food service and restaurant industry. The Company has
participated in several Trade Shows in 2000 such as International Food &
Beverage Expo, Packaging Expo, Wine Expo, International Beverage Expo,
Convenience Outlet Show, Coffee & Specialty Retailers Expo, Cosmetic Expo, and
Restaurant & Food Service Expo. The Company has shared booth space in 2000 with
a leading packaging company and a dairy producer.

The Company believes that the increased emphasis placed by its potential
customers on product quality and product safety in the distribution and
dispensing process will present to the Company growing marketing opportunities.
The Company's products and technology have the capability to offer customized,
cost-effective dispensing solutions for flowable foods, non-carbonated
beverages, pharmaceuticals and non-food products.

In 2000, more than half of every dollar spent on a food or beverage product was
consumed "on the go" or "away from home". As the away from home consumption rate
accelerates, food and beverage companies continue to source new technologies
that will allow them to control product quality from the point of manufacture
through the distribution process and service phase. The Company has met with
leading food and beverage companies to discuss how to safely distribute and
dispense their products using plastic bags and/or pouches. The Company is
working to form alliances with these national and regional food and beverage
companies to incorporate the Company's technologies into their filling
processes.

The Company is also engaged in the direct selling and marketing of its products
and technology to large and small, national and regional packaging and
dispensing companies that specialize in flexible food and beverage packaging.
Packaging and dispensing companies are looking for leading edge products and
technologies that will provide them with product safety and product quality
dispensing solutions that are cost-effective.

The Company's products are designed to be bundled with the current products and
technologies of its potential packaging and dispensing customers in order to
provide a fully integrated, turn-key solution to the food, beverage,
pharmaceutical and nonfood industries. The Company is in the process of working
with several packaging and dispensing companies to determine the best strategic
fit. The benefit of forming strategic alliances with packaging and dispensing
companies is the opportunity to deliver innovative, cost-effective solutions
faster. The alliance will permit all participants to share technology, reduce
costs and produce packaging solutions that deliver beyond the customers
expectations.

With a non-disclosure and non-compete agreement in place, the Company is engaged
in discussions with potential customers and potential strategic partners in
order to adapt the Company's technologies to specific product requirements.
Customers or strategic alliance partners may choose to take a more active role
in adapting the Company's technologies to their specific product. In that case,
a portion of the costs of adapting the technologies to a particular application
may be borne by the customer or strategic alliance partners. The particular
relationship between the customer and the Company will vary depending on each
party's resources and needs. Therefore, in commercializing the technologies, the
Company may use a variety of structuring and cost sharing alternatives.

COMPETITION AND TRENDS IN THE PACKAGING AND DISPENSING INDUSTRY

The Company's competitors are large, well financed, national and international
manufacturers of alternative valves, pumps and dispensing systems for flowable
foods, non-carbonated beverages, pharmaceuticals, cosmetics and nonfood
products. Competing technologies are generally five to twenty years old and the
market requirements have changed dramatically in the past 3 years. For example,
in the flowable food and beverage industry, the market leaders developed


                                       5
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dispensing valves that were not designed or manufactured to withstand 5.0 mega
rads of irradiation or a 280 degree steam sterilization process. Competitors
have invested millions in multi-cavity tooling and automated assembly equipment
and those investments are geared to the current technologies.

The Company's major competitors include David S. Smith and Smurfit-Stone each of
which the Company believes has greater capital resources than the Company.

PRODUCT DEVELOPMENT

The Company has significantly changed its approach to product development,
manufacturing, and its testing methodology in the past two years. The first
changes took place in fourth quarter of 1999 and continued to evolve through
2000. The Company has made a commitment to outsource it's engineering, testing
and manufacturing capabilities in order to maintain low overhead costs.

The Company spent approximately $413,700 on research, testing and product
development activities during fiscal 2000. The cost was associated with the
development of the GFV, Beverage Carafe, Fresh Flow System and Portion Control
Pump.

The Company plans to retain the services of a nationally and internationally
recognized testing facility that is accredited by the FDA and NSF. The
accredited testing laboratory will provide consulting services, testing and
validation for the Company's development efforts.

EMPLOYEES

As of February 22, 2001, the Company employed two people, one as its Chief
Executive Officer and one as an office manager. Both persons were employed on
full-time basis.

BUSINESS CONSULTING TEAM

As of February 22, 2001, the Company has retained the business consulting
services of several people: a Controller, Director Product Development, Director
of Engineering, Microbiologist and a Director of Communications & Strategic
Planning. The Company also retains the legal services of two law firms to
oversee the Company's contracts, patents and licensing affairs.

THE LICENSE AGREEMENT

Pursuant to an Amended and Restated License Agreement with an effective date of
October 10, 1995 (the "License Agreement") with ReSeal International
Corporation, a Florida corporation ("RIC"), the Company paid to RIC an aggregate
of $4,000,000 and issued to RIC an aggregate of 2,900,000 shares of the
Company's Common Stock, par value $.001 per share ("Common Stock"), in exchange
for an exclusive worldwide royalty-free license to (i) directly or indirectly
make (or subcontract to make), use, sell and otherwise commercially exploit
certain technologies, solely in the Field of Use (as defined below) and (ii)
grant sublicenses to affiliated and non-affiliated third parties, solely in the
Field of Use, provided, however, that the Company shall not be permitted to
sublicense the right to manufacture patented unidirectional flow valves licensed
under the License Agreement (the "Valve Assemblies"). "Field of Use" means the
use of the licensed technologies to make, use, lease, sell or distribute (a) any
food or beverage dispensers or containers that embody the technologies or the
manufacture, use, lease, sale or distribution of which uses the technologies
(collectively, the "Product") intended for use in an industrial or commercial
place of business in the preparation of food


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or beverage at such place of business, (b) any food or beverage Product intended
for use in an industrial or commercial place of business by a customer
purchasing food or beverage at such place of business for consumption on or off
the premises of such place of business, or (c) any food or beverage Product
intended to be sold to or by food or beverage wholesale price discounters,
retailers and similar establishments that sell food or beverage to consumers.

Under the License Agreement, the Company is primarily responsible for all
research and development activities necessary to exploit fully the commercial
possibilities of the technologies. The research and development activities
include testing of proposed products and ongoing technical support for the
modification, improvement, enhancement, development or variation of existing
products and the development of new products. RIC is responsible for causing
ReSeal International Limited Partnership ("RILP"), RIC's licensor and parent
Company, to manage all intellectual property associated with the licensed
technologies, including patents and trademarks, to maximize its commercial
potential. This obligation includes the prosecution of all patent and trademark
applications, subject to the Company's approval of budgets and expenditures in
advance, and, in the sole discretion of RIC (or upon receipt by RIC of the
Company's commitment to pay 100% of the related reasonable costs and expenses),
all suits against third parties for infringement of patents or trademarks. If
RIC or RILP is unwilling or unable to undertake such patent obligations, then
the Company is authorized to undertake such obligations on its own behalf.

The License Agreement may not be assigned by either party thereto without the
express written consent of the other party, except that the Company may
sublicense applications of the licensed technologies within the Field of Use at
its own discretion and may subcontract, but not sublicense, for the
manufacturing of components incorporating the licensed technologies in the Field
of Use.

PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY

The Company developed three new products in 2000 and has filed applications for
patent protection on such products. The three patent applications cover
technologies that are outside of the RIC License Agreement. The Company's new
products are the GFV, Beverage Carafe and Fresh Flow System. Once the final
design and functional test are completed for the Portion Control Pump the
Company also plans to file for patent protection on such product.

Under the License Agreement, RIC has granted to the Company a license to use
certain patents which RIC in turn licenses from RILP, the owner of such patents.
The License Agreement includes a license to the Company to use certain
trademarks RIC licensed from RILP, which the Company believes to be immaterial.
These patents encompass a broad range of delivery and dispensing technologies
and product applications for food and beverages.

The following sets forth a summary of key patents.

1.       A valve  assembly for a container  permitting the easy  dispensing of
         fluid while  preventing  backflow of  contaminants through the valve
         assembly  into the container holding the remaining fluid.  U.S. Patent
         No. Re. 34,243  (Expiration Date:  July 11, 2006).

2.       An enclosing  sleeve for a one-way valve which presses an  elastomeric
         sheath  against the valve body to provide a seal between  the sheath
         and the valve  body.  In addition,  the sleeve can form a closure over
         the outlet end of the valve body protecting it from contamination or
         contact with contaminating surfaces.  U.S. Patent No. 5,092,855
         (Expiration Date:  March 3, 2009)


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3.       An elastomeric sleeve stretched over the valve body with ring-shaped
         enlargements on each end forming "molded o-rings" in tight sealed
         contact to the valve body.  U.S. Patent No. 5,305,783 (Expiration Date:
         April 26, 2011)

4.       A fluid dispensing unit which includes a collapsible reservoir with a
         one-way valve at its outlet for directing flow into a metering chamber.
         The metering chamber has an outlet connected to another one-way valve,
         which  prevents backflow of contaminants into the container after fluid
         is dispensed.  Both the collapsible reservoir and the metering chamber
         can be completely collapsed to ensure that the dispensing unit is
         completely  empty.  U.S. Patent No. 5,279,447 (Expiration Date: January
         18, 2011)

5.       A disc shaped valve body enclosed circumferentially by an  elastomeric
         membrane.  Fluid flows through separate passageways between the
         circumferential edge of the valve body and the elastomeric
         membrane.U.S.  Patent No. 5,279,330 (Expiration Date:  January 18,
         2011)

6.       A one-way valve assembly with a cover member, which encloses an
         expandable elastomer, sleeves and valves body and which presses the
         sleeve into fluid-tight contact with the valve body at two axially
         spaced locations.  U.S. Patent No. 5,305,786 (Expiration Date:  April
         26, 2011)

7.       A dispenser with two separate collapsible chambers, each holding a
         component or substance to be mixed before use with at least one
         component being in a flowable condition. A one-way valve permits flow
         of the flowable component into the other chamber and prevents any
         backflow, thereby providing the dispensing of a mixture having a short
         use lifetime where the components of the mixture are capable of being
         stored separately for an extended period. U.S. Patent No.
         5,353,961 (Expiration Date:  October 11, 2011)

8.       An embodiment that replaces the tubular or disc shaped valve core with
         a flat valve platform more appropriate for higher speed and lower cost
         manufacturing.  The elastomeric sheath can be executed as a flat sheet
         from roll stock. A housing component protects the sheath while
         providing the necessary sealing and resistance  needed for  successful
         functioning. U.S. Patent No. 5,613,517 (Expiration Date:  March 25,
         2014)

9.       A one-way vacuum actuated sheath valve with a flat elastic membrane
         held in tension over a convex valve platform under a conforming cover
         with inlet and outlet channels.  The cover includes an expansion area
         on the cover surface adjacent to the membrane and between the inlet and
         outlet.  Liquid flows  through the valve when a vacuum draws it. The
         vacuum operates on both the flow path exit, but also above the
         membrane,  lifting it to open the flow path.  Discontinuance  of the
         vacuum allows the membrane to seal the inlet and outlet,  thus again
         preventing any flow between them.  U.S. Patent No. 5,673,251
         (Expiration Date:  August 24, 2014)

ITEM 2.  DESCRIPTION OF PROPERTY.

The Company currently leases approximately 3,825 square feet of space for its
principal executive office at I-97 Business Park, 1111 Benfield Boulevard,
Millersville, Maryland 21108. The term of the lease expires on September 30,
2005. The monthly rental on this property is currently approximately $5,419. On
September 30, 2001 and annually thereafter the rent shall increase by 3%.
Management believes that this facility is adequate for the Company's intended
activities in the foreseeable future.


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<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

In March 2000 Hirata Corporation and Hirata Corporation of America commenced a
lawsuit against the Company in the United States District Court for the Southern
District of Indiana alleging that the Company had conspired with and aided and
abetted two other defendants in connection with certain violations of the
Indiana Securities Act. The plaintiffs claimed that they had suffered losses as
a result of investments made in the Company through the purchase of securities
in the Company's initial public offering in 1996. On June 16, 2000 the Southern
District Court of Indiana entered a default judgment against the Company.

In February 2001, the parties entered into a settlement agreement pursuant to
which the Company paid the plaintiffs a nominal amount and the plaintiffs agreed
to vacate the judgment, dismiss the lawsuit and not to sue the Company in the
future with respect to the matters alleged in the lawsuit.

In or about January 2000, Nologies, Inc. ("Nologies"), a former consultant to
the Company based in Hartford, Connecticut, commenced an arbitration proceeding
against the Company before the American Arbitration Association in Hartford,
Connecticut. Nologies sought an extension of time to exercise certain stock
options granted to it (the exercise period had expired), $18,000 allegedly due
for unpaid consulting fees, and approximately $10,300 in reimbursable expenses.
Prior to the arbitration hearing, the parties reached a settlement in which the
Company paid Nologies $20,000 in full settlement of all claims, including any
claim for stock options.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the fourth quarter of the Company's fiscal year ended December 31, 2000,
no matter was submitted to a vote of security holders of the Company.

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Since the consummation of the Company's initial public offering on October 23,
1996 (the "IPO"), the Company's Common Stock has been traded and quoted under
the symbol IDND on the OTC Bulletin Board. The following table sets forth the
high and low bid prices for the Common Stock, as quoted on the OTC Bulletin
Board, for the periods indicated. Quotations are inter-dealer prices without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.


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                                                  High              Low
                                                  ----              ---
   Quarter ended March 31, 1999                   $1.00            $0.47

   Quarter ended June 30, 1999                    $0.63            $0.22

   Quarter ended September 30, 1999               $0.53            $0.25

   Quarter ended December 31, 1999                $1.13            $0.17

   Quarter ended March 31, 2000                   $1.25            $0.75

   Quarter ended June 30, 2000                    $0.91            $0.28

   Quarter ended September 30, 2000               $0.89            $0.19

   Quarter ended December 31, 2000                $0.83            $0.31


As of March 6, 2001, the Company had 61 holders of record of its Common Stock.
The Company believes that a significant number of shares of the Company's Common
Stock are held in street name and, consequently, it is unable to determine the
actual number of beneficial owners.

Since its inception, the Company has not paid any cash dividends on its Common
Stock. The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and accordingly does not plan, for the reasonably
foreseeable future, to pay cash dividends to holders of the Common Stock. Any
decisions as to the future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Company's Board
of Directors deem relevant.

The Company also has outstanding 3,241,668 Class A Warrants. Each Class A
Warrant originally entitled the holder to purchase one share of Common Stock.
The original price for the Common Stock which would be purchased upon exercise
of a Class A Warrant was $7.00 per share. The exercise price and the number of
shares of Common Stock which may be purchased upon exercise of a Class A Warrant
have been adjusted from time to time pursuant to the anti-dilution provisions of
the Class A Warrants. As of March 24, 2001 the exercise price was approximately
$5.21 per share and each Class A Warrant entitled the holder thereof to purchase
approximately 1.34 shares of Common Stock. The Class A Warrants may not be
exercised after October 3, 2001. The Company has determined that it will not
extend the exercise period beyond October 3, 2001.

RECENT SALES OF UNREGISTERED SECURITIES

On February 22, 2000, the Company sold an aggregate of 440 shares of the
Company's Series B Redeemable Convertible Preferred Stock, par value $.001 per
share ("Series B Stock"), for an aggregate purchase price of $880,000. The
entire purchase price for the Series B Stock was paid for in cash. There were no
underwriters with respect to this transaction. Each share of Series B Stock is
convertible at the holder's option into approximately 8,700 shares of Common
Stock of the Company, plus additional shares of Common Stock for accrued but
unpaid dividends at the conversion rate of $.35


                                       10
<PAGE>

per share. The Company believes that the Series B Stock was issued in
transactions not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

On April 26, 2000, the Company issued to a consultant 100,000 shares of Common
Stock for services rendered to the Company. The Company believes that the Common
Stock was issued in a transaction not involving a public offering in reliance
upon an exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended.

On August 22, 2000 and December 1, 2000, the Company sold an aggregate of 350
shares of the Company's Series C Redeemable Convertible Preferred Stock, par
value $.001 per share ("Series C Stock") and warrants to purchase an additional
400 shares of Series C Stock, for an aggregate purchase price of $700,000. The
entire purchase price for the Series C Stock was paid for in cash. There were no
underwriters with respect to these transactions. Each share of Series C Stock is
convertible at the holder's option into approximately 6,670 shares of Common
Stock of the Company, plus additional shares of Common Stock for accrued but
unpaid dividends at the conversion rate of $.30 per share. The warrants entitle
the holder to purchase Series C Stock for a price of $2,000 per share. The
Company believes that the Series C Stock and warrants were issued in
transactions not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

On December 18, 2000 the Company issued to two consultants warrants to purchase
25,000 and 125,000 shares of Common Stock, respectively. The warrants are
exercisable through December 31, 2008 at an exercise price of $.19 per share.
The warrants were issued as compensation for services rendered to the Company by
such consultants. The Company believes that the warrants were issued in
transactions not involving public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion and analysis should be read in conjunction with the
Company's financial statements, beginning on Page 15 and financial information
included elsewhere in this report.

The Company designs and manufactures proprietary packaging and dispensing
solutions for flowable foods, beverages, pharmaceuticals and non-food products.
The Company's innovative packaging solutions are derived from two sources.
First, the Company has licensed in perpetuity on a royalty-free basis a
portfolio of patents relating to technology that can be used for food and
beverage applications worldwide. Second, the Company has developed and filed for
patent protection on three new technologies. The Company's new dispensing and
packaging technologies are the GFV, Fresh Flow System and Beverage Carafe. The
Company is seeking to market its new technologies across the flowable food,
beverage, pharmaceutical and non-food packaging and dispensing categories. The
Company anticipates that the GFV and Beverage Carafe will generate revenues in
the second half of 2001. The Company is also in the process of completing
development of a portion control pump (the "Portion Control Pump") that is a
derivative of the GFV. The Portion Control Pump is in the first phase of a
three-phase development cycle.

The Company is undertaking the formation of strategic alliances and/or direct
license and/or supply agreements with major food and beverage companies, as well
as, applicable equipment manufacturers, converters and injection molders that
are currently generating substantial revenues from their existing markets.

The Company is subject to a number of risks including the Company's lack of
prior operating history. The Company is also subject to the availability of
sufficient financing to meet its future cash requirements and the uncertainty of
future product development and regulatory approval and market acceptance of
existing and proposed products. In the event


                                       11
<PAGE>

of the bankruptcy of RIC, the status of the continuing obligations of the
various parties to and under the License Agreement is unclear since a court in a
bankruptcy proceeding may not enforce such continuing obligations. Additionally,
other risk factors such as loss of key personnel, lack of manufacturing
capabilities, difficulty in establishing new intellectual property rights and
preserving and enforcing existing intellectual property rights as well as
product obsolescence due to the development of competing technologies could
impact the future results of the Company.

RESULTS OF OPERATIONS

The Company has not generated any revenues to date and must be considered to be
in the development stage. The activities of the Company since inception in
October 10, 1995 have been primarily directed at formational activities,
including the completion of initial capitalization, research and development and
pre-production marketing.

The Company has engaged in on-going marketing discussions with a number of
potential customers and strategic alliance partners potential licensors. In this
regard, discussions have been conducted with major companies in Canada, Europe,
Australia and the United States to explore sales and marketing opportunities.

For the twelve months ended December 31, 2000, the Company had operating
expenses of $1,687,728 versus operating expenses of $1,747,754 for the twelve
month period ended December 31, 1999. The decrease of $60,026 or 3% over the
comparable period last year is primarily due to a decrease in headcount,
decrease in operating expenses and a decrease in the Company's research and
development expenditures due to the completion of the product development
activities associated with the GFV and Beverage Carafe.

For the twelve months ended December 31, 2000, the Company had a net loss of
$1,667,734 versus a net loss of $1,702,108 for the twelve months ended December
31, 1999. This decrease in net loss of $34,374, or 2% over the comparable period
last year was due to decreased operating expenses in 2000.

From inception (October 10, 1995) to December 31, 2000, the Company has incurred
a net loss from continuing and/or discontinued operations of $8,005,802. The
Company's development stage activities have resulted in an accumulated deficit
from inception to December 31, 2000 in excess of $12,005,802. Losses are
continuing as efforts to market its products have yet to result in revenue.

FINANCIAL CONDITION

As reflected in the financial statements, the Company has experienced continuing
net losses and negative cash flows from operations through December 31, 2000.
The Company's continuing existence is dependent on its ability to achieve and
maintain profitable operations. The Company continues to be in the development
stage and does not anticipate generating any operating revenue until at least
the third quarter of the fiscal year ending December 31, 2001 ("Fiscal 2001"),
at which time, it may be in a position to generate revenue from sales of its
products.

As of February 22, 2001, the Company had working capital of approximately
$285,217 and anticipates that it will issue an additional $1,200,000 in
preferred stock in a private placement to certain investors. The Company
anticipates that during Fiscal 2001, the Company will be spending at an average
rate of approximately $100,000 per month, which represents a $40,000, decrease
per month in operating expenses compared to the fiscal year ended December 31,
2000.

The Company is currently studying alternatives under which the Company may raise
additional funds. The Company expects that it will need an additional $3,000,000
to $4,000,000 for the two-year period commencing in the third


                                       12
<PAGE>

quarter of Fiscal 2001. If the Company is not able to obtain additional funds on
terms and conditions satisfactory to the Company, the Company will have to scale
back its on-going product development and product commercialization activities.
Ultimately, the Company's ability to continue as a going concern is dependent
upon its ability to sell its new products (see Note 2 of Notes to Financial
Statements).

ITEM 7.    FINANCIAL STATEMENTS.
         See the financial statements and notes related thereto.





                      INTERNATIONAL DISPENSING CORPORATION

<TABLE>
<CAPTION>

TABLE OF CONTENTS                                                                      Page

<S>                                                                                     <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                14

FINANCIAL STATEMENTS:
    Balance Sheet as of December 31, 2000                                               15

    Statements of Operations for the Years Ended December 31, 2000 and 1999 and
       for the Period from Inception (October 10, 1995)
       Through December 31, 2000                                                        16

    Statements of Cash Flows for the Years Ended December 31, 2000 and 1999 and
       for the Period from Inception (October 10, 1995)
       Through December 31, 2000                                                        17

    Statements of Changes in Stockholders' Equity (Deficiency) for the
       Period from October 10, 1995 (Inception) Through December 31,
       1995 and for the Years Ended December 31,2000,1999, 1998, 1997 and 1996          19

NOTES TO FINANCIAL STATEMENTS                                                           21

</TABLE>

         December 31, 2000 and 1999




                                       13
<PAGE>









REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
International Dispensing Corporation:

We have audited the accompanying balance sheet of International Dispensing
Corporation (a Delaware corporation in the development stage) as of December 31,
2000, and the related statements of operations and cash flows for the years
ended December 31, 2000 and 1999, and for the period from inception (October 10,
1995) through December 31, 2000, and the statements of stockholders' equity
(deficiency) for the period from inception (October 10, 1995) through December
31, 1998, and for the years ended December 31, 2000 and 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of International Dispensing
Corporation as of December 31, 2000, and the results of its operations and its
cash flows for the years ended December 31, 2000 and 1999, and for the period
from inception (October 10, 1995) through December 31, 2000, in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has had a significant deficit accumulated during the development stage that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
                                                         /s/ Arthur Andersen LLP

Baltimore, Maryland
February 22, 2001




DSN:114866.1
                                       14
<PAGE>

                      INTERNATIONAL DISPENSING CORPORATION
                          (a development stage company)

                                  BALANCE SHEET
                                DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                                           ASSETS


CURRENT ASSETS:
<S>                                                                                                      <C>
    Cash and cash equivalents .......................................................................... $  418,758
    Prepaid expenses ...................................................................................     31,342
                                                                                                         -----------
                 Total current assets..................................................................     450,100
                                                                                                         -----------

FIXED ASSETS:
    Office equipment ...................................................................................     75,000
     Production equipment for future use ................... ..........................................     397,427
                                                                                                         -----------
             Fixed assets, gross......................................................                      472,427
Accumulated depreciation..........................................................................          (17,447)
                                                                                                         -----------
                 Fixed assets, net .....................................................................    454,980
                                                                                                         -----------

OTHER ASSETS ...........................................................................................      3,447
                                                                                                         -----------
                 Total assets .......................................................................... $  908,527
                                                                                                         ===========

           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
   Accrued expenses ...................................................................................     130,527
                                                                                                         -----------
                 Total current liabilities.............................................................     130,527
                                                                                                         -----------

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY (DEFICIENCY):
    Preferred stock, $.001 par value; 2,000,000 shares authorized, 1,350
       shares issued and outstanding .....................................................................2,971,601
    Common stock, $.001 par value; 40,000,000 shares authorized,
       9,666,668 shares issued and outstanding .........................................................      9,667
    Additional paid-in capital .........................................................................  9,692,585
    Warrants outstanding.....................................................................               109,949
    Deficit accumulated during the development stage ...............................                    (12,005,802)
                                                                                                        ------------
                 Total stockholders' equity ............................................................    778,000
                                                                                                        ------------
                 Total liabilities and stockholders' equity ............................................$    908,527
                                                                                                        ============
</TABLE>

       The accompanying notes are an integral part of this balance sheet.


                                       15
<PAGE>


                      INTERNATIONAL DISPENSING CORPORATION
                          (a development stage company)

                            STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
                        AND FOR THE PERIOD FROM INCEPTION
                  (OCTOBER 10, 1995) THROUGH DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                                   Period
                                                                                                  from Inception
                                                                                                  (October 10,
                                                                                                       1995)
                                                                      Years Ended December 31,  Through December 31,

                                                                          2000           1999          2000
                                                                         ------         ------        ------

<S>                                                                 <C>              <C>           <C>
REVENUES .......................................................... $        --      $      --     $      --
COSTS AND EXPENSES:
    General and administrative ...................................    1,675,228      1,740,163     7,244,631
    Depreciation and amortization ................................       12,500          7,591        36,547
                                                                      ----------     ----------    ----------
                 Total costs and expenses ..........................  1,687,728      1,747,754     7,281,178

                 Loss from operations .............................  (1,687,728)    (1,747,754)   (7,281,178)

INTEREST EXPENSE ...................................................         --             --       (66,665)

INTEREST AND OTHER INCOME ..............................                 19,994          45,646      435,968
                                                                      ----------     -----------   ----------
                Net loss before extraordinary loss and
                    discontinued operations .........................(1,667,734)     (1,702,108)  (6,911,875)

EXTRAORDINARY LOSS ON RETIREMENT OF DEBT ... .......................         --              --     (250,000)

LOSS FROM DISCONTINUED OPERATIONS .............. ..................          --              --     (843,927)
                                                                      ----------     -----------   ----------
                 Net loss ......................................     (1,667,734)     (1,702,108)  (8,005,802)

PREFERRED STOCK DIVIDENDS                                               271,601              --      271,601
                                                                      ----------     -----------   ----------
           Net loss available to common shareholders                $(1,939,335)    $(1,702,108) $(8,277,403)
                                                                      ==========     ===========   ==========
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS ...............                          $      (.20)    $      (.18)

BASIC AND DILUTED LOSS PER COMMON SHARE
FROM DISCONTINUED OPERATIONS .............                                 (.00)           (.00)
                                                                     -----------     -----------
BASIC AND DILUTED LOSS PER COMMON SHARE                             $      (.20)    $      (.18)
                                                                     ===========     ===========
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING ............                                9,634,887        9,566,668
                                                                     ===========     ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       16
<PAGE>

                      INTERNATIONAL DISPENSING CORPORATION
                          (a development stage company)

                            STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND FOR
     THE PERIOD FROM INCEPTION (OCTOBER 10, 1995) THROUGH DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                                          Period from
                                                                                                           Inception
                                                                          Years Ended December 31,       (October 10,
                                                                          ------------------------       1995) Through
                                                                                                          December 31,
                                                                               2000          1999             2000
                                                                               ----          ----             ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                      <C>            <C>               <C>
    Net loss ........................................................... $ (1,667,734)  $ (1,702,108)     $ (8,005,802)
    Deduct loss from discontinued operations ................               --                  --             843,927
                                                                         ------------   -------------     -------------
                 Net loss from continuing operations..........             (1,667,734)    (1,702,108)       (7,161,875)
    Adjustments to reconcile net loss to net cash used in
       operating activities-
          Depreciation and amortization ..........................             12,500           7,591           36,547
          Compensation from stock grants .........................                 --              --           25,279
          Noncash compensation .........................................      178,949          10,961          266,148
          Loss on retirement of debt ...................................           --              --          250,000
          Changes in operating assets and liabilities-
               Decrease (increase) in prepaid expenses ..............         (16,603)         28,806          (31,342)
               Decrease (increase) in other assets .....................       23,200           3,386           (3,447)
              (Decrease) increase in accounts payable .............          (175,801)        156,010               --
              (Decrease) increase in accrued expenses .....................    78,706         (20,685)         100,087
                                                                         ------------   --------------     ------------
                 Net cash used in continuing operations .......            (1,566,783)    (1,516,039)       (6,518,603)
          Net cash used in discontinued operations                                 --             --          (843,927)
                                                                         ------------   --------------     ------------
                 Net cash used in operating activities ..........          (1,566,783)    (1,516,039)       (7,362,530)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of fixed assets ...........................................      (10,781)      (458,166)         (491,527)
    Purchase of license ................................................           --             --        (4,000,000)
                                                                         ------------   --------------     ------------
                 Net cash used in investing activities .........              (10,781)      (458,166)       (4,491,527)
                                                                         ------------   --------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of preferred stock .............                 1,580,000      1,120,000         2,700,000
    Proceeds from private placement ................................               --             --         2,100,000
    Proceeds from issuance of convertible debt ..................                  --             --           150,000
    Repayment of promissory notes .....................................            --             --
(300,000)
    Repayment of bridge loans ..........................................           --             --
(1,050,000)
    Repayment of convertible debt ......................................           --             --
(100,000)
    Proceeds from initial public offering ..............................           --             --         8,772,815
                                                                         ------------    -------------     ------------
                 Net cash provided by financing activities ......           1,580,000      1,120,000        12,272,815
                                                                         ------------    -------------     ------------

Net increase (decrease) in cash and cash
                    equivalents ........................................        2,436       (854,205)          418,758

</TABLE>

                                       17
<PAGE>

<TABLE>
<CAPTION>

<S>                                                                           <C>          <C>
CASH AND CASH EQUIVALENTS, beginning of period                                416,322      1,270,527                --
                                                                         ------------    -------------     ------------

CASH AND CASH EQUIVALENTS, end of period                                 $    418,758    $   416,322       $   418,758
                                                                         ============    =============     ============

SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
       Cash paid for interest .....................................      $         --    $        --       $    66,665

NONCASH INVESTING AND FINANCING ACTIVITIES:
    Issuance of common stock ....................................        $         --    $        --       $     5,800

</TABLE>



        The accompanying notes are an integral part of these statements.


                                       18
<PAGE>

                      INTERNATIONAL DISPENSING CORPORATION
                          (a development stage company)

           STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                FOR THE PERIOD FROM OCTOBER 10, 1995 (INCEPTION)
                          THROUGH DECEMBER 31, 1995 AND
        FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                                                                          Deficit
                                                                                                                         Accumulated
                                                       Preferred     Stock     Common   Stock    Additional              During the
                                                       ---------     ------    ------   ------   Paid-in     Warrants    Development
                                                        Shares       Amount    Shares   Amount   Capital     Outstanding    Stage
                                                       ---------     ------    ------   ------   -------     -----------    -----


<S>                                                        <C>     <C>       <C>       <C>      <C>           <C>        <C>
BALANCE, October 10, 1995 (inception) ...................    --    $    --         --  $    --  $      --      $   --      $     --
  Issuance of common stock pursuant to License Agreement ..  --         --   2,900,000   2,900         --          --            --
  Issuance of common stock pursuant to Settlement Agreement  --         --   1,950,000   1,950         --          --            --
  Issuance of common stock to management ..................  --         --     950,000     950     76,238          --            --
  Purchase of License from Affiliate.......................  --         --          --      --                     --    (4,000,000)
  Issuance of common stock in private placement ...........  --         --      87,500      88     43,662          --            --
  Issuance of common stock rights in private placement ...   --         --          --      --    131,250          --            --
        Net loss ........................................... --         --          --      --         --          --      (249,795)
                                                         ---------   ------    -------  ------    -------    -----------    -------
BALANCE, December 31, 1995 ................................  --         --   5,887,500   5,888    251,150          --    (4,249,795)
  Issuance of common stock in private placement ..........   --         --     437,500     437    218,313          --            --
  Issuance of common stock rights in private placement ....  --         --          --      --    656,250          --            --
  Issuance of common stock to bridge lenders ..............  --         --   1,575,000   1,575     (1,575)         --            --
  Issuance of common stock in public offering, net of
     issuance costs of $1,227,193 ........................   --         --   1,666,668   1,667  8,771,148          --            --
     Net loss ............................................   --         --          --      --         --          --    (1,302,684)
                                                         ---------   ------    -------  ------    -------    -----------    -------
</TABLE>


                                                                  Total
                                                              Stockholders'
                                                                  Equity
                                                               (Deficiency)
                                                               ------------


BALANCE, October 10, 1995 (inception) ...................      $        --
  Issuance of common stock pursuant to License Agreement ..          2,900
  Issuance of common stock pursuant to Settlement Agreement          1,950
  Issuance of common stock to management ..................         77,188
  Purchase of License from Affiliate.......................     (4,000,000)
  Issuance of common stock in private placement ...........         43,750
  Issuance of common stock rights in private placement ...         131,250
        Net loss ...........................................      (249,795)
                                                               ------------
BALANCE, December 31, 1995 ................................     (3,992,757)
  Issuance of common stock in private placement ..........         218,750
  Issuance of common stock rights in private placement ....        656,250
  Issuance of common stock to bridge lenders ..............             --
  Issuance of common stock in public offering, net of issuance
     costs of $1,227,193 .................................       8,772,815
     Net loss ............................................      (1,302,684)
                                                               ------------


                                       19
<PAGE>

<TABLE>
<CAPTION>

                                                          Preferred   Stock     Common     Stock    Additional            During the
                                                          ---------   ------    ------     ------   Paid-in   Warrants   Development
                                                           Shares     Amount    Shares     Amount   Capital   Outstanding    Stage
                                                          ---------   ------    ------     ------   -------   -----------    -----
<S>                                                             <C>    <C>     <C>         <C>       <C>          <C>    <C>
BALANCE, December 31, 1996 ...................................   --     --     9,566,668    9,567    9,895,286     --    (5,552,479)
  Net loss ...................................................   --     --       --           --       --          --    (1,145,091)
                                                              ------ -------   ---------  ---------- ---------   ------  -----------
BALANCE, December 31, 1997 ...................................   --     --     9,566,668    9,567    9,895,286     --    (6,697,570)
  Net loss ...................................................   --     --       --           --       --          --    (1,938,390)
                                                              ------ -------   ---------  ---------- ---------   ------  -----------

BALANCE, December 31, 1998 ...................................   --     --     9,566,668    9,567    9,895,286     --    (8,635,960)
  Issuance of preferred stock in private placement ...........  560 1,120,000    --           --       --          --       --
  Net loss ...................................................   --     --       --           --       --          --    (1,702,108)

                                                              ------ -------   ---------  ---------- ---------   ------  -----------
BALANCE, December 31, 1999 ...................................  560 1,120,000  9,566,668    9,567    9,895,286     --   (10,338,068)
                                                              ------ -------   ---------  ---------- ---------   ------  -----------
   Issuance of preferred stock in private placement             790 1,580,000    --           --       --          --       --
   Accrued and unpaid preferred stock dividends...              --    271,601    --           --      (271,601)    --       --
   Issuance of warrants to consultants                          --      --       --           --       --        109,949    --
   Issuance of common stock to consultants                      --      --       100,000      100       68,900     --       --
   Net loss ................................................... --      --       --           --       --          --    (1,667,734)
                                                             ------ -------   ---------  ---------- ---------   ------  -----------

BALANCE, December 31, 2000 ................................. 1,350 $2,971,601   9,666,668  $ 9,667 $9,692,585 $109,949 $(12,005,802)
                                                            ====== ========== ===========  ======= ========== ======== =============

</TABLE>
                                                                       Total
                                                                   Stockholders'
                                                                      Equity
                                                                   (Deficiency)
                                                                    ------------
BALANCE, December 31, 1996 ...................................       4,352,374
  Net loss ...................................................      (1,145,091)
                                                                    ------------
BALANCE, December 31, 1997 ...................................       3,207,283
  Net loss ...................................................     (1,938,390)
                                                                    ------------

BALANCE, December 31, 1998 ...................................       1,268,893
  Issuance of preferred stock in private placement ...........       1,120,000
  Net loss ...................................................      (1,702,108)

                                                                    ------------
BALANCE, December 31, 1999 ...................................         686,785
                                                                    ------------
   Issuance of preferred stock in private placement                  1,580,000
   Accrued and unpaid preferred stock dividends...                         --
   Issuance of warrants to consultants                                 109,949
   Issuance of common stock to consultants                              69,000
   Net loss ...................................................     (1,667,734)
                                                                   ------------

BALANCE, December 31, 2000 .................................          $778,000


        The accompanying notes are an integral part of these statements.



                                       20
<PAGE>



                      INTERNATIONAL DISPENSING CORPORATION
                          (a development stage company)

                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

1.       THE COMPANY AND ORGANIZATION

International Dispensing Corporation (the "Company") was incorporated in the
State of Delaware in October 1995 and is in the development stage. The Company
designs and manufactures proprietary packaging and dispensing solutions for
flowable foods, beverages, pharmaceuticals and non-food products. The Company's
packaging solutions are derived from two sources. First, the Company has
licensed from ReSeal International Corporation ("RIC") in perpetuity on a
royalty free basis, a portfolio of patents that can be used for food and
beverage applications worldwide (the "Technologies"). Second, the Company has
developed and filed for patent protection on three (3) new packaging
technologies, a Gravity Flow Valve ("GFV"), Beverage Carafe and Fresh Flow
System. These three proprietary technologies are exclusive to the Company and
allow the Company to market its new aseptic technology across the flowable food,
beverage, pharmaceutical and non-food packaging and dispensing categories.

The Company is subject to a number of risks including the Company's lack of
prior operating history. The Company is also subject to the availability of
sufficient financing to meet its future cash requirements and the uncertainty of
future product development, regulatory approval, and market acceptance of
existing and proposed products. Additionally, other risk factors such as loss of
key personnel, lack of manufacturing capabilities, difficulty in establishing
new intellectual property rights and preserving and enforcing existing
intellectual property rights as well as product obsolescence due to the
development of competing technologies could impact the future results of the
Company. Also, in the event of bankruptcy of RIC, the status of the continuing
obligations of the various parties to and under the License Agreement (Note 6)
is unclear since a court in a bankruptcy proceeding may not enforce such
continuing obligations.

2.       GOING CONCERN

The Company's financial statements have been presented on the basis that it is a
going concern. The Company's development stage activities have resulted in an
accumulated deficit from inception to December 31, 2000, of approximately
$12,005,802 (including RIC License Fee of $4 million, and a discontinued
operation in China of $844,000, see Notes 5 and 6). From October 10, 1995
("Inception") to December 31, 2000, the Company has incurred a net loss from
continuing and discontinued operations of $8,005,802. Losses are continuing as
efforts to market its products have yet to result in revenue. The Company's
primary source of funds since inception has been from the sale of its common and
preferred stock (see Note 4 regarding IPO and Note 7 regarding preferred stock
private placements).

Management's plans include a private placement of equity securities in 2001 to
provide funding to allow it to continue its development of its new technology.
In addition, management has taken certain steps and made significant management
changes in an effort to reduce operating expenses of the Company. The Company
believes that with the completion of certain products, scheduled for the first
half of 2001, it will generate sales in the second half of 2001. The Company
believes these steps will provide sufficient liquidity for it to continue as a
going concern. Accordingly, the financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities or any other
adjustments that might result should the Company be unable to continue as a
going concern.


                                       21
<PAGE>

3.  SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash in banks as well as highly liquid
investments with original maturities of less than three months.

FIXED ASSETS

Furniture and equipment are recorded at cost and are depreciated on a
straight-line basis over their estimated useful lives, generally five years.
Depreciation expense for the years ended December 31, 2000 and 1999 and for the
period from inception to December 31, 2000 was $12,500, $7,591, and $36,547,
respectively. Fixed assets in development were valued at $397,427 at December
31, 2000. Accordingly, no depreciation expense has been recorded related to
these assets.

PATENTS

Costs to develop patents are expensed when incurred.

REVENUE RECOGNITION

Revenue will be recognized upon delivery of the product to the customer.

INCOME TAXES

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this
method, deferred income taxes are determined based on differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each year-end and are measured based on enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.

NET LOSS PER SHARE

The Company presents "per share" data in accordance with SFAS No. 128, "Earnings
per Share," which requires the presentation of Basic Earnings per Share and
Diluted Earnings per Share. Basic Earnings per Share is based on the average
number of shares of common stock outstanding during the year. Diluted Earnings
per Share is based on the average number of shares of common stock outstanding
during the year plus the common stock equivalents related to preferred stock,
outstanding stock options and deferred contingent common stock awards. There
were no common stock equivalents outstanding at December 31, 2000 and 1999, that
would have a dilutive effect on earnings for those years.

USE OF ESTIMATES

The presentation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events



                                       22
<PAGE>

and actions it may undertake in the future, they may ultimately differ from
actual results.

STOCK OPTIONS

In 1998, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted under this standard, the Company has elected to
follow Accounting Principles Board ("APB") Opinion No. 25, "Accounting For Stock
Issued to Employees" in accounting for its stock options and other stock-based
employee awards. Pro forma information regarding net loss and loss per share, as
calculated under the provisions of SFAS No. 123, is disclosed in Note 14.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, prepaid expenses, and accrued expenses. In management's opinion,
the carrying amounts of these financial instruments approximated their fair
valve at December 31, 2000.

RECLASSIFICATIONS

Certain reclassifications have been made to 1999 amounts to conform with the
2000 presentation.

4.  INITIAL PUBLIC OFFERING

In October 1996, the Company sold, in an initial public offering (the "IPO"),
833,334 units (the "Units"), each Unit consisting of two shares of Common Stock
and two redeemable Class A purchase warrants for $12.00 per Unit. Each warrant
entitles the holder to purchase one share of the Company's Common Stock for
$7.00 commencing October 3, 1997, and expiring October 3, 2001. The warrants are
redeemable by the Company at $.05 per warrant any time after October 3, 1998, if
certain conditions are met. The net proceeds which the Company received from the
offering amounted to approximately $8,800,000. As of December 31, 2000, none of
the warrants have been redeemed or exercised.

5.  DISCONTINUED OPERATIONS

On December 23, 1997, the Company entered into an agreement with Well Men
Industrial Company Limited, a Hong Kong registered corporation ("Well Men"),
pursuant to which Well Men granted to the Company an exclusive right to market
and sell certain Well Men products in China. Well Men also assigned to the
Company, for the purpose of commercializing such Well Men products, all of Well
Men's patents and patent applications relating to such Well Men products. The
agreement was for an initial term of ten years. The Company had opened a
representative office in China to promote the sales of Well Men products and to
establish the name of the Company. The Company incurred cumulative expenses of
approximately $844,000 related to the opening and maintaining of the
representative office in China, merchandise shipped to China, and general and
administrative expenses.

In December 1998, Well Men materially breached its agreement with the Company by
selling Well Men water heaters directly in China. In addition, Well Men refused
to pay for any of the products provided to it. As a result of this breach and
the Company's inability to obtain payment from Well Men, the Company
discontinued this operation and wrote-off all related receivables, resulting in
a loss from discontinued operations of approximately $719,000 in 1998. Results
from operations from prior periods have also been restated.


                                       23
<PAGE>

6.  LICENSE AGREEMENT

In October 1995, the Company entered into a License Agreement (the "Agreement")
with RIC, which was amended on June 17, 1996, pursuant to which the Company
obtained the right to commercialize and market the Technologies to third parties
for its implementation in the food and beverage industries. The Technologies are
licensed by RIC from its parent, Reseal International Limited Partnership
("RILP"). The Agreement is royalty-free and allows the Company to grant
sublicenses to third parties. Pursuant to the Agreement, the Company issued
2,900,000 shares of its common stock to RIC and paid $750,000 upon the
completion of a private placement (Note 7) and the remaining balance of
$3,250,000 upon the completion of the initial public offering (Note 4). The cash
paid to RIC and the common stock issued for this acquisition were charged
directly to stockholders' equity and therefore are not reflected as an asset on
the Company's balance sheet. The Agreement terminates at the end of the
Technologies' useful economic life.

7.  PRIVATE PLACEMENTS

PREFERRED STOCK

During 1999, the Company designated 2,000 shares of the authorized Preferred
Stock as Series A Redeemable Convertible Preferred Stock (the "Series A") and
entered into a Preferred Stock Subscription Agreement (the "Subscription
Agreement") with certain Directors of the Company and a third party
(collectively, the "Series A Investors"). The Series A accrues cumulative
dividends at the annual rate of 12%. These dividends accrue and accumulate from
the date of issuance and are payable quarterly on the last day of March, June,
September and December, commencing on the last day of the quarter of the date of
issuance. Cumulative dividends are payable in cash or additional shares of
Series A, at the discretion of the Company. Each share of Series A is
convertible any time at the holder's option into approximately 9,100 shares of
common stock of the Company, plus additional shares of common stock for accrued
but unpaid dividends at the conversion rate of $0.22 per share. Each share of
Series A is redeemable at the option of the Company for $2,000 per share plus
accrued and unpaid dividends, if certain conditions are met. The Series A
carries a liquidation preference of $2,000 per share plus accrued and unpaid
dividends.

Pursuant to the Subscription Agreement, the Series A Investors agreed, subject
to certain conditions, to buy a maximum of 1,000 shares at a price of $2,000 per
share through August 31, 2000. Through December 31, 1999, the Series A Investors
purchased 560 shares of Series A, resulting in total net proceeds to the Company
of $1,120,000.

During 2000, the Company designated 1,500 shares of the authorized Preferred
Stock as Series B Redeemable Convertible Preferred Stock (the "Series B") and
entered into an amendment to the Subscription Agreement (the "Series B
Amendment") with the Series A Investors and one new investor (collectively, the
"Series B Investors"). Series B accrues cumulative dividends at the annual rate
of 12%. These dividends accrue and accumulate from the date of issuance and
shall be payable quarterly on the last day of March, June, September and
December, commencing on the last day of the quarter of the date of issuance.
Cumulative dividends are payable in cash or additional shares of Series B, at
the discretion of the Company. Each share of Series B is convertible at the
holder's option into approximately 5,700 shares of common stock of the Company,
plus additional shares of common stock for accrued but unpaid dividends at the
conversion rate of $0.35 per share. Each share of Series B is redeemable at the
option of the Company for $2,000 per share plus accrued and unpaid dividends, if
certain conditions are met. Series B carries a liquidation preference of $2,000
per share plus accrued and unpaid dividends.

Pursuant to the Series B Amendment, the Series B Investors purchased 440 shares
of Series B instead of the remaining 440 shares of unsubscribed Series A. The
purchase of Series B resulted in total net proceeds to the Company of $880,000.


                                       24
<PAGE>

Also during 2000, the Company designated 2,000 shares of the authorized
Preferred Stock as Series C Redeemable Convertible Preferred Stock (the "Series
C") and entered into a Subscription Agreement (the "Series C Subscription
Agreement") with certain of the Series B Investors (the "Series C Investors").
Series C accrues cumulative dividends at the annual rate of 12%. These dividends
accrue and accumulate from the date of issuance and shall be payable quarterly
on the last day of March, June, September and December, commencing on the last
day of the quarter of the date of issuance. Cumulative dividends are payable in
cash or additional shares of Series C, at the discretion of the Company. Each
share of Series C is convertible at the holder's option into approximately 6,670
shares of common stock of the Company, plus additional shares of common stock
for accrued but unpaid dividends at the conversion rate of $0.30 per share. Each
share of Series C is redeemable at the option of the Company for $2,000 per
share plus accrued and unpaid dividends, if certain conditions are met. The
Series C carries a liquidation preference of $2,000 per share plus accrued and
unpaid dividends.

Pursuant to the Series C Subscription Agreement, Series C Investors purchased
350 shares of Series C and warrants for an additional 400 shares of Series C at
a price of $2,000 per share. As of December 31, 2000, 200 warrants have expired
with the remaining warrants expiring on January 20, 2001. The purchase of Series
C resulted in total net proceeds to the Company of approximately $700,000 at
December 31, 2000.

BRIDGE FINANCING

During 1996, the Company was involved in a private placement ("Bridge
Financing"). The Bridge Financing consisted of promissory notes, common shares,
and rights ("Bridge Options") to acquire units ("Bridge Units") identical in
form to the IPO Units. The promissory notes bore interest at 8% per annum and
were due and paid upon completion of the IPO. Upon completion of the Bridge
Financing, the Company had received an aggregate of $2,100,000 in consideration
for $1,050,000 in promissory notes, 525,000 shares of common stock and rights to
obtain 787,500 Bridge Units. In August 1996, the Company amended the Bridge
Financing agreements so that the 787,500 Bridge Units underlying the Bridge
Options were deemed outstanding. As part of the initial public offering, the
787,500 Bridge Units, which are identical to the IPO Units, were registered.


8.  SETTLEMENT AGREEMENT

In October 1995, in connection with a settlement of actions and claims against
certain affiliates of RIC, the Company agreed to issue (i) 2,900,000 shares of
common stock to RIC as partial compensation under the License Agreement, (ii) an
aggregate of 1,500,000 shares of common stock (the "Investor Shares") to certain
investors in RILP, and (iii) an aggregate of 450,000 shares of common stock (the
"Service Shares") to certain individuals for services rendered equal to the par
value of such shares. Of the Investor Shares issued, 552,000 were issued to
individuals who are now members of the board of directors and, of the Service
Shares issued, 161,000 were issued to former members of management and the board
of directors.

Pursuant to such settlement, the holders of the Investor Shares may require the
Company to file a Registration Statement under the Securities Act of 1933 (
Securities Act) with respect to 25% of such shares of common stock, commencing
one year from the effective date of the Company's IPO (Note 4), subject to
certain conditions and limitations. Further, if the Company proposes to register
any shares of common stock under the Securities Act other than pursuant to an
initial public offering or the previous sentence, then the holders of the
Investor Shares are entitled to include an additional 25% of their shares of
common stock in such registration.


                                       25
<PAGE>

9.  CONVERTIBLE PROMISSORY NOTES

During 1995, two convertible promissory notes were issued for $100,000 and
$50,000 (the "Convertible Notes") and were due on April 15, 1996 and December
20, 1996, respectively. These notes bore interest at 8% and each was convertible
at any time prior to the maturity date of the notes into 1,200,000 shares of
common stock, subject to adjustments. The $100,000 note (the "Portenoy Note")
would have converted at a price of $.084 per share, subject to adjustments, and
the $50,000 note (the "ATG Note") would have converted at a price of $.042 per
share, subject to adjustments.

On April 15, 1996, the Portenoy Note came due and was paid by the Company. On
June 28, 1996, in accordance with an agreement with the Company, the holder of
the ATG Note, which would have come due on December 20, 1996, and contained the
right to convert into 1,200,000 shares of common stock, agreed to transfer such
note to the Company for cancellation in return for the Company agreeing to pay
the holder $300,000. The amounts owed by the Company to the holders of the
Convertible Notes were paid out of the proceeds of the IPO. The Company recorded
an extraordinary loss on retirement of debt of $250,000 during the year ended
December 31, 1996.

10.  MANAGEMENT SHARES

In 1995, the Company issued an aggregate of 950,000 shares to management as
compensation for services rendered in incorporating the Company. Such shares
were issued at fair market value of the Company's common stock, which was
determined based upon the fair market value of the private placement shares
(Note 7) and the Convertible Notes. The statement of operations for the period
from inception through December 31, 2000 reflects approximately $76,000 of
compensation expense related to such shares.

11.  RELATED PARTY TRANSACTIONS

Until June 1997, the Company shared office space with certain affiliated
companies, including RIC and RILP. The Company also paid certain operating
expenses, including compensation of key personnel, on behalf of RIC and RILP.
The Company was reimbursed for these expenses as an offset against the liability
related to the License Agreement (Note 6) in the Company's balance sheet as of
December 31, 1996. Beginning in May 1997, the Company began paying substantially
all costs of obtaining and maintaining patents, a cost, which was to be shared
equally by the Company and RIC, according to the Agreement. Until the Company is
reimbursed by RIC for 100% of these costs, RIC cannot utilize the patents for
any purpose. If RIC does not reimburse the Company within one year from the date
each payment was made, RIC must negotiate a fee with the Company for the use of
such patents for any purpose.

As of December 31, 2000, the Company has a receivable due from RIC related to
operating expenses and patent costs in the amount of $131,311, which has been
fully reserved due to the inability of RIC to reimburse the Company in the
foreseeable future.

During the year ended December 31, 1997, the Company paid consulting fees to
members of management in the aggregate amount of $73,000. Subsequent to December
31, 1997, no such fees were paid.

12.  INCOME TAXES

As a result of losses incurred since inception, there is no provision for income
taxes in the accompanying financial statements. As of December 31, 2000, the
Company has net deferred tax assets of approximately $3.2 million, which
consists substantially of net operations losses. The Company has established a
full valuation allowance


                                       26
<PAGE>

against its net deferred tax assets as the Company's ability to realize such
assets is predicated upon the Company achieving profitability. In addition, the
use of net operating loss carry forwards may be limited as a result of ownership
changes resulting from share issuances.

13.  COMMITMENTS AND CONTINGENCIES

OPERATING LEASE

The Company leased office space in New York under a noncancellable operating
lease, which expired on February 29, 2000. During December 1999, the Company
entered into a lease for office space in Maryland beginning March 16, 2000
through September 30, 2005. Rental expenses were $45,310 and $26,875 for the
years ended December 31, 2000 and 1999, respectively. Minimum future rental
payments under this lease are as follows:


                                       Minimum
 Year ending December 31:              Payment

                    2001             $  65,025
                    2002                66,976
                    2003                68,985
                    2004                71,055
                    2005                73,186
                                      --------
       Total minimum lease payments  $ 345,227
                                      ========


EMPLOYMENT AGREEMENT - GARY ALLANSON


The Company and Mr. Allanson have entered into an employment agreement, dated
March 15, 1999, which expires on March 14, 2001 (the "Allanson Employment
Agreement"). During 2000, the Company's board of directors extended Mr.
Allanson's contract through March 14, 2002. Pursuant to the Allanson Employment
Agreement, Mr. Allanson serves as the President and Chief Executive Officer of
the Company and receives an annual salary of $240,000. In addition, if Mr.
Allanson is insurable, the Company is obligated to pay the premium on a
$1,000,000 term life insurance policy, to which Mr. Allanson will designate the
beneficiary. Under the Allanson Employment Agreement, Mr. Allanson is also
entitled to customary benefits and perquisites.

Under the Allanson Employment Agreement, if Mr. Allanson's employment is
terminated for disability, for cause or upon his death, Mr. Allanson or his
estate will receive his base salary and other benefits through the date of his
termination. If Mr. Allanson voluntarily terminates his employment with the
Company for "good reason" (defined in the Allanson Employment Agreement to
include, among other things, a change in control of the Company or the removal
of Mr. Allanson from his position as the President and Chief Executive Officer),
Mr. Allanson is entitled to receive his base salary and other benefits through
the 180th day after the date of termination. If Mr. Allanson's employment is
terminated by the Company without cause, the Company is obligated to pay Mr.
Allanson his base salary and provide Mr. Allanson and Mr. Allanson's family with
hospital, major medical and dental insurance equivalent to the insurance
provided on the date of termination, through the end of the term of the Allanson
Employment Agreement.


                                       27
<PAGE>

EMPLOYMENT AGREEMENT - JON SILVERMAN

The Company had an employment agreement with its former Chief Executive Officer,
Jon Silverman. Terms of the agreement, among other things, provided for the
granting of 100,000 shares of stock options. As a result of Mr. Silverman's
resignation from the Company on June 30, 1999, options to purchase an aggregate
of 33,333 shares were cancelled and options to purchase 66,667 shares remain
outstanding and exercisable. These remaining options are exercisable through
December 31, 2004.

14.      Legal Proceedings

In May 1996, in connection with the settlement of a lawsuit brought by Banco
Inversion, S.A. and Administratadora General de Patrimonios, S.A. (collectively,
"Banco") against certain affiliates of RIC, RIC entered into an agreement
pursuant to which it agreed, among other things, (i) to transfer an aggregate of
300,000 of its shares of common stock (the "Settlement Shares") to Banco, (ii)
to pay Banco $50,000 at the closing of such settlement and $150,000 out of the
licensing fees RIC receives from the proceeds of the IPO and (iii) to exchange
mutual releases with the parties of such lawsuit.

The number of Settlement Shares, subject to certain antidilution adjustments,
may be increased up to 600,000 shares in the event that 30 months after the
effective date of the registration statement the market value of the 300,000
Settlement Shares is less than $2,800,000.

The Company has granted to the holders of such Settlement Shares, the right to
register such shares along with shares registered by the Company in a public
offering, whether on behalf of the Company or other holders of common stock,
subject to customary market factor limitations. Such registration rights
terminate upon the earlier of (i) the date that all Settlement Shares have been
either registered or sold, or (ii) the date that all such shares may be sold
pursuant to Rule 144(k) under the Securities Act.

In March 2000 Hirata Corporation and Hirata Corporation of America commenced a
lawsuit against the Company in the United States District court for the Southern
District of Indiana alleging that the Company had conspired with and aided and
abetted two other defendants in connection with certain violations of the
Indiana Securities Act. The plaintiffs claimed that they had suffered losses as
a result of investments made in the Company through the purchase of securities
in the Company's initial public offering in 1996. On June 16, 2000 the Southern
District court of Indiana entered a default judgment against the Company.

In February 2001, the parties entered into a settlement agreement pursuant to
which the Company paid the plaintiffs agreed to vacate the judgment, dismiss the
lawsuit and not to sue the company in the future with respect to the matters
alleged in the lawsuit.

15.      STOCK COMPENSATION

STOCK OPTIONS

The Company has two stock option plans (the "Plans") effective as of April 2,
1998. The 1998 Stock Option Plan (the "Participant Plan") provides for the
granting of stock options to key employees, consultants or other persons
("Participants"). The objective of this Plan includes attracting and retaining
the best personnel, providing for additional performance incentives and
promoting the success of the Company by providing Participants the


                                       28
<PAGE>

opportunity to acquire common stock. The Plan provides for the granting of both
options that will qualify as "incentive stock options" and options that are
non-qualified stock options. The objectives of the second plan, The Director
Option Plan ("the Director Plan") is to attract and retain the best available
personnel for service as outside directors of the Company, as well as to provide
additional incentive to the outside directors of the Company to serve as
directors and to encourage their continued service on the Board. On June 18,
1999, the Board of Directors approved an increase in shares reserved for grant
under the Participant Plan and Director Plan up to 850,000 and 450,000 shares,
respectively. On September 11, 2000 the Board of Directors approved an increase
in the number of shares reserved for grant under the Participant Plan to
2,500,000. Under both of the Plans, the exercise price of the shares granted
shall be 100% of the fair market value per share on the date of grant of the
option. Options expire on such date as the Board of Directors or the Committee
may determine, but in no event later than ten years after the grant date.

During 2000, the Company granted 1,580,000 incentive stock options to two
employees under the Participant Plan. Of these options, 360,000 vested
immediately, 740,000 vest on February 1, 2001 upon stockholder approval of the
increase in the number of shares reserved for grant under the Participant Plan,
40,000 will vest on August 18, 2001 and the remaining 440,000 will vest on
January 1, 2002. In addition, during 2000 the Company granted 45,000
non-qualified options to three outside directors under the Director Plan.

During 1999, the Company granted 400,000 nonqualified options to an employee
under the Participant Plan. Of these options, 300,000 vested immediately with
the remaining 100,000 vesting on June 30, 2000. In addition, during 1999 the
Company granted 60,000 non-qualified options to three outside directors under
the Director Plan.

In addition, during 1999, the Company granted 50,000 non-plan options to a
Director of the Company. These options vested immediately at an exercise price
of $1.25, which equaled the fair market value on the date of grant.

During 1998, the Company issued 16,666 non-plan options to a former employee of
the Company as part of a severance agreement and 15,000 non-plan options to a
Director of the Company. These options vested immediately at an exercise price
of $1.595, which equaled fair market value on the date of grant.

No compensation expense has been recognized during 2000, 1999 or 1998 for these
options as all grants were made at fair value as the exercise price equaled the
fair market value on the date of the grant.


The status of the Company's stock option plans is summarized below as of
December 31, 2000:


                                                           Weighted
                                             Number of      Average
                                               Shares        Price

  Outstanding at December 31, 1997                  -        $    -
      Granted                                  295,000         1.595
                                            ----------     ---------
  Outstanding at December 31, 1998             295,000         1.595
      Granted                                  460,000          .633
      Exercised                                     -             -
      Cancelled                               (88,333)         1.618
                                            ----------     ---------
  Outstanding at December 31, 1999             666,667       $  .891
      Granted                                1,625,000          .197
      Exercised                                   -              -
      Cancelled                               (56,667)         1.607


                                       29
<PAGE>

                                            ----------     ---------
Outstanding at December 31, 2000             2,235,000          .391

                                            ==========     =========

As of December 31, 2000, 1,195,335 options were vested and exercisable. The
weighted average exercise price of these options was $.333.

The Company applies APB No. 25 in accounting for its stock options granted to
employees and directors. The option price under the Plans equal or exceed the
fair market value of the common stock on the date of grant and, accordingly, no
compensation cost has been recognized under the provisions of APB No. 25 for
stock options granted to employees or outside directors. Under SFAS No. 123,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service (or vesting) period. Had compensation cost
for the Company's stock option plans been determined under SFAS No. 123, based
on the fair market value at the grant dates, the Company's pro forma net income
and net earnings per share would have been reflected as follows:

                                                               Cumulative from
                                                               Inception
                                                               (October 10,
                                                               1995) through
                       December 31, 2000   December 31, 1999   December 31, 2000
                       -----------------   -----------------   -----------------
   Net loss:
       As reported       $   1,667,734        $   1,702,108        $ 8,005,802
       Pro forma             1,841,404           1, 912,591        $ 8,389,955
   Loss per share:
       As reported                (.20)                (.18)
       Pro Forma                  (.22)                (.20)


The fair value of the options granted were estimated on the date of grant using
the Black-Scholes option pricing model based on the following weighted share
average assumptions used:


                                                     2000          1999
                                                     ------------------
Risk free interest rate                              5.7%          5.5%
Expected life                                        5 years       5 years
Expected volatility                                  134%          139%
Expected dividend yield                              0%            0%

The weighted average fair value of options granted during 2000 and 1999 were
$0.37 and 0.86 respectively. The following table provides further information on
options granted:

                                                              Weighted Average
                                                                 Remaining
               Range of Exercise Price      Shares            Contractual Life
               -----------------------      ------            ----------------
                        0.187               1,580,000               7.85
                    0.312-0.5                 250,000               7.80
                  1.015-1.595                 450,000               5.05


STOCK COMPENSATION FOR SERVICES


                                       30
<PAGE>

During 2000, the Company issued two consultants warrants to purchase 25,000 and
125,000 shares of common stock. The warrants are exercisable through December
2008 at an exercise price of $.19 per share. The warrants were issued as
compensation for services rendered to the Company by such consultants. Total
expense related to the issuance of the warrants amounted to $109,949 and was
valued using the Black-Scholes pricing model and is recorded in general and
administrative expenses and warrants outstanding.

Also during 2000, the Company issued 100,000 shares of common stock to a
consultant as compensation for services rendered to the Company. Such shares
were issued at the fair market value of the Company's common stock, which was
determined based on the quoted market price of the stock on the date of
issuance. Total expense related to the issuance of these shares amounted to
$69,000 and is recorded in general and administrative expenses.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

             Not applicable.


                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

             As of March 29, 2001, the executive officers and directors of the
Company are as follows:

                Name                    Age            Position(s)
                ----                    ---            -----------

         Gary Allanson                  48             Chairman, President and
                                                       Chief Executive Officer
         George V. Kriste               53                Director
         Gregory B. Abbott              50                Director
         Frank Carillo                  45                Director

        Gary Allanson has served as the President and Chief Executive Officer of
the Company since March 15, 1999. Prior to joining the Company, Mr. Allanson was
National Retail Sales Manager with Arnott's Biscuit, Ltd. In Sydney, Australia
from May 1997 to March 1999 and a member of Arnott's Board of Directors in New
Zealand. Arnott's Biscuit, Ltd. is the largest manufacturer and marketer of
biscuits, crackers and salty snacks in the Asia Pacific Region. Arnott's became
a wholly owned subsidiary of the Campbell Soup Company in December 1997. Prior
to Arnott's, Mr. Allanson was Director of Bakery sales at Pepperidge Farm, Inc.
Norwalk, Connecticut from April 1996 to May 1997 (Pepperidge Farm, Inc. is a
wholly owned subsidiary of the Campbell Soup Company). Mr. Allanson worked in
the electronics and aerospace industry from October 1992 to April 1996 prior to
Joining Campbell Soup. Mr. Allanson started his business career with the
Pepsi-Cola Company in 1977 and spent the next 15 years in senior marketing,
strategic planning, operation, sales, and product development assignments. Mr.
Allanson completed his career with Pepsi-Cola as Vice-President & General
Manager in Washington, D.C. Mr. Allanson is a graduate of Bowling Green State
University, Bowling Green, OH and Harvard University, Cambridge, MA.

        George V. Kriste has served as a director of the Company since October
1995. He has been the Chairman and Chief Executive Officer of New Century Media,
a radio station owner, since January 1992.

        Gregory B. Abbott has served as a director of the Company since October
1995. Mr. Abbott has been a private investor and a writer for more than five
years.

        Frank Carillo has served as director of the Company since January 2000.
He has served as President of the Executive Communications Group, Inc., a
management communications consulting firm, as President for more than five
years.


                                       31
<PAGE>

        No family relationship exists between any directors or executive
officers of the Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's directors and executive officers, and persons who
own more than ten (10%) percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Reporting persons
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.

To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company, no persons failed to file, on a timely basis, reports
required by Section 16(a) of the Exchange Act for any transactions occurring
during Fiscal 2000, except that Reed Slatkin failed to timely file an Initial
Statement of Beneficial Ownership on Form 3 reporting beneficial ownership of
more than 10% of the Company's outstanding common stock, Gary Allanson failed to
timely file Statements of Changes in Beneficial Ownership on Form 4 to report
purchases of common stock in August and September, 2000 and Gregory Abbott
failed to timely file a Form 4 to report a purchase in August 2000 of preferred
stock convertible into common stock. All of such forms were subsequently filed.


ITEM 10. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

The following table sets forth for the three (3) fiscal years ended December 31,
2000, information concerning the compensation paid or accrued to the Chief
Executive Officer of the Company. No other employee, including any executive
officer of the Company, received from the Company a salary and bonus for fiscal
2000 which exceeded $100,000.

<TABLE>
<CAPTION>

                                                 Annual Compensation                          Long-Term Compensation
---------------------------------------- ------------------------------------------- -----------------------------------------------

<S>                           <C>        <C>            <C>       <C>               <C>              <C>             <C>
Name and Principal Position   Fiscal     Salary         Bonus     Other Annual       Restricted      Securities      All Other
                              year       ($)            ($)       Compensation       Stock           Underlying      Compensation
                                                                  ($)(1)             Award($)        Options (#)     ($) (2)

Gary Allanson                 2000       $240,000       -         -                  -               1,500,000       $1,285
Chairman, CEO and President   1999       $190,000       -         -                  -               400,000         $1,285
                              1998       $      -       -         -                  -               -               -

</TABLE>

-----------------------------
(1)   The aggregate amount of perquisites and other personal benefits paid to
      Mr. Allanson did not exceed the lesser of (i) 10% of such officer's total
      annual salary and bonus for any given fiscal year and (ii) $50,000. Thus,
      such amounts are not reflected in the table.

(2)   Represents the premium paid on  $1,000,000 term life insurance policies as
      to which Mr. Allanson may designate the beneficiary.


                                       32
<PAGE>


OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2000

The following table sets forth certain information concerning options granted
during the fiscal year ended December 31, 2000 pursuant to the 1998 Option Plan
to the executive officer listed in the Summary Compensation Table.

<TABLE>
<CAPTION>
----------------------- --------------------------- ----------------------------- ------------- -------------------
<S>                     <C>                         <C>                           <C>           <C>
         Name           Number of Securities        Percent Of Total Options      Exercise Or   Expiration Date
                        Underlying Options          Granted to Employees In       Base Price
                        Granted (#)                 Fiscal Year                   ($/Sh)
----------------------- --------------------------- ----------------------------- ------------- -------------------

Gary Allanson           1,500,000 (1)                95%                          $.187         August 17, 2008
----------------------- --------------------------- ----------------------------- ------------- -------------------

</TABLE>

(1)   The terms of grant of such options provided that options to purchase
      320,000 shares become exercisable on August 18, 2000; options to purchase
      210,000 shares become exercisable upon ratification by the stockholders of
      an amendment to the 1998 Option Plan increasing the shares reserved for
      issuance under the 1998 Option Plan from 850,000 to 2,500,000 (the "Plan
      Amendment"); options to purchase 530,000 shares became exercisable on
      January 1, 2001 and options to purchase 440,000 shares become exercisable
      on January 1, 2002. The Plan Amendment was approved by the stockholders on
      February 1, 2001.


AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 2000 AND FISCAL
YEAR END OPTION VALUES

The executive officer listed in the Summary Compensation Table did not exercise
any option during the fiscal year ended December 31, 2000. The following table
sets forth certain information with respect to options to purchase Common Stock
held by the foregoing executive officer on December 31, 2000.

<TABLE>
<CAPTION>
----------------------- --------------------------------------- ------------------------------------------------------
<S>                     <C>                                     <C>
Name                    Number of Securities Underlying         Value of Unexercised In-The-Money
                        Unexercised Options on 12/31/00 (#)     Options on 12/31/00 ($)
                        Exercisable/Unexercisable               Exercisable/Unexercisable (1)
----------------------- --------------------------------------- ------------------------------------------------------
Gary Allanson           720,000/1,180,000                       $40,000/$147,500
----------------------- --------------------------------------- ------------------------------------------------------
</TABLE>

Employment and Non-Compete Agreements

The Company and Gary Allanson have entered into an employment agreement, dated
as of March 15, 1999, which expires on March 14, 2001 (the "Allanson Employment
Agreement"). The term of the Allanson Employment Agreement may be extended for
one or two years upon written notice given by the Company to Mr. Allanson prior
to June 14, 2000. Pursuant to the Allanson Employment Agreement, Mr. Allanson
serves as the President and Chief Executive Officer of the Company and receives
an annual salary of $240,000. In addition, if Mr. Allanson is insurable, the
Company is obligated to pay the premium on a $1,000,000 term life insurance
policy, to which Mr. Allanson will designate the beneficiary. Under the Allanson
Employment Agreement, Mr. Allanson is also entitled to customary benefits and
perquisites.

Under the Allanson Employment Agreement, if Mr. Allanson's employment is
terminated for disability, for cause or upon his death, Mr. Allanson or his
estate will receive his base salary and other benefits through the date of
termination. If Mr. Allanson voluntarily terminates his employment with the
Company for "good reason" (defined in the Allanson

---------------------------------
(1)     The closing prices of the Common Stock on December 31, 2000 on the OTC
        Bulletin Board was $.312. Of the options held by Mr. Allanson, 400,000
        currently exercisable options had execrcise prices of $.655 and the
        remaining 1,500,000 options (including 320,000 currently exercisable
        options) had exercise prices of $.187.


                                       33
<PAGE>

Employment Agreement to include, among other things, a change in control of the
Company or the removal of Mr. Allanson from his position as the President and
Chief Executive Officer), Mr. Allanson is entitled to receive his base salary
and other benefits through the 180th day after the date of termination. If Mr.
Allanson's employment is terminated by the Company without cause, the Company is
obligated to pay Mr. Allanson his base salary and provide Mr. Allanson and Mr.
Allanson's family with hospital, major medical and dental insurance equivalent
to the insurance provided on the date of termination, through the end of the
term of the Allanson Employment Agreement then in effect on the date of
termination.

COMPENSATION OF DIRECTORS

Non-employee directors of the Company are reimbursed for reasonable travel and
lodging expenses incurred in attending meetings of the Board of Directors and
any committees on which they may serve. Directors do not presently receive any
fees for attendance or participation at Board or committee meetings.



Item 11.    Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth certain information known to the Company
regarding beneficial ownership of shares of the Common Stock as of March 16,
2001 for (i) each person or group that is known by the Company to be a
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
each director of the Company, and (iii) all directors and executive officers of
the Company as a group. Except as otherwise indicated, the Company believes that
such beneficial owners, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws, where applicable.

<TABLE>
<CAPTION>
             Name and Address of Beneficial Owner            Number of Shares       Percent of Class (1)
             ------------------------------------            ----------------       ----------------

<S>                                                            <C>                          <C>
        Gregory Abbott                                         4,339,398(2)                 33.4%
        1200 Kessler Drive
        Aspen, CO 81611

        Louis A. Simpson                                       3,264,475(3)                 25.7%
        5951 La Sendita
        P.O. Box 1943
        Rancho Santa Fe, California 92067

        George Kriste                                          2,092,381(4)                 18.1%
        20643 Seabord Road
        Malibu, California 90265

        George Abbott                                          2,022,975(5)                 17.3%
        1285 South Ocean Boulevard
        Palm Beach, Florida 33480

        Gary Allanson                                          1,835,409(6)                 16.0%
        1111 Benfield Boulevard, Suite 230
        Millersville, Maryland 21108

        Reed Slatkin                                          1,490,475 (7)
        890 North Kellogg Avenue                                                            13.3%
        Santa Barbara, California 93111

</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>

<S>                                                             <C>                         <C>
        Jon Silverman                                           666,667(8)                  6.8%
        6 International Drive, Suite 160
        Rye Brook, New York 10573

        Frank Carillo                                           21,667(9)                     *
        570 Grand Avenue
        Englewood, New Jersey 07631


        All directors and executive officers as a             8,288,855(10)                 50.1%
        group (4 persons)

</TABLE>

----------------------------------------------
*                 Less than 1%.



                                       35
<PAGE>

(1)      For purposes of computing the percentage of outstanding shares of
         Common Stock held by each person or group of persons named above, any
         security which such person or persons have or have the right to acquire
         within 60 days is deemed to be outstanding but is not deemed to be
         outstanding for the purpose of computing the percentage ownership of
         any other person.


(2)      Includes 3,190,475 shares of Common Stock issuable upon conversion of
         Preferred Stock (including 50 shares of Series C Stock which may be
         acquired upon exercise of currently exercisable warrants) and 60,000
         shares of Common Stock issuable upon exercise of currently exercisable
         options. Does not include 40,000 shares of Common Stock subject to
         options which will not become exercisable within 60 days of the date
         hereof.

(3)      Includes 2,940,475 shares of Common Stock issuable upon conversion of
         Preferred Stock (including 50 shares of Series C Stock which may be
         acquired upon exercise of currently exercisable warrants).

(4)      Includes 1,752,381 shares of Common Stock issuable upon conversion of
         Preferred Stock and 60,000 shares of Common Stock issuable upon
         exercise of currently exercisable options. Does not include 40,000
         shares of Common Stock subject to options which will not become
         exercisable within 60 days of the date hereof.

(5)      Includes 1,940,475 shares of Common Stock issuable upon conversion of
         Preferred Stock (including 50 shares of Series C Stock, which may be
         acquired upon exercise of currently exercisable warrants).

(6)      Includes 1,460,000 shares of Common Stock issuable upon exercise of
         currently exercisable options, 290,909 shares of Common Stock issuable
         upon conversion of Preferred Stock, 25,000 shares of Common Stock owned
         jointly with Mr. Allanson's wife, 37,000 shares of Common Stock owned
         in an IRA account for Mr. Allanson's benefit and 22,500 shares of
         Common Stock owned in an IRA account for the benefit of Mr. Allanson's
         wife. Does not include an aggregate of 440,000 shares of Common Stock
         subject to options, which are not currently exercisable.

(7)      Includes 1,490,475 shares of Common Stock issuable upon conversion of
         Preferred Stock (including 50 shares of Series C Stock which may be
         acquired upon exercise of currently exercisable warrants).

(8)      Includes 66,667 shares of Common Stock issuable upon exercise of
         options.


(9)      Includes 10,000 shares of Common Stock owned of record by Mr. Carillo's
         wife. Also includes 1,667 shares of Common Stock issuable upon exercise
         of currently exercisable options. Does not include 8,333 shares of
         Common Stock subject to options, which will not become exercisable
         within 60 days of the date hereof.

(10)     Includes an aggregate of 5,233,765 shares of Common Stock issuable upon
         conversion of Preferred Stock and an aggregate of 1,581,667 shares of
         Common Stock issuable upon exercise of currently exercisable stock
         options.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On October 25, 1999 and December 15, 1999 certain persons, including Gary
Allanson, the Chairman and Chief Executive Officer of the Company, and George
Kriste and Gregory Abbott, directors of the Company, purchased from the Company
an aggregate of 560 shares of the Company's Series A Redeemable Convertible
Preferred Stock ("Series


                                       36
<PAGE>

A Stock") for $2,000 per share. The number of shares purchased by each of
Messrs. Allanson, Kriste and Abbott on such dates and the total purchase price
paid by such persons are set forth below:

                              Total Shares
                               of Series A                    Total
       Name                  Stock Purchased              Purchase Price
       ----                  ---------------              --------------

     Gary Allanson                  32                       $  64,000
     George Kriste                 132                        $264,000
     Gregory Abbott                187                        $374,000

On February 22, 2000 certain persons including Messrs. Kriste and Abbott
purchased from the Company an aggregate of 440 shares of the Company's Series B
Redeemable Convertible Preferred Stock ("Series B Stock") for $2,000 per share.
The number of shares of Series B Stock purchased by each of Messrs. Kriste and
Abbott are set forth below:
                              Total Shares
                               of Series B                    Total
       Name                  Stock Purchased               Purchase Price
       ----                  ---------------               --------------

     George Kriste                 50                         $100,000
     Gregory Abbott                97.5                       $195,000

On August 22, 2000 certain persons, including Messrs. Kriste and Abbott,
purchased from the Company an aggregate of 200 shares of the Company's Series C
Redeemable Convertible Preferred Stock ("Series C Stock") for $2,000 per share.
On December 1, 2000 certain persons, including Mr. Abbott, purchased an
additional 200 shares of Series C Stock for $2,000 per share. The aggregate
number of shares of Series C Stock purchased by each of Messrs. Kriste and
Abbott are set forth below:


                                Total Shares
                                 of Series B                    Total
       Name                    Stock Purchased              Purchase Price
       ----                    ---------------              --------------

     George Kriste                   40                        $80,000
     Gregory Abbott                  90                       $180,000

The proceeds of the sale of the Series A Stock, Series B Stock and Series C
Stock (collectively, the "Preferred Stock") are being used by the Company for
working capital.

The holders of Preferred Stock are entitled to receive cumulative dividends at
the rate of 12% per year. In the discretion of the Company, the dividends may be
paid in cash, in additional shares of Series A Stock, Series B Stock or Series C
Stock, as the case may be, or any combination of the foregoing.

The holders of Series A Stock may convert the Series A Stock into Common Stock
initially at the rate of one share of Common Stock for each $.22 of liquidation
value of the Series A Stock. The holders of Series B Stock may convert the


                                       37
<PAGE>

Series B Stock into Common Stock initially at the rate of one share of Common
Stock for each $.35 of liquidation value of the Series B Stock. The holders of
Series C Stock may convert the Series C Stock into Common Stock initially at the
rate of one share of Common Stock for each $.30 of liquidation value of the
Series C Stock. The conversion rates of the Preferred Stock are subject to
adjustment in certain circumstances.

The holders of Series A Stock, voting as a separate class, are entitled to elect
one director of the Company. In addition, the holders of Preferred Stock are
entitled to vote on all matters (including elections of directors) together with
the holders of the Common Stock with each share of Preferred Stock having the
number of votes equal to the number of whole and fractional shares of Common
Stock into which such share is then convertible (as of March 24, 2001, each
share of Series A Stock would have 9,090.9 votes, each share of Series B Stock
would have 5,714.3 votes and each share of Series C Stock would have 6.666.7
votes).

ITEM 13.       EXHIBITS, LIST AND REPORTS ON FORM 8-K.

EXHIBITS

Exhibit No.
-----------

      3.1        Restated Certificate of Incorporation of the Company, as
                 amended (incorporated herein by reference to Exhibit 3.1 to the
                 Company's Registration Statement on Form SB-2 (Registration No.
                 333-7915) (the "Form SB-2")).

      3.2        Certificate of Amendment to the Certificate of  Incorporation
                 (incorporated  herein by reference to Exhibit 3.2 to the Form
                 SB-2).

      3.3        Certificate of Amendment to the Certificate of Incorporation
                 (incorporated by reference to Exhibit 3.3 to the Company's
                 Annual Report on Form 10-KSB for the fiscal year ended December
                 31, 1998 (the "1998 10-KSB")).

      3.4        Certificate of Designation of Series A Redeemable Convertible
                 Preferred Stock of the Company (incorporated by reference to
                 Exhibit 3.4 to the Company's Annual Report on Form 10-KSB for
                 the fiscal year ended December 31, 1999 (the "1999 10-KSB")).

      3.5        Certificate of Designation of Series B Redeemable Convertible
                 Preferred Stock of the Company (incorporated by reference to
                 Exhibit 3.5 to the 1999 10-KSB).

      3.6        By-laws of the Company, as amended (incorporated herein by
                 reference to Exhibit 3.3 to the Form SB-2).

      3.7        Certificate of Designation of Series C Redeemable Convertible
                 Preferred Stock of the Company.*


                                       38
<PAGE>


      4.1        Specimen Common Stock Certificate (incorporated herein by
                 reference to Exhibit 4.1 to the Form SB-2).

      4.2        Form of Class A Warrant Agreement (incorporated herein by
                 reference to Exhibit 4.2 to the Form SB-2).

      10.1       License Agreement by and between the Company and RIC, dated as
                 of October 10, 1995, as amended (incorporated herein by
                 reference to Exhibit 10.1 to the Form SB-2).

      10.2       Form of Bridge Loan Agreement and Promissory Note (incorporated
                 herein by reference to Exhibit 10.3 to the Form SB-2).

      10.3       Form of Amendment to Bridge Loan Agreement (incorporated herein
                 by reference to Exhibit 10.4 to the Form SB-2).

      10.4       Settlement Agreement, dated as of October 10, 1995, by and
                 among Hardee Capital Partners, L.P., Louis Simpson, Gregory
                 Abbott, George Kriste, David Brenman, Gerald Gottlieb, Marc
                 Gottlieb, Joseph Koster, Greg Pardes, Linda Poit, ReSeal Food
                 Dispensing Systems, Inc., ReSeal International Limited
                 Partnership, Technologies & Advancements, Inc., ReSeal
                 International Corporation, ReSeal Pharmaceutical Systems, Ltd.,
                 Milton Stanson, Hilda Brown, Ann Hoopes, Townsend Hoopes, Robin
                 Smith and Eugene Sumner (incorporated herein by reference to
                 Exhibit 10.7 to the Form SB-2).

      10.5       Employment Agreement, dated March 15, 1999, between the Company
                 and Gary Allanson (incorporated by reference to Exhibit 10.9 to
                 the Company's 1998 10-KSB).

      10.6       Agreement entered into as of December 23, 1997 between the
                 Company and Well Men (incorporated herein by reference to
                 Exhibit 10.11 to the Company's 1997 10-KSB).

      10.7       Lease dated December  22, 1999 between MIE Properties, Inc. and
                 the Company (incorporated  by reference to Exhibit 10.7 to the
                 1999 10-KSB).

      10.8       Amended and Restated 1998 Stock Option Plan (incorporated by
                 reference to the definitive proxy statement of the Company
                 filed on January 4, 2001 in connection with the Annual Meeting
                 of Stockholders of the Company held on February 1, 2001).

      10.9       Amended and Restated Director Option Plan (incorporated by
                 reference to the definitive proxy statement of the Company
                 filed on May 12, 1999 in connection with the Annual Meeting of
                 Stockholders held on June 18, 1999).

      10.10      Preferred Stock Subscription Agreement dated as of September
                 23, 1999 between the Company, Gregory Abbott, George V. Kriste
                 ("Kriste"), Louis Simpson ("Simpson") and Gary Allanson
                 ("Allanson") (incorporated by reference to Exhibit 10.10 to the
                 1999 10-KSB).


                                       39
<PAGE>


      10.11      Amendment  No. 1, dated as of October 25, 1999 to  Preferred
                 Stock Subscription Agreement among the Company, Gregory Abbott,
                 Kriste, Simpson and Allanson (incorporated by reference to
                 Exhibit 10.11 to the 1999 10-KSB).

      10.12      Amendment No. 2, dated as of December 15, 1999 to Preferred
                 Stock Subscription Agreement among the Company, Gregory Abbott,
                 Kriste,  Simpson,  Allanson and George Abbott (incorporated by
                 reference to Exhibit 10.12 to the 1999 10-KSB).

      10.13      Amendment No. 3, dated as of February 22, 2000 to Preferred
                 Stock Subscription Agreement among the Company, Gregory Abbott,
                 Kriste, Simpson, Allanson, George Abbott and Reed Slatkin
                 ("Slatkin") (incorporated by reference to Exhibit 10.13 to the
                 1999 10-KSB).

      10.14      Preferred Stock Subscription  Agreement dated as of August 15,
                 2000 among the Company, Simpson, Gregory Abbott, George Abbott
                 and Slatkin.*

      10.15      Amendment No. 1 dated December 1, 2000 to Preferred Stock
                 Subscription Agreement among the Company, Simpson, Gregory
                 Abbott, George Abbott and Slatkin.*

----------------------------

* Filed herewith

REPORTS ON FORM 8-K

                  No Form 8-K was filed by the Company within the fourth quarter
of the Company's fiscal year ended December 31, 2000.




                                       40
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Dated:  March 29, 2001                  INTERNATIONAL DISPENSING
                                                CORPORATION



                                        By:/s/ Gary Allanson
                                           -------------------------
                                           Gary Allanson
                                           President and Chief Executive Officer

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:


Signature                       Title                                 Date
---------                       -----                                 ----

                           Chairman, President and Chief
/s/ Gary Allanson          Executive Officer                      March 29, 2001
---------------------      (Principal Executive
Gary Allanson              Officer, Principal Financial Officer
                           and Principal Accounting Officer)



/s/ Gregory Abbott         Director                               March 29, 2001
---------------------
Gregory Abbott


/s/ George Kriste          Director                               March 29, 2001
---------------------
George Kriste


/s/ Frank Carillo          Secretary and Director                 March 29, 2001
---------------------
Frank Carillo





                                       41
<PAGE>

                      INTERNATIONAL DISPENSING CORPORATION

                          ANNUAL REPORT ON FORM 10-KSB
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                 EXHIBITS INDEX

                             DESCRIPTION OF EXHIBITS
                             -----------------------

Exhibit No.

        3.1        Restated Certificate of Incorporation of the Company, as
                   amended  (incorporated  herein by  reference to Exhibit 3.1
                   to the  Company's  Registration  Statement on Form SB-2
                   (Registration  No.  333-7915)  (the "Form SB-2")).

        3.2        Certificate of Amendment to the Certificate of Incorporation
                   (incorporated  herein by reference to Exhibit 3.2 to the Form
                   SB-2).

        3.3        Certificate of Amendment to the Certificate of Incorporation
                   (incorporated by reference to Exhibit 3.3 to the Company's
                   Annual Report on Form 10-KSB for the fiscal year ended
                   December 31, 1998 (the "1998 10-KSB")).

        3.4        Certificate of Designation of Series A Redeemable Convertible
                   Preferred Stock of the Company (incorporated by reference to
                   Exhibit 3.4 to the Company's Annual Report on Form 10-KSB for
                   the fiscal year ended December 31, 1999 (the "1999 10-KSB")).

        3.5        Certificate of Designation of Series B Redeemable Convertible
                   Preferred Stock of the Company (incorporated by reference to
                   Exhibit 3.5 to the 1999 10-KSB).


        3.6        By-laws of the Company, as amended (incorporated herein by
                   reference to Exhibit 3.3 to the Form SB-2).

        3.7        Certificate of Designation of Series C Redeemable Convertible
                   Preferred Stock of the Company.*


        4.1        Specimen Common Stock Certificate (incorporated herein by
                   reference to Exhibit 4.1 to the Form SB-2).

        4.2        Form of Class A Warrant Agreement (incorporated herein by
                   reference to Exhibit 4.2 to the Form SB-2).

       10.1        License Agreement by and between the Company and RIC, dated
                   as of October 10, 1995, as amended (incorporated herein by
                   reference to Exhibit 10.1 to the Form SB-2).

       10.2        Form of Bridge Loan Agreement and Promissory Note
                   (incorporated herein by reference to Exhibit 10.3 to the Form
                   SB-2).

       10.3        Form of Amendment to Bridge Loan Agreement (incorporated
                   herein by reference to Exhibit 10.4 to the Form SB-2).


                                       42
<PAGE>

       10.4        Settlement Agreement, dated as of October 10, 1995, by and
                   among Hardee Capital Partners, L.P., Louis Simpson, Gregory
                   Abbott, George Kriste, David Brenman, Gerald Gottlieb, Marc
                   Gottlieb, Joseph Koster, Greg Pardes, Linda Poit, ReSeal Food
                   Dispensing Systems, Inc., ReSeal International Limited
                   Partnership, Technologies & Advancements, Inc., ReSeal
                   International Corporation, ReSeal Pharmaceutical Systems,
                   Ltd., Milton Stanson, Hilda Brown, Ann Hoopes, Townsend
                   Hoopes, Robin Smith and Eugene Sumner (incorporated herein by
                   reference to Exhibit 10.7 to the Form SB-2).

        10.5       Employment Agreement, dated March 15, 1999, between the
                   Company and Gary Allanson (incorporated by reference to
                   Exhibit 10.9 to the Company's 1998 10-KSB).

        10.6       Agreement entered into as of December 23, 1997 between the
                   Company and Well Men (incorporated herein by reference to
                   Exhibit 10.11 to the Company's 1997 10-KSB).

        10.7       Lease dated December 22, 1999 between MIE Properties, Inc.
                   and the Company  (incorporated reference to Exhibit 10.7 to
                   the 1999 10-KSB).

        10.8       Amended and Restated 1998 Stock Option Plan (incorporated by
                   reference to the definitive proxy statement of the Company
                   filed on January 4, 2001 in connection with the Annual
                   Meeting of Stockholders of the Company held on February 1,
                   2001).

        10.9       Amended and Restated Director Option Plan (incorporated by
                   reference to the definitive proxy statement of the Company
                   filed on May 12, 1999 in connection with the Annual Meeting
                   of Stockholders held on June 18, 1999).

        10.10      Preferred Stock Subscription Agreement dated as of September
                   23, 1999 between the Company, Gregory Abbott, George V.
                   Kriste ("Kriste"), Louis Simpson ("Simpson") and Gary
                   Allanson ("Allanson") (incorporated by reference to Exhibit
                   10.10 to the 1999 10-KSB).

        10.11      Amendment No. 1, dated as of October 25, 1999 to Preferred
                   Stock Subscription Agreement among the Company, Gregory
                   Abbott, Kriste, Simpson and Allanson (incorporated by
                   reference to Exhibit 10.11 to the 1999 10-KSB).

        10.12      Amendment No. 2, dated as of December 15, 1999 to Preferred
                   Stock Subscription Agreement among the Company, Gregory
                   Abbott,  Kriste,  Simpson,  Allanson and George Abbott
                   (incorporated by reference to Exhibit 10.12 to the 1999
                   10-KSB).

        10.13      Amendment No. 3, dated as of February 22, 2000 to Preferred
                   Stock Subscription Agreement among the Company, Gregory
                   Abbott, Kriste, Simpson, Allanson, George Abbott and Reed
                   Slatkin ("Slatkin")(incorporated by reference to Exhibit
                   10.13 to the 1999 10-KSB).

        10.15      Preferred Stock Subscription Agreement dated as of August 15,
                   2000 among the Company, Simpson, Gregory Abbott, George
                   Abbott and Slatkin.*

        10.15      Amendment No. 1 dated December 1, 2000 to Preferred Stock
                   Subscription  Agreement  among the Company,  Simpson, Gregory
                   Abbott, George Abbott and Slatkin.*

* Filed herewith.

                                       43
<PAGE>

                                   Exhibit 3.7

                           CERTIFICATE OF DESIGNATION
                                       OF
                 SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
                     OF INTERNATIONAL DISPENSING CORPORATION]


         INTERNATIONAL DISPENSING CORPORATION, a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
Fourth of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has adopted the following resolution as of July
20, 2000 creating a series of its Preferred Stock designated as the Series C
Redeemable Convertible Preferred Stock:

                  RESOLVED, that a separate series of the class of authorized
         Preferred Stock, par value $.001 per share, of the Corporation be
         hereby created, and that the designation and the amount thereof and the
         voting powers, preferences and relative, participating, optional and
         other special rights of the shares of such series and the
         qualifications, limitations of restrictions thereof are as follows:

         1. Designation and Amount. The shares of the series of Preferred Stock
         -------------------------
of the Corporation created and authorized hereby shall be designated as "Series
C Redeemable Convertible Preferred Stock" (hereinafter referred to as the
"Preferred Stock") and the number of shares constituting such series shall be
Seven Hundred (700).


                                       44
<PAGE>

         2.       Dividends.
                  ---------

                  (a) Computation of Cumulative Dividends. The holders of the
                      ------------------------------------
outstanding shares of Preferred Stock shall be entitled to receive, out of any
funds legally available therefor, cumulative dividends at the annual rate of
twelve percent (12%) per share of Preferred Stock, or $240 per share. Such
cumulative dividends shall accrue and accumulate from the date of original
issuance and shall be payable quarterly on the last day of March, June,
September and December of each year, commencing on the last day of the calendar
quarter in which the date of original issuance occurs. Cumulative dividends on
the Preferred Stock shall be payable in cash or in additional shares of
Preferred Stock having an aggregate liquidation value equal to the dividend, or
any combination of the foregoing, at the discretion of the Corporation.
Cumulative dividends on the Preferred Stock shall be payable if, as and when
declared by the Board of Directors of the Corporation, but shall nevertheless be
payable upon liquidation as provided in Section 3.

                           Dividends on the Preferred Stock shall accrue from
day to day on each share of Preferred Stock from the date of original issuance
of such share, whether or not earned or declared, and shall accrue until paid.

                           All numbers relating to calculation of cumulative
dividends shall be subject to equitable adjustment in the event of any stock
dividend, stock split, merger, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Preferred Stock. Such dividends on the Preferred Stock shall be
cumulative so that if such dividends in respect of any previous or current
quarterly dividend period, at the annual rate specified above, shall not have
been paid or declared and a sum sufficient for the payment thereof set apart,
the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Corporation's
Common Stock, par value $.001 per share (the "Common Stock").

                  (b) No Participating Dividends. In the event that the Board of
                      ---------------------------
Directors of the Corporation shall declare a dividend payable upon the then
outstanding shares of Common Stock (other than a stock dividend on the Common
Stock distributed solely in the form of additional shares of Common Stock), the
holders of the Preferred Stock shall not be entitled to any dividends on the
Common Stock other than dividends payable to such holders in their status as
holders of Common Stock.

         3.       Liquidation, Dissolution or Winding Up.
                  --------------------------------------

                  Treatment at Liquidation, Dissolution or Winding Up. In the
                  ----------------------------------------------------
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or other payment is made to any holders of any shares of Common
Stock, or any other class or series of capital stock of the Corporation
designated to be junior to the Preferred Stock, and any future class or series
of capital stock designated to be junior to the Preferred Stock, the holders of
each share of Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes whether such assets are capital,
surplus or earnings, an amount equal to Two Thousand ($2,000) Dollars per share
of Preferred Stock (which amount shall be subject to equitable adjustment
whenever there shall occur a stock dividend, stock split, merger, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the capital structure of the Preferred Stock) plus an
amount equal to the sum of all accumulated and unpaid dividends to the date
fixed for the payment of the distribution on the shares of Preferred Stock.

                  If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Preferred Stock the
full amounts to which they otherwise would be entitled, the holders of Preferred
Stock shall share ratably in any distribution of available assets according to
the respective amounts which would otherwise be payable with respect to the
shares of Preferred Stock held by them upon such liquidating distribution if all
amounts payable on or with respect to said shares were paid in full, based upon
the aggregate liquidation value of the Preferred Stock and the


                                       45
<PAGE>

aggregate liquidation value of all other classes or series of preferred stock
which are not designated to be junior to the Preferred Stock.

                  After such payment shall have been made in full to the holders
of the Preferred Stock, or funds necessary for such payment shall have been set
aside by the Corporation in trust for the account of holders of the Preferred
Stock so as to be available for such payment, the remaining assets available for
distribution shall be distributed among the holders of the Common Stock and any
other class or series of capital stock of the Corporation designated to be
junior to the Preferred Stock.

         4. Voting Rights. In addition to the rights provided in Section 5 or by
            --------------
law, the holders of Preferred Stock shall be entitled to vote on all matters as
to which holders of Common Stock shall be entitled to vote (including, but not
limited to, the election of directors of the Corporation), in the same manner
and with the same effect as such holders of Common Stock, except as set forth in
Section 5, voting together with the holders of Common Stock as one class. Each
share of Preferred Stock shall entitle the holder thereof to such number of
votes as shall equal the number of whole and fractional shares of Common Stock
into which such share is then convertible.

         5. Rights of Preferred Stock with Respect to Corporate Action;
         --------------------------------------------------------------
Amendments to Charter. The Corporation shall not take any corporate action or
---------------------
otherwise amend its Certificate of Incorporation without the approval by vote or
written consent of the holders of at least a majority of the then outstanding
shares of Preferred Stock, voting as a separate class, each share of Preferred
Stock to be entitled to one vote in each instance, if such corporate action or
amendment would change any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Preferred Stock
or adversely affect the rights of the Preferred Stock.

         6.       Notices of Record Date.  In the event of:
                  ----------------------

                  (a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of capital stock of any class or any
other securities or property, or to receive any other right, or

                  (b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or

                  (c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the Corporation shall
mail or cause to be mailed to each holder of Preferred Stock a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such dividend, distribution
or right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, or express overnight courier service, at
least ten (10) days prior to the date specified in such notice on which such
action is to be taken.

         7.       Conversion.
                  ----------

                  (a) Each of the holders of Preferred Stock shall have the
right at any time prior to the Redemption Date (as hereinafter defined) to
convert all of any part of his outstanding shares of Preferred Stock together
with accrued and unpaid dividends thereon into fully paid and non-assessable
shares of Common Stock of


                                       46
<PAGE>

the Corporation ("Common Stock") at the conversion price of $.30 (the
"Conversion Price"), which Conversion Price shall be subject to adjustment as
provided in Section 7(e). The Corporation shall not be required to issue any
fractional shares of Common Stock upon the conversion of Preferred Stock. If
more than one share of Preferred Stock is surrendered for conversion at one time
by the same holder, the number of full shares of Common Stock that shall be
issued upon the conversion of Preferred Stock shall be computed on the basis of
the aggregate number of shares of Preferred Stock surrendered. If any interest
in a fractional share of Common Stock would otherwise be deliverable upon the
conversion of Preferred Stock, the Corporation shall make adjustment for that
fractional share interest by payment of an amount in cash equal to the same
fraction of the market value at that time of a full share of Common Stock of the
Corporation.

                  (b) The Corporation covenants that, during the period
conversion rights exist, the Corporation will at all times reserve from its
authorized and unissued Common Stock a sufficient number of shares of Common
Stock to permit conversion in full of the outstanding shares of Preferred Stock
at the Conversion Price from time to time in effect. The Corporation represents
and warrants that upon issuance, such shares of Common Stock will be duly and
validly issued, fully paid and non-assessable.

                  (c) The Corporation agrees that its issuance of Preferred
Stock shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of Preferred Stock.

                  (d) The right of each of the holders of Preferred Stock to
convert his shares of Preferred Stock shall be exercised by delivering to the
Corporation (i) a certificate or certificates for the shares of Preferred Stock
to be converted, duly endorsed or assigned in blank to the Corporation and (ii)
a conversion notice stating that the holder elects to convert such shares and
stating the name or names and addresses in which the certificates for shares of
Common Stock are to be issued (the "Notice of Conversion"). The Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock or other
securities or property on conversion of Preferred Stock. As soon as practicable
after the conversion of Preferred Stock, the Corporation shall issue to the
holder a certificate or certificates for the number of shares of Common Stock to
which the holder is entitled. If the shares of Preferred Stock represented by
the certificates delivered to the Corporation are not converted in full, the
Corporation shall deliver to the holder a new certificate for the shares of
Preferred Stock not converted.

                  (e) (i) In case of any consolidation or merger of the
Corporation with any other corporation (other than a wholly-owned subsidiary of
the Corporation) in which the Corporation is not the surviving corporation, or
in case of any stock split, stock dividend or reclassification of the Common
Stock of the Corporation, or in case of any share exchange pursuant to which all
of the outstanding shares of Common Stock are converted into other securities or
property (each event, a "Capital Transaction"), the Corporation shall make
appropriate provision or cause appropriate provision to be made so that the
holder of Preferred Stock shall have the right thereafter to convert his shares
of Preferred Stock into the kind of shares of stock and other securities and
property receivable upon such Capital Transaction by the persons who were
holders of Common Stock immediately prior to the effective date of such Capital
Transaction and on a basis which preserves the economic benefits of the
conversion rights of the holder on a basis as nearly as practical as such rights
existed prior to such Capital Transaction. If, in connection with any such
Capital Transaction each holder of shares of Common Stock is entitled to elect
to receive either securities, cash or other assets upon completion of such
Capital Transaction, the Corporation shall provide or cause to be provided to
the holder the right to elect the securities, cash or other assets into which
Preferred Stock shall be convertible after completion of any such Capital
Transaction on the same terms and subject to the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The above provisions shall similarly apply to successive Capital
Transactions.

                           (ii) In case the Corporation shall in one or a series
of related transactions issue or sell a number of shares of Common Stock which
in the aggregate exceed 20% of the outstanding shares of Common Stock of the
Corporation on a fully diluted basis giving effect to the issuance of such
shares (a "Qualifying Transaction") for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance

                                       47
<PAGE>

of the shares of Common Stock which triggers the operation of this Section 7(e)
(ii) (the "Triggering Issuance"), then the Conversion Price in effect
immediately prior to such Triggering Issuance shall be reduced to the average
consideration per share of all Common Stock issued in the Qualifying
Transaction. For the purposes of any computation to be made in accordance with
the provisions of this Section 7(e)(ii), the following provisions shall be
applicable:

                           (A)      In case of the issuance or sale of shares of
Common Stock for a consideration part or all of
which shall be cash, the amount of the cash consideration therefor shall be
deemed to be the amount of cash received by the Corporation for such shares (or,
if such shares of Common Stock are offered by the Corporation for subscription,
the subscription price, or, if shares of Common Stock shall be sold to
underwriters or dealers for public offering without a subscription offering, the
initial public offering price) before deducting therefrom any commissions or
other expenses paid or incurred by the Company for any underwriting of, or
otherwise in connection with, the issuance of such shares.

                           (B)      In case of the issuance or sale of shares of
Common Stock for a consideration part or all of which shall be other than cash
(otherwise than as a dividend or other distribution on any shares of the Company
or on conversion, exchange or exercise of other securities of the Company or
upon acquisition of the assets or securities of another company or upon merger
or consolidation with another entity), the amount of consideration therefor
other than cash shall be the value of such consideration as of the date of the
issuance or sale of the shares of Common Stock, irrespective of accounting
treatment. The reclassification of securities other than Common Stock into
securities including Common Stock shall be deemed to involve the issuance for a
consideration other than cash of such Common Stock immediately prior to the
close of business on the date fixed for the determination of security holders
entitled to receive such Common Stock.

                           (C)      In case of the issuance of shares of Common
Stock upon conversion or exchange of any obligations or of any shares of stock
of the Corporation that shall be convertible into or exchangeable for shares of
Common Stock or upon the exercise of rights or options to subscribe for or to
purchase shares of Common Stock, the amount of consideration received by the
Corporation for such shares of Common Stock shall be deemed to be the total of
(1) the amount of the consideration received by the Corporation upon the
original issuance of such obligations, shares, rights or options, as the case
may be, plus (2) the consideration, if any, other than such obligations, shares,
rights or options, received by the Corporation upon such conversion, exchange,
or exercise except in adjustment of interest and dividends. The amount of the
consideration received by the Corporation upon the original issuance of the
obligations, shares, rights or options so converted, exchanged or exercised and
the amount of the consideration, if any, other than such obligations, shares,
rights or options, received by the Corporation upon such conversion, exchange or
exercise shall be determined in the same manner provided in clauses (A) and (B)
above with respect to the consideration received by the Corporation in case of
the issuance of shares of Common Stock; if such obligations, shares, rights or
options shall have been issued as a dividend upon any stock of the Corporation,
the amount of the consideration received by the Corporation upon the original
issuance thereof shall be deemed to be zero.

                           (D)      In case of the issuance of shares of Common
Stock upon acquisition by the Corporation of the assets or securities of another
company or upon merger or consolidation of the Corporation with another entity,
the consideration therefor received by the Corporation for such issuance shall
be deemed to equal the cash and the Fair Market Value of securities issued by
the Corporation. The Fair Market Value of securities issued shall be the lesser
of the Fair Market Value of the securities on the date an agreement in principle
with respect to such merger, consolidation or purchase is reached among the
parties or the date the agreement of consolidation, merger or purchase is
executed. For purposes hereof, the "Fair Market Value" of a unit of a security
means:

          (1)      if the security is Common Stock, then


                                       48
<PAGE>

                  (i) if the Common Stock is traded on an exchange or is quoted
                  on the NASDAQ National Market System, then the average of the
                  closing or last sale prices, respectively, reported for the 20
                  trading days ended immediately preceding the determination
                  date; or

                  (ii) if the Common Stock is not traded on an exchange or on
                  the NASDAQ National Market System but is traded in the
                  over-the-counter market, then the mean of the average of the
                  closing bid and asked prices reported for the 20 trading days
                  ended immediately preceding the determination date; or

                  (iii) in all other circumstances, the fair market value per
                  share of the Common Stock as determined in good faith by the
                  Board of Directors of the Corporation; and

         (2) if the security is not Common Stock, the fair market value thereof
as determined in good faith by the Board of Directors of the Corporation.

                  (f) Whenever the Corporation shall propose to take any of the
actions specified in Section 7(e), the Corporation shall cause a notice to be
mailed at least 10 days prior to the date on which the books of the Corporation
will close or on which a vote will be taken for such action, to the holder. Such
action shall specify the action proposed to be taken by the Corporation and the
date as of which holders of record of the Common Stock shall participate in any
such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction. Upon receipt by the Corporation of a Notice of Conversion meeting
the requirements for conversion as provided in Section 7(d), the Corporation
shall issue and deliver or cause to be issued and delivered to the holder of
Preferred Stock certificates for the Common Stock issuable upon such conversion
within 15 business days after such receipt, and the holder of Preferred Stock
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion.

         8.       Redemption.
                  ----------

                  (a) Redemption at the Option of the Holders of Preferred
                      ----------------------------------------------------
Stock. Within 30 days after the occurrence of a Change of Control (as
------
hereinafter defined), the Corporation shall notify each of the holders of
Preferred Stock in writing of such occurrence. Within 30 days after the
Corporation so notifies the holders, any of the holders of the outstanding
shares of Preferred Stock may, by notice to the Corporation as hereinafter
provided, require the Corporation to redeem all or part of his outstanding
shares of Preferred Stock, at a price per share equal to $2,000 (which amount
shall be subject to equitable adjustment wherever there shall occur a stock
dividend, stock split, merger, combination, reorganization, recapitalization,
reclassification and other similar event involving a change in capital structure
of the Preferred Stock) plus all cumulative dividends accrued and unpaid on such
Preferred Stock through the date of redemption (the "Redemption Price"). The
notice of redemption shall be in writing.

                  (b) Redemption at the Option of the Corporation. The
                      --------------------------------------------
Corporation may, at its option (i) at any time after the date when the
Corporation first reports either three consecutive quarters of positive net
income or one fiscal year of positive net income (if the latter, such report
must be audited by a nationally recognized independent accounting firm) or (ii)
within 30 days after giving the holders of Preferred Stock notice of the
occurrence of a Change of Control, redeem shares of outstanding Preferred Stock,
in whole or in part, provided that the redemption must be pro rata for each
holder of Preferred Stock based on the number of shares held by each such holder
of Preferred Stock, at a price per share equal to the Redemption Price. The
Corporation shall give notice of such redemption to each holder of the Preferred
Stock, which notice shall specify the date of the requested redemption in
accordance with Section 8(d) hereof, and the number of shares of Preferred Stock
held by such holder of Preferred Stock being redeemed pursuant to this
subsection 8(b).


                                       49
<PAGE>

                  (c) Legally Sufficient Funds. In the event of a requested
                      -------------------------
redemption by a holder of Preferred Stock in accordance with Section 8(a) or by
the Corporation in accordance with Section 8(b), if the funds of the Corporation
legally available for redemption of Preferred Stock on any Redemption Date (as
hereinafter defined) are insufficient to redeem all of the shares of Preferred
Stock to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of shares of Preferred Stock
ratably among the holders of the Preferred Stock to be redeemed. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of such Preferred Stock, such funds will promptly be used to
redeem the balance of the shares of such Preferred Stock together with any
accrued dividends thereon.

                  (d) Redemption Date; Redemption Price. The date of a
                      ----------------------------------
redemption of Preferred Stock pursuant to this Section 8 (a "Redemption Date")
shall be a business day not less than sixty (60) days from and not more than
ninety (90) days from the date of the first notice sent by a holder of Preferred
Stock in accordance with Section 8(a), or not less than thirty (30) days from
the date of the notice sent by the Corporation in accordance with Section 8(b);
provided that no such date will be a Redemption Date unless the applicable
Redemption Price is paid in full in cash on such date, and if not so paid in
full, the Redemption Date will be the date on which such Redemption Price is
fully paid as permitted and required by this Designation. For each share of
Preferred Stock which is to be redeemed pursuant to this Section 8, the
Corporation will be obligated on the Redemption Date to pay to the holder
thereof, upon surrender by such holder at the Corporation's principal office of
the certificate representing such shares of Preferred Stock endorsed or assigned
in blank to the Corporation, an amount equal to the Redemption Price.

                  (e) Dividends After Redemption Date. No share of Preferred
                      --------------------------------
Stock is entitled to any dividends accruing after its Redemption Date. On such
Redemption Date all rights of the holder of such share of Preferred Stock will
cease and such share of Preferred Stock will not be deemed to be outstanding.

                  (f) Redeemed or Otherwise Acquired Shares.  Any shares of
                      -------------------------------------
Preferred Stock which are redeemed or otherwise acquired by the Corporation will
be canceled and will not be reissued, sold or transferred.

                  (g) Change of Control.  For purposes of this Section 8, a
                      -----------------
"Change of Control" shall be deemed to have occurred on the date that:

                           (i)      any "Person" including a "Group" (as such
term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act) becomes (except as a result of the acquisition of Preferred
Stock or conversion of Preferred Stock into Common Stock) a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, in a
single transaction or group of related transactions of securities of the
Corporation representing 33-1/3% or more of the combined voting power of the
Corporation's then outstanding securities eligible to vote for the election of
the Board (the "Voting Securities"); provided, however, that the event described
in this Section 8(g)(i) shall not be deemed to be a Change in Control by virtue
of any of the following acquisitions: (A) by the Corporation or any subsidiary
of the Corporation in which the Corporation owns more than 50% of the combined
voting power of such entity (a "Subsidiary"), (B) by any employee benefit plan
(or related trust) sponsored or maintained by the Corporation or any Subsidiary,
(C) by any underwriter temporarily holding the Corporation's Voting Securities
pursuant to an offering of such Voting Securities, or (D) pursuant to a
Non-Qualifying Transaction (as defined in Section 8(g)(ii));

                           (ii)     there is a consummation of a merger,
consolidation, statutory share exchange or similar form of corporate transaction
involving the Corporation or any of its Subsidiaries that requires the approval
of the Corporation's shareholders (a "Business Combination"), unless immediately
following such Business Combination either of the following is applicable: (A)
more than 50% of the total voting power of (1) the Corporation resulting from
such Business Combination (the "Surviving Corporation"), or (2) if applicable,
the ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by the
Corporation's Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares into which the
Corporation's Voting Securities were converted pursuant to such


<PAGE>

Business Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of the Corporation's
Voting Securities among the holders thereof immediately prior to the Business
Combination; or (B) no person (other than any person engaged in a transaction
described in clauses (A) through (D) in Section 8(g)(i) above), is or becomes
(except as a result of the acquisition of Preferred Stock or conversion of
Preferred Stock into Common Stock) the beneficial owner, directly or indirectly,
of 33-1/3% or more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation)(any Business Combination in
which any of the criteria specified in (A) or (B) of this Section 8(g)(ii) is
applicable shall be deemed to be a "Non-Qualifying Transaction); or

                           (iii)    there is a closing for a sale of all or
substantially all of the Corporation's assets.

                           Notwithstanding the foregoing, a Change in Control of
the Corporation shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 33-1/3% of the Corporation's Voting Securities
as a result of the acquisition of the Corporation's Voting Securities by the
Corporation which reduces the number of the Corporation's Voting Securities
outstanding; provided, that if after such acquisition by the Corporation such
person becomes the beneficial owner of additional Corporation Voting Securities
that increases the percentage of outstanding Corporation Voting Securities
beneficially owned by such person by more than 3%, a Change in Control of the
Corporation shall then become effective unless otherwise exempt under clauses
(A) through (D) of Section 8(g)(i) above or because it constitutes a
Non-Qualifying Transaction.




         IN WITNESS WHEREOF, International Dispensing Corporation has caused
this Certificate of Designation of Series C Redeemable Convertible Preferred
Stock to be duly executed this 11th day of August, 2000.

                                         INTERNATIONAL DISPENSING CORPORATION


                                         By:    /s/ Gary Allanson
                                            ----------------------------------
                                            Name: Gary Allanson
                                            Title: President


<PAGE>

                                  Exhibit 10.14





                          =============================

                     PREFERRED STOCK SUBSCRIPTION AGREEMENT
                           Dated as of August 15, 2000
                                  By and Among
                    THE INVESTORS LISTED ON EXHIBIT A HERETO
                                       and
                      INTERNATIONAL DISPENSING CORPORATION

                          =============================




                     PREFERRED STOCK SUBSCRIPTION AGREEMENT
                     --------------------------------------


         PREFERRED STOCK SUBSCRIPTION AGREEMENT (this "Agreement") dated as of
August 15, 2000, by and among the Investors listed on Exhibit A hereto (each a
"Investor," and collectively the "Investors"), and INTERNATIONAL DISPENSING
CORPORATION, a Delaware corporation (the "Company").


                              W I T N E S S E T H :
                               -------------------

         WHEREAS, the Investors desire to subscribe for, and the Company desires
to issue up to an aggregate of 500 shares of the Company's Series C Redeemable
Convertible Preferred Stock, par value $.001 per share (the "Preferred Stock")
for the per share purchase price of $2,000 on the terms and subject to the
conditions set forth herein.


                  NOW, THEREFORE, IT IS AGREED:


                                    ARTICLE I
          ISSUANCE OF STOCK AND PAYMENT OF SUBSCRIPTION PRICE; CLOSING
          ------------------------------------------------------------

                  1.1 Issuance of Stock. Subject to the terms and conditions set
                      ------------------
forth in this Agreement, the Company agrees to sell to the Investors, and the
Investors severally irrevocably subscribe for and agree to purchase for $2,000
per Share, 500 shares of Preferred Stock (the "Shares").

                  1.2 Closing Dates
                      -------------

                           (a)      The purchase and sale of the Shares shall
occur at one or more closings  (each,  a "Closing") at such times as shall be
determined by the Company, subject to the conditions set forth in this
Agreement. The initial Closing shall occur within three business days after the
execution of this Agreement by the Company and the Investors . The date of the
initial Closing is hereinafter referred to as them "Initial Closing Date." On
the Initial Closing Date GREGORY B. ABBOTT, GEORGE ABBOTT, GEORGE V. KRISTE,
LOUIS SIMPSON and REED SLATKIN (collectively, the "Investors") shall purchase
Two Hundred (200) Shares and shall pay to the Company by certified check or wire
transfer of immediately available funds, FOUR HUNDRED THOUSAND DOLLARS
($400,000).



<PAGE>



                           (b)      Subsequent  Closings  shall occur not less
than thirty (30) days after written  notice by the Company to the Investors (the
"Call Notice") in the form attached hereto as Exhibit B. The Call Notice shall
set forth the number of Shares to be issued and sold to the Investors at such
Closing. Within thirty (30) days after the giving of the Call Notice to the
Investors, the Investors shall give written notice to the Company setting forth
the amount of Shares to be purchased by each Investor at the Closing to which
the Call Notice relates. The obligation of each Investor for subsequent closings
shall be several and in the same proportion as set forth in Section 1.2(a)
hereof. Should any Investor give notice to the Company that such Investor wishes
to terminate such Investor's commitment to purchase additional Shares, then the
remaining Investors may, but are not required, to purchase such Shares of the
Investor who declines to purchase additional Shares, in the same proportion as
set forth above. Any Investor, at any time, in his or its sole discretion, upon
written notice to the Company, may terminate his commitment to purchase Shares.

                  1.3 Warrants. For each Share purchased by an Investor at a
                      ---------
Closing, the Company shall issue to the Investor a warrant to purchase one
additional Share for $2,000 per Share. 50% of the Warrants issued to each
Investor shall expire if not exercised prior to December 15, 2000 and the
remaining Warrants shall expire on January 20, 2001. The Warrants shall be in
the form of Exhibit C.
            ----------

                  1.4 Legends. From and after the date hereof, all share
                      --------
certificates representing Shares, or shares of the Common Stock into which the
Shares are convertible ("Conversion Shares"), shall bear a legend which shall
state as follows:

                           "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
                  NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
                  AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
                  VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
                  THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
                  AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
                  OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS
                  NOT REQUIRED UNDER SUCH ACT."


                                   ARTICLE II
                  REPRESENTATIONS AND COVENANTS OF THE COMPANY
                  --------------------------------------------


         2.       Representations and Covenants of the Company .  The Company
                  ---------------------------------------------
hereby represents, warrants and agrees as follows:


                  2.1 Existence and Good Standing. The Company is a corporation
                      ----------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company has the requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. The Company is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the character or location of the
properties owned, leased or operated by the Company or the nature of the
business conducted by the Company makes such qualification or license necessary,
except where the failure to be so duly qualified or licensed would not have a
material adverse effect on the business, operations, financial condition or
results of operations of the Company (a "Material Adverse Effect").

                  2.2 Capital Stock. The Company has an authorized
                      --------------
capitalization consisting of 40,000,000 shares of common stock, par value $.001
per share (the "Common Stock") and 2,000,000 shares of Preferred Stock, par
value $.001 per share. Of the Common Stock, 9,666,668 shares are issued and
outstanding. Of the Preferred Stock, 560 shares of Series A Preferred Stock and
440 shares of Series B Preferred Stock are issued and outstanding. Options and
warrants to purchase an aggregate of 2,327,776 shares of Common Stock are
outstanding. On the Initial Closing Date and on each subsequent date of Closing,
after giving effect to the transactions contemplated by this Agreement, each
Investor will

<PAGE>

receive good and marketable title to the Shares he acquires from the Company,
free and clear of all liens, claims and other encumbrances. All outstanding
shares of capital stock of the Company have been, and will on the Initial
Closing Date be, duly authorized and validly issued and fully paid and
nonassessable. Other than as set forth on Schedule 2.2 and as set forth in this
Agreement, there will be on the Initial Closing Date no outstanding
subscriptions, options, registration rights, warrants, rights, calls,
commitments, conversion rights, rights of exchange, preemptive rights, rights of
first refusal, rights of first offer, plans or other agreements of any character
providing for the purchase, registration, issuance or sale of any shares of the
capital stock of the Company.

                  2.3 Authorization and Validity of this Agreement. The Company
                      ---------------------------------------------
has the requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement by the Company and the performance of its
obligations hereunder have been duly authorized and approved by its Board of
Directors and no other corporate action on the part of the Company is necessary
to authorize the execution, delivery and performance of this Agreement by the
Company. This Agreement has been duly executed and delivered by the Company and,
assuming due execution of this Agreement by the Investors, is a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.

                  2.4 SEC Documents; No Material Changes. (a) The Company has
                      -----------------------------------
furnished to the Investors true, correct and complete copies of its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1999 and its
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000. Such
periodic reports constitute all the documents that the Company was required to
file with the Securities and Exchange Commission (the "SEC") from January 1,
2000 to the Initial Closing Date. Each of the periodic reports filed by the
Company with the SEC since June 30, 1999 ("SEC Documents") has been timely and
duly filed and when filed was in compliance in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the SEC thereunder applicable to such SEC
Document. Each of the SEC Documents (including the financial statements included
therein) was complete and correct in all material respects as of its date and,
as of its date, did not contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The financial statements included within the SEC
Documents have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and present fairly or will present fairly (subject, in the case of the
unaudited statements, to normal year-end audit adjustments) the consolidated
financial position of the Company as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.

                           (b)      Since March 31, 2000, there has been no (i)
material  adverse  change  in the  business, operations, financial condition,
results of operations or prospects of the Company or (ii) material damage,
destruction or loss to any asset or property, tangible or intangible, of the
Company which materially affects the ability of the Company to conduct its
business. Notwithstanding the foregoing, the Investors acknowledge that the
Company is in the development stage, has incurred significant losses since
inception and will continue to incur significantlosses.

                  2.5 Consents and Approvals: No Violations. The execution and
                      --------------------------------------
delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby and thereby (a) will not violate or contravene
any provision of the Certificate of Incorporation or By-laws of the Company, or
any statute, rule, regulation, order or decree of any public body or authority
by which the Company is or any of its properties are bound, (b) will not require
any filing with, or consent of, or the giving of any notice to, any governmental
or regulatory body, agency or authority, or any other person and (c) will not
result in a violation or breach of, conflict with, constitute a default (or give
rise to any right of termination, cancellation, payment or acceleration) under,
or result in the creation of any encumbrance upon any of the properties or
assets of the Company under, any of the terms, conditions or provisions of any
agreement, instrument or obligation to which the Company is a party, or by which
any of its properties or assets may be bound or under which it may have any
rights, excluding from the foregoing clauses (b) and (c) filings, notices,

<PAGE>

permits, consents and approvals, the absence of which, and violations, breaches,
defaults, conflicts and encumbrances of which, in the aggregate, would not have
a Material Adverse Effect.

                  2.6 Broker's or Finder's Fees. No agent, broker, person or
                      --------------------------
firm acting on behalf of the Company, is, or will be, entitled to any commission
or broker's or finder's fees from the Company, or from any person or entity
controlling, controlled by or under common control with the Company, in
connection with any of the transactions contemplated by this Agreement;
provided, however, that the independent committee of the Board of Directors of
--------  -------
the Company retained Brooks, Houghton & Company, Inc. ("BHC") to render an
opinion concerning the fairness of the transactions contemplated by this
Agreement to the holders of Common Stock of the Company and BHC will be paid a
fee by the Company in connection therewith.

                  2.7 Reverse Stock Split. The Board of Directors of the Company
                      --------------------
shall meet at an appropriate time to consider the terms of a possible reverse
stock split of the Company's Common Stock, and if that occurs, the numbers set
forth herein will be adjusted in an equitable manner.

                                   ARTICLE III
                        REPRESENTATIONS OF THE INVESTORS
                        --------------------------------

         3.       Representations of the Investors.  Each Investor, represents,
                  ---------------------------------
warrants  and agrees,  for itself or himself only, as follows:

                  3.1 Existence and Good Standing; Power and Authority. Such
                      -------------------------------------------------
Investor, if it is a corporation, a limited liability company or a limited
liability partnership, is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Such Investor has the
legal power and authority to enter into, execute and deliver this Agreement and
perform its obligations hereunder and thereunder. This Agreement has been duly
authorized and approved by such Investor and is a valid and binding obligation
of such Investor enforceable against such Investor in accordance with its terms,
except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
effecting the enforcement of creditors' rights generally and by general
equitable principles.

                  3.2 Restrictive Documents. Such Investor is not subject to any
                      ----------------------
mortgage, lien, lease, agreement, instrument, order, law, rule, regulation,
judgment or decree, or any other restriction of any kind or character, which
would prevent consummation by such Investor of the transactions contemplated by
this Agreement.

                  3.3 Purchase for Investment. Such Investor will acquire the
                      ------------------------
Shares for its own account for investment and not with a view toward any resale
or distribution thereof; provided, however, that the disposition of each such
Investor's property shall at all times remain within the sole control of the
Investor.

                  3.4 Broker's or Finder's Fees. No agent, broker, person or
                      --------------------------
firm acting on behalf of such Investor is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any person controlling, controlled by or under common control with any of the
parties hereto, in connection with any of the transactions contemplated by this
Agreement.

                  3.5 Exemption from Registration . Such Investor acknowledges
                      -----------------------------
that the offering and sale of the Shares is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by virtue of Section 4(2) of the Securities Act and Regulation D
promulgated thereunder.

                  3.6 Ability to Bear Economic Risk. Such Investor has
                      ------------------------------
determined that the Shares are a suitable investment for the Investor, that the
Investor has the financial ability to bear the economic risk of its investment
in the Company, has adequate means of providing for its current needs and
personal contingencies and has no need for liquidity with respect to investment
in the Company.

<PAGE>


                  3.7 No Liquidity. Such Investor will not sell or otherwise
                      -------------
transfer the Shares without registration under the Act or an exemption
therefrom, and fully understands and agrees that the Investor must bear the
economic risk of its investment for an indefinite period of time because, among
other reasons, the Shares have not been registered under the Act or under the
securities laws of any state and, therefore, cannot be resold, pledged, assigned
or otherwise disposed of unless they are subsequently registered under the Act
and under applicable state securities laws or an exemption from such
registration is available. Such Investor also understands that sales or
transfers of the Shares are further restricted by the provisions of state
securities laws.

                  3.8 Suitability and Accredited Status . Such Investor
                      -----------------------------------
represents and warrants that such Investor is an accredited investor and that
all information provided by such Investor in the Purchaser Questionnaire
executed simultaneous herewith is true and correct as of the Initial Closing
Date.

                  3.9 Access to Information. Such Investor acknowledges that the
                      ----------------------
Company has made available to him the opportunity to ask questions of, and
receive answers from, the management of the Company concerning the terms and
conditions of this Agreement and the business, financial condition and prospects
of the Company and to obtain additional information to the extent the Company
possesses such information or can acquire it without unreasonable effort or
expense, necessary to verify the accuracy of the information given to the
Investor in the SEC Documents or otherwise to make an informed investment
decision and acknowledges that all material documents, records and books
pertaining to the investment have, on request, been made available to any
advisors designated by the Investor to receive such information.


                                   ARTICLE IV
                                    COVENANTS
                                    ---------


                  4.1 SEC Reports. So long as any Shares are outstanding the
                      ------------
Company shall (a) within 15 days of each required filing date (i.e., the date on
which the reports or other documents are required to be filed with the SEC
pursuant to Sections 13(a) and 15(d), (b) transmit by mail to all holders of
Shares, as their names and addresses appear in the corporate books and records
maintained by the Company, without cost to such holders, copies of the annual
reports, quarterly reports and other documents which the Company is required to
file with the SEC pursuant to Sections 13(a) and 15(d) of the Exchange Act, and
(c) transmit to all holders any and all documents or materials distributed to
all of the holders of the Common Stock simultaneously with the distribution to
the holders of Common Stock.

                                    ARTICLE V
                               REGISTRATION RIGHTS


                  5.1 Certain  Definitions.  As used in this Article V, the
                      --------------------
following  terms  shall  have the  following respective meanings:

                  "Holders" shall mean the holders of Registrable Securities.

                  "Initiating Holders" shall mean any persons who in the
aggregate are Holders of at least a majority of the voting power held by all
outstanding Registrable Securities.

                  "Registrable Securities" shall mean (i) the Conversion Shares
and (ii) any Common Stock issued in respect thereof upon any stock split, stock
dividend, recapitalization or similar event.

                  "Requesting Stockholders" shall mean holders of securities of
the Company entitled to have securities included in any registration pursuant to
Section 5.2 and who shall request such inclusion.

<PAGE>

                  The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.

                  "Registration Expenses" shall mean all expenses incurred by
the Company in compliance with Sections 5.2 and 5.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, reasonable
fees and disbursements of one counsel for all the selling Holders for a "due
diligence" examination of the Company, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company).

                  "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for any Holder, except as otherwise provided
herein.

                  "Underwritten Offering" shall mean the offering and sale of
Registrable Securities in a registration pursuant to a firm commitment
underwriting to an underwriter at a fixed price for reoffering or pursuant to
agency or best efforts arrangements with a placement agent or underwriter.

                  5.2 Demand Registration.
                      --------------------

                  (a) Requests for Registration. At any time after one hundred
                      --------------------------
twenty (120) days from the date of this Agreement the Initiating Holders may
request registration under the Securities Act of all or part of their
Registrable Securities. Within ten (10) days after receipt of any such request,
the Company will give written notice of such requested registration to all other
Holders of Registrable Securities and any other stockholder having registration
rights which entitle it to participate in such registration. The Company will
include in such registration all Registrable Securities with respect to which it
has received written requests for inclusion therein within fifteen (15) days
after receipt of the Company's notice. The Company shall cause its management to
cooperate fully and to use its best efforts to support the registration of the
Registrable Securities and the sale of the Registrable Securities pursuant to
such registration as promptly as is practicable. Such cooperation shall include,
but not be limited to, management's attendance and reasonable presentations in
respect of the Company at road shows with respect to the offering of Registrable
Securities. All registrations requested under this Section 5.2(a) are referred
to herein as "Demand Registrations." The Holders of Registrable Securities will
be entitled to request one Demand Registration hereunder. A registration will
not count as a Demand Registration until it has become effective. Should the
Demand Registration not be filed by the Company within sixty (60) days of the
date of the Company's written notice to the Holders of Registrable Securities,
then the Company shall pay to all the Holders of Registrable Securities, on a
pro rata basis, as liquidated damages, the sum of TWO HUNDRED THIRTY-THREE
DOLLARS ($233) per day for each day beyond the sixty (60) day period that the
Demand Registration has not been filed; provided, however, that the maximum
amount of liquidated damages payable to the Holders hereunder shall be $100,000.

                  (b) Demand Registration Expenses. The Company will pay up to
                      -----------------------------
an aggregate of TWENTY THOUSAND DOLLARS ($20,000) of Registration Expenses in
connection with a Demand Registration hereunder. The Requesting Stockholders
shall be obligated to pay their pro rata share (based on the number of their
Registrable Securities included in the registration statement) of any
Registration Expenses in connection with a Demand Registration which exceed
TWENTY THOUSAND DOLLARS ($20,000) in the aggregate. The Requesting Stockholders
shall also pay all Selling Expenses attributable to the sale of their securities
pursuant to any Demand Registration, including their pro rata share of all fees
and disbursements of counsel for the Holders in connection with such Demand
Registration.

                  (c) Priority on Demand Registrations. If a Demand Registration
                      ---------------------------------
is an Underwritten Offering, and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities requested to
be included exceeds the number which can be sold in such offering, the Company
will include in such registration such number of shares, which in the opinion of
such underwriters, may be sold, allocated among the Holders

<PAGE>

electing to participate and all other persons entitled to and electing to
participate pro rata in accordance with the amounts of securities requested to
be so included by the respective Holders and other persons.

                  (d) Restrictions on Demand Registration. The Company will not
                      ------------------------------------
be obligated to effect any Demand Registration within six (6) months after the
effective date of a previous registration in which the Holders of Registrable
Securities were given piggyback rights pursuant to Section 5.3 other than a
registration of Registrable Securities intended to be offered on a continuous or
delayed basis under Rule 415 or any successor rule under the Securities Act.

                  5.3 Piggyback Registrations.
                      ------------------------

                  (a) Right to Piggyback. Whenever the Company proposes to
                      -------------------
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration) and the registration form to be used may be used for the
registration and contemplated disposition of Registrable Securities (a
"Piggyback Registration"), the Company will give prompt written notice to all
Holders of Registrable Securities of its intention to effect such a registration
so that such notice is received by each Holder at least twenty (20) days before
the anticipated filing date. The Company will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within ten (10) days after the receipt of the
Company's notice.

                  (b) Piggyback Expenses. In connection with each Piggyback
                      -------------------
Registration, all of the Registration Expenses of the Holders of Registrable
Securities will be paid by the Company and such Holders shall pay all of the
Selling Expenses attributable to the sale of their securities pursuant to the
Piggyback Registration, including their pro rata share of all fees and
disbursements of counsel for the Holders in connection with such Piggyback
Registration.

                  (c) Priority on Primary Registrations. If a Piggyback
                      ----------------------------------
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the distribution of the Registrable Securities to be included
concurrently with the securities being registered on behalf of the Company would
materially adversely affect the distribution of such securities by the Company,
the Company will include in such registration (i) first, the securities the
Company proposes to sell, (ii) second, the Registrable Securities and securities
of the Company with respect to which similar registration rights have heretofore
been granted and requested to be included in such registration, pro rata in
accordance with the amounts of Registrable Securities and such securities
requested to be so included by the respective Holders and holders of such
securities of the Company; and (iii) third, any other securities requested to be
included in such registration.

                  (d) Priority on Secondary Registrations. If a Piggyback
                      ------------------------------------
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the distribution of the Registrable Securities to
be included concurrently with the securities being registered on behalf of the
Company would materially adversely affect the distribution of such securities by
the Company, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration, (ii) second, the Registrable Securities and securities of the
Company with respect to which similar registration rights have heretofore been
granted and requested to be included in such registration, pro rata in
accordance with the amounts of Registrable Securities and such securities
requested to be so included by the respective Holders and holders of such
securities of the Company, and (iii) third, other securities requested to be
included in such registration.

                  5.4       Holdback Agreements.
                            -------------------

                  (a) Each Holder of Registrable Securities which is a party to
this Agreement agrees not to effect any public sale or distribution of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and the
90-day period beginning on the effective date of any underwritten Demand
Registration in which the Holder participates or any underwritten Piggyback

<PAGE>

Registration in which the Holder participates (except as part of such
underwritten registration or with the consent of the managing underwriter).

                  (b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days prior
to and the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except (A) as
part of such underwritten registration, (B) with the consent of the managing
underwriter or (C) pursuant to registrations on Form S-8 or any other similar
form for employee benefit plans), and (ii) to use its reasonable best efforts to
cause each holder of its equity securities, or any securities convertible into
or exchangeable or exercisable for such securities, purchased from the Company
at any time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period (except as part of such underwritten registration,
if otherwise permitted or with the consent of the managing underwriter).

                  5.5 Registration Procedures . Whenever the Holders of
                      -------------------------
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Article V, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible:

                  (a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities, which registration
statement will state that the Holders of Registrable Securities covered thereby
may sell such Registrable Securities either under such registration statement
or, at any Holder's proper request, pursuant to Rule 144 (or any similar rule
then in effect), and use its best efforts to cause such registration statement
to become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish to
the counsel selected by the Holders of a majority of the Registrable Securities
covered by such registration statement copies of all such documents proposed to
be filed, which documents will be subject to the review and approval of such
counsel);

                  (b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period set forth in Section 5.5(k) hereof and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;

                  (c) furnish to each Holder of Registrable Securities covered
by such registration such number of copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
such Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities;

                  (d) use its best efforts to register or qualify such
Registrable Securities covered by such registration under such other securities
or blue sky laws of such jurisdictions as any Holder reasonably requests and do
any and all other acts and things which may be reasonably necessary or advisable
to enable the Holders thereof to consummate the disposition in such
jurisdictions of the Registrable Securities as requested by such Holders
(provided that the Company will not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subsection, subject itself to taxation in any such jurisdiction, or
consent to general service of process in any such jurisdiction);

                  (e) notify each Holder of Registrable Securities covered by
such registration, at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any fact necessary to make
the statements therein not misleading, and, the Company will prepare a
supplement or amendment to such prospectus so that, such prospectus (or any
document incorporated therein by reference) will not

<PAGE>

contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;

                  (f) cause all such Registrable Securities to be listed on each
securities exchange or automated quotation system on which similar securities
issued by the Company are then listed or quoted;

                  (g) provide a transfer agent and registrar for all such
Registrable  Securities  not later  than the effective date of such registration
statement;

                  (h) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
Holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation, using
its best efforts to effect a stock split or a combination of shares);

                  (i) make available for inspection by any Holder of Registrable
Securities covered by such registration, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;

                  (j) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to its
security holders, earnings statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than 45 days after the end of any 12-month
period (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold and (ii) beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the registration
statement, which statements shall cover said 12-month periods; and

                  (k) keep each registration statement effective for a period of
one year after the effective date of such registration statement, except in the
case of a Form S-3 Registration Statement which shall continue to remain
effective.

                   5.6 Indemnification . In the event of any registration under
                       -----------------
the provisions of this Article V, the Company, to the extent permitted by law,
will indemnify any Holder participating in such registration, its respective
officers and directors, if any, and each person, if any, who controls such
Holder within the meaning of Section 15 of the Securities Act, against all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the registration statement or prospectus (and as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading and will reimburse such Holder its officers and directors and any
person, if any, who controls such Holder within the meaning of Section 15 of the
Securities Act, against any legal or other expenses reasonably incurred by such
Holder, officer, director or person in connection with investigating or
defending any such losses, claims, damages and liabilities, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission contained in information furnished in writing to the Company by such
Holder participating in such registration or by underwriters expressly for use
therein. The obligation of the Company under this Article V to register
securities for any of the Holders shall be subject to the condition that each
such Holder and the underwriters involved in the offering shall furnish to the
Company in writing such information as shall be reasonably requested by the
Company for use in connection with the preparation of any such registration
statement or prospectus and, to the extent permitted by law, shall indemnify the
Company, its directors and officers, any other underwriter, the other Holders
participating in such registration and each person, if any, who controls the
Company, any other underwriter or such other Holders, within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages and
liabilities caused by any untrue statement or omission contained in information
so furnished in writing to the Company by such Holder or such underwriter
expressly for use therein.

<PAGE>

                   5.7 Contribution. If the indemnification provided for in this
                       -------------
Article V from the indemnifying party is unavailable as a matter of law or
public policy to any indemnified party hereunder in respect of any losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages or liabilities,
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party under this Article V as a
result of the losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Section 5.7 were determined by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to herein.

                   5.8 Termination. The registration rights provided in this
                       ------------
Article V shall terminate as to any Investor which can immediately sell all of
the shares of Common Stock issued or issuable to such Investor upon conversion
of the Shares in a single sale pursuant to Rule 144 under the Securities Act.


                                   ARTICLE VI
                                   INDEMNITIES
                                   -----------

                  6.1 Indemnity of Investors. Each Investor, severally, agrees
                      -----------------------
to indemnify and hold harmless the Company and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
and all loss, liability, claim, damage and expense whatsoever (including, but
not limited to, any and all expenses reasonably incurred in investigating,
preparing or defending against any litigation commenced or threatened or any
claim whatsoever) arising out of or based upon any false representation or
warranty or breach or failure by such Investor to comply with any covenant or
agreement made by such Investor herein or in any other document furnished by the
Investor to any of the foregoing in connection with this transaction. The
Company hereby acknowledges that no Investor shall have any liability for a
breach by any other Investor of any representation, warranty or agreement
hereunder.

                  6.2 Indemnity of Company. The Company agrees to indemnify and
                      ---------------------
hold harmless the Investors, against any and all loss, liability, claim, damage
and expense whatsoever (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any false representation or warranty or breach or failure by the
Company to comply with any covenant or agreement made by the Company herein or
in any other document furnished by the Company to any of the foregoing in
connection with this transaction.

                  6.3 Notice to Indemnifying Party. Each party entitled to
                      -----------------------------
indemnification under this Article VI (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided, that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided, further, that the failure of any Indemnified Party to give notice as
--------  -------
provided herein shall not relieve the Indemnifying Party of its obligations
under this Article VI unless such failure has had a material adverse effect on
the defense against such claim. The parties to this Agreement

<PAGE>

reserve any rights to claim under this Agreement for damages actually incurred
by reason of any failure of the Indemnified Party to give prompt notice of a
claim. To the extent counsel for the Indemnifying Party shall in such counsel's
reasonable judgment, have a conflict in representing an Indemnified Party in
conjunction with the Indemnifying Party or other Indemnified Parties, such
Indemnified Party shall be entitled to separate counsel at the expense of the
Indemnifying Party subject to the approval of such counsel by the Indemnified
Party (whose approval shall not be unreasonably withheld). No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and any litigation
resulting therefrom.


                                   ARTICLE VII
                           SURVIVAL OF REPRESENTATIONS
                           ---------------------------

         7.       Survival of  Representations.  The respective  representations
                  ----------------------------
and warranties of the Company and the Investors contained in this Agreement
shall survive the Closing for a period of two years.


                                  ARTICLE VIII
                                  MISCELLANEOUS
                                  -------------

                  8.1 Knowledge of the Company. Where any representation or
                      -------------------------
warranty made by the Company contained in this Agreement is expressly qualified
by reference to its knowledge, such knowledge shall be deemed to exist if the
matter is within the knowledge of the executive officers of the Company.

                  8.2 Expenses. The parties hereto shall pay their own expenses
                      ---------
relating to the transactions contemplated by this Agreement, including, without
limitation, the fees and expenses of their respective counsel and financial
advisers.

                  8.3 Governing Law. The interpretation and construction of this
                      --------------
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York applicable to agreements executed and to be performed solely
within such State.

                  8.4 Captions. The Article and Section captions used herein are
                      ---------
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.

<PAGE>
                  8.5 Notices. Any notice or other communication required or
                      -------
permitted under this Agreement shall be sufficiently given if delivered in
person or sent by telecopy or by registered or certified mail, postage prepaid,
addressed as follows: if to any Investor, to the address set forth on Exhibit A
attached hereto set forth below such Investor's name; and if to the Company, to
it at I-97 Business Park, 1111 Benfield Blvd., Suite 230, Millersville, Maryland
21108 (Facsimile No. 410-729-0275) Attention: Gary Allanson, President and Chief
Executive Officer, with a copy to its counsel, Wolf, Block, Schorr and
Solis-Cohen LLP, 250 Park Avenue, New York, New York 10177 (Facsimile Number
212-986-0604) Attention: Martin R. Bring, Esq., or such other address or number
as shall be furnished in writing by any such party, and such notice or
communication shall be deemed to have been given upon automatic confirmation of
receipt by the receiving machine if sent by telecopier, upon delivery if
delivered in person, and upon mailing if mailed.

                  8.6 Parties in Interest. This Agreement may not be
                      --------------------
transferred, assigned, pledged or hypothecated by any party hereto, other than
by operation of law. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.

                  8.7 Counterparts.  This Agreement may be executed in two or
                      ------------
more  counterparts,  all of  which  taken together shall constitute one
instrument.

                  8.8 Entire Agreement. This Agreement, including the exhibits,
                      -----------------
schedules, and other documents referred to herein and therein which form a part
hereof and thereof, contain the entire understanding of the parties hereto with
respect to the subject matter contained herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.

                  8.9 Amendments.  This Agreement may not be changed orally, but
                     ----------
only by an agreement in writing signed by the Investors and the Company.

                  8.10 Severability. In case any provision in this Agreement
                       -------------
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.

                  8.11 Third  Party  Beneficiaries.  Each party hereto intends
                       ---------------------------
that this  Agreement  shall not  benefit or create any right or cause of action
in or on behalf of any person other than the parties hereto.

                  8.12 Jurisdiction. Any judicial proceeding brought against any
                       -------------
of the parties to this Agreement or any dispute arising out of this Agreement or
any matter related hereto shall be brought in the courts of the State of New
York, or in the United States District Court for the Southern District of New
York, and, by execution and delivery of this Agreement, each of the parties to
this Agreement accepts the jurisdiction of such courts. The foregoing consent to
jurisdiction shall not be deemed to confer rights on any Person other than the
respective parties to this Agreement.

                  8.13 Availability of Equitable Remedies. Since a breach of the
                       -----------------------------------
provisions of this Agreement could not adequately be compensated by money
damages, any party shall be entitled, either before or after any Closing, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and the parties hereby
consent to the issuance of such injunction and to the ordering of specific
performance.

         IN WITNESS WHEREOF, the Investors have signed this Agreement and the
Company has caused its corporate name to be hereunto subscribed by its officers
thereunto duly authorized, all as of the day and year first above written.


<PAGE>

                               INTERNATIONAL DISPENSING CORPORATION


                               By:      /s/ Gary Allanson
                                  ---------------------------------
                               Name: Gary Allanson
                               Title: President


                               INVESTORS:

                                        /s/ Gregory B. Abbott
                               --------------------------------------
                                      GREGORY B. ABBOTT


                                        /s/ George Abbott
                               --------------------------------------
                                      GEORGE ABBOTT


                                       /s/ George V. Kriste
                               --------------------------------------
                                      GEORGE V. KRISTE


                                       /s/ Louis Simpson
                               ---------------------------------------
                                       LOUIS SIMPSON


                                        /s/ Reed Saltkin
                               ----------------------------------------
                                        REED SLATKIN




                                                                     EXHIBIT A
                                                                     ---------

                                    INVESTORS
                                    ---------

<TABLE>
<CAPTION>
           Name                                                                   Percentage of Shares
                                                   Address                        to be Purchased

<S>                          <C>                                                             <C>
Gregory B. Abbott            120 Kessler Drive                                               20%
                             Aspen, Colorado 81611


George V. Kriste             20643 Seaboard Road                                             20%
                             Malibu, California 90265


Louis Simpson                c/o Plaza Investment Managers, Inc.                             20%
                             5951 La Sendita, Building A
                             Rancho Santa Fe, California 92067


Reed Slatkin                 890 North Kellogg Avenue                                        20%
                             Santa Barbara, California 93111

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

<S>                          <C>                                                          <C>
George Abbott                10 Rockefeller Plaza, Suite 604                                 20%
                             New York, New York 10020
</TABLE>





                                                                     EXHIBIT B
                                                                     ---------


                                   CALL NOTICE
                                   -----------


                      INTERNATIONAL DISPENSING CORPORATION
                          111 Benfield Blvd., Suite 230
                             Millersville, MD 21108


         Reference is made to the Preferred Stock Purchase Agreement dated as of
August 15, 2000 by and among International Dispensing Corporation (the
"Company") and certain investors (the "Investors"), including you (the
"Agreement"). Unless otherwise defined herein, capitalized terms used herein
have the same meanings herein as in the Agreement.

         In accordance with Section 1.2(a) of the Agreement you are hereby
notified that the Company will sell to the Investors at a closing to be held on
[not less than 30 days after the date of this Call Notice]       Shares.
                                                          -------

         In accordance with Section 1.2(a) of the Agreement you are required to
notify the Company within 30 days after the giving of this Call Notice how many
of such        Shares you shall purchase.
       --------


                                         Very truly yours,

                                         INTERNATIONAL DISPENSING CORPORATION


                                         By:
                                            ------------------------------------




                                                      EXHIBIT C
                                                 WARRANT TO PURCHASE
                                     SERIES C REDEEMABLE CONVERTIBLE PREFERRED
                                          STOCK, PAR VALUE $.001 PER SHARE

                                                         OF

                                           INTERNATIONAL DISPENSING CORP.

<PAGE>

THIS WARRANT, THE PREFERRED STOCK ISSUABLE UPON EXERCISE HEREOF AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THE PREFERRED STOCK HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF
SUCH WARRANT REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH WARRANT, PREFERRED
STOCK AND/OR COMMON STOCK MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.

                  This certifies that, for value received,                   or
                                                          -------------------
registered assigns ("Warrantholder"), is entitled to purchase from INTERNATIONAL
DISPENSING CORPORATION (the "Company"), subject to the provisions of this
Warrant, at any time during the Exercise Period (as hereinafter defined)
           Shares of the Company's Series C Redeemable Convertible Preferred
-----------
Stock, par value $.001 per share ("Warrant Shares"). The purchase price payable
upon the exercise of this Warrant shall be $2,000 per Warrant Share.

                  For purposes of this Warrant, the term "Exercise Period" means
the period commencing on the date of issuance of this Warrant and (a) with
respect to an aggregate of 50% of the Warrant Shares purchasable upon exercise
of this Warrant, ending on December 15, 2000 and (b) with respect to an
aggregate of 50% of the Warrant Shares purchasable upon exercise of this
Warrant, ending on January 20, 2001.

                  This Warrant is subject to the following terms and conditions:

                  I        Exercise of Warrant.
                           -------------------
                           (a)        This Warrant may be exercised in whole or
in part but not for a  fractional  share.  Upon delivery of this Warrant at the
offices of the Company or at such other address as the Company may designate by
notice in writing to the registered holder hereof with the Subscription Form
annexed hereto duly executed, accompanied by payment of the Warrant Price for
the number of Warrant Shares purchased (in cash, by certified, cashier's or
other check acceptable to the Company, the registered holder of this Warrant
shall be entitled to receive a certificate or certificates for the Warrant
Shares so purchased. Such certificate or certificates shall be promptly
delivered to the Warrantholder. Upon any partial exercise of this Warrant, the
Company shall execute and deliver a new Warrant of like tenor for the balance of
the Warrant Shares purchasable hereunder.

                           (b)       The Warrant Shares deliverable hereunder
shall, upon issuance, be fully paid and non-assessable and the Company agrees
that at all times during the term of this Warrant it shall cause to be reserved
for issuance such number of Warrant Shares as shall be required for issuance and
delivery upon exercise of this Warrant.

                  II       Transfer or Assignment of Warrant.
                           ---------------------------------

                           (a)        Any assignment or transfer of this Warrant
shall be made by surrender of this Warrant at the offices of the Company or at
such other address as the Company may designate in writing to the registered
holder hereof with the Assignment Form annexed hereto duly executed and
accompanied by payment of any requisite transfer taxes, and the Company shall,
without charge, execute and deliver a new Warrant of like tenor in the name of
the assignee for the portion so assigned in case of only a partial assignment,
with a new Warrant of like tenor to the assignor for the balance of the Warrant
Shares purchasable.

                           (b)       Prior to any assignment or transfer of this
Warrant,  the holder  thereof shall deliver an opinion of counsel to the Company
to the effect that the proposed transfer may be effected without registration
under

<PAGE>

the Securities Act of 1933, as amended (the "Securities Act"). Each Warrant
issued upon or in connection with such transfer shall bear the restrictive
legend set forth on the front of this Warrant unless, in the opinion of the
Company's counsel, such legend is no longer required to insure compliance with
the Securities Act.

                  3. Charges, Taxes and Expenses. The issuance of certificates
                     ----------------------------
for Warrant Shares upon any exercise of this Warrant shall be made without
charge to the holder of this Warrant for any tax or other expense in respect to
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued only in the name of the
holder of this Warrant.

                  4.       Miscellaneous.
                           --------------

                           (a)      The terms of this Warrant shall be binding
upon and shall inure to the benefit of any successors or assigns of the Company
and of the holder or holders hereof and of the shares of Common Stock issued or
issuable upon the exercise hereof.

                           (b)      No holder of this Warrant, as such, shall be
entitled to vote or receive dividends or be deemed to be a stockholder of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder of this Warrant, as such, any rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action, receive notice of meetings, receive dividends or subscription
rights, or otherwise.

                           (c)      Receipt of this Warrant by the holder hereof
shall  constitute  acceptance of an agreement to the foregoing terms and
conditions.

                           (d)      The Warrant and the performance of the
parties hereunder shall be construed and interpreted in accordance with the laws
of the State of Delaware.

                           (e)       This Warrant is subject to certain other
agreements  contained in the Purchase  Agreement,  a copy of which is on file
with the Secretary of the Company. Shares issued upon exercise of this Warrant
shall contain a legend substantially to the same effect as the legend set forth
on the first page of this Warrant.

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and its corporate seal to be affixed
hereto.

Dated as of         , 2000
           ---------

                                         INTERNATIONAL DISPENSING CORP.



                                         BY:
                                            ------------------------------------
                                                Name:
                                                Title:

                                                  SUBSCRIPTION FORM


                                      (TO BE EXECUTED BY THE REGISTERED HOLDER
                                       IF HE DESIRES TO EXERCISE THE WARRANT)


         To:      INTERNATIONAL DISPENSING CORPORATION

<PAGE>

                  The undersigned hereby exercises the right to purchase
          shares of Series C Redeemable Convertible Preferred Stock, par value
----------
$.001 per share, covered by the attached Warrant in accordance with the terms
and conditions thereof, and herewith makes payment of the Warrant Price for such
shares in full.


                                        ----------------------------------------
                                        SIGNATURE


                                        ----------------------------------------
                                        ADDRESS


                                        ----------------------------------------




DATED:
       ------------------------


<PAGE>

                                   ASSIGNMENT
                                   ----------


                    (TO BE EXECUTED BY THE REGISTERED HOLDER
                     IF HE DESIRES TO TRANSFER THE WARRANT)


                  FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto          the right to purchase shares of Series C Redeemable
              ----------
Convertible Preferred Stock of INTERNATIONAL DISPENSING CORP., evidenced by the
within Warrant, and does hereby irrevocably constitute and appoint
                                                                   -------------
Attorney to transfer the said Warrant on the books of the Company, with full
power of substitution.




                                               ---------------------------------
                                               SIGNATURE


                                               ---------------------------------
                                               ADDRESS


                                               ---------------------------------
DATED:
      -------------------------------

IN THE PRESENCE OF:

-------------------



                                  Exhibit 10.15



                                December 1, 2000



         International Dispensing Corporation
         1111 Benfield Boulevard, Suite 230
         Millersville, Maryland 21108

         Gentlemen:

                  Reference is made to the Preferred Stock Subscription
         Agreement (the "Purchase Agreement") dated as of August 15, 2000, by
         and among Gregory B. Abbott ("Gregory Abbott"), George Kriste, Louis A.
         Simpson ("Simpson"), Reed Slatkin ("Slatkin"), George Abbott ("George
         Abbott") and International Dispensing Corporation (the "Company").
         Unless otherwise defined herein, capitalized terms used herein have the
         meanings ascribed to them in the Purchase Agreement.

                  This will confirm the agreement of the undersigned and the
Company as follows:

<PAGE>

                  The parties hereby agree that on the date hereof pursuant to
Section 1.2(b) of the Purchase Agreement each of Gregory Abbott, George Abbott,
Simpson and Slatkin shall purchase from the Company for $2,000 per share an
additional 50 shares of Series C Redeemable Convertible Preferred Stock, par
value $.001 per share, of the Company ("Series C Stock"). Such purchase shall be
upon all of the other terms and conditions set forth in the Purchase Agreement.
In keeping with the investment incentives offered in the first round, the
Company shall also issue to each purchaser warrants to purchase up to an
additional 50 shares of Series C Stock at a price of $2,000 per share, such
warrants to be exercisable through June 30, 2001.

                  Each purchaser reaffirms as of the date hereof all of the
representations and agreements made by such purchaser in the Purchase Agreement.

<PAGE>

                  The Company reaffirms as of the date hereof all of the
         representations and agreements made by the Company in the Purchase
         Agreement, except that as of the date hereof, prior to the purchases
         being made hereby, an aggregate 9,728,396 shares of Common Stock are
         outstanding and an aggregate of 200 Shares of Series C Stock and
         warrants to purchase an aggregate of 200 shares of Series C Stock are
         issued and outstanding.

                                     Very truly yours,


                                     /s/ Gregory Abbott
                                     -------------------------------------------
                                     Gregory Abbott


                                     /s/ Louis A. Simpson
                                     -------------------------------------------
                                     Louis A. Simpson


                                     /s/ George Abbott
                                     -------------------------------------------
                                     George Abbott


                                     /s/ Reed Slatkin
                                     -------------------------------------------
                                     Reed Slatkin

         AGREED TO:

         INTERNATIONAL DISPENSING
            CORPORATION


         By: /s/ Gary Allanson
            -----------------------------
               Gary Allanson
               President