-----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, MQdxUfYJGjXwYQ/HXUQaf3hWzidofRltgnKkL5kSvTF4xw1XTwE1FWFx8S6tJHIQ RZmlZYCg2PSh9O5NbuK2OQ== /in/edgar/work/20000821/0000950124-00-005204/0000950124-00-005204.txt : 20000922 0000950124-00-005204.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950124-00-005204 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEOGRAPHICS INC CENTRAL INDEX KEY: 0001000621 STANDARD INDUSTRIAL CLASSIFICATION: [5110 ] IRS NUMBER: 870305614 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26756 FILM NUMBER: 706667 BUSINESS ADDRESS: STREET 1: 1555 ODELL RD STREET 2: P O BOX 1750 CITY: BLAINE STATE: WA ZIP: 98230 BUSINESS PHONE: 3603326711 MAIL ADDRESS: STREET 1: 1555 ODELL RD CITY: BLAINE STATE: WA ZIP: 98230 10-Q 1 e10-q.txt FORM 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Quarter Ended June 30, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission file number 0-26756 GEOGRAPHICS, INC. (Exact Name of Registrant as Specified in Its Charter) ---------------- WYOMING 87-0305614 (State or Other Jurisdiction (I.R.S. Employer Incorporation or Organization) Identification No.) 1555 ODELL ROAD, P.O. BOX 1750, BLAINE, WASHINGTON 98231 (Address and Zip Code of Principal Executive Offices) Registrant's Telephone Number, Including Area Code (360) 332-6711 ---------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, NO PAR VALUE Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No The aggregate market value of the common stock held by nonaffiliates of the registrant as of August 14, 2000 was $18,493,246 based on a closing sales price of $0.6406 per share on the NASDAQ OTC Bulletin Board on such date. The number of shares outstanding of the registrant's common stock, no par value, as of August 14, 2000 was 37,709,255. DOCUMENTS INCORPORATED BY REFERENCE NONE 2 TABLE OF CONTENTS
Page ---- PART I - FINANCIAL INFORMATION..........................................................................................1 ITEM 1. FINANCIAL STATEMENTS..................................................................................1 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................1 FORWARD-LOOKING STATEMENTS............................................................................1 RESULTS OF OPERATIONS.................................................................................2 LIQUIDITY AND CAPITAL RESOURCES.......................................................................2 ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................................3 PART II - OTHER INFORMATION.............................................................................................3 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................3 SALES OF UNREGISTERED SECURITIES......................................................................3 ITEM 5 - OTHER INFORMATION.....................................................................................4 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K......................................................................4 SIGNATURE...............................................................................................................4
-i- 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Geographics, Inc. (the "Company" or "Geographics") has attached to this Report and by this reference incorporated herein the consolidated balance sheets as of June 30, 2000 (unaudited) and March 31, 2000, the unaudited statements of operations for the three months ended June 30, 2000 and June 30, 1999, and the unaudited consolidated statements of cash flows for the three months ended June 30, 2000 and June 30, 1999, together with the notes thereto. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited consolidated financial statements of the Company and the notes thereto appearing elsewhere in this Report. FORWARD-LOOKING STATEMENTS Statements herein concerning expectations for the future constitute forward-looking statements which are subject to a number of known and unknown risks, uncertainties and other factors which might cause actual results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements herein include, but are not limited to, those concerning anticipated growth in the preprint paper market; anticipated growth in the Company's sales; anticipated growth in sales of specialty paper products as a percentage of revenue; the Company's ability to increase its market share within the preprint industry; the ability of the Company to successfully implement price changes for the Company's products when and as needed; trends relating to the Company's profitability and gross profits margins; the ability of the Company to implement, or modify its management information system, including the electronic data interchange system, adequate to meet operations requirements in the future and to improve its internal controls; and the ability of the Company to refinance its existing revolving credit facility to raise additional debt or equity financing sufficient to meet its working capital requirements. Relevant risks and uncertainties include, but are not limited to, slower than anticipated growth of the preprint papers market; loss of certain key customers; insufficient consumer acceptance of the Company's specialty paper products; unanticipated actions, including price reductions, by the Company's competitors; unanticipated increases in the costs of raw materials used to produce the Company's products; loss of favorable trade credit, supply terms, reliable and immediately available raw material supply and other favorable terms with certain key vendors, greater than expected costs incurred in connection with the implementation of a management information system; failure to realize expected economic efficiencies of the Company's automated production system; the inability to hire and retain key personnel; unexpected increases in the overall costs of production as a result of collective bargaining arrangements; unfavorable determinations of pending lawsuits or disputes; and inability to secure additional working capital when and as needed. Additional risks and uncertainties include those described under "Risk Factors" in Part I of the Company's Annual Report on Form 10-K for the year ended March 31, 2000 and those described from time to time in the Company's other filings with the Securities and Exchange Commission, press releases and other communications. All forward looking statements contained in this Report reflect the Company's expectations at the time of this Report only, and the Company disclaims any responsibility to revise or update any such forward-looking statement except as may be required law. -1- 4 RESULTS OF OPERATIONS NET SALES. Net sales increased 84.6% to $9,204,674 in the quarter ended June 30, 2000 from $4,986,364 in the quarter ended June 30, 1999. The increase was attributable to sales of new products beginning April 1, 2000 after the acquisition of certain inventory and rights from Domtar, which accounted for 13.2% of the total increase and increased sales of the Company's ready-to-assemble plastic storage and filing cabinets which accounted for 7.2% of the total increase. The Company made higher accruals for sales returns and allowances ($1,233,669 or 11.8% of gross sales for the quarter ended June 30, 2000 compared to $559,052 or 10.1% of gross sales for the quarter ended June 30, 1999). The Company provides for sales returns and allowances throughout the year as sales are recorded, consistent with historical experience and specific sales arrangements. GROSS MARGIN. Gross margin as a percentage of gross sales decreased to 25.9% in the quarter ended June 30, 2000, from 26.9% in the same period in fiscal 1999. The lower gross margin is primarily attributable to the increase in accruals for returns and allowances. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $2,134,858 (20.5% of gross sales) in the quarter ended June 30, 2000 from $1,428,923 (25.8% of gross sales) in the quarter ended June 30, 1999. This increase is primarily attributable to increases in sales staffing, advertising and promotional costs, sales commissions, and travel associated with the startup of the ready-to-assemble plastic storage and filing cabinets, as well as the integration of the Domtar product line acquired as of April 1, 2000. OTHER INCOME (EXPENSE). Other expense for the quarter ended June 30, 2000 amounted to $14,398 compared to income of $172,392 for the quarter ended June 30, 1999. Other expense in fiscal 2000 is principally realized foreign exchange losses, whereas other income in fiscal 1999 arose from the favorable settlement of debts with creditors. INTEREST EXPENSE. Interest expense decreased to $221,815 (2.1% of gross sales) during the quarter ended June 30, 2000, compared to $237,745 (4.3% of gross sales) during the same period in fiscal 1999. The lower interest costs were caused by a decrease in borrowings by the Company to support the operations. The decrease in borrowings was primarily attributable to positive cash flow generated by operations and additional equity raised through the sale of stock. LIQUIDITY AND CAPITAL RESOURCES As a result of the rapid growth of the Company's specialty papers group, the introduction of the plastic file cabinet and storage group, and the acquisition of certain assets from Domtar, the Company has required, and continues to require, substantial external working capital. At the date of this Report, in addition to sales of unregistered securities, the Company's only other available source of working capital consisted of borrowings available under its revolving credit facility. The revolving credit facility permits borrowings of up to $9.5 million subject to a borrowing base limitation of 75% of the value of the Company's eligible accounts receivable and 50% of the value of its inventory, net of certain reserves. Borrowings under the facility bear interest at LIBOR plus 2.5% and are secured by substantially all of the Company's assets. Under the terms of the facility, the Company is required to comply with a number of financial covenants relating to, among other things, the maintenance of minimum net worth, debt-to-equity ratios and cash flow coverage ratios. Borrowings under this facility were $6,852,652 at June 30, 2000. -2- 5 ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Substantially all of the revenue and operating expenses of the Company's foreign subsidiaries are denominated in local currencies and translated into US dollars at rates of exchange approximating those existing at the date of the transactions. Foreign currency translation impacts primarily revenue and operating expenses as a result of foreign exchange rate fluctuations. The Company's foreign currency transaction risk is primarily limited to amounts receivable from its foreign subsidiaries, which are denominated in local currencies. To minimize foreign currency transaction risk, the Company ensures that its foreign subsidiaries remit amounts to the U.S. parent in a timely manner. The Company does not currently utilize foreign currency hedging contracts. The Company also has foreign exchange translation exposures resulting from the translation of foreign currency-denominated earnings into U.S. dollars in the Company's consolidated financial statements. Foreign currency transaction exposure arises when an operating unit transacts business denominated in a currency that is not its own functional currency. The Company's transaction risks are attributable primarily to inventory purchases from third party vendors. The introduction of the Euro has significantly reduced such risks, and transaction exposures on an overall basis are not material. If the U.S. dollar uniformly increases in strength by 10% in 2000 relative to the currencies in which the Company's sales are denominated, income before taxes would decrease by approximately $40,000 for the quarter ended June 30, 2000. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors' products become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS SALES OF UNREGISTERED SECURITIES During the quarter ended June 30, 2000, the Company has issued 9,641,888 shares of Common Stock in a private placement at $0.45 per share, pursuant to an exemption from registration under Sections 4(2) and 4(6) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The following executive officers and directors of the Company purchased shares pursuant to the offering:
Name Position Shares - ---- -------- ------ William T. Graham Director 3,333,333 James L. Dorman Chairman and Chief Executive Officer 1,111,111 --------- Total 4,444,444
The balance of the shares were issued to accredited investors who had been solicited by officers, directors and shareholders of the Company. ITEM 5 - OTHER INFORMATION -3- 6 Effective as of April 1, 2000, the Company acquired certain inventory, licenses and trademark rights of the Consumer Products Business of the Communication Papers Division of Domtar, Inc. of Canada, for a total cash consideration of $4,606,924, including legal costs of approximately $49,000. Under the provisions of the agreement with Domtar, the Company was granted an exclusive world-wide license to convert, distribute and sell products under certain exclusive Domtar trademarks, and a non-exclusive license to use the Domtar Trademark. The initial term of the licenses is for a three year period extending to March 31, 2003, extendable at the Company's option for an additional three year period. The licenses remain exclusive providing annual sales achieve certain minimum sales levels. The agreement also provides for the payment of royalties on sales of the Domtar products. On April 19, 2000, the Company issued a $1,000,000 subordinated note payable to the Company's Chief Executive Officer, with the proceeds used as partial interim financing for the acquisition of the Domtar product line. The note bear interest at the US Bank's prime lending rate, and the notes are subordinated to the Company's senior indebtedness to US Bank. The note was paid in full on May 12, 2000, including accrued interest. In addition to interest on the note, the Company issued a warrant to purchase 100,000 shares of common stock at $0.45 per share until April 30, 2002. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 27.1 Financial Data Schedule for the quarter ended June 30, 2000. (b) There were no reports on Form 8-K filed during the quarter ended June 30, 2000. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on this 21st day of August, 2000. GEOGRAPHICS, INC. By: /s/ James L. Dorman ------------------------------------- James L. Dorman President and Chief Executive Officer By: /s/ Daniel J. Regan ------------------------------------- Daniel J. Regan Vice President and Chief Financial Officer -4- 7 GEOGRAPHICS, INC CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 AND MARCH 31, 2000 ASSETS
JUNE 30, 2000 MARCH 31, 2000 ------------------ --------------------- (UNAUDITED) CURRENT ASSETS Cash $ 559,174 $ 360,612 Accounts receivable Trade receivables, net of allowances of $993,000 and $897,000 at June 30 and March 31, 2000, respectively 6,623,212 6,053,810 Other receivables 48,828 25,555 Inventory, net of allowance for obsolete inventory of $575,000 and $583,000 at June 30 and March 31, 2000, respectively 7,978,993 5,301,171 Prepaid expenses, deposits, and other current assets 537,528 562,244 ------------------ --------------------- Total current assets 15,747,735 12,303,392 PROPERTY, PLANT AND EQUIPMENT, NET 9,073,515 9,304,864 LICENSES, TRADEMARKS AND OTHER INTANGIBLE ASSETS 3,267,586 317,170 OTHER ASSETS 215,236 442,018 ------------------ --------------------- TOTAL ASSETS $ 28,304,072 $ 22,367,444 ================== ===================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdrafts $ 828,679 $ 259,551 Note payable to bank 5,852,652 5,764,627 Accounts payable 3,982,738 3,699,532 Accrued liabilities 2,767,211 2,083,523 Current portion of long-term debt 1,132,084 1,368,212 ------------------ --------------------- Total current liabilities 14,563,364 13,175,445 LONG-TERM DEBT 3,389,567 3,539,926 ------------------ --------------------- Total liabilities 17,952,931 16,715,371 ------------------ --------------------- STOCKHOLDERS' EQUITY No par common stock - 100,000,000 shares authorized; 36,607,477 and 26,965,589 shares issued and outstanding at June 30 and March 31, 2000, respectively 25,183,731 20,844,881 Additional paid-in capital 159,638 132,944 Accumulated other comprehensive income (234,007) (233,318) Accumulated deficit (14,758,221) (15,092,434) ------------------ --------------------- Total stockholders' equity 10,351,141 5,652,073 ------------------ --------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,304,072 $ 22,367,444 ================== =====================
F-1 8 GEOGRAPHICS, INC Consolidated Statements of Operations Three Months Ended June 30, 2000 and June 30, 1999 (Unaudited)
THREE MONTHS ENDED JUNE 30, 2000 1999 --------------- ---------------- SALES $ 10,438,343 $ 5,545,416 Returns and Allowances (1,233,669) (559,052) --------------- ---------------- Net Sales 9,204,674 4,986,364 COST OF SALES 6,499,410 3,496,369 --------------- ---------------- Gross Margin 2,705,264 1,489,995 S.G.& A. EXPENSES 2,134,858 1,428,923 --------------- ---------------- Operating Income (Loss) 570,406 61,072 OTHER INCOME (EXPENSE) Interest Expense (221,815) (237,745) Other Income (Expense) (14,378) 172,392 --------------- ---------------- Total Other Income (Expense) (236,193) (65,353) --------------- ---------------- NET INCOME (LOSS) BEFORE TAX 334,213 (4,281) PROVISION FOR INCOME TAXES - - --------------- ---------------- NET INCOME (LOSS) $ 334,213 $ (4,281) =============== ================ EARNINGS PER COMMON SHARE Basic $ 0.01 $ (0.00) =============== ================ Diluted $ 0.01 $ (0.00) =============== ================ SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE Basic 35,831,552 9,857,252 =============== ================ Diluted 36,711,254 9,857,252 =============== ================
F-2 9 GEOGRAPHICS, INC. Consolidated Statements of Cash flows (Unaudited)
THREE MONTHS ENDED JUNE 30, 2000 1999 ---------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 334,213 $ (4,281) Adjustments to reconcile net income (loss) to net cash flows from operating activities Depreciation and amortization 407,313 341,812 Loss on sale/disposal of property and equipment - 1,770 Stock-based compensation 26,694 - Changes in noncash operating assets and liabilities Trade receivables (569,402) 553,817 Other receivables (23,273) 135,828 Inventories (1,120,036) 345,174 Prepaid expenses, deposits and other assets (74,067) 371,143 Licenses, trademarks and other intangible assets 67,241 2,500 Other assets 258,263 10,745 Accounts payable 283,206 303,718 Accrued liabilities 683,688 (1,175,397) ---------------------- ------------------- Net cash flows from operating activities 273,840 886,829 ---------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in bank overdrafts 569,128 25,696 Net borrowings on note payable to bank 88,025 (575,723) Repayment of long-term debt (386,487) (328,400) Proceeds from notes payable to officers and directors 1,000,000 100,000 Repayment of notes payable to officers and directors (1,000,000) - Proceeds from issuance of common stock 4,338,850 - Net change, foreign currency translation (689) 601 ---------------------- ------------------- Net cash flows from financing activities 4,608,827 (777,826) ---------------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment (77,181) (80,202) Acquisition of Domtar Consumer Products assets for cash (4,606,924) - ---------------------- ------------------- Net cash flows from investing activities (4,684,105) (80,202) ---------------------- ------------------- NET CHANGE IN CASH 198,562 28,801 CASH, BEGINNING OF PERIOD 360,612 130,967 ---------------------- ------------------- CASH, END OF PERIOD $ 559,174 $ 159,768 ====================== =================== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest $ 207,248 $ 237,745 ====================== ===================
F-3 10 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying interim unaudited consolidated financial statements of Geographics, Inc. (the "Company" or "Geographics") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's consolidated financial statements and notes thereto for the fiscal year ended March 31, 2000, including the amendment to previously issued financial statements described in Note 3 therein. The appropriate adjustments and reclassifications have been reflected in the statements of operations and cash flows for the three month period ended June 30, 1999. The consolidated financial statements include the accounts of Geographics and its wholly-owned subsidiaries: Geographics Marketing Canada Inc. (inactive), Geographics (Europe) Limited and Geographics Australia, Pty. Limited. All intercompany balances and transactions have been eliminated. F-4 11 GEOGRAPHICS, INC. FORM 10-Q EXHIBIT INDEX FOR THE QUARTER ENDED JUNE 30, 1999 Exhibit Number - ------- 27.1 Financial Data Schedule EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-2001 APR-01-2000 JUN-30-2000 559,174 0 7,665,492 (993,452) 7,978,993 15,747,735 15,290,667 (6,217,152) 28,304,072 14,563,364 3,389,567 0 0 25,183,731 (14,832,590) 28,304,072 9,204,674 9,204,674 6,499,410 2,134,858 14,378 0 221,815 334,213 0 334,213 0 0 0 334,213 .01 .01
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