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 September 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)
----------------
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
----- -----
The aggregate market value of the common stock held by nonaffiliates of
the registrant as of November 13, 2001 was $1,687,746 based on a closing sales
price of $0.075 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, as of November 13, 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 and $125,000 for the six months ended September 30,
2001. This amendment includes in Item 1 such restated condensed consolidated
financial statements for the three and six months ended September 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" and
such information is not included as part of this Amendment. 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
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................................................................................3
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................................4
PART II - OTHER INFORMATION.............................................................................................4
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................................................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 and $125,000 for the six months ended
September 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 September 30, 2001 (restated
and unaudited) and March 31, 2001, the unaudited consolidated statements of
operations for the three and six months ended September 30, 2001 (restated) and
2000, and the unaudited consolidated statements of cash flows for the six months
ended September 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
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; 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,
adequately 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 and to raise additional debt or equity financing
sufficient to meet its working capital requirements.
Relevant risks and uncertainties include, but are not limited to,
slower than anticipated growth of the preprint paper market; loss of certain key
customers; insufficient consumer acceptance of the Company's specialty paper and
file storage 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; the
inability to hire and retain key personnel; unexpected increases in the overall
costs of production; 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 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.
-1-
RESULTS OF OPERATIONS
Three Months Ended September 30, 2001 vs. Three Months Ended September 30, 2000
NET SALES. Net revenues decreased 25.2% to $7,716,017 for the three
months ended September 30, 2001 compared $10,319,736 in the quarter ended
September 30, 2000. Paper product revenues were down $163,019 and GeoFiles
revenues were down $2,440,700. Paper product revenues increased in the United
States and Australia by 3.7 percent and 11.2 percent, respectively. Paper
product revenues in Europe dropped by 95.1 percent, as a result of the Company's
decision to convert from a direct sales business to a licensing arrangement. The
dramatic drop in GeoFiles revenues was due to the company exiting the plastics
product business. The Company expects to see lower GeoFiles revenue while the
remaining inventory is sold off.
GROSS MARGIN. Gross margin was $2,194,647 and $2,168,873 for the three
months ended September 30, 2001 and 2000, respectively. Gross margin as a
percentage of gross sales increased to 24.5% in the quarter ended September 30,
2001, from 18.2% in the same period in fiscal 2001. The higher gross margin
percentage is attributable to better mix of more profitable paper product sales,
reduced inventory provisions ($586,960), lower inbound freight expenses
($644,293) and lower distribution expenses ($855,879). The reduction in inbound
freight in expenses was a direct result of exiting the plastic products
business. The lower distribution expenses was a result of consolidating four
distribution centers into one and fewer GeoFiles shipped. The aforementioned
spending reductions were offset by reduced margins in Europe ($192,580) and
Australia ($101,943) and lost standard margins due to lower sales in the United
states ($1,523,824).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $1,878,323 (21.0% of gross sales) during
the three months ended September 30, 2001 from $2,295,515 (21.0% of gross sales)
in the same period in fiscal 2001. The decrease is largely attributable to
closing the European office and distribution center (-$187,274), coupled with
lower travel expenses ($60,101) and lower legal and accounting expenses
($48,575).
OTHER INCOME (EXPENSE). Other expense of $19,209 for the three months
ended September 30, 2001 primarily represented foreign currency exchange losses
compared to other income of $40,600 for the quarter ended September 30, 2000,
representing realized foreign currency exchange gains in the period.
INTEREST EXPENSE. Interest expense decreased to $193,630 (2.2% of gross
sales) for the three months ended September 30, 2001, compared to $372,956 (3.1%
of gross sales) during the same period in fiscal 2001. The reduced interest
expense was attributable to lower interest rates compared to the same period
last year.
Six Months Ended September 30, 2001 vs. Six Months Ended September 30, 2000
NET SALES. Net sales decreased 16.8% to $16,240,201 in the six months
ended September 30, 2001 from $19,524,410 in the six months ended September 30,
2000. The decrease in sales of $3,284,209 was mainly attributable to exiting the
plastic products business (-$2,769,804) and the transition to a licensing
arrangement in Europe (-$788,854). Paper product sales in the United States and
Australia were up 1.8 % and 1.2 %, respectively.
GROSS MARGIN. Gross margin for the six months ended September 30, 2001
was $3,591,770 compared to $4,648,871 for the six months ended September 30,
2000. Gross margin as a percentage of gross sales decreased to 18.9% in the six
months ended September 30, 2001, from 20.9% in the same
-2-
period in fiscal 2001. The lower gross margin was driven by lost standard margin
due to lower sales in the United States ($2,542,573) and reduced margins in
Europe ($287,215) and Australia ($106,186). The reduced margins were offset by
lower inbound freight expenses ($780,646), lower inventory provisions
($605,993), and lower distribution expenses ($623,839).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $3,792,902 (20.0% of gross sales) during
the six months ended September 30, 2001 from $4,430,373 (19.8% of gross sales)
in the same period in fiscal 2001. The decrease is primarily attributable to
sales volume related decreases in advertising and promotion ($-173,135), and the
closing of the European office and distribution center ($-381,253).
OTHER INCOME (EXPENSE). Other expense for the six months ended
September 30, 2001 amounted to $-32,498 compared to other income of $26,222 for
the six months ended September 30, 1999. The swing from other income to other
expense was mainly attributable to a currency exchange loss of $-35,760 compared
to a gain of $20,700 for the first six months of fiscal year 2002 and 2001,
respectively.
INTEREST EXPENSE. Interest expense decreased to $411,894 (2.2% of gross
sales) during the six months ended September 30, 2001, compared to $594,771
(2.7% of gross sales) during the same period in fiscal 2001. The lower interest
expense is the result of lower borrowing rates compared to last year.
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 six months ended September 30,
2001, operating losses totaled $(51,132), however, the Company experienced
positive operating cash flows of $124,446.
At the date of this Report, the Company does not have any definitive
available source of working capital. The Company previously had a revolving
credit facility, which expired on September 30, 2001. As of the date of this
Report, U.S. Bank continues to advance funds to the Company based on the terms
of the prior revolving credit facility. The prior revolving credit facility
permitted 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 inventories. Borrowings under the prior
facility incurred interest at LIBOR plus 2.5% and are secured by substantially
all of the Company's assets. Borrowings under this facility were $8,502,587 at
September 30, 2001.
U.S. Bank has no obligation to advance future funds to the Company.
Furthermore, as the Company's prior revolving credit facility has expired, U.S.
Bank may declare the entire amount of the borrowings due and payable at any
time. The Company is currently in discussions with U.S. Bank and other potential
lenders regarding obtaining definitive sources of funds for working capital.
However, there can be no assurance that these efforts will be successful. The
failure to obtain 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 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
-3-
to remain competitive.
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 six months ended September 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.
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 $57,000 for the six months ended
September 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 3. DEFAULTS UPON SENIOR SECURITIES
As of September 30, 2001, the Company had borrowings of $8,502,587 on its
revolving credit facility with U.S. Bank. This revolving credit facility expired
on September 30, 2001.
Although U.S. Bank continues to advance funds to the Company, U.S. Bank has no
obligation to continue doing so. Furthermore, U.S. Bank may declare all
borrowings due and payable at any time.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. - None
-4-
(b) The following reports on Form 8-K 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 SEPTEMBER 30, 2001 AND MARCH 31, 2001
ASSETS
SEPTEMBER 30, 2001 MARCH 31, 2001
------------------ ---------------
(RESTATED AND UNAUDITED)
CURRENT ASSETS
Cash $ 195,843 $ 421,049
Accounts receivable
Trade receivables, net of allowances of $596,000 and $1,042,000
at September 30 and March 31, 2001, respectively 5,907,672 7,188,772
Other receivables 178,302 155,281
Inventories 7,099,231 6,634,321
Prepaid expenses, deposits, and other current assets 694,153 603,950
------------ ------------
Total current assets 14,075,201 15,003,373
PROPERTY, PLANT AND EQUIPMENT, NET 8,791,437 9,007,234
LICENSES, TRADEMARKS AND OTHER INTANGIBLE ASSETS 2,590,824 2,876,512
OTHER ASSETS 293,010 198,377
------------ ------------
TOTAL ASSETS $ 25,750,472 $ 27,085,496
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdrafts $ 139,759 $ 975,489
Note payable to bank 8,502,587 8,406,861
Accounts payable 5,197,099 5,401,482
Accrued liabilities 3,612,267 4,237,110
Current portion of long-term debt 828,327 974,790
------------ ------------
Total current liabilities 18,280,039 19,995,732
LONG-TERM DEBT 2,573,671 1,628,908
------------ ------------
Total liabilities 20,853,710 21,624,640
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value - 100,000,000 shares authorized; 38,191,676
shares issued and outstanding
at September 30 and March 31, 2001, respectively 38,192 38,192
Additional paid-in capital 26,202,909 26,190,460
Accumulated other comprehensive income (374,547) (418,528)
Accumulated deficit (20,969,792) (20,349,268)
------------ ------------
Total stockholders' equity 4,896,762 5,460,856
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,750,472 $ 27,085,496
============ ============
See accompanying notes to consolidated financial statements
F-1
GEOGRAPHICS, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(RESTATED) (RESTATED)
2001 2000 2001 2000
------------ ------------ ------------ ------------
SALES $ 8,963,823 $11,936,290 $18,983,081 $22,374,633
Returns and Allowances (1,247,806) (1,616,554) (2,742,880) (2,850,223)
----------- ----------- ----------- -----------
Net Sales 7,716,017 10,319,736 16,240,201 19,524,410
COST OF SALES 5,521,370 8,150,863 12,623,431 14,845,539
----------- ----------- ----------- -----------
Gross Margin 2,194,647 2,168,873 3,616,770 4,678,871
S.G.& A. EXPENSES 1,878,323 2,415,781 3,792,902 4,430,373
----------- ----------- ----------- -----------
Operating Income (Loss) 316,324 (246,908) (176,132) 248,498
OTHER INCOME (EXPENSE)
Interest Expense (193,630) (372,956) (411,894) (594,771)
Other Income (19,209) 40,600 (32,498) 26,222
----------- ----------- ----------- -----------
Total Other Income (Expense) (212,839) (332,356) (444,392) (568,549)
NET INCOME (LOSS) BEFORE INCOME TAXES 103,485 (579,264) (620,524) (320,051)
PROVISION FOR INCOME TAXES - - - -
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 103,485 $ (579,264) $ (620,524) $ (320,051)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
Basic $ 0.00 $ (0.02) $ (0.02) $ (0.01)
=========== =========== =========== ===========
Diluted $ 0.00 $ (0.02) $ (0.02) $ (0.01)
=========== =========== =========== ===========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
Basic 38,191,676 37,770,736 38,191,676 35,929,210
=========== =========== =========== ===========
Diluted 38,602,482 37,770,736 38,191,676 35,929,210
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
F-2
GEOGRAPHICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
----------------- ----------------
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) $ (620,524) $ (320,051)
Adjustments to reconcile net income (loss) to net
cash flows from operating activities
Depreciation and amortization 1,025,309 994,030
Stock based compensation 12,450 59,688
Interest on debentures - 67,000
Changes in operating assets and liabilities
Trade receivables 1,281,100 (2,471,839)
Other receivables (23,020) (400,015)
Inventories (464,910) (3,718,977)
Prepaid expenses, deposits and other current assets (90,205) (427,448)
Licenses, trademarks and other intangible assets - (41,308)
Other assets (166,507) 49,685
Accounts payable (204,382) 2,388,122
Accrued liabilities (624,845) 1,107,077
----------- -----------
Net cash flows from operating activities 124,466 (2,714,036)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (451,949) (426,671)
Purchase of certain Domtar Consumer Products assets - (3,049,138)
----------- -----------
Net cash flows from investing activities (451,949) (3,475,809)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank overdrafts (835,730) 117,553
Net borrowings on note payable to bank 95,726 1,702,161
Proceeds from issuance of subordinated debentures 1,200,000 -
Repayment of long-term debt (401,700) (692,273)
Proceeds from note payable to officer and director - 1,000,000
Repayment of note payable to officer and director - (1,000,000)
Proceeds from the issuance of common stock - 5,032,850
----------- -----------
Net cash flows from financing activities 58,296 6,160,291
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 43,981 95,277
----------- -----------
NET CHANGE IN CASH (225,206) 65,723
CASH, BEGINNING OF PERIOD 421,049 360,612
----------- -----------
CASH, END OF PERIOD $ 195,843 $ 426,335
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 377,488 $ 464,256
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-3
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim unaudited condensed consolidated financial
statements of Geographics, Inc. (the "Company" or "Geographics") have been
prepared in accordance with generally accepted accounting principles in the
United States of America 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 annual report on Form 10-K 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 in
consolidation.
NOTE 2 - RESTATEMENT
The Company has determined to restate its condensed consolidated quarterly
financial statements for the year ended March 31, 2002 to adjust the estimated
life of the Domtar license from 15 years to 6 years, resulting in additional
amortization expense of $62,500 for the three months and $125,000 for the six
months ended September 30, 2001. The following sets forth the effect of this
adjustment:
AS PREVIOUSLY AMORTIZATION AS
REPORTED ADJUSTMENT RESTATED
-------- ---------- --------
AT SEPTEMBER 30, 2001:
Licenses, Trademarks and Other Intangible Assets $ 2,965,824 $ (375,000) $ 2,590,824
Total Assets 26,125,472 (375,000) 25,750,472
Accumulated Deficit (20,594,792) (375,000) (20,969,792)
Stockholders' Equity 5,271,762 (375,000) 4,896,762
Total Liabilities and Stockholders' Equity $ 26,125,472 $ (375,000) $ 25,750,472
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Cost of Sales $ 5,458,870 $ 62,500 $ 5,521,370
Gross Margin 2,257,147 (62,500) 2,194,647
Income (Loss) Before Tax 165,985 (62,500) 103,485
Net Income (Loss) $ 165,985 $ (62,500) $ 103,485
Net Income (Loss) Per Share $ - $ - $ -
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001:
Cost of Sales $ 12,498,431 $ 125,000 $ 12,623,431
Gross Margin 3,741,770 (125,000) 3,616,770
Income (Loss) Before Tax (495,524) (125,000) (620,524)
Net Income (Loss) $ (495,524) $ (125,000) $ (620,524)
Net Income (Loss) Per Share $ 0.01 $ 0.01 $ 0.02
F-4
NOTE 3 - INVENTORIES
Inventories at September 30, 2001 and March 31, 2001 consisted of the
following:
September 30, March 31,
2001 2001
---- ----
Raw materials $ 976,461 $ 809,794
Work-in-process 1,152,115 1,121,778
Finished goods 4,970,655 4,702,749
-------------- --------------
$ 7,099,231 $ 6,634,321
============== ==============
NOTE 4- 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.
F-5
NOTE 5 - NET SALES BY PRODUCT CATEGORY
The Company's operations are classified into two product categories:
Designer Stationery and Specialty Papers, and Plastic Filing and Storage
Cabinets. Net sales attributable to each class of product are as follows:
Three Months Ended Six Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Designer Stationeries and Specialty Papers $ 7,542,133 $ 7,705,152 $15,734,363 $16,268,561
Plastic Filing and Storage Cabinets 173,884 2,614,584 505,838 3,255,849
----------- ----------- ----------- -----------
$ 7,716,017 $10,319,736 $16,240,201 $19,524,410
=========== =========== =========== ===========
NOTE 6 - NET INCOME (LOSS) PER SHARE
The numerators and denominators of basic and diluted net income (loss)
per share are as follows:
Three Months Ended Six Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(Restated) (Restated)
Net income (loss) (numerator) $ 103,485 $ (579,264) $ (620,524) $ (320,051)
============ ============ ============ ============
Shares used in the calculation (denominator)
Weighted average shares outstanding 38,191,676 37,770,736 38,191,676 35,929,210
Effect of dilutive stock options and warrants 410,806 - - -
------------ ------------ ------------ ------------
38,602,482 37,770,736 38,191,676 35,929,210
============ ============ ============ ============
Options to purchase shares of common stock under the Company's Nonqualified
Stock Option Plan were outstanding during the three and six-month periods ending
September 30, 2001 and 2000. However, some shares were not included in the
computation of diluted earnings per share if the exercise price of the options
was greater than the average market price of the common shares, because the
effect would therefore be antidilutive. The number of shares excluded from the
computation were 3,450,000 and 3,405,000 for the three and six month periods
ended September 30, 2001 and 2000, respectively.
F-6
NOTE 7 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was as follows:
Three Months Ended Six Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(Restated) (Restated)
Net income (Loss) $ 103,485 $(579,264) $(620,524) $(320,051)
Other comprehensive income (loss)
Foreign currency translation (13,048) (80,783) 43,981 (81,472)
--------- --------- --------- ---------
Comprehensive Income (Loss) $ 90,437 $(660,047) $(576,543) $(401,523)
========= ========= ========= =========
NOTE 8 - RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 (preceding year)
financial statements to conform to the 2002 classifications. The 2001 financial
statements have been reclassified to conform to the 2002 presentation by
increasing cost of sales and decreasing selling and general and administrative
expenses by $120,266.00.
NOTE 9 - CHANGES IN ACCOUNTING ESTIMATES
The Company estimates provisions for slow moving and discontinued product based
on management's estimate of anticipated losses. During the quarter ended
September 30, 2001 the Company lowered its estimate of reserves required by
$200,000.00 which increased margins and the results from operations by similar
amounts.
F-7