-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IgStq7y2Dws2gFIktapbDN4EgDbrsjX/8goK6KOpoOrnJFnFtnwVmks6G/rA0HRz N8p+Oq83OPJOmbg4Ip62GA== 0000912057-01-005912.txt : 20010223 0000912057-01-005912.hdr.sgml : 20010223 ACCESSION NUMBER: 0000912057-01-005912 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEOGRAPHICS INC CENTRAL INDEX KEY: 0001000621 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 870305614 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26756 FILM NUMBER: 1546270 BUSINESS ADDRESS: STREET 1: 1555 ODELL RD STREET 2: P O BOX 1750 CITY: BLAINE STATE: WA ZIP: 98230 BUSINESS PHONE: 3603326711 MAIL ADDRESS: STREET 1: 1555 ODELL RD CITY: BLAINE STATE: WA ZIP: 98230 10-Q 1 a2039082z10-q.txt FORM 10-Q U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q /X/ QUARTERLY report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Quarter Ended December 31, 2000 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 February 8, 2001 was $7,644,295 based on a closing sales price of $0.28 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 February 8, 2001 was 38,191,676. DOCUMENTS INCORPORATED BY REFERENCE. NONE 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 NEW ACCOUNTING PRONOUNCEMENTS..............................................3 ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........4 PART II - OTHER INFORMATION.........................................................5 ITEM 3- DEFAULTS UPON SENIOR SECURITIES...................................5 ITEM 5 - OTHER INFORMATION.................................................5 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K..................................6 SIGNATURE...........................................................................6
-i- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Geographics, Inc. (the "Company" or "Geographics") has attached to this Report and by this reference incorporated herein the unaudited condensed consolidated financial statements consisting of the consolidated balance sheets as of December 31, 2000 and March 31, 2000, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended December 31, 2000 and 1999, and the consolidated statements of cash flows for the nine months ended December 31, 2000 and 1999, 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 condensed 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 and file storage markets; 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 as a result of collective bargaining arrangements; 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, 2000 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 DECEMBER 31, 2000 VS. THREE MONTHS ENDED DECEMBER 31, 1999 NET SALES. Net sales increased 29.2% to $10,918,615 for the three months ended December 31, 2000 from $8,453,312 in the quarter ended December 31, 1999. Net sales from new product lines due to the acquisition of Domtar's specialty paper products line and the introduction of GeoFiles were the major factors contributing to the net sales increase of $2,465,303, for the third quarter. New product net sales from Domtar Specialty Paper and GeoFiles were $839,251 and $637,401, respectively. Net sales of domestic and international core paper products were up 11.0% and 24.1%, respectively. GROSS MARGIN. Gross margin was $2,469,943 and $2,880,740 for the three months ended December 31, 2000 and 1999, respectively. Gross margin as a percentage of gross sales decreased to 20.0% in the quarter ended December 31, 2000, from 29.4% in the same period in fiscal 2000. The lower gross margin percentage is attributable to higher product cost of sales due to product mix, warehouse setup and transportation costs for the consolidation of distribution to the Wisconsin distribution center, an increase in freight-in costs related to GeoFiles, amortization of license fees, royalties on new products, and higher freight and shipping costs related to the Domtar and GeoFiles product lines. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were down 7.2% to $2,287,425 (18.5% of gross sales) during the three months ended December 31, 2000 compared to $2,466,088 (25.2% of gross sales) in the same period in fiscal 2000. Increases in, depreciation and amortization $151,303, travel $49,463, audit and legal $88,829, were offset by decreases in advertising and promotion and customer selling allowances. OTHER INCOME (EXPENSE). Other expense for the three months ended December 31, 2000 was $15,893 compared to other income of $72,970 for the quarter ended December 31, 1999. Other expense during the third quarter of 2001 was attributable to an unfavorable exchange gain/loss of $15,923 compared to the third quarter of 2000 which had a favorable exchange gain/loss of $24,207 and miscellaneous income of $50,187 from favorable settlements with vendors. INTEREST EXPENSE. Interest expense increased to $324,024 (2.6% of gross sales) for the three months ended December 31, 2000, compared to $266,231 (2.7% of net sales) during the same period in fiscal 2000. The higher interest expense was due to an increase in borrowings from the Company's line of credit with its bank. NINE MONTHS ENDED DECEMBER 31, 2000 VS. NINE MONTHS ENDED DECEMBER 31, 1999 NET SALES. Net sales increased 48.7% to $30,443,025 in the nine months ended December 31, 2000 from $20,475,102 in the nine months ended December 31, 1999. The increase in net sales of $9,967,923 was mainly attributable to new products due to the acquisition of Domtar's specialty paper product line and the introduction of the GeoFiles product line. Domtar Paper net sales of $2,845,136 and GeoFile net sales of $3,913,066 account for 28.5% and 39.3% of the net sales increase, respectively. Net sales of domestic core paper products increased $3,476,720, and international sales decreased $218,597. GROSS MARGIN. Gross margin for the nine months ended December 31, 2000 was $7,298,813 compared to $6,404,058 for the nine months ended December 30, 1999. Gross margin as a percentage of gross sales decreased to 21.0% in the nine months ended December 31, 2000, from 27.3% in the same period in fiscal 2000. The lower gross margin percentage is attributable to higher customer program costs, warehouse set-up costs for the distribution center in Wisconsin, increase in freight-in expenses related to GeoFiles, amortization of license fees, royalties on new products, higher shipping and handling costs and a one time air freight charge relating to a special promotion on GeoFiles. -2- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $6,717,797 (19.3% of gross sales) during the nine months ended December 31, 2000 from $5,795,896 (24.7% of gross sales) in the same period in fiscal 2000. The increase is primarily attributable to sales volume related increases in commissions $138,313, trade shows $123,199, other selling and marketing expenses $239,684, travel $100,388 and depreciation and amortization $267,544. OTHER INCOME (EXPENSE). Other income for the nine months ended December 31, 2000 amounted to $10,329 compared to $382,641 for the nine months ended December 31, 1999. The reduction is due to the income recognized through December 31, 1999 from favorable settlements of amounts owed to vendors. INTEREST EXPENSE. Interest expense increased to $918,795 (2.6% of gross sales) during the nine months ended December 31, 2000, compared to $687,800 (2.9% of gross sales) during the same period in fiscal 2000. The higher interest expense was due to increased borrowings, primarily caused by the increases in receivables and inventories supporting higher sales volumes. 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, and the acquisition of certain assets from Domtar and Z-International, the Company has required, and continues to require, substantial externally provided working capital. At the date of this Report, the Company's only other available source of working capital consisted of borrowings available under its revolving credit facility. 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 eligible inventory. Borrowings under the facility bear interest at LIBOR plus 2.5% and are secured by substantially all of the Company's assets. 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, debt-to-equity ratios and cash flow coverage ratios. Borrowings under this facility were $7,218,886 at December 31, 2000. It is the Company's intention to fund future capital requirements through operating cash flows generated from efficiencies to be gained from the consolidation of distribution and warehouse facilities, product price increases and the adjustment of the credit facility. Discounts and allowances that are extended to customers in the normal course of business can have temporary, period effects on the Company's incoming cash flow. Although the Company attempts to work with customers to mitigate and smooth out the impacts of customer remittance deductions for such discounts and allowances, such efforts are not always successful. As of October 31, 2000, the Company entered into an agreement with Atlanta Group BV, the European subsidiary of Smead Manufacturing Corporation to sell certain assets of Geographics Europe, Ltd., the Company's European subsidiary. The Company has received approximately $500,000 in initial proceeds, and will receive royalties on future sales of the Smead/Atlanta Group at the rate of 4 to 5% of paper products, and 3% of GeoFiles, with a minimum annual royalty of $100,000. NEW ACCOUNTING PRONOUNCEMENTS In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, is effective for fiscal years beginning after June 15, 2000. SFAS No. 133, requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in -3- current earnings or other comprehensive income (loss), depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company does not expect that the adoption of SFAS No. 133 will have a material impact on its consolidated financial statements. In June 2000, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101B. SAB 101B delays the effective date of SAB 101, "Revenue Recognition in Financial Statements," until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB 101 provides guidance on revenue recognition and the SEC staff's views on the application of accounting principles to selected revenue recognition issues. The Company does not expect that the adoption of SAB 101 will have material impact on its consolidated financial statements. In September 2000, the Emerging Issues Task Force (EITF) reached consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." Issue No. 00-10 deals with the accounting for income billed and costs related to shipping and handling charges on processing and delivery of customer orders. Application of EITF 00-10 is required no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The EITF concluded that amounts directly billed to customers for shipping and handling should be classified as revenue. The Company does not expect that the adoption of EITF 00-10 will have material impact on its consolidated financial statements. In January 2001, the EITF reached a consensus on certain issues within Issue No. 00-22, "Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or services to be Delivered in the Future." Application of EITF 00-22 is required for interim and annual periods ending after February 15, 2001. The EITF concluded that a vendor should recognize a cash rebate or refund obligation as a reduction of revenue based on a systematic and rational allocation of the cost of honoring rebates or refunds earned and claimed to each of the underlying revenue transactions. The Company does not expect that the adoption of EITF 00-22 will have a material impact on its consolidated financial statements. ITEM 3. QUANTITATIVE 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. 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 fiscal year 2001 relative to the currencies in which the Company's sales are denominated, loss before taxes would increase by $85,000 for the quarter ended December 31, 2000. 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 -4- 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 Under the provisions of the revolving credit facility with US Bank, the Company is required to maintain a EBIT/Interest ratio of 1.10 to 1 at the end of each fiscal quarter. For the quarter ended December 31, 2000, the Company's EBIT/Interest ratio was 0.64 to 1. Pursuant to the Company's revolving credit facility, US Bank has the option, without any prior notice or demand, to declare all of the Company's outstanding obligations, which were $7,218,886, due and payable. While the Company is currently in negotiations with US Bank for waiver of this default, there is no assurance that US Bank will grant such waiver. If US Bank elects to declare all of the Company's outstanding obligations due and payable, it would result in a material adverse effect on the Company's business and its future prospectus. ITEM 5 - OTHER INFORMATION REINCORPORATION IN DELAWARE On October 16, 2000, the Company consummated its merger into a wholly-owned Delaware subsidiary, pursuant to which each outstanding share of common stock of the existing Wyoming corporation was converted into an equal number of identical securities of the Delaware corporation. In connection with the reincorporation, the par value of the Company's common stock was changed from no par value to $.001 per share. The surviving entity, also named Geographics, Inc. is a Delaware corporation with a Board of Directors and shareholders identical to that of the former Geographics, Inc., which was a Wyoming corporation. The reincorporation is more fully described in the Company's Proxy Statement to Shareholders dated September 8, 2000. NEW PRODUCTS AND DISTRIBUTION OPPORTUNITIES To broaden its European distribution channels, as of October 31, 2000, the Company entered into an agreement with Atlanta Group BV, the European subsidiary of Smead Manufacturing Corporation to sell certain assets of Geographics Europe, Ltd., the Company's European subsidiary. The assets sold consist of inventory, customer files, customer records, sales history, sales orders, supply contracts, goodwill and know-how, which represent all of the assets necessary to operate the business. The Company has retained ownership of its designs, copyrights and trademarks, and has provided an exclusive license to Smead/Atlanta Group for the use of the Geographics brand for paper products and a non-exclusive license to the Geofile brand for file and storage products in exchange for royalty payments on sales of the licensed products. Atlanta Group BV is headquartered Hoogezand, The Netherlands, and also has distribution facilities in Austria, Belgium, England, France, Germany, Spain, Portugal and Switzerland. Under the terms of the agreement, the Company has received approximately $500,000 in initial proceeds, and will receive royalties on future sales of the Smead/Atlanta Group at the rate of 4 to 5% of paper products, and 3% of GeoFiles, with a minimum annual royalty of $100,000. To expand its product offerings and customer base, as of December 18, 2000, the Company entered into an agreement to acquire certain assets of the Z-GRAFIX(R) brand image paper from Kansas City, Missouri based Z- International, Inc. Under the terms of the agreement, the Company and Z-International entered into a license agreement for the Company to use the Z-GRAPHIX name. Under the terms of the agreement, the Company made an initial payment of $100,000, will pay for the initial -5- inventory as sold, and will negotiate for the payment of remaining inventory, if any, at a future date. The agreement also provides for the payment of commissions on net sales, which shall not exceed three years. The Z-International product line acquisition was funded from the proceeds of the Smead/Atlanta transaction. The Company has also entered into an exclusive supply and distribution agreement, effective as of November 28, 2000, for the production and distribution of its products in Mexico. Under the agreement, the Company's paper products will be printed and packaged in Mexico, and will be sold directly to the Company's Mexican distributor in US dollars. This arrangement will greatly enhance the Company's ability to service its customers in Mexico, such as Office Depot and Wal-Mart, as well as enhancing the ability to reach traditional Mexican retailers. As of the date of this report, the Company has entered into negotiations for a long-term lease of a warehouse and offices in Waukesha, Wisconsin. The Company will be consolidating and moving its sales and warehouse operations from Toronto, Canada, Dallas, Texas, Milwaukee, Madison and Windsor, Wisconsin. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) There were no reports on Form 8-K filed during the quarter ended December 31, 2000. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on this 14th day of February, 2001. GEOGRAPHICS, INC. By: /s/ James L. Dorman ------------------------------------- James L. Dorman President and Chief Executive Officer By: /s/ Daniel J. Regan ------------------------------------- Daniel J. Regan Vice President and Chief Financial Officer -6- GEOGRAPHICS, INC Condensed Consolidated Balance Sheets December 31, 2000 and March 31, 2000 ASSETS
DECEMBER 31, MARCH 31, 2000 2000 ------------ ------------ (UNAUDITED) Current Assets Cash $ 975,508 $ 360,612 Accounts receivable Trade receivables, net of allowances of $1,221,725 and $1,587,469 at December 31 and March 31, 2000, respectively 7,769,658 6,053,810 Other receivables 42,894 25,555 Inventories 8,709,744 5,301,171 Prepaid expenses, deposits, and other current assets 847,154 562,244 ------------ ------------ Total current assets 18,344,958 12,303,392 PROPERTY, PLANT AND EQUIPMENT, NET 9,080,993 9,304,864 LICENSES, TRADEMARKS AND OTHER INTANGIBLE ASSETS,NET 3,188,704 317,170 OTHER ASSETS 188,894 442,018 ------------ ------------ TOTAL ASSETS $ 30,803,549 $ 22,367,444 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdrafts $ 1,256,712 $ 259,551 Note payable to bank 7,218,886 5,764,627 Accounts payable 5,578,858 3,699,532 Accrued liabilities 3,377,189 2,083,523 Current portion of long-term debt 935,015 1,368,212 ------------ ------------ Total current liabilities 18,366,660 13,175,445 LONG-TERM DEBT 1,914,274 3,539,926 ------------ ------------ Total liabilities 20,280,934 16,715,371 ------------ ------------ STOCKHOLDERS' EQUITY Common stock, $.001 par value - 100,000,000 shares authorized, 38,191,676 and 26,965,589 shares issued and outstanding at December 31 and March 31, 2000, respectively 38,192 26,966 Additional paid-in capital 26,157,465 20,950,859 Accumulated other comprehensive loss (253,158) (233,318) Accumulated deficit (15,419,884) (15,092,434) ------------ ------------ Total stockholders' equity 10,522,615 5,652,073 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,803,549 $ 22,367,444 ============ ============
See accompanying notes to condensed consolidated financial statements. F-1 GEOGRAPHICS, INC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ SALES $ 12,380,639 $ 9,785,327 $ 34,755,272 $ 23,461,171 Returns and Allowances (1,462,024) (1,332,015) (4,312,247) (2,986,069) ------------ ------------ ------------ ------------ Net Sales 10,918,615 8,453,312 30,443,025 20,475,102 COST OF SALES 8,448,672 5,572,572 23,144,212 14,071,044 ------------ ------------ ------------ ------------ Gross Margin 2,469,943 2,880,740 7,298,813 6,404,058 S.G.& A. EXPENSES 2,287,425 2,466,088 6,717,797 5,795,896 ------------ ------------ ------------ ------------ Operating Income 182,518 414,652 581,016 608,162 OTHER INCOME (EXPENSE) Interest Expense (324,024) (266,231) (918,795) (687,800) Other Income (Expense) (15,893) 72,970 10,329 382,641 ------------ ------------ ------------ ------------ Total Other Income (Expense) (339,917) (193,261) (908,466) (305,159) NET INCOME (LOSS) BEFORE INCOME TAXES (157,399) 221,391 (327,450) 303,003 PROVISION FOR INCOME TAXES -- -- -- -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) (157,399) 221,391 (327,450) 303,003 ------------ ------------ ------------ ------------ OTHER COMPREHENSIVE INCOME (LOSS) - FOREIGN CURRENCY TRANSLATION 61,632 (54,103) (19,840) (105,407) ------------ ------------ ------------ ------------ COMPREHENSIVE INCOME (LOSS) $ (95,767) $ 167,288 $ (347,290) $ 197,596 ============ ============ ============ ============ NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Basic $ (0.00) $ 0.01 $ (0.01) $ 0.02 ============ ============ ============ ============ Diluted $ (0.00) $ 0.01 $ (0.01) $ 0.02 ============ ============ ============ ============ SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Basic 38,174,682 15,043,364 34,641,522 12,450,308 ============ ============ ============ ============ Diluted 38,174,682 15,422,953 34,641,522 12,829,897 ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements. F-2 GEOGRAPHICS, INC. Condensed Consolidated Statements of Cash Flows (Unaudited)
NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (Loss) $ (327,450) $ 303,003 Adjustments to reconcile net income (loss) to net cash flows used by operating activities Depreciation and amortization 1,347,540 989,450 Loss on sale/disposal of property and equipment -- 3,643 Stock based compensation 117,982 -- Interest on debentures 67,000 -- Revaluation of subsidiary inventories 99,000 Changes in operating assets and liabilities Trade receivables (1,715,848) (655,128) Other receivables (17,339) 136,122 Inventories (3,507,573) (1,099,747) Prepaid expenses, deposits and other current assets (284,910) 201,446 Licenses, trademarks and other intangible assets 30,220 -- Other assets 128,257 (173,234) Accounts payable 1,879,326 238,153 Accrued liabilities 1,293,666 (1,472,508) ----------- ----------- Net cash flows from operating activities (890,129) (1,528,800) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment (751,418) (251,541) Purchase of certain Innovative Storage Design assets -- (261,163) Proceeds from sales of equipment -- 5,000 Purchase of certain Z International assets (100,000) Purchase of certain Domtar Consumer Products assets (3,049,138) -- ----------- ----------- Net cash flows from investing activities (3,900,556) (507,704) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in bank overdrafts 997,161 (91,923) Net borrowings on note payable to bank 454,259 634,280 Repayment of long-term debt (1,058,849) (2,903,461) Proceeds from notes payable to officers and directors 1,000,000 100,000 Repayment of notes payable to officers and directors (1,000,000) (100,000) Proceeds from the issuance of common stock 5,032,850 4,951,648 ----------- ----------- Net cash flows from financing activities 5,425,421 2,590,544 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (19,840) (41,662) ----------- ----------- NET CHANGE IN CASH 614,896 512,378 CASH, BEGINNING OF PERIOD 360,612 130,967 ----------- ----------- CASH, END OF PERIOD $ 975,508 $ 643,345 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest $ 787,880 $ 687,800 =========== =========== Non-cash financing and investing activities - common stock issued for assets $ -- $ 200,280 =========== ===========
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, 2000. 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- INVENTORIES Inventories at December 31, 2000 and March 31, 2000 consisted of the following:
December 31, March 31, 2000 2000 ---- ---- Raw materials $ 844,490 $ 619,463 Work-in-process 1,033,917 1,096,799 Finished goods 6,831,337 3,584,909 -------------- -------------- $ 8,709,744 $ 5,301,171 ============== ==============
NOTE 3- ASSET ACQUISITION AND COMMITMENTS Effective as of April 1, 2000, the Company acquired certain assets of the Consumer Products Business of the Communication Papers Division of Domtar, Inc. of Canada, for total consideration of $4,781,140, plus expenses of $49,138. Under the provisions of the agreement, the Company was granted an exclusive world-wide license to convert, distribute and sell products under certain exclusive Domtar trademarks, and a non-exclusive license to use the Domtar Trademark. The initial term of the licenses is for a three year period extending to March 31, 2003, extendable for an additional three year period, and automatically renewable thereafter, unless terminated by either party. The license remains exclusive providing annual sales achieve certain minimum sales levels, or the payment of minimum royalties. The Agreement also provides for the payment of royalties on the sale of Domtar products, an option by Domtar to repurchase the assets at a premium, and the purchase of paper from Domtar. The total purchase price of these acquired assets, exclusive of inventories is included in Licenses, Trademarks and Other Intangible Assets in these condensed consolidated financial statements, and is being amortized to cost of sales over a six to fifteen year period on the straight-line basis. The purchase price was allocated to the assets based on their fair value. F-4 NOTE 4- 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 Nine Months Ended December 31, December 31, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Designer Stationeries and Specialty Papers $10,281,214 $ 7,800,887 $26,529,959 $19,822,677 Plastic Filing and Storage Cabinets 637,401 652,425 3,913,066 652,425 ----------- ----------- ----------- ----------- $10,918,615 $ 8,453,312 $30,443,025 $20,475,102 =========== =========== =========== ===========
NOTE 5- NET INCOME (LOSS) PER SHARE The numerators and denominators of basic and diluted net income (loss) per share are as follows:
Three Months Ended Nine Months Ended December 31, December 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net income (loss) (numerator) $ (157,399) $ 221,391 $ (327,450) $ 303,003 ============ ============ ============ ============ Shares used in the calculation (denominator) Weighted average shares outstanding 38,174,682 15,043,364 34,641,522 12,450,308 Effect of dilutive stock options and warrants -- 379,589 -- 379,589 ------------ ------------ ------------ ------------ 38,174,682 15,422,953 34,641,522 12,829,897 ============ ============ ============ ============
Outstanding stock options and warrants that could potentially dilute basic net income (loss) per share in the future that were not included in the computation of diluted net income (loss) per share in 2001 and 2000, because to do so would have been antidilutive, were 3,405,000 and 1,565,411 shares, respectively. NOTE 6- PAR VALUE OF COMMON STOCK In conjunction with the October 16, 2000 reincorporation in the state of Delaware, the Company's common stock was changed from a no par value to a par value of $.001 per share. Accordingly, the reported values of common stock and additional paid-in capital at December 31, 2000 and March 31, 2000 have been reclassified to reflect a par value of $.001 per share of common stock. F-5 -----END PRIVACY-ENHANCED MESSAGE-----