UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________________
Commission file number 0-20309
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TAPISTRON INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1684918
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
6203 Alabama Highway
P. O. Box 1067
Ringgold, Georgia
30736-1067
(Address of principal executive offices)
(Zip Code)
(706) 965-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most recent practicable date.
Class Outstanding at March 10, 2001
- ------------------------------- --------------------------------
Common Stock $.0004 Par Value 37,551,494
TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of July 31, 2000 and January 31, 2001 3
Condensed Consolidated Statements of Operations for the Three Months Ended
January 31, 2000 and 2001 and the Six Months Ended January 31, 2000
and 2001 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
January 31, 2000 and 2001. 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 10
SIGNATURE 11
2
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 2000 January 31, 2001
--------------------- --------------------
CURRENT ASSETS
Cash and cash equivalents $ 65,812 $ 260,980
Receivables, net of allowance of $25,000 84,945 169,420
Receivables from employees/others 76,070 77,574
Sales contract receivables 520,000 250,000
Inventory, net of allowance of $30,000 3,339,603 3,143,903
Prepayments 81,107 37,986
Deferred income taxes 100,000 100,000
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Total current assets 4,267,537 4,039,863
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PROPERTY AND EQUIPMENT, NET 619,641 536,430
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OTHER ASSETS
Long-term receivables, net of allowance of $500,000 - -
Patents and patent license 202,085 198,599
Deferred income taxes 1,800,000 1,800,000
Other assets 2,500 -
--------------------- --------------------
Total other assets 2,004,585 1,998,599
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TOTAL $ 6,891,763 $ 6,574,892
===================== ====================
The accompanying notes are an integral part of these financial statements.
3
TAPISTRON INTERNATIONAL, INC
CONDENSED CONSOLIDATED BALANCE SHEETS- CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed from
Audited Financial
Statements Unaudited
July 31, 2000 January 31, 2001
-------------------- --------------------
CURRENT LIABILITIES
Short-term debt $ 1,750,125 $ 2,419,382
Short-term debt - related party 250,000 225,000
Current portion of long-term debt 200,972 120,619
Accounts payable 224,998 232,935
Accrued expenses 269,774 229,629
Customer deposits 24,095 25,919
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Total current liabilities 2,719,964 3,253,484
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CONTINGENT REORGANIZATION LIABILITY 632,145 -
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LONG-TERM DEBT 478 -
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STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value - 2,000,000
shares authorized: no shares issued and
outstanding - -
Common stock - $.0004 par value - 100,000,000
shares authorized: 34,841,129 shares issued
at July 31, 2000 and 37,551,494 as of January 31, 2001 13,936 15,021
Additional paid in capital 26,357,489 26,865,524
Accumulated deficit (22,709,223) (23,559,137)
Treasury stock - 570,018 shares outstanding at cost at
July 31, 2000 and 0 shares outstanding at January 31, 2001 (123,026) -
-------------------- --------------------
Total stockholders' equity 3,539,176 3,321,408
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TOTAL $ 6,891,763 $ 6,574,892
==================== ====================
The accompanying notes are an integral part of these financial statements.
4
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months Six Months Six Months
Ended Jan 31 Ended Jan 31 Ended Jan 31 Ended Jan 31
2000 2001 2000 2001
------------------ ----------------- ------------------ ---------------
SALES $ 1,090,486 $ 141,996 $ 3,906,290 $ 1,861,926
COST OF SALES 641,499 143,213 2,066,919 1,233,710
-------------- ------------- -------------- -------------
Gross profit 448,987 (1,217) 1,839,371 628,216
OPERATING EXPENSES 571,061 680,116 1,220,891 1,312,857
-------------- ------------- -------------- -------------
OPERATING INCOME (LOSS) (122,074) (681,334) 618,480 (684,641)
-------------- ------------- -------------- -------------
OTHER INCOME (EXPENSE)
Interest expense (51,774) (41,122) (92,740) (99,266)
Interest income 10 (10) 19
R&D Experimental & Modifications - (29,351) (58,222)
Gain (Loss) on foreign currency exchange rates (8,501) (2,724) (89,437) (7,785)
-------------- ------------- -------------- -------------
Other income (expense) (60,265) (73,207) (182,158) (165,273)
-------------- ------------- -------------- -------------
NET INCOME (LOSS) $ (182,339) $ (754,540) $ 436,322 $ (849,914)
============== ============= ============== =============
EARNINGS PER SHARE
Net income (loss) (0.005) (0.020) 0.013 (0.024)
Weighted average number of shares
outstanding 34,785,611 37,551,494 34,785,611 36,119,725
The accompanying notes are an integral part of the financial statements.
5
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITIED)
Six Months Six Months
Ended Ended
January 31, 2000 January 31, 2001
---------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 436,322 $ (849,914)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 99,918 99,675
Loss on foreign currency exchange rates 89,437 7,785
Changes in operating assets and liabilities:
(Increase) decrease in receivables (1,198,742) 184,021
(Increase) decrease in prepayments (86,651) 43,122
(Increase) decrease in inventory 157,852 195,700
Increase (decrease) in accounts payable
and accrued expenses 54,507 (32,208)
Increase (decrease) in customer deposits (4,560) 1,824
---------------------- ----------------------
Net cash used in operating activities (451,917) (349,995)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,332) -
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Net cash used in investing activities (16,332) -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 920,020 2,514,620
Principal repayments of debt (1,111,451) (1,968,457)
---------------------- ----------------------
Net cash provided by (used in) financing activities (191,431) 546,163
---------------------- ----------------------
NET INCREASE / (DECREASE) IN CASH: (659,680) 195,168
Cash and cash equivalents - beginning of period 685,328 65,812
---------------------- ----------------------
Cash and cash equivalents - end of period $ 25,648 $ 260,980
====================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 74,928 $ 99,266
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Decrease in liabilities subject to settlement under
plan of reorganization - (632,145)
The accompanying notes are an integral part of the financial statements.
6
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2001
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management of Tapistron International, Inc. ("Tapistron") and
Fabrication Center, Inc. ("FCI"), a wholly-owned subsidiary of Tapistron, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments, except as noted
elsewhere in the notes to the condensed consolidated financial statements)
necessary to present fairly its financial position as of January 31, 2001 and
the results of its operations for the six months ended January 31, 2000 and 2001
and cash flows for the six months ended January 31, 2000 and 2001. These
statements are condensed, and therefore, do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The statements should be read in conjunction with the
consolidated financial statements and footnotes included in the Company's Annual
Report on Form 10-K for the year ended July 31, 2000. The results of operations
for the six months ended January 31, 2001 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - EARNINGS (NET LOSS) PER SHARE
Earnings (net loss) per share are computed using the weighted average number of
shares of common stock outstanding.
NOTE 3 - INVENTORY
Inventory at January 31, 2001 consists of the following:
Raw Material $ 762,016
Work in Process 1,551,922
Finished Goods 859,965
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$3,173,903
Allowance for obsolete inventory (30,000)
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Total $3,143,903
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7
TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
condensed consolidated results of operations and financial condition. The
discussion should be read in conjunction with the condensed consolidated
financial statements and notes thereto.
Results of Operations
Sales
Revenues for the three months ended January 31, 2001 were $141,996 compared with
$1,090,486 for the three months ended January 31, 2000. The decrease in revenues
was due to a lack of sales being consummated in the quarter. Subsequent to the
end of the quarter, two purchase orders have been received for machine
deliveries in the third and fourth quarters respectively. Revenues for the six
months ended January 31, 2001 were $1,861,926 compared with $3,906,290 for the
six months ended January 31, 2000. The decrease in revenues was due to a
decrease in units sold.
Cost of Sales
Cost of sales for the three months ended January 31, 2001 were $143,213 or 101%
of sales, compared with $641,499 or 59% of sales, for the three months ended
January 31, 2000. Cost of sales for the six months ended January 31, 2001 were
$1,233,710 or 66% of sales, compared with $2,066,919 or 53% of sales, for the
six months ended January 31, 2000. Lower margins were the result of machine
sales to penetrate new market segments and to meet cash requirements.
Operating Expenses
Operating expenses were $680,116 for the three months ended January 31, 2001
compared with $571,061 for the three months ended January 31, 2000. Operating
expenses were $1,312,857 for the six months ended January 31, 2001 compared with
$1,220,891 for the six months ended January 31, 2000.
Interest Expense
Interest expense was $99,266 for the six months ended January 31, 2001 compared
with $92,740 for the six months ended January 31, 2000. The increase was due to
an increase in debt for the six months ended January 31, 2001.
8
TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Income Tax Expense
The income tax provision is $0 due to utilization of the net operating loss
carry-forward to reduce current taxable income.
Liquidity and Capital Resources
The following is a discussion of the impact of the significant factors affecting
the Company's liquidity position and capital resources. These comments should be
read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and Notes thereto and many of these comments
also are forward-looking statements within the meaning of Section 21E of the
Exchange Act (see page 10 of this discussion).
The Company's consolidated cash and cash equivalents balance at January 31, 2001
was $260,980, a $195,168 increase from the July 31, 2000 balance of $65,812.
Operating activities used $350,955 of cash in the first six months of 2001
verses cash used of $451,917 in 2000.
Cash provided by financing activities was $546,163 in the first six months of
2001, verses cash used of $191,431 in 2000. The increase in cash provided by
financing activities is the result of short term borrowing required to fund
working capital in the first six months of 2001.
The Company's ability to improve its operating results and financial position
will depend on a variety of factors, several of which are described below, and
some of which are outside of management's control. The applicable risks and
uncertainties include general and industry specific economic conditions that
affect all international business and the markets that we serve. Such conditions
include interest rates, housing starts, existing home sales, corporate profits,
and hotel/motel occupancy rates. These factors affect the number of machines
sold and the timing of sales of our machines.
The Company's ability to maintain adequate liquidity to assure viability will
depend on its ability to improve its operating results by generating increased
revenues and controlling costs. The Company has no unused credit lines and must
satisfy all of its working capital and capital expenditure requirements from
cash provided by operating activities, from external borrowings or from sales of
assets. As discussed above, machine sales can be easily deferred by customers
due to various economic factors. These deferrals strain our cash flows as
evidenced by second quarter results. However, two purchase orders for machine
sales have been received subsequent to the end of the quarter.
9
TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Forward-looking Statements for Purposes of "Safe Harbor" Under the
Private Securities Reform Act of 1995
The Company has made, and may continue to make, various forward-looking
statements with respect to its financial position, projected costs, projected
savings and plans and objectives of Management. Such forward-looking statements
are identified by the use of forward-looking words or phrases such as
"anticipates," "intends," "expects," "plans," "believes," "estimates," or words
or phrases of similar import. These forward-looking statements are subject to
numerous assumptions, risks, and uncertainties, and the statements looking
forward beyond January 31, 2001, are subject to greater uncertainty because of
the increased likelihood of changes in underlying factors and assumptions.
Actual results could differ materially from those anticipated by the
forward-looking statements.
The applicable risks and uncertainties include general economic and industry
conditions that affect all international businesses, as well as, matters that
are specific to the Company and the market it serves. Actual sales in Fiscal
2001 may be materially less than the sales projected in the forward-looking
statements if the Company's customers cancel or delay current orders or if the
Company reduces the rate at which it is building or expects to build CYP
machines for such customers. Such cancellations, delays or reductions may occur
if there is a substantial change in the general economy or if a customer were to
experience major financial difficulties. Margins may differ from those projected
in the forward-looking statements if management does not achieve success in
improving margins or other events occur that differ from the estimates used in
preparing the Company's financial statements.
In addition, all subsequent written and oral forward-looking statements
attributable to the Company or person acting on behalf of the Company are
expressly qualified in their entirety by reference to such factors.
The Company's forward-looking statements represent its judgement only on the
dates such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed, or unanticipated
events or circumstances.
EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no Exhibits filed with this report.
(b) No reports on Form 8-K were filed during the quarterly period ended January
31, 2001.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized,
Tapistron International, Inc.
-----------------------------
(Registrant)
Date: March 19, 2001 /s/Rodney C. Hardeman, Jr.
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Rodney C. Hardeman, Jr.
(Signing on behalf of the registrant
as President and Chief Executive
Officer)
11