-----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, UWoAIf9SiawZ44ecnmisUnHbnb23PQLZgJGLHdpyfAnYr0i1tnhMp4nWPXaX3ILd KsRp8O6dY/dTQTy/YtOWdw== /in/edgar/work/20000907/0000950124-00-005455/0000950124-00-005455.txt : 20000922 0000950124-00-005455.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950124-00-005455 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 20000907 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/A SEC ACT: SEC FILE NUMBER: 000-26756 FILM NUMBER: 717702 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/A 1 c56534a1e10-qa.txt AMENDMENT # 1TO FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------- FORM 10-Q/A AMENDMENT NO. 1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____ to ____ For the Fiscal Quarter Ended: SEPTEMBER 30, 1998 Commission File Number: 0-26756 -------------- GEOGRAPHICS, INC. (Exact name of registrant as specified in its charter) WYOMING 87-0305614 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1555 ODELL ROAD, P.O. BOX 1755, BLAINE, WA 98231 (Address of principal executive office and zip code) (360) 332-6711 (Registrant's telephone number including area code) Indicate by check mark 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 No X --- --- The registrant had 9,857,252 shares of common stock outstanding as of September 30, 1998 DOCUMENTS INCORPORATED BY REFERENCE None EXPLANATORY NOTE Geographics, Inc. (the "Company") has determined to restate its annual consolidated financial statements and its condensed consolidated quarterly financial statements for the fiscal year ending March 31, 1999, and condensed consolidated quarterly financial statements for the interim quarters of fiscal 2000. This amendment includes in Item 1 such restated condensed consolidated financial statements for the three and six months ended September 30, 1998, and other information relating to such restated condensed consolidated financial statements. Item 2 includes the Company's amended and restated discussion and analysis of financial condition and results of operations. Except for Items 1 and 2 and Exhibits 27.1, no other information included in the original report on Form 10-Q is amended by this amendment, and such information is not included as part of this Amendment. For current information regarding risks, uncertainties and other factors that may affect the Company's future performance, please see "Risk Factors" included in Item 7 of the Company's Annual Report on Form 10-K for the year ended March 31, 2000. 2 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 September 30, 1998 (unaudited) and March 31, 1998 (audited), the unaudited statements of operations for the three months ended September 30, 1998 and September 30, 1997, and the unaudited consolidated statements of cash flows for the three months ended September 30, 1998 and September 30, 1997, together with the notes thereto. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto appearing elsewhere on this Report. Overview Geographics was incorporated as a Wyoming corporation on September 20, 1974. From its inception until fiscal 1991, the Company was engaged exclusively in the manufacture and wholesale marketing of various rub-on and stick-on lettering, stencils, graphics arts products and other signage products. In 1991, the Company began the development of "pre-print" or "specialty" paper products consisting of paper on which photographs or other art images are printed and which is then cut to size. In 1992, the Company introduced its first specialty paper product under the Geopaper brand name. The Company now has several specialty paper products using Geopaper designs, including stationery, business cards, brochures, memo pads, posterboards and paper cubes, which, in North America, are sold primarily to office supply superstores and mass market retailers, and which are also distributed internationally through the Company's subsidiaries in Canada, Europe and Australia. The specialty papers group now constitutes the Company's only business for that quarter, with approximately 100% and 93% of the Company's total sales in the quarter ended September 30, 1998 and the year ended March 31, 1998, respectively, attributable to sales of Geopaper products. Primarily to develop its specialty papers group, the Company has made substantial investments to expand its facilities, purchase and install automated production equipment and an integrated management information system and enhance administrative and other infrastructure systems. The report of the Company's auditors dated September 22, 1998 relating to the Company's Consolidated Financial Statements for the fiscal year ended March 31, 1998 states that the Company's fiscal 1998 losses and non-compliance with covenants under its revolving credit facility raise substantial doubt about the Company's ability to continue as a going concern. See "-Liquidity and Capital Resources." The Company's lender has permitted borrowings under the revolving credit facility in spite of existing defaults, there can be no assurance that it will continue to do so. Accordingly, the Company is continuing to seek extended payment terms from its vendors, delaying purchases of raw materials, instituting internal cost reduction measures and taking other steps to conserve operating capital. As a result, the Company's vendors may place the Company on credit hold or take other actions against the Company, including the termination of their relationship with the Company or the initiation of collection proceedings. 3 The Company has been actively pursuing possible sources of additional capital and has engaged an investment banker to assist in the evaluation and pursuit of financing transactions, which could include the issuance of debt or equity securities or the sale of all or part of the Company's assets. Further, there can be no assurance that the Company will be able to obtain additional sources of working capital when and as needed or that the terms of any such funding will be acceptable to the Company. Any equity financing may involve substantial dilution to the interests of the Company's shareholders. SEASONALITY. A significant portion of the Company's customer orders are placed between August and October of each year for shipment during the Company's second and third fiscal quarters, which includes the Christmas season, with the largest levels of sales historically occurring in the second half of the calendar year. As a result, the Company has experienced, and is expected to continue to experience, seasonal fluctuations in its operating results. 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 distributions channel, and competitive pricing. Consequently, the Company's revenues may vary significantly by quarter and the Company's operating results may experience significant fluctuations. Results of Operations SALES. Sales decreased 36% to $4,971,032 in the quarter ended September 30, 1998 from $7,758,668 in the quarter ended September 30, 1997. Sales decreased 27% to $10,764,864 in the six month period ended September 30, 1998 from $14,846,158 in the same period a year earlier. The decrease is primarily due to the sale of the Core Business and the loss of Office Max. Geopaper products were responsible for 100% and 98% of sales for the three and six month period ended September 30, 1998 respectively, compared to 84% and 80% in the corresponding three and six month periods of the prior year. Sales of Geopaper have decreased 18% to $10,013,325 in the six months ended September 30, 1998 from $12,901,223 in the corresponding six month period of the prior year. Sales of the Company's lettering and signage products decreased 76% to approximately $751,539 for the six month period ended September 30, 1998 compared to approximately $3,070,329 for the six months ended September 30, 1997. International sales of Geographics products were $1,998,689 and $3,745,310 for the quarter and six month period ended September 30, 1998, respectively, and $2,053,139 and $3,737,258 for the quarter and six month period ended September 30, 1997, respectively. International sales of Geographics products represented 40% and 35% of the Company's total sales for the quarter and six month period ended September 30, 1998, respectively, compared to 20% and 20%, respectively, of total sales for the same periods in the prior year. GROSS MARGIN. Gross profit margin as a percentage of sales was 39% for the quarter ended September 30, 1998, compared to 9% for the same period in the prior year. For the 4 six month period ended September 30, 1998, gross profit margin as a percentage of sales was 39%, compared to 4% for the same period in the prior year. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling, general and administrative (S,G&A) expenses, which consist of payroll, advertising, commissions, administrative, accounting, legal and other costs, increased as a percentage of sales during the quarter ended September 30, 1998 to 33 %, as compared to 29% during the same period in the prior year. S,G&A expenses increased as a percentage of sales to 33% for the six month period ended September 30, 1998 as compared to 30% for the same period in the prior year. INTEREST EXPENSE. The Company's interest expense for the quarter ended September 30, 1998 decreased 36% to $270,429 compared to $419,873 for the same period in the prior year. The company's interest expense for the six month period ended September 30, 1998, decreased 28% to $607,910 compared to $848,197 for the same period in the prior year. The decrease in interest expense was primarily the result of the pay-down of U.S. Bank from the sale of the Core Business. Liquidity and Capital Resources As a result of the rapid growth of the Company's specialty papers group, capital expenditures relating to the purchase and installation of automated production equipment and a management information system, operating losses and other factors, the Company has required, and continues to require, substantial external working capital. Moreover, subsequent to the end of fiscal 1997, the Company has experienced working capital short-falls which have required the Company to delay payments to certain vendors, delay planned purchases, institute internal cost reduction measures and take other steps to conserve operating capital. During fiscal 1998, operating losses totaled $8,011,719, and the Company experienced positive operating cash flows of $1,145,131. During the quarter ended September 30, 1998, operating income totaled $307,506. The Company experienced positive operating cash flows of $7,161,222 during the quarter ended September 30, 1998. At the date of this Report, the Company's only available source of working capital consisted of borrowings available under its revolving credit facility. The revolving credit facility permits borrowings of up to $6.0 million subject to a borrowing base limitation of 70% of the value of the Company's eligible accounts receivable and 55% of the value of its inventory, net of certain reserves. Borrowings under the facility bear interest at the prime rate 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. The report of the Company's auditors dated September 22, 1998 relating to the Company's Consolidated Financial Statements for the fiscal year ended March 31, 1998 states that the Company's fiscal 1998 losses raise substantial doubt about the Company's ability to continue as a going concern. The Company's Consolidated Financial Statements for the fiscal year ended March 31, 1998 (as well as the Unaudited Consolidated Financial Statements for the fiscal quarter ended September 30, 1998 included in this Report) were prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. 5 The Company entered into a short-term forbearance agreement with its lender, effective May 1, 1998, pursuant to which the lender agreed to extend the expiration date of the revolving credit facility to November 30 1998. There can be no assurance that the lender will continue to permit borrowings under the revolving credit facility, that the lender will agree to further extend the facility's expiration date or that the Company will be able to refinance or replace the facility on acceptable terms when and as needed. The Company has been actively pursuing possible sources of additional capital and engaged an investment banker to assist in the evaluation and pursuit of financing transactions, which could include the issuance of debt or equity securities or the sale of all or part of the Company's assets. However, there can be no assurance that the Company will be able to obtain additional sources of working capital when and as needed or that the terms of any such funding will be acceptable to the Company. Any equity financing may involve substantial dilution to the interests of the Company's shareholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK FOREIGN CURRENCY Substantially all of the revenue and operating expenses of the Company's foreign subsidiaries are denominated in local currencies and translated into U.S. 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. Foreign country short-term borrowing facilities are utilized where necessary (and to the extent available) to ensure prompt payments. The Company does not currently utilize foreign currency hedging contracts. If the U.S. dollar uniformly increases in strength by 10% in 1999 relative to the currencies in which the Company's sales are denominated, income before taxes would decrease by $100,000.00 for the fiscal year ending March 31, 1999. 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. INFLATION Although the Company cannot accurately anticipate the effects of inflation on its financial condition or operations, the Company does not believe inflation has had or is likely to have a material adverse effect on its results, operations or liquidity. 6 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. The following documents are filed as part of this Report: Exhibit Number Description of Document - --------------- ----------------------- 27.1 Financial Data Schedule. B. No reports were filed by the Company on Form 8-K during the fiscal quarter ended September 30, 1998. 7 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 on Form 10-Q/A to be signed on its behalf by the undersigned, thereunto duly authorized on this ____ day of July, 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 8 INDEX TO FINANCIAL STATEMENTS Consolidated Balance ........................................................F-2 Sheets as of September 30, 1998 and March 31, 1998...........................F-2 Consolidated Statements of Operations for the three months and six months ended September 30, 1998 and September 30, 1997............ ..........F-3 Consolidated Statements of Cash Flows for the three months and six months ended September 30, 1998 and September 30, 1997.......................F-4 Notes to Consolidated Financial Statements...................................F-5
9 GEOGRAPHICS, INC. CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND MARCH 31, 1998 (unaudited)
ASSETS September 30, March 31, 1998 Restated 1998 Restated (Unaudited) (Audited) ------------- ------------- CURRENT ASSETS Cash $ 205,394 $ 316,078 Accounts receivable Trade receivables, net 4,235,071 4,145,660 Other receivables 271,337 148,050 Inventory, net of allowance for obsolete inventory of $586,000 at September 30, 1998 and March 31, 1998 5,434,794 6,763,508 Prepaid expenses, deposits, and other current assets 674,914 731,307 ------------ ------------ Total current assets 10,821,510 12,104,603 PROPERTY, PLANT AND EQUIPMENT, net 12,069,454 12,881,118 OTHER ASSETS 382,201 340,043 ------------ ------------ TOTAL ASSETS $ 23,273,165 $ 25,325,764 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdrafts $ 232,189 $ 301,716 Note payable to bank 4,877,400 11,300,808 Accounts payable 3,106,540 3,285,467 Accrued liabilities 2,629,178 2,738,919 Current portion of long-term debt 3,350,344 3,350,344 ------------ ------------ Total current liabilities 14,195,651 20,977,254 LONG-TERM DEBT 4,184,689 4,853,254 ------------ ------------ Total liabilities 18,380,340 25,830,508 STOCKHOLDERS' EQUITY No par common stock -- 100,000,000 authorized, 9,857,252 and 9,857,252 issued and outstanding at September 30, 1998 and March 31, 1998, respectively 15,769,018 15,769,018 Foreign currency translation adjustment -- 33,899 Retained earnings (accumulated deficit) (10,876,193) (16,307,661) ------------ ------------ Total stockholders' equity (deficit) 4,892,825 (504,744) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,273,165 $ 25,325,764 ============ ============
See accompanying notes to these consolidated financial statements. F-2 10 GEOGRAPHICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- SEPT. 30, 1998 SEPT. 30, 1997 SEPT. 30, 1998 SEPT 30, 1997 Restated Restated Sales $ 4,971,032 $ 7,758,668 $ 10,764,864 $ 14,846,158 Cost of Sales 3,013,726 7,039,875 6,605,521 14,259,814 ------------ ------------ ------------ ------------ Gross Margin 1,957,306 718,793 4,159,343 586,344 Selling, General and Administrative Expenses 1,649,800 2,262,000 3,586,953 4,417,960 ------------ ------------ ------------ ------------ Income (Loss) from Operations 307,506 (1,543,207) 572,390 (3,831,616) Other Income (Expenses) Interest Expense (270,430) (419,873) (607,910) (848,197) Other (24,641) (14,288) (40,214) (33,328) ------------ ------------ ------------ ------------ Operating Income (Loss) (295,071) (434,161) (648,124) (881,525) Income (Loss) Before Provision for Income Taxes 12,435 (1,977,368) (75,734) (4,713,141) Proceeds from Sale of Core Business -- -- 5,510,762 -- ------------ ------------ ------------ ------------ Net Income (Loss) $ 12,435 $ (1,977,368) $ 5,435,028 $ (4,713,141) ============ ============ ============ ============ Earnings Per Common and Common Equivalent Share Primary $ 0.00 $ (.21) $ .55 $ (.50) ============ ============ ============ ============ Assuming full dilution $ 0.00 $ (.21) $ .55 $ (.50) ============ ============ ============ ============ Shares Used in Computing Earnings Per Common and Common Equivalent Share Primary 9,857,252 9,467,877 9,857,252 9,467,877 ============ ============ ============ ============ Assuming full dilution 9,857,252 9,467,877 9,857,252 9,467,877 ============ ============ ============ ============
See accompanying notes to these consolidated financial statements. F-3 11 GEOGRAPHICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 INCREASE (DECREASE) IN CASH (UNAUDITED)
September 30, September 30, ------------- ------------- 1998 1997 Restated ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 5,435,028 $(4,713,140) Adjustments to reconcile net income to net cash flows from operating activities Depreciation and amortization 888,177 892,340 (Gain) loss on sales of property and equipment -- 1,740 Changes in noncash operating assets and liabilities Trade receivables (89,411) 1,483,904 Other receivables (123,287) 172,904 Inventory 1,328,714 (29,924) Prepaid expenses, deposits and other current assets 10,668 129,079 Accounts payable (178,927) 1,739,780 Accrued liabilities (109,741) 431,548 ----------- ----------- Net cash flows from operating activities 7,161,222 107,672 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in bank overdrafts (69,527) 159,308 Net borrowings on note payable to bank (6,423,408) 2,105,805 Proceeds from long-term debt borrowings -- -- Repayment of long-term debt (668,565) (596,877) Repayments of notes payable to officers and directors -- (850,000) Proceeds from issuance of common stock -- (584) Foreign currency translation (33,898) 8,075 ----------- ----------- Net cash flows from financing activities (7,195,398) 825,726 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment (76,508) (1,215,600) ----------- ----------- Net cash flows from investing activities (76,508) (1,215,600) ----------- ----------- NET CHANGE IN CASH (110,684) (282,201) CASH, beginning of year 316,078 408,757 ----------- ----------- CASH, end of quarter $ 205,394 $ 126,556 =========== =========== NONCASH INVESTING AND FINANCING ACTIVITIES Financing obtained in acquisition of equipment $ -- $ 1,677,918 =========== ===========
See accompanying notes to these consolidated financial statements F-4 12 GEOGRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 financial 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, 1998. The consolidated financial statements include the accounts of Geographics and its wholly-owned subsidiaries: Geographics Marketing Canada Inc., Geographics (Europe) Limited and Geographics Australia, Pty. Limited. All intercompany balances and transactions have been eliminated. Certain of the Company's subsidiaries calculated cost of sales using an estimated gross profit method for interim periods. Cost of sales at these subsidiaries are adjusted based on physical inventories which are performed no less than quarterly. Reclassifications -- Certain prior year amounts have been reclassified to conform to current year presentation. Such reclassifications had no effect on previously reported earnings or financial position. NOTE 2 -- COMMITMENTS AND CONTINGENCIES Leases -- 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 in April 1999. The total minimum lease commitment is $64,770 in 1999. There are various additional 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 and any future unidentified claims will not have a material effect on the Company's financial position, results of operations or liquidity. Contingency for Year 2000 Issues - The Company has not yet made an assessment of the impact of the year 2000 on their computer software, hardware and other systems, including those of vendors, customers and other third parties. The potential expense to ensure that all of the computer and other systems are year 2000 compliant cannot be determined until such an assessment is made. Employment Contracts -- Subsequent to year end, the Company entered into employment contracts with Richard C. Gockelman, the Company's Chief Executive Officer and President. The employment arrangement with Mr. Gockelman provides for severance payments in the event his employment is terminated for certain specified reasons during the contract period. 13 Note 3 - Restatement and Reclassifications The Company has determined to restate its annual consolidated financial statements for the years ended March 31, 1999 and 1998. The following sets forth the effect and explanation of these adjustments and reclassifications:
AS PREVIOUSLY AS REPORTED ADJUSTMENTS RESTATED -------------- --------------------- ------------- AT SEPTEMBER 30, 1998: Accounts receivable, net $ 4,386,667 $ (151,596)(a)(b) $ 4,235,071 Inventory, net 5,640,285 (205,491)(c) 5,434,794 Current assets 11,178,597 (357,087)(a)(b)(c) 10,821,510 Total Assets 23,630,252 (357,087)(a)(b)(c) 23,273,165 Accrued Liabilities 2,428,117 201,061 (d)(e) 2,629,178 Current Liabilities 13,994,590 201,061 (d)(e) 14,195,651 Total Liabilities 18,179,279 201,061 (d)(e) 18,380,340 Accumulated Deficit (10,318,045) (558,148)(a)(c)(d)(e) (10,876,193) Stockholders' Equity 5,450,973 (558,148)(a)(c)(d)(e) 4,892,825 Total Liabilities and Stockholders' Equity $ 23,630,252 $ (357,057) $ 23,273,195 AS PREVIOUSLY AS REPORTED ADJUSTMENTS RESTATED -------------- --------------------- ------------- FOR THE QUARTER ENDED AT SEPTEMBER 30, 1998: Net sales $ 5,323,712 $ (352,680)(b)(d)(f) $ 4,971,032 Cost of Sales 2,406,166 $ 607,560 (c)(g) 3,013,726 Gross Margin 2,917,546 $ (960,240)(b)(c)(d)(f)(g) 1,957,306 Selling, General and Administrative 2,479,499 $ (829,699)(b)(c)(d)(f)(g) 1,649,800 Expenses Income (loss) from Operations 438,047 $ (130,541)(b)(c)(d)(f)(g) 307,506 Income (loss) from Continuing Operations 142,977 $ (130,542)(b)(c)(d)(f)(g) 12,435 Net Income $ 142,977 $ (130,542)(b)(c)(d)(f)(g) $ 12,435 Net Income Per Share $ 0.01 $ 0.01 $ -- FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998: Net sales $ 11,322,662 $ (557,798)(b)(d)(f) $ 10,764,864 Cost of Sales 5,244,372 1,361,149 (c)(g) 6,605,521 Gross Margin 6,078,290 (1,918,947)(b)(c)(d)(f)(g) 4,159,343 Selling, General and Administrative 5,172,096 (1,585,143)(b)(c)(d)(f)(g) 3,586,953 Expenses Income (loss) from Operations 906,194 (333,804)(b)(c)(d)(f)(g) 572,390 Income (loss) from Continuing Operations 258,070 (333,804)(b)(c)(d)(f)(g) (75,734) Proceeds from Sale of Core Business 5,657,580 (146,818)(e) 5,510,762 Net Income $ 5,915,650 $ (480,622)(b)(c)(d)(e)(f)(g) $ 5,435,028 Net Income Per Share $ 0.60 $ (0.05) $ 0.55
(a) In preparing its prior financial statements, the Company relied on information of a former sales manager to estimate sales returns. The Company later discovered that the sales manager failed to correctly identify the amount of sales returns that were due a particular customer. This resulted in an understatement of sales returns for the 14 six months ended September 30, 1998 and year ended March 31, 1998 of $19,201. (b) The Company increased the allowance for doubtful accounts by $132,395 in the fourth quarter of fiscal 1999. This adjustment was subsequently deemed to be more appropriately recorded in the fiscal quarter ended June 30, 1998. (c) The Company increased the allowance for doubtful accounts by $307,171 in the fourth quarter of fiscal 1999. Of this adjustment, $105,540 and $205,491 was subsequently deemed to be more appropriately recorded in the fiscal quarter and six months, respectively, ended September 30, 1998. (d) Geomarketing Canada ("GMC"), a wholly-owned subsidiary of the Company, is required to pay Canadian goods and services tax on the value of items sold in Canada. Subsequent to June 30, 1999, the Company discovered that GMC was declaring the goods at Canadian customs at a value that is less than the amount charged to its customers. This resulted in an overstatement of sales and understatement of liabilities for the years ended March 31, 1998 and 1999 by $58,325 and $166,201, respectively. (e) In connection with the sale of its sign business in the quarter ended June 30, 1998, the Company mistakenly received $146,818 in escrowed amounts that it was not entitled to. The Company initially kept the escrowed funds after the escrow company made an initial attempt to have the funds returned. However, the Company did not make a reserve for the potential return of the funds. This resulted in an overstatement of the gain on disposal of Core Business for the quarter ended June 30, 1998 of $146,818. (f) Reflects a reclassification of "back-end selling expenses" or certain advertising and promotional expenses, as sales, general and administrative expenses, rather than sales returns and allowances for the three months ended June 30, 1998 of $622,908. (g) Reflects a reclassification of freight and shipping expenses, as cost of sales, rather than sales, general and administrative expenses for the six months ended June 30, 1998 of $1,155,658. NOTE 4 -- GOING CONCERN As a result of the $8,649,618 loss incurred by the Company for the year ended March 31, 1998, a decline in gross profit margins, the Company's failure to comply with covenants under its line of credit and other factors, the report of the Company's auditors, dated September 22, 1998, relating to the Company's Consolidated Financial Statements for the year ended March 31, 1998 states that there is substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result from the outcome this uncertainty. 15 Although the Company's lender has permitted borrowings under the revolving credit facility, there can be no assurance that it will continue to do so. Accordingly, the Company is continuing to seek extended payment terms from its vendors, delaying purchases of raw materials, instituting internal cost reduction measures and taking other steps to conserve operating capital. As a result, the Company's vendors may place the Company on credit hold or take other actions against the Company, including the termination of their relationship with the Company or the initiation of collection proceedings. Further, there can be no assurance that the Company will be able to obtain additional sources of working capital when and as needed or that the terms of any such funding will be acceptable to the Company. Any equity financing may involve substantial dilution to the interests of the Company's shareholders. The failure to obtain an increase in borrowing availability under, and to extend the expiration date of, the revolving credit facility, or to otherwise obtain sufficient funds when and as needed to satisfy its working capital requirements could force the Company to curtail operations, seek extended payment terms from its vendors or seek protection under the federal bankruptcy laws. EX-27.1 2 c56534a1ex27-1.txt FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1999 JUL-01-1998 SEP-30-1998 205,394 0 5,128,396 819,988 5,434,794 10,821,510 12,069,454 0 23,273,165 14,195,651 4,184,689 0 0 15,769,018 (10,876,193) 23,273,165 4,971,032 4,971,032 3,013,726 1,957,306 24,641 0 270,430 12,435 0 12,435 0 0 0 12,435 0 0
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