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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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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 (IRS 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 5, 2000
------------------------------ ---------------------------
Common Stock $.0004 Par Value 34,785,611
1
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TAPISTRON INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Balance Sheets as of July 31, 1999 and April 30, 2000 3
Condensed Consolidated Statements of Operations for the Three Months Ended
April 30, 1999 and 2000 and for the Nine Months Ended April 30, 1999
and 2000 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
April 30, 1999 and 2000. 6
Notes to Condensed Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 13
SIGNATURE 14
</TABLE>
2
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
Condensed from
Audited Financial
Statements Unaudited
July 31, 1999 April 30, 2000
----------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 685,328 $ 115,594
Receivables, net of allowance of $25,000 105,092 108,820
Receivables from employees/others 1,475 101,696
Sales contract receivables 75,000 1,040,000
Inventory, net of allowance of $30,000 2,121,639 2,632,306
Prepayments 193,116 207,719
Deferred income taxes 100,000 100,000
---------- ----------
Total current assets 3,281,650 4,306,135
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PROPERTY AND EQUIPMENT, NET 769,935 661,501
---------- ----------
OTHER ASSETS
Long-term receivables, net of allowance of $500,000 -- --
Patents and patent license 234,013 210,067
Deferred income taxes 1,900,000 1,900,000
Other assets 4,050 2,750
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Total other assets 2,138,063 2,112,817
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TOTAL $6,189,648 $7,080,453
========== ==========
The accompanying notes are an integral part of these financial statements.
3
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TAPISTRON INTERNATIONAL, INC
CONDENSED CONSOLIDATED BALANCE SHEETS- CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed from
Audited Financial
Statements Unaudited
July 31, 1999 April 30, 2000
----------------- --------------
CURRENT LIABILITIES
Short-term debt $ 1,194,046 $ 1,275,000
Current portion of long-term debt 279,961 88,690
Accounts payable 99,184 224,116
Accrued expenses 211,660 309,013
Customer deposits 104,634 125,280
------------ ------------
Total current liabilities 1,889,485 2,022,099
------------ ------------
CONTINGENT REORGANIZATION LIABILITY 581,923 536,946
------------ ------------
LONG-TERM DEBT 180,932 210,868
------------ ------------
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 13,936 13,936
Additional paid in capital 26,407,711 26,452,688
Accumulated deficit (22,871,547) (22,143,292)
Treasury stock - 55,518 shares outstanding at cost (12,792) (12,792)
------------ ------------
Total stockholders' equity 3,537,308 4,310,540
------------ ------------
TOTAL $ 6,189,648 $ 7,080,453
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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TAPISTRON INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended April 30, Ended April 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 978,932 $ 2,094,891 $ 3,725,308 $ 6,001,181
COST OF SALES 446,322 1,092,770 2,145,315 3,159,689
------------ ------------ ------------ ------------
Gross profit 532,610 1,002,121 1,579,993 2,841,492
OPERATING EXPENSES 587,451 682,666 1,830,311 1,903,557
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (54,841) 319,455 (250,318) 937,935
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (32,724) (33,799) (63,121) (126,539)
Interest income 9 9 2,639 28
Loss on disposal of asset -- -- (2,820) --
Gain (Loss) on foreign currency exchange rates -- 6,268 -- (83,169)
------------ ------------ ------------ ------------
Other income (expense) (32,715) (27,522) (63,302) (209,680)
------------ ------------ ------------ ------------
Income (Loss) before reorganization items (87,556) 291,933 (313,620) 728,255
REORGANIZATION ITEMS (5,469) -- (34,384) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (93,025) $ 291,933 $ (348,004) $ 728,255
============ ============ ============ ============
EARNINGS PER SHARE
Net income (loss) (0.003) 0.008 (0.010) 0.021
Weighted average number of shares
outstanding 34,785,611 34,785,611 34,785,611 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 STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
April 30, 1999 April 30, 2000
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (348,004) $ 728,255
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 135,401 150,011
Loss on disposal of asset 2,820 --
Loss on foreign currency exchange rates -- 83,169
Changes in operating assets and liabilities:
(Increase) decrease in receivables 493,718 (1,068,949)
(Increase) decrease in prepayments (154,483) (14,603)
(Increase) decrease in inventory (103,257) (510,665)
Increase (decrease) in accounts payable
and accrued expenses (67,018) 219,047
Increase (decrease) in customer deposits (43,994) 20,646
Increase (decrease) in liabilities subject to
settlement under plan of reorganization (250,000) --
----------- -----------
Net cash used in operating activities (334,817) (393,089)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (339,205) (16,332)
----------- -----------
Net cash used in investing activities (339,205) (16,332)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 1,150,000 920,020
Principal repayments of debt (394,832) (1,080,333)
----------- -----------
Net cash provided by (used in) financing activities 755,168 (160,313)
----------- -----------
NET INCREASE (DECREASE) IN CASH: 81,146 (569,734)
Cash and cash equivalents - beginning of period 247,101 685,328
----------- -----------
Cash and cash equivalents - end of period $ 328,247 $ 115,594
=========== ===========
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
(UNAUDITIED)
Nine Months Nine Months
Ended Ended
April 30, 1999 April 30, 2000
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 60,112 $ 108,727
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable for equipment 15,046 -
Inventory reclassified to equipment 298,330 -
</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
APRIL 30, 2000
(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 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 April 30, 2000 and the
results of its operations for the nine months ended April 30, 1999 and 2000 and
cash flows for the nine months ended April 30, 1999 and 2000. 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, 1999. The results of operations
for the nine months ended April 30, 2000 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 are computed using the weighted average number of
shares of common stock outstanding.
NOTE 3 - RECEIVABLES FROM EMPLOYEES/OTHERS
------------------------------------------
During the Company's successful reorganization, the Company determined to reward
the employees of the Company who were employed during the period of
reorganization and the Board of Directors authorized two Board members, Gary L.
Coulter and J. Darwin Poe, who then served as the Secretary and President,
respectively, of the Company, negotiate the purchase of 1,000,000 shares of
Tapistron common stock at a purchase price of 15 cents per share from the Lanier
M. Davenport, Sr Family Trust, the "Trust". This authorization, however, is not
reflected in the minutes of Board actions taken during this time period. To
finance the purchase price, Messrs. Coulter and Poe executed and delivered a
Secured, Non-recourse Promissory Note and Stock Pledge Agreement, in the
aggregate the "Financing Documents", with the Trust and financed the entire
purchase price.
Although Messrs. Coulter and Poe executed the Financing Documents as "Trustees"
and the shares purchased from the Trust were issued to Messrs. Coulter and Poe
as "Trustees", there was no written trust agreement other than a list of the 26
employees of the Company who were employed during the Reorganization and hand
written notes of the number of shares for each employee.
The intent of the purchase of the shares from the Trust as explained to the
Board of Directors was to grant a stock bonus of 10,000 shares each to the 26
employees who remained employed by the Company during its Reorganization, when
the shares were fully paid for and released from the
8
<PAGE>
TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - RECEIVABLES FROM EMPLOYEES/OTHER (continued)
-----------------------------------------------------
security interest in favor of the Trust under the Financing Documents. The
balance of the shares were to be offered to 11 employees whose efforts
contributed to the successful reorganization of the Company, in the opinion of
Messrs. Coulter and Poe, at the same price and on the same conditions as the
shares were purchased from the Trust.
There are, however, no records of the Board taking any action to memorialize or
ratify the intended plan of distribution for the shares purchased from the
Trust.
In September 1998, the Company made the payment of the first installment due to
the Trust under the Financing Documents. Although the Board of Directors were
briefed, and informally approved the payment of the first installment, no formal
authority was requested through an oversight.
On September 16, 1999, the Board of Directors approved the payment of the final
installment due the Trust and the grant of 10,000 shares to each of the 26
employees, who were employed during the period of the Reorganization, in the
aggregate, the "Grant Shares", and the Board also approved the offer of the
remaining 740,000 shares purchased from the Trust, the "Purchased Shares", to
the persons allotted as follows:
Kim Amos 115,000 shares
Joe Barker 90,000 shares
Henry Christopher 90,000 shares
Brenda Cooper 30,000 shares
Roger Ensley 30,000 shares
Shelly Garner 30,000 shares
Floyd Koegler 175,000 shares
Ronnie McGregor 30,000 shares
Jerry Ricketts 30,000 shares
John Samilo 90,000 shares
Yvonne Walko 30,000 shares
The Company finalized the delivery of the Grant Shares to the 26 employees
during the quarter ending April 30, 2000. The balance of the shares purchased
from the Trust was offered to the 11 persons on the list at the price purchased,
and the Company took no charge from that offer. To the extent that the persons
who have the right to purchase shares do not consummate their full purchase
allotment, those shares will be held by the Company as treasury stock.
9
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TAPISTRON INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - INVENTORY
------------------
Inventory at April 30, 2000 consists of the following:
Raw Material $ 810,437
Work in Process 1,439,046
Finished Goods 412,823
-----------
$ 2,662,306
Allowance for obsolete inventory (30,000)
-----------
Total $ 2,632,306
===========
OTE 5 - CONTINGENT REORGANIZATION LIABILITY
--------------------------------------------
Under the Amended Plan, the Class 7 unsecured creditors received 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 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.
April 30, 2000 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% 1.26174709
----------
Total liability of Class 7 claims $ 771,351
----------
Total contingent liability for stock to cover Class 7 debt $ 536,946
==========
10
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TAPISTRON INTERNATIONAL, INC.
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, 2000 were $2,094,891 compared with
$978,932 for the three months ended April 30, 1999. The increase in revenues was
due to an increase in units sold. Revenues for the nine months ended April 30,
2000 were $6,001,181 compared with $3,725,308 for the nine months ended April
30, 1999. The increase in revenues was due to an increase in units sold.
Cost of Sales
-------------
Cost of sales for the three months ended April 30, 2000 were $1,092,770 or 52%
of sales, compared with $446,322 or 46% of sales, for the three months ended
April 30, 1999. Cost of sales for the nine months ended April 30, 2000 were
$3,159,689 or 53% of sales, compared with $2,145,315 or 58% of sales, for the
nine months ended April 30, 1999. Cost of sales as a percentage of sales
decreased as a result of continued efforts of the Company to manufacture
machines more efficiently.
Operating Expenses
------------------
Operating expenses were $682,666 for the three months ended April 30, 2000
compared with $587,451 for the three months ended April 30, 1999. Operating
expenses were $1,903,557 for the nine months ended April 30, 2000 compared with
$1,830,311 for the nine months ended April 30, 1999. The increase in operating
expenses was due to the increase in personnel costs during the nine months ended
April 30, 2000.
Interest Expense
----------------
Interest expense was $126,539 for the nine months ended April 30, 2000 compared
with $63,121 for the nine months ended April 30, 1999. The increase was due to
an increase in debt for the nine months ended April 30, 2000.
Income Tax Expense
------------------
The income tax provision is $0 due to utilization of the net operating loss
carry-forward to reduce current taxable income.
11
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TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS (continued)
----------------------
Liquidity and Capital Resources
-------------------------------
The Company's highly liquid assets (cash and cash equivalents) at April 30, 2000
aggregated $115,594, a decrease from the $685,328 balance at July 31, 1999. Its
working capital position at, April 30, 2000 of $2,284,036 increased from the
comparable amount of $1,392,165 at July 31, 1999. The increase in working
capital was a result of increased receivables due to the increase in revenues
for the nine months ended April 30, 2000.
Net cash used in operations for the nine months ended April 30, 2000 were
$393,089 compared to cash used in operations of $334,817 for the nine months
ended April 30, 1999. Net cash used in investing activities totaled $16,332 for
the nine months ended April 30, 2000 compared to $339,205 used in investing
activities during the nine months ended April 30, 1999. Net cash used in
financing activities was $160,313 during the nine months ended April 30, 2000
compared to cash provided by financing activities of $755,168 during the nine
months ended April 30, 1999.
The Company believes its current cash needs will be adequately provided from
anticipated cash generated from operations, short-term borrowings and its lines
of credit. As of April 30, 2000, the Company had available $425,000 on its lines
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.
Market Risk
-----------
A review of the Company's financial instruments and risk exposures at April 30,
2000, revealed that the Company had exposure to foreign currency exchange rate
risks. At April 30, 2000, the Company had an outstanding debt denominated in the
Japanese Yen, which matures in February of 2001. As exchange rates vary, the
Company's financial position, results of operations or cash flows may vary from
expectations and overall expected earnings may be adversely impacted. The effect
of foreign exchange rate fluctuations on the Company during the nine months
ending April 30, 2000 was an expense of $83,169.
Year 2000
---------
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 its modifications to existing software and
conversions to new software, the "year 2000 issue" will not
12
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TAPISTRON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS (continued)
----------------------
Year 2000 (continued)
---------------------
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 April 30, 2000, 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
2000 may be materially less than the sales projected in the forward-looking
statements if the Company's customers cancel or delay current orders or if the
Company reduces the rate at which it 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 person 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.
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
April 30, 2000.
13
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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: June 6, 2000 /s/Floyd S. Koegler, Jr..
------------ -------------------------
Floyd S. Koegler, Jr.
(Signing on behalf of the registrant
as Vice President and Chief
Financial Officer)
14
