<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- -------------------------------------------------------------------------------
TAPISTRON INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box): N/A
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3)
[_] $Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)Title of each class of securities to which transaction applies:
Common Stock
- -------------------------------------------------------------------------------
(2)Aggregate number of securities to which transaction applies:
10,526,295
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- -------------------------------------------------------------------------------
(5) Total fee paid: None
- -------------------------------------------------------------------------------
<PAGE>
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)92) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE>
[TAPISTRON INTERNATIONAL LETTERHEAD]
December 13, 1996
TO THE SHAREHOLDERS OF
TAPISTRON INTERNATIONAL, INC.
In connection with the 1996 Annual Meeting of Shareholders of your
Corporation to be held on January 21, 1997, we enclose a Notice of Annual
Meeting of Shareholders, a Proxy Statement, and a form of Proxy.
At the meeting, you will be asked to (i) elect two Class I directors who
will serve three-year terms, or until their successors are duly elected and
qualified, and two Class II directors who will serve two-year terms, or until
their successors are duly elected and qualified, and (ii) to ratify the
appointment of Dudley, Hopton-Jones, Sims & Freeman, PLLP, as the
Corporation's independent accountants and auditors for fiscal 1997.
Information about these matters is contained in the attached Proxy Statement.
Detailed information relating to the Corporation's activities and operating
performance during the fiscal year ended July 31, 1996 is contained in the
Annual Report on Form 10-K of the Corporation, which is being mailed to you
with this Proxy Statement, but is not a part of the proxy soliciting material.
If you do not receive or have access to the 1996 Annual Report, please notify
Gary L. Coulter, Secretary, Tapistron International, Inc., 6203 Alabama
Highway, P. O. Box 1067, Ringgold, Georgia 30736, (706) 965-9300.
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
in person. We would appreciate your completing the enclosed form of proxy so
that your shares can be voted in the event you are unable to attend the
meeting. If you are present at the meeting and desire to vote your shares
personally, your form of proxy will be withheld from voting upon your request
prior to balloting. We urge you to return your proxy card to us in the stamped
envelope as soon as possible.
Sincerely yours,
/s/ J. Darwin Poe
-------------------------------------
J. Darwin Poe
Chief Executive Officer
<PAGE>
TAPISTRON INTERNATIONAL, INC.
6203 ALABAMA HIGHWAY
P. O. BOX 1067
RINGGOLD, GEORGIA 30736
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JANUARY 21, 1997
- -------------------------------------------------------------------------------
To the Shareholders of Tapistron International, Inc.:
Notice is hereby given that the 1996 Annual Meeting of Shareholders of
Tapistron International, Inc. (the "Company"), will be held on January 21,
1997, at 11:00 a.m., local time, at the Company's offices at 6203 Alabama
Highway, Ringgold, Georgia 30736, for the following purposes:
1. To elect two (2) Class I directors to serve a three-year term or until
their successors have been duly elected and qualified, and two (2) Class II
directors to serve a two-year term or until their successors have been duly
elected and qualified.
2. To ratify the appointment by the Board of Directors of the Company's
independent auditors for the 1997 fiscal year.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The close of business on November 25, 1996 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at,
the 1996 Annual Shareholders' Meeting. The stock transfer books of the Company
will not be closed.
By Order of the Board of Directors
/s/ Gary L. Coulter
Secretary
December 13, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE STAMPED ENVELOPE
PROVIDED. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE EXERCISE, AND IF
YOU ARE PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AND
VOTE YOUR SHARES PERSONALLY.
<PAGE>
TAPISTRON INTERNATIONAL, INC.
6203 ALABAMA HIGHWAY
P. O. BOX 1067
RINGGOLD, GA 30736
- -------------------------------------------------------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 21, 1997
- -------------------------------------------------------------------------------
This statement (the "Proxy Statement") is furnished in connection with the
solicitation of proxies for use at the Annual Meeting of Shareholders (the
"1996 Annual Meeting") of the Company to be held on January 21, 1997 at 11:00
a.m., local time, at the Company's offices at 6203 Alabama Highway, Ringgold,
Georgia 30736, and at any adjournment or adjournments thereof.
The solicitation of proxies in the enclosed form is made on behalf of the
Board of Directors of the Company. The entire cost of soliciting these proxies
will be borne by the Company. In addition to being solicited through the
mails, proxies may be solicited personally or by telephone or telegraph by
officers, directors and employees of the Company who will receive no
additional compensation for such activities. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of shares held of
record by such persons, who will be reimbursed for their reasonable expenses
incurred in such connection.
It is expected that this Proxy Statement and the accompanying form of proxy
will first be sent to shareholders on or about December 13, 1996.
At the 1996 Annual Meeting, the shareholders will vote to elect two (2)
Class I and two (2) Class II directors and to ratify the Board of Directors
selection of the Company's independent auditors for the fiscal year 1997. The
affirmative vote of a plurality of the shares present or represented at the
meeting, if a quorum exists, is required to elect the directors and to ratify
the Board of Directors' selection of the Company's independent auditors for
the fiscal year 1997. The presence in person or by proxy of the holders of a
majority of the issued and outstanding shares of common stock entitled to vote
at the 1996 Annual Meeting is necessary to constitute a quorum.
Shareholders are urged to sign the enclosed form of proxy and return it
promptly in the envelope enclosed for that purpose. Proxies will be voted in
accordance with the shareholders' directions. If no directions are given,
proxies will be voted FOR the election of the nominees named herein as
directors and FOR the ratification of the authority of the Audit Committee of
the Board of Directors to select the Company's independent auditors for the
fiscal year 1997.
The Board of Directors knows of no other business to be presented at the
1996 Annual Meeting. If any other business is properly presented, the person
named in the enclosed proxy will use his discretion in voting the shares. The
proxy may be revoked at any time prior to the voting thereof by written
request to the Company at 6203 Alabama Highway, P. O. Box 1067, Ringgold,
Georgia 30736, Attention: Gary Coulter, Secretary. The proxy may also be
revoked by submission to the Company of a more recently dated proxy. The
giving of the proxy will not affect the right of a shareholder to attend the
1996 Annual Meeting and vote in person.
<PAGE>
OUTSTANDING VOTING SECURITIES
Only shareholders of record on November 25, 1996, are entitled to notice of
and to vote at the 1996 Annual Meeting. On that date there were 10,526,295
shares of common stock issued and outstanding. The holder of each share of
common stock is entitled to one vote on all matters submitted before the 1996
Annual Meeting or any adjournments of the 1996 Annual Meeting.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, each class to be
elected for three-year terms. All members of the Board of Directors have
either resigned previously or have consented to terminate their terms upon the
election of the new Board. Consequently, at the 1996 Annual Meeting, all six
seats on the Board of Directors will be vacant. The Board of Directors has
nominated two individuals to serve as Class I directors to serve until the
1999 Annual Meeting or until their successors are duly elected and qualified,
and two individuals to serve as Class II directors to serve until the 1998
Annual Meeting or until their successors are duly elected and qualified. The
Board of Directors has not nominated any individuals to serve as Class III
directors, as no qualified nominees were available. It is the intention of the
Board of Directors that the new Board would, in accordance with the By-laws,
seek to fill the two Class III seats as soon as possible, and that those seats
would again be up for election at the 1997 Annual Meeting regardless of
whether they are filled by the new Board of Directors. If any nominee should
be unable to accept nomination or election as a director, which is not
expected, the proxies may be voted with discretionary authority for a
substitute designated by the Board of Directors; provided, however, that the
proxies may not be voted for more than four nominees to the Board of Directors
at the 1996 Annual Meeting. The election of a director requires the
affirmative vote of a plurality of shares present or represented at the
meeting.
Certain information regarding the persons nominated by the Board of
Directors for election as directors is set forth below:
<TABLE>
<CAPTION>
POSITION(S) WITH THE DIRECTOR
NAME AGE COMPANY SINCE
- ---- --- -------------------- --------
<S> <C> <C> <C>
CLASS I: NOMINEES FOR 3 YEAR TERMS EXPIRING AT 1999
ANNUAL MEETING:
J. Darwin Poe 51 President, Chief Executive 1995
Officer and Director
Gary L. Coulter 50 Director 1996
CLASS II: NOMINEES FOR 2 YEAR TERMS EXPIRING AT 1998
ANNUAL MEETING:
Robert Culbreth 75 Director 1987
Kim Amos 39 Director, Vice-President 1996
of Engineering
</TABLE>
- ----------------
Set forth below is certain additional biographical information concerning the
nominees for directors of the Company.
GARY L. COULTER. From April 1996 to present, Mr. Coulter served as Vice-
Chairman of the Board of Directors of the Company. Mr. Coulter has also served
as Chairman of the Board and Chief Executive Officer of Spintek Gaming
Technologies, Inc. ("Spintek") since October 1996; Vice Chairman and Chief
Operating Officer of Spintek from April 1996 until October 1996; President,
Chief Operating Officer, and Director from April 1994 until March 1996 of
Private Biologicals Corporation, a developer of biological products and
treatments for cancer; private practice of law from August 1992 until December
1992; Chief Executive Officer and Director from December 1992 until March 1994
of Omega International, Inc., developer of natural products for the treatment
of AIDS; President, Chief Operating Officer, and Director from March 1986
until August 1, 1996 of Woodruff Investment Co., a developer, manager, and
financer of real estate investments; and from January 1996 to the present he
has practiced law with Malcolm C. Davenport V.
2
<PAGE>
J. DARWIN POE has spent his entire professional career in the U.S. carpet
industry. He has held various management positions with industry leaders such
as Bibb Company, WestPoint Pepperell. Amoco Fabrics and Fiber Company, and he
was Chief Operating Officer of Desoto Falls, Inc. of Dalton, Georgia. Mr. Poe
is a graduate of Auburn University with a degree in Textile Engineering and an
MBA from Brenau University.
ROBERT E. CULBRETH. Mr. Culbreth has been a director of the Company since
June 1987. He has been Secretary-Treasurer of the Skinner Corporation, a West
Point, Georgia based furniture sales organization, since February 1983. He was
a partner with the national accounting firm of Grant Thornton in Atlanta,
Georgia from 1972 until he joined the Skinner Corporation.
KIM AMOS. Mr. Amos started his professional career in 1983 with SWI--Cobble
Division, a leading manufacturer of tufting machinery and peripheral tufting
equipment. While at Cobble he initially served in electrical engineering,
where he supported manufacturing, customer service, and special projects, and
focused on introducing new technologies into the industry. In February 1990,
Mr. Amos was contacted by the company to help develop the Computerized Yarn
Placement (CYP) Machine and was instrumental in that effort. He joined the
company in July 1990. Mr. Amos now serves as Vice President of Operations and
has been a Director since February 1996.
There are no arrangements or understandings known to the Company between any
of the Directors or executive officers of the Company and any other person,
pursuant to which any of such persons was or is to be selected as Director or
an executive officer. There are no family relationships between any Director
or executive officer of the Company.
Directors hold office until the expiration of their respective terms or
until their successors are elected and qualified. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board of
Directors. During the fiscal year ended July 31, 1996, the Company's Board of
Directors held 14 meetings.
The Company has no standing audit, nominating or compensation committees of
the Board of Directors.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CASH COMPENSATION
The following table shows the aggregate cash compensation paid during the
fiscal year ended July 31, 1996 to the Company's Chief Executive Officer. No
other executive officers of the Company received cash compensation in excess
of $100,000 in fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- --------------------------------
POTENTIAL
FISCAL OTHER ANNUAL SECURITIES UNDERLYING REALIZABLE
NAME AND POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS/SAR (#)(/2/) VALUE
- ----------------- ------ ---------- --------- ---------------- --------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Darwin Poe, Chairman, 1996 $58,077 -0- -0- 150,000 N/A(/2/)
President and Chief
Executive Officer(/1/)
</TABLE>
- --------
(1) Mr. Poe joined the Company in July 1995.
(2) Mr. Poe was granted options to acquire 150,000 shares of common stock
during fiscal year 1996 but has agreed that the options will be cancelled
pursuant to the Company's Plan of Reorganization filed November 20, 1996
under Chapter 11 of the United States Bankruptcy Code.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE PRICE
NAME GRANTED EMPLOYEES IN 1996 ($/SH) EXPIRATION DATE
- ---- ------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
J. Darwin Poe(/1/) 150,000 100% $1.25 N/A
</TABLE>
- --------
(1) Mr. Poe was granted options to acquire 150,000 shares of common stock
during fiscal year 1996 but has agreed that the options will be cancelled
pursuant to the Company's Plan of Reorganization filed November 20, 1996
under Chapter 11 of the United States Bankruptcy Code.
3
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF THE UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS/SARS HELD AT OPTIONS/SARS
NAME ON EXERCISE REALIZED JULY 31, 1996 (#) AT JULY 31, 1996
---- --------------- -------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
J. Darwin Poe........... 0 0 150,000 / 0 0 / 0
</TABLE>
- --------
(1) Mr. Poe was granted options to acquire 150,000 shares of common stock
during fiscal year 1996 but has agreed that the options will be forfeited
prior to exercise pursuant to the Company's Plan of Reorganization filed
November 20, 1996 under Chapter 11 of the United States Bankruptcy Code.
The Board's executive compensation policies are designed to provide
competitive levels of compensation that integrate pay with the Company's
annual and long-term performance goals, reward above-average corporate
performance, recognize individual initiative and achievements, and enable the
Company to attract and retain qualified executives. Target levels of overall
executive compensation are intended to be consistent with those of others in
the Company's industry, but are increasingly being weighted toward corporate
performance in accordance with the Company's long-term strategic plan.
The Company's executive officer compensation program is comprised of base
salary, cash incentive bonus compensation, long-term incentive compensation in
the form of stock options, and various benefits, including medical plans
generally available to all employees of the Company.
Base Salary. Base salary levels for the Company's executive officers
together with option grants and benefits are intended to be competitively set
relative to companies of comparable size and stage of development within the
high-technology industries in the Company's geographic area. In determining
base salaries the Compensation committee also takes into account individual
experience and performance as well as specific issues relating to the Company.
Incentive Bonus Compensation. The Board of Directors may periodically award
bonuses to executives in order to provide a direct financial incentive, in the
form of a cash bonus, to executives to achieve individual and Company
objectives. The amount of the bonus is determined based upon the Board's
evaluation of each executive's performance and in accordance with employment
agreements with certain executives. No cash bonuses were awarded during the
year ended July 31, 1996.
Stock Option Program. The 1992 Stock Option Plan is the Company's long-term
incentive plan for executive officers, directors and other selected employees.
The objective of the program is to retain and motivate executives to improve
long-term stock performance. Stock options are generally granted at the
prevailing market value and will only have value if the Company's stock
increases. Generally, grants vest in equal amounts over three years for non-
executives, with executives' grants generally vesting over a shorter period of
time. No options were granted during the fiscal year ended July 31, 1996.
Directors' Compensation. Directors receive no cash compensation for serving
on the Board. However, non-employee directors are eligible to participate in
the Company's 1992 Stock Option Plan. No grants of options were made to any
directors during fiscal year ended July 31, 1996.
PERFORMANCE GRAPH
The following graph compares the percentage change in the Company's
cumulative total shareholder return with returns based on the Nasdaq Stock
Market (U.S. companies) Index and a peer group index, consisting of companies
reporting under the Standard Industrial Classification Code 355 (Special
Industry Machinery, Except Metalworking Machinery).
4
<PAGE>
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
TAPISTRON INTERNATIONAL, INC.
Prepared by the Center for Research in Security Prices
Produced on 11/27/96 including data to 07/31/96
[GRAPHIC]
- --------------------------------------------------------------------------------
LEGEND
<TABLE>
<CAPTION>
Symbol CRSP Total Returns Index For: 07/31/91 07/31/92 07/30/93 07/29/94 07/31/95 07/31/96
- ------ ---------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
box Tapistron International, Inc. 90.0 112.0 44.0 22.0 3.0
star Nasdaq Stock Market (US Companies) 90.2 105.9 128.8 132.6 186.1 202.7
triangle NASDAQ Stocks (SIC 3550-3559 US 93.8 114.2 276.4 358.3 837.3 436.4
Companies) Special Industry
Machinery, Except Metalworking
Machinery
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The Indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 06/24/92.
- --------------------------------------------------------------------------------
5
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to all
persons, or group of persons known by the Company to own beneficially more
than five percent of the Common Stock of the Company, and as to the beneficial
ownership thereof of the executive officers and directors of the Company,
individually and as a group, all as at October 25, 1996:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES PERCENTAGE
OF BENEFICIAL OWNER (A) BENEFICIALLY OWNED OWNERSHIP
----------------------- ------------------ ----------
<S> <C> <C>
Robert Culbreth (b)........................... 170,446 1.6%
J. Darwin Poe (c)............................. 150,000 1.4%
Kim Amos (d).................................. 20,586 *
Gary L. Coulter............................... -0- .0%
All Directors and Executive Officers
as a Group (Five persons)
(b)(c)(d)..................................... 341,320 3.16%
</TABLE>
- --------
(a) Addresses are shown only for the beneficial owners of at least five
percent of the class of security shown. Except as otherwise noted, all of
the shares and options reflected in this table are owned with sole
investment and voting power.
(b) Includes options to acquire 125,000 shares of the Company's Common Stock,
which options are currently exercisable, and which options will be
cancelled pursuant to the Company's proposed Plan of Reorganization filed
under Chapter 11 of the United States Bankruptcy Code on November 20,
1996, and 15,002 shares held by members of Mr. Culbreth's immediate
family.
(c) All shares attributed to Mr. Poe result from his ownership of currently
exercisable options to acquire shares of the Company's Common Stock and
which options will be cancelled pursuant to the Company's proposed Plan of
Reorganization filed under Chapter 11 of the United States Bankruptcy Code
on November 20, 1996.
(d)Mr. Amos directly owns 3,286 shares and 17,300 shares are owned by his
wife.
* Less than 1%.
- --------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the three years ended July 31, 1996, the Company borrowed various
amounts from a principal shareholder and former director of the Company and
his family members, who are also shareholders. The shareholder was a director
during the year ended July 31, 1996. As of July 31, 1996, the Company was
indebted to this shareholder in the amount of $625,000 through a line of
credit agreement bearing interest at 10%.
During the year ended July 31, 1996, the Company expensed $219,000 in
consulting, legal, and administrative fees owed to a principal shareholder.
The Company was also indebted to this shareholder's law firm for $174,000 for
legal fees in association with the reorganization.
During the year ended July 31, 1994, the Company contracted with an
engineering consulting firm, whose Chief Executive Officer and President was
also a director of the Company, to develop a new model of the CYP machine.
During the years ended July 31, 1994, 1995, and 1996, the Company incurred
approximately $2,733,000, $2,643,000 and $0, respectively, in fees to this
firm.
During the year ended July 31, 1996, consulting fees of $50,000 were paid to
a capital company whose Chairman is a former director of the Company. Also
during the year ended July 31, 1996, $50,000 was borrowed from this capital
company.
During the year ended July 31, 1996, the Company borrowed approximately
$16,000 from an officer of the Company. The amount was also paid back to the
officer during the year.
6
<PAGE>
During the year ended July 31, 1996, 200,000 shares of the Company's common
stock were issued to two former directors in consideration for services
rendered to the Company.
All transactions involving related parties must be approved by a majority of
the disinterested members of the Company's Board of Directors. The Company
has, and expects to have, transactions in the ordinary course of its business
with directors and officers of the Company and their affiliates, including
members of their families or corporations, partnerships or other organizations
in which such officers or directors have a controlling interest, on
substantially the same terms (including price, or interest rates and
collateral) as those prevailing at the time for comparable transactions with
unrelated parties.
RATIFICATION OF SELECTION OF 1997 INDEPENDENT AUDITORS
The Board of Directors has selected the Company's independent auditors for
the year 1997, subject to approval by the shareholders not later than the date
of the 1996 Annual Meeting. Dudley, Hopton-Jones, Sims & Freeman, PLLP, served
as independent auditors of the Company for the year ended July 31, 1996.
Representatives of the firm will be present at the 1996 Annual Meeting, and
have an opportunity to make a statement if they so desire and are expected to
be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the outstanding shares
of common stock entitled to vote at the Meeting is required to ratify the
selection of the Company's independent auditors for the year 1997.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" RATIFICATION OF THE SELECTION
OF THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR 1997.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The federal securities laws require the Company's directors and officers,
and persons who own more than 10% of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of any securities of
the Company. To the Company's knowledge, based solely on review of the copies
of such reports furnished to the Company and representations that no other
reports were required, during the fiscal year ended July 31, 1996, all of the
Company's officers and directors made all required filings in a timely manner.
SHAREHOLDERS' PROPOSALS FOR 1997 ANNUAL MEETING
Shareholders' proposal intended to be presented at the 1997 Annual Meeting
of Shareholders must be received by the Company no later than August 14, 1997
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
OTHER MATTERS
The Board of Directors, at the time of the preparation of this Proxy
Statement, knows of no business to come before the meeting other than that
referred to herein. If any other business should come before the meeting, the
persons named in the enclosed Proxy will have discretionary authority to vote
all proxies in accordance with his best judgment.
UPON THE WRITTEN REQUEST OF ANY RECORD HOLDER OR BENEFICIAL OWNER OF COMMON
STOCK ENTITLED TO VOTE AT THE 1996 ANNUAL MEETING, THE COMPANY, WITHOUT
CHARGE, WILL PROVIDE A COMPLETE COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED JULY 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. REQUESTS SHOULD BE DIRECTED TO GARY L. COULTER, SECRETARY,
TAPISTRON INTERNATIONAL, INC., 6203 ALABAMA HIGHWAY, P. O. BOX 1067, RINGGOLD,
GEORGIA 30736, WHICH IS THE ADDRESS OF THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICES.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary L. Coulter
-------------------------------------
Secretary
Ringgold, Georgia
December 13, 1996
7
<PAGE>
ANNUAL REPORT TO SHAREHOLDERS
TAPISTRON INTERNATIONAL, INC.
P. O. BOX 1067
6032 ALABAMA HIGHWAY
RINGGOLD, GEORGIA 30736
(706) 965-9300 FAX (706) 965-9310
The annual report of the Company to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended July 31, 1996 is being distributed to the
shareholders as the annual report to shareholders of the Company to accompany
the Company's proxy statement for the annual shareholders meeting.
<PAGE>
TAPISTRON INTERNATIONAL, INC.
PART I
Item 1. BUSINESS
GENERAL
Tapistron International, Inc. (the "Company" or "Tapistron") was organized
for the purpose of developing or acquiring proprietary technologies in the
textile industry and commercializing such technologies on a global basis. The
Company was incorporated under the laws of the State of Georgia on February 7,
1986, under the name of Textile Corporation of America. On July 19, 1986, the
Company exchanged shares of common stock for all of the outstanding stock of
Fabrication Center, Inc. ("FCI") in a transaction accounted for as a pooling of
interests. On July 16, 1991, the name was changed from Textile Corporation of
America to Tapistron International, Inc. All references to the Company include
Fabrication Center, Inc., its wholly owned subsidiary.
The Company's initial technology has been the development of a Computerized
Yarn Placement ("CYP") machine, for producing tufted carpets and rugs in highly
versatile patterns, colors and textures. The Company believes that the
potential market for its technologically advanced tufting machine lies with
manufacturers that wish to meet the growing demand for patterned products
witnessed in the commercial and residential floor covering markets. Virtually
all existing tufting machines, which produce piled products by inserting tufts
of yarn into a primary backing, are limited in their ability to produce a broad
range of patterned, multi-colored and multi-textured products. Most existing
weaving looms, which create the primary backing in the weaving process, require
an extremely time-consuming and labor intensive process to effect pattern and
color changes. The Company's CYP machine requires only minutes to change
pattern, color, texture and density combinations. Because of its compatibility
with commercially available pattern entry systems, such as those used by many
major textile manufacturers, virtually any hand-drawn, painted, photographed or
scanned image can be reproduced on the finished tufted product. The CYP machine
is not in the same market as, and will not compete with, low end solid color
plain cut pile carpet producing equipment, but is designed to provide an
alternative to current methods of producing patterned products. During the
year ended July 31, 1996, the Company sold one 4.4 meter CYP machine.
INDUSTRY
The textile industry is one of the major industrial classifications in the
United States economy. Total annual dollars spent in 1995, based on D.O.C.
office of Textiles and Apparel, was over $86 billion. Many of the individual
segments within the textile industry are themselves considered separate
industries. The existing technologies of the Company focus on the carpet
industry.
-2-
<PAGE>
Carpet Industry
- ---------------
The domestic carpet industry as we know it today, is a major subset of the
textile industry and dates back to the development of the tufting machine in the
1950's. While there are a variety of techniques for the production of carpet
and other fabric floor coverings, the dominant means of production today is
machine tufting. Tufting is a process whereby tufts of yarn are inserted into a
sheet of fabric called a primary backing. The tufts, which are closely spaced
to form the pile, are inserted into the backing by vertical, reciprocating
needles similar to those of a conventional sewing machine. Modern tufting
machines consist of one or more rows or "bars" of hundreds of threaded needles
across the width of the machine which insert the tufts as the primary backing is
fed through the machine beneath the needle-bars. The yarn is fed to the needles
from cones of yarn arranged in racks known as a creel. The advantage of machine
tufting is that it produces relatively low-cost, durable carpet in large
production runs when compared with hand tufted and hand and machine woven
products. However, because of mechanical and other limitations associated with
existing tufting technology machinery, tufting offers limited versatility in
pattern style.
During recent years, carpet manufacturers in the United States have
experienced a substantial increase in demand for patterned carpets, particularly
in the commercial carpet market. During 1988, 23% of the carpet styles being
produced in the United States for the commercial market (comprised of broadloom
and modular products) incorporated some sort of pattern. Currently this figure
has risen to approximately 36%. The residential carpet market has also
witnessed an increased demand for patterned styles. Furthermore, industry
statistics reveal that the demand for patterned carpets is significant
throughout Europe and the Pacific Rim countries.
There are currently three principal methods of manufacturing patterned,
machine-made, pile-faced floor coverings. The first method is the traditional
weaving process utilizing either of two basic types of looms: the Axminster,
which traces its origins back to the 1800s, or the Wilton, the dominant weaving
machine used in the United Kingdom and Europe which was first introduced in the
early 1800s. A second method involves printing or dyeing finished carpeting
using either a jet spray technique or flat bed screening. The third method
involves modifications to conventional tufting machinery to produce carpets with
high/low pile and/or geometric patterns. These include (i) single or double
shifting needle bars, which are mechanically controlled devices for producing
geometrics and small pattern repeats, (ii) scroll patterning attachments which
create pattern through high/low pile configurations by varying the speed at
which yarn is fed into each needle and (iii) individual controlled needles
(ICN), a method of creating pattern by "over-tufting" - implanting extra yarn
into a plain, previously tufted carpet. An enhanced version of the ICN
technology, the Colortec, is probably the CYP machine's closest competitor. The
range of patterns capable of being produced by such modifications to
conventional tufting machines is restricted, however, because of mechanical
limitations associated with these technologies. Although the CYP machine is not
in the same market as, and will not compete with, solid color carpet producing
equipment, the Company believes its CYP machine offers numerous advantages over
existing methods of producing patterned, machine-made, pile-faced floor
coverings in terms of time and cost efficiencies, versatility of pattern, color
and texture and ease of changing design parameters without the disadvantages
associated with conventional methods. Such disadvantages include the limited
pattern flexibility of existing tufting machines and the limited textures or
density characteristics associated with weaving looms.
PRODUCT OVERVIEW
The CYP Machine
- ---------------
The CYP machine is a patented process designed for the manufacture of
patterned tufted floor coverings with greater flexibility than conventional
tufting machines currently on the market. The CYP machine incorporates an
innovative technology for computerized yarn placement, whereby up to six colors
and/or types of yarn per needle are electro-mechanically selected, placed into
position within the machine's unique needle configuration and then injected into
a primary backing as directed by a computer utilizing the Company's proprietary
software. While the CYP machine needle-bar is stationary from side to side, the
primary backing can be shifted laterally as it is fed through the machine,
enabling the machine to produce products with more tufts per square inch
(resulting in greater density) than any other mechanical method currently
available.
-3-
<PAGE>
The Company believes its CYP machine technology will enable carpet
manufacturers to meet the growing demand for patterned floor coverings by
offering them a means of producing high quality tufted carpeting in patterns.
The Company's proprietary technology provides designers and stylists with almost
complete versatility in styling and construction of tufted fabrics. The CYP
machine, used in conjunction with commercially available pattern entry systems,
enables the user to reproduce almost any scanned image or hand-drawn or painted
pattern and allows the creation of fabrics incorporating yarns with different
textures, luster levels and wear (i.e. gauge and pile) characteristics. In
effect, the designer or stylist has control of both aesthetics and quality in
the creation of the product, particularly in the critical areas of pattern,
color and texture.
A primary advantage of the CYP machine over conventional machine tufting
and weaving methods is the minimal amount of time required to change pattern,
color, texture and construction combinations. Whereas several hours to several
days are required to set up conventional machines to create certain construction
combinations, affecting a construction change with a CYP machine requires only
the touching of a computer screen - approximately a thirty second operation. The
touch screen system controls all of the machine's parameters with the exception
of pile height, which is adjusted manually. Set-up of a CYP machine can be
accomplished in less time than it takes competitive machines to set up. This
characteristic of the CYP machine allows manufacturers to economically undertake
short production runs in order to meet customer needs and specifications. It
also offers a means of supplying salespeople with a wide variety of sample
products to meet the particular interests of potential customers within a matter
of days.
Patterns in the CYP machine products can be created by using a variety of
yarn systems, including pre-dyed/solution-dyed BCF (bulked continuous filament)
or spun yarn, rather than injecting color onto an already tufted piece of
carpet.
The CYP machine also offers greater textural capabilities than other
existing carpet manufacturing methods. On a CYP machine, different types of yarn
can be placed in a variety of patterns according to the designer's preference.
The resulting carpet contains a textural design which is not easily obtainable
by other methods.
The CYP machine is compatible with a commercially available computerized
pattern entry system. A typical pattern entry system enables a designer to
create designs or patterns efficiently on a computer screen and quickly modify
or rearrange colors or other aspects of the design or pattern. Such pattern
entry systems are widely used in the carpet industry.
MANUFACTURING
The CYP machine
- ---------------
The Company's facilities are located in Ringgold, Georgia. The Company
manufactures the CYP machine at its 50,000 square foot manufacturing facility
completed in July 1993. The manufacturing facility was built to accommodate the
production of four of the existing model CYP machines per month.
Carpet
- ------
The Company has discontinued producing high-end patterned carpet for sale
to carpet distributors. Currently the Company is contracting out orders that it
receives.
-4-
<PAGE>
SUPPLIERS
The Company has purchased the frames for its existing CYP machine from one
of three local tool and die manufacturers which fabricate the frames in
accordance with Company specifications. The Company purchases the motors and
other various mechanical components of the existing CYP machine as custom-made
or stock components from unaffiliated outside suppliers. The Company believes
that alternative sources or substitutes of most of the components for both CYP
machines can be developed, if necessary. To date, the Company has not
experienced any delays in delivery of components. The Company does not expect
to maintain large inventories and will generally order required components as it
receives customer orders. Accordingly, any delay or difficulties in developing
such alternatives or substitutes could result in shipment delays, which would
adversely affect the Company's operations.
SALES, MARKETING AND SERVICING
The CYP Machine
- ---------------
The Company intends to market its CYP machines initially to textile
industry concerns engaged in the manufacture of commercial carpeting and
residential floor coverings. Customers may choose to purchase an entire CYP
machine system from the Company or only certain components thereof, obtaining
the remaining components (such as the creel, the compressor, or the pattern
entry system) from alternate suppliers. The purchase price of the CYP machine
systems varies based on the configuration chosen.
The Company's ability to market CYP machines successfully will depend upon
the willingness of potential customers to incur substantial cost and expend the
time and effort involved in the purchase of these products, particularly because
many of such customers may be reluctant to replace or significantly modify their
existing manufacturing methods. In addition, installation of a CYP machine may,
in certain circumstances, require expenditures by the customer for site
preparation, which costs are estimated by the Company to be between $10,000 and
$25,000. The Company offers a limited warranty on the CYP machine system and
provides training, maintenance and support to customers following the
installation of the CYP machine system.
To date, the Company's marketing efforts have been focused primarily
overseas. However, the Company is currently expanding its efforts in the
domestic market, increasingly providing a greater concentration of resources on
the United States. Marketing efforts in the United States are conducted by the
Company's internal marketing personnel. In the international arena, the
Company's marketing personnel are assisted by independent agents throughout the
world who represent Tapistron in their respective countries.
DEVELOPMENT AND ACQUISITIONS
Limited research and development activities are being conducted by the
Company's in-house engineering staff to provide continual enhancements to the
CYP technology. Expenditures on research and development during the fiscal
years ended July 31, 1994, 1995 and 1996 were $3,529,906, $2,405,438 and
$23,473, respectively. The Company completed its prototype CYP machine for the
production of 2.0 meter wide goods in September 1991. The Company developed a
4.4 meter CYP machine which was commercially introduced during April 1993. The
Company chose to discontinue its development of the next generation CYP machine
during fiscal year ended July 31, 1995.
-5-
<PAGE>
COMPETITION
The CYP Machine
- ---------------
The Company competes with entities engaged in the design, development and
marketing of equipment for the three existing methods of manufacturing machine-
made, patterned fiber floor coverings. In the area of traditional weaving, the
Company's product competes with Axminster and Wilton type looms, the dominant
manufacturers of which are Crabtree Ltd. of the United Kingdom and Michel Van De
Wiele of Belgium, respectively. In addition, there are other smaller national
and regional firms which manufacture weaving looms. CYP machines also face
competition from jet spray dyeing techniques such as the Millitron process
utilized by Milliken & Company and screen printing apparatuses. CYP machines
also compete with technologies which enhance the traditional pattern tufting
processes, such as shifting needle bars, scroll patterning attachments,
individual controlled needles, and the Colortec machine, developed and marketed
by the major U. S. tufting machine manufacturers, including Card-Monroe
Corporation, Cobble Tufting Machine Company, Inc. and Tuftco Corporation. All
entities with which the Company competes have substantially greater financial,
manufacturing and other resources than the Company.
The Company will compete on the basis of pattern, color, texture and
density flexibility afforded by the CYP machine technology. The CYP machine
offers manufacturers a means of economically producing high quality, machine
tufted floor coverings in patterns and colors which to date have been
unavailable or too costly to produce in tufted carpet. The Company believes that
its CYP machines will compete favorably with existing manufacturing methods on
the basis of cost efficiencies for labor, materials and space, rather than
price. CYP machines offer the advantages of (i) smaller creel means reduced
changeover and space requirements; (ii) simple set-up and manipulation of
pattern, color, texture and construction at the machine; (iii) short production
runs and customized strikeoffs can be done more economically than with other
methods; and (iv) more flexibility for the designer. In addition, because of the
minimal time required to change pattern, texture, density and color, the CYP
machines allow for the production of short-run, custom orders to meet customer
specifications.
PATENTS AND PROPRIETARY RIGHTS
The CYP Machine
- ---------------
The Company has seven United States patents and 10 foreign patents and has
filed additional patent applications for the United States and 16 foreign
countries, all generally covering the technology incorporated in the Company's
CYP product. The Company believes its patents and proprietary rights have been
and will continue to be important in enabling the Company to compete with
respect to the CYP technology. Failure to obtain patents in certain foreign
countries may materially adversely affect the Company's ability to compete
effectively in certain international markets. The Company also relies on trade
secrets that it seeks to protect, in part, through confidentiality agreements
with employees and other parties.
EMPLOYEES
As of October 25, 1996, the Company had 27 full-time employees. The
Company considers its relations with its employees to be satisfactory.
-6-
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and positions of the executive
officers and the directors of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Kim Amos 39 Vice President of Engineering and Director
Gary Coulter 50 Vice Chairman
Robert Culbreth 75 Director
Floyd Koegler 53 Vice President and Chief Financial Officer
J. Darwin Poe 51 President and Chief Executive Officer and Director
</TABLE>
KIM AMOS started his professional career in 1983 with SWI - Cobble
Division, a leading manufacturer of tufting machinery and peripheral tufting
equipment. While at Cobble he initially served in electrical engineering, where
he supported manufacturing, customer service, and special projects. In later
years he focused on introducing new technologies into the industry, which lead
to major tufting machine enhancements. In February 1990 Kim was contacted by the
company to help develop the Computerized Yarn Placement (CYP) Machine and was
instrumental in that effort. He officially joined the company in July, 1990. Kim
now serves as Vice President of Operations and has been a Director since
February 1996.
GARY COULTER is Chairman of the Board and Chief Executive Officer of
Spintek Technologies. Mr Coulter's experience includes: President, Chief
Operating Officer, and Director of Private Biological Corporation, a developer
of biological products and treatments for cancer; Chief Executive Officer of
Omega International, Inc., developer of natural products for the treatment of
AIDS; President, Chief Operating Officer, and Director of Woodruff Investment
Co., a developer, manager and financier of real estate investments; also a
partner of Coulter and Davenport Law Firm. Mr. Coulter received his
undergraduate degree from Emory University, his J.D. degree from the University
of Gerogia School of Law, and his L.L.M. in taxation from New York University
School of Law.
ROBERT CULBRETH has been a Director of the Company since June 1987. He has
been Secretary-Treasurer of the Skinner Corporation, a West Point, Georgia based
furniture sales organization, since January 1983. He was a partner with the
national accounting firm of Grant Thornton in Atlanta, Georgia from 1972, until
he joined the Skinner Corporation.
FLOYD KOEGLER is a certified public accountant (CPA) and holds an MBA from
Brenau University in Gainesville, Georgia. He has an extensive background in
corporate finance, which includes auditing and financial information analysis
for Aladdin Mills and controller positions at Crown America/Texture-Tex, Inc.
and Citizens Federal Savings and Loan. Mr. Koegler has also served as CFO of
Integrated Products, Inc.'s, Rome Operations.
J. DARWIN POE has spent his entire professional career in the U.S. textile
industry. He has held various management positions with industry leaders such
as the Bibb Company, WestPoint Pepperell, Amoco Fabrics and Fiber company, and
he was COO of Desoto Falls Inc. of Dalton, Georgia.
Mr. Poe is a graduate of Auburn University with a degree in Textile
Engineering and an MBA from Brenau University.
Item 2. PROPERTIES
The Company's executive offices and manufacturing operations are located in
an approximately 50,000 square foot facility at Alabama Highway, Ringgold,
Georgia. The building and adjacent land was sold on June 10, 1996 in a sale-
leaseback transaction.
Item 3. LEGAL PROCEEDINGS
References made to Note 1 and Note 18 of the Company's financial
statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders through the
solicitation of proxies or otherwise during the period from August 1, 1995
through July 31, 1996, covered by this report .
-7-
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On June 24, 1992, the Securities and Exchange Commission declared effective
the Company's Registration Statement with respect to an initial public offering
of 2,250,000 shares of Common Stock and 2,587,500 Redeemable Warrants (including
337,500 Redeemable Warrants exercised under the Underwriter's over allotment
option). The Company consented to the de-listing of its warranty from the
NASDAQ Stock Market effective as of August 20, 1996 due to the lack of any
significant trading activity in the warrants and because there were no market
makers for the warrants as required by NASDAQ rules. NASDAQ deleted the Company
from the NASDAQ Stock Market effective August 29, 1996, as a result of the
Company's non-compliance with the quantitative maintenance criteria for
continued listing on the NASDAQ Stock Market. The Company's stock will continue
to be traded as a bulletin board stock. The Common Stock and the Redeemable
Warrants were listed on NASDAQ under the symbols TAPI/TAPIQ and TAPIW,
respectively.
The following tables set forth, for the periods indicated, the high and low
bid prices for the Company's Common Stock and Redeemable Warrants as reported by
NASDAQ. Prices represent actual transactions, but do not reflect adjustments
for retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Common Stock
1994: First Quarter (August 1, 1993 - October 31, 1993) $ 8 3/8 $ 5 5/8
Second Quarter (November 1, 1993 - January 31, 1994) 6 1/4 4 3/8
Third Quarter (February 1, 1994 - April 30, 1994) 5 1/8 1 7/8
Fourth Quarter (May 1, 1994 - July 31, 1994) 3 1/8 2
4 1/2
1995: First Quarter (August 1, 1994 - October 31, 1994) 3 7/8 2 13/32
Second Quarter (November 1, 1994 - January 31, 1995) 3 1/4 2 1/4
Third Quarter (February 1, 1995 - April 30, 1995)
Fourth Quarter (May 1, 1995 - July 31, 1995) 2 1/8 1 7/16
5/8
1996: First Quarter (August 1, 1995 - October 31, 1995) 1 3/8
Second Quarter (November 1, 1995 - January 31, 1996) 1 1/16 13/16
Third Quarter (February 1, 1996 - April 30, 1996) 25/32 1/4
Fourth Quarter (May 1, 1996 - July 31, 1996) 5/8 3/8
1/4
Redeemable Warrants
1994: First Quarter (August 1, 1993 - October 31, 1993) 2 1/16 1 1/4
Second Quarter (November 1, 1993 - January 31, 1994) 1 9/16 7/8
Third Quarter (February 1, 1994 - April 30, 1994) 1 3/16 1/4
Fourth Quarter (May 1, 1994 - July 31, 1994) 5/8 1/4
1995: First Quarter (August 1, 1994 - October 31, 1994) 11/16 3/8
Second Quarter (November 1, 1994 - January 31, 1995) 1/2 1/4
Third Quarter (February 1, 1995 - April 30, 1995) 3/8 3/32
Fourth Quarter (May 1, 1995 - July 31, 1995) 1/4 3/32
1996: First Quarter (August 1, 1995 - October 31, 1995) 3/16 3/16
Second Quarter (November 1, 1995 - January 31, 1996) 3/16 3/16
Third Quarter (February 1, 1996 - April 30, 1996) 3/16 3/16
Fourth Quarter (May 1, 1996 - July 31, 1996) 3/16 3/16
</TABLE>
-8-
<PAGE>
At October 25, 1996, there were approximately 300 shareholders of record,
and as of that date, the Company estimates there were approximately 1,800
beneficial owners holding stock in nominee or "street" name. The Company has not
paid any cash dividends and does not anticipate paying any cash dividends in the
foreseeable future.
Item 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included herein in Item 8. The consolidated statement of operations data set
forth below with respect to the fiscal years ended July 31, 1996, 1995 and 1994
and the consolidated balance sheet data at July 31, 1996 and 1995 are derived
from and are qualified by reference to, the audited consolidated financial
statements included in Item 8 of this report and should be read in conjunction
with those financial statements and notes thereto. The consolidated statement
of operations data for the Company set forth below with respect to the fiscal
years ended July 31, 1992 and 1991 and the consolidated balance sheet data at
July 31, 1993, 1992 and 1991 are derived from audited consolidated financial
statements of the Company, or its predecessor, as the case may be, not included
herein.
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $ 1,305,499 $ 2,565,544 $ 4,315,060 $6,823,721 $ 1,404,112
Cost of sales 1,146,717 1,757,793 2,850,422 3,607,182 900,968
Operating expenses:
Administrative 3,473,581 3,656,532 3,730,194 2,927,558 1,259,040
Research and development 23,473 2,405,438 3,529,906 549,660 402,905
Net income (loss) (4,478,096) (6,053,175) (5,840,945) 24,961 (1,220,692)
Net income (loss) per share (.49) (.69) (.76) - (.22)
Extraordinary item .04 - - - -
Shares used in computing per share amounts 10,012,390 8,761,117 7,726,018 7,756,556 5,476,484
</TABLE>
<TABLE>
<CAPTION>
As of July 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) $1,084,487 $ (907,020) $ 2,649,245 $ 8,570,445 $13,029,905
Total Assets 4,016,538 9,655,907 10,982,246 14,733,746 14,481,717
Long-term debt - 14,001 1,291,320 50,433 594,826
Accumulated deficit (22,234,475) (17,756,379) (11,703,107) (5,862,162) (5,887,123)
Stockholders' equity 656,074 4,839,170 7,653,669 13,332,499 13,307,538
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Years Ended July 31, 1996 and July 31, 1995
- -------------------------------------------
Revenues for the year ended July 31, 1996 ("Fiscal 1996") were $1,305,499
as compared to revenues of $2,565,544 for the year ended July 31, 1995 ("Fiscal
1995") resulting from the sale of one CYP machines in Fiscal 1996 as compared to
two CYP machines in Fiscal 1995. The decrease is primarily due to the fact that
potential customers have delayed placing orders because the Company has had
insufficient cash to support operations and technical support of the CYP
-9-
<PAGE>
machines. Cost of sales decreased to $1,146,717 in Fiscal 1996 from $1,757,793
in Fiscal 1995 as a result of the decrease in the number of machines sold. Cost
of sales as a percentage of sales increased to approximately 88% in Fiscal 1996
from 68% in Fiscal 1995. The increase in the cost of sales as a percentage of
sales is a result of machines being sold at a lower margin to generate cash.
Operating expenses consist of administrative expenses and research and
development expenses. Administrative expenses increased to $3,473,581 in Fiscal
1996 from $3,656,532 in Fiscal 1995, a decrease of approximately 5%.
Included in the administrative expenses is a $500,000 allowance for
noncollectible long-term receivables related to machine sales. Also included in
the administrative expenses of Fiscal 1996 and 1995 is a $547,441 and $474,215
allowance for obsolete raw materials inventory which resulted primarily from
enhancements to the existing CYP machine technology as well as the
discontinuation of the new model CYP machine. The Company has implemented
several cost control measures designed to maintain administrative expenses at an
acceptable level.
Research and development expenses decreased to $23,473 in Fiscal 1996 from
$2,405,438 in Fiscal 1995, a 99% decrease. This decrease reflects the Company's
substantially decreased development activities relating to the new model of the
CYP machine, the enhancement of the existing CYP machine and the discontinuation
of the dye processes.
Interest expense increased to $314,611 in Fiscal 1996 from $248,594 in
Fiscal 1995, a 27% increase. This increase is the result of the Company securing
additional short-term financing during Fiscal 1996 which totalled approximately
$1,351,000. Interest income decreased to $26,292 in Fiscal 1996 from $40,529 in
Fiscal 1995.
Loss on disposal of assets increased to $1,022,505 in Fiscal 1996 from
$592,891 in Fiscal 1995 a 72% increase. This increase is the result of sale of
the main production facility building and another facility at a different
location.
Reorgainization items totalling $249,150 are entirely comprised of
attorney's fees paid to two law firms in connection with the Chapter 11
proceedings.
The extraordinary item, gain from extinguishment of debt, is the result of
the forgiveness of debt by two creditors for accounting services and research
and development consulting, totalling $420,150.
Years Ended July 31, 1995 and July 31, 1994
- -------------------------------------------
Revenues for the year ended July 31, 1995 ("Fiscal 1995") were $2,565,544
as compared to revenues of $4,315,060 for the year ended July 31, 1994 (Fiscal
1994") resulting from the sale of two CYP machines in Fiscal 1995 as compared to
five CYP machines in Fiscal 1994. The decrease is primarily due to the potential
development of a new enhanced model of the CYP machine. The Company believes
that potential customers have delayed placing orders and accepting delivery for
the existing CYP machine in anticipation of the new model, commercial
introduction of which has been discontinued. Cost of sales decreased to
$1,757,793 in Fiscal 1995 from $2,850,422 in Fiscal 1994 as a result of the
decrease in the number of machines sold. cost of sales as a percentage of sales
increased to approximately 68% in Fiscal 1995 from 66% in Fiscal 1994.
Operating expenses consist of administrative expenses and research and
development expenses. Administrative expenses decreased to $3,656,532 in Fiscal
1995 from $3,730,194 in Fiscal 1994, a decrease of approximately 2%.
This provision relates primarily to ongoing negotiations with one customer
resulting from delays in one of the customer's CYP machines becoming operational
and from the Company's subsequently lowering the sales price of the CYP machine
to other customers. Also included in the administrative expenses of Fiscal 1995
is a $474,215 allowance for obsolete raw materials inventory which resulted
primarily from continued enhancements to the existing CYP machine technology as
well as the development of the new model CYP machine. The Company has
implemented several cost control measures designed to maintain administrative
expenses at an acceptable level.
Research and development expenses decreased to $2,405,438 in Fiscal 1995
from $3,529,906 in Fiscal 1994, a 32% decrease. This decrease reflects the
Company's substantially decreased development activities relating to the new
model of the CYP machine, the enhancement of the existing CYP machine and the
evaluation of the dye processes. The Company anticipates a substantial decrease
in research and development expenses during the next several months as the
Company further decreases its development activities.
-10-
<PAGE>
Interest expense increased to $248,594 in Fiscal 1995 from $55,701 in
Fiscal 1994, a 346% increase. This increase is the result of the Company
securing additional short-term financing during Fiscal 1995 which totalled
$1,320,000 and interest related to the mortgages obtained during Fiscal 1994.
Interest income decreased to $42,529 in Fiscal 1995 from $50,558 in Fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
From its inception until its initial public offering on June 24, 1992, the
Company's principal source of operating capital has been bank borrowings,
private placement of the Company's securities and loans from the Company's
principal stockholders and affiliated individuals. Upon consummation of the
initial public offering on June 24, 1992, the Company received a total net
proceeds of approximately $13,000,000.
As of July 31, 1996, the Company had working capital of $1,084,487, a
$1,991,427 increase from July 31, 1995. This increase is primarily a result of
the Company paying off $1,812,051 of current debt. The Company anticipates that
it will have to raise additional funds or restructure its debt to meet the
projected working capital requirements over the next 12 months.
At July 31, 1996, the Company had $20.9 million of net operating losses
available to offset future taxable income for federal and state income tax
purposes. The utilization of the net operating losses to reduce future income
taxes will depend on the Company's ability to generate sufficient taxable income
prior to the expiration of the net operating loss carryforwards. The loss
carryforwards expire in various years through 2010.
The Company filed a voluntary petition for a Chapter 11 bankruptcy on June
20, 1996. The Company is allowed to continue to operate under the supervision
of the Bankruptcy Court and is given a limited amount of time free from
creditors' collection efforts in order to restructure its finances. The
Company's plan of reorganization has not been approved by the Bankruptcy Court.
Based on this uncertainty, Dudley, Hopton-Jones, Sims & Freeman PLLP has
qualified their audit report.
IMPACT OF INFLATION
Management does not believe that inflation has a material impact on the
Company's results of operations. Management believes that it is able to reflect
inflationary cost increases in its prices to customers.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this item is submitted as a separate section in
this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
With the exception of a description of the Directors and Executive Officers
of The Registrant which appears on page 7 herein, Part III is omitted because
prior to December 31,1996, the Company will file a definitive Proxy Statement
with the Securities and Exchange Commission pursuant to Regulation 14A which
involves the election of directors.
-11-
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Tapistron International,
Inc. are required to be included in Item 8 are listed below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 15
Consolidated Balance Sheet - July 31, 1996 and 1995 17
Consolidated Statement of Operations - Year Ended July 31, 1996, 1995 and 1994 19
Consolidated Statement of Changes in Stockholders' Equity - Year Ended July 31, 1996, 1995 and 1994 20
Consolidated Statement of Cash Flows - Year Ended July 31, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 23
The following consolidated financial statements schedules are included in
Item 14(d):
Schedule II - Valuation and Qualifying Accounts 34
</TABLE>
All other schedules are omitted because the information required therein is
not applicable, or the information is given in the financial statements and
notes thereto.
-12-
<PAGE>
(a)3. EXHIBITS
3.1 - Articles of Incorporation of the Registrant, as amended*
3.2 - By-Laws of the Registrant*
3.3 - Amendment to Articles of Incorporation*
4.1 - Form of Representative's Warrant Agreement relating to
Representative's Options*
4.2 - Form of Warrant Agreement (including form of Redeemable Warrant
Certificate)*
4.3 - Specimen Common Stock Certificate*
10.1 - 1992 Stock Option Plan*
10.2 - 1989 Stock Option Plan*
10.3 - Lease for Registrant's Facility*
10.4 - Option Agreement to Purchase Technology between the Registrant
and Ful-Dye, Inc.*
10.5 - Form of Consulting Agreement with the Representative*
10.6 - First Exclusive License Agreement with Ful-Dye, Inc.**
10.8 - Exclusive License Agreement with Ful-Dye, Inc.****
10.10 - Exclusive Sales Representative Agreement with Asahi Trading Co.,
Ltd.****
21.1 - List of Subsidiaries*
- ------------------------
* Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Registration Statement on Form S-1, File
Number 33-47759, declared effective by the Securities and Exchange
Commission on June 24, 1992.
** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July 31,
1992.
*** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July 31,
1993.
**** Incorporated by reference to the exhibit with the same number filed in
connection with the Company's Form 10-K filed for the year ended July 31,
1994.
(b) Report on Form 8-K - The Registrant did not file a Form 8-K report
during the last quarter of the period covered by this report.
(c) Exhibits. See (a)3. above.
(d) Financial Statement Schedules. The response to this portion of Item 14,
is submitted under Item 14.(a) 1. and 2. above.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
--------------------------------- -----------------------------------
J. Darwin Poe Date
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ---- ----
<S> <C> <C>
Vice Chairman of the Board
- --------------------
Gary Coulter
President and Chief Executive Officer
- --------------------
J. Darwin Poe
Director
- --------------------
Robert E. Culbreth
- -------------------- Vice President of Engineering and Director
Kim Amos
- -------------------- Chief Financial Officer
Floyd Koegler
</TABLE>
-14-
<PAGE>
Report of Independent Auditors
------------------------------
Board of Directors and Stockholders
Tapistron International, Inc.
Ringgold, Georgia
We have audited the accompanying consolidated balance sheets of Tapistron
International, Inc. and subsidiary as of July 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
consolidated statements of operations, stockholders' equity (deficit) and cash
flows of Tapistron International, Inc. and subsidiary for the year ended July
31, 1994, were audited by other auditors whose report dated September 16, 1994,
on those financial statements included an explanatory paragraph that described
the substantial doubt about the Company continuing as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Tapistron International, Inc. and subsidiary as of July 31, 1996 and 1995, and
the results of their operations and their cash flows for the period then ended,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in the notes to the
consolidated financial statements, the Company has sustained recurring losses
from operations which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are also described
in the notes to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
DUDLEY, HOPTON-JONES, SIMS & FREEMAN PLLP
Birmingham, Alabama
November 1, 1996
-15-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Tapistron International, Inc.
Chattanooga, Tennessee
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Tapistron International, Inc.
for the year ended July 31, 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Tapistron, International, Inc. and subsidiary for the year ended July 31, 1994
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in the notes to the
consolidated financial statements, the Company has sustained recurring losses
from operations which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are also described
in the notes to the consolidated financial statements. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
JOSEPH DECOSIMO AND COMPANY
Chattanooga, Tennessee
September 16, 1994
-16-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEETS
July 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17,149 $ 99,426
Receivables, net of allowances of
$39,905 as of July 31, 1996 and $200,000 as
of July 31, 1995, respectively 119,872 447,969
Note receivable 600,000 450,000
Inventory 2,082,495 2,801,175
Prepayments 20,707 97,146
------------ ------------
Total current assets 2,840,223 3,895,716
------------ ------------
PROPERTY AND EQUIPMENT, NET 877,269 4,771,302
------------ ------------
OTHER ASSETS
Long-term receivables, net of
$500,000 allowance as of July 31, 1996 - 500,000
Noncompete agreements - 11,545
Patents and patent license 286,160 293,525
Other 12,886 183,819
------------ ------------
Total other assets 299,046 988,889
------------ ------------
TOTAL $ 4,016,538 $ 9,655,907
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 1,028,687 $ 832,273
Current portion of long-term debt 4,729 1,812,051
Accounts payable 33,970 1,498,757
Accrued expenses 408,350 374,655
Customer deposits 280,000 285,000
------------ ------------
Total current liabilities 1,755,736 4,802,736
------------ ------------
LIABILITIES SUBJECT TO SETTLEMENT UNDER
REORGANIZATION PROCEEDINGS 1,599,668 -
------------ ------------
LONG-TERM DEBT 5,060 14,001
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
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;
and 10,581,813 outstanding
as of July 31, 1996, and
9,681,813 outstanding
as of July 31, 1995, respectively - 3,873
Additional paid-in capital 22,899,108 22,604,468
Accumulated deficit (22,234,475) (17,756,379)
Treasury stock - 55,518 shares
outstanding as of
July 31, 1996 and 1995, at cost (12,792) (12,792)
------------ ------------
Total stockholders' equity 656,074 4,839,170
------------ ------------
TOTAL $ 4,016,538 $ 9,655,907
============ ============
</TABLE>
-17-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
SALES $ 1,305,499 $ 2,565,544 $ 4,315,060
COST OF SALES 1,146,717 1,757,793 2,850,422
------------ ------------- ------------
Gross profit 158,782 807,751 1,464,638
------------ ------------- ------------
OPERATING EXPENSES
Administrative expenses 3,473,581 3,656,532 3,730,194
Research and development 23,473 2,405,438 3,529,906
------------ ------------- ------------
3,497,054 6,061,970 7,260,100
------------ ------------- ------------
OPERATING LOSS (3,338,272) (5,254,219) (5,795,462)
------------ ------------- ------------
OTHER INCOME (EXPENSE)
Interest expense (314,611) (248,594) (55,701)
Interest income 26,292 42,529 50,558
Loss on disposal of assets (1,022,505) (592,891) (40,340)
------------ ------------- ------------
Other income (expense) (1,310,824) (798,956) (45,483)
------------ ------------- ------------
Loss before reorganization items
and extraordinary item (4,649,096) (6,053,175) (5,840,945)
REORGANIZATION ITEMS (249,150) - -
------------ ------------- ------------
Loss before extraordinary item (4,898,246) - -
EXTRAORDINARY ITEM
Gain from extinguishment of debt 420,150 - -
------------ ------------- ------------
NET INCOME (LOSS) (4,478,096) (6,053,175) (5,840,945)
============ ============= ============
EARNINGS PER SHARE
Loss before extraordinary item $(.49) $(.69) $(.76)
Extraordinary item .04 - -
------------ ------------- ------------
Net (loss) $(.45) $(.69) $(.76)
============ ============= ============
Weighted average number of shares
outstanding 10,012,390 8,761,117 7,726,018
============ ============= ============
</TABLE>
-18-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock
------------------- Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
---------- ------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - July 31, 1993 7,693,463 $3,077 $19,204,376 $( 5,862,162) $(12,792) $13,332,499
Exercise of stock options 25,000 10 89,240 - - 89,250
Exercise of warrants 18,550 8 72,857 - - 72,865
Net loss - - - (5,840,945) - (5,840,945)
---------- ------ ----------- ------------ ----------- -----------
BALANCE - July 31, 1994 7,737,013 3,095 19,366,473 (11,703,107) (12,792) 7,653,669
Issuance of new shares 1,944,800 778 3,237,995 - - 3,238,773
Other R/E transaction - - - (97) - (97)
Net loss - - - (6,053,175) - (6,053,175)
---------- ------ ----------- ------------ ----------- -----------
BALANCE - July 31, 1995 9,681,813 3,873 22,604,468 (17,756,379) (12,792) 4,839,170
Issuance of new shares 900,000 360 294,640 - - 295,000
Net loss - - - (4,478,096) - (4,478,096)
---------- ------ ----------- ------------ ----------- -----------
BALANCE - July 31, 1996 10,581,813 $4,233 $22,899,108 $(22,234,475) $(12,792) $ 656,074
========== ====== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
-19-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $( 4,478,096) $( 6,053,175) $( 5,840,945)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 414,992 484,315 439,449
Loss on sales of property, plant & equipment 1,022,504 592,891 -
Loss on impairment of assets - - 118,340
Provision for loss on accounts receivable - - 700,000
Provision for obsolete inventory - - 300,000
Issuance of stock in lieu of compensation 145,000 - -
Changes in operating assets and liabilities:
Decrease (increase) in receivables 328,097 (369,731) (188,494)
Decrease (increase) in prepayments 76,439 93,782 (132,939)
Decrease (increase) in inventory 1,009,497 453,448 (65,710)
Decrease (increase) in long-term receivables 500,000 - -
Decrease (increase) in other assets 170,933 - -
Decrease (increase) in noncompete
agreements 11,545 23,091 -
Increase (decrease) in accounts payable and
accrued expenses 123,060 982,096 (138,229)
Increase (decrease) in accounts payable and
accrued expenses, which are subject to
settlement under a plan of reorganization (170,940) - -
Increase (decrease) in notes receivable (150,000) - -
Increase (decrease) in customer deposits 5,000 185,000 50,000
------------ ----------- ----------
Net cash provided by (used in) operating
activities (1,001,970) (3,608,285) (4,758,528)
------------ ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of property & equipment 2,187,500 201,250 -
Capital expenditures and retirements - (560,805) (938,155)
Payment for patents ( 14,415) (67,575) (22,180)
Investment in other assets - (37,625) (13,838)
------------ ----------- ----------
Net cash provided by (used in) investing
activities 2,173,085 (564,755) (974,173)
------------ ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 1,210,495 1,320,000 2,327,500
Principal payments of debt (381,809) (998,926) (87,893)
Proceeds from issuance of debt which is subject
to settlement under a plan of reorganization 140,600 - -
Principal payments of debt which is subject
to settlement under a plan of reorganization (2,372,678) - -
Proceeds from issuance of common stock 150,000 3,238,677 162,115
------------ ----------- ----------
Net cash provided by (used in) investing
activities (1,253,392) 3,559,751 2,401,722
------------ ----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (82,277) (613,287) (3,330,979)
Cash and cash equivalents - beginning of year 99,426 712,713 4,043,692
------------ ----------- ----------
Cash and cash equivalents - end of year $ 17,149 $ 99,426 $ 712,713
------------ ----------- ----------
SUPPLEMENTS DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 34,532 $ 252,471 $ 40,441
------------ ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Equipment financed by note payable $ - $ - $ 19,658
======== ====== ========
Property and equipment in accounts payable $ - $ - $ 12,273
======== ====== ========
Equipment received as payment of receivables $ - $ - $510,714
======== ====== ========
Equipment exchanged as payment of liabilities $ - $ - $ 27,849
======== ====== ========
Equipment reclassified to inventory $290,817 $ - $ -
======== ====== ========
Inventory reclassified to equipment $ - $ - $280,207
======== ====== ========
Inventory received as payment of receivables $ - $ - $700,000
======== ====== ========
</TABLE>
-21-
<PAGE>
NOTE 1 - REORGANIZATION AND LEGAL MATTERS
- -----------------------------------------
Tapistron International, Inc. (the "Company") filed a voluntary petition for
relief under chapter 11 of title 11 of the United States Code (the "Code") on
June 20, 1996 (the "petition date"). The Company is currently operating its
business as a debtor-in-possession under the jurisdiction of the United States
Bankruptcy Code for the Northern District of Georgia (the "Court"). The
Company's liabilities as of the petition date are generally subject to
settlement in a plan of reorganization, which must be voted on by certain of its
creditors and confirmed by the Court. Until a reorganization plan has been
confirmed, the Company is prevented from making payments on pre-petition debt
unless permitted by the Code or approved by the Court. Certain contracts and
leases existing at the petition date have been rejected or assumed with the
approval of the Court. The Company continues to review all other unexpired pre-
petition executory contracts and leases to determine whether they should be
assumed or rejected. Parties affected by the rejection of contracts and leases
may file claims against the Company.
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates continuity of
operations and the realization of assets and the satisfaction of liabilities in
the normal course of business. The chapter 11 filing, the Company's leveraged
financial structure, and recurring net losses raise substantial doubt about its
ability to continue as a going concern. A plan of reorganization may materially
change the amounts reported in the consolidated financial statements (which do
not give effect to adjustments to the carrying values of assets and liabilities
which may be necessary as a consequence of a plan of reorganization). The
continuation of the Company's business as a going concern is contingent upon,
among other things, the ability to (1) formulate a plan of reorganization that
will be confirmed by the Court, (2) achieve satisfactory levels of future
profitable operations, (3) maintain adequate financing, and (4) provide
sufficient cash from operations to meet future obligations.
The Company has the exclusive right to file plans of reorganization in the
chapter 11 case until October 21, 1996. The Company may request a further
extension of time to file such plans. Extensions of time are often sought and
granted in chapter 11 cases of this size and complexity. There can be no
assurance, however, that an extension will be granted.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The significant accounting policies and practices followed by Tapistron
International, Inc. (the "Company") and its subsidiary are as follows:
Description of Business
- -----------------------
The Company is in the business of developing or acquiring proprietary
technologies in the textile industry. To date, the Company's efforts have been
focused on the continued development, production and marketing of the
computerized yarn placement (CYP) machine and the development of a second
technology involving the dyeing of textile materials.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Fabrication Center, Inc. ("FCI"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
-22-
<PAGE>
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company maintains
at various financial institutions cash and cash equivalent accounts which may
exceed federally insured amounts at times.
Inventory
- ---------
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and additions and improvements
that significantly extend the lives of assets are capitalized. Upon sale or
other retirement of depreciable property, the cost and accumulated depreciation
are removed from the related accounts and any gain or loss is reflected in
operations. Depreciation is provided using the straight-line method over the
estimated useful lives of the depreciable assets.
Intangible Assets
- -----------------
Intangible assets are stated at their unamortized cost and are amortized on the
straight-line method over their estimated useful lives. The estimated useful
lives of the Company's noncompete agreements range from 2 to 9 years and the
estimated useful lives of the Company's patents and licenses range from 7 to 17
years.
Net Loss Per Share
- ------------------
Net loss per share is computed using the weighted average number of shares of
common stock outstanding.
Revenue Recognition
- -------------------
Sales and related cost of sales are recognized primarily at the time of shipment
of the product. Sales and cost of sales may be recognized when the product is
complete and ready for shipment if the customer requests the Company to hold the
product and there are no uncertainties as to the consummation of the sale. Upon
recognition of sales, a reserve for estimated warranty and other related
expenses is established. The reserve is periodically evaluated as to its
adequacy for the anticipated expenses to be incurred during the limited warranty
period.
Income Taxes
- ------------
Income taxes are computed based on the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
Deferred tax assets and liabilities are recognized for the estimated future tax
effects attributed to temporary differences between the book and tax bases of
assets and liabilities and for carryforward items. The measurement of current
and deferred tax assets and liabilities is based on enacted tax law. Deferred
tax assets are reduced, if necessary, by a valuation allowance for the amount of
tax benefits that may not be realized.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
-23-
<PAGE>
Reclassifications
- -----------------
Certain reclassifications have been made in the previously reported financial
statements to make prior year amounts comparable to those of the current year.
Such reclassifications had no effect on previously reported net loss or
shareholders' equity.
Disclosures About Fair Values of Financial Instruments
- ------------------------------------------------------
In the year ended July 31, 1996, the Company adopted Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments (SFAS 107), which requires companies to disclose fair value
information about certain financial instruments. SFAS 107 defines fair value as
the quoted market prices for those instruments that are actively traded in
financial markets. In cases where quoted market prices are not available, fair
values are estimated using present value or other valuation techniques. The
fair value estimates are made at a specific point in time, based on available
market information and judgements about the financial instrument, such as
estimates of timing and amount of expected future cash flows. Such estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains or
losses.
In many cases, the fair value estimates cannot be substantiated by comparison
to independent markets, nor can the disclosed value be realized in immediate
settlement of the instrument.
SFAS 107 excludes certain financial instruments, particularly trade accounts
receivable and payable, from its disclosure requirements.
The fair values of cash and cash equivalents approximate their carrying amounts
as reflected in the balance sheet due to their short-term availability or
maturity.
The fair values of notes receivable approximate their carrying amounts as
reflected in the balance sheet due to interest rates that are similar to current
rates.
The fair values of notes payable also approximate their carrying amounts as
reflected in the balance sheet due to interest rates that are similar to current
rates.
NOTE 3 ORGANIZATION
- -------------------
The Company was incorporated on February 7, 1986, under the laws of the State of
Georgia under the name Textile Corporation of America. The Company was formed
to acquire FCI and to develop or acquire proprietary technologies in the textile
industry. On July 29, 1986, the Company exchanged 2,800,426 shares of common
stock for all of the outstanding stock of FCI having a net book value of
$342,608 in a transaction accounted for as a pooling of interests. FCI was
organized on August 19, 1981, under the laws of the State of Georgia and
commenced operations on August 1, 1983. FCI was formed for the purpose of
engaging in the research, development, production and marketing of a CYP machine
for the manufacturing of rugs and carpets. On July 16, 1991, the directors
changed the name of the Company to Tapistron International, Inc. Reference
herein to the "Company" includes Tapistron International, Inc. and FCI. The
Company was a development stage enterprise until January 1992 when the Company
realized revenues from the sale of its first CYP machine.
-24-
<PAGE>
NOTE 4 - INVENTORY
- ------------------
Inventory consists of the following components:
<TABLE>
<S> <C> <C>
1996 1995
----------- ----------
Raw materials $1,413,531 $1,627,755
Work in process 1,636,530 977,580
Finished goods 11,090 670,055
---------- ----------
3,061,151 3,275,390
Allowance for obsolete inventory (978,656) (474,215)
---------- ----------
$2,082,495 $2,801,175
========== ==========
</TABLE>
The Company recognized a loss related to obsolete inventory of $504,441 for the
year ended July 31, 1996, and $174,215 for the year ended July 31, 1995.
It is reasonably possible that the estimate of allowance for obsolete inventory
will change within the next year.
-25-
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consists of the following major classifications:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- -------------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Land $ - $ - $ 801,161 $ -
Building and improvements - - 2,514,515 162,222
Leasehold improvements - - 3,043 3,043
Office furniture, fixtures
and equipment 501,435 306,490 586,934 284,485
Machinery and equipment 1,167,365 490,114 1,652,207 345,266
Vehicles 16,914 11,841 16,914 8,457
---------- -------- ---------- --------
$1,685,714 $808,445 $5,574,774 $803,473
========== ======== ========== ========
</TABLE>
Depreciation expense totaled $389,667 for 1994, $462,534 for 1995 and $390,125
for 1996.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ----------------------------------------------
Accounts payable and accrued expenses consist of the following:
<TABLE>
1996 1995
-------- ----------
<S> <C> <C>
Trade accounts payable
Reserve for product warranties $ 33,970 $1,498,757
Other 10,000 25,000
498,350 349,655
-------- ----------
$442,320 $1,873,412
======== ==========
</TABLE>
-26-
<PAGE>
NOTE 7 - LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION PROCEEDINGS:
- ----------------------------------------------------------------------------
If it is probable that the collateral value related to pre-petition secured
liabilities exceeds the amount of the obligation, such liabilities are included
in short-term debt.
The remainder of the pre-petition liabilities (including situations where it
cannot be determined whether the collateral value exceeds the amount of the
obligation) are:
<TABLE>
<CAPTION>
June 21, 1996
-------------
<S> <C>
Accounts Payable $1,366,572
Unsecured Term Notes 216,458
Accrued Expenses (including accrued interest on debt at time of filing 16,759
----------
Total liabilities subject to settlement under reorganization proceedings $1,609,577
==========
</TABLE>
A plan of reorganization may materially change the amount and terms of these
pre-petition liabilities.
The portions of debt contractually due within one year following each respective
balance sheet date are not classified in current liabilities because such
amounts will be settled under a plan of reorganization.
A portion of the Company's work-in-process inventory is encumbered under
prepetition short-term debt agreements.
NOTE 8 - LEASES
- ---------------
In June, 1996, the Company completed the refinancing of its main facility under
a sale/leaseback arrangement. The facility was sold for $1.9 million, $1.86
million of which was used to pay off the existing mortgage. The Company then
entered into an operating lease for a term of five years. The lease requires
minimum annual rental payments of $302,500 in 1997, $317,625 in 1998, $333,506
in 1999, $350,182 in 2000, and $303,877 in 2001. The Company has the option to
purchase the property at any time during the lease term.
The Company also leases office space, warehouse space, and equipment under
short-term operating leases. Rental expense under all operating leases totaled
$80,734 for 1994, $50,941 for 1995 and $52,442 for 1996.
-27-
<PAGE>
NOTE 9 - DEBT
- -------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
------- ----------
<S> <C> <C>
7.2% Promissory note, maturing in
January 1996, payable $2,600
monthly including interest,
collateralized by treasury
stock $ - $ 15,280
9.3% Promissory note, maturing in
January 2002, payable $1,200
annually, unsecured and
subject to settlement under
a plan of reorganization 4,869 5,553
10% Promissory note, maturing June 1,
1996, interest only payable
through December 1994,
monthly principal and interest
payments of $120,114 payable
beginning January 1996,
collateralized by real property - 1,792,243
5.8% Promissory note, maturing
September 9, 1998, payable $375
monthly including interest,
collateralized by equipment 9,788 12,976
-------- ----------
14,657 1,826,052
Less: Current portion 4,729 1,812,051
Current portion subject to settlement
under a plan of reorganization 768
------- ----------
$ 9,180 $ 14,001
======= ==========
</TABLE>
Aggregate maturities of long-term debt for the five years subsequent to July
31, 1996, are as follows:
July 31, 1997 $ 5,477
July 31, 1998 5,133
July 31, 1999 1,638
July 31, 2000 976
July 31, 2001 1,067
Thereafter 366
Short-term debt consists of a line of credit agreement bearing interest at 10%
and various promissory notes bearing interest at rates varying from 6% to 13%. A
significant portion of the short-term debt is collateralized by CYP Loom
machines.
Interest expense on debt totaled $55,701 for 1994, $248,594 for 1995 and
$314,611 for 1996.
-28-
<PAGE>
NOTE 10 - STOCK OPTIONS
- -----------------------
In April 1992, the Company adopted the 1992 qualified employee stock option plan
(the "1992 Plan") which provided for the granting of options to employees for
the purchase of up to 350,000 shares of common stock of the Company at a price
not less than fair market value on the date the options are granted. The
shareholders of the Company subsequently approved an increase in the number of
shares available for issuance under the 1992 Plan to 1,350,000 shares.
Previously, the Company had a qualified employee stock option plan (the "1989
Plan") which provided for the granting of options to employees for the purchase
of approximately 210,000 shares of which options for approximately 192,500 have
been granted. The 1989 Plan was terminated with the adoption of the 1992 Plan.
In addition, the Company has, at various times, granted options outside of the
Plan to employees and non-employees.
The following table summarizes option activity:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
------------ ---------------
<S> <C> <C>
Outstanding as of July 31, 1991 554,062 $2.14 - $3.57
Granted 545,528 $5.00 - $6.75
Exercised (86,470) $3.57
Expired (17,512) $3.57
----------
Outstanding as of July 31, 1992 995,608 $3.57 - $6.75
Exercised (209,605) $3.57
Expired (3,500) $5.00
----------
Outstanding as of July 31, 1993 782,503 $2.14 - $3.57
Granted 1,513,000 $2.75 - $7.125
Exercised (25,000) $3.57
Expired (248,000) $6.75 - $7.125
----------
Outstanding as of July 31, 1994 2,022,503 $2.75 - $7.125
Granted 111,000 $1.875 - $2.625
Exercised - -
Expired (141,500) $2.750 - $7.125
----------
Outstanding as of July 31, 1995 1,992,003 $1.875 - $7.125
Granted 600,000 $.50 - $.87
Exercised - -
Expired - -
----------
Outstanding as of July 31, 1996 2,592,003 $1.875 - $7.125
==========
Exercisable 2,592,003
==========
</TABLE>
Options outstanding as of July 31, 1991, for the purchase of 86,049 shares of
the Company's common stock were exercised during April 1992 by the surrender of
28,502 shares of the Company's common stock.
Options outstanding as of July 31, 1992, for the purchase of 209,605 shares of
the Company's common stock were exercised by and the subscription notes
receivable were paid by the surrender of 95,649 shares of the Company's common
stock.
-29-
<PAGE>
In connection with the initial public offering on June 23, 1992, the Company
issued representative's options to purchase up to an aggregate of 225,000 shares
of the Company's common stock and 225,000 warrants at an initial purchase price
of $11.138 per share of the Company's common stock and $.165 per non-redeemable
warrant. These options are exercisable from June 24, 1993 through September 3,
2003. The non-redeemable warrants issuable upon exercise of the
representative's options are not subject to redemption by the Company. The
options also contain provisions providing for adjustment of the exercise price
upon occurrence of certain events, including the issuance of shares of common
stock or other securities convertible into or exercisable for shares of common
stock at a price per share less than the exercise price or the market price,
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transactions. The representative's options have not been
included in the above table.
NOTE 11 - WARRANTS
- ------------------
During the year ended July 31, 1992, the Company issued redeemable warrants to
purchase 2,587,500 shares of common stock of the Company at a purchase price of
$8.10 per share, exercisable from June 24, 1993 through June 23, 1997. During
the year ended July 31, 1992, the Company issued warrants to purchase 45,049
shares of common stock of the Company at $3.93 per share and 34,727 shares at
$5.50 per share expiring at various dates through December 1994. During the
year ended July 31, 1994, warrants for the purchase of 18,550 shares of the
Company's common stock at a purchase price of $3.93 were exercised and warrants
for the purchase of 26,499 shares of the Company's common stock at a purchase
price of $3.93 expired. During the year ended July 31, 1995, warrants for the
purchase of 50,000 shares at an exercise price of $1.00 were issued, warrants
for the purchase of 34,727 shares at an exercise price of $5.50 expired, and no
warrants were exercised during the year. Warrants for the purchase of 2,637,500
shares of the Company's common stock remain outstanding as of July 31, 1996.
NOTE 12 - RELATED PARTY TRANSACTIONS
- ------------------------------------
During the three years ended July 31, 1996, the Company borrowed various amounts
from a principal shareholder and former director of the Company and his family
members, who are also shareholders. The shareholder was a director during the
year ended July 31, 1996. As of July 31, 1996, the Company was indebted to this
shareholder in the amount of $625,000 through a line of credit agreement bearing
interest at 10%.
During the year ended July 31 1996, the Company expensed $219,000 in consulting,
legal, and administrative fees owed to a principal shareholder. The Company
was also indebted to this shareholder's law firm for $174,000 for legal fees in
association with the reorganization.
During the year ended July 31, 1994, the Company contracted with an engineering
consulting firm, whose Chief Executive Officer and President was also a director
of the Company, to develop a new model of the CYP machine. During the years
ended July 31, 1994, 1995, and 1996 the Company incurred approximately
$2,733,000, $2,643,000, and $0, respectively, in fees to this firm.
During the year ended July 31, 1996, consulting fees of $50,000 were paid to a
capital company whose Chairman is a former director of the Company. Also during
the year ended July 31, 1996, $50,000 was borrowed from this capital company.
-30-
<PAGE>
During the year ended July 31, 1996, the Company borrowed approximately $16,000
from an officer of the Company. The amount was also paid back to the officer
during the year.
During the year ended July 31, 1996, 200,000 shares of the Company's common
stock were issued to two former directors in consideration for services rendered
to the Company.
NOTE 13 - DOMESTIC AND EXPORT SALES
- -----------------------------------
The following table summarizes the sales of the Company:
<TABLE>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
North America $1,200,322 $1,659,928 $1,627,510
Asia 24,822 32,432 787,550
Pacific Rim 58,854 38,226 1,900,000
Europe 21,501 834,958 -
---------- ---------- ----------
Total sales $1,305,499 $2,565,544 $4,315,060
========== ========== ==========
</TABLE>
NOTE 14 - MAJOR CUSTOMERS
- -------------------------
Substantially all sales were made to five customers during the year ended July
31, 1994, two customers during the year ended July 31, 1995, and two customers
during the year ended July 31, 1996.
NOTE 15 - INCOME TAXES
- ----------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the tax bases of those assets and liabilities. Significant
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets
Accounts receivable $ 16,000 $ 80,000
Inventory 96,000 96,000
Accrued expenses and reserves 14,000 15,000
Net operating loss carryforward 8,006,000 6,341,000
Valuation allowance (8,132,000) (6,527,000)
----------- -----------
- 5,000
Deferred tax liabilities
Intangible assets - 5,000
------------ ------------
Net deferred tax assets and liabilities $ - $ -
============ ============
</TABLE>
-31-
<PAGE>
As of July 31, 1996, the Company had net operating loss carryforwards of
approximately $21,186,000 available to offset future taxable income which will
expire in various years through 2011. A valuation allowance of $8,132,000 has
been recognized primarily to offset the related deferred tax assets due to the
uncertainty of realizing the benefit of the loss carryforwards.
NOTE 16 - SUBSEQUENT EVENTS
- ---------------------------
As of August 29, 1996, the Company's stock has been delisted from the NASDAQ
National Market. The Company's warrants were delisted as of August 20, 1996.
NOTE 17 - GOING CONCERN
- -----------------------
As shown in the accompanying financial statements, the Company has incurred
recurring losses from operations and, as a result, has experienced cash flow
problems. These factors raise substantial doubt about the company's ability to
continue as a going concern. The Company's ability to continue as a going
concern is dependent first on its ability to raise additional capital to meet
its immediate working capital requirements and ultimately on its ability to
obtain profitable operating results. Management intends to raise additional
capital through either the placement of a debt or equity offering.
NOTE 18 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company is a party to a number of legal actions arising in the ordinary
course of its business. In management's opinion, the Company has adequate legal
defenses and/or insurance coverage respecting each of these actions and does not
believe that they will materially affect the Company's operations or financial
position. All litigation was stayed on June 21, 1996 by virtue of the
commencement of the bankruptcy case.
NOTE 19 - ASSETS SUBJECT TO LIENS
- ---------------------------------
The Company has pledged three of its CYP machines as collateral on three short-
term notes payable. Two of these machines are currently included in work-in-
process inventory, and one machine is included in fixed assets. The machines
pledged and the related note balances (including accrued interest) are as
follows:
<TABLE>
<CAPTION>
Collateral Collateral's Book Value Loan's Book Balance
Description as of July 31, 1996 as of July 31, 1996
----------- ----------------------- -------------------
<S> <C> <C>
2.0 Meter CYP Machine $195,079 $155,209
4.4 Meter CYP Machine 228,739 629,961
4.4 Meter CYP Machine 411,609 252,622
</TABLE>
-32-
<PAGE>
SCHEDULE I
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Cost and at End
of Year Expenses Deductions of Year
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
- -------------------------------
Year Ended July 31, 1996 $200,000 $ $160,095 $ 39,905
======== ======== ======== ========
Allowance for Obsolete Inventory
- --------------------------------
Year ended July 31, 1996 $474,215 $547,440 $ 42,999 $978,656
======== ======== ======== ========
Allowance for Uncollectible Long-Term
Receivables
- --------------------------------------
Year ended July 31, 1996 $ $500,000 $ $500,000
======== ======== ======== ========
</TABLE>
-33-
<PAGE>
LOGO
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JANUARY 21, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TAPISTRON INTERNATIONAL, INC.
6203 ALABAMA HIGHWAY
P. O. BOX 1067
RINGGOLD, GEORGIA 30736
The undersigned shareholder hereby appoints J. Darwin Poe and Gary L.
Coulter, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares
of common stock of Tapistron International, Inc., held of record by the
undersigned on November 25, 1996, at the Annual Meeting of Shareholders to be
held January 21, 1997, or any adjournment thereof.
The Board of Directors recommends a vote FOR (1) and (2).
(2) ELECTION OF DIRECTORS.
Nominees to serve a three-year Nominees to serve a two-
term expiring in 1999: year term expiring in 1998:
Gary L. Coulter Kim Amos
J. Darwin Poe Robert Culbreth
<TABLE>
<S> <C>
[_] FOR all nominees (except names [_] WITHHOLD AUTHORITY to vote
marked to the contrary above). for all nominees listed above.
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE STRIKE
NOMINEE'S NAME IN THE LIST ABOVE).
- --------------------------------------------------------------------------------
<PAGE>
LOGO
(3) RATIFY THE SELECTION OF DUDLEY, HOPTON-JONES, SIMS & FREEMAN, PLLP, AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR 1997.
FOR [_] AGAINST [_] ABSTAIN [_]
- --------------------------------------------------------------------------------
(4) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
Dated: _____________________, 199
----------------------------------
Signature
----------------------------------
Signature if held jointly
Please sign exactly as name ap-
pears on your certificate. When
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administra-
tor, trustee or guardian, please
give full title as such. If a
corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in part-
nership name by authorized per-
son.
