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 April 30, 1999
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 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 June 9, 1999
- ------------------------------------- ---------------------------
Common Stock $.0004 Par Value 34,785,611
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TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of July 31, 1998 and April 30, 1999 3
Condensed Consolidated Statements of Operations for the Three Months Ended
April 30, 1998 and 1999 and for the Nine Months Ended April 30, 1998 and 1999 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
April 30, 1998 and 1999 6
Notes to Condensed Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE 13
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2
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<TABLE>
<CAPTION>
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 1998 April 30, 1999
------------------ --------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash equivalents $ 247,101 $ 328,247
Receivables, net of allowance of $31,556
And $26,662 as of July 31, 1998 and
April 30,1999, respectively 980,221 152,513
Receivables from employees 2,505 11,495
Note receivables 66,667 391,667
Inventory 1,601,146 1,704,403
Prepayments 140,788 295,271
Deferred income taxes 100,000 100,000
---------- ----------
Total current assets 3,138,428 2,983,596
---------- ----------
PROPERTY AND EQUIPMENT, NET 572,372 813,922
---------- ----------
OTHER ASSETS
Long-term receivables, net of allowance of
$500,000 as of July 31, 1998 and April
30, 1999 -- --
Patents and patent license 265,941 241,995
Deferred income taxes 1,900,000 1,900,000
Other assets 6,148 4,574
---------- ----------
Total other assets 2,172,089 2,146,569
---------- ----------
TOTAL $5,882,889 $5,944,087
========== ==========
The accompanying notes are an integral part of these financial statements.
3
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed from
Audited Financial
Statements Unaudited
July 31, 1998 April 30, 1999
------------- --------------
CURRENT LIABILITIES
Short-term debt $ 744 $ 758,897
Current portion of long-term debt -- 1,168
Accounts payable 137,966 246,848
Accrued expenses 386,115 210,215
Customer deposits 143,994 100,000
------------ ------------
Total current liabilities 668,819 1,317,128
------------ ------------
LIABILITIES SUBJECT TO SETTLEMENT
UNDER REORGANIZATION PROCEEDINGS 350,000 100,000
------------ ------------
CONTINGENT REORGANIZATION LIABILITY 352,193 472,543
------------ ------------
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 shares issued at
July 31, 1998 and April 30, 1999 13,936 13,936
Additional paid in capital 26,637,441 26,517,091
Accumulated deficit (22,126,708) (22,474,712)
Treasury stock - 55,518 shares outstanding as
of July 31, 1998 and April 30, 1999 ( 12,792) ( 12,792)
------------ ------------
Total stockholders' equity 4,511,877 4,043,523
------------ ------------
TOTAL $ 5,882,889 $ 5,944,087
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended Nine Months ended
April 30, April 30,
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $ 954,692 $ 978,932 $ 3,701,614 $ 3,725,308
COST OF SALES 576,976 446,322 2,247,143 2,145,315
------------ ------------ ------------ ------------
Gross profit 377,716 532,610 1,454,470 1,579,993
OPERATING EXPENSES 594,452 587,451 1,745,432 1,830,311
------------ ------------ ------------ ------------
OPERATING LOSS (216,736) (54,841) (290,961) (250,318)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (2,175) (32,724) (10,657) (63,121)
Interest income 3,018 9 35,648 2,639
Loss on disposal of asset -- -- -- (2,820)
------------ ------------ ------------ ------------
Other income (expense) 843 (32,715) 24,990 (63,302)
------------ ------------ ------------ ------------
Loss before reorganization
Items (215,892) (87,556) (265,971) (313,620)
REORGANIZATION ITEMS -- (5,469) -- (34,384)
------------ ------------ ------------ ------------
NET LOSS $ (215,892) $ (93,025) $ (265,971) $ (348,004)
============ ============ ============ ============
EARNINGS PER SHARE
Net loss (0.006) (0.003) (0.009) (0.010)
Weighted average number of
shares outstanding 34,785,611 34,785,611 28,906,466 34,785,611
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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<TABLE>
<CAPTION>
TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine months Nine months
ended ended
April 30, 1998 April 30, 1999
------------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (265,971) $ (348,004)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 143,490 135,401
Loss on disposal of asset -- 2,820
Changes in operating assets and liabilities:
(Increase) decrease in receivables 629,854 493,718
(Increase) decrease in prepayments (33,151) (154,483)
(Increase) decrease in inventory (504,923) (103,257)
Increase (decrease) in accounts payable
and accrued expenses (186,360) (67,018)
Increase (decrease) in customer deposits (836,026) (43,994)
Increase (decrease) in liabilities subject to
settlement under a plan of reorganization (945,328) (250,000)
----------- -----------
Net cash used in operating activities (1,998,414) (334,817)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for other assets (23,939) --
Capital expenditures (18,214) (339,205)
----------- -----------
Net cash used in investing activities (42,153) (339,205)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 400,000 1,150,000
Proceeds from issuance of common stock 2,500,000 --
Principal repayments of debt (402,622) (394,832)
----------- -----------
Net cash provided by financing activities 2,497,378 755,168
----------- -----------
NET INCREASE (DECREASE) IN CASH: 456,811 81,146
Cash and cash equivalents - beginning of period 27,946 247,101
----------- -----------
Cash and cash equivalents - end of period $ 484,757 $ 328,247
=========== ===========
</TABLE>
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)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
April 30, 1998 April 30, 1999
------------------ --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 19,772 $ 60,112
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable for equipment $ -- 15,046
Inventory reclassified to equipment -- 298,330
Issuance of stock in lieu of professional fees 375,000 --
Issuance of stock for reorganization debt 1,225,230 --
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
In the opinion of management of Tapistron International, Inc. ("Tapistron") and
Fabrication Center, Inc. ("FCI"), a wholly-owned subsidiary of Tapistron, the
accompanying unaudited condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments, except as noted elsewhere in
the notes to the condensed consolidated financial statements) necessary to
present fairly its financial position as of April 30, 1999 and the results of
its operations for the three and nine months ended April 30, 1998 and 1999, and
cash flows for the nine months ended April 30, 1998 and 1999. These statements
are condensed and therefore do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The statements should be read in conjunction with the consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended July 31, 1998. The results of operations for the
six months ended April 30, 1999 are not necessarily indicative of the results to
be expected for the full year.
NOTE 2 - EARNINGS (NET LOSS) PER SHARE
- --------------------------------------
Earnings (net loss) per share is computed using the weighted average number of
shares of common stock outstanding.
NOTE 3 - INVENTORY
- ------------------
Inventory at April 30, 1999 consists of the following:
Raw Material $ 915,108
Work in Process 789,295
-----------
Total $1,704,403
===========
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.
<TABLE>
<CAPTION>
<S> <C>
April 30, 1999 closing market price $ 0.2344
Shares issued to Class 7 (no fractional shares were issued) 1,000,021
---------------
Total market value of Class 7 stock $ 234,405
Balance of Class 7 unsecured claims $ 611,336
Time value factor @ 8.75% 1.15639897
---------------
Total liability of Class 7 claims $ 706,948
Total contingent liability for stock to cover Class 7 debt $ 472,543
===============
</TABLE>
9
<PAGE>
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 April 30, 1999 were $978,932 compared with
$954,692 for the three months ended April 30, 1998. Revenues for the nine months
ended April 30, 1999 were $3,725,308 compared with $3,701,614 for the nine
months ended April 30, 1998.
Cost of Sales
- -------------
Cost of sales for the three months ended April 30, 1999 were $446,322, or 46% of
sales, compared with $576,976, or 60% of sales, for the three months ended April
30, 1998. Cost of sales for the nine months ended April 30, 1999 were
$2,145,315, or 58% of sales, compared with $2,247,143, or 61% of sales, for the
nine months ended April 30, 1998. The decrease in cost of sales as a percentage
of sales was the result of selling a used CYP Machine during the three months
ended April 30, 1998.
Operating Expenses
- ------------------
Operating expenses were $587,451 for the three months ended April 30, 1999
compared with $594,452 for the three months ended April 30, 1998. Operating
expenses were $1,830,311 for the nine months ended April 30, 1999 compared with
$1,745,432 for the nine months ended April 30, 1998. The increase in operating
expenses is a result of increased research and development expenses. The Company
has developed attachments that can be retrofitted to the CYP Machine and allows
more flexibility in the types of products produced.
Other Expenses
- --------------
Interest expense was $32,724 for the three months ended April 30, 1999 compared
with $2,175 for the three months ended April 30, 1998. Interest expense was
$63,121 for the nine months ended April 30, 1999 compared with $10,657 for the
nine months ended April 30, 1998. The increase in interest expense was due to
increased short-term borrowings.
Liquidity and Capital Resources
The Company's highly liquid assets (cash and cash equivalents) at April 30, 1999
aggregated $328,247, an increase from the $247,101 balance at July 31, 1998. Its
working capital position at April 30, 1999 of $1,566,468 decreased from the
comparable amount of $2,119,609 at July 31, 1998. The decrease in working
capital resulted from an increase in current liabilities of the Company during
the nine months ended April 30, 1999. At April 30, 1999, short-term debt totaled
$758,897 compared to $744 at July 31, 1998. The increase was a result of
acquiring two short-term loans, one due in August 1999 and the other due in
September 1999.
10
<PAGE>
Net cash used in operations for the nine months ended April 30, 1999 was
$334,817 compared to net cash used in operations of $1,998,414 for the nine
months ended April 30, 1998. The decrease in cash used in operations was a
result of more cash required in reducing reorganization liabilities in the prior
year. Net cash used in investing activities totaled $339,205 for the nine months
ended April 30, 1999 compared to $42,153 used in investing activities during the
nine months ended April 30, 1998. The increase was a result of the Company
manufacturing a 2 meter machine to be used as a sample machine in order to
provide potential customers with samples and a first hand look at a machine in
production. Net cash provided by financing was $755,168 during the nine months
ended April 30, 1999 compared to cash provided by financing activities of
$2,497,378 during the nine months ended April 30, 1998. During the nine months
ended April 30, 1999, the Company received proceeds of $1,150,000 from
short-term borrowings in order to meet cash needs. As of April 30, 1999, the
Company had available $250,000 on its line of credit.
The Company believes its current cash needs will be adequately provided from
anticipated cash generated from operations, short-term borrowings and its line
of credit. Long-term cash requirements, other than normal operating expenses,
depend on the Company's profitability, its ability to manage working capital
requirements, and its rate of growth.
Year 2000 Compliance
- --------------------
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "year 2000 issue" and has substantially
developed an implementation plan to resolve such issues. The "year 2000 issue"
is the result of computer programs being written using two digits rather than
four to define the applicable year. Programs with this problem may recognize a
date using "00" as the year 1900 rather than the year 2000, resulting in system
failures or miscalculations. Although no assurance can be given, the Company
presently believes that with 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.
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 April 30, 1999 are subject to greater uncertainty because of
the increased likelihood of changes in underlying factors and assumptions.
Actual results could differ materially from those anticipated by the
forward-looking statements.
The applicable risks and uncertainties include general economic and industry
conditions that affect all international businesses, as well as matters that are
specific to the Company
11
<PAGE>
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.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
EXHIBITS AND REPORTS ON FORM 8-K
There are no Exhibits or Form 8-K's filed with this report.
12
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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: 6-9-99 /s/ Floyd S. Koegler, Jr.
- ------------- -------------------------
Floyd S. Koegler, Jr.
(Signing on behalf of the
registrant as Vice-President
and Chief Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TAPISTRON INTERNATIONAL, INC., FOR THE THREE MONTHS
PERIOD ENDED APRIL 30, 1999, 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-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 328
<SECURITIES> 0
<RECEIVABLES> 582
<ALLOWANCES> 27
<INVENTORY> 1,704
<CURRENT-ASSETS> 2,984
<PP&E> 1,787
<DEPRECIATION> 973
<TOTAL-ASSETS> 5,944
<CURRENT-LIABILITIES> 1,417
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 4,030
<TOTAL-LIABILITY-AND-EQUITY> 5,944
<SALES> 979
<TOTAL-REVENUES> 979
<CGS> 446
<TOTAL-COSTS> 446
<OTHER-EXPENSES> 587
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (93)
<INCOME-TAX> 0
<INCOME-CONTINUING> (93)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93)
<EPS-BASIC> (.003)
<EPS-DILUTED> (.003)
</TABLE>
