UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-20309
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TAPISTRON INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1684918
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
6203 Alabama Highway
P.O. Box 1067
Ringgold, Georgia
30736-1067
(Address of principal executive offices)
(Zip Code)
(706) 965-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the most recent practicable date.
Class Outstanding at December 4, 1998
- ---------------------------------- -------------------------------
Common Stock $.0004 Par Value 34,785,611
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TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of July 31, 1998 and October 31, 1998 3
Condensed Consolidated Statements of Operations for the Three Months Ended
October 31, 1997 and 1998 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
October 31, 1997 and 1998 6
Notes to Condensed Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 12
SIGNATURE 13
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2
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
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ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 1998 October 31, 1998
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<S> <C> <C>
CURRENT ASSETS
Cash and Cash equivalents $ 247,101 $ 12,786
Receivables, net of allowance of $31,556
as of July 31, 1998 and October 31, 1998,
respectively 980,221 80,018
Receivables from employees 2,505 3,186
Note receivables 66,667 641,667
Inventory 1,601,146 1,623,604
Prepayments 140,788 131,174
Deferred income taxes 100,000 100,000
----------- ------------
Total current assets 3,138,428 2,592,435
----------- ------------
PROPERTY AND EQUIPMENT, NET 572,372 593,818
----------- ------------
OTHER ASSETS
Long-term receivables, net of allowance of
$500,000 as of July 31, 1998 and October
31, 1998, respectively - -
Patents and patent license 265,941 258,485
Deferred income taxes 1,900,000 1,900,000
Other assets 6,148 5,624
----------- ------------
Total other assets 2,172,089 2,164,109
----------- ------------
TOTAL $5,882,889 $5,350,362
=========== ============
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The accompanying notes are an integral
part of these financial statements.
3
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET - CONTINUED
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LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed from
Audited Financial
Statements Unaudited
July 31, 1998 October 31, 1998
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<S> <C> <C>
CURRENT LIABILITIES
Short-term debt $ 744 $ 50,000
Current portion of long-term debt - 3,426
Accounts payable 137,966 151,361
Accrued expenses 386,115 178,759
Customer deposits 143,994 120,033
------------ ------------
Total current liabilities 668,819 503,579
------------ ------------
LIABILITIES SUBJECT TO SETTLEMENT
UNDER REORGANIZATION PROCEEDINGS 350,000 250,000
------------ ------------
CONTINGENT REORGANIZATION LIABILITY 352,193 426,786
------------ ------------
LONG-TERM DEBT - 10,893
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value - 2,000,000
shares authorized: no shares issued and
outstanding - -
Common stock - $.0004 par value - 100,000,000
shares authorized: 34,841,129 and 10,581,813
shares issued at July 31, 1998 and October 31,
1998, respectively 13,936 13,936
Additional paid in capital 26,637,441 26,562,847
Accumulated deficit (22,126,708) (22,404,887)
Treasury stock - 55,518 shares outstanding as
of July 31, 1998 and October 31, 1998 (12,792) (12,792)
------------ ------------
Total stockholders' equity 4,511,877 4,159,104
------------ ------------
TOTAL $5,882,889 $5,350,362
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three months Three months
ended ended
October 31, 1997 October 31, 1998
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<S> <C> <C>
SALES $ 1,249,830 $ 1,096,232
COST OF SALES 833,544 704,403
------------- -------------
Gross profit 416,286 391,829
OPERATING EXPENSES 647,420 645,976
------------- -------------
OPERATING LOSS (231,134) (254,147)
------------- -------------
OTHER INCOME (EXPENSE)
Interest expense - (235)
Interest income 29,725 2,469
Loss on disposal of asset - (2,820)
------------- -------------
Other income (expense) 29,725 (586)
------------- -------------
Loss before reorganization items (201,409) (254,733)
REORGANIZATION ITEMS - (23,446)
------------- -------------
NET LOSS $ (201,409) $ (278,179)
============= =============
EARNINGS PER SHARE
Net loss (0.01) (0.01)
Weighted average number of
shares outstanding 22,137,394 34,785,611
</TABLE>
The accompanying notes are an integral
part of the financial statements.
5
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Three months Three months
ended ended
October 31, 1997 October 31, 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (201,409) $ (278,179)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 36,781 40,162
Loss on disposal of asset - 2,820
Changes in operating assets and liabilities:
(Increase) decrease in receivables 405,930 324,522
(Increase) decrease in prepayments (20,140) 9,614
(Increase) decrease in inventory (552,786) (22,458)
Increase (decrease) in accounts payable
and accrued expenses (227,739) (193,961)
Increase (decrease) in customer deposits (798,039) (23,961)
Increase (decrease) in liabilities subject to
settlement under a plan of reorganization (605,516) (100,000)
------------- -------------
Net cash used in operating activities (1,962,920) (241,441)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for other assets (18,238) (526)
Capital expenditures ( 2,930) (40,875)
------------- -------------
Net cash used in investing activities (21,168) (41,401)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 50,000
Proceeds from issuance of common stock 2,500,000 -
Principal repayments of debt - (1,473)
------------- -------------
Net cash provided by financing activities 2,500,000 48,527
------------- -------------
NET INCREASE (DECREASE) IN CASH: 515,912 (234,315)
Cash and cash equivalents - beginning of period 27,946 247,101
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Cash and cash equivalents - end of period $ 543,858 $ 12,786
============= =============
The accompanying notes are an integral
part of the financial statements.
6
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
Three months Three months
ended ended
October 31, 1997 October 31, 1998
---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ - $ 235
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable for equipment - 15,046
</TABLE>
The accompanying notes are an integral
part of the financial statements.
7
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TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
In the opinion of management of Tapistron International, Inc. ("Tapistron") and
Fabrication Center, Inc. ("FCI"), a wholly-owned subsidiary of Tapistron, the
accompanying unaudited condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments, except as noted elsewhere in
the notes to the condensed consolidated financial statements) necessary to
present fairly its financial position as of October 31, 1998 and the results of
its operations for the three months ended October 31, 1997 and 1998, and cash
flows for the three months ended October 31, 1997 and 1998. These statements are
condensed and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The statements should be read in conjunction with the consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended July 31, 1998. The results of operations for the
three months ended October 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - EARNINGS (NET LOSS) PER SHARE
- --------------------------------------
Earnings (net loss) per share is computed using the weighted average number of
shares of common stock outstanding.
NOTE 3 - INVENTORY
- ------------------
Inventory at October 31, 1998 consists of the following:
Raw Material $ 656,179
Work in Process 967,425
-----------
Total $ 1,623,604
===========
NOTE 4 - CONTINGENT REORGANIZATION LIABILITY
- --------------------------------------------
Under the Amended Plan, the Class 7 unsecured creditors are to receive their pro
rata share of the first $500,000 cash payment and their pro rata share of a
second $500,000 cash payment, payable at $50,000 per new machine sale. With
regard to the balance of their claim, each unsecured creditor could elect either
(1) 15% of the balance of its claim or (2) the creditors pro rata share of
1,000,021 shares of common stock issued by the Company. If between
8
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TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - CONTINGENT REORGANIZATION LIABILITY - (CONTINUED)
- ---------------------------------------------------------
August 29, 1997 and September 30, 2000, the average of the closing prices of the
Company's common stock for any five (5) consecutive trading day period
multiplied by 1,000,021 exceeds the balance of unsecured claims multiplied by
factor for time value or if any unsecured creditor shall sell, pledge, or trade
the stock, directly or indirectly, issued to it, then such creditors shall no
longer be entitled to any further distribution.
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October 31, 1998 closing market price $ 0.2500
Shares issued to Class 7 (no fractional shares were issued) 1,000,021
---------------
Total market value of Class 7 stock $ 250,005
Balance of Class 7 unsecured claims $ 611,336
Time value factor @ 8.75% 1.10707078
---------------
Total liability of Class 7 claims $ 676,791
Total contingent liability for stock to cover Class 7 debt $ 426,786
===============
</TABLE>
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
condensed consolidated results of operations and financial condition. The
discussion should be read in conjunction with the condensed consolidated
financial statements and notes thereto.
Results of Operations
Sales
- -----
Revenues for the three months ended October 31, 1998 ("1998 Three Months") were
$1,096,232 compared with $1,249,830 for the three months ended October 31, 1997
("1997 Three Months"). Revenues during the 1997 Three Months included two
machines, one of which was a used machine, compared to one machine during the
1998 Three Months.
Cost of Sales
- -------------
Cost of sales was $704,403 for the 1998 Three Months, or 64% of sales, compared
with $833,544 for the 1997 Three Months, or 67% of sales. The Company is
continually making efforts to reduce the cost of parts and labor that comprise
the cost of the CYP mahcine.
Operating Expenses
- ------------------
Operating expenses were $645,976 for the 1998 Three Months, or 59% of sales,
compared with $647,420 for the 1997 Three Months, or 52% of sales. The increase
in operating expenses as a percentage of sales was a result of a decrease in
sales for the 1998 Three Months.
Liquidity and Capital Resources
The Company's highly liquid assets (cash and cash equivalents) at October 31,
1998 aggregated $12,786, a decrease from the $247,101 balance at July 31, 1998.
Its working capital position at October 31, 1998 of $1,838,856 decreased from
the comparable amount of $2,119,609 at July 31, 1998. The decrease in working
capital resulted from cash used in operations during the 1998 Three Months.
Net cash used in operations for the 1998 Three Months was $241,441 compared to
net cash used in operations of $1,962,920 for the 1997 Three Months. The
decrease in cash used in operations was a result of reducing reorganization
liabilities during the 1997 Three Months. Net cash used in investing activities
totaled $41,401 for the 1998 Three Months compared to $21,168 for the 1997 Three
Months. Net cash provided from financing activities for the 1998 Three Months
totaled $48,527 compared with $2,500,000 for the 1997 Three Months. Included in
the 1997 Three Months was the issuance of stock through a private placement
which generated $2,500,000.
The Company believes its current cash needs will be adequately provided from
anticipated cash generated from operations and short-term borrowings from its
line of credit. No amounts
10
<PAGE>
were outstanding under this line of credit as of October 31, 1998. Long-term
cash requirements, other than normal operating expenses, depend on the Company's
profitability, its ability to manage working capital requirements, and its rate
of growth.
Year 2000 Compliance
- --------------------
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "year 2000 issue" and has
substantially developed an implementation plan to resolve such issues. The "year
2000 issue" is the result of computer programs being written using two digits
rather than four to define the applicable year. Programs with this problem may
recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in system failures or miscalculations. Although no assurance can be
given, the Company presently believes that with further modifications to
existing software and conversion to new software, the "year 2000 issue" will not
pose significant operational problems for the Company's computer systems as so
modified and converted and that the cost of such modifications and conversions
will not have a material impact on the Company's financial statements. The
Company also is in the process of communicating with suppliers, dealers,
financial institutions and others with which it does business to coordinate year
2000 conversion.
Forward-looking Statements for Purposes of "Safe Harbor" Under the Private
- --------------------------------------------------------------------------
Securities Reform Act of 1995
- -----------------------------
The Company has made, and may continue to make, various forward-looking
statements with respect to its financial position, projected costs, projected
savings and plans and objectives of management. Such forward-looking statements
are identified by the use of forward-looking words or phrases such as
"anticipates," "intends," "expects," "plans," "believes," "estimates," or words
or phrases of similar import. These forward-looking statements are subject to
numerous assumptions, risks, and uncertainties, and the statements looking
forward beyond the 1998 Three Months are subject to greater uncertainty because
of the increased likelihood of changes in underlying factors and assumptions.
Actual results could differ materially from those anticipated by the
forward-looking statements.
The applicable risks and uncertainties include general economic and industry
conditions that affect all international businesses, as well as matters that are
specific to the Company and the market it serves. Actual sales in Fiscal 1999
may be materially less than the sales projected in the forward-looking
statements if the Company's customers cancel or delay current orders or reduce
the rate at which the Company is building or expects to build CYP machines for
such customers. Such cancellations, delays, or reductions may occur if there is
a substantial change in the general economy or if a customer were to experience
major financial difficulties. Margins may differ from those projected in the
forward-looking statements if management does not achieve success in improving
margins or other events occur that differ from the estimates used in preparing
the Company's financial statements.
In addition, all subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on behalf of the Company, are
expressly qualified in their entirety by reference to such factors.
11
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The Company's forward-looking statements represent its judgement only on the
dates such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed, or unanticipated
events or circumstances.
EXHIBITS AND REPORTS ON FORM 8-K
(a) There are no Exhibits filed with this report.
(b) No reports on Form 8-K were filed during the quarterly period ended October
31, 1998.
12
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SIGNATURES
Pursant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized,
Tapistron International, Inc.
-----------------------------
(Registrant)
Date: 12-11-98 /s/ J. Darwin Poe
-------- -----------------------------
J. Darwin Poe
(Signing on behalf of the
registrant as President and
Chief Executive Officer)
13
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TAPISTRON INTERNATIONAL, INC., FOR THE THREE MONTHS
PERIOD ENDED OCTOBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 756
<ALLOWANCES> 32
<INVENTORY> 1624
<CURRENT-ASSETS> 2592
<PP&E> 1489
<DEPRECIATION> 895
<TOTAL-ASSETS> 5350
<CURRENT-LIABILITIES> 504
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 4145
<TOTAL-LIABILITY-AND-EQUITY> 5350
<SALES> 1096
<TOTAL-REVENUES> 1096
<CGS> 704
<TOTAL-COSTS> 704
<OTHER-EXPENSES> 645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (278)
<INCOME-TAX> 0
<INCOME-CONTINUING> (278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (278)
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
