U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
AMENDMENT NO.1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended June 30, 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 0-26756
GEOGRAPHICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 87-0305614
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1555 ODELL ROAD, P. O. BOX 1750, BLAINE, WASHINGTON 98231
(Address and Zip Code of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (360) 332-6711
----------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON
STOCK, $.001 PAR VALUE
Indicate by checkmark 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
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The aggregate market value of the common stock held by nonaffiliates of
the registrant as of August 3, 2001 was $6,750,983 based on a closing sales
price of $0.30 per share on the NASDAQ OTC Bulletin Board on such date.
The number of shares outstanding of the registrant's common stock,
$.001 par value per share, as of August 3, 2001 was 38,191,676.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
EXPLANATORY NOTE
Geographics, Inc. ("the Company") has determined to restate its condensed
consolidated quarterly financial statements for the fiscal year ending March 31,
2002, to adjust the useful life of the Domtar license and other intangibles from
fifteen years to six years, resulting in additional amortization expense of
$62,500 for the three months ended June 30, 2001. This amendment includes in
Item 1 such restated condensed consolidated financial statements for the three
months ended June 30, 2001, and other information relating to such restated
condensed consolidated financial statements. Item 2 includes the Company's
amended and restated discussion and analysis of financial condition and results
of operations.
Except for Items 1 and 2 and Exhibits 11 and 27, no other information included
in the original report on Form 10-Q is amended by this amendment. The following
items of the original report on Form 10-Q are amended: Item 1 "Financial
Statements" and the section "Results of Operations" of Item 2 "Management's
Discussion and analysis of Financial Condition and Results of Operations". For
current information regarding risks, uncertainties and other factors that may
affect the Company's future performance, please see "Risk Factors" included in
Item 7 of the Company's Annual Report on Form 10-K/A for the year ended March
31, 2001.
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION..........................................................................................1
ITEM 1. FINANCIAL STATEMENTS..................................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................1
FORWARD-LOOKING STATEMENTS............................................................................1
RESULTS OF OPERATIONS.................................................................................2
LIQUIDITY AND CAPITAL RESOURCES.......................................................................2
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................................3
PART II - OTHER INFORMATION.............................................................................................4
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................4
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K......................................................................4
SIGNATURE...............................................................................................................5
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Geographics, Inc. (the "Company" or "Geographics") has determined to
restate its condensed consolidated quarterly financial statements for the year
ended March 31, 2002 to adjust the useful life of the Domtar license and other
intangibles from 15 years to 6 years, resulting in additional amortization
expense of $62,500 for the three months ended June 30, 2001. The Company has
attached to this Report and by this reference incorporated herein the condensed
consolidated financial statements consisting of the consolidated balance sheets
as of June 30, 2001 (restated and unaudited) and March 31, 2001, the unaudited
consolidated statements of operations for the three months ended June 30, 2001
(restated) and 2000, and the unaudited consolidated statements of cash flows for
the three months ended June 30, 2001 (restated) and 2000, together with the
notes thereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements of the Company and the notes thereto
appearing elsewhere in this Report.
FORWARD-LOOKING STATEMENTS
Statements herein concerning expectations for the future constitute
forward-looking statements which are subject to a number of known and unknown
risks, uncertainties and other factors which might cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. Forward-looking statements herein include, but are not limited to,
those concerning anticipated growth in the preprint paper market; anticipated
growth in the Company's sales; anticipated growth in sales of specialty paper
products as a percentage of revenue; the Company's ability to increase its
market share within the preprint industry; the ability of the Company to
successfully implement price changes for the Company's products when and as
needed; trends relating to the Company's profitability and gross profits
margins; the ability of the Company to implement, or modify its management
information system, including the electronic data interchange system, adequate
to meet operations requirements in the future and to improve its internal
controls; and the ability of the Company to refinance its existing revolving
credit facility to raise additional debt or equity financing sufficient to meet
its working capital requirements.
Relevant risks and uncertainties include, but are not limited to, the
Company's lack of profitability and questions about its ability to continue as a
going concern; material weaknesses in its internal controls; slower than
anticipated growth of the preprint papers market; loss of certain key customers;
insufficient consumer acceptance of the Company's specialty paper products;
unanticipated actions, including price reductions, by the Company's competitors;
unanticipated increases in the costs of raw materials used to produce the
Company's products; loss of favorable trade credit, supply terms, reliable and
immediately available raw material supply and other favorable terms with certain
key vendors; greater than expected costs incurred in connection with the
implementation of a management information system; failure to realize expected
economic efficiencies of the Company's automated production system; the
inability to hire and retain key personnel; unfavorable determinations of
pending lawsuits or disputes; and inability to secure additional working capital
when and as needed. Additional risks and uncertainties include those described
under "Risk Factors" in Part I of the Company's Annual Report on Form 10-K for
the year ended March 31, 2001 and those described from time to time in the
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Company's other filings with the Securities and Exchange Commission, press
releases and other communications. All forward looking statements contained in
this Report reflect the Company's expectations at the time of this Report only,
and the Company disclaims any responsibility to revise or update any such
forward-looking statement except as may be required law.
RESULTS OF OPERATIONS
NET SALES. Net sales decreased 7.4% to $8,524,185 in the quarter ended
June 30, 2001 from $9,204,674 in the quarter ended June 30, 2000. The decrease
was attributable to the general decline in sales in the office products
industry, coupled with the conversion of the Company's ready-to-assemble plastic
storage and filing cabinet business to a direct import representation basis. The
Company made higher accruals for sales returns and allowances ($1,495,073 or
14.9% of gross sales for the quarter ended June 30, 2001 compared to $1,233,699
or 11.8% of gross sales for the quarter ended June 30, 2000). The Company
provides for sales returns and allowances throughout the year as sales are
recorded, consistent with historical experience and specific sales arrangements.
GROSS MARGIN. Gross margin as a percentage of gross sales decreased to
14.2% in the quarter ended June 30, 2001, from 24.0% in the same period in
fiscal 2000. The lower gross margin is primarily attributable to the increase in
accruals for returns and allowances, higher cost of sales and higher freight and
shipping expenses. Fiscal 2002 margins are roughly comparable to the margins
recorded for the entire fiscal year 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $1,914,579 (19.1% of gross sales) in the
quarter ended June 30, 2001 from $2,014,592 (19.3% of gross sales) in the
quarter ended June 30, 2000. This decrease is primarily attributable to
reductions in initial promotional costs and travel costs associated with the
startup of the ready-to-assemble plastic storage and filing cabinets, and the
integration costs of the Domtar product line acquired in the quarter ended June
30, 2000.
OTHER INCOME (EXPENSE). Other expense for the quarter ended June 30,
2001 amounted to $13,289 compared to $14,378 for the quarter ended June 30,
2000. Other expense in both fiscal 2001 and 2000 is principally realized foreign
exchange losses
INTEREST EXPENSE. Interest expense decreased to $218,264 (2.2% of
gross sales) during the quarter ended June 30, 2001, compared to $221,815 (2.1%
of gross sales) during the same period in fiscal 2000. The lower interest costs
were caused by an overall decrease in the cost of funds from falling interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the rapid growth of the Company's specialty papers
group, the introduction of the plastic file cabinet and storage group, the
opening of its Waukesha, Wisconsin distribution facility and the closing of four
warehouse locations, the Company has required, and continues to require,
substantial external working capital. During the quarter ended June 30, 2001,
operating losses totaled $(429,957), however, the Company experienced positive
operating cash flows of $385,787.
At the date of this Report, the Company's only available source of
working capital consists of borrowings available under its revolving credit
facility, which expires on September 30, 2001. The revolving credit facility
permits borrowings of up to $9.5 million subject to a borrowing base limitation
of 75% of the value of the Company's eligible accounts receivable and 50% of the
value of its qualified
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inventories. Borrowings under the facility bear interest at LIBOR plus 2.5% and
are secured by substantially all of the Company's assets. Borrowings under this
facility were $7,931,861 at June 30, 2001. Under the terms of the facility, the
Company is required to comply with a number of financial covenants relating to,
among other things, the maintenance of minimum net worth, earnings,
debt-to-equity ratios and cash flow coverage ratios.
As of June 30, 2001 the Company was not in compliance with certain
financial covenants as required by the revolving credit facility. The Company
has not yet requested waivers for the violations as of June 30, 2001. The
Company anticipates waivers will be obtained in the near term, however while in
default of the covenants, U.S. Bank has rights and remedies available under the
credit agreement, up to an including requiring the loan to be immediately due
and payable in full.
The Company is in discussions with U.S. Bank for an additional mortgage
loan. There can be no assurance that U.S. Bank will grant waivers and/or agree
to the additional mortgage loan or that the Company will be able to refinance or
replace its revolving credit facility on acceptable terms when and as needed.
Management believes that its consolidation of multiple distribution
facilities into its Waukesha, Wisconsin facility, licensing agreements with
Atlanta Group, BV, and with its Mexican distribution partner, the establishment
of the direct supply agreement for GeoFile products, and local manufacture of
products for its Australian subsidiary will improve liquidity and contribute
positively towards regaining compliance with financial covenants. Management has
also prepared preliminary plans for further operational consolidations, should
the actions already taken prove insufficient to restore compliance and necessary
liquidity. The failure to obtain an additional mortgage and to extend the
expiration date of the revolving credit facility, or to otherwise obtain
sufficient funds when and as needed to satisfy its working capital requirements
could force the Company to curtail operations, seek extended payment terms from
its vendors or seek protection under the federal bankruptcy laws.
The Company operates in a highly competitive environment. Many of the
Company's competitors are larger, better capitalized and have substantially
greater financial, marketing and human resources. The Company currently does not
have the financial ability to make significant expenditures for capital
equipment, sales, service, training and support capabilities, investments in
systems, procedures and controls, expansions of operations and research and
development, among many other items that may be necessary to remain competitive.
The Company issued a total of $1,200,000 in 10% Convertible
Subordinated Notes dated April 27, 2001. The notes are due and payable on or
before April 27, 2003 and are subordinated to indebtedness to the Company's
senior bank lender. At the option of the holder, the notes may be converted into
shares of the Company's common stock at the rate of $.20 per share of stock.
The report of the Company's auditors dated June 28, 2001 relating to
the Company's Consolidated Financial Statements for the fiscal year ended March
31, 2001 states that the Company's fiscal year 2001 net loss, working capital
deficiency and accumulated deficit at March 31, 2001, raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
Consolidated Financial Statements for the fiscal quarter ended June 30, 2001
were prepared assuming that the Company will continue as a going concern and do
not include any adjustments that might result from the outcome of this
uncertainty.
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ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Substantially all of the revenue and operating expenses of the
Company's foreign subsidiaries are denominated in local currencies and
translated into US dollars at rates of exchange approximating those existing at
the date of the transactions. Foreign currency translation impacts primarily
revenue and operating expenses as a result of foreign exchange rate
fluctuations. The Company's foreign currency transaction risk is primarily
limited to amounts receivable from its foreign subsidiaries, which are
denominated in local currencies. To minimize foreign currency transaction risk,
the Company ensures that its foreign subsidiaries remit amounts to the U.S.
parent in a timely manner. The Company does not currently utilize foreign
currency hedging contracts.
The Company also has foreign exchange translation exposures resulting
from the translation of foreign currency-denominated earnings into U.S. dollars
in the Company's consolidated financial statements. Foreign currency transaction
exposure arises when an operating unit transacts business denominated in a
currency that is not its own functional currency. The Company's transaction
risks are attributable primarily to inventory purchases from third party
vendors. The introduction of the Euro has significantly reduced such risks, and
transaction exposures on an overall basis are not material.
If the U.S. dollar uniformly increases in strength by 10% in 2001
relative to the currencies in which the Company's sales are denominated, income
before taxes would decrease by approximately $28,000 for the quarter ended June
30, 2001. This calculation assumes that each exchange rate would change in the
same direction relative to the U.S. dollar. In addition to the direct effects of
changes in exchange rates, which are a changed dollar value of the resulting
sales, changes in exchange rates also affect the volume of sales or the foreign
currency sales price as competitors' products become more or less attractive.
The Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates does not factor in a potential change in sales levels or local
currency prices.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company issued a total of $1,200,000 in 10% Convertible Secured
Subordinated Notes dated April 27, 2001 pursuant to exemptions under Sections
4(2) and 4(6) of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. The notes bear interest at the rate of 10%, are due and
payable on or before April 27, 2003 and are subordinated to indebtedness of U.S.
Bank, the Company's senior bank lender. At the option of the holder, the notes
may be converted into shares of the Company's common stock at the rate of $.20
per share of stock, in the minimum amount of $10,000 and $5,000 increments
thereafter. The following officers and directors of the Company acquired notes
pursuant to the offering:
James L. Dorman Chairman and Chief Executive Officer $100,000
William T. Graham Director 50,000
Jack Stein Director 100,000
Roger R. Mayer Director 50,000
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$300,000
==========
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The balance of the notes were issued to accredited investors who had been
solicited by officers, directors and shareholders of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of June 30, 2001, the Company had borrowings of $7,931,861 on its revolving
credit facility with US Bank, which expires September 30, 2001. As of June 30,
2001, the Company was not in compliance with certain covenants under the credit
facility regarding minimum earnings and net worth requirements.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) No reports on Form 8-K were filed during the quarter ended June
30, 2001. The following reports were filed during the quarter
ended September 30, 2001.
- Form 8-K relating to the resignation of KPMG LLP as the
Company's independent auditors, filed August 2, 2001.
- Form 8-K relating to the appointment of Wipfli Ullrich
Bertleson LLP as the Company's independent auditors, filed
August 13, 2001,
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this th day of
March, 2002.
GEOGRAPHICS, INC.
By: /s/ James L. Dorman
-------------------------------------
James L. Dorman
President and Chief Executive Officer
By: /s/ Michael Oakes
-------------------------------------
Michael Oakes
Controller
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GEOGRAPHICS, INC
Consolidated Balance Sheets
As of June 30, 2001 and March 31, 2001
ASSETS
JUNE 30, 2001 MARCH 31, 2001
------------------------ --------------------
(RESTATED AND UNAUDITED)
CURRENT ASSETS
Cash $ 177,135 $ 421,049
Accounts receivable
Trade receivables, net of allowances of $1,379,000 and $1,042,000
at June 30 and March 31, 2001, respectively 5,259,308 7,188,772
Other receivables 193,798 155,281
Inventories 7,268,294 6,634,321
Prepaid expenses, deposits, and other current assets 564,605 603,950
------------ ------------
Total current assets 13,463,140 15,003,373
PROPERTY, PLANT AND EQUIPMENT, NET 9,140,811 9,007,234
LICENSES, TRADEMARKS AND OTHER INTANGIBLE ASSETS 2,594,207 2,876,512
OTHER ASSETS 242,005 198,377
------------ ------------
TOTAL ASSETS $ 25,440,163 $ 27,085,496
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdrafts $ 401,407 $ 975,489
Note payable to bank 7,931,861 8,406,861
Accounts payable 5,919,094 5,401,482
Accrued liabilities 2,880,972 4,237,110
Current portion of long-term debt 879,934 974,790
------------ ------------
Total current liabilities 18,013,268 19,995,732
LONG-TERM DEBT 2,626,795 1,628,908
------------ ------------
Total liabilities 20,640,063 21,624,640
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value - 100,000,000 shares authorized;
38,191,676 shares issued and outstanding
at June 30 and March 31, 2001, respectively 38,192 38,192
Additional paid-in capital 26,196,685 26,190,460
Accumulated other comprehensive income (361,499) (418,528)
Accumulated deficit (21,073,278) (20,349,268)
------------ ------------
Total stockholders' equity 4,800,100 5,460,856
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,440,163 $ 27,085,496
============ ============
See accompanying notes to condensed consolidated financial statements.
F-1
GEOGRAPHICS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
2001 2000
------------ ------------
(RESTATED)
SALES $ 10,019,258 $ 10,438,343
Returns and Allowances (1,495,073) (1,233,669)
------------ ------------
Net Sales 8,524,185 9,204,674
COST OF SALES 7,102,062 6,694,676
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Gross Margin 1,422,123 2,509,998
S.G.& A. EXPENSES 1,914,580 2,014,592
------------ ------------
Operating Income (Loss) (492,457) 495,406
OTHER INCOME (EXPENSE)
Interest Expense (218,264) (221,815)
Other Income (Expense) (13,289) (14,378)
------------ ------------
Total Other Income (Expense) (231,553) (236,193)
------------ ------------
NET INCOME (LOSS) BEFORE TAX (724,010) 259,213
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (724,010) $ 259,213
============ ============
EARNINGS PER COMMON SHARE
Basic $ (0.02) $ 0.01
============ ============
Diluted $ (0.02) $ 0.01
============ ============
SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE
Basic 35,283,729 35,831,552
============ ============
Diluted 35,283,729 36,711,254
============ ============
See accompanying notes to condensed consolidated financial statements.
F-2
GEOGRAPHICS. INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
2001 2000
----------- -----------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (736,510) $ 259,213
Adjustments to reconcile net income (loss) to net
cash flows from operating activities
Depreciation and amortization 762,187 482,313
Loss on sale/disposal of property and equipment 1,263 --
Stock-based compensation 6,225 26,694
Changes in noncash operating assets and liabilities
Trade receivables 1,929,465 (569,402)
Other receivables (38,516) (23,273)
Inventories (633,973) (1,120,036)
Prepaid expenses, deposits and other assets 39,345 (74,067)
Licenses, trademarks and other intangible assets (31,314) 67,241
Other assets (73,861) 258,263
Accounts payable 517,613 283,206
Accrued liabilities (1,356,137) 683,688
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Net cash flows from operating activities 385,787 273,840
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank overdrafts (574,082) 569,128
Net borrowings on note payable to bank (475,000) 88,025
Repayment of long-term debt (296,973) (386,487)
Proceeds from issuance of subordinated debentures 1,200,000
Proceeds from notes payable to officers and directors 1,000,000 1,000,000
Repayment of notes payable to officers and directors (1,000,000) (1,000,000)
Proceeds from issuance of common stock -- 4,338,850
----------- -----------
Net cash flows from financing activities (146,055) 4,609,516
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (506,940) (77,181)
Proceeds from sales of equipment 11,374 --
Acquisition of Domtar Consumer Products assets for cash -- (4,606,924)
----------- -----------
Net cash flows from investing activities (495,566) (4,684,105)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 12,820 (689)
----------- -----------
NET CHANGE IN CASH (243,014) 198,562
CASH, BEGINNING OF PERIOD 420,149 360,612
----------- -----------
CASH, END OF PERIOD $ 177,135 $ 559,174
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 227,507 $ 207,248
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-3
NOTE 1- BASIS OF PRESENTATION
The accompanying interim unaudited consolidated financial statements of
Geographics, Inc. (the "Company" or "Geographics") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, such interim statements reflect all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position and the results of operations and cash flows for
the interim periods presented. The results of operations for these interim
periods are not necessarily indicative of the results to be expected for the
full year. These statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the Company's
consolidated financial statements and notes thereto for the fiscal year ended
March 31, 2001.
The consolidated financial statements include the accounts of
Geographics and its wholly-owned subsidiaries: Geographics Marketing Canada Inc.
(inactive), Geographics (Europe) Limited and Geographics Australia, Pty.
Limited. All intercompany balances and transactions have been eliminated.
NOTE 2- RESTATEMENT AND CHANGE IN ACCOUNTING POLICY
The Company has determined to restate its condensed consolidated quarterly
financial statements for the year ended March 31, 2002, to adjust the useful
life of the Domtar license and other intangibles from 15 years to 6 years,
resulting in additional amortization expense of $62,500 for the three months
ended June 30, 2001. The following sets forth the effect of this adjustment:
AS PREVIOUSLY AS
REPORTED ADJUSTMENT RESTATED
-------- ---------- --------
AT JUNE 30, 2001:
Licenses, Trademarks and Other Intangible Assets $ 2,906,707 $ (312,500) $ 2,594,207
Total Assets 25,752,663 (312,500) 25,440,163
Accumulated Deficit (20,760,778) (312,500) (21,073,278)
Stockholders' Equity 5,112,600 (312,500) 4,800,100
Total Liabilities and Stockholders' Equity $ 25,752,663 $ (312,500) $ 25,440,163
FOR THE THREE MONTHS ENDED JUNE 30, 2001:
Cost of Sales $ 7,039,562 $ 62,500 $ 7,102,062
Gross Margin 1,484,623 (62,500) 1,422,123
Income (Loss) Before Tax (661,510) (62,500) (724,010)
Net Income (Loss) $ (661,510) $ (62,500) $ (724,010)
Net Income (Loss) Per Share $ 0.02 $ -- $ 0.02
F-4
NOTE 3- FUTURE ACCOUNTING CHANGES
In April, 2001, the Emerging Issues Task force (EITF) reached a
consensus on certain issues within Issue 00-25 "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products".
The EITF concluded that consideration from a vendor to a reseller of the
vendor's products, such cooperative advertising programs, should be recognized
as a reduction of revenue when recognized in the vendor's income statement.
Application of EITF 00-25 is required no later than in annual or interim
financial statement periods beginning after December 15, 2001. Upon application
of this Issue, financial statements for prior periods presented for comparative
purposes should be reclassified to comply with the income statement display
requirements. The Company has not yet determined the impact of the adoption of
this Issue on the Company's consolidated financial statements.
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, "Business
Combinations", and SFAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." SFAS No. 141 requires the use of the purchase method of
accounting for business combinations initiated after June 30, 2001. SFAS No. 142
supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how
intangible assets acquired outside of a business combination should be accounted
for upon acquisition and how goodwill and other intangible assets should be
accounted for after they have been initially recognized. SFAS No. 142 eliminates
the amortization for goodwill and other intangible assets with indefinite lives.
Other intangible assets with a finite life will be amortized over their useful
life. Goodwill and other intangible assets with indefinite useful lives shall be
tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset may be impaired. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001. Management, at this time,
cannot determine the effect that adoption of SFAS No. 142 may have on the
financial statements of the Corporation as the statement requires a
comprehensive review of previous combinations accounted for under the purchase
accounting method and an analysis of impairment as of the date of adoption. The
impairment analysis for goodwill and other intangible assets with an indefinite
useful life has not been completed. The impairment analysis will be completed
within the timelines outlined in SFAS No. 142.
NOTE 4- COMPREHENSIVE INCOME
Comprehensive income (loss) was as follows:
F-5
Three Months Ended June 30
--------------------------
2001 2000
---- ----
(Restated)
Net Income (Loss) $ (724,010) $ 259,213
Other comprehensive income (loss)
Foreign currency translation adjustment 57,029 (689)
---------------- ----------------
Comprehensive Income (Loss) $ (666,981) $ 258,524
================ ================
NOTE 5- NET INCOME (LOSS) PER SHARE
The numerators and denominators of basic and diluted income (loss) per
share during the three month periods ended June 30 are as follows:
2001 2000
---- ----
(Restated)
Net Income (loss) (numerator) $ (724,010) $ 259,213
================ ================
Shares used in the calculation (denominator)
Weighted average shares outstanding 35,283,729 35,831,552
Effect of dilutive stock options and warrants -- 879,702
---------------- ----------------
Diluted shares 35,283,729 36,711,254
================ ================
Options to purchase shares of common stock under the Company's
Nonqualified Stock Option Plan were outstanding during the three-month
periods ending June 30, 2001 and 2000. However, these shares were not
included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price
of the common shares, and the effect would therefore be antidilutive.
The number of shares excluded from the computation were 9,450,000 and
2,570,298 for the three months ended June 30, 2001 and 2000,
respectively.
F-6