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 October 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
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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 December 1, 1999
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Common Stock $.0004 Par Value 34,785,611
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TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of July 31, 1999 and October 31, 1999 3
Condensed Consolidated Statements of Operations for the Three Months Ended
October 31, 1998 and 1999 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
October 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
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 12
SIGNATURE 13
2
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 1999 October 31, 1999
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CURRENT ASSETS
Cash and Cash equivalents $ 685,328 $ 56,551
Receivables, net of allowance of $25,000 105,092 101,233
Receivables from employees 1,475 597
Sales contract receivables 75,000 1,975,000
Inventory 2,121,639 1,755,975
Prepayments 193,116 262,403
Deferred income taxes 100,000 100,000
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Total current assets 3,281,650 4,251,759
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PROPERTY AND EQUIPMENT, NET 769,935 728,483
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OTHER ASSETS
Long-term receivables, net of allowance of $500,000 - -
Patents and patent license 234,013 226,031
Deferred income taxes 1,900,000 1,900,000
Other assets 4,050 3,525
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Total other assets 2,138,063 2,129,556
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TOTAL $ 6,189,648 $ 7,109,798
===================== ====================
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, 1999 October 31, 1999
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CURRENT LIABILITIES
Short-term debt $ 1,194,046 $ 1,348,052
Current portion of long-term debt 279,961 267,607
Accounts payable 99,184 213,698
Accrued expenses 211,660 219,430
Customer deposits 104,634 111,977
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Total current liabilities 1,889,485 2,160,764
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CONTINGENT REORGANIZATION LIABILITY 581,923 535,343
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LONG-TERM DEBT 180,932 211,142
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STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value - 2,000,000
shares authorized: no shares issued and
outstanding - -
Common stock - $.004 par value - 100,000,000
shares authorized: 34,841,129 shares issued 13,936 13,936
Additional paid in capital 26,407,711 26,454,290
Accumulated deficit (22,871,547) (22,252,885)
Treasury stock - 55,518 shares outstanding at cost (12,792) (12,792)
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Total stockholders' equity 3,537,308 4,202,549
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TOTAL $ 6,189,648 $ 7,109,798
==================== =====================
The accompanying notes are an integral part of these financial statements.
4
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
October 31, 1998 October 31, 1999
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SALES $ 1,096,232 $ 2,815,805
COST OF SALES 704,403 1,425,420
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Gross profit 391,829 1,390,385
OPERATING EXPENSES 645,976 649,831
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OPERATING INCOME (LOSS) (254,147) 740,554
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OTHER INCOME (EXPENSE)
Interest expense (235) (40,966)
Interest income 2,469 9
Loss on disposal of asset (2,820) -
Loss on foreign currency exchange rates - (80,936)
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Other income (expense) (586) (121,893)
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Income (Loss) before reorganization items (254,733) 618,661
REORGANIZATION ITEMS (23,446) -
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NET INCOME (LOSS) $ (278,179) $ 618,661
==================== =====================
EARNINGS PER SHARE
Net income (loss) (0.01) 0.02
Weighted average number of shares
outstanding 34,785,611 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)
Three Months Three Months
Ended Ended
October 31, 1998 October 31, 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (278,179) $ 618,661
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 40,162 49,959
Loss on disposal of asset 2,820 -
Loss on foreign currency exchange rates - 80,936
Changes in operating assets and liabilities:
(Increase) decrease in receivables 324,522 (1,895,263)
(Increase) decrease in prepayments 9,614 (69,287)
(Increase) decrease in inventory (22,458) 362,577
Increase (decrease) in accounts payable
and accrued expenses (193,961) 122,284
Increase (decrease) in customer deposits (23,961) 7,343
Increase (decrease) in liabilities subject to
settlement under plan of reorganization (100,000) -
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Net cash used in operating activities (241,441) (722,790)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for other assets (526) -
Capital expenditures (40,875) -
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Net cash used in investing activities (41,401) -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 50,000 800,125
Principal repayments of debt (1,473) (706,112)
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Net cash provided by financing activities 48,527 94,013
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NET INCREASE (DECREASE) IN CASH: (234,315) (628,777)
Cash and cash equivalents - beginning of period 247,101 685,328
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Cash and cash equivalents - end of period $ 12,786 $ 56,551
===================== =====================
The accompanying notes are an integral part of the financial statements.
6
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITIED)
Three Months Three Months
Ended Ended
October 31, 1998 October 31, 1999
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SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 235 $ 23,154
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable for equipment 15,046 -
The accompanying notes are an integral part of the financial statements.
7
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 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 October 31, 1999 and the results of
its operations for the three months ended October 31, 1998 and 1999 and cash
flows for the three months ended October 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, 1999. The results of operations for the
three months ended October 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 are computed using the weighted average number of
shares of common stock outstanding.
NOTE 3 - INVENTORY
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Inventory at October 31, 1999 consists of the following:
Raw Material $ 860,067
Work in Process 467,528
Finished Goods 428,380
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Total $1,755,975
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NOTE 4 - CONTINGENT REORGANIZATION LIABILITY
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Under the Amended Plan, the Class 7 unsecured creditors received 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 August 29, 1997
8
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - CONTINGENT REORGANIZATION LIABILITY - (CONTINUED)
- ----------------------------------------------------------
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.
October 31, 1999 closing market price $ 0.2031
Shares issued to Class 7 (no fractional shares were issued) 1,000,021
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Total market value of Class 7 stock $ 203,104
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Balance of Class 7 unsecured claims $ 611,336
Time value factor @8.75% 1.20792509
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Total liability of Class 7 claims $ 738,447
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Total contingent liability for stock to cover Class 7 debt $ 535,343
===============
9
TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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OPERATIONS
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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 October 31, 1999 ("1999 Three Months") were
$2,815,805 compared with $1,096,232 for the three months ended October 31, 1998
("1998 Three Months"). The increase in revenues was a result of the successful
introduction of the new CYP machine technology. The Company developed new
cutting attachments that allow customers to produce cut pile, level loop,
high-low loop, and cut loop product all on the same machine.
Cost of Sales
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Cost of sales was $1,425,420 for the 1999 Three Months, or 51% of sales,
compared with $704,403 for the 1998 Three Months, or 64% of sales. The Company
has continued its efforts to reduce the cost of the parts on the CYP machines
and has improved the efficiency in building machines as well.
Operating Expenses
- ------------------
Operating expenses were $649,831 for the 1999 Three Months, or 23% of sales,
compared with $645,976 for the 1998 Three Months, or 59% of sales. Total
operating expenses remained approximately the same for comparable periods.
However, due to the increase in sales, the operating expenses as a percentage of
sales decreased dramatically.
Interest Expense
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Interest expense was $40,966 for the 1999 Three Months compared to $235 for the
1998 Three Months. The increase was due to an increase in debt for the 1999
Three Months compared to the 1998 Three Months.
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 Company's highly liquid assets (cash and cash equivalents) at October 31,
1999 aggregated $56,551, a decrease from the $685,328 balance at July 31, 1998.
Its working capital position at October 31, 1999 of $2,090,995 increased from
the comparable amount of $1,392,165 at July 31, 1999. The increase in working
capital resulted from an increase in accounts receivable due to the increase of
CYP machine sales.
10
TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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OPERATIONS - (Continued)
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Net cash used in operations for the 1999 Three Months was $722,790 compared to
net cash used in operations of $241,441 for the 1998 Three Months. Net cash
provided from financing activities for the 1999 Three Months totaled $94,013
compared with $48,527 for the 1998 Three Months.
The Company believes its current cash needs will be adequately provided from
anticipated cash generated from operations and short-term borrowings from its
lines of credit. As of October 31, 1999, the Company had available $102,073 on
its lines 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.
Market Risk
- -----------
A review of the Company's financial instruments and risk exposures at October
31, 1999 revealed that the Company had exposure to foreign currency exchange
rate risks. At October 31, 1999, the Company had an outstanding debt denominated
in the Japanese Yen, which matures in February of 2001. As exchange rates vary,
the Company's financial position, results of operations or cash flows may vary
from expectations and overall expected earnings may be adversely impacted. The
effect of foreign exchange rate fluctuations on the Company during the 1999
Three Months was an expense of $80,936.
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 its modifications to existing software and
conversions 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
11
TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS - (Continued)
- ------------------------
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 October 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
2000 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 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 October
31, 1999.
12
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: December 13, 1999 /s/Rodney C. Hardeman, Jr.
---------------------- --------------------------
Rodney C. Hardeman, Jr.
(Signing on behalf of the registrant
as President and Chief Executive
Officer)
13