SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
Form 10-K/A-1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended July 31, 1996
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-20309
TAPISTRON INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1684918
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
30736-1067
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6203; Alabama Highway; Ringgold, GA (Zip Code)
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(Address of principal executive offices)
Registrant's telephone number, including area code: (706) 965-9300
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0004 Par Value
Redeemable Warrants
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K | |
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of October 25, 1996 was approximately $315,800. On October 25,
1996, there were 10,526,295 shares of $.0004 Par Value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: See part III hereof regarding incorporation
by reference from the registrant's definitive proxy statement to be filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
<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.
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Carpet Industry
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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
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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.
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<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
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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.
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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
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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.
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Competition
The CYP Machine
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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
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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.
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<PAGE>
Directors and Executive Officers
The following table sets forth the names and positions of the executive
officers and the directors of the Company:
Name Age Position with the Company
---- --- -------------------------
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
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 .
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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
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<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
1995: First Quarter (August 1, 1994 - October 31, 1994) 4 1/2 2 13/32
Second Quarter (November 1, 1994 - January 31, 1995) 3 7/8 2 1/4
Third Quarter (February 1, 1995 - April 30, 1995) 3 1/4 1 7/16
Fourth Quarter (May 1, 1995 - July 31, 1995) 2 1/8 5/8
1996: First Quarter (August 1, 1995 - October 31, 1995) 1 3/8 13/16
Second Quarter (November 1, 1995 - January 31, 1996) 1 1/16 1/4
Third Quarter (February 1, 1996 - April 30, 1996) 25/32 3/8
Fourth Quarter (May 1, 1996 - July 31, 1996) 5/8 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>
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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,
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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
As of July 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
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
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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
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<PAGE>
insufficient cash to support operations and technical support of the CYP
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. This increase is the result of CYP looms being sold at
a lower margin in order 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
$1,991,507 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
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.
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
(a)3. EXHIBITS
<S> <C>
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*
27 - Financial Data Schedule - included herewith (Electronic filing only)
</TABLE>
* 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: /s/ J. Darwin Poe 11/15/96
--------------------------------------- -----------------------
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.
Signatures Title Date
/s/Gary Coulter
--------------------- Vice Chairman of the Board 11/15/96
Gary Coulter
/s/J. Darwin Poe
--------------------- President and
J. Darwin Poe Chief Executive Officer 11/15/96
/s/Robert E. Culbreth
--------------------- Director 11/15/96
Robert E. Culbreth
Kim Amos
--------------------- Vice President of Engineering 11/15/96
Kim Amos and Director
Floyd Koegler
---------------------
Floyd Koegler Chief Financial Officer 11/15/96
-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>
ASSETS
1996 1995
---- ----
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
-17-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
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 4,233 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>
The accompanying notes are an integral
part of these financial statements
-18-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended July 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
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
=========== =========== ===========
The accompanying notes are an integral
part of these financial statements
-19-
<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
-20-
<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) (3,608,283) (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 -- (137,625) (13,838)
----------- ----------- -----------
Net cash provided by (used in) investing
activities 2,173,085 (564,755) (974,173)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements
-21-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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) financing
activities (1,253,392) 3,559,751 2,401,722
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents - beginning of year (82,277) (613,287) (3,330,979)
Cash and cash equivalents - end of year 99,426 712,713 4,043,692
----------- ----------- -----------
$ 17,149 $ 99,426 $ 712,713
=========== =========== ===========
SUPPLEMENTAL 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
-21-
<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>
The accompanying notes are an integral
part of these financial statements
-22-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
-23-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
-24-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
-25-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVENTORY
- ------------------
Inventory consists of the following components:
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
============= =============
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.
-26-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
========== ========== ========== ==========
Depreciation expense totaled $389,667 for 1994, $462,534 for 1995 and $390,125 for 1996.
</TABLE>
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ----------------------------------------------
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Trade accounts payable $ 33,970 $ 1,498,757
Reserve for product warranties 10,000 25,000
Other 498,350 349,655
---------- -----------
$ 442,320 $ 1,873,412
========== ===========
</TABLE>
-27-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
June 21, 1996
-------------
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
=============
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.
-28-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 748
--------- ---------
$ 9,180 $ 14,001
========= =========
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.
</TABLE>
-29-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
Number of Option Price
Shares Per Share
----------- --------------
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 $ .50 - $7.125
============
Exercisable 2,592,003
============
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.
-30-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
-31-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
1996 1995 1994
---- ---- ----
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
========== ========== ==========
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:
1996 1995
---- ----
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 ----------- -----------
$ -- $ --
=========== ===========
-32-
<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
Collateral Collateral's Book Value Loan's Book Balance
Description as of July 31, 1996 as of July 31, 1996
---------------------- ------------------------- -------------------
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
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<PAGE>
TAPISTRON INTERNATIONAL, INC.
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
-34-
