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 January 31, 2001 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 (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 March 10, 2001 ------------------------------- -------------------------------- Common Stock $.0004 Par Value 37,551,494 TAPISTRON INTERNATIONAL, INC. TABLE OF CONTENTS

~~Condensed~~PART ~~from~~I ~~Audited~~- ~~Financial~~FINANCIAL ~~Statements~~INFORMATION ~~Unaudited~~ITEM ~~July~~1 ~~31,~~- ~~2000~~FINANCIAL ~~October~~STATEMENTS ~~31,~~Condensed ~~2000~~Consolidated ~~-----------------~~Balance ~~-----------------~~Sheets ~~CURRENT~~as ~~ASSETS~~of ~~Cash~~July ~~and~~31, ~~cash~~2000 ~~equivalents~~and $January 6531,~~812~~ $2001 ~~59,323~~3 ~~Receivables,~~Condensed ~~net~~Consolidated ofStatements ~~allowance~~ of ~~$25,000~~Operations ~~84,945~~for ~~47,823~~the ~~Receivables~~Three ~~from~~Months ~~employees/others~~Ended ~~76,070~~January 8831,~~262~~ ~~Sales~~2000 ~~contract~~and ~~receivables~~2001 ~~520,000~~and ~~1,214,600~~the ~~Inventory,~~Six ~~net~~Months ofEnded ~~allowance~~January ~~of $30~~31,~~000~~ ~~3,339,603~~2000 ~~2,739,759~~and ~~Prepayments~~2001 ~~81,107~~5 ~~83,543~~Condensed ~~Deferred~~Consolidated ~~income~~Statements ~~taxes~~of ~~100,000~~Cash ~~100,000~~Flows ~~----------~~for ~~----------~~the ~~Total~~Six ~~current~~Months ~~assets~~Ended ~~4,267,537~~January 431,~~333,310~~ ~~----------~~2000 ~~----------~~and ~~PROPERTY~~2001. ~~AND~~6 ~~EQUIPMENT,~~Notes ~~NET~~to ~~619,641~~Condensed ~~578,036~~Consolidated ~~----------~~Financial ~~----------~~Statements ~~OTHER~~7 ~~ASSETS~~ITEM ~~Long-term~~2 ~~receivables, net of allowance of $500,000~~ -- --MANAGEMENT'S ~~Patents~~DISCUSSION ~~and~~AND ~~patent~~ANALYSIS ~~license~~OF ~~202,085~~FINANCIAL ~~201,764~~CONDITION ~~Deferred~~AND ~~income~~RESULTS ~~taxes~~OF ~~1,800,000~~OPERATIONS ~~1,800,000~~8 ~~Other~~PART ~~assets~~II ~~2,500 2,333~~ -~~---------~~ ~~----------~~OTHER ~~Total~~INFORMATION ~~other~~ITEM ~~assets~~5 ~~2,004,585 2,004,097~~ -~~---------~~ ~~----------~~OTHER ~~TOTAL~~INFORMATION ~~$6,891,763~~10 ~~$6,915,443~~SIGNATURE ~~========== ==========~~11

2 TAPISTRON INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS

Condensed from Audited Financial Statements Unaudited July 31, 2000 ~~October~~January 31, ~~2000~~2001 --------------------- -------------------- CURRENT ~~LIABILITIES~~ASSETS ~~Short-term~~Cash ~~debt~~and cash equivalents $ 165,~~750~~812 $ 260,~~125~~980 Receivables, net of allowance of $25,000 284,~~099~~945 169,~~020~~420 ~~Short-term~~Receivables ~~debt~~from -employees/others ~~related~~76,070 ~~party~~77,574 ~~250~~Sales contract receivables 520,000 ~~225~~250,000 ~~Current~~Inventory, ~~portion~~net of ~~long-term~~allowance ~~debt~~of ~~200~~$30,~~972~~000 ~~119~~3,~~064 Accounts payable 224~~339,~~998~~603 ~~144~~3,~~371~~143,903 ~~Accrued~~Prepayments ~~expenses 269~~81,~~774~~107 ~~246~~37,~~265~~986 ~~Customer~~Deferred ~~deposits~~income 24taxes 100,~~095~~000 5100,~~775~~000 --------------------- -------------------- Total current ~~liabilities~~assets 24,~~719~~267,~~964~~537 24,~~839~~039,~~495~~863 ------------ ---------~~---~~ ~~CONTINGENT REORGANIZATION LIABILITY 632,145~~ -- ------------ ------ PROPERTY AND EQUIPMENT, NET 619,641 536,430 ------ ~~LONG~~-~~TERM DEBT 478~~ -- ------------ ------------ ~~STOCKHOLDERS' EQUITY Preferred stock~~ - ~~$.001 par value~~ - ~~2,000,000 shares authorized: no shares issued and outstanding~~ -- -- ~~Common stock~~ -- ~~$.0004~~OTHER ~~par~~ASSETS ~~value~~ Long-term ~~100~~receivables,~~000,000~~ ~~shares~~net ~~authorized:~~of ~~34,841,129~~allowance ~~shares~~of ~~issued~~$500,000 at- ~~July~~- ~~31,~~Patents ~~2000~~ and ~~38,121,512~~patent aslicense ~~of October 31~~202,085 ~~2000 13~~198,~~936~~599 ~~15,249~~Deferred ~~Additional~~income ~~paid~~taxes ~~in capital 26~~1,~~357~~800,~~489~~000 261,~~988~~800,~~322~~000 ~~Accumulated~~Other ~~deficit~~assets ~~(22~~2,~~709,223)~~500 ~~(22,804,597) Treasury stock~~ - ~~570,018 shares outstanding at cost (123,026) (123,026)~~ --------------------- -------------------- Total ~~stockholders'~~other ~~equity~~assets 32,~~539~~004,~~176~~585 41,~~075~~998,~~948~~599 --------------------- -------------------- TOTAL $ 6,891,763 $ 6,~~915~~574,~~443~~892 ===================== ====================

The accompanying notes are an integral part of these financial statements. 3 TAPISTRON INTERNATIONAL, INC CONDENSED CONSOLIDATED BALANCE SHEETS- CONTINUED LIABILITIES AND STOCKHOLDERS' EQUITY

~~Three~~Condensed ~~Months~~from ~~Three~~Audited ~~Months~~Financial ~~Ended~~Statements ~~Ended~~Unaudited ~~October~~July 31, ~~1999~~2000 ~~October~~January 31, ~~2000~~2001 -------------------- -------------------- ~~SALES~~CURRENT LIABILITIES Short-term debt $ 21,~~815~~750,~~805~~125 $ 12,~~719~~419,~~929~~382 ~~COST~~Short-term OFdebt ~~SALES~~- 1related party 250,~~425~~000 225,~~420~~000 1Current portion of long-term debt 200,~~090~~972 120,~~497~~619 Accounts payable 224,998 232,935 Accrued expenses 269,774 229,629 Customer deposits 24,095 25,919 -------------------- -------------------- ~~Gross~~Total ~~profit~~current 1liabilities 2,~~390~~719,~~385~~964 ~~629~~3,~~432~~253,484 ~~OPERATING~~-------------------- ~~EXPENSES~~-------------------- ~~649,831~~CONTINGENT REORGANIZATION LIABILITY 632,~~741~~145 - -------------------- -------------------- ~~OPERATING~~LONG-TERM ~~INCOME~~DEBT ~~(LOSS)~~478 ~~740,554~~- ~~(3,309)~~ -------------------- -------------------- ~~OTHER~~STOCKHOLDERS' ~~INCOME~~EQUITY ~~(EXPENSE)~~Preferred ~~Interest~~stock ~~expense~~- ~~(40,966)~~$.001 ~~(58,144)~~par ~~Interest~~value ~~income~~- 92,000,000 10shares ~~Loss~~authorized: onno ~~disposal~~shares ofissued ~~asset~~and outstanding - - Common stock - $.0004 par value - ~~R&D~~100,000,000 ~~Experimental~~shares &authorized: ~~Modifications~~34,841,129 --shares issued at July 31, 2000 and 37,551,494 as of January 31, 2001 13,936 15,021 Additional paid in capital 26,357,489 26,865,524 Accumulated deficit (2822,~~870~~709,223) ~~Gain~~ (~~Loss~~23,559,137) onTreasury ~~foreign~~stock ~~currency~~- ~~exchange~~570,018 ~~rates~~shares ~~(80~~outstanding at cost at July 31,~~936)~~ 2000 and 0 shares outstanding at January 31, 2001 (5123,~~061~~026) - ----------- ---------~~---~~ ~~Other income (expense) (121,893) (92,065)~~ ------------ --------~~----~~ ~~Income~~Total ~~(Loss)~~stockholders' ~~before~~equity ~~reorganization items 618~~3,~~661~~539,176 ~~(95~~3,~~374)~~321,408 ~~REORGANIZATION ITEMS~~ -- -- ---------------- -------------------- ~~NET~~TOTAL ~~INCOME (LOSS)~~ $ ~~618~~6,~~661~~891,763 $ ~~(95~~6,~~374)~~574,892 ==================== ============ ~~EARNINGS PER SHARE Net income (loss) 0.020 (0.003) Weighted average number of shares outstanding 34,785,611 35,364,572~~========

The accompanying notes are an integral part of these financial statements. 4 TAPISTRON INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Three Months Six Months Six Months Ended Jan 31 Ended ~~October~~Jan 31, ~~1999~~Ended ~~October~~Jan 31, Ended Jan 31 2000 2001 2000 2001 ------------------ ----------------- ~~CASH~~------------------ ~~FLOWS~~--------------- ~~FROM~~SALES ~~OPERATING~~$ ~~ACTIVITIES:~~1,090,486 ~~Net~~$ ~~Income~~141,996 ~~(loss)~~ $ ~~618~~3,~~661~~906,290 $ ~~(95~~1,~~374)~~861,926 ~~Adjustments~~COST toOF ~~reconcile~~SALES ~~net~~641,499 ~~income~~143,213 ~~(loss) to net cash used in operating activities: Depreciation and amortization 49~~2,~~959~~066,919 471,~~094~~233,710 ~~Loss~~-------------- on------------- ~~disposal of asset~~ -------------- ------------- ~~Loss~~Gross onprofit ~~foreign currency exchange rates 80~~448,~~936~~987 ~~5,061 Changes in operating assets and liabilities:~~ (~~Increase) decrease in receivables (~~1,~~895,263~~217) ~~(669~~1,~~670) (Increase) decrease in prepayments (69~~839,~~287)~~371 (2628,~~436)~~216 ~~(Increase)~~OPERATING ~~decrease~~EXPENSES ~~in inventory 362~~571,~~577~~061 ~~599~~680,~~844~~116 ~~Increase (decrease) in accounts payable and accrued expenses 122~~1,~~284 (104~~220,~~136)~~891 ~~Increase (decrease) in customer deposits 7~~1,~~343 (18~~312,~~320)~~857 ~~Increase (decrease) in liabilities subject to settlement under plan of reorganization~~ -- -- ----------- ------------- ~~(722,790) (237,937)~~ -------------- ------------- ~~CASH~~OPERATING ~~FLOWS~~INCOME ~~FROM~~(LOSS) ~~INVESTING~~(122,074) ~~ACTIVITIES:~~(681,334) ~~Capital~~618,480 ~~expenditures~~(684,641) -- -- ----------- ----------- ~~Net cash used in investing activities~~ -- -- ------------ ------------- ~~CASH~~OTHER ~~FLOWS~~INCOME ~~FROM~~(EXPENSE) ~~FINANCING~~Interest ~~ACTIVITIES:~~expense ~~Proceeds~~(51,774) ~~from~~(41,122) ~~debt~~(92,740) ~~800~~(99,~~125~~266) 1Interest income 10 (10) 19 R&D Experimental & Modifications - (29,~~051~~351) (58,~~620~~222) ~~Principal~~Gain ~~repayment~~(Loss) ofon ~~debt~~foreign currency exchange rates (~~706~~8,~~112~~501) (~~807~~2,~~194~~724) (89,437) (7,785) -------------- ------------- ~~Net~~-------------- ~~cash~~------------- ~~provided~~Other byincome (~~used in~~expense) ~~financing activities 94~~(60,~~013~~265) ~~244,426 NET~~ (~~DECREASE~~73,207) ~~IN CASH:~~ (~~628~~182,~~777~~158) (6165,~~489~~273) ~~Cash~~-------------- ~~and cash equivalents~~ ------------- ~~beginning of period 685,328 65,812~~ -------------- ------------- NET INCOME (LOSS) $ 56(182,~~551~~339) $ 59(754,~~323~~540) $ 436,322 $ (849,914) ============== ============= ~~SUPPLEMENTAL~~============== ~~DISCLOSURE~~============= OFEARNINGS ~~CASH~~PER ~~CASH~~SHARE ~~FLOW~~Net ~~INFORMATION:~~income ~~Cash~~(loss) ~~paid~~(0.005) ~~for~~(0.020) ~~interest~~0.013 $(0.024) ~~23,154~~Weighted $average ~~58,144~~number ~~SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Issuance~~ of ~~common~~shares ~~stock~~outstanding to34,785,611 ~~cover~~37,551,494 ~~contingent~~34,785,611 ~~reorganization liability $ -- $ 632~~36,~~145~~119,725

The accompanying notes are an integral part of the financial statements. 5 TAPISTRON INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITIED)

The accompanying notes are an integral part of the financial statements. 6 TAPISTRON INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2001 (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 January 31, 2001 and the results of its operations for the six months ended January 31, 2000 and 2001 and cash flows for the six months ended January 31, 2000 and 2001. 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, 2000. The results of operations for the six months ended January 31, 2001 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 - INVENTORY Inventory at January 31, 2001 consists of the following: Raw Material $ 762,016 Work in Process 1,551,922 Finished Goods 859,965 ---------- $3,173,903 Allowance for obsolete inventory (30,000) ---------- Total $3,143,903 ========== 7 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 January 31, 2001 were $141,996 compared with $1,090,486 for the three months ended January 31, 2000. The decrease in revenues was due to a lack of sales being consummated in the quarter. Subsequent to the end of the quarter, two purchase orders have been received for machine deliveries in the third and fourth quarters respectively. Revenues for the six months ended January 31, 2001 were $1,861,926 compared with $3,906,290 for the six months ended January 31, 2000. The decrease in revenues was due to a decrease in units sold. Cost of Sales Cost of sales for the three months ended January 31, 2001 were $143,213 or 101% of sales, compared with $641,499 or 59% of sales, for the three months ended January 31, 2000. Cost of sales for the six months ended January 31, 2001 were $1,233,710 or 66% of sales, compared with $2,066,919 or 53% of sales, for the six months ended January 31, 2000. Lower margins were the result of machine sales to penetrate new market segments and to meet cash requirements. Operating Expenses Operating expenses were $680,116 for the three months ended January 31, 2001 compared with $571,061 for the three months ended January 31, 2000. Operating expenses were $1,312,857 for the six months ended January 31, 2001 compared with $1,220,891 for the six months ended January 31, 2000. Interest Expense Interest expense was $99,266 for the six months ended January 31, 2001 compared with $92,740 for the six months ended January 31, 2000. The increase was due to an increase in debt for the six months ended January 31, 2001. 8 TAPISTRON INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Income Tax Expense The income tax provision is $0 due to utilization of the net operating loss carry-forward to reduce current taxable income. Liquidity and Capital Resources The following is a discussion of the impact of the significant factors affecting the Company's liquidity position and capital resources. These comments should be read in conjunction with, and are qualified in their entirety by, the Consolidated Financial Statements and Notes thereto and many of these comments also are forward-looking statements within the meaning of Section 21E of the Exchange Act (see page 10 of this discussion). The Company's consolidated cash and cash equivalents balance at January 31, 2001 was $260,980, a $195,168 increase from the July 31, 2000 balance of $65,812. Operating activities used $350,955 of cash in the first six months of 2001 verses cash used of $451,917 in 2000. Cash provided by financing activities was $546,163 in the first six months of 2001, verses cash used of $191,431 in 2000. The increase in cash provided by financing activities is the result of short term borrowing required to fund working capital in the first six months of 2001. The Company's ability to improve its operating results and financial position will depend on a variety of factors, several of which are described below, and some of which are outside of management's control. The applicable risks and uncertainties include general and industry specific economic conditions that affect all international business and the markets that we serve. Such conditions include interest rates, housing starts, existing home sales, corporate profits, and hotel/motel occupancy rates. These factors affect the number of machines sold and the timing of sales of our machines. The Company's ability to maintain adequate liquidity to assure viability will depend on its ability to improve its operating results by generating increased revenues and controlling costs. The Company has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external borrowings or from sales of assets. As discussed above, machine sales can be easily deferred by customers due to various economic factors. These deferrals strain our cash flows as evidenced by second quarter results. However, two purchase orders for machine sales have been received subsequent to the end of the quarter. 9 TAPISTRON INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 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 January 31, 2001, 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 2001 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 January 31, 2001. 10 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: March 19, 2001 /s/Rodney C. Hardeman, Jr. ------------------------------- ------------------------------------ Rodney C. Hardeman, Jr. (Signing on behalf of the registrant as President and Chief Executive Officer) 11

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