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, 1999
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
TAPISTRON INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1684918
------- ----------
(State or other jurisdiction of incorporation (I.R.S. 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 12, 1999
- ----------------------------- -----------------------------
Common Stock $.0004 Par Value 34,785,611
1
TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of July 31, 1998 and January 31, 1999 3
Condensed Consolidated Statements of Operations for the Three Months Ended
January 31, 1998 and 1999 and for the Six Months Ended January 31, 1998
and 1999 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
January 31, 1998 and 1999 6
Notes to Condensed Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 13
2
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 1998 January 31, 1999
----------------- ----------------
CURRENT ASSETS
Cash and Cash equivalents $ 247,101 $ 90,048
Receivables, net of allowance of $31,556
as of July 31, 1998 and January 31, 1999,
respectively 980,221 285,035
Receivables from employees 2,505 12,479
Note receivables 66,667 1,441,667
Inventory 1,601,146 1,389,405
Prepayments 140,788 140,836
Deferred income taxes 100,000 100,000
---------- ----------
Total current assets 3,138,428 3,459,470
---------- ----------
PROPERTY AND EQUIPMENT, NET 572,372 560,033
---------- ----------
OTHER ASSETS
Long-term receivables, net of allowance of
$500,000 as of July 31, 1998 and January
31, 1999, respectively -- --
Patents and patent license 265,941 249,977
Deferred income taxes 1,900,000 1,900,000
Other assets 6,148 5,099
---------- ----------
Total other assets 2,172,089 2,155,076
---------- ----------
TOTAL $5,882,889 $6,174,579
========== ==========
The accompanying notes are an integral part of these financial statements.
3
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed from
Audited Financial
Statements Unaudited
July 31, 1998 January 31, 1999
----------------- ----------------
CURRENT LIABILITIES
Short-term debt $ 744 $ 800,000
Current portion of long-term debt -- 2,310
Accounts payable 137,966 139,732
Accrued expenses 386,115 153,309
Customer deposits 143,994 209,245
------------ -------------
Total current liabilities 668,819 1,304,596
------------ -------------
LIABILITIES SUBJECT TO SETTLEMENT
UNDER REORGANIZATION PROCEEDINGS 350,000 250,000
------------ -------------
CONTINGENT REORGANIZATION LIABILITY 352,193 441,700
------------ -------------
LONG-TERM DEBT -- 10,893
------------ -------------
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 and 10,581,813
shares issued at July 31, 1998 and January 31,
1999, respectively 13,936 13,936
Additional paid in capital 26,637,441 26,547,934
Accumulated deficit (22,126,708) (22,381,688)
Treasury stock - 55,518 shares outstanding as
of July 31, 1998 and January 31, 1999 ( 12,792) ( 12,792)
------------ -------------
Total stockholders' equity 4,511,877 4,167,390
------------ -------------
TOTAL $ 5,882,889 $ 6,174,579
============ =============
The accompanying notes are an integral part of these financial statements.
4
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended Six Months ended
January 31, January 31,
1998 1999 1998 1999
---- ---- ---- ----
SALES $ 1,497,092 $ 1,650,145 $ 2,746,921 $ 2,746,377
COST OF SALES 836,623 994,591 1,670,167 1,698,994
------------ ------------ ------------ ------------
Gross profit 660,469 655,554 1,076,754 1,047,383
OPERATING EXPENSES 491,764 598,155 1,139,183 1,242,860
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 168,705 57,399 (62,429) (195,477)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (20,279) (28,891) (20,279) (30,397)
Interest income 2,905 161 32,630 2,630
Loss on disposal of asset -- -- -- (2,820)
------------ ------------ ------------ ------------
Other income (expense) (17,374) (28,730) 12,351 (30,587)
------------ ------------ ------------ ------------
Income (Loss) before reorganization
Items 151,331 28,669 (50,078) (226,064)
REORGANIZATION ITEMS -- (5,469) -- (28,915)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 151,331 $ 23,200 $ (50,078) $ (254,979)
============ ============ ============ ============
EARNINGS PER SHARE
Net loss 0.005 0.001 (0.002) (0.007)
Weighted average number of
shares outstanding 32,804,920 34,785,611 27,462,709 34,785,611
The accompanying notes are an integral part of the financial statements.
5
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six months Six months
ended ended
January 31, 1998 January 31, 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (50,078) $ (254,979)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 80,029 82,454
Loss on disposal of asset -- 2,820
Changes in operating assets and liabilities:
(Increase) decrease in receivables 130,102 (689,788)
(Increase) decrease in prepayments (77,424) (48)
(Increase) decrease in inventory (623,111) 210,996
Increase (decrease) in accounts payable
and accrued expenses (207,371) (231,040)
Increase (decrease) in customer deposits (833,592) 65,251
Increase (decrease) in liabilities subject to
settlement under a plan of reorganization (795,328) (100,000)
----------- -----------
Net cash used in operating activities (2,376,773) (914,335)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for other assets (23,673) --
Capital expenditures (13,565) (40,875)
----------- -----------
Net cash used in investing activities (37,239) (40,875)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 400,000 900,000
Proceeds from issuance of common stock 2,500,000 --
Principal repayments of debt (285,428) (101,843)
----------- -----------
Net cash provided by financing activities 2,614,572 798,157
----------- -----------
NET INCREASE (DECREASE) IN CASH: 200,560 (157,053)
Cash and cash equivalents - beginning of period 27,946 247,101
----------- -----------
Cash and cash equivalents - end of period $ 228,506 $ 90,048
=========== ===========
The accompanying notes are an integral part of the financial statements.
6
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
Six months Six months
ended ended
January 31, 1998 January 31, 1999
---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 17,597 $ 27,388
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable for equipment $ -- 15,046
Issuance of stock in lieu of professional fees 375,000 --
Issuance of stock for reorganization debt 1,225,230 --
========== ==========
The accompanying notes are an integral part of the financial statements.
7
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
(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 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, 1999 and the results of
its operations for the three and six months ended January 31, 1998 and 1999, and
cash flows for the six months ended January 31, 1998 and 1999. 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, 1998. The results of operations for the
six months ended January 31, 1999 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 is computed using the weighted average number of
shares of common stock outstanding.
NOTE 3 - INVENTORY
- ------------------
Inventory at January 31, 1999 consists of the following:
Raw Material $ 688,707
Work in Process 700,698
-----------
Total $ 1,389,405
===========
NOTE 4 - CONTINGENT REORGANIZATION LIABILITY
- --------------------------------------------
Under the Amended Plan, the Class 7 unsecured creditors are to receive their pro
rata share of the first $500,000 cash payment and their pro rata share of a
second $500,000 cash payment, payable at $50,000 per new machine sale. With
regard to the balance of their claim, each unsecured creditor could elect either
(1) 15% of the balance of its claim or (2) the creditors pro rata share of
1,000,021 shares of common stock issued by the Company. If between
8
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - CONTINGENT REORGANIZATION LIABILITY - (CONTINUED)
- ---------------------------------------------------------
August 29, 1997 and September 30, 2000, the average of the closing prices of the
Company's common stock for any five (5) consecutive trading day period
multiplied by 1,000,021 exceeds the balance of unsecured claims multiplied by
factor for time value or if any unsecured creditor shall sell, pledge, or trade
the stock, directly or indirectly, issued to it, then such creditors shall no
longer be entitled to any further distribution.
January 31, 1999 closing market price $ 0.2500
Shares issued to Class 7 ( no fractional shares were issued) 1,000,021
--------------
Total market value of Class 7 stock $ 250,005
Balance of Class 7 unsecured claims $ 611,336
Time value factor @ 8.75% 1.13146609
--------------
Total liability of Class 7 claims $ 691,705
Total contingent liability for stock to cover Class 7 debt $ 441,700
==============
9
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, 1999 were $1,650,145 compared
with $1,497,092 for the three months ended January 31, 1998. The Company
manufactures and sells various sizes and configurations of the CYP Machine. The
increase in revenues in the three months ended January 31, 1999 is the result of
the product mix of CYP Machines sold during that period. Revenues for the six
months ended January 31, 1999 were $2,746,377 compared with $2,746,921 for the
six months ended January 31, 1998.
Cost of Sales
- -------------
Cost of sales for the three months ended January 31, 1999 were $994,591, or 60%
of sales, compared with $836,623, or 56% of sales, for the three months ended
January 31, 1998. Cost of sales for the six months ended January 31, 1999 were
$1,698,994, or 62% of sales, compared with $1,670,167, or 61% of sales, for the
six months ended January 31, 1998.
Operating Expenses
- ------------------
Operating expenses were $598,155 for the three months ended January 31, 1999
compared with $491,764 for the three months ended January 31, 1998. Operating
expenses were $1,242,860 for the six months ended January 31, 1999 compared with
$1,139,183 for the six months ended January 31, 1998. The increase in operating
expenses is a result of higher personnel costs and increased marketing expenses.
In an effort to increase sales, the Company has expanded its marketing program
through attendance of more trade shows, carpet and rug shows, and international
shows.
Liquidity and Capital Resources
The Company's highly liquid assets (cash and cash equivalents) at January 31,
1999 aggregated $90,048, a decrease from the $247,101 balance at July 31, 1998.
Its working capital position at January 31, 1999 of $1,904,875 decreased from
the comparable amount of $2,119,609 at July 31, 1998. The decrease in working
capital resulted from cash used in operations of the Company during the six
months ended January 31, 1999. At January 31, 1999, notes receivable totaled
$1,441,667 compared to $66,667 at July 31, 1998. The increase was a result of
two short-term notes signed for the sale of two CYP Machines during the second
quarter. Subsequently, one note paid was paid and cancelled on February 12,
1999.
10
Net cash used in operations for the six months ended January 31, 1999 was
$914,335 compared to net cash used in operations of $2,376,773 for the six
months ended January 31, 1998. The decrease in cash used in operations was a
result of more cash required in reducing reorganization liabilities in the prior
year. Net cash used in investing activities totaled $40,875 for the six months
ended January 31, 1999 compared to $37,239 used in investing activities during
the six months ended January 31, 1998. Net cash provided by financing was
$798,157 during the six months ende January 31, 1999 compared to cash provided
by financing activities of $2,614,572 during the six months ended January 31,
1998. During the six months ended January 31, 1999, the Company received
proceeds of $900,000 from short-term borrowings in order to meet cash needs.
The Company believes its current cash needs will be adequately provided from
anticipated cash generated from operations, short-term borrowings and its line
of credit. Long-term cash requirements, other than normal operating expenses,
depend on the Company's profitability, its ability to manage working capital
requirements, and its rate of growth.
Year 2000 Compliance
- --------------------
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "year 2000 issue" and has substantially
developed an implementation plan to resolve such issues. The "year 2000 issue"
is the result of computer programs being written using two digits rather than
four to define the applicable year. Programs with this problem may recognize a
date using "00" as the year 1900 rather than the year 2000, resulting in system
failures or miscalculations. Although no assurance can be given, the Company
presently believes that with further modifications to existing software and
conversion to new software, the "year 2000 issue" will not pose significant
operational problems for the Company's computer systems as so modified and
converted and that the cost of such modifications and conversions will not have
a material impact on the Company's financial statements.
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 the January 31,1999 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 1999
may be materially less than the sales projected in the forward-looking
statements if the Company's customers cancel or delay current orders or reduce
the rate at which the Company is building or expects to build CYP machines for
such
11
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 persons 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
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, 1999.
12
SIGNATURES
Pursant 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: 3-12-99 /s/ Rodney C. Hardeman, Jr.
------- ----------------------------
Rodney C. Hardeman, Jr.
(Signing on behalf of the
registrant as President and
Chief Executive Officer)
13