UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 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
TAPISTRON INTERNATIONAL, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1684918
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6203 Alabama Highway
P.O. Box 1067
Ringgold, Georgia
(Address of principal executive offices)
30736-1067
(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. [X] Yes [ ] 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 February 23, 1998
----------------------------- --------------------------------
Common Stock $.0004 Par Value 34,785,611
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TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of July 31, 1997 and January 31, 1998 3
Condensed Consolidated Statements of Operations for the Three Months Ended
January 31, 1997 and 1998 and for the Six Months Ended January 31, 1997
and 1998 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
January 31, 1997 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 7
SIGNATURE 8
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2
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<CAPTION>
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 1997 January 31, 1998
CURRENT ASSETS ----------------- ----------------
<S> <C> <C>
Cash and Cash equivalents $27,946 $228,506
Receivables, net of allowances of $39,905 as of July 31, 1997
and January 31, 1998 720,740 840,638
Notes Receivable 350,000 100,000
Inventory 1,231,002 1,854,113
Prepayments 102,453 179,877
Deferred income taxes 100,000 100,000
------------- ----------
Total current assets 2,532,141 3,303,134
PROPERTY AND EQUIPMENT, NET 564,324 506,830
OTHER ASSETS
Long-term receivables, net of allowances of $500,000 as of
July 31, 1997 and January 31, 1998 - -
Patents and patent license 263,068 278,821
Deferred income taxes 1,900,000 1,900,000
Other 8,247 7,198
------------- ----------
Total other assets 2,171,315 2,186,019
------------- ----------
TOTAL $5,267,780 $5,995,983
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $0 $116,070
Current Portion of long-term debt 4,315 2,817
Accounts payable 178,068 106,128
Accrued expenses 655,621 145,190
Customer deposits 936,026 102,434
------------- ----------
Total current liabilities 1,774,030 472,639
LIABILITIES SUBJECT TO SETTLEMENT UNDER
REORGANIZATION PROCEEDINGS 2,520,557 500,000
LONG-TERM DEBT 744 744
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; 10,581,813 outstanding as of July 31, 1997
and 34,841,129 outstanding as of January 31, 1998 4,233 13,936
Additional paid-in capital 22,899,108 26,989,634
Accumulated deficit (21,918,100) (21,968,179)
Treasury stock - 55,518 shares outstanding, at cost (12,792) (12,792)
------------- -----------
Total stockholders' equity 972,449 5,022,599
TOTAL $5,267,780 $5,995,983
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<CAPTION>
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended January 31, Six months ended January 31,
----------------------------- ----------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $1,239,068 $1,497,092 $2,800,942 $2,746,921
COST OF SALES 887,817 836,623 1,995,210 1,670,167
---------- ------------ --------- -----------
Gross profit 351,252 660,468 805,733 1,076,754
OPERATING EXPENSES
General & Administrative expenses 320,175 491,764 661,088 1,139,183
---------- ------------ --------- -----------
320,175 491,764 661,088 1,139,183
---------- ------------ --------- -----------
OPERATING INCOME (LOSS) 31,077 168,705 144,645 (62,429)
---------- ------------ --------- -----------
OTHER INCOME (EXPENSE)
Interest expense (19,319) (20,279) (54,837) (20,279)
Interest income 0 2,905 2 32,629
---------- ------------ --------- -----------
Other income (expense) (19,319) (17,374) (54,836) 12,351
---------- ------------ --------- -----------
NET INCOME (LOSS) 11,758 151,331 89,809 (50,078)
EARNINGS PER SHARE
Net income (loss) 0.001 0.005 0.009 (0.002)
Weighted average number of
shares outstanding 10,526,295 32,804,920 10,526,295 27,462,709
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<CAPTION>
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended January 31,
----------------------------
1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $89,809 ($50,078)
Adjustments to reconcile net income
(loss) to net cash used by operating activities:
Depreciation and amortization 90,462 80,029
Changes in operating assets and liabilities:
(Increase) decrease in receivables (291,564) 130,102
(Increase) decrease in prepayments (5,396) (77,424)
(Increase) decrease in inventory 1,286,590 (623,111)
Increase (Decrease) in customer deposits (150,000) (833,592)
Increase (Decrease) in accounts payable and accrued expenses (123,885) (207,371)
Increase (Decrease) in accounts payable and accrued expenses,
which are subject to settlement under a plan of reorganization 5,415 (795,328)
------------ --------------
Net cash provided by (used by) operating activities 901,431 (2,376,773)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for other assets 0 (23,673)
Capital expenditures (2,033) (13,565)
------------ --------------
Net cash (used by) investing activities (2,033) (37,239)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 599,970 400,000
Proceeds from issuance of common stock 0 2,500,000
Principal payments of debt (352,111) (285,428)
------------ --------------
Net cash provided by financing activities 247,859 2,614,572
NET INCREASE (DECREASE) IN CASH EQUIVALENTS: 1,147,257 200,560
Cash and cash equivalents - beginning of period 17,149 27,946
------------ --------------
Cash and cash equivalents - end of period $1,164,406 $228,506
============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $19,569 $17,597
============ ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfers from fixed assets to inventory $163,270 $0
Issuance of stock in lieu of professional fees $0 $375,000
Issuance of stock for reorganization debt $0 $1,225,230
============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of Tapistron International, Inc.
("Tapistron") and Fabrication Center, Inc. ("FCI"), a wholly-owned subsidiary
of Tapistron, the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments, except as noted elsewhere in the notes to the condensed
consolidated financial statements) necessary to present fairly its financial
position as of January 31, 1998 and the results of its operations for the
three and six months ended January 31, 1997 and 1998, and cash flows for the
six months ended January 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, 1997. The results of operations for the three and
six months ended January 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - EARNINGS PER SHARE
Earnings per common share is computed based on the weighted average number of
common shares and, when dilutive, common equivalent shares (stock options and
warrants) outstanding during each of the periods.
NOTE 3 - INVENTORY
Inventory at January 31, 1998 consists of the following:
Raw Material $808,600
Work in Process 1,045,513
-----------
$1,854,113
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended January 31, 1997 and 1998
Quarterly sales in the three months ended January 31, 1998 of $1,497,092
exceeded the three months ended January 31, 1997 of $1,239,068 by 21%. The
increase in revenues is a result of machines being sold at lower margins in
the three months ended January 31, 1997 due to the need to generate cash to
support operations and technical support of the CYP Machines during the
reorganization proceedings. Renewed confidence in the Company has allowed
gross margins to return to normal levels.
Cost of Sales as a percentage of sales decreased from 72% in the three months
ended January 31, 1997 to 56% in the three months ended January 31, 1998. The
improved gross margin in the current quarter resulted from machines selling at
a higher margin.
Operating expenses increased to $491,764 in the three months ended January 31,
1998, an increase of 54%. This increase was primarily due to an increase in
professional fees of $78,965, which related to the reorganization proceedings.
Six Months Ended January 31, 1997 and 1998
Year to date sales for the six months ended January 31, 1998 were $2,746,921
compared to $2,800,942 for the six months ended January 31, 1997, a decrease
of 2%.
Cost of Sales as a percentage of sales decreased from 71% for the six months
ended January 31, 1997 to 61% for the six months ended January 31, 1998. The
improved gross margin resulted from cost control measures in production,
particularly in the areas of assembly and purchasing.
Operating expenses were $1,139,183 for the six months ended January 31, 1998
as compared to $661,088 for the six months ended January 31, 1997. The
increase was primarily due to an increase in professional fees of $175,395,
which related to the reorganization proceedings. Additionally, an increase of
$298,879 was attributed to higher personnel costs and an increase in costs to
support worldwide marketing efforts. The Company expects to continue its
emphasis on marketing and sales activities in the future to support sales and
marketing of its CYP technology both domestic and worldwide.
Liquidity and Capital Resources
As of January 31, 1998 the Company had working capital of $2,830,495, and had
total cash of $228,506. The Company's overall cash needs were provided
primarily from a $2,500,000 private placement that consummated in August of
1997. Cash used in operations totaled $2,376,773, of which $795,328 was used
to reduce liabilities subject to the Plan of Reorganization and $623,111 was
used for inventory. Management believes its current cash needs will be
adequately provided from anticipated cash generated from operations and
short-term borrowings.
Long-term cash requirements, other than normal operating expenses, are
anticipated for development and enhancement of CYP technology, financing
anticipated growth and possible acquisitions of certain businesses
complementary to the Company's business.
PART II. OTHER INFORMATION
No reports on Form 8-K were filed by Registrant during the quarterly period
ended January 31, 1998.
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized,
Tapistron International, Inc.
-------------------------------
(Registrant)
Date: 3/6/98 /s/ J. Darwin Poe
-----------------------------------------
J. Darwin Poe
(Signing on behalf of the registrant
as President and Chief Executive Officer)
8
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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 JANUARY 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 229
<SECURITIES> 0
<RECEIVABLES> 981
<ALLOWANCES> 40
<INVENTORY> 1,854
<CURRENT-ASSETS> 3,303
<PP&E> 1,359
<DEPRECIATION> 852
<TOTAL-ASSETS> 5,996
<CURRENT-LIABILITIES> 473
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 5,009
<TOTAL-LIABILITY-AND-EQUITY> 5,996
<SALES> 1,497
<TOTAL-REVENUES> 1,497
<CGS> 837
<TOTAL-COSTS> 837
<OTHER-EXPENSES> 492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (17)
<INCOME-PRETAX> 151
<INCOME-TAX> 0
<INCOME-CONTINUING> 151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151
<EPS-PRIMARY> .005
<EPS-DILUTED> .005
</TABLE>
