-----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, Tlqw39DikIh6U1ESHdzN2NyfSKV99Uy4PE3yk1Od43EI4vnzO1dfDmHHU9WYGZ5r 5zQDOihz3oAHMprZCtCQbQ== 0000949459-96-000111.txt : 19960814 0000949459-96-000111.hdr.sgml : 19960814 ACCESSION NUMBER: 0000949459-96-000111 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960813 SROS: NASD 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: WY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10051 FILM NUMBER: 96609763 BUSINESS ADDRESS: STREET 1: 1555 ODELL RD CITY: BLAINE STATE: WA ZIP: 98230 BUSINESS PHONE: 3603326711 MAIL ADDRESS: STREET 1: 1555 ODELL RD CITY: BLAINE STATE: WA ZIP: 98230 SB-2 1 FORM SB-2 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on August 13, 1996 Registration Statement No. 333-______________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ GEOGRAPHICS, INC. (Name of Small Business Issuer in its Charter) Wyoming 2678 87-0305614 (State or other juris- (Primary Standard (I.R.S. Employer diction of incorporation Industrial Classifi- Identification No.) or organization) cation Code Number) 1555 Odell Road Blaine, Washington 98230 1555 Odell Road (360) 332-6711 Blaine, Washington 98230 (Address and telephone (Address of principal place number of principal of business or intended principal executive offices) place of business) ------------------ Ronald Deans Geographics, Inc. 1555 Odell Road Blaine, Washington 98230 (360) 332-6711 (Name, address and telephone number of agent for service) ------------------ With copies to: James M. Schneider, Esq. Gayle Coleman, Esq. Atlas, Pearlman, Trop & Borkson, P.A. 200 East Las Olas Boulevard Suite 1900 Fort Lauderdale, Florida 33331 (954) 763-1200 ------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X] If this Form is to be filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier registration statement for the same offering: [ ] If delivery of this prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CALCULATION OF REGISTRATION FEE ================================================================================ Title of Proposed Proposed Each Class Maximum Maximum of Securities Amount Offering Aggregate Amount of to be to be price Offering Registration Registered Registered per Share(1) Price(1) Fee - -------------------------------------------------------------------------------- Common Stock no par value)(2) 1,268,293 $3.22 $4,083,903.50 $1408.25 Common Stock Purchase Warrants 1,268,293 $.001 $1,268.30 $.44 Common Stock issuable under Warrants(2)(3) 1,268,293 $3.22 $4,083,903.50 $1408.25 Common Stock Purchase Warrants(4) 126,828 $.001 $126,83 $.04 Common Stock(3)(5) 126,828 $3.22 $408,387 $140.83 Common Stock(3)(6) 126,828 $3.22 $408,387 $140.83 Total $3,098.64 ================================================================================ ii (1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended. (2) The price with respect to 1,268,293 shares was estimated and based on the average of the high and low sale price for the Common Stock, no par value per share (the "Common Stock") as reported by the National Association of Securities Dealers Automated Quotation System ("Nasdaq") National Market System on August 7, 1996 which was $3.22. The price with respect to 1,268,293 shares additionally registered was estimated and is based on the average of the high and low sale price on August 7, 1996. (3) Represents shares issuable upon exercise of the Common Stock Purchase Warrants registered hereby together with such additional indeterminate number of shares as may be issued under such Warrants by reason of the anti-dilution provisions contained therein. (4) Represents shares issuable upon exercise of 6.5 units issued to the to the Company's placement agent in connection with a private offering (the "May 1996 Offering") of certain of the Company's securities completed in May 1996, together with such additional indeterminate number number of shares as may be issued upon exercise of such units by reason of the anti-dilution provisions contained therein. Each unit consists of 19,512 shares of Common Stock and Warrants to purchase 19,512 shares of Common Stock at $6.50 per Share. (5) Represents warrants issuable upon the exercise of certain units issued to the Company's placement agent in connection with the May 1996 Offering. (6) Represents shares issuable upon the exercise of the Common Stock Purchase Warrants included within the placement agent's Unit Purchase Warrants in connection with the May 1996 Offering, together with an indeterminate number of shares as may be issued upon exercise of such Warrants by reason of the anti-dilution provisions contained therein. iii GEOGRAPHICS, INC. ------------------ Cross Reference Sheet for Prospectus Under Form SB-2 Form SB-2 Item No. and Caption Caption or Location in Prospectus ------------------------------ --------------------------------- 1. Front of Registration Cover Page; Cross Reference Statement and Outside Sheet; Outside Front Cover Front Cover of Prospectus Page of Prospectus 2. Inside Front and Outside Back Inside Front and Outside Back Cover Pages of Prospectus Cover Pages of Prospectus 3. Summary Information and Risk Prospectus Summary; Risk Factors Factors 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Cover Page; Risk Factors Price 6. Dilution Not Applicable 7. Selling Security-Holders Sales by Selling Security Holders 8. Plan of Distribution Outside Front Cover Page of Prospectus; Sales by Selling Security Holders 9. Legal Proceedings Business - Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons Management 11. Security Ownership of Certain Beneficial Owners and Management Principal Stockholders 12. Description of Securities Description of Securities 13. Interest of Named Experts and Counsel Legal Matters 14. Disclosure of Commission Position on Indemnifica- tion for Securities Act Indemnification of Liabilities Officers and Directors iv 15. Organization within Last Five Years Not Applicable 16. Description of Business Business - Facilities 17. Management's Discussion Management's Discussion and and Analysis and Plan of Analysis of Financial Condition Operation and Results of Operations 18. Description of Property Business - Properties 19. Certain Relationships and Management-Certain Relationships Related Transactions and Related Transactions 20. Market for Common Equity Price Range for Common Stock; and Related Stockholder Description of Securities; Matters Certain Market Information. 21. Executive Compensation Management - Executive Compensation 22. Financial Statements Financial Statements 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Experts INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. v Preliminary Prospectus Dated August 13, 1996 Subject to Completion GEOGRAPHICS, INC. 2,790,242 SHARES OF COMMON STOCK AND 1,395,121 COMMON STOCK PURCHASE WARRANTS There are 2,790,242 shares of Common Stock, no par value per share ("Common Stock" or "Shares") of Geographics, Inc. (the "Company") and 1,395,121 Common Stock Purchase Warrants (the "Warrants") of the Company being offered by certain stockholders of the Company (the "Selling Security Holders"), if at all, on a delayed basis, including Shares issuable upon the exercise of the Warrants. An aggregate of 1,395,121 shares of Common Stock, along with Warrants to purchase 1,395,121 Shares were acquired by certain of the Selling Security Holders in a private placement during the first quarter of the Company's 1996 fiscal year at $100,000 per unit (the "Unit")(each Unit consisting of 19,512 shares of Common Stock and Warrants to purchase 19,512 Shares at $6.50 per Share), and the balance of the shares of Common Stock were issued or will be issued upon exercise of the Warrants at $6.50 per Share. (The shares of Common Stock, the Warrants and the Shares issuable upon the exercise of the Warrants are sometimes collectively referred to as the "Securities"). See "Sales by Selling Security Holders" and "Description of Securities." The Company's Common Stock is traded on the National Market System ("NMS") of the National Association of Securities Dealers Automated Quotation System ("Nasdaq") under the symbol "GGIT" and on the Toronto Stock Exchange under the symbol "GGI." On August 7, 1996, the average of the high and low price for the Common Stock on the Nasdaq NMS was $3.22 and on the Toronto Stock Exchange was Cdn$4.83. There can be no assurances that a substantial trading market for its Common Stock will develop or be sustained in the future. At March 31, 1996, the net tangible book value of the Company's Common Stock was approximately $1.25 per share. Accordingly, it is likely that the purchasers in this offering will incur an immediate and substantial dilution from the purchase price of their shares of Common Stock. See "Price Range of Common Stock." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS AUGUST 12, 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD NOT INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A LOSS OF THEIR ENTIRE INVESTMENT HEREIN. SEE "RISK FACTORS DESCRIBED ON PAGES 10-16." The Company has been advised by the Selling Security Holders that they may sell all or a portion of the Securities offered hereby from time to time in the over-the-counter market, in negotiated transactions, directly or through brokers or otherwise, and that such shares will be sold at market prices prevailing at the time of such sales or at negotiated prices. The Company will not receive any of the proceeds from the sale of the Securities offered hereby except upon exercise of the Warrants. In connection with such sales, the Selling Security Holders and any brokers participating in such sales may be deemed to be underwriters within the meaning of the Securities Act of 1933. See "Use of Proceeds" and "Sales by Selling Security Holders." All costs, expenses and fees in connection with the registration of the shares of Common Stock offered hereby will be borne by the Company. Brokerage commissions, if any, directly attributable to the sale of the Shares will be borne by the Selling Security Holders. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. No person has been authorized to give any information or to make any representations not contained in this Prospectus in connection with the offer contained in this Prospectus, and if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Selling Security Holders. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the Shares offered hereby in any jurisdiction to any person to whom it is unlawful to make such 2 offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company since the date hereof. The Company will not receive any proceeds from the sale of Common Stock for the account of the Selling Security Holders. The Company has informed the Selling Security Holders that the anti- manipulative rules under the Exchange Act of 1934, Rules 10b-6 and 10b-7, may apply to their sales in the market and has furnished the Selling Security Holders with a copy of these rules. The Company has also informed the Selling Security Holders of the need for delivery of copies of this Prospectus in connection with any sale of securities registered hereunder. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company may be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New York, New York 10048. Copies of such material may be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Copies of such material can be obtained upon written request addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of the Web site is (http://www.sec.gov). The Company has previously and intends to furnish its stockholders with annual reports containing audited financial statements and may distribute quarterly reports containing unaudited summary financial information for each of the first three quarters of each fiscal year. This Prospectus, which constitutes part of a Registration Statement filed by the Company with the Commission under the Securities Act of 1933, as amended (the "Act"), omits certain information contained in the Registration Statement in accordance with the rules and regulations of the Commission. Reference is hereby made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the securities offered hereby. 3 PROSPECTUS SUMMARY The following is intended to summarize more detailed information and financial statements and notes thereto which are set forth more fully elsewhere in this Prospectus or incorporated herein by reference and, accordingly, should be read in conjunction with such information. Unless otherwise indicated, all figures contained herein are stated in U.S. Dollars. As of August 7, 1996, the exchange rate of $.7291=Cdn.$1.00. THE COMPANY The Company, incorporated in 1974 as a Wyoming corporation, is engaged in the development, manufacturing, marketing and distribution of designer stationery, "value added papers", lettering, signage, stencil and graphic art products throughout the United States, Canada, Australia, Europe, Israel and Mexico. "Value added paper" is paper on which photographs and art images have been applied during a printing process and then cut to size and includes, for example, printed business cards, brochures, letterhead, memo pads and paper cubes. The products manufactured by the Company are divided into two major product groups: (1) specialty papers and (2) lettering and signage. The specialty papers group is comprised primarily of designer stationery and other value added papers. The lettering and signage group manufactures and distributes rub-on and stick-on lettering, stencils, electronic moving message signs, ADA (Americans with Disabilities Act) signs in Braille, and other signage products. Most of the Company's marketing and sales efforts are performed by the Company's wholly owned subsidiary, Geographics Marketing Canada Inc. and its marketing and sales efforts in Europe is operated through Geographics (Europe) Limited. The Company expects to concentrate its efforts on marketing its designer stationeries and value added papers throughout North America since the majority of mass merchandise chains, computer retailers and department stores do not carry designer stationery or valued added paper. Additionally, the Company intends to diversify its product line which has, in the past, been focused on lettering and signage products. During fiscal year 1997, the Company will be introducing educational and motivational products to be sold through the Company's existing distribution channels and be introduced in new markets. The Company will also continue to add complementary paper products to its existing paper product line. In addition to expanding its product line, the Company believes that foreign markets may provide additional growth opportunities, and will explore expanding it marketing efforts in Asia and the Pacific Rim countries. 4 The Company's administrative office is located at 1555 Odell Road, Blaine, Washington 98230 (telephone no. 360/332-6711; telecopier no. 360/332-6352). The Company's fiscal year end is March 31. THE OFFERING AND OUTSTANDING SECURITIES Common Stock Outstanding at July 31, 1996.................... 9,382,877 shares of Common Stock(1) Common Stock Offered by Selling Security Holders............................. 2,790,242 shares of Common Stock(2) Warrants Offered by Selling Security Holders.............................. 1,395,121 Warrants Common Stock issued in a private placement completed in May 1996......................... 1,395,121 shares of Common Stock(3) Warrants issued in a private placement completed in May 1996............................ Warrants to purchase 1,395,121 shares of Common Stock(3) Shares underlying all Warrants and Options Outstanding at July 31, 1996........................ 1,630,121 shares of Common Stock(4) Proceeds to be received upon Exercise of Warrants Offered by Selling Security Holders............................. $9,586,286.50(4) Risk Factors........................... Investment in these securities involves a high degree of risk. See "Risk Factors." Nasdaq NMS and Toronto Exchange Symbols, respectively(5) Common Stock........................... GGIT, GGI Warrants............................... GGIW, GGW - -------------------- (1) As of July 31, 1996, the Company had 9,382,877 shares of Common Stock outstanding, including 1,268,293 shares of Common Stock issued upon completion of the "May 1996 Offering". Does not include (i) 126,828, 5 shares of Common Stock issuable to the placement agent upon receipt of $5.125.; (ii) 1,395,121 shares issuable upon the exercise of the Warrants, which are a part of this offering; (iii) 211,000 shares underlying options to purchase up to 211,000 shares of Common Stock at prices ranging from Cdn$1.00 to Cdn$4.15 from August 10, 1996 to October 10, 2000; and (iv) warrants to purchase 24,000 shares of Common Stock at prices ranging from Cdn$1.00 to Cdn$6.63 from April 15, 1998 to January 23, 1999. The exchange rate at August 7, 1996 was $.7291 equals Cdn$1.00. (2) Includes 1,395,121 shares of Common Stock to be issued upon the exercise of up to 1,395,121 Warrants on or prior to June 1, 1999 at $6.50 per Share (for an aggregate of $9,068,186.50). (3) Includes 126,828 shares of Common Stock underlying units issued to placement agents in connection with the private offering completed by the Company completed in May 1996 (the "May 1996 Offering") of certain of the Company's securities. Each unit (the "Unit") consists of 19,512 Shares of Common Stock and Warrants to purchase 19,512 Shares at $6.50 per Share. (4) Includes 1,395,121 shares issuable upon the exercise of the Warrants on or prior to June 1, 1999 at $6.50 per Share (for an aggregate of $9,068,186.50), which are a part of this offering. Does not include (i) 211,000 shares underlying options to purchase up to 211,000 shares of Common Stock at prices ranging from Cdn$1.00 to Cdn$4.15 from August 10, 1996 to October 10, 2000; and (ii) warrants to purchase 24,000 shares of Common Stock at prices ranging from Cdn$1.05 to Cdn$6.63 from April 15, 1998 to January 23, 1999. The exchange rate at August 7, 1996 was $.7291 equals Cdn$1.00. (5) The Company intends to apply for inclusion of its Warrants on Nasdaq at such time as the price of the Company's Common Stock satisfies the Nasdaq minimum bid requirement of $3.00 per share. While the Company's Common Stock presently qualifies for inclusion based on the current price of the Common Stock, the Company's Warrants do not and there can be no assurances that the Warrants will qualify for inclusion at any time in the future. Inclusion on Nasdaq does not imply that an established trading market will develop or be sustained for the Common Stock or the Warrants. 6 SUMMARY FINANCIAL INFORMATION (Not covered by Accountant's Report) SUMMARY OF SELECTED FINANCIAL INFORMATION The following table sets forth selected financial information concerning the Company and is qualified by reference to the audited consolidated financial statements and notes thereto and unaudited quarterly financial statements prepared by the Registrant incorporated herein by reference in this Prospectus. CONSOLIDATED STATEMENT OF OPERATIONS DATA: Year Ended March 31 1996 1995 ---- ---- Operating revenues $22,613,635 $10,186,136 Net income attributable to Common Stock 1,232,024 747,742 Net income per average common share outstanding .19 .16 Weighted average shares outstanding 6,606,499 4,549,101 - ---------------- BALANCE SHEET DATA: At March 31 1996 1995 ---- ---- Working capital $5,831,031 $1,836,436 Total assets 24,738,041 10,614,673 Long Term debt 3,690,360 3,519,948 Stockholders' equity 9,989,852 2,803,341 7 RISK FACTORS The securities offered hereby involve certain elements of risk. It is impossible to foresee and describe all the risks and business, economic and financial factors which may affect the Company. Prospective investors should carefully consider the risk and investment factors, as well as other matters set forth elsewhere in this Prospectus, before making an investment in the Company. MANAGEMENT OF GROWTH. The Company has experienced substantial growth in recent years with revenues and net income increasing substantially during this time. There can be no assurance that such growth will continue. While management has successfully managed such growth to date and the Company's infrastructure has been sufficient to support such growth, there can be no assurances that, if such growth continues, that the Company's infrastructure will continue to be sufficient to support a larger enterprise. CUSTOMER CONCENTRATION. During the years ended March 31, 1996 and 1995 the Company's three largest customers accounted for approximately 77% and 59% of the Company's sales. Accordingly, the loss of any one or more of such customers could have a material adverse effect on the Company. In addition, as a result of the concentration occurring in the office supply industry in which the major office megastores are accounting for a greater percentage of industry-wide sales, it is anticipated that an increasing number of the smaller outlets and retail stores will discontinue operations in the years ahead. While the Company anticipates that certain of such sales will be transferred to the larger megastores to which the Company currently supplies its products, there can be no assurance that any loss of sales to smaller outlets and retail stores will be replaced in this manner. CHANGING CONSUMER PREFERENCES AND INTERESTS. Sales of the Company's products are in part, dependent upon designs and configurations developed by the Company for such products. While the Company believes that its designs, configurations and related artwork have received substantial acceptance by the consuming public, there can be no assurances that consumers and other purchasers of these materials will continue to favor the Company's products in light of the constant shifting that occurs with regard to consumer preferences and interests. FLUCTUATIONS OF QUARTERLY RESULTS; SEASONALITY. Most of the Company's customers order products for immediate delivery. Accordingly, a substantial amount of the Company's net sales in each quarter results from orders received in that quarter. The Company's net sales and operating results may, therefore, vary significantly as a result of, among other things, volume and timing of orders received during the quarter, variations and sales mix, and delays in production 8 schedules. Accordingly, the Company's historical financial performance is not necessarily a meaningful indicator of future results and, in general, management expects that the Company's financial results may vary materially from period to period. A significant portion of the Company's customer orders are placed between August and October of each year in anticipation for shipment during the Company's third fiscal quarter (Christmas period). As a result, the Company has experienced and is expected to continue to experience seasonal fluctuations in its operating results based on such purchasing patterns. COMPETITION. While the Company believes it has the largest market share in the lettering and signage phase of its operations, the Company is a less significant factor in the specialty papers industry which represents the second major product group provided by the Company. In this phase of the industry, there are several companies with total annual sales inclusive of their entire business of in excess of $1 billion who compete in the value-added paper business, including Avery/Dennison and Rediform. Such organizations have greater operations and more significant financial, marketing and human resources capacities than the Company, which may provide such competitors with competitive advantages, including economies of scale and scope. No assurance can be given that the Company will successfully compete in any market in which it conducts or may conduct operations. TECHNOLOGY CHANGES AFFECTING PRODUCTS. The design and manufacture of production equipment has undergone and continues to undergo rapid and significant technological change. In particular, developments in the software industry may afford customers and consumers with the ability to produce paper products which offer quality characteristics comparable with that provided by the Company. The Company's business is, to a significant degree, dependent on the enhancement of its current products and development of new products. Product development and enhancement involve substantial expenditures and a high degree of risks, and there is no assurance that product development efforts of the Company will be successful, will have sufficient utility or will be superior to efforts by others, including current customers and consumers of the Company's products. In addition, there can be no assurances that future technological developments will not render existing or proposed products of the Company uneconomical or obsolete, or that the Company will not be adversely affected by competition or by the future development of commercially viable products by others. MAINTENANCE OF LARGE INVENTORY OF PRODUCTS. As of March 31, 1996, the Company maintained an inventory of lettering and signage and specialty papers of in excess of $9,139,273. While the Company believes that the maintenance of an extensive inventory provides the Company with substantial flexibility in 9 responding to incoming orders, enhances the Company's reputation as a major supplier in the industry and offers certain economies of scale in the Company's purchasing program, the maintenance of an extensive inventory requires a substantial outlay of funds which may not be recovered for extensive periods of time. In addition, the Company has generally observed that raw materials prices which it is required to pay, change more rapidly than the Company is able to charge to its customers inasmuch as price changes are generally subject to negotiations between the Company and its customers. Consequently, the Company may be required to absorb price increases on raw materials before the Company is able to pass through such charges to its customer base. In addition, to the extent that purchasing preferences of the Company's customers change and evolve, such inventory may become less desirable, which may require the Company to dispose of such inventory on an unprofitable basis, even if such disposition contributes to cash flow. In the event the Company were unable to recover a substantial portion of its investment in its inventory, there would be a material adverse effect on the Company's operations. FOREIGN EXCHANGE AND INTERNATIONAL TRADE. The Company is selling a greater proportion of its products in markets other than the United States and Canada. At the present time, management estimates that approximately 14% of its sales are to customers in non-domestic markets. Fluctuations in currency exchange rates with the U.S. Dollar could have a material adverse effect on the Company's operations. In addition, various import, export, tariff and other trade barriers may be imposed in other countries could also have a material adverse effect on the Company's business. POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company believes that the net proceeds from its recently completed private financing, in addition to funds generated from operations, will enable the Company to satisfy its anticipated financing needs for the foreseeable future. However, the Company may still be required to secure additional financing in the future in order to effectively manufacture and market its products. In addition, the Company may need to secure public financing in order to continue to develop its market and expand its operations. In the event that the Company needs additional equity or debt financing, there can be no assurance that such financing will be available when needed, or, if available, that it will be on terms acceptable to the Company or in the interest of its shareholders. CONTROL OF THE COMPANY BY MANAGEMENT. As of July 31, 1996, members of the Deans family and the Carrancedo family own slightly in excess of 31% of the outstanding shares of Common Stock of the Company, which, among other factors, may enable them to elect the Company's entire Board of Directors for the foreseeable future. Such concentration of ownership could limit the price that certain investors might be willing to pay in the future for shares of Common Stock, and could have the effect of making it more difficult for a third party to acquire control of the Company. 10 DEPENDENCE ON KEY PERSONNEL. At the present time, the Company is highly dependent on the continued services of Ronald S. Deans, Mark G. Deans and R. Scott Deans, who serve as the Company's principal executive officers as well as directors of the Company. The Company has key man insurance on the lives of each of Mark G. Deans and R. Scott Deans in the respective amounts of approximately $800,000 and $560,000. There can be no assurances that the Company will be able to replace any of these key executives in the event their services become unavailable. ARBITRARY EXERCISE PRICE OF THE WARRANTS. The exercise price of the Warrants were determined by the Company, taking into consideration the Company's current financial condition and prospects, market price of the Company's Common Stock, and the general condition of the securities market, but do not necessarily bear any relationship to the Company's assets, book value, earnings or other established criterion of value. STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS. Holders of the Warrants have the right to exercise the Warrants only if the underlying Common Stock are qualified, registered or exempt for sale under applicable securities laws of the states in which the various holders of the Warrants reside. The Company cannot issue shares of Common Stock to holders of the Warrants in states where such shares are not qualified, registered or exempt. The Company has undertaken, however, to qualify or register such shares (or to secure an exemption for their issuance) in the following states: California, Massachusetts, Michigan, New York, Texas, and Washington. See "Description of Securities - Warrants." REDEMPTION OF THE WARRANTS. Commencing December 1, 1996, the Company may redeem the Warrants at a price of $.05 per underlying share provided the closing price of the Company's Common stock is in excess of $10.00 per share for 10 consecutive trading day period immediately prior to the notice provided by the Company. The Company's exercise of this right would force a holder of Warrants to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holder to do so, to sell the Warrants at the then current market price when the holder might otherwise wish to hold the Warrants for possible additional appreciation, or to accept the repurchase price, which is likely to be substantially less than the market value of the Warrants in the event of a repurchase call. Holders who do not exercise their Warrants prior to the repurchase will forfeit their right to purchase the shares of Common Stock underlying the Warrants. See "Description of Securities -- Warrants." NECESSITY TO MAINTAIN CURRENT PROSPECTUS. The shares of Common Stock issuable upon the exercise of the Warrants have been have been registered with the Commission. The Company will be required, from time to time, to file 11 post-effective amendments to its registration statement in order to maintain a current prospectus covering the issuance of such shares upon the exercise of the Warrants. The Company has undertaken to make such filings and to use its best efforts to cause such post-effective amendments to become effective. If for any reason a required post-effective amendment is not filed or does not become effective or is not maintained, the holders of the Warrants may be prevented from exercising their Warrants. See "Description of Securities Warrants." EXISTENCE OF WARRANTS AND OPTIONS; POSSIBLE DILUTION. Assuming the exercise of the Warrants, there will still be outstanding options to purchase up to 211,000 shares of Common Stock of the Company exercisable at prices ranging from Cdn$1.00 to Cdn$4.15 per share and warrants to purchase up to 24,000 shares of Common Stock at prices ranging from Cdn$1.05 to Cdn$6.63 per Share. In the event that the outstanding warrants and options are exercised, they may have certain dilutive effects because the holders will be given the opportunity to profit from a rise in the market price of the underlying shares. The terms on which the Company could obtain additional capital during the life of such warrants may be adversely affected because the holders may be expected to exercise them at a time when the Company might otherwise be able to obtain comparable additional capital in a new offering of securities at a price per share greater than the exercise price of such options and warrants. See "Description of Securities." NO DIVIDENDS ANTICIPATED TO BE PAID. The Company has not paid any cash dividends on its Common Stock since its inception and does not anticipate paying cash dividends in the foreseeable future. The future payment of dividends is directly dependent upon future earnings of the Company, the capital requirements of the Company, its financial requirements and other factors to be determined by the Company's Board of Directors. For the foreseeable future, it is anticipated that earnings, if any, which may be generated from the Company's operations will be used to finance the growth of the Company, and that cash dividends will not be paid to common stockholders. See "Dividend Policy." IMMEDIATE SUBSTANTIAL DILUTION TO PURCHASERS IN THIS OFFERING. Initial purchasers of the Common Stock of the Company offered hereby will incur an immediate and substantial dilution from the purchase price of their shares. As of March 31, 1996, the net tangible book value of the Company's Common Stock was approximately $1.25 per share. POSSIBLE RESALES OF SECURITIES BY CURRENT STOCKHOLDERS AND DEPRESSIVE EFFECT ON MARKET. As of August 7, 1996, there were 9,382,877 shares of the Company's Common Stock outstanding 1,446,123 of which were "restricted securities" as that term is defined by Rule 144 under the Securities Act of 1933 as amended, (the 12 "Securities Act"), inclusive of shares being registered pursuant to this Registration Statement of which this Prospectus is a part. Such shares will be eligible for public sale only if registered under the Securities Act or if sold in accordance with Rule 144. Under Rule 144, a person who has held restricted securities for a period of two years may sell a limited number of shares to the public in ordinary brokerage transactions. Sales under Rule 144 may have a depressive effect on the market price of the Company's Common Stock due to the potential increased number of publicly held securities. The timing and amount of sales of Common Stock covered by the Registration Statement of which this Prospectus is a part, as well as such subsequently filed registration statement, could also have a depressive effect on the market price of the Company's Common Stock. See "Certain Market Information." LIMITED MARKET FOR THE COMPANY'S SECURITIES; POSSIBLE VOLATILITY OF SECURITIES PRICES. There is currently a trading market for the Common Stock of the Company, however there is currently no trading market for the Warrants. The Common Stock of the Company trades on the Nasdaq NMS under the symbol "GGIT" and on the Toronto Stock Exchange under the symbol "GGI", both exchanges which are limited markets and subject to certain restrictions and limitations. There can be no assurance that a substantial trading market will be sustained for the Common Stock upon completion of this offering, or that purchasers will be able to resell their securities or otherwise liquidate their investment without considerable delay, if at all. Recent history relating to the market prices of newly public or recently listed companies indicates that, from time to time, there may be significant volatility in the market price of the Company's securities because of factors unrelated, as well as related, to the Company's operating performance. See "Price Range of Common Stock" and "Certain Market Information." 13 PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the Nasdaq NMS under the symbol "GGIT" and on the Toronto Stock Exchange under the symbol "GGI." The Company's common stock commenced trading on the OTC Bulletin Board on May 5, 1995, on the Nasdaq NMS on March 8, 1996, and on the Toronto Stock Exchange on February 20, 1989. The following table sets forth the high and low bid quotations for the Common Stock for the periods indicated. These quotations reflect prices between dealers, do not include retail mark-ups, mark-downs or commission and may not necessarily represent actual transactions. Quarter Toronto Exchange OTC Bulletin Board Nasdaq Ended High Low High Low High Low - ----- ---- --- ---- --- ---- --- 6/30/93 Cdn$1.85 Cdn$.90 - - - - 9/30/93 1.75 1.00 - - - - 12/31/93 1.25 1.00 - - - - 3/31/94 1.35 1.05 - - - - 6/30/94 Cdn$1.70 Cdn$1.05 - - - - 9/30/94 1.20 .90 - - - - 12/31/94 1.05 .80 - - - - 3/31/95 1.95 .80 - - - - 6/30/95 Cdn$2.25 Cdn$1.74 $1.88 $1.33 - - 9/30/95 4.60 2.00 3.44 1.45 - - 12/31/95 7.10 $4.00 5.38 3.00 - - 3/31/96(1) 8.75 6.10 6.13 4.63 $6.25 $4.50 6/30/96 Cdn$9.00 Cdn$6.59 - - $6.94 $4.75 7/1/96- 8/7/96(2) Cdn$7.75 Cdn$4.00 - - $5.68 $2.688 (1) The Company's shares began trading on the Nasdaq National Market System effective March 8, 1996. As of August 7, 1996, there were 272 holders of record of the Common Stock of the Company. The closing bid price on the Nasdaq National Market System at August 7, 1996 was $3.22. The Company currently intends to retain all earnings for working capital to support growth, to reduce outstanding indebtedness and for general corporate purposes. The Company, therefore, does not anticipate paying any dividends in the foreseeable future. The Company did not pay dividends during fiscal 1996 or 1995. 14 DIVIDEND POLICY The Company believes that factors such as announcements of developments related to the Company's business, fluctuations in the Company's operating results, sales of securities of the Company into the marketplace, general conditions in the designer stationery and specialty paper industry, paper prices, the worldwide economy, an outbreak of hostilities, a shortfall in revenue or earnings from or changes in analysts' expectations, announcements of technological innovations or new products or enhancements by the Company or its competitors, developments in the Company's relationships with its customers, suppliers and employees, could cause the price of the Company's Common Stock to fluctuate, perhaps substantially. In addition, in recent years, the stock market in general, and the market for shares of small capitalization stocks in particular, including the Company's, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. Many companies, including the Company, have recently experienced historical highs in the market price of their common stock. There can be no assurance that the market price of the Company's Common Stock will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated to the Company's performance. 15 CAPITALIZATION The following table sets forth the actual capitalization of the Company at March 31, 1996 and as adjusted to give effect to the exercise of Warrants. At March 31, 1996 ------------------------------- Actual (1) As Adjusted(2) As Adjusted(3) ----------- -------------- -------------- Stockholders' equity: Common Stock, no par value per share; 10,000,000 shares authorized; 8,004,584 shares issued and outstanding; 9,272,877 shares, issued and outstanding; and 10,794,826 shares to be outstanding, assuming exercise of Warrants offered hereby $9,620,068 $16,120,068 $25,838,350 Retained earnings $ 369,784 $369,784 $369,784 Notes due from officers $1,264,711 $1,264,711 $1,264,711 Total stockholders' equity. $9,989,852 $16,489,852 $26,208,134 Notes payable and total stockholders' equity $11,254,563 $17,754,563 $27,472,845 (1) See Notes to Consolidated Financial Statements included elsewhere herein for a description of terms of the Company's promissory notes, long term obligations and capital lease obligations. (2) Includes the shares sold pursuant to the May 1996 Offering. Actual capitalization figures are adjusted to reflect the issuance of 1,268,293 shares of Common Stock at $5,125 per Share, resulting in gross proceeds to the Company of $6,500,000. See "Sales by Selling Security Holders." (3) Same as (2), adjusted further to reflect the exercise of 1,268,293 Warrants (offered by the Selling Security Holders) into Common Stock at $6.50 per Share, resulting in gross proceeds of approximately $8,243,905. Also includes the issuance of 126,828 additional Shares at $5.125 to the Company's placement agent, resulting in additional gross proceeds of $649,994 and the exercise of 126,828 warrants at $6.50 per Share, resulting in gross proceeds of $824,382. 16 USE OF PROCEEDS The Company will not receive any proceeds from the sale of Common Stock for the accounts of the Selling Security Holders. There is included in the Registration Statement, of which this Prospectus is a part, 1,395,121 shares of Common Stock underlying warrants issued in connection with the Company's private placement completed in May 1996. If all of the warrants issued in connection with the Company's private placement, completed in May 1996, were exercised in their entirety at an exercise price of $6.50 per Share, the Company would receive proceeds of approximately 9,068,286.50. Inasmuch as the Holders of all of the aforementioned Warrants have no obligation to exercise such Warrants, the Company is not in a position to evaluate when and if such derivative securities will ever be exercised and the amount of proceeds that may be realized therefrom. Accordingly, the Company is not able to allocate at this time the proceeds that may be received from the exercise of such derivative securities, and any proceeds realized will be utilized for reduction of short-term debt. To the extent the proceeds of such exercise are not used immediately, they will be invested in certificates of deposit, savings deposits, other interest bearing instruments or will be left in the checking accounts of the Company. 17 SELECTED CONSOLIDATED FINANCIAL DATA The financial data included in the following table has been selected by the Company and has been derived from the consolidated financial statements for the periods indicated. The following financial data should be read in conjunction with the Company's Consolidated Financial Statements and related Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. SUMMARY FINANCIAL INFORMATION (Not covered by Accountant's Report) The following table sets forth selected financial information concerning the Company and is qualified by reference to the audited consolidated financial statements and notes thereto and unaudited quarterly financial statements prepared by the Registrant incorporated herein by reference in this Prospectus. CONSOLIDATED STATEMENT OF OPERATIONS DATA: Year Ended March 31 1996 1995 ---- ---- Operating revenues $22,613,635 $10,186,136 Net income attributable to Common Stock 1,232,024 747,742 Net income per average common share outstanding .19 .16 Weighted average shares outstanding 6,606,499 4,549,101 - ---------------- BALANCE SHEET DATA: At March 31 1996 1995 ---- ---- Working capital $5,831,031 $1,836,436 Total Assets 24,738,041 10,614,673 Long Term debt 3,690,360 3,519,948 Stockholders' equity 9,989,852 2,803,341 18 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 on this Report. GENERAL Geographics, Inc. was incorporated in 1974 and has primarily been a manufacturer of stick-on letters, nub-on letters, stencils and other signage products. The Company has significantly increased the scope of its operations with the development of "Geopaper" in 1992. Geopaper is a designer stationery or image paper with art or photo images printed on the paper. The Company began retooling and expanding facilities to facilitate the manufacture, warehouse and distribution of Geopaper products. Geopaper sales represented 65% of total sales in 1996 and 21% of sales in 1995. Besides increasing as a percentage of sales, Geopaper sales were also responsible for significant increases in total Company sales. During 1996, Company sales increased 122% to $22,613,635 from $10,186,136 in 1995. RESULTS OF OPERATIONS The following table sets forth the percentages which the items in the Company's consolidated statements of income bear to net sales for the periods indicated: FISCAL YEAR 1996 1995 ---- ---- STATEMENTS OF INCOME DATA: Net sales 100.0% 100.0% Cost of sales 62.8 57.7 ------ ----- Gross margin 37.2 42.3 Selling, general and administrative expenses 25.4 28.2 Amortization of goodwill .7 6.3 ----- ----- Income from operations 11.1 7.8 Other income .6 .0 Interest expense (3.5) (4.5) ------ ------ Other income (expense) (2.9) (4.5) Income before provision for income taxes 8.2 3.3 Income tax provision (benefit) 2.8 (4.0) ----- ------ Net income 5.4 7.3 ===== ===== 19 FISCAL YEARS 1996 AND 1995 Net Sales. Net sales increased 122% to $22,613,635 in fiscal 1996 from $10,186,136 in fiscal 1995. This increase was primarily attributable to the acceptance of the Geopaper program. The Geopaper program experienced a sales increase of 605% in fiscal 1996 to $14,800,000 compared to $2,100,000 for fiscal 1995. Geopaper sales increases were specifically due to shipments of Geopaper products to all Office Depot Inc. and OfficeMax stores in North America, as well as shipments of Geopaper products to 248 Wal-Mart stores in March 1996. Signage and lettering sales for fiscal 1996 decreased 4% to $7,800,000 from $8,100,000 in fiscal 1995. The majority of the decline in signage and lettering sales was due to the Company discontinuing the sale of science fair presentation boards. In prior years, the Company has purchased presentation boards and bundled them with Geographics stick-on lettering products. In fiscal 1996, the Company continued to supply the lettering products, while the Company's customers began purchasing the presentation boards directly from the manufacturer. After adjusting sales for presentation boards, fiscal 1996 lettering and signage sales were slightly ahead of fiscal 1995 sales. The sales mix of Geopaper products increased to 65% of sales in fiscal 1996 from 21% of sales in fiscal 1995, while lettering and signage sales decreased to 35% of sales from 79% of sales for the same periods. It is the opinion of management that sales of signage and lettering products will remain flat or possibly decline in the future as the computerization of homes and offices will allow the efficient production of lettering and signage products by current end-users. Conversely, the increasing number of computers will increase the number of potential end users of Geopaper products that are specifically designed for use with computer technology. Gross Margin. Cost of sales includes product manufacturing costs, occupancy and delivery costs. Gross profit as a percentage of sales decreased to 37.2% in fiscal 1996, from 42.3% in fiscal 1995. The decrease in the gross margin is the result of primarily two factors; (1 ) The change in sales mix to products with lower gross margins. (Geopaper represented 65% Of sales while lettering and signage represented 35% of sales in 1996, compared to 21% and 79% of sales in 1995 respectively), and (2) Manufacturing and labor inefficiencies resulting from rapid growth (the Company experienced 122% sales growth in fiscal 1996). 20 Other factors affecting the gross margin include: (a) Raw Material cost increases/decreases. During fiscal 1996, the cost of the Company's raw materials for Geopaper (commodity large sheet plain paper) was extremely volatile in price. The raw material price changes during the year resulted in higher overall raw paper costs and higher production costs. The effect of the paper price increases on finished goods is somewhat limited as packaging and labor costs constitute the largest portions of finished Geopaper products. (b) Selling price increases/decreases. During fiscal year 1996, the Company was able to pass the higher costs of raw paper on to its customers in the form of increased selling prices. Management cannot provide assurance that increases can be passed on in the future, nor can management provide assurances that decreases in raw materials will result in decreased selling prices. (c) Expansion strategies. Expansion into Europe and other markets will result in opportunities and risks that will affect gross margins. Each market has differing competition, pricing levels and raw material costs. The Company intends to produce most of its products at its Blaine, WA. facility and may be at an advantage or disadvantage in various markets as a result. The Company strategy of exporting product to foreign markets demonstrates its belief that it is more cost efficient to ship product than to manage separate manufacturing facilities in multiple countries. (d) Selling strategies. The Company's approach to competition, pricing strategies, product marketing, changes in packaging, and changes in product design may all have effects on the selling price and cost to produce the Company's products, all of which affect the gross margin. Management cannot provide assurances that decisions made by management related to the above items will result in favorable changes in gross margin. (e) Facilities and equipment. During 1996, the Company noted logistical inefficiencies related to the layout of the Blaine Facility. Management anticipates the March 1996 completion of the Blaine facilities expansion should reduce or eliminate a number of logistical cost variances. The addition of more efficient printing and enhanced packaging equipment during fiscal 1996 and 1997 should also result in positive margin improvements as superior production lines are completed. Selling, general and administrative expenses. Selling, general and administrative expenses (SG&A) are those central expenses that are incurred to support the Company's selling, marketing and manufacturing efforts. SG&A expenses declined as a percentage of sales to 25.4% of sales in fiscal 1996 from 21 28.2% of sales in fiscal 1996. The decline is primarily due to the spreading of SG&A expenses over significantly higher sales volumes resulting from the success of the Geopaper programs. Amortization of goodwill. Goodwill amortization declined to 0.7% of sales from 6.3% of sales for fiscal years 1996 and 1995 respectively. The decline was due in part to sales volumes, however, the decrease was largely due to the completion of the amortization of the goodwill related to the 1993 purchase of the lettering division of E-Z Industries. Fiscal 1996 included three months of amortization compared to twelve months of amortization during fiscal 1995. Income from operations. Income from operations increased to 11.1% of sales during fiscal 1996, an increase from 7.8% of sales in fiscal year 1995. The improvement in income from operations was due to the reductions in SG&A and goodwill amortization expenses as a percentage of sales, which more than offset the decreased gross margin percentage. Other income. Other income was 0.6% of sales in fiscal 1996, compared to 0.0% of sales during fiscal 1995. This category includes items such as management fees, foreign exchange gains, gains on disposition of fixed assets, and other miscellaneous items. Management does not anticipate a reoccurrence of this income in fiscal 1997. Interest expense. Interest expense increased significantly to $787,848 during fiscal year 1996, compared to $457,499 for fiscal 1995. However, as a percentage of sales, interest expense declined in fiscal 1996 to 3.5% of sales compared to 4.5% for fiscal 1995. The acquisition of equipment used in the manufacture of Geopaper, in addition to higher bank debt related to facilities expansion and working capital requirements resulted in higher interest costs during fiscal 1996. The higher interest costs spread over a significantly higher sales volume in 1996 resulted in a decline in interest costs as a percentage of sales. Income before provision for income taxes. Income before provision for income taxes improved to 8.2% of sales in fiscal 1996 compared to 3.3% of sales in fiscal 1995. The improvement was due to the higher profitability in income from operations noted above and the lower interest costs as a percentage of sales previously discussed. In general, income before provision for income taxes improved due to economies of scale resulting from increased sales volumes. Income tax provision (benefit). The income tax provision in fiscal year 1996 was 2.8% of sales, compared to a benefit of 4.0% of sales in fiscal 1995. A tax benefit was recognized in fiscal 1995, as management determined that future 22 operating and taxable income will more likely than not be sufficient to fully recognize all deferred tax assets existing at March 31, 1995. As a result, the carrying value of the net deferred tax asset was increased and recognized as a current (1995) period income tax benefit. This benefit was nonrecurring in nature and had no effect on fiscal 1996 results. Net income. Net Income of $1,232,024 in fiscal 1996, or 5.4% of sales compares to net income of $747,742 in fiscal 1995, or 7.3% of sales. Net income as a percentage of sales declined primarily due to the non-reoccurring tax benefit discussed previously in fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's operations in general, and its Geopaper manufacturing operations in particular, are typically capital intensive. The Company has experienced, from time to time, significant negative cash flows from operating activities which have been offset by equity and debt financings. As the Company expands its production and distribution activities, it expects to experience negative cash flows from operating activities from time to time. In such circumstances, the Company will be required to fund at least a portion of production and distribution costs, pending receipt of anticipated future revenues, from working capital or from additional debt or equity financings from outside sources. There is no assurance that the Company will be able to obtain such financing or that such financing, if available, will be on terms satisfactory to the Company. On July 14, 1995, the Company's Bank replaced the existing $5,000,000 revolving line of credit with an interest rate of prime plus .5%, with a $6,000,000 revolving credit agreement with an interest rate of prime plus .5%. On September 15, 1995, officers and directors converted debentures in an aggregate face amount of $200,000 into 219,178 common shares. On September 26, 1995, the Company issued $996,000 of convertible debentures payable to officers and directors. The debentures were convertible at the holders option into common shares of the Company at Cdn. $4.45 per share, to a maximum 274,233 common shares. On December 22, 1995, these debentures were converted into 273,233 common shares, and are no longer outstanding. On October 23, 1995, the Company's Bank replaced the existing $6,000,000 revolving line of credit with an interest rate of prime plus .5%, with a $7,000,000 revolving credit agreement with an interest rate of prime plus .25%. 23 Between June 1995 and November 1995, the remaining holders of the 8% convertible subordinated debentures converted the remaining $990,000 of outstanding debentures into 894,960 shares of common stock. On December 7, 1995, the Company's Bank modified the interest rate on two existing term real estate loans. The floating interest rate on two loans totaling $862,607 was fixed at a rate 8.825% per annum. Two real estate loan commitments totaling $605,000 with interest rates at prime plus 1.0% were also converted to a fixed rate of 8.825% per annum. On January 23, 1996, the Company completed a private placement of 500,000 common shares to officers and directors at a price of Cdn. $5.75. Total cash received, net of issuance costs, totaled $1,906,100. On February 13, 1996, the Company's Bank replaced the existing $7,000,000 revolving line of credit with an interest rate of prime plus .25%, with a $12,000,000 revolving credit agreement with interest at the prime rate. In addition to bank borrowing, debt conversions and equity placements, the Company received $841,154 upon the exercise of stock options and warrants exercised during fiscal year, resulting in the issuance of 768,000 shares of common stock. At March 31, 1996 certain officers and directors had advanced the Company $1,264,711 in the form of uncollateralized notes payable. The notes are payable on demand and are classified as current liabilities. Interest on these notes are payable monthly at the rate of prime plus 1%. Subsequent to year end, the Company received $6,500,000 before expenses as the result of a private placement of 1,268,293 units at a price of $5.125 per unit. Each unit is composed of one share of stock and one warrant to purchase a share of stock at $6.50 per share. The proceeds were used to pay down the revolving credit line balances. Net cash flows from operating activities. The Company experienced negative operating cash flows during fiscal year 1996 and 1995 ($4,875,345 for fiscal 1996 and $379,162 for fiscal 1995). Contributing to the negative cash flow from operations was the increase in trade receivable and related party trade receivables balances. Total trade receivables for fiscal 1996 increased 113% to $5,873,578 compared to $2,751,299 for fiscal 1995. The increase in receivables of 113% at year end fiscal 1996 over fiscal 1995 year end balances is consistent with the 122% increase in sales the Company experienced during 1996. 24 Inventory increased to $9,139,273 at year end fiscal 1996 compared to $2,901,155 for fiscal year end 1995, and increase of 215%. The 215% increase in inventory is due in part to the following factors: (a) Building of inventory in anticipation of higher sales levels in fiscal 1997 in keeping with management's philosophy that the building of inventory is preferable and less expensive than losing customers due to product shortages during growth periods. (b) The Company built Geopaper inventory for distribution in the European market, which requires a paper size which is slightly narrower and longer than the North American standard. The result necessitated a duplication of inventory stock for two paper sizes. In addition, Geographics (Europe) Limited was building inventory levels at March 31, 1996 in preparation of initial European orders beginning in April 1996. (c) The Company has a continuing Geopaper design development program, consequently new product designs are printed and stored in inventory pending initial releases to customers. Despite the Company's rapid growth, management anticipates improved accounts receivable and inventory management due to recent managerial additions focusing on these critical working capital areas. Improved accounts receivable collection procedures and increased staffing are expected to minimize future increases in accounts receivable. New information systems, new warehouse facilities, improved inventory organization and the addition of key purchasing and inventory staff should improve efficiencies in inventory management and allow for additional sales growth without corresponding inventory increases. Net cash flows from financing activities. For the fiscal year ended March 31, 1996, the Company received a net $8,555,704 from various financing sources, compared to $1,697,768 for the prior fiscal year. For the year ended March 31, 1996, the Company increased current line of credit borrowings by $3,139,463, compared to $2,183,476 for the year ended March 31, 1995. Proceeds from long-term debt borrowings for fiscal year 1996, were $1,003,029, compared to $765,125 in fiscal 1995. Repayments of long-term debt in fiscal 1996 were $467,986 compared to $232,685 in fiscal 1995. The Company received $2,452,573 from officers and directors in the form of notes during fiscal 1996, while $22,746 was received from officers and directors in fiscal year 1995. Repayments of notes payable to officers and directors were $398,629 in fiscal 1996 compared to $134,888 in fiscal 1995. In addition the Company received proceeds from 25 private placements, option exercises and warrant exercises in the amount of $2,827,254 in fiscal 1996, compared to $287,043 in fiscal year 1995. The proceeds received from the above debt and equity financings were primarily utilized to finance working capital requirements, building expansion and equipment acquisitions related to the success of the Geopaper program. Net cash flows from investing activities. The Company experienced a net negative cash flow from investing activities for fiscal 1996, of $3,645,679, compared to a negative cash flow from investing activities of $1,303,258 for fiscal 1995. The Company made significant investments to increase its Geopaper production capacity by acquiring printing presses, paper cutting equipment, packaging equipment, computers. trucks and warehouse racking. The Company anticipates that it will continue to invest in Geopaper production equipment in fiscal 1997. On January 23, 1996, the Company placed an order for a printing press. The cost is approximately $1,200,000, which is expected to be delivered during the second quarter of fiscal 1997. The Company has commitment from a financial institution to provide capital lease financing for this equipment. INFLATION Inflation has not had a significant impact on the Company's operations. However, any significant change in the price for paper or labor and environmental compliance costs could adversely impact the Company. QUARTERLY FLUCTUATIONS The Company's operating results may fluctuate significantly from period to period as a result of a variety of factors, including product returns, purchasing patterns of consumers, the length of the Company's sales cycle to key customers and distributors, the timing of the introduction of new products and product enhancements by the Company and its competitors, technological factors, variations in sales by product and distribution channel, and competitive pricing. Consequently, the Company's product revenues may vary significantly by quarter and the Company's operating results may experience significant fluctuations. 26 THE COMPANY GENERAL Geographics, Inc. was incorporated as a Wyoming corporation on September 20, 1974. The Registrant and its subsidiaries are hereinafter collectively referred to as the Company, unless otherwise noted. The Company is engaged in the development, manufacture, marketing, and distribution of designer stationery, value added papers (printed business cards, brochures, letterhead, memo pads and paper cubes), lettering, signage, stencil and graphic art products throughout the United States, Canada, Australia, Europe, Israel and Mexico. The Company's fiscal year end is March 31. The Company's executive offices are located at 1555 Odell Road, Blaine, Washington 98230, and its telephone number is (360) 332-6711. The Company operates its business through two subsidiaries and a partnership: o Geographics Marketing Canada Inc. was incorporated as a British Columbia, Canada corporation on July 31, 1995. Its offices are located at 17735 1st Ave., Suite 1, Surrey, B.C., Canada V4P 2K1, and its telephone number is 800-426-5923. Geographics Marketing Canada Inc. was established to import the Company's products into Canada and market them to wholesale and retail distribution channels. Geographics Marketing Canada Inc. succeeds Martin Distribution as the exclusive importer of Geographics products into Canada effective April 1, 1996. For further discussion of Martin Distribution see, "Certain Relationships and Related Transactions." o Geographics (Europe) Limited was incorporated in England on December 12, 1995. Geographics (Europe) Limited offices are located at 4 Iceni Court, Letchworth, Herts SG6 1TN, England, and its telephone number is 01462 487100. Geographics (Europe) Limited was established to import, warehouse the Company's products, and market and distribute its products throughout Europe. o International Geographics of Ontario ("IGO") was established in September 1989, with the Company owning 70% of the partnership and a marketing agent for the Company owning the remaining 30%. The purpose of IGO was to purchase the Company's products from Martin Distribution Inc. and market and distribute the Company's products in Canada. IGO was dissolved during fiscal 1996. The Company is in 27 the process of winding up the affairs of the partnership. The functions of IGO have been assumed by Geographics Marketing Canada Inc. IGO's principal offices are located at 921 Gana Court, Mississauga, Ontario, Canada L5S 1N9, and its telephone number is 800-426-5923. BACKGROUND At the time of its incorporation in 1974, the Company was a wholly owned subsidiary of International Geographics Ltd. ("IGL"), a British Columbia corporation traded on the Vancouver Stock Exchange. On February 20, 1989, IGL listed its stock on the Toronto Stock Exchange and voluntarily delisted its common stock from the Vancouver Stock Exchange. The Company's primary focus during this period was the manufacture and marketing of rub on and stick on lettering, signage and graphic art products. These products were manufactured in various locations until 1980 when the Company consolidated its manufacturing facilities and moved to Blaine, Washington. During 1991, a reorganization of the Geographics group of companies was conducted whereby Geographics, Inc. undertook and completed a takeover bid to acquire all of the issued and outstanding shares of IGL. As a result, Geographics, Inc. acquired its parent and became a U.S. based company, with both of its administrative offices and manufacturing facilities located at one location, within a single entity. During fiscal year 1991, the Company began the development of designer stationary and value added paper products. In fiscal year 1992, the Company introduced to the marketplace the first versions of Geopaper, a value added paper. The Company continued to develop new Geopaper designs and new Geopaper customers, and by fiscal year 1994 sales of Geopaper had increased to 3% of total Company sales. In fiscal year 1994, the Company purchased certain assets from E.Z. Industries Inc. (an unrelated Maryland company), for $1,500,000. The purchased assets included equipment used in the manufacturing of vinyl letter sets, stencil kits, lettering guides, dry transfers, signs and similar products. however, primary purpose of the acquisition was to broaden the Company's customer base. The Company successfully placed Geopaper in Office Depot Inc., a major office supply superstore in fiscal year 1995. Sales of Geopaper during fiscal year 1995 increased to 21% of total Company sales. During first quarter of fiscal year 1996, the Company received purchase orders to place Geopaper chain wide in Office Depot and OfficeMax, two of the three largest office supply superstores in North America. In January 1996, the Company announced that 28 Wal-Mart had agreed to place Geopaper in 248 Wal-Mart stores to be shipped in March 1996. During fiscal year 1996, the Company introduced new variations of Geopaper, including Geonotes and Geocubes, memo pad and paper cube products made using Geopaper designs. As a result of the increasing popularity of Geopaper in the retail stores and the expansion of the Geopaper product line, sales of Geopaper products had increased to 65% of total Company sales. Fiscal year 1996 was the year the Company made the transition from a lettering and signage manufacturing company to a manufacturer of stationary and value added papers as its primary business. PRODUCTS The products manufactured by the Company are separated into two major product groups; (1) specialty papers, and (2) lettering and signage. The specialty papers group is composed primarily of designer stationery and other value added papers (paper on which the Company has applied photographs and art images during a printing process and then cut to size). The papers are designed for use in photocopiers and computer printers to be used as stationery, letterhead, business cards, brochures, memo pads and paper cubes. These papers are marketed under the Trademark "Geopaper". Geopaper products are also designed to be used with personal computer printers or to compliment other Company products that are used with personal computers. Geopaper sales increased to 65% of sales in fiscal year 1996, up from 21% of sales in fiscal 1995 and 3% of sales in fiscal year 1994. Net sales for this group increased to about $14,800,000 in fiscal 1996, up from about $2,100,000 in fiscal 1995 and $180,000 in fiscal 1994. See "Sales By Product Category." The Geopaper product line is expected to continue to grow as a percentage of sales as more customers accept the product line and as the use of personal computers continues to grow world wide, but there can be no assurances that such growth shall occur as expected by the Company. The lettering and signage group manufacturers and distributes nub-on and stick-on lettering, stencils, electronic moving message signs, American Disabilities Act signs in Braille, and other signage products. This product group represented 35% of sales in fiscal 1996, down from 79% of sales in the prior year, net sales for this group decreased to about $7,900,000 from about $8,100,000. The Company expects this product group to continue to decrease as a percentage of sales as Geopaper product growth is expected to be significantly faster than the sales growth of this category. Sales of lettering and signage products as an industry will continue to decline over time as the use of personal computers increases. The Company anticipates that it can offset this 29 expected decline by increasing its market share of this industry through its recent addition of 400 to 500 Wal-Mart stores as customers in fiscal 1996. The growth of existing customers featuring Geopaper and lettering products, such as Office Depot, OfficeMax and Business Depot (Staples, Inc.'s Canadian division), together adding over 200 new stores a year, should also contribute to an increase in market share and add additional lettering and signage sales each year. There can be no assurances, however, that such increase in market share shall occur. SALES BY PRODUCT CATEGORY The percentage of the Company's total sales attributable to each class of product offered by the Company for the last three years is set forth below. As a Percentage of Sales ------------------------ Fiscal Year Class of Product 1996 1995 ---------------- ---- ---- Designer stationeries and specialty papers 65% 21% Lettering, signage, stencil and graphic art products 35% 79% Stated in Sales Dollars (rounded) --------------------------------- Fiscal Year Class of Product 1996 1995 ---------------- ---- ---- Designer stationeries and specialty papers $14,800,000 $2,100,000 Lettering, signage, stencil and graphic art products 7,800,000 8,100,000 Business Concentrations Historically, Geographics, Inc. has sold a substantial portion of its products to a limited number of customers. Concentration of sales to the five largest customers is detailed below: Customer 1996 1995 -------- ---- ---- Office Depot 40% 31% OfficeMax, Inc. 24% 16% Martin Distribution, Inc.* 13% 12% United Stationers, Inc. 3% 6% Wal-Mart Stores, Inc. 3% 3% --- --- 83% 66% - ----------- 30 * Martin Distribution, the Company's distributor for Canada, is a related party to the Company as the result of a common director. Martin Distribution was replaced by Geographics (Marketing) Canada, Inc., effective April 1, 1996, as distributor of Geographics, Inc. products and will cease to be a customer of the Company. Management estimates that this change will have little or no impact on the future sales of the Company. The Company expects that sales to relatively few customers will continue to account for a high percentage of its net sales in the foreseeable future and believes that its financial results depend in significant part upon the success of these few customers. Although the composition of the group comprising the Company's largest customers may vary from period to period, the basis of a significant customer or any reduction in orders by any significant customer, including reductions due to market, economic or competitive conditions in the designer stationery or specialty papers industry, may have a material adverse effect on the Company's business, financial condition and results of operations. The Company's ability to increase its sales in the future will depend in part upon its ability to obtain orders from customers as well as the financial condition and success of its customers and the general economy, of which there can be no assurance. GROWTH STRATEGY Management is of the opinion that the North American market will continue to provide the Company with significant opportunities for growth. An overview of North American market growth opportunities are as follows: o Designer stationeries and value added papers are still in their infancy. Thousands of stores have yet to begin carrying these papers. The majority of mass merchandise chains, computer retailers and department stores do not carry designer stationery or value added paper. The office product superstore chains and office product catalogs are the primary concentrations of companies carrying these products. o The Company continues to diversity away from lettering and signage products. New product introductions in 1997 will include educational and motivational products that will be sold into existing markets and provide opportunities to introduce Geographics products into new markets. o Existing Geopaper product lines are continually reviewed to identify lines to be replaced with new and improved lines. In addition to 31 replacement and improvement of existing lines, new Geopaper lines are continually in development and in test markets. o The Company may from time to time acquire art or paper products that compliment the Geopaper line. The Company believes that foreign markets may provide additional growth opportunities. During July 1995, the Company established Geographic Marketing Canada, Inc. as a British Columbia corporation, in July 1995, to facilitate marketing and distribution of Company products in Canada. Geographics (Europe) Limited was incorporated in December 1995 as U.K. corporation, to initiate marketing and distribution of Company products in Europe. The Company also distributes its products through an exclusive distributor in Australia, with whom the Company entered into a letter of intent on July 3, 1996 to acquire its assets and assume its liabilities on terms that are currently being negotiated. The Company anticipates further expansion internationally, including Asia, which is a prominent target destination for Company products. International sales accounted for approximately 14% and 11% of total net sales in 1996 and 1995, respectively. International sales were concentrated in Canada and Australia and to a lessor degree, Mexico, Israel and Norway. The Company anticipates that international sales will increase as a percentage of total sales resulting from the Company's expansion plans in Europe and Asia. As a result, a significant portion of the Company's sales will be subject to certain risks, inducing unexpected changes in regulatory requirements, exchange rates, tariffs and other barriers, political and economic instability, difficulties in receivable collections, natural disasters, difficulties in staffing and managing foreign subsidiary and branch operations, and potentially adverse tax consequences. The Company is also subject to the risk associated with the imposition of legislation and regulations relating to the import or export of stationeries, specialty papers and office supply products. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions will be implemented by the United States, Canada, Australia or any other country upon the importation or exportation of the Company's products in the future. There can be no assurance that any of these factors or adoption of restrictive policies will not have a material adverse effect on the Company's business. Financial condition and results of operations. PURCHASING The Company purchases goods from approximately 700 vendors. One vendor, Unisource, accounted for a significant portion of the Company's total merchandise purchase during the year ended March 31, 1996. The Company purchases commodity paper and other related products from this broker/vendor that could be supplied by other sources. There can be no assurances that the relationship between the Company and this vendor will continue and the loss of the purchasing power the Company has established with this company would likely have a material adverse effect on the Company. The Company does not consider itself dependent on any single source for materials to manufacture its products. 32 MANAGEMENT INFORMATION SYSTEMS The Company is investing significant resources to install integrated software systems that provides daily information on sales, gross margins and inventory levels by warehouse and by stockkeeping unit. These systems will allow the Company to compare current performance against historical performance and the current year's budget. The systems have been designed to integrate all major aspects of the Company business, including sales, electronic data interchange (EDI), warehousing, manufacturing, distribution, purchasing, inventory control, merchandise planning and replenishment, as well as various financial systems. The Company is working with outside consultants in the design, installation and ongoing refinement of this system. The current systems used by the Company are primarily financial in nature, such as invoicing, accounting, general ledger and shipping. Manufacturing and inventory management systems are not presently integrated. The new system will be installed by module beginning in the summer of 1996 and is scheduled to be completed in the winter of fiscal 1997. The Company currently utilizes EDI to transact business with its largest customers. Presently 70% to 80% of customer orders are received by EDI. EDI is utilized as it is a highly efficient method of transmitting large numbers of orders in a paperless medium. The Company believes that the systems it has developed and are presently developing, have the ability to continue to improve customer service, operational efficiency, and management's ability to monitor critical performance factors. The systems have been designed to support the growth and expansion of the Company for the foreseeable future. COMPETITION The Company operates in a highly competitive environment. Competition can be separated into two areas in which the Company conducts business; designer stationery and lettering and signage. The Company's designer stationery operations' competes in most of its markets with Z-International, Inc., A.C.I. Action Communication, Inc. REDIFORM (a division Moore Corp. Ltd), First Base and DECAdry. The Company designer stationery products compete with competitor products for space in the office products superstores, office product stores, mass market stores, contract stationers, wholesalers, office product catalogs and paper direct mail catalogs. The Company's traditional lettering and signage operations compete with several companies that produce similar products (i.e., vinyl lettering, stencil, nub-on lettering), these competitors are: Visu-com, Charpak and Duroart. Competition with Company products compete with competitor products for space in 33 the office products superstores, office product stores, mass market stores, contract stationers, wholesalers, and office product catalogs. Certain of these competitors are larger, better capitalized, more established and have greater access to resources necessary to produce a competitive advantage. The Company believes that its product designs, product quality, merchandising programs, distribution channels, customer service and competitive pricing distinguishes the Company from its competitors. The development and manufacture of new designer stationeries and specialty papers are highly capital intensive. In order to remain competitive, the Company must continue 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 items. The Company expects that anticipated cash flows from operations, proceeds received from the May 1, 1996 private placement, capital leases, and funds available under a line of credit will be sufficient to meet the Company's cash requirements for the next twelve months. To the extent that such financial resources are insufficient to the fund the Company's activities, additional financing might be required. There can be no assurance that additional financing will be available on reasonable terms. TRADEMARKS AND COPYRIGHTS The Company has five (5) federally registered trademarks; (1) GEOPAPER, (2) GEOTYPE, (3) GEOTAPE, (4) GEOSTENCIL, and (5) SHIELD 'N' SEE. The Company has eight (8) applications pending with the U.S. Patent and Trademark Office for federal trademark registration for Geographics product lines. Additionally, the Company has filed six (6) trademark applications pending in Canada and Australia for Geographic product lines in those countries, which applications are currently pending. The Company has two (2) registered U.S. copyrights for the following products, "GEOCRUMPLED" and "GEOCLOUDS." Certain of the Company's proprietary manufacturing processes are protected by trade secrets. While the Company has made every effort to protect all of its intellectual property, to the extent such protections are inadequate, the Company could lose a part or all of these rights which, in time, could have a material adverse effect on the Company. FUTURE ACQUISITIONS The Company may, in the future, pursue acquisitions of complementary product lines, technologies or businesses. Future acquisitions by the Company 34 may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, which could materially adversely affect Company profitability. In addition, acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has no limited direct prior experience, and the potential loss of key employees of the acquired company. In the event that such acquisitions do occur, there can be no assurance as to the effect thereof on the Company's business or operating results. EMPLOYEES As of August 2, 1996, the Company had 271 employees of whom 267 were employed at its corporate headquarters in Blaine, Washington and 4 of whom were employed at the Company's facilities in the United Kingdom. The manufacturing warehousing and product distribution aspects of the business employs 217 employees, 37 employees work in administration and 17 employees work in various managerial positions. None of the Company's employees are subject to a collective bargaining agreement. Management believes that its relationship with its employees is good. FACILITIES The corporate office facility in Blaine, Washington has approximately 96,500 square feet of office, warehouse and manufacturing space. This facility was increased from 34,000 square ft. to 49,000 square ft. in December 1994. The facility was increased to its current size during fiscal year 1996, completing construction in late March 1996. Construction was financed by progress payments advanced from term bank loans described below. No construction in progress loan balances were outstanding at March 31, 1996. The Blaine facility is built on ten and one half acres of Company owned land, purchased for $114,563 in 1980. The buildings and real estate are collateral for four bank real estate loans totaling $2,341,057. These loans have interest rates ranging from 8.825% to 10% and maturities ranging from June 2004 to October 2010. The current portion of long-term bank debt associated with real estate as of March 31, 1996 is $175,643. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." OTHER WHATCOM COUNTY FACILITIES The Company leased a 19,050 square ft. facility in Bellingham, Washington, in October 1995. This facility is used in manufacturing, staging and shipping 35 functions. The lease payments are $7,620 per month, triple net, the lease expires in October 1998, and the Company has an option to renew for another three year term. In February 1996, the Company also leased a 10,000 square feet facility near Ferndale, Washington, on a six month lease of $3,950 per month triple net. This facility was used to meet material staging and warehouse requirements while the new Blaine facilities were being completed and organized. EUROPEAN FACILITIES Geographics (Europe) Limited leases 6,700 square feet of warehouse space near London, England. The lease requires quarterly lease payments of approximately $5,202, triple net, expiring on February 14, 2006. LEGAL PROCEEDINGS The Company is involved in legal proceedings arising in the ordinary course of business. The Company is not involved in any legal proceedings that it believes will result, individually or in the aggregate, in a material adverse effect upon its financial condition or results of operations. 36 MANAGEMENT The names and ages of the Company's directors and executive officers are as follows: Director and/or Officer Name Age Position Since - ---- --- -------- ----- Ronald S. Deans 63 Chairman of the Board 1973 President and Chief Executive Officer Mark G. Deans 31 Director, Executive 1994 Vice President - Marketing R. Scott Deans 34 Director, Executive 1995 Vice President - Operations Fidel Garcia Carrancedo 63 Director 1989 Moises Cosio 65 Director 1995 Alan D. Tuck Jr. 53 Director 1995 Robert S. Parker 50 Director 1996 Luis Alberto Morato 36 Director 1995 Terry A. Fife 38 Vice President, 1994 Chief Financial Officer and Secretary - ------------------ RONALD S. DEANS has served as the Chief Executive Officer, Chairman and President of the Company since he founded the Company in 1973. Mr. Deans has over thirty years experience in the graphics art and office products retailing industry. Prior to founding the Company, Mr. Deans served as sales manager of Letraset Canada Ltd. Mr. Deans is responsible for the strategic planning and business development of the Company. MARK G. DEANS joined the Company in May 1985, was promoted to its Vice President-marketing in April 1990 and to Executive Vice President-Marketing in September 1995. Mr. Deans has served as a director of the Company since November 37 1994. He is responsible for the development of new products, sales programs, and marketing programs including relationships with the Company's major customers. R. SCOTT DEANS joined the Company in February 1985 in the marketing and operations department. Mr. Deans was promoted to Vice President-Operations in January 1990 and to Executive Vice President-Operations in September 1995. Mr. Deans has served as a director of the Company since October 1995. He is responsible for all manufacturing operations of the Company. FIDEL GARCIA CARRANCEDO has been a director of the Company since August 1989. Mr. Carrancedo has served as Director General of Alimentos, S.A. de. C.V., a food products manufacturer and distributor in Mexico since 1972. MOISES COSIO has served on the Company's board of directors since January 1995. Mr. Cosio is an international financier residing in Mexico. Mr. Cosio also serves on the board of directors of Telefonos de Mexico, a publicly traded company. He is an international financier residing in Mexico and has investment interests in Grupo Carso, InverMexico, Mexican subsidiaries of Kimberly-Clark and John Deere. Mr. Cosio also owns luxury hotels in Ixtapa, Acapulco and Mexico City. ALAN D. TUCK, JR. has been a director of the Company since August 1995. Mr. Tuck is President of Greenway Pump, Inc., a privately held company performing research and development of hydraulic pumps since March 1992. Mr. Tuck is also an inventor and holds several U.S. patents. From July 1989 to March 1992, Mr. Tuck operated Fluid Systems Engineering, a privately held company performing research and development of hydraulic pumps. Mr. Tuck is a graduate of the United States Air Force Academy and a Former U.S. Air Force Officer. Mr. Tuck received his Juris Doctor from the University of California of Law in Davis, California. ROBERT S. PARKER has served on the Company's board of directors since April 1996. Mr. Parker has been the President of Sanford Corporation since December 1990. Sanford Corporation is a manufacturer of writing instruments and office supplies and is a subsidiary of Newell Co., a public company. LUIS ALBERTO MORATO has been a director of the Company since October 1995. From March 1993 to the present, Mr. Morato has been an independent civil engineering consultant. From June 1982 to March 1993, Mr. Morato was a budget manager with Bytsa De. C.V. TERRY A FIFE joined the Company as its Vice President-Finance, Chief Financial Officer and Secretary in October 1994. From May 1991 to October 1994, Mr. Fife served as Manager of Finance & Administration at Alf Christianson Seed Co. Prior 38 to jointing Alf Christianson, Mr. Fife served as Vice President - Finance & Administration at Dealer Information Systems Corporation. He also has worked for the Seattle office of the Certified Public Accounting firm of KPMG Peat Marwick. Mr. Fife is responsible for all accounting and finance functions of the Company. Mr. Ronald S. Deans, the Company's Chairman, President and CEO, is the father of Mark G. Deans, the Company's Executive Vice President-Marketing and a director of the Company and R. Scott Deans, the Company's Executive Vice President-Operations and a director of the Company. Fidel Garcia Carrancedo, a director of the Company, is the father-in-law of Luis Alberto Morato, also a director of the Company. The Company's officers are elected annually by the Company Board of Directors. The Company pays each non-employee director a fee of $500 per month, plus $750 for each Board of Directors meeting attended. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance of Board of Directors meetings. Directors of the Company who are also employees of the Company do not receive additional compensation for their services as directors. BOARD COMMITTEES AND MEETINGS During the fiscal year ended March 31, 1996, there were two (2) Meetings of the Company Board of Directors. Each Board member attended 75% or more of the aggregate of the Meetings of the Board of Directors and the Meetings of all Committees of the Board of Directors on which he served. The Audit Committee was established in April 1991. The members of the Audit Committee are Alan D. Tuck, Jr., Chairman, Ronald S. Deans and Fidel Garcia Carrancedo. Mr. Deans is the President, CEO and Chairman of the Company. The Compensation Committee makes recommendations with respect to compensation of senior officers and granting of stock options and stock awards. The Compensation Committee met one time during fiscal year 1996 and all members attended the meeting. The Company does not have a nomination committee. 39 EXECUTIVE COMPENSATION CASH COMPENSATION Total cash compensation paid to all executive officers as a group for services provided to the Company in all capacities during the year ended March 31, 1996 aggregated to $696,781. Set forth below is a summary compensation table. As indicated below, no officer of the Company or any of its subsidiaries, except for Messrs. Ronald S. Deans, Mark G. Deans and R. Scott Deans received total salary and bonus which exceeded $100,000 during the periods reflected.
SUMMARY COMPENSATION TABLE Other All Other Name and Annual LTIP Principal Compen Restricted Stock Options/ Compen- Position Period Salary Bonus sation* Award(s) SARs(#) Payouts sation - -------- ------ ------ ----- ------- -------- ------- ------- ------ Ronald S. Deans, 1996 $234,000 $87,629 -- -- 30,000 -- -- Chairman, Pres- 1995 $181,666 -- -- -- -- -- -- dent and CEO 1994 $180,000 -- -- -- 20,000 -- -- Mark G. Deans, 1996 $111,694 $28,184 -- -- 32,000 -- -- Director, Exec- 1995 $ 79,243 -- -- -- 30,000 -- -- tive Vice-Presi- 1994 $ 75,000 -- -- -- 14,000 -- -- dent Marketing R. Scott Deans, 1996 $111,694 $28,184 -- -- 32,000 -- -- Director, Exec- 1995 $ 79,243 -- -- -- 30,000 -- -- tive Vice-Presi- 1994 $ 75,000 -- -- -- 14,000 -- -- dent Marketing Terry Fife* 1996 $ 86,914 $ 8,482 -- -- -- -- -- Vice President- 1995 $ 31,911 -- -- -- 54,000 -- -- Finance CFO 1994 $ -- -- -- -- -- -- -- & Secretary - --------------
* Mr. Fife was hired in October 1994. The Company has no written employment agreements with any of its officers or directors as of the date of this Proxy, although the Company intends to establish written agreements with its officers and directors in the future. 40 OPTIONS/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS) Number of Percent of Securities Total Options/ Underlying SARs Granted Exercise or Options/SARs to Employees Base Price Expiration Name Granted (#) In Fiscal Year ($/sh) (1) Date - ---- ----------- -------------- ---------- ---- Ronald S. Dean 6.0% 30,000 Cdn $2.30 9/18/00 Mark G. Deans 6.5% 12,000 Cdn $2.00 4/25/00 20,000 Cdn $4.15 10/10/00 R. Scott Deans 6.5% 12,000 Cdn $2.00 4/25/00 20,000 Cdn $4.15 10/10/00 - -------------------- (1) The exchange rate on August 7, 1996 was US$.7291 = Cdn $1.00. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Value of Number of Unexercised Option/SARs In-the-Money Option/SARs Options/SARs Shares at FY-End (#) at FY-End Acquired on Value Exercisable Exercisable/ Name Exercise (#) Realized Unexercisable Unexercisable - ---- ------------ -------- ------------- ------------- Ronald S. Deans 90,000 $373,543 0/30,000 $0/92,347 Mark G. Deans 86,000 $353,253 0/20,000 $0/34,671 R. Scott Deans 86,000 $353,253 0/20,000 $0/34,671 Terry A. Fife 54,000 $207,127 0/ $0/ As of March 31, 1996, the Company had reserved 220,000 shares of Common Stock for issuance to key employees, officers and directors. Options to purchase the Company's Common Stock are granted at a price equal to the market price of the stock at the date of grant, and are exercisable upon issuance and regulatory approval. All options expire no more than five years after the date of grant. Option prices per share are expressed in Canadian dollars. The rate of exchange as of August 7, 1996 was US $.7291 = Cdn. $1.00. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN On July 8, 1996, the Board of Directors adopted, subject to the approval by the shareholders, a stock option plan called the "Geographics, Inc. 1996 Stock Option Plan." At the Company's 1996 Annual Meeting of Shareholders to be held on August 28, 1996, Shareholders will be asked at the meeting to vote on a proposal to adopt the Plan. The following summary describes features of the Plan. 41 The Board of Directors have determined that the Plan will work to increase the employees', consultants' and non-employee directors' proprietary interest in the Company and to align more closely their interests with the interests of the Company's shareholders. The Plan will also maintain the Company's ability to attract and retain the services of experienced and highly qualified employees and non-employee directors. The Board of Directors believes that the Plan is in the Company's best interests and therefore recommends adoption of the Plan on essentially the terms and conditions as are set forth below. Under the Plan, the Company has reserved an aggregate of 1,000,000 shares of Common Stock for issuance pursuant to options granted under the Plan ("Plan Options"). The Board of Directors or Compensation Committee of the Board of Directors (the "Committee") of the Company administers the Plan including, without limitation, the selection of the persons who will be granted Plan Options under the Plan, the type of Plan Options to be granted, the number of shares subject to each Plan Option and the Plan Option price. Plan Options granted under the Plan may either be options qualifying as incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as amended, or options that do not so qualify ("Non-Qualified Options"). In addition, the Plan also allows for the inclusion of a reload option provision ("Reload Option"), which permits an eligible person to pay the exercise price of the Plan Option with shares of Common Stock owned by the eligible person and receive a new Plan Option to purchase shares of Common Stock equal in number to the tendered shares. Any Incentive Option granted under the Plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of such grant, but the exercise price of any Incentive Option granted to an eligible employee owning more than 10% of the Company's Common Stock must be at least 10% of such fair market value as determined on the date of the grant. The term of each Plan Option and the manner in which it may be exercised is determined by the Board of the Directors or the Committee, provided that no Plan Option may be exercisable more than 10 years after the date of its grant and, in the case of an Incentive Option granted to an eligible employee owning more than 10% of the Company's Common Stock, no more than five years after the date of the grant. The exercise price of Non-Qualified Options shall be determined by the Board of Directors or the Committee. The per share purchase price of shares subject to Plan Options granted under the Plan may be adjusted in the event of certain changes in the Company's capitalization, but any such adjustment shall not change the total purchase price payable upon the exercise in full of Plan Options granted under the Plan. 42 Officers, directors, key employees and consultants of the Company and its subsidiaries are eligible to receive Non-Qualified Options under the Plan. Only employees of the Company (or by any subsidiary thereof) are eligible to receive Incentive Options. All Plan Options are nonassignable and nontransferable, except by will or by the laws of descent and distribution, and during the lifetime of the optionee, may be exercised only by such optionee. If an optionee's employment is terminated for any reason, other than his death or disability or termination for cause, or if an optionee is not an employee of the Company but is a member of the Company's Board of Directors and his service as a director is terminated for any reason, other than death or disability, the Plan Option granted to him shall lapse to the extent unexercised on the earlier of the expiration date or 30 days following the date of termination. If the optionee dies during the term of his employment, the Plan Option granted to him shall lapse to the extent unexercised on the earlier of the expiration date of the Plan Option or the date one year following the date of the optionee's death. If the optionee is permanently and totally disabled within the meaning of Section 22(c)(3) of the Internal Revenue Code of 1986, the Plan Option granted to him lapses to the extent unexercised on the earlier of the expiration date of the option or one year following the date of such disability. The Board of Directors or Committee may amend, suspend or terminate the Plan at any time, except that no amendment shall be made which (i) increases the total number of shares subject to the Plan or changes the minimum purchase price therefor (except in either case in the event of adjustments due to changes in the Company's capitalization), (ii) affects outstanding Plan Options or any exercise right thereunder, (iii) extends the term of any Plan Option beyond ten years, or (iv) extends the termination date of the Plan. Unless the Plan shall theretofore have been suspended or terminated by the Board of Directors, the Plan shall terminate on March 31, 2006. Any such termination of the Plan shall not affect the validity of any Plan Options previously granted thereunder. The following discussion is based on federal income tax laws and regulations in effect on March 31, 1996. It does not purport to be a complete description of the federal income tax consequences of the Plan, nor does it describe the consequences of state, local or foreign tax laws which may be applicable. Accordingly, any person receiving a grant under the Plan should consult with his own tax adviser. An employee granted an Incentive Stock Option does not recognize taxable income either at the date of grant or at the date of its timely exercise. However, the excess of the fair market value of Common Stock received upon exercise of the Incentive Stock Option over the Option exercise price is an item 43 of adjustment under Section 56(b)(3) of the Code and may be subject to the alternative minimum tax imposed by Section 55 of the Code. Upon disposition of stock acquired on exercise of an Incentive Stock Option, long-term capital gain or loss is recognized in an amount equal to the difference between the sales price and the Incentive Stock Option exercise price, provided that the option holder has not disposed of the stock within two years from the date of grant and within one year from the date of exercise. If the Incentive Stock Option holder disposes of the acquired stock (including the transfer of acquired stock in payment of the exercise price of an Incentive Stock Option) without complying with both of these holding period requirements ("Disqualifying Disposition"), the option holder will recognize ordinary income at the time of such Disqualifying Disposition to the extent of the difference between the exercise price and the lesser of the fair market value of the stock on the date the Incentive Stock Option is exercised (the value six months after the date of exercise may govern in the case of an employee whose sale of stock at a profit could subject him to suit under Section 16(b) of the Securities Exchange Act of 1934) or the amount realized on such Disqualifying Disposition. Any remaining gain or loss is treated as a short-term or long-term capital gain or loss, depending on how long the shares are held. In the event of a Disqualifying Disposition, the Incentive Stock Option tax preference described above may not apply (although, where the Disqualifying Disposition occurs subsequent to the year the Incentive Stock Option is exercised, it may be necessary for the employee to amend his return to eliminate the tax preference item previously reported). The Company and its subsidiary are not entitled to a tax deduction upon either exercise of an Incentive Stock Option or disposition of stock acquired pursuant to such an exercise, except to the extent that the Option holder recognized ordinary income in a Disqualifying Disposition. In respect to the holder of Non-Qualified Options, the option holder does not recognize taxable income on the date of the grant of the Non-Qualified Option, but recognizes ordinary income generally at the date of exercise in the amount of the difference between the option exercise price and the fair market value of the Common Stock on the date of exercise. However, if the holder of Non-Qualified Options is subject to the restrictions on resale of Common Stock under Section 16 of the Securities Exchange Act of 1934, such person generally recognizes ordinary income at the end of the six-month period following the date of exercise in the amount of the difference between the option exercise price and the fair market value of the Common Stock at the end of the six-month period. Nevertheless, such holder may elect within 30 days after the date of exercise to recognize ordinary income as of the date of exercise. The amount of ordinary income recognized by the option holder is deductible by the Company in the year that income is recognized. If the Plan is approved by the shareholders, the Company will have granted no Plan Options. 44 CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS Debt and Equity Instruments Issued to Officers and Directors During fiscal year 1996, the Company concluded several transactions involving officers and directors of the Company. These transactions included the issuance of convertible debentures, the conversion of debentures into common shares and private placement of common shares. On September 15, 1995, Ronald S. Deans, the Company's Chairman of the Board, President and Chief Executive Officer and Fidel Carrancedo, a director of the Company each converted debentures in the amount of US$100,000 into 109.589 common shares (for an aggregate face amount of US$200,000 into 219,178 common shares). The debentures were convertible at each holder's option into common $hares of the Company at Cdn.$1.25 per share, to a maximum of 219,178 common shares. There is no remaining balance of these debentures outstanding as of March 31, 1996. On September 26, 1995, the Company issued US$996,000 of convertible debentures payable to certain officers and directors of the Company including Ronald S. Deans, the Company's Chairman of the Board, President and Chief Executive Officer (whose principal amount of debenture equaled $527,881.86, convertible into 145,344 common shares), Fidel Carrancedo, a director of the Company (whose principal amount of debenture equaled $328,680.40, convertible into 90,497 common shares, Mark G. Deans, a director and Executive Vice President-Marketing of the Company (whose principal amount of debenture equaled $69,718.87, convertible into 19,196), and R. Scott Deans, a director and Executive Vice President-Operations (whose principal amount of debenture equaled $69,718.87, convertible into 19,196). The debentures were convertible at the holders option into common shares of the Company at Cdn$4.45 per share, to a maximum 274,233 common shares. On December 22, 1995, these debentures were converted into 273,233 common shares, and are no longer outstanding. On January 23, 1996, the Company completed a private placement of 500,000 common shares certain officers and directors of the Company including Ronald S. Deans (136,000 shares, of which 43,000 shares were purchased by Mr. Dean's wife, Ann), Fidel Carrancedo (200,000 shares), Mark G. Deans (65,000 shares), and R. Scott Deans (79,000 shares). Each share was purchased at a price of Cdn.$5.75. Total cash proceeds received by the Company were US$2,117,092 and the net cash proceeds to the Company were US$1,906,100. At March 31, 1996, Ronald S. Deans ($1,212,706) and Fidel Carrancedo ($52,005) advanced an aggregate of $1,264,711 in the form of uncollateralized notes payable. The notes are payable on demand and are classified as current 45 liabilities of the Company. Interest on these notes are payable monthly at a rate of prime plus 1%. The total interest costs associated with these notes and debentures was approximately $60,000 during the year ended March 31, 1996. Martin Distribution Martin Distribution Inc. ("Martin") has acted as the national distributor of the Company's products in Canada since September 1990. Martin is owned by the estate of Martin Carrancedo, a former director of the Company. Martin imports the Company's products into Canada, facilitates customs clearing and distributes the Company's products to customers in Canada. All sales of the Company's products within Canada are sold through Martin. Sales to Martin amounted to $2,854,935 and $1,056,750 during the years ended March 31, 1996 and 1995 respectively. Trade receivables due from Martin amounted to $899,422 and $338,875 at March 31, 1996 and 1996, respectively. Martin sold product valued at $118,659 and $261,765 during the years ended March 31, 1996 and 1995, respectively to International Geographics of Ontario ("IGO"). IGO is a partnership which is 70% owned by the Company and 30% owned by a marketing agent of the Company. IGO was dissolved during fiscal 1996 and its functions will be assumed by Geographics Marketing Canada Inc., a wholly owned subsidiary of the Company. Mark G. Deans, a director and executive officer of the Company serves as a director of Martin. Fidel Garcia Carrancedo, a current director of the Company, is the brother of the late Martin Carrancedo. There is no relationship, however, between Fidel Garcia Carrancedo and Martin. Effective April 1, 1996, the Company will replace Martin as its Canadian national distributor with Geographics Marketing Canada Inc., a wholly owned subsidiary of the Company. The Company does not expect the substitution of Geographics Marketing Canada Inc. in place of Martin to have any material effect on the sales or profits of the Company. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Company's articles of incorporation contains the broadest form of indemnification for its officers and directors and former officers and directors permitted under Wyoming law except that such indemnification does not apply to (a) acts or omissions of the director or officer finally adjudged to be intentional misconduct or a knowing violation of law; (b) conduct of the director or officer finally adjudged to be gross negligence; or (c) any transaction with respect to which it was finally adjudged that such director and officer personally received a benefit in money, property, or services to which the director was not legally entitled. The articles of incorporation further 46 provide that the Company shall advance expenses for such persons pursuant to the terms set forth in the Company's bylaws, or in a separate directors resolution or contract. Additionally, Section 17-16-856 of the Wyoming Business Corporation Act provides that unless the articles of incorporation provide otherwise, a current or former officer of a corporation who is not a director is entitled to mandatory indemnification and is entitled to apply for court ordered indemnification pursuant to Wyoming corporate law. Additionally, the corporation may indemnify and advance expenses to (i) a current or former officer, employee or agent of a corporation who is not a director to the same extent as to a director, and (ii) a current or former officer, employee or agent who is not a director to the extent consistent with public policy, that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors or contract. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as express in the act and is therefore unenforceable. LIMITATION OF DIRECTOR LIABILITY The Wyoming Business Corporation Act and the Company's articles of incorporation limit the liability of directors of the Company for damages for conduct as a director except for (a) acts or omissions involving intentional misconduct by the director or knowing violation of law by the director; (b) conduct for unlawful payments of dividends or unlawful stock purchases or redemptions as provided in Section 17-16-833 of the Wyoming Business Corporation Act; (c) any transaction from which the director will receive a benefit in money, property, or services to which the director is not legally entitled; or (d) conduct deemed to be gross negligence. The limitation of liability applies only to monetary damages and, presumably, would not affect the availability of equitable remedies such as injunction or rescission. The Company's articles of incorporation do provide that if the Wyoming Business Corporation Act is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Wyoming Business Corporation Act as so amended. Any repeal or modification of this provision by the shareholders of the Company shall not adversely affect any right protection of a director of the Company with respect to any acts or omissions of such director occurring prior to such repeal or modification. 47 Section 17-16-834 of the Wyoming Business Corporation Act further provides that the articles of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director subject to the following: (i) the provision shall not eliminate or limiting the liability of a director (A) for any breach of the director's duty of loyalty to the corporation or its shareholders, (B) for acts or omissions not in good faith or which involved intentional misconduct a knowing violation of law, (C) for unlawful distributions, or (D) for any transaction from which the director derived an improper personal benefit; and (ii) the provision shall not eliminate or limit he liability of a director for any act or omission occurring prior to May 22, 1987, if applicable. The Company currently has not adopted this provision of the Wyoming Business Corporation Act. PRINCIPAL STOCKHOLDERS The following table sets forth the Common Stock ownership information, based on 9,382,877 shares of Common Stock outstanding as of July 31, 1996, information with respect to the beneficial ownership of the Company's Common Stock by (i) each person who is known by the Company to own beneficially more than 5% of its Common Stock, (ii) each director and nominee for director, (iii) each Named Executive Officer (as defined herein), and (iv) all directors and executive officers as a group: Amount and Nature of Percentage Name and Address Beneficial of outstanding of Beneficial Owner(1) Ownership (2) Shares Owned(2) - ---------------------- ------------- --------------- Ronald S. Deans(3) 716,907 7.6% Mark G. Deans(4) 442,279 4.7% R. Scott Deans(5) 444,518 4.7% Fidel Garcia Carrancedo(6) 1,426,968 15.2% Moises Cosio(7) 169,600 1.8% Alan D. Tuck, Jr.(8) 150,512 1.6% Robert Parker(9) 30,000 * Luis Alberto Morato(10) 20,000 * Terry A. Fife(11) 47,789 * All directors and executive officers as a group (nine persons) 3,448,573 36.1% Platinum Partners, L.P. Mr. Calvin Hori, Hori Capital Management, Inc.(12) 660,000 7.0% - -------------------- * Less than 1%. 48 (1) Unless otherwise indicated, the address of each of the listed beneficial owners identified is 1555 Odell Road, Blaine, Washington 98231. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all the shares of Common Stock beneficially owned by them. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this Registration Statement upon the exercise of warrants or options. Each beneficial owner's percentage ownership is determined by assuming that warrants or options that are held by such person (but not those held by any other person) and that are exercisable within 60 days from the date of this Proxy Statement have been exercised. (3) Mr. Ronald Deans is Chairman of the Board, President, and Chief Executive Officer of the Company. Includes 43,000 shares held in the name of his wife, Ann Deans, and 28,775 shares held by the Geographics, Inc. 401(K) Plan for which Mr. Deans has voting control. The beneficially owned shares for Mr. Deans also includes 30,000 shares of Common Stock issuable upon exercise of certain stock options by Mr. Deans. His options are exercisable at Cdn$2.30 and expire on August 18, 2000. The shares beneficially owned by Mr. Deans also includes 9,756 Shares and 9,756 Warrants purchased by Mr. Deans in the May 1996 Offering. (4) Mr. Mark Deans is a Director and Executive Vice President-Marketing of the Company. Includes 20,000 shares of Common Stock issuable upon exercise of certain stock options by Mr. Deans. His options are exercisable at $4.15 Cdn. and expire October 10, 2000. (5) Mr. Scott Deans is a Director and Executive Vice President-Operations of the Company. Includes 20,000 shares of Common Stock issuable upon exercise of certain stock options by Mr. Deans. His options are exercisable at $4.15 Cdn. and expire October 10, 2000. (6) Mr. Carrancedo is a Director of the Company. Includes 30,000 shares of Common Stock issuable upon exercise of certain stock options by Mr. Carrancedo. His options are exercisable at $2.30 Cdn. and expire August 18, 2000. (7) Mr. Cosio is a Director of the Company. (8) Mr. Tuck is a Director of the Company. Includes 30,000 shares of Common Stock issuable upon exercise of certain stock options by Mr. Tuck. His options are exercisable at $2.30 Cdn. and expire August 18, 2000. The 49 shares beneficially owned by Mr. Deans also includes 9,756 Shares and 9,756 Warrants purchased by Mr. Deans in the May 1996 Offering. (9) Mr. Parker is a Director of the Company. (10) Mr. Morato is a Director of the Company. Includes 20,000 shares of Common Stock issuable upon exercise of certain stock options by Mr. Morato. His options are exercisable at $4.15 Cdn. and expire October 10, 2000. (11) Mr. Fife is Vice President-Finance, Chief Financial Officer and Secretary of the Company. Includes 2,089 shares owned by the Geographics, Inc. 401(k) Plan of which Mr. Fife has voting control. (12) The address for each of these persons is One Liberty Square, Fourth Floor, Boston, MA 02109. The information is based solely upon a Schedule 13D dated June 27, 1996. Of the 660,000 shares shown as beneficially owned by Platinum Partners, Mr. Calvin Hori, and Hori Capital Management, Inc., Mr. Hori has sole voting power and sole dispositive power of such shares. SALES BY SELLING SECURITY HOLDERS The following table sets forth the name of each Selling Security Holder, the amount of shares of Common Stock held directly or indirectly by each holder on July 31, 1996, the amount of shares of Common Stock to be offered by each such holder, the amount of Common Stock to be owned by each such holder following sale of such shares of Common Stock and the percentage of shares of Common Stock to be owned by each such holder following completion of such offering. On July 31, 1996, there were 9,382,877 shares of Common Stock of the Company outstanding.
Percentage of Number Number Warrants to Shares/Warrants of Shares of be Owned to be Owned Name of Selling Shares to be Warrants After After Security Holder Owned Offered Owned Offering Offering Lagunitas Partners, L.P. 585,366 585,366 292,683 0/0 * Tallac Corporation 390,244 390,244 195,122 0/0 * Longwood Partners, L.P. 195,122 195,122 97,561 0/0 * Kane & Co. 156,098 156,098 78,049 0/0 * Gruber & McBaine International 126,830 126,830 63,415 0/0 * One & Company 117,074 117,074 58,537 0/0 * Grandview Partners, L.P. 117,074 117,074 58,537 0/0 * Hare & Co. 117,074 117,074 58,537 0/0 * David Honigman 117,074 117,074 58,537 0/0 * Culverwell & Co., Inc.(2) 117,074 117,074 58,537 0/0 * Proactive Partners, L.P. 97,562 97,562 48,781 0/0 * Jon Gruber & Linda Gruber 55,536 55,536 29,268 0/0 * Gales & Company 55,536 55,536 29,268 0/0 * James Culverwell(2) 39,510 39,510 19,755 0/0 *
50
Van Kasper & Co., Inc.(2) 39,024 39,024 19,512 0/0 * Fordyce & Company 39,024 39,024 19,512 0/0 * Savings & Investment Trust 39,024 39,024 19,512 0/0 * Fiducie Desjardins A/C 900595-0-59 (Ville de Montreal) 39,024 39,024 19,512 0/0 * Charles Nichols, II and Patricia M. Nichols, JTWROS 39,024 39,024 19,512 0/0 * J. Patterson McBaine 29,268 29,268 14,634 0/0 * Winslow, Evans & Crocker(2) 23,414 23,414 11,707 0/0 * Edward G. Culverwell(2) 20,000 20,000 10,000 0/0 * Denis Culverwell(2) 20,000 20,000 10,000 0/0 * Saturn & Company 19,512 19,512 9,756 0/0 * Lyda Hunt - Herbert Trusts - Bruce W. Hunt 19,512 19,512 9,756 0/0 * Lyda Hunt - Herbert Trusts - David S. Hunt 19,512 19,512 9,756 0/0 * Lyda Hunt - Herbert Trusts - Lyda Bunker Hunt 19,512 19,512 9,756 0/0 * Lyda Hunt - Herbert Trusts - Barbara Ann Hunt 19,512 19,512 9,756 0/0 * Lyda Hunt - Herbert Trusts - D.H. Hunt 19,512 19,512 9,756 0/0 * William Herbert Hunt Trust Estate 19,512 19,512 9,756 0/0 * Ronald S. Deans(3) 716,907 19,512 9,756 697,396/0 7.4% Alan Tuck, Jr.(3) 150,512 19,512 9,756 131,000/0 1.4% Fechtor-Detwiler & Co., Inc.(2) 11,708 11,708 5,854 0/0 * Fiducie Desjardins A/C 900726-1-42 (Ville de Jonquiere) 9.756 9,756 4,878 0/0 * Fiducie Desjardins A/C 900237-3-42 (Ville de Jonquiere) 9.756 9,756 4,878 0/0 * Jonathan Piper 9,756 9,756 4,878 0/0 * David Clark Rev Trust Walter Burrage TTEE 9,756 9,756 4,878 0/0 * TOTAL 3,657,661 2,790,242 1,395,121 828,395 - ------------------------
* Denotes less than 1% ownership. (1) Includes the shares of Common Stock underlying the Warrants held by each of the Selling Security Holders. (2) The shares of Common Stock and Warrants to be offered by these Selling Shareholders were issued to them as result of each of them acting in the capacity of placement agents in connection with the Company's private unit offering completed in May 1996 described below. (3) See "Management." In May, 1996, the Company completed a $6,500,000 private placement unit offering (the May 1996 Offering) to accredited investors only at $100,000 a unit (each unit consisting of 19,512 shares of Common Stock and warrants to purchase 19,512 shares of Common Stock on or prior to June 1, 1999 at an exercise price 51 of $6.50), resulting in the issuance of 1,268,280 shares of its Common Stock and warrants to purchase 1,268,280 shares of Common Stock at $6.50 per share. All of the shares of Common Stock included in the private offering and underlying the aforementioned Warrants are included in the shares of Common Stock listed above to be sold by the Selling Security Holders. An additional 1,268,280 units were issued to See previous discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and ["Management - Certain Relationships and Related Transactions."] The Company has undertaken to maintain the Registration Statement current for a period of not less than nine months from the effective date of the Registration Statement of which this Prospectus is a part in order that sales of shares of Common Stock may be made by the Selling Security Holders. The Company has agreed to pay for all costs and expenses incident to the issuance, offer, sale and delivery of the Common Stock, including, but not limited to, all expenses and fees of preparing, filing and printing the Registration Statement and Prospectus and related exhibits, amendments and supplements thereto and mailing of such items. The Company will not pay selling commissions and expenses associated with any such sales by the Selling Security Holders. The Company has agreed to indemnify the Selling Security Holders against civil liabilities including liabilities under the Securities Act of 1933. The Selling Security Holders have advised the Company that sales of shares of their Common Stock may be made from time to time by or for the accounts of the Selling Security Holders in one or more transactions in the over-the-counter market, in negotiated transactions or otherwise, at prices related to the prevailing market prices or at negotiated prices. DESCRIPTION OF SECURITIES The Company is currently authorized to issue up to 10,000,000 shares of Common Stock, no par value per share, of which 9,382,877 shares were outstanding as of July 31, 1996. COMMON STOCK Subject to the dividend rights of the holders of Preferred Stock, holders of shares of Common Stock are entitled to share, on a ratable basis, such dividends as may be declared by the Board of Directors out of funds, legally available therefor. Upon liquidation, dissolution or winding up of the Company, after payment to creditors and holders of Preferred Stock that may be outstanding, the assets of the Company will be divided pro rata on a per share basis among the holders of the Common Stock. Each share of Common Stock entitles the holders thereof to one vote. Holders of Common Stock do not have cumulative voting rights, which means that 52 the holders of more than 50% of the shares voting for the election of Directors can elect all of the Directors if they choose to do so, and, in such event, the holders of the remaining shares will not be able to elect any Directors. The By-Laws of the Company require that only a majority of the issued and outstanding shares of Common Stock of the Company need be represented to constitute a quorum and to transact business at a stockholders' meeting. The Common Stock has no preemptive, subscription or conversion rights and is not redeemable by the Company. COMMON STOCK PURCHASE WARRANTS In connection with the completion of the Company's $6,500,000 private placement offering in May 1996, the Company issued an aggregate of 1,268,293 Common Stock Purchase Warrants to purchase 1,268,293 shares of Common Stock. Additionally, the Company also issued an aggregate of 126,828 Units to the Company's placement agents which include an aggregate of 126,828 warrants to purchase 126,828 shares of Common Stock. These warrants are exercisable at $6.50 per share on or prior to June 30, 1999. Commencing December 1, 1996, the Company may redeem the Warrants at a price of $.05 per underlying share provided the closing price of the Company's Common stock is in excess of $10.00 per shares for 10 consecutive trading day period immediately prior to the notice provided by the Company. The shares of Common Stock underlying these warrants are included in the Registration Statement of which this Prospectus is a part. Warrant Holders do not have any voting or any other rights as stockholders of the Company. The Company's outstanding warrants provide for adjustment of the exercise price and for a change in the number of shares issuable upon exercise to protect holders against dilution in the event of a stock dividend, stock split, combination ar reclassification of the Common Stock. The Warrants may be exercised upon surrender of the Warrant Certificate on or prior to the expiration date (or earlier redemption date, as applicable) of such Warrant at the offices of the Company's transfer agent, with the form of "Election to Purchase" completed and executed as indicated, accompanied by payment of the full exercise price (by certified or bank check, payable to the order of the Company), for the number of shares with respect to which the Warrant is being exercised. Shares of Common Stock issued upon exercise of Warrants and paid for in accordance with the terms of the Warrants. OPTIONS Currently, there are 211,000 shares underlying options to purchase up to 211,000 shares of Common Stock at prices ranging from Cdn$1.00 to Cdn$4.15 from August 10, 1996 to October 10, 2000. The exchange rate at August 7, 1996 was $.7291 equals Cdn$1.00. 53 Option Holders do not have any voting or any other rights as stockholders of the Company. The Company's outstanding options provide for adjustment of the exercise price and for a change in the number of shares issuable upon exercise to protect holders against dilution in the event of a stock dividend, stock split, combination ar reclassification of the Common Stock. The options may be exercised upon surrender of an option certificate on or prior to the expiration date of such option at the offices of the Company's transfer agent, with the form of "Election to Purchase" completed and executed as indicated, accompanied by payment of the full exercise price (by certified or bank check, payable to the order of the Company), for the number of shares with respect to which the option is being exercised. Shares of Common Stock issued upon exercise of options and paid for in accordance with the terms of the options. OVER-THE-COUNTER MARKET COMMON STOCK Nasdaq National Market System (NMS) The Company's Common Stock is traded on the Nasdaq NMS under the symbol "GGIT." If for any reason the Common Stock does not continue to meet the requirements for inclusion on the Nasdaq System, then in such case the Company's Common stock would be expected to be traded in the over-the-counter markets through the "pink sheets" or the NASD's OTC Bulletin Board. In that effect, the Company's Common Stock would be covered by a Commission rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers in this offering to sell their shares in the secondary market. The ability of the Company to secure a symbol on the Nasdaq System does not imply that a meaningful trading market in its Common Stock will ever develop. WARRANTS OTC Bulletin Board Currently, there is no public market for Warrants being offered hereby. The Company intends to apply for inclusion of its Common Stock on the Nasdaq System 54 at such time as the price of the Company's Common Stock satisfies Nasdaq minimum bid requirements. If for any reason the Warrants are not accepted for inclusion on the Nasdaq System, then in such case the Warrants would be traded in the over-the-counter markets through the "pink sheets" or the NASD's OTC Bulletin Board. In the event the Warrants were not included in the Nasdaq System, the Company's Warrants would be covered by a Commission rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers in this offering to sell their shares in the secondary market. The ability of the Company to secure a symbol on the Nasdaq System does not imply that a meaningful trading market in its Common Stock will ever develop. TRANSFER AGENT The Transfer Agent for the shares of Common Stock is Montreal Trust Corporate Services Division, Montreal Trust Centre, 410 Burrard Street, Vancouver B.C. Canada V6C 3B9. CERTAIN MARKET INFORMATION As of August 7, 1996, 9,382,877 shares of the Company's Common Stock are outstanding of which 1,446,123 shares will be "restricted securities," as such term is defined under the Securities Act of 1933, exclusive of the Common Stock to be sold pursuant to the Registration Statement of which this Prospectus is a part. In general, Rule 144 (as presently in effect), promulgated under the Act, permits a stockholder of the Company who has beneficially owned restricted shares of Common Stock for at least two years to sell without registration, within any three-month period, such number of shares not exceeding the greater of 1% of the then outstanding shares of Common Stock or, if the Common Stock is quoted on Nasdaq, the average weekly trading volume over a defined period of time, assuming compliance by the Company with certain reporting requirements of Rule 144. Furthermore, if the restricted shares of Common Stock are held for at least three years by a person not affiliated with the Company (in general, a person who is not an executive officer, director or principal stockholder of the Company during the three-month period prior to resale), such restricted shares can be sold without any volume limitation. Any sales of shares by stockholders pursuant to Rule 144 may have a depressive effect on the price of the Company's Common Stock. 55 LEGAL MATTERS Legal matters in connection with the securities being offered hereby will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas Boulevard, Suite 1900, Fort Lauderdale, Florida 33301. EXPERTS The financial statements of the Company, as of March 31, 1996 and 1995, for the years then ended included in this Prospectus have been so included in reliance on the report of Moss Adams LLP, independent accountants, as set forth in their report thereon appearing elsewhere herein, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Commission, 450 Fifth Street, Washington, D.C., a Registration Statement on Form SB-2 under the Securities Act of 1933 with respect to the securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto. For further information about the Company and the securities offered hereby, reference is made to the Registration Statement and to the exhibits filed as a part thereof. The statements contained in this Prospectus as to the contents of any contract or other document identified as exhibits in this Prospectus are not necessarily complete, and in each instance, reference is made to a copy of such contract or document filed as an exhibit to the Registration Statement. The Registration Statement, including exhibits, may be inspected without charge at the principal reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may be obtained upon payment of fees prescribed by the Commission from the Public Reference Section of the Commission at its principal office in Washington, D.C. set forth above. The Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of the Web site is (http://www.sec.gov). 56 INDEPENDENT AUDITOR'S REPORT To the Stockholders Geographics, Inc. We have audited the accompanying consolidated balance sheets of Geographics, Inc. as of March 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Geographics, Inc. as of March 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/MOSS ADAMS LLP Bellingham, Washington May 31, 1996 F-1 GEOGRAPHICS, INC. CONSOLIDATED BALANCE SHEET March 31, 1996 and 1995 ASSETS
1996 1995 ----------- ------------- CURRENT ASSETS Cash 50,028 $ 15,348 Accounts Receivable Trade receivables, net of allowance for doubtful accounts of $146,926 in 1996 and $115,000 in 1995 4,974,156 2,412,324 Related party receivables 899,422 338,975 Other receivables 62,572 59,215 Inventory 9,139,273 2,901,155 Deferred income taxes 970,000 69,000 Prepaid expenses and equipment deposits 793,409 331,803 ------------ ------------ Total current assets 16,888,860 6,127,820 PROPERTY, PLANT AND EQUIPMENT, net 7,286,694 3,792,192 DEFERRED INCOME TAXES 192,000 460,000 INVESTMENTS IN PARTNERSHIPS (34,484) (91,270) OTHER ASSETS 404,971 166,163 GOODWILL, net -- 159,768 ------------ ------------ TOTAL ASSETS $ 24,738,041 $ 10,614,673 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Note payable to bank $ 5,322,939 $ 2,183,476 Accounts payable 2,634,598 1,318,601 Accrued liabilities 1,033,905 409,149 Income tax payable 145,278 8,633 Notes payable to officers and directors 1,264,711 -- Current portion of long-term debt 656,398 371,525 ------------ ------------ Total current liabilities 11,057,829 4,291,384 LONG-TERM DEBT 3,690,360 3,319,948 DEBENTURES AND NOTES PAYABLE TO OFFICERS AND DIRECTORS -- 200,000 ------------ ------------ Total liabilities 14,748,189 7,811,332 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock - 10,000,000 authorized, 8,004,584 and 5,176,213 issued and outstanding in 1996 and 1995, respectively 9,620,068 3,665,581 Retained earnings (accumulated deficit) 369,784 (862,240) ------------ ------------ Total stockholders' equity 9,989,852 2,803,341 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,738,041 $ 10,614,673 ============ ============ See accompanying notes to these consolidated financial statements.
F-2 GEOGRAPHICS, INC. CONSOLIDATED STATEMENT OF INCOME Years Ended March 31, 1996 and 1995 1996 1995 ------------ ------------ SALES Retail sales $ 19,758,700 $ 9,129,886 Related party sales 2,854,935 1,056,250 ------------ ------------ Total sales 22,613,635 10,186,136 COST OF SALES 14,194,505 5,881,649 ------------ ------------ Gross margin 8,419,130 4,304,487 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,734,901 2,873,476 AMORTIZATION OF GOODWILL 159,768 639,067 ------------ ------------ Income from operations 2,524,461 791,944 ------------ ------------ OTHER INCOME (EXPENSE) Other income 130,090 1,930 Interest expense (787,848) (457,499) ------------ ------------ Total other income (expense) (657,758) (455,569) ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES 1,866,703 336,375 INCOME TAX PROVISION (BENEFIT) 634,679 (411,367) ------------ ------------ NET INCOME $ 1,232,024 $ 747,742 ============ ============ EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Primary $ .19 $ .16 ======= ======= Assuming full dilution $ .18 $ .14 ======= ======= SHARES USED IN COMPUTING EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Primary 6,606,499 4,549,101 ============ ============ Assuming full dilution 7,204,220 5,816,260 ============ ============ See accompanying notes to these consolidated financial statements. F-3 GEOGRAPHICS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years Ended March 31, 1996 and 1995
Common Stock Retained ------------------------ Earnings Shares Amount (Deficit) Total ----------- ----------- ----------- ----------- BALANCE, March 31, 1994 4,515,729 $ 3,081,496 $(1,609,982) $ 1,471,514 Notes payable and debentures converted to common stock 334,762 297,042 -- 297,042 Common stock issued for cash on exercise of warrants 325,722 287,043 -- 287,043 Net income -- -- 747,742 747,742 ----------- ----------- ----------- ----------- BALANCE, March 31, 1995 5,176,213 3,665,581 (862,240) 2,803,341 Proceeds from issuance of common stock 520,000 1,986,100 -- 1,986,100 Notes payable, debentures and other liabilities converted to common stock 1,540,371 2,169,233 -- 2,169,233 Common stock issued for cash on exercise of stock options and warrants, including income tax benefit 768,000 1,799,154 -- 1,799,154 Net income -- -- 1,232,024 1,232,024 ----------- ----------- ----------- ----------- BALANCE, March 31, 1996 8,004,584 $ 9,620,068 $ 369,784 $ 9,989,852 =========== =========== =========== =========== See accompanying notes to these consolidated financial statements.
F-4 GEOGRAPHICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS Years Ended March 31, 1996 and 1995 Increase (Decrease) in Cash
1996 1995 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,232,024 $ 747,742 Adjustments to reconcile net income to net cash flows from operating activities Depreciation and amortization 1,124,999 1,295,262 Deferred income taxes 125,000 (529,000) Loss on sale of property and equipment 594 13,468 Changes in noncash operating assets and liabilities Trade receivables (2,561,832) (1,471,823) Related party receivables (560,447) (338,975) Other receivables (3,357) (19,504) Inventory (6,238,118) (1,059,674) Prepaid expenses and deposits (461,606) (210,110) Accounts payable 1,315,997 1,074,647 Accrued liabilities 814,756 (48,828) Income tax payable 336,645 167,633 ----------- ----------- Net cash flows from operating activities (4,875,345) (379,162) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings on note payable to bank 3,139,463 990,427 Proceeds from long-term debt borrowings 1,003,029 765,125 Repayment of long-term debt (467,986) (232,685) Proceeds from notes payable to officers and directors 2,452,573 22,746 Repayments of notes payable to officers and directors (398,629) (134,888) Proceeds from issuance of common stock 2,827,254 287,043 ----------- ----------- Net cash flows from financing activities 8,555,704 1,697,768 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment (3,296,165) (1,463,768) Proceeds from sale of equipment 16,741 30,000 Net advances from (repayments to) partnerships (56,786) 250,422 Increase in other assets (309,469) (119,912) ----------- ----------- Net cash flows from investing activities (3,645,679) (1,303,258) ----------- ----------- NET CHANGE IN CASH 34,680 15,348 CASH, beginning of year 15,348 -- ----------- ----------- CASH, end of year $ 50,028 $ 15,348 =========== =========== NONCASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock on conversion of notes payable, debentures and other liabilities $ 2,169,233 $ 297,042 =========== =========== Financing obtained directly from sellers in acquisition of equipment $ 1,110,242 $ 346,644 =========== =========== Income tax benefit related to exercise of stock options and warrants $ 958,000 $ -- =========== =========== See accompanying notes to these consolidated financial statements.
F-5 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 1 - DESCRIPTION OF OPERATIONS Geographics, Inc. (the "Company") is a Wyoming corporation with its offices and main manufacturing facilities located in Blaine, Washington. The Company also has warehouse/distribution facilities near London, England, and warehouse/ manufacturing facilities in Bellingham, Washington. The Company is a manufacturer of designer stationeries, value-added papers, lettering, signage and graphic art products. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Geographics (Europe) Limited and Geographics Marketing Canada. Significant intercompany transactions have been eliminated in consolidation. (b) Accounts Receivable - The Company typically offers credit terms to its customers, which generally require payment within sixty days. Management considers all accounts receivable in excess of the allowance for doubtful accounts to be fully collectible. Accounts receivable are not collateralized. (c) Inventory - Inventory is valued at the lower of cost on a first-in-, first-out (FIFO) basis or market. (d) Property and Equipment - Property and equipment is stated at historical cost. Depreciation is provided based on useful lives of five to twenty years, using primarily the straight-line method. Betterments, renewals and repairs that extend the life of assets are capitalized. Repairs and maintenance items are expensed when incurred. Depreciation expense was $894,570 and $622,737 during the years ended March 31, 1996 and 1995, respectively. (e) Goodwill - Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. Goodwill was amortized on a straight-line basis over a period of two years. (f) Federal Income Taxes - The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities represent the estimated tax effects of future deductible or taxable amounts attributed to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. This method also allows recognition of income tax benefits for loss carryforwards, credit carryforwards and certain temporary differences for which tax benefits have not previously been recorded. The tax benefits recognized as assets must be reduced by a valuation allowance where it is more likely than not the benefits may not be realized. (g) Foreign Currency - Transactions denominated in foreign currencies are translated into U.S. dollars using the exchange rate in effect at the time of the transaction. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Translation adjustments are included in operating results of the Company during the year in which the adjustment arises. (h) Investment in Partnership - The Company accounts for its 70 percent respective partnership interest in International Geographics of Ontario (the "Partnership") using the equity method. The effect of consolidating the accounts of the Partnership would be immaterial to these consolidated financial statements. Advances between the Company and the Partnership for working capital purposes are accounted for as changes to investments in Partnership. The Partnership distributes the Company's products in Canada. International Geographics of Ontario was dissolved during the current year. The Company is in the process of winding up the affairs of the partnership at March 31, 1996. (i) Earnings per Common and Common Equivalent Shares - Primary earnings per common share equals net earnings divided by the weighted average number of common shares outstanding, after giving effect to dilutive stock options and warrants. Fully diluted earnings per common share equals net earnings plus after-tax interest incurred on convertible debentures divided by the weighted average number of common shares outstanding after giving effect to dilutive F-6 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) stock options, warrants and shares assumed to be issued on conversion of the convertible debentures. Fully diluted earnings per common share includes $44,712 and $66,792 in after-tax interest on convertible debentures during the years ended March 31, 1996 and 1995, respectively. (j) Capital Stock - The Company follows the practice of recording amounts received upon the exercise of stock options and warrants by crediting common stock. No charges are reflected in the consolidated statement of income as result of the grant or exercise of stock options or warrants. The Company realizes an income tax benefit from the exercise of certain stock options and warrants, which results in an increase in common stock and an increase in deferred tax assets, or reduction in income tax payable, depending on the timing of the income tax deduction available to the Company. (k) Reclassifications - Certain prior year amounts have been reclassified to conform to current year presentation. Such reclassifications had no effect on previously reported earnings or accumulated deficit. (l) Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (m) Advertising Costs - Advertising costs are charged to expense in the period in which they occur. The Company participates with its customers in cooperative advertising programs, in which the Company reimburses the customers for a portion of their advertising costs. Advertising expense amounted to $867,198 and $271,160 in 1996 and 1995, respectively. (n) Fair Value of Financial Instruments - Statement of Financial Accounting Standard ("SFAS") No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair value of financial instruments, both assets and liabilities, recognized and not recognized, in the consolidated balance sheet of the Company for which it is practicable to estimate fair value. The estimated fair values of financial instruments which are presented herein have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of amounts the Company could realize in a current market exchange. The following methods and assumptions were used to estimated fair value: 0 The carrying amounts of cash, receivables, accounts payable and accrued liabilities approximate fair value due to their short-term nature. 0 Discounted cash flows using current interest rates for financial instruments with similar characteristics and maturity were used to determine the fair value of short- and long-term debt. There were no significant differences as of March 31, 1996 and 1995 in the carrying value and fair value of financial instruments. (o) New Accounting Pronouncements - SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, establishes financial accounting and reporting standards for stock-based employee compensation plans, including stock option plans, stock purchase plans, restricted stock, and stock appreciation rights. SFAS No. 123 defines and encourages the use of the fair value method of accounting for employee stock-based compensation. Continuing use of the intrinsic value based method of accounting prescribed in ACCOUNTING PRINCIPLES BOARD OPINION NO. 25 ("APB 25") for measurement of employee stock-based compensation is allowed with pro forma disclosures of net income and earnings per share as if the fair value method of accounting had been applied. Transactions in which equity instruments F-7 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) are issued in exchange for goods or services from nonemployees must be accounted for based on the fair value of the consideration received or of the equity instrument issued, whichever is more reliably measurable. SFAS No. 123 is effective for transactions entered into in fiscal years that begin after December 15, 1995. The Company has determined that it will continue to use the method of accounting prescribed in APB 25 for measurement of employee stock-based compensation, and will begin providing the required pro forma disclosures in its financial statements for the year ending March 31, 1997, as allowed by SFAS No. 123. SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. Long-lived assets and certain identifiable intangibles to be held and used by a company are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Measurement of an impairment loss for such long-lived assets and identifiable intangibles should be based on the fair value of the asset. Long-lived assets and certain identifiable intangibles to be disposed of are required to be reported generally at the lower of the carrying amount or fair value less cost to sell. SFAS No. 121 is effective for fiscal years that begin after December 15, 1995. Management estimates that SFAS No. 121 will not have a significant impact on the Company's financial position or results of operations. NOTE 3 - INVENTORY
1996 1995 ------------- ------------- Raw materials $ 1,325,837 $ 971,281 Work in progress 3,304,407 873,799 Finished goods 4,509,029 1,056,075 ------------- -------------- $ 9,139,273 $ 2,901,155 ============= ==============
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Accumulated Net Book Value Cost Depreciation 1996 1995 -------------- ------------- ------------- -------------- Land $ 114,563 $ - $ 114,563 $ 114,563 Buildings 3,446,169 675,678 2,770,491 1,107,831 Machinery and equipment 4,499,744 2,057,745 2,441,999 1,769,768 Machinery and equipment under capital lease 1,998,853 357,376 1,641,477 741,217 Automobiles 304,071 89,840 214,231 58,813 Leasehold improvements 29,166 1,374 27,792 - Construction in progress 76,141 - 76,141 - -------------- ------------- ------------- -------------- $ 10,468,707 $ 3,182,013 $ 7,286,694 $ 3,792,192 ============== ============= ============= ============== NOTE 5 - FINANCING ARRANGEMENTS 1996 1995 ----------- ------------- Installment notes payable to banks, fixed interest rates ranging from 8.825% to 10% (in 1995 rates ranged from fixed 10% to prime plus 1.25%), payable in monthly installments through October 2010, secured by real estate. $ 2,341,057 $ 1,490,753 Capital lease obligations collateralized by certain equipment and fixtures. 1,609,424 736,136 ------------ -------------- Balance carried forward $ 3,950,481 $ 2,226,889 ------------ --------------
F-8 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 5 - FINANCING ARRANGEMENTS (Continued)
1996 1995 ------------ ------------- Balance brought forward $ 3,950,481 $ 2,226,889 Installment notes payable to banks, interest rates ranging from fixed 9.75% to variable rates from prime plus 1% to prime plus 1.5%, payable in monthly installments through October 2000, collateralized by certain equipment. 396,277 474,584 Convertible subordinated debentures, bearing interest at a fixed rate of 8% per annum, convertible into common shares of the Company. - 990,000 ------------- -------------- 4,346,758 3,691,473 Less current portion 656,398 371,525 ------------- -------------- $ 3,690,360 $ 3,319,948 ============= ==============
The prime rate was 8.25% and 9% at March 31, 1996 and 1995, respectively. The Company has a revolving credit agreement with a bank for up to $12,000,000, with interest on outstanding advances payable monthly at the bank's prime rate, with any unpaid advances due in full on July 25, 1996. Total outstanding advances under revolving credit agreements were $5,322,939 and $2,183,476 at March 31, 1996 and 1995, respectively. The revolving credit agreement, installment notes and capital lease obligations are collateralized by substantially all of the assets of the Company. In addition, the revolving credit agreement and certain other financing arrangements require the Company to comply with several debt covenants, the most restrictive of which includes the maintenance of liquidity and coverage ratios. The convertible subordinated debentures ("debentures") were convertible at the holder's option into common shares of the Company at a conversion rate of 904 common shares per $1,000 principal amount of debenture. At March 31, 1996, all debentures have been converted. At March 31, 1996, principal payments on long-term debt and capital lease obligations are expected to be as follows: 1997 $ 656,398 1998 613,783 1999 620,704 2000 632,582 2001 457,210 Thereafter 1,366,081 ------------- $ 4,346,758 ============= Future minimum lease payments under capital leases together with the present value of minimum lease payments as of March 31, 1996 are as follows: 1997 $ 467,662 1998 419,708 1999 409,974 2000 409,404 2001 249,693 ------------- Total minimum lease payments 1,956,441 Less amount representing imputed interest 347,017 ------------- Present value of minimum lease payments $ 1,609,424 ============= F-9 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 6 - FEDERAL INCOME TAXES The provision (benefit) for income taxes consists of the following: 1996 1995 --------- --------- Current provision $ 509,679 $ 117,633 Deferred provision 125,000 (529,000) --------- --------- Total income tax provision (benefit) $ 634,679 $(411,367) ========= ========= The total tax provision differs from the amount computed using the statutory federal income tax rate as follows: 1996 1995 --------- --------- Tax expense at statutory rate $ 635,000 $ 114,000 Other differences, net (321) (64,367) Change in valuation allowance for deferred tax assets -- (461,000) --------- --------- Total income tax provision (benefit) $ 634,679 $(411,367) ========= ========= The significant components of deferred income tax expense (benefit) for the years ended March 31, 1996 and 1995 are as follows: 1996 1995 --------- --------- Utilization of tax credit carryforward $ 105,000 $ -- Depreciation of plant and equipment 88,000 43,000 Decrease in charitable contributions carryforward 31,000 2,000 Inventory differences (10,000) 43,000 Other differences, net (20,000) 13,000 Amortization of goodwill and intangibles (31,000) (175,000) Change in allowance for doubtful accounts (38,000) 4,000 Increase in tax credit carryforward -- (137,000) Utilization net operating loss carryforwards -- 139,000 Change in valuation allowance for deferred tax assets -- (461,000) --------- --------- Total deferred income tax expense (benefit) $ 125,000 $(529,000) ========= ========= The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows: DEFERRED TAX ASSETS Income tax benefit related to exercise of stock options and warrants $ 758,000 $ -- Goodwill and intangible assets, principally due to amortization differences 380,000 349,000 Alternative minimum tax credit carryforwards 104,000 209,000 Inventory, principally due to additional cost inventoried for tax purposes and financial statement allowances 59,000 49,000 Accounts receivable, due to allowance for doubtful accounts 50,000 12,000 Employee benefits, principally due to accruals for financial reporting purposes 21,000 9,000 Other differences, net 4,000 3,000 Charitable contributions carryforward -- 31,000 --------- --------- Net deferred tax assets 1,376,000 662,000 DEFERRED TAX LIABILITIES Plant and equipment, principally due to depreciation differences 214,000 133,000 --------- --------- Net deferred tax assets $1,162,000 $ 529,000 ========= ========= F-10 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 6 - FEDERAL INCOME TAXES (Continued) At March 31, 1996 and 1995, the Company's net deferred tax assets are presented as follows: Current deferred tax assets $ 970,000 $ 69,000 Long-term deferred tax assets 192,000 460,000 ---------- ---------- $1,162,000 $ 529,000 ========== =========== The valuation allowance for deferred tax assets as of April 1, 1994 was $461,000. The net change in the total valuation allowance for the twelve months ended March 31, 1995 was a decrease of $461,000. Of this amount, $139,000 resulted from the utilization of net operating losses during the year ended March 31, 1995. An additional $60,000 resulted from realization of tax benefits of temporary differences which reversed during the year ended March 31, 1995. The remaining $262,000 decrease resulted from the Company's reevaluation of the realizability of future income tax benefits expected to be generated through the utilization of its existing deferred tax assets. Based on the Company's current operating income and expectations for the future, management determined that future operating and taxable income will more likely than not be sufficient to fully recognize all deferred tax assets existing at March 31, 1996 and 1995. As a result, the carrying value of the net deferred tax asset was increased by $262,000 at March 31, 1995. This increase was recognized as an income tax benefit during the year ended March 31, 1995. At March 31, 1996, the Company has alternative minimum tax credit carryforwards of approximately $104,000 which are available to reduce future regular federal income taxes over an indefinite period. NOTE 7 - RELATED PARTY TRANSACTIONS On September 15, 1995, officers and directors converted debentures in an aggregate face amount of $200,000 into 219,178 common shares. The debentures were convertible at the holder's option into common shares of the Company at Cdn. $1.25 per share, to a maximum of 219,178 common shares. There is no remaining balance of these debentures outstanding at March 31, 1996. The Company issued $996,000 of convertible debentures payable to officers and directors on September 26, 1995. The debentures were convertible at the holder's option into common shares of the Company at Cdn. $4.45 per share, to a maximum 274,233 common shares. On December 22, 1995, these debentures were converted into 274,233 common shares, and are no longer outstanding. At March 31, 1996, certain officers and directors had advanced the Company $1,264,711 in the form of uncollateralized notes payable. The notes are payable on demand and are classified as current liabilities. Interest on these notes are payable monthly at the rate of prime plus 1%. Total interest costs associated with these notes and debentures was approximately $60,000 during each of the years ended March 31, 1996 and 1995. On January 23, 1996, the Company completed a private placement of 500,000 common shares to officers and directors at a price of Cdn. $5.75. Total cash received, net of issuance costs, totaled $1,906,100. Sales to Martin Distribution, Inc. ("Martin"), a company related through common directorship, amounted to $2,854,935 and $1,056,750 during the years ended March 31, 1996 and 1995, respectively. Trade receivables due from Martin amounted to $899,422 and $338,975 at March 31, 1996 and 1995, respectively. The Partnership recorded purchases from Martin in the aggregate amount of $118,659 and $261,765 during the years ended March 31, 1996 and 1995, respectively. F-11 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 8 - EMPLOYEE BENEFIT PLANS As of March 31, 1996, the Company had reserved 220,000 shares of common stock for issuance to key employees, officers and directors. Options to purchase the Company's common stock are granted at a price equal to the market price of the stock at the date of grant, and are exercisable upon issuance and regulatory approval. All options expire no more than five years after the date of grant. Option prices per share are expressed in Canadian dollars. Option Number of Price Shares per Share ---------- ------------ Outstanding at March 31, 1994 451,000 $1.10 - 1.26 Granted 129,000 $1.00 - 1.19 Canceled (128,000) $1.10 - 1.19 Exercised - ---------- Outstanding at March 31, 1995 452,000 $1.00 - 1.26 Granted 246,000 $2,00 - 4.15 Exercised (478,000) $1.00 - 2.00 ---------- Outstanding at March 31, 1996 220,000 $1.00 - 4.15 ========== In addition, warrants to purchase 24,000 and 154,000 shares of common stock at prices ranging from Cdn. $1.05 (U.S. $.75) to Cdn. $6.63 (U.S. $4.77) were outstanding as of March 31, 1996 and 1995, respectively. These warrants were granted to key employees of the Company, are exercisable upon issuance and expire on April 15, 1998 and January 23, 1999. The exercise price of the warrants was equal to the market price of the stock at the date the warrants were issued. On April 1, 1995, the Board of Directors approved a retirement savings plan, which permits eligible employees to make contributions to the plan on a pretax salary reduction basis in accordance with the provisions of Section 401(k) of the Internal Revenue Code. The Company makes a matching stock contribution of 10% of the employee's pretax contribution. Eligible employees may contribute up to 18% of their pretax compensation. Total expense related to this plan was $20,619 during the year ended March 31, 1996. NOTE 9 - COMMITMENTS AND CONTINGENCIES The Company conducts certain operations in leased facilities, under leases that are classified as operating leases for financial statement purposes. The leases provide for the Company to pay real estate taxes, common area maintenance, and certain other expenses. Lease terms, excluding renewal option periods exercisable by the Company at escalated rents, expire between August 1996 and February 2006. In addition to the base lease term, the Company has various renewal option periods. In addition, certain equipment used in the Company's operations is leased under operating leases. A schedule of noncancelable operating lease commitments are as follows: 1997 $ 154,217 1998 126,589 1999 88,489 2000 35,149 2001 26,434 Thereafter 97,108 ------------- $ 527,986 ============= F-12 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued) On January 23, 1996, the Company placed an order for a printing press. The cost of the press is approximately $1,200,000, which is expected to be delivered during the second quarter of fiscal year 1997. The Company has a commitment from a financial institution to provide capital lease financing for this equipment. There are various claims, lawsuits, and pending actions against the Company incident to the operations of its business. It is the opinion of management that the ultimate resolution of these matters will not have a material effect on the Company's financial position, results of operations or liquidity. NOTE 10 - SUBSEQUENT EVENTS On May 1, 1996, the Company completed a private placement of 1,268,293 units at a price of U.S. $5.125 per unit. Total proceeds from this transaction approximated $6,500,000. Each unit included one common share of the Company and a warrant to purchase one additional common share of the Company at U.S. $6.50. The warrants were exercisable upon issuance and regulatory approval, and expire June 1, 1999. NOTE 11 - INFORMATION ABOUT CREDIT RISK AND BUSINESS CONCENTRATIONS Assets for which the Company has credit risk include trade accounts receivable, which amounted to $5,873,578 and $2,751,299 at March 31, 1996 and 1995, respectively. The Company's trade customers are concentrated in the retail office products industry and mass market retail stores. Sales to three major customers approximated 77% and 59% of total sales for the years ended March 31, 1996 and 1995, respectively. Amounts due from three customers approximated 75% and 71% of the total accounts receivable at March 31, 1996 and 1995, respectively. The Company expects that sales to relatively few customers will continue to account for a high percentage of its net sales in the foreseeable future and believes that its financial results depend in significant part upon the success of these few customers. Although the composition of the group comprising the Company's largest customers may vary from period to period, the loss of a significant customer or any reduction in orders by any significant customers, including reductions due to market, economic or competitive conditions in the designer stationary or specialty papers industry, may have a material adverse effect on the Company's business, financial condition and results of operations. The following table represents approximate sales and trade accounts receivable related to the Geographic regions in which the Company operates. 1996 --------------------------------------------------- Total United States Canada Other ----- ------------- ------ ----- Sales 100% 86% 13% 1% ======== ========= ========= ========= Accounts receivable 100% 83% 15% 2% ======== ========= ========= ========= 1995 --------------------------------------------------- Total United States Canada Other ----- ------------- ------ ----- Sales 100% 89% 10% 1% ======== ========= ========= ======== Accounts receivable 100% 85% 12% 3% ======== ========= ========= ======== F-13 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 and 1995 NOTE 11 - INFORMATION ABOUT CREDIT RISK AND BUSINESS CONCENTRATIONS (Continued) The Company purchases goods from approximately 700 vendors. One vendor accounted for a significant portion of the Company's total merchandise purchases during the years ended March 31, 1996 and 1995. The Company purchases commodity paper and other related products from this broker/vendor that could be supplied by other sources. There can be no assurances that the relationship between the Company and this vendor will continue and the loss of the purchasing power the Company has established with this company would likely have a material adverse effect on the Company. The Company does not consider itself dependent on any single source for materials to manufacture its products. NOTE 12 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION 1996 1995 ------------- -------------- Cash paid during the year for interest $ 812,416 $ 465,377 ============= ============== Net cash paid (received) during the year for income taxes $ 173,034 $ (50,000) ============= ============== F-14 No person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with this offering, and any information or representations not contained herein must not be relied upon as having been authorized by the Company or any other person. This Prospectus does not constitute an offer to Geographics, Inc. sell or a solicitation of an offer to buy any securities other than the securities to which 2,790,242 SHARES OF it relates, or any offer to or solicitation of COMMON STOCK AND any person in any jurisdiction in which such 1,395,121 COMMON STOCK offer or solicitation would be unlawful. PURCHASE WARRANTS Neither the delivery of this Prospectus nor any offer or sale made hereunder shall, under any circumstances, create an implication that information herein is correct at any time subsequent to the date hereof. PROSPECTUS TABLE OF CONTENTS Page Prospectus Summary......... 4 AUGUST 13, 1996 Risk Factors............... 8 Price Range of Common Stock............. 14 Dividend Policy............ 15 Capitalization............. 16 Use of Proceeds............ 17 Selected Consolidated Financial Data........... 18 Management's Discussion and Analysis of Financial Con- ditions and Results of Operations............... 19 The Company................ 27 Management................. 37 Principal Stockholders..... 48 Sales by Selling Security Holders.................. 50 Description of Securities.. 52 Certain Market Information.............. 55 Legal Matters.............. 56 Experts.................... 56 Additional Information..... 56 Financial Statements....... F-1 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Executive Officers Indemnification of Officers and Directors The Company's articles of incorporation contains the broadest form of indemnification for its officers and directors and former officers and directors permitted under Wyoming law except that such indemnification does not apply to (a) acts or omissions of the director or officer finally adjudged to be intentional misconduct or a knowing violation of law; (b) conduct of the director or officer finally adjudged to be gross negligence; or (c) any transaction with respect to which it was finally adjudged that such director and officer personally received a benefit in money, property, or services to which the director was not legally entitled. The articles of incorporation further provide that the Company shall advance expenses for such persons pursuant to the terms set forth in the Company's bylaws, or in a separate directors resolution or contract. Additionally, Section 17-16-856 of the Wyoming Business Corporation Act provides that unless the articles of incorporation provide otherwise, a current or former officer of a corporation who is not a director is entitled to mandatory indemnification and is entitled to apply for court ordered indemnification pursuant to Wyoming corporate law. Additionally, the corporation may indemnify and advance expenses to (i) a current or former officer, employee or agent of a corporation who is not a director to the same extent as to a director, and (ii) a current or former officer, employee or agent who is not a director to the extent consistent with public policy, that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors or contract. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that,in the opinion of the Commission, such indemnification is against public policy as express in the act and is therefore unenforceable. The Wyoming Business Corporation Act and the Company's articles of incorporation limit the liability of directors of the Company for damages for conduct as a director except for (a) acts or omissions involving intentional misconduct by the director or knowing violation of law by the director; (b) conduct for unlawful payments of dividends or unlawful stock purchases or redemptions as provided in Section 17-16-833 of the Wyoming Business Corporation Act; (c) any transaction from which the director will receive a benefit in money, property, or services to which the director is not legally entitled; or (d) conduct deemed II-1 to be gross negligence. The limitation of liability applies only to monetary damages and, presumably, would not affect the availability of equitable remedies such as injunction or rescission. The Company's articles of incorporation do provide that if the Wyoming Business Corporation Act is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Wyoming Business Corporation Act as so amended. Any repeal or modification of this provision by the shareholders of the Company shall not adversely affect any right protection of a director of the Company with respect to any acts or omissions of such director occurring prior to such repeal or modification. Section 17-16-834 of the Wyoming Business Corporation Act further provides that the articles of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director subject to the following: (i) the provision shall not eliminate or limiting the liability of a director (A) for any breach of the director's duty of loyalty to the corporation or its shareholders, (B) for acts or omissions not in good faith or which involved intentional misconduct a knowing violation of law, (C) for unlawful distributions, or (D) for any transaction from which the director derived an improper personal benefit; and (ii) the provision shall not eliminate or limit he liability of a director for any act or omission occurring prior to May 22, 1987, if applicable. The Company currently has not adopted this provision of the Wyoming Business Corporation Act. Item 25. Other Expenses of Issuance and Distribution. The following table sets forth the estimated expenses to be incurred in connection with the issuance and resale of the securities offered hereby. The Company is responsible for the payment of all expenses in connection with the Offering. Registration fee under the Securities Act of 1933.............................. $3,098.64 Blue Sky filing fees and expenses......................... 2,000.00* Printing and engraving expenses........................... 10,000.00* Legal fees and expenses................................... 15,000.00* Accounting fees and expenses.............................. 15,000.00* Miscellaneous............................................. 2,000.00* ---------- TOTAL.............................................. $47,098.64* =========== - ------------------- * Estimated II-2 Item 26. Recent Sales of Unregistered Securities. During fiscal 1991, the Company issued a $360,000 convertible debenture to directors and officers of the Company. The debenture, bearing interest at prime plus 2%, was convertible into units at Cdn$1.25 per unit. The units were comprise the one common share and one warrant to purchase additional common shares of stock in the Company at Cdn$1.25 per common share. These debentures were converted on March 31, 1995, as discussed below. All of the investors involved in the private placement of convertible debentures were directors and officers of the Company who were then residents of either Canada or Mexico, were accredited investors and received such securities following review of the transaction by the Toronto Stock Exchange. Accordingly, the registration provisions of Section 5 of the Securities Act of 1933, as amended (the "Act") were not applicable to the transaction. In June 1992, the Company completed a private placement whereby notes payable to certain officers and directors in the amount of $501,894 were exchanged for 1,000,000 shares of the Company's common stock. All of the investors involved in the private placement of Common Stock were directors and officers of the Company who were then residents of either Canada or Mexico, were accredited investors and received such securities following review of the transaction by the Toronto Stock Exchange. Accordingly, the registration provisions of Section 5 of the Act were not applicable to the transaction. On June 29, 1993, the Company completed a private placement of $1,000,000 of 8% convertible debentures maturing December 1, 1998, to nine Canadian residents, none of which were officers, directors or otherwise related to the Company at the time. All of the investors involved in the private placement of common stock were then residents of either Canada or Mexico, were accredited investors and received such securities following review of the transaction by the Toronto Stock Exchange. Accordingly, the registration provisions of Section 5 of the Act were not applicable to the transaction. However, Richard Thompson, an original participant in the placement later became a director of the Company in August 1995, purchased debentures from original holders on June 27, 1995. The principal amount of the debentures are convertible at the option of the holders at the rate of 904 common shares per principal of $1,000. Commencing December 1, 1995 and continuing through December 1, 1998, the debentures are convertible to common shares at a conversion rate of 632 common shares per $1,000 principal amount of debenture. The outstanding balances of the convertible debentures was -0- and $990,000 at March 31, 1996 and March 31, 1995, respectively. Holders of the debentures converted $10,000 principal amount for 9,040 shares and $990,000 principal amount for 894,960 during the fiscal year ended March 31, 1995 and fiscal year ended March 31, 1996. II-3 On April 18, 1994, the Company completed a private placement of $200,000 of convertible debentures which paid interest at a rate of prime plus 2% and was convertible into common shares of the Company at Cdn$1.25 per share, not to exceed a total of 219,178 shares of Common Stock of the Company. The debentures were purchased by two directors of the Company, one a resident of Mexico and the other a Canadian citizen. All of the investors involved in the private placement of common stock were then residents of either Canada or Mexico, were accredited investors and received such securities following review of the transaction by the Toronto Stock Exchange. Accordingly, the registration provisions of Section 5 of the Act were not applicable to the transaction. These debentures were converted into common stock on September 15, 1995. On March 23, 1995, officers and directors holding $350,000 of convertible debentures (issued in 1991), converted $287,043 of principal amount into 326,722 shares of common stock of the Company. On March 30, 1995, warrants associated with this debenture conversion were exercised. The Company issued 326,722 shares resulting from the warrant exercise, the remaining balance of the debenture payable and cash from the warrant holders funded the warrant exercise. During fiscal 1996, the Company issued no shares of Common Stock upon exercise of stock options and during fiscal 1996, issued 478,000 shares of Common Stock upon exercise of stock options raising $733,129[?]. In May 1996, the Company issued 65 Units in consideration of $6,500,000 to accredited investors in a private placement undertaken pursuant to Regulation D of the Securities Act of 1933, as amended (the "Act") and a Confidential Private Term Sheet dated April 15, 1996 (the "April Offering"). Each unit (the "Unit") consisted of 19,512 shares of Common Stock (for an aggregate of 1,268,293 shares of Common Stock) and warrants to purchase 19,512 Shares (for an aggregate of 1,268,293 Shares) on or prior to June 30, 1999 at $6.50 per share (for an aggregate of $8,243,904.50). Each of the investors executed subscription agreements verifying their personal financial resources, their qualifications as accredited investors and knowledge of investments. In addition, each of the investors was provided with information and had access to relevant additional information concerning the Company. Accordingly, the issuance of the aforementioned securities was exempt from the registration requirements of the Act pursuant to the exemptions set forth in Section 4(6) of the Act and Rule 505 under Regulation D and Section 4(2) of the Act. In connection with the April Offering, the Company also issued 126,828 Units (the "Placement Agent Units") to the following entities, as placement II-4 agents for the April Offering (a) Van Kasper & Co., Inc. (1 unit); (b) Fechtor-Detwiler & Co., Inc. (.3 units); (c) Winslow, Evans & Crocker (.6 units); and (d) Culverwell & Co., Inc. (4.6 units). The terms of the placement agent units correspond with the terms and conditions of the Units described above. The Placement Agent Units represent an aggregate of 253,626 shares of Common Stock and Warrants to purchase an aggregate of 126,828 shares of Common Stock at $6.50 per share (for an aggregate of $824,382). Item 27. Exhibits. (are all previous exhibits included?) Exhibit No. Description of Exhibits (3)(i) Restated Articles of Incorporation dated October 31, 1990 (incorporated by reference to the Company's Amendment No. 3 to Form 10, filed November 11, 1995 (the "Form 10"))(2). (3)(ii) Restated Bylaws of the Company (incorporated by reference to the Company's Form 10)(2) (4) Instruments defining the rights of security holders, including indentures. (4)(i) Form of Common Stock Certificate(2). (4)(ii) Form of resolution authorizing the issuance of convertible debentures of the Company in the aggregate amount of $1,000,000 dated June 29, 1993 (incorporated by reference to the Company's Form 10)(2). (4)(iii) Subscription Agreements for $1,000,000 Convertible Debentures dated June 23, 1993 (incorporated by reference to Company's Form 10)(2). (4)(iv) Form of Common Stock Purchase Warrant issued pursuant to the April 15, 1996 Private Offering(l). (4)(v) Form of 1996 Stock Option Plan(l). (5) Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the validity of the securities being registered(l) (10) Material contracts (10)(i) Sale of Lettering Division of E-Z Industries, Inc. to the Company dated July 2, 1993 (incorporated by reference to the Company's Form 10)(2). (10) (ii) Potential Acquisition II-5 22 Subsidiaries(1) (23)(i) Consent of Moss Adams LLP(1). (23)(ii) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included as part of Exhibit (5)(1)). 27 Financial Data Schedule - (Electronic filing only) - ---------------- 1. Filed herewith. 2. Previously filed. Item 28. Undertakings (a) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, that each such post-effective amendment as a new registration II-6 statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (5) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that tie shall be deemed to be the initial bona fide offering thereof. II-7 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB- 2 and authorized this Registration Statement to be signed on its behalf by the undersigned in the City of Blaine, State of Washington, on August 12, 1996. GEOGRAPHICS, INC. By: /s/ Ronald S. Deans Ronald S. Deans, Chairman, President and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated. Signature Title Date Chairman of the Board of Directors /s/ Ronald S. Deans and President August 12, 1996 Ronald S. Deans Vice President- Finance, Secretary, and Chief Financial /s/ Terry A. Fife Officer August 12, 1996 Terry A Fife II-8 EX-4 2 EXHIBIT (4) (IV) CTS - W-1~ WARRANT TO PURCHASE COMMON STOCK OF GEOGRAPHICS, INC. This is to certify that 2~ (the "Holder") is entitled, subject to the terms and conditions hereinafter set forth, to purchase 3~ shares of Common Stock, no par value per share (the "Common Shares"), of GEOGRAPHICS, INC., a Wyoming corporation (the "Company"), from the Company at the price per share and on the terms set forth herein and to receive a certificate for the Common Shares so purchased on presentation and surrender to the Company with the subscription form attached, duly executed and accompanied by payment of the purchase price of each share purchased either in cash or by certified or bank cashier's check or other check payable to the order of the Company. Exercise - -------- The purchase rights represented by this Warrant are exercisable at a price per Common Share of $6.50 at any time on or prior to June 1, 1999 subject to adjustment as hereinafter provided. The purchase rights represented by this Warrant are exercisable at the option of the registered owner hereof in whole or in part, from time to time, within the period specified; provided, however, that such purchase rights shall not be exercisable with respect to a fraction of a Common Share. In case of the purchase of less than all the Common Shares purchasable under this Warrant, the Company shall cancel this Warrant on surrender hereof and shall execute and deliver a new Warrant of like tenor and date for the balance of the shares purchasable hereunder. The Company agrees at all times to take appropriate action to reserve or hold available a sufficient number of Common Shares to cover the number of shares issuable on exercise of this and all other Warrants of like tenor then outstanding. The Company agrees to obtain any authorization required from its shareholders in order to amend its Articles of Incorporation to increase the authorized capitalization to permit the exercise of this Warrant and other Warrants of like tenor. Redemption of Warrant - --------------------- Commencing December 1, 1996, the Company shall have the right on 20 days' prior written notice to redeem, at a price of $0.05 per underlying Common Share, all of the Warrants included in the Company's private offering of Units of its securities of which this Warrant is a part, provided the closing price of the Company's Common Stock has exceeded $12.00 per share for 10 consecutive trading days concluding within any 20 consecutive trading day period immediately prior to date the Company has provided notice of such redemption, and provided further that the Company has in effect a current registration statement covering the resale of the Common Shares and this Warrant under the Securities Act of 1933 in order to permit the sale of the Common Shares and this Warrant. No Voting Rights - ---------------- This Warrant shall not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company, or to any other rights whatever except the rights herein expressed, and no dividends shall be payable or accrue in respect of this Warrant or the interest represented hereby or the Common Shares purchasable hereunder until or unless, and except to the extent that, this Warrant shall be exercised. Adjustments - ----------- The number of shares of Common Stock purchasable upon exercise of this Warrant and the Purchase Price shall be subject to adjustments from time to time as follows: If the Company shall at any time prior to the expiration of this Warrant subdivide its Common Stock, by forward or reverse stock split or otherwise, combine its Common Stock or issue additional shares of its Common Stock as a dividend with respect to any shares of its Common Stock, the number of Common Shares issuable upon exercise of this Warrant shall forthwith be proportionately increased or decreased. Appropriate adjustments shall also be made to the purchase price, but the aggregate purchase price payable for the total number of Common Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend. In the event of any reclassification, capital reorganization or other change in the Common Stock of the Company or in the event of any sale of all or substantially all of the Company's assets or any merger, consolidation or restructuring to which the Company is a party in which the Company's stockholders before the transaction or series of transactions hold less than 50% of the voting power of the surviving entity immediately after the transaction or series of transactions (other than as a result of a subdivision, combination or stock dividend provided for above or any transaction described in the Company's Confidential Private Term Sheet relating to the private offering of Units of its 2 securities of which this Warrant is a part), lawful provision shall be made, and duly executed documents evidencing the same shall be made and shall be delivered to the Holder in substitution for the Holder's rights under this Warrant, so that the Holder shall have the right at any time and from time to time prior to the expiration of this Warrant to purchase at a total price equal to that payable upon exercise of this Warrant immediately prior to such event, the kind and amount of shares of stock or other securities or property receivable in connection with such reclassification, reorganization or change by a Holder of same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization or change. In any such case, appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall hereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustment shall be made to the purchase price per Common Share payable hereunder, provided the aggregate purchase price shall remain the same. Upon any adjustments of the number of Common Shares issuable upon exercise of this Warrant or the purchase price pursuant to this paragraph, the Company within thirty (30) days thereafter shall cause to be prepared a certificate of the Chief Financial or Accounting Officer of the Company setting forth the number of Common Shares issuable upon exercise of this Warrant and the purchase price after such adjustments, and setting forth in reasonable detail the method of calculation used and cause a copy of such certificate to be mailed to the Holder of the Warrant. In the event of dissolution or liquidation of the Company in which the Company is not a surviving corporation, this Warrant shall terminate, but the registered owner of this Warrant shall have the right, immediately prior to such dissolution, liquidation, merger or combination, to exercise this Warrant in whole or in part to the extent that it shall not have been exercised. The foregoing adjustments and the manner of application of the foregoing provisions may provide for the elimination of fractional share interests. Registration Rights - ------------------- The Company has previously advised the Holder in the aforementioned Confidential Private Term Sheet that it intends to prepare and file under the Securities Act of 1933 (the "Act") a Registration Statement not later than sixty (60) days following completion of the offering of the Units of which this Warrant is part and has agreed to register the resale of the Common Shares underlying the Holder's Warrants (the "Covered Shares") and this Warrant in such Registration Statement. The Company shall bear all of the costs of such registration that are normally borne by issuers. 3 In connection with such Registration Statement filed pursuant to the preceding paragraph, the Company shall prepare and promptly file with the Securities and Exchange Commission (the "Commission") all amendments, post-effective amendments and supplements to any such Registration Statement as may be necessary under the Act and the regulations of the Commission to permit the sale of the Covered Shares and the Warrant to the public, except that the Company shall not be required to maintain a current Registration for any period in excess of the term of this Warrant. The registration rights provided to the Holder shall be limited to the filing of one Registration Statement only and upon fulfillment of the terms hereof, the Company shall have no obligation to register for resale under the Act the Holder's Common Shares or this Warrant in any subsequent Registration Statements prepared by the Company. The rights and obligations of the Holder pursuant to this paragraph may be exercised only by the Holder, transferees and assigns thereof. Indemnification - --------------- When pursuant hereto a Registration Statement registering the resale of the Common Shares or this Warrant is filed under the Act, amended or supplemented, the Company will indemnify and hold harmless each Holder of the Common Shares and the Warrant covered by such Registration Statement, amendment or supplement and each person, if any, who controls (within the meaning of the Act) the Holder, and each underwriter (within the meaning of the Act) of such securities and each person, if any, who controls )within the meaning of the Act) any such underwriter, against any losses, claims, damages or liabilities, joint or several, to which the Holder, any such controlling person or any such underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities, or actions in respect thereof, arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such Registration Statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto, or arising out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Holder or such controlling person or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Holder or any other Holder for use in the preparation thereof. 4 The Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed said registration statement and such amendments and supplements thereto, and each person, if any, who controls the Company (within the meaning of the Act) against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director, officer or controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities, or actions in respect thereof, arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in said Registration Statement, said preliminary prospectus, said final prospectus, or said amendment or supplement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Holder for use in the preparation thereof; and will reimburse the Company or any such director, officer or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. Promptly after receipt by an indemnified party under this paragraph of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party, give the indemnifying party notice of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this paragraph. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (however, in the event of disagreement as to the selection of counsel, the indemnified party shall have the right to select such counsel), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this paragraph for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Any settlement of such action shall require the indemnifying party's consent, which shall not be unreasonably withheld. 5 Miscellaneous - ------------- The Company shall not be required to issue or deliver any certificate for Common Shares purchased on exercise of this Warrant or any portion thereof prior to fulfillment of all the following conditions: (a) The completion of any registration or other qualification of such shares under any federal or state law or under the rulings or regulations of the Securities and Exchange Commission or any other government regulatory body which is necessary; (b) The obtaining of any approval or other clearance from any federal or state government agency which is necessary; (c) The obtaining from the registered owner of the Warrant a representation in writing that the owner is acquiring such Common Shares for the owner's own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof, if the Warrants and the related shares have not been registered under the Act; and (d) The placing on the certificate of an appropriate legend and the issuance of stop transfer instructions in connection therewith if this Warrant and the related, Common Shares have not been registered under the Act to the following effect: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE LAWS OF ANY STATE AND HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION PERTAINING TO SUCH SECURITIES AND PURSUANT TO A REPRESENTATION BY THE SECURITY HOLDER NAMED HEREON THAT SAID SECURITIES HAVE BEEN ACQUIRED FOR PURPOSES OF INVESTMENT AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION. FURTHERMORE, NO OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS TO TAKE PLACE WITHOUT THE PRIOR WRITTEN APPROVAL OF COUNSEL OR THE ISSUER BEING AFFIXED TO THIS CERTIFICATE. THE TRANSFER AGENT HAS BEEN ORDERED TO EXECUTE TRANSFERS OF THIS CERTIFICATE ONLY IN ACCORDANCE WITH THE ABOVE INSTRUCTIONS." The Company may make any changes or corrections in this Warrant (i) that it shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained; or (ii) that it may deem necessary or desirable and which shall not adversely affect the interests of the Holder; provided, however, that this Warrant shall not otherwise be modified, supplemented or altered in any respect except with the consent in writing of the Holders representing not less than 50% of the Warrants then outstanding; and provided, further, that no change in the number or nature 6 of the securities purchasable upon the exercise of any Warrant, or any increase in the purchase price therefor, or any shortening of the Warrant exercise period shall be made without the consent in writing of the Holders representing such Warrant, other than such changes as are specifically prescribed by this Warrant as originally executed. The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and its successors and assigns. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by the signature of its duly authorized officer. GEOGRAPHICS, INC. By:______________________________ President Dated: ______________________ 7 SUBSCRIPTION FORM (To be executed by the registered holder to exercise the rights to purchase Common Shares evidenced by the within Warrant.) Geographics, Inc. 1555 Odell Road Blaine, WA 98230 The undersigned hereby irrevocably subscribes for __________ Common Shares pursuant to and in accordance with the terms and conditions of this Warrant, and herewith makes payment of $__________ therefor, and requests that a certificate for such Common Shares be issued in the name of the undersigned and be delivered to the undersigned at the address stated below, and if such number of shares shall not be all of the shares purchasable hereunder, that a new Warrant of like tenor for the balance of the remaining Common Shares purchasable hereunder shall be delivered to the undersigned at the address stated below. Dated: Signed:_________________________ Address:________________________ ________________________________ ________________________________ 8 EX-4 3 EXHIBIT (4) (V) GEOGRAPHICS, INC. FORM OF 1996 STOCK OPTION PLAN 1. GRANT OF OPTIONS; GENERALLY. In accordance with the provisions hereinafter set forth in this stock option plan, the name of which is the GEOGRAPHICS, INC. 1996 STOCK OPTION PLAN (the "Plan"), the Board of Directors (the "Board") or, the Compensation Committee (the "Stock Option Committee") of Geographics, Inc. (the "Corporation") is hereby authorized to issue from time to time on the Corporation's behalf to any one or more Eligible Persons, as hereinafter defined, options to acquire shares of the Corporation's no par value common stock (the "Stock"). 2. TYPE OF OPTIONS. The Board or the Stock Option Committee is authorized to issue options which meet the requirements of Section ss.422 of the Internal Revenue Code of 1986, as amended (the "Code"), which options are hereinafter referred to collectively as ISOs, or singularly as an ISO. The Board or the Stock Option Committee is also, in its discretion, authorized to issue options which are not ISOs, which options are hereinafter referred to collectively as NSOs, or singularly as an NSO. The Board or the Stock Option Committee is also authorized to issue "Reload Options" in accordance with Paragraph 8 herein, which options are hereinafter referred to collectively as Reload Options, or singularly as a Reload Option. Except where the context indicates to the contrary, the term "Option" or "Options" means ISOs, NSOs and Reload Options. 3. AMOUNT OF STOCK. The aggregate number of shares of Stock which may be purchased pursuant to the exercise of Options shall be 1,000,000 shares. Of this amount, the Board or the Stock Option Committee shall have the power and authority to designate whether any Options so issued shall be ISOs or NSOs, subject to the restrictions on ISOs contained elsewhere herein. If an Option ceases to be exercisable, in whole or in part, the shares of Stock underlying such Option shall continue to be available under this Plan. Further, if shares of Stock are delivered to the Corporation as payment for shares of Stock purchased by the exercise of an Option granted under this Plan, such shares of Stock shall also be available under this Plan. If there is any change in the number of shares of Stock on account of the declaration of stock dividends, recapitalization resulting in stock split-ups, or combinations or exchanges of shares of Stock, or otherwise, the number of shares of Stock available for purchase upon the exercise of Options, the shares of Stock subject to any Option and the exercise price of any outstanding Option shall be appropriately adjusted by the Board or the Stock Option Committee. The Board or the Stock Option Committee shall give notice of any adjustments to each Eligible Person granted an Option under this Plan, and such adjustments shall be effective and binding on all Eligible Persons. If because of one or more recapitalizations, reorganizations or other corporate events, the holders of outstanding Stock receive something other than shares of Stock then, upon exercise of an Option, the Eligible Person will receive what the holder would have owned if the holder had exercised the Option immediately before the first such corporate event and not disposed of anything the holder received as a result of the corporate event. 4. ELIGIBLE PERSONS. (a) With respect to ISOs, an Eligible Person means any individual who has been employed by the Corporation or by any subsidiary of the Corporation, for a continuous period of at least sixty (60) days. (b) With respect to NSOs, an Eligible Person means (i) any individual who has been employed by the Corporation or by any subsidiary of the Corporation, for a continuous period of at least sixty (60) days, (ii) any director of the Corporation or by any subsidiary of the Corporation or (iii) any consultant of the Corporation or by any subsidiary of the Corporation. 5. GRANT OF OPTIONS. The Board or the Stock Option Committee has the right to issue the Options established by this Plan to Eligible Persons. The Board or the Stock Option Committee shall follow the procedures prescribed for it elsewhere in this Plan. A grant of Options shall be set forth in a writing signed on behalf of the Corporation or by a majority of the members of the Stock Option Committee. The writing shall identify whether the Option being granted is an ISO or an NSO and shall set forth the terms which govern the Option. The terms shall be determined by the Board or the Stock Option Committee, and may include, among other terms, the number of shares of Stock that may be acquired pursuant to the exercise of the Options, when the Options may be exercised, the period for which the Option is granted and including the expiration date, the effect on the Options if the Eligible Person terminates employment and whether the Eligible Person may deliver shares of Stock to pay for the shares of Stock to be purchased by the exercise of the Option. However, no term shall be set forth in the writing which is inconsistent with any of the terms of this Plan. The terms of an Option granted to an Eligible Person may differ from the terms of an Option granted to another Eligible Person, and may differ from the terms of an earlier Option granted to the same Eligible Person. 6. OPTION PRICE. The option price per share shall be determined by the Board or the Stock Option Committee at the time any Option is granted, and shall be not less than (i) in the case of an ISO, the fair market value, (ii) in the case of an ISO granted to a ten percent or greater stockholder, 110 percent of the fair market value, or (iii) in the case of an NSO, not less than 75% of the fair market value (but in no event less than the par value) of one share of Stock on the date the Option is granted, as determined by the Board or the Stock Option Committee. Fair market value as used herein shall be: (a) If shares of Stock shall be traded on an exchange or over-the-counter market, the mean between the high and low sales prices of Stock on such exchange or over-the-counter market on which such shares shall be traded on that date, or if such exchange or over-the-counter market is closed or if no shares shall have traded on such date, on the last preceding date on which such shares shall have traded. (b) If shares of Stock shall not be traded on an exchange or over-the-counter market, the value as determined by a recognized appraiser as selected by the Board or the Stock Option Committee. 7. PURCHASE OF SHARES. An Option shall be exercised by the tender to the Corporation of the full purchase price of the Stock with respect to which the Option is exercised and written notice of the exercise. The purchase price of the Stock shall be in United States dollars, payable in cash or by check, or in property or Corporation stock, if so permitted by the Board or the Stock Option Committee in accordance with the discretion granted in Paragraph 5 hereof, having a value equal to such purchase price. The Corporation shall not be required to issue or deliver any certificates for shares of Stock purchased upon the exercise of an Option prior to (i) if requested by the Corporation, the filing with the Corporation by the Eligible Person of a representation in writing that it is the Eligible Person's then present intention to acquire the Stock being purchased for investment and not for resale, and/or (ii) the completion of any registration or other qualification of such shares under any government regulatory body, which the Corporation shall determine to be necessary or advisable. 8. GRANT OF RELOAD OPTIONS. In granting an Option under this Plan, the Board or the Stock Option Committee may include a Reload Option provision therein, subject to the provisions set forth in Paragraphs 20 and 21 herein. A Reload Option provision provides that if the Eligible Person pays the exercise price of shares of Stock to be purchased by the exercise of an ISO, NSO or another Reload Option (the "Original Option") by delivering to the Corporation shares of Stock already owned by the Eligible Person (the "Tendered Shares"), the Eligible Person shall receive a Reload Option which shall be a new Option to purchase shares of Stock equal in number to the tendered shares. The terms of any Reload Option shall be determined by the Board or the Stock Option Committee consistent with the provisions of this Plan. 9. STOCK OPTION COMMITTEE. The Stock Option Committee may be appointed from time to time by the Corporation's Board of Directors. The Board may from time to time remove members from or add members to the Stock Option Committee. The Stock Option Committee shall be constituted so as to permit the Plan to comply in all respects with the provisions set forth in Paragraph 20 herein. The members of the Stock Option Committee may elect one of its members as its chairman. The Stock Option Committee shall hold its meetings at such times and places as its chairman shall determine. A majority of the Stock Option Committee's members present in person shall constitute a quorum for the transaction of business. All determinations of the Stock Option Committee will be made by the majority vote of the members constituting the quorum. The members may participate in a meeting of the Stock Option Committee by conference telephone or similar communications equipment by means of which all members participating in the meeting can hear each other. Participation in a meeting in that manner will constitute presence in person at the meeting. Any decision or determination reduced to writing and signed by all members of the Stock Option Committee will be effective as if it had been made by a majority vote of all members of the Stock Option Committee at a meeting which is duly called and held. 10. ADMINISTRATION OF PLAN. In addition to granting Options and to exercising the authority granted to it elsewhere in this Plan, the Board or the Stock Option Committee is granted the full right and authority to interpret and construe the provisions of this Plan, promulgate, amend and rescind rules and procedures relating to the implementation of the Plan and to make all other determinations necessary or advisable for the administration of the Plan, consistent, however, with the intent of the Corporation that Options granted or awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21 herein. All determinations made by the Board or the Stock Option Committee shall be final, binding and conclusive on all persons including the Eligible Person, the Corporation and its stockholders, employees, officers and directors and consultants. No member of the Board or the Stock Option Committee will be liable for any act or omission in connection with the administration of this Plan unless it is attributable to that member's willful misconduct. 11. PROVISIONS APPLICABLE TO ISOS. The following provisions shall apply to all ISOs granted by the Board or the Stock Option Committee and are incorporated by reference into any writing granting an ISO: (a) An ISO may only be granted within ten (10) years from January 2, 1996, the date that this Plan was originally adopted by the Corporation's Board of Directors. (b) An ISO may not be exercised after the expiration of ten (10) years from the date the ISO is granted. (c) The option price may not be less than the fair market value of the Stock at the time the ISO is granted. (d) An ISO is not transferrable by the Eligible Person to whom it is granted except by will, or the laws of descent and distribution, and is exercisable during his or her lifetime only by the Eligible Person. (e) If the Eligible Person receiving the ISO owns at the time of the grant stock possessing more than ten (10%) percent of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation (as those terms are defined in the Code), then the option price shall be at least 110% of the fair market value of the Stock, and the ISO shall not be exercisable after the expiration of five (5) years from the date the ISO is granted. (f) The aggregate fair market value (determined at the time the ISO is granted) of the Stock with respect to which the ISO is first exercisable by the Eligible Person during any calendar year (under this Plan and any other incentive stock option plan of the Corporation) shall not exceed $100,000. (g) Even if the shares of Stock which are issued upon exercise of an ISO are sold within one year following the exercise of such ISO so that the sale constitutes a disqualifying disposition for ISO treatment under the Code, no provision of this Plan shall be construed as prohibiting such a sale. (h) This Plan was adopted by the Corporation on ________________, 1995 by virtue of its approval by the Corporation's Board of Directors. Approval by the stockholders of the Corporation is to occur prior to _________________, 1996. 12. DETERMINATION OF FAIR MARKET VALUE. In granting ISOs under this Plan, the Board or the Stock Option Committee shall make a good faith determination as to the fair market value of the Stock at the time of granting the ISO. 13. RESTRICTIONS ON ISSUANCE OF STOCK. The Corporation shall not be obligated to sell or issue any shares of Stock pursuant to the exercise of an Option unless the Stock with respect to which the Option is being exercised is at that time effectively registered or exempt from registration under the Securities Act of 1933, as amended, and any other applicable laws, rules and regulations. The Corporation may condition the exercise of an Option granted in accordance herewith upon receipt from the Eligible Person, or any other purchaser thereof, of a written representation that at the time of such exercise it is his or her then present intention to acquire the shares of Stock for investment and not with a view to, or for sale in connection with, any distribution thereof; except that, in the case of a legal representative of an Eligible Person, "distribution" shall be defined to exclude distribution by will or under the laws of descent and distribution. Prior to issuing any shares of Stock pursuant to the exercise of an Option, the Corporation shall take such steps as it deems necessary to satisfy any withholding tax obligations imposed upon it by any level of government. 14. EXERCISE IN THE EVENT OF DEATH OF TERMINATION OR EMPLOYMENT. (a) If an optionee shall die (i) while an employee of the Corporation or a Subsidiary or (ii) within three months after termination of his employment with the Corporation or a Subsidiary because of his disability, or retirement or otherwise, his Options may be exercised, to the extent that the optionee shall have been entitled to do so on the date of his death or such termination of employment, by the person or persons to whom the optionee's right under the Option pass by will or applicable law, or if no such person has such right, by his executors or administrators, at any time, or from time to time. In the event of termination of employment because of his death while an employee or because of disability, his Options may be exercised not later than the expiration date specified in Paragraph 5 or one year after the optionee's death, whichever date is earlier, or in the event of termination of employment because of retirement or otherwise, not later than the expiration date specified in Paragraph 5 hereof or one year after the optionee's death, whichever date is earlier. (b) If an optionee's employment by the Corporation or a Subsidiary shall terminate because of his disability and such optionee has not died within the following three months, he may exercise his Options, to the extent that he shall have been entitled to do so at the date of the termination of his employment, at any time, or from time to time, but not later than the expiration date specified in Paragraph 5 hereof or one year after termination of employment, whichever date is earlier. (c) If an optionee's employment shall terminate by reason of his retirement in accordance with the terms of the Corporation's tax-qualified retirement plans or with the consent of the Board or the Stock Option Committee or involuntarily other than by termination for cause, and such optionee has not died within the following three months, he may exercise his Option to the extent he shall have been entitled to do so at the date of the termination of his employment, at any time and from to time, but not later than the expiration date specified in Paragraph 5 hereof or thirty (30) days after termination of employment, whichever date is earlier. For purposes of this Paragraph 14, termination for cause shall mean termination of employment by reason of the optionee's commission of a felony, fraud or willful misconduct which has resulted, or is likely to result, in substantial and material damage to the Corporation or a Subsidiary, all as the Board or the Stock Option Committee in its sole discretion may determine. (d) If an optionee's employment shall terminate for any reason other than death, disability, retirement or otherwise, all right to exercise his Option shall terminate at the date of such termination of employment. 15. CORPORATE EVENTS. In the event of the proposed dissolution or liquidation of the Corporation, a proposed sale of all or substantially all of the assets of the Corporation, a merger or tender for the Corporation's shares of Common Stock the Board of Directors may declare that each Option granted under this Plan shall terminate as of a date to be fixed by the Board of Directors; provided that not less than thirty (30) days written notice of the date so fixed shall be given to each Eligible Person holding an Option, and each such Eligible Person shall have the right, during the period of thirty (30) days preceding such termination, to exercise his Option as to all or any part of the shares of Stock covered thereby, including shares of Stock as to which such Option would not otherwise be exercisable. Nothing set forth herein shall extend the term set for purchasing the shares of Stock set forth in the Option. 16. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan or in any writing granting an Option will confer upon any Eligible Person the right to continue in the employ of the Eligible Person's employer, or will interfere with or restrict in any way the right of the Eligible Person's employer to discharge such Eligible Person at any time for any reason whatsoever, with or without cause. 17. NONTRANSFERABILITY. No Option granted under the Plan shall be trans- ferable other than by will or by the laws of descent and distribution. During the lifetime of the optionee, an Option shall be exercisable only by him. 18. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights as a stockholder with respect to any shares subject to his Option prior to the date of issuance to him of a certificate or certificates for such shares. 19. AMENDMENT AND DISCONTINUANCE OF PLAN. The Corporation's Board of Directors may amend, suspend or discontinue this Plan at any time. However, no such action may prejudice the rights of any Eligible Person who has prior thereto been granted Options under this Plan. Further, no amendment to this Plan which has the effect of (a) increasing the aggregate number of shares of Stock subject to this Plan (except for adjustments pursuant to Paragraph 3 herein), or (b) changing the definition of Eligible Person under this Plan, may be effective unless and until approval of the stockholders of the Corporation is obtained in the same manner as approval of this Plan is required. The Corporation's Board of Directors is authorized to seek the approval of the Corporation's stockholders for any other changes it proposes to make to this Plan which require such approval, however, the Board of Directors may modify the Plan, as necessary, to effectuate the intent of the Plan as a result of any changes in the tax, accounting or securities laws treatment of Eligible Persons and the Plan, subject to the provisions set forth in this Paragraph 19, and Paragraphs 20 and 21. 20. COMPLIANCE WITH RULE 16B-3. This Plan is intended to comply in all respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect to participants who are subject to Section 16 of the Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3 shall be deemed null and void to the extent appropriate by either the Stock Option Committee or the Corporation's Board of Directors. 21. COMPLIANCE WITH CODE. The aspects of this Plan on ISOs is intended to comply in every respect with Section 422 of the Code and the regulations promulgated thereunder. In the event any future statute or regulation shall modify the existing statute, the aspects of this Plan on ISOs shall be deemed to incorporate by reference such modification. Any stock option agreement relating to any Option granted pursuant to this Plan outstanding and unexercised at the time any modifying statute or regulation becomes effective shall also be deemed to incorporate by reference such modification and no notice of such modification need be given to optionee. If any provision of the aspects of this Plan on ISOs is determined to disqualify the shares purchasable pursuant to the Options granted under this Plan from the special tax treatment provided by Code Section 422, such provision shall be deemed null and void and to incorporate by reference the modification required to qualify the shares for said tax treatment. 22. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of Options thereunder, and the obligation of the Corporation to sell and deliver Stock under such options, shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Corporation shall not be required to issue or deliver any certificates for shares of Stock prior to (a) the listing of such shares on any stock exchange or over-the-counter market on which the Stock may then be listed and (b) the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which the Corporation shall, in its sole discretion, determine to be necessary or advisable. Moreover, no Option may be exercised if its exercise or the receipt of Stock pursuant thereto would be contrary to applicable laws. 23. DISPOSITION OF SHARES. In the event any share of Stock acquired by an exercise of an Option granted under the Plan shall be transferable other than by will or by the laws of descent and distribution within two years of the date such Option was granted or within one year after the transfer of such Stock pursuant to such exercise, the optionee shall give prompt written notice thereof to the Corporation or the Stock Option Committee. 24. NAME. The Plan shall be known as the "Geographics, Inc. 1996 Stock Option Plan." 25. NOTICES. Any notice hereunder shall be in writing and sent by certified mail, return receipt requested or by facsimile transmission (with electronic or written confirmation of receipt) and when addressed to the Corporation shall be sent to it at its office, 1555 Odell Road, Blaine, Washington 98230 and when addressed to the Committee shall be sent to it at 1555 Odell Road, Blaine, Washington 98230, subject to the right of either party to designate at any time hereafter in writing some other address, facsimile number or person to whose attention such notice shall be sent. 26. HEADINGS. The headings preceding the text of Sections and subparagraphs hereof are inserted solely for convenience of reference, and shall not constitute a part of this Plan nor shall they affect its meaning, construction or effect. 27. EFFECTIVE DATE. This Plan, the Geographics, Inc. 1996 Stock Option Plan, was adopted by the Board of Directors of the Corporation on ________________, 1995. The effective date of the Plan shall be the same date. Dated as of ______________. GEOGRAPHICS, INC. By:___________________________ Its: President EX-5 4 EXHIBIT 5 LEGAL OPINION August 12, 1996 Geographics, Inc. 1555 Odell Road Blaine, Washington, 98230 Re: Registration Statement on Form SB-2; Geographics, Inc. (the "Company"), Gentlemen: This opinion is submitted pursuant to the applicable rules of the Securities and Exchange Commission with respect to the registration by the Company of 2,790,242 shares of Common Stock, par value $.001 per share (the "Common Stock") and 1,395,121 Common Stock Purchase Warrants (the "Warrants") to be sold by the Selling Security Holders designated in the Registration Statement. In connection therewith, we have examined and relied upon original, certified, conformed, photostat or other copies of (i) the Amended and Restated Articles of Incorporation and Bylaws of the Company; (ii) resolutions of the Board of Directors of the Company authorizing the offering and the issuance of the Common Stock and Warrants, and related matters; (iii) the Registration Statement and the exhibits thereto; and (iv) such other matters of law as we have deemed necessary for the expression of the opinion herein contained. In all such examinations, we have assumed the genuineness of all signatures on original documents, and the conformity to originals or certified documents of all copies submitted to us as conformed, photostat or other copies. In passing upon certain corporate records and documents of the Company, we have necessarily assumed the correctness and completeness of the statements made or included therein by the Company, and we express no opinion thereon. As to the various questions of fact material to this opinion, we have relied, to the extent we deemed reasonably appropriate, upon representations or certificates of officers or directors of the Company and upon documents, records and instruments furnished to us by the Company, without independently checking or verifying the accuracy of such documents, records and instruments. Based upon the foregoing, we are of the opinion that the shares of Common Stock and the Warrants have been duly and validly authorized. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to use our name under the caption "Legal Matters" in the prospectus comprising part of the Registration Statement. In giving such consent, we do not thereby admit that we are included in with the category of persons whose consent is required under Section 7 of the Act or the rules and regulations promulgated thereunder. Sincerely, ATLAS, PEARLMAN, TROP & BORKSON, P.A. EX-10 5 EXHIBIT (10) (II) POTENTIAL ACQUISITION Geographics 1555 Odell Road Post Office Box 1750 Blaine, Washington 98231 July 3, 1996 Mr. Graham Hanrahan Graham's Graphics Pty. Ltd. Re: Potential Acquisition of Assets Dear Mr. Hanrahan: This will confirm our mutual interest in negotiating an agreement for the purchase of substantially all assets and the assumption of substantially all liabilities of Graham's Graphics Pty. Ltd., an Australian corporation ("Graham's"), by Geographics, Inc., a Wyoming corporation, or another corporation or other legal entity in which Geographics, Inc. has an interest (collectively, "Geographics"). This letter is for the sole purpose of confirming our mutual interest and detailing the preliminary understandings we have reached. It is not a binding contract, and does not obligate either of us to complete any transaction. We have reached preliminary understandings, on the following matters: 1. PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES. Geographics will purchase, and Graham's will sell, substantially all of the assets owned by Graham's and used in its wholesale paper and office products distribution business (the "Assets"), and Geographics will simultaneously assume substantially all of the known and identified liabilities of Graham's (the "Liabilities") (collectively, the purchase of the Assets and assumption of the Liabilities is referred to hereinafter as the "Transaction"). The Assets include, but are not limited to, Graham's inventory, accounts receivable, furniture, fixtures, equipment, good will, going concern value, other intangible assets, and interests in real property used in Graham's business. However, we may agree, following completion of the Preliminary Due Diligence (as defined below), to exclude certain assets and/or liabilities of Graham's from the Transaction in order to conform the Transaction of Geographics' plans for market development in Australia. The Liabilities included in the Transaction will be only the specific liabilities identified in the final purchase of documentation. Graham's will remain liable, and will indemnify Geographics, for any unknown and/or undisclosed liabilities. 2. EFFECTIVE DATE. The Transaction will close on a date to be mutually agreed by the parties. However, provided the Transaction does close, it will be effective retroactively to July 1, 1996 (the "Effective Date"). Mr. Graham Hanrahan August 9, 1996 Page 2 3. PURCHASE PRICE. The purchase price for the Assets (the "Price") shall be equal to the difference between the total value of the Assets and the total amount of the Liabilities on the Effective Date. The parties will mutually agree upon the value of the Assets after Geographics has completed the Preliminary Due Diligence (as defined below), subject to the following preliminary understandings: a. INVENTORY. Inventory will be valued at its net book value as of th Effective Date, subject to such adjustments as the parties may agree. b. ACCOUNTS RECEIVABLE. Accounts receivable will be valued at their face amount as of the Effective Date, reduced by a reasonable allowance for overaged and/or uncollectible accounts. c. FURNITURE, FIXTURES, AND EQUIPMENT. Furniture, fixtures, and equipment will be valued at their net book value as of the Effective Date. d. INTANGIBLE ASSETS. No value shall be assigned to goodwill and going concern value. Other intangible assets carried on Graham's books will be valued at their net book value as of the Effective Date, but in no event shall the value exceed fair market value. a. REAL PROPERTY. Leasehold and/or fees simple real property may be valued at net book value, appraised value, or other reasonable measure of value (which may include the assignment of zero value to leasehold property, if appropriate), depending on its nature and scope. 4. PAYMENT. The Price shall be paid in the following manner: a. CASH. At closing, $0, Australian funds, in cash or other immediately available form. b. STOCK. At closing, shares of Geographics stock having a total value equal to the difference between the total Price and the amount of cash payable pursuant to the preceding subsection. Geographics shares shall be valued for purposes of this subsection at their closing price on the Nasdaq Marketing System on the Effective Date, converted to Australian funds at the exchange rate on the Effective Date, as published in the WALL STREET JOURNAL. Mr. Graham Hanrahan August 9, 1996 Page 3 C. STOCK OPTIONS. Subject to the terms of this subsection, options to acquire shares of Geographics stock at their closing price on the Nasdaq Marketing System on the Effective Date. Geographics will make a good-faith effort to obtain approval from its shareholders and from all necessary regulatory authorities to issue such stock options to Graham's on or before November 30, 1996. If Geographics is unable to obtain all necessary approvals to issue the stock options, the parties will negotiate and agree upon alternative compensation of comparable value. 5. PAYMENT OF HANRAHAN NOTE. The Liabilities include a Promissory Note from Graham's to Graham Hanrahan, which will have an outstanding balance of approximately $115,000, Australian funds, on the Effective Date. Geographics will pay the Hanrahan Note in full at closing by delivering to Graham Hanrahan shares of Geographics stock having a total value equal to the outstanding balance of the Hanrahan Note on the Effective Date. Geographics stock shall be valued in the same manner as set forth above. 6. EMPLOYMENT AND NON-COMPETITION. Pursuant to the terms of an Employment and Non-Competition Agreement to be mutually agreed upon, Graham Hanrahan will become an employee of Geographics, and will agree not to conduct business in competition with Geographics for a reasonable period of time after he leaves Geographics' employment. 7. PRELIMINARY DUE DILIGENCE. As soon as reasonably possible, Graham's will provide Geographics with all information necessary or appropriate to facilitate the identification, review, and valuation of the Assets and Liabilities and the review and documentation of the Transaction. Geographics will proceed diligently to review and evaluate the information provided, and to obtain from Graham's any additional information Geographics deems appropriate (the "Preliminary Due Diligence"). 8. OPERATION OF BUSINESS. Graham's will continue to operate its business until closing of the Transaction. Prior to the closing date, Geographics shall have no rights with respect to the Assets, or duties with respect to the Liabilities, except as the parties may otherwise expressly agree in the final documentation of the Transaction, as described below. 9. NEGOTIATION AND EXECUTION OF FINAL AGREEMENT. Upon completion of the Preliminary Due Diligence, Geographics and Graham's will negotiate and execute Mr. Graham Hanrahan August 9, 1996 Page 4 a final, written purchase and sale agreement and other necessary or appropriate documentation for the Transaction (including the employment and non-competition agreement referred to above), which will contain terms customary in transactions of this sort, including appropriate representations and warranties from Graham's. The final, executed purchase and sale agreement and other documentation shall be the sole source of the parties' obligations with respect to the Transaction, and neither party shall be obligated to complete the Transaction except in accordance with such agreement and documentation. 10. TAX MATTERS. Except to the extent the parties may agree otherwise, each party will be responsible for its own taxes imposed as a result of the Transaction. The parties will cooperate to structure the Transaction to minimize the total taxes imposed, to the extent they can do so without materially altering the benefit of the bargain or compromising other business objectives. 11. GOVERNING LAW. To the extent possible, the Transaction will be governed, and the final purchase agreement and other documentation interpreted and enforced, in accordance with the laws of the State of Washington. Each party will engage counsel in Australia to assist with the Transaction and to address issues of Australian law. If this letter is consistent with your understanding of our discussions and preliminary understandings, please execute it in the space below. Very truly yours, GEOGRAPHICS, INC. By: RONALD DEANS --------------------- Ron Deans, President Accepted and agreed: GRAHAM'S GRAPHICS PTY. LTD. By: GRAHAM HANRAHAN -------------------------- Graham Hanrahan, President EX-22 6 EXHIBIT 22 SUBSIDIARIES Subsidiaries ------------ Geographics Marketing Canada Inc. a Canadian corporation. 17735 1st Ave., Suite 1, Surrey, B.C., Canada V4P 2K1, Geographics (Europe) Limited, an English Company. 4 Iceni Court, Letchworth, Herts England, SG6 1TN, EX-23 7 EXHIBIT (23) (I) CONSENT OF MOSS ADAMS LLP CONSENT OF INDEPENDENT AUDITOR We consent to the reference to our Firm under the captions "Experts" and to the use of our report dated May 31, 1996, with respect to the financial statements of Geographics, Inc. in the Registration Statement (Form SB-2 No. 333-_____) and related Prospectus of Geographics, Inc. for the registration of the securities offered by the Selling Security Holders, as defined therein. Bellingham, Washington August 12, 1996 EX-27 8 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GEOGRAPHICS, INC. FOR THE YEAR ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 YEAR MAR-31-1996 APR-01-1995 MAR-31-1996 50,028 0 6,083,076 (146,926) 9,139,273 16,888,860 10,468,707 (3,182,013) 27,738,041 11,057,829 0 0 0 9,620,068 369,784 24,738,041 22,613,635 22,613,635 14,194,505 5,894,669 (130,090) 0 787,848 1,866,703 634,679 1,232,024 0 0 0 1,232,024 .19 .18
-----END PRIVACY-ENHANCED MESSAGE-----