10-Q/A 1 c56703a1e10-qa.txt FORM 10-Q/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q/A AMENDMENT NO. 1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1999 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 No X --- ---- The aggregate market value of the common stock held by nonaffiliates of the registrant as of January 21, 2000 was $19,359,955 based on a closing sales price of $0.71875 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 January 21, 2000 was 26,935,589. DOCUMENTS INCORPORATED BY REFERENCE. NONE 2 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 nine months ended December, 1999, and other information relating to such restated condensed consolidated financial statements. Item 2 includes the Company's amended and restated discussion and analysis of financial condition and results of operations. Except for Items 1 and 2 and Exhibits 11 and 27.1, 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. 3 TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION..........................................................................................1 ITEM 1. FINANCIAL STATEMENTS..................................................................................1 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................................1 FORWARD-LOOKING STATEMENTS.............................................................................1 RESULTS OF OPERATIONS..................................................................................2 LIQUIDITY AND CAPITAL RESOURCES........................................................................3 ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................................4 PART II - OTHER INFORMATION.............................................................................................4 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................4 ITEM 5 - OTHER INFORMATION.....................................................................................5 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K......................................................................5 SIGNATURE...............................................................................................................5
-i- 4 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 December 31, 1999 (unaudited) and March 31, 1999 (audited), the unaudited statements of operations for the three months and nine months ended December 31, 1999 and December 31, 1998, and the unaudited consolidated statements of cash flows for the three months and nine months ended December 31, 1999 and December 31, 1998, together with the notes thereto. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto appearing elsewhere in this Report. FORWARD-LOOKING STATEMENTS Statements herein concerning expectations for the future constitute forward-looking statements which are subject to a number of known and unknown risks, uncertainties and other factors which might cause actual results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements herein include, but are not limited to, those concerning anticipated growth in the preprint paper market; anticipated growth in the Company's sales; anticipated growth in sales of file and storage cabinets 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; and the ability of the Company to increase its availability under its existing revolving credit facility and to raise additional debt or equity financing sufficient to meet its growing working capital requirements. Relevant risks and uncertainties include, but are not limited to, slower than anticipated growth of the preprint paper market; loss of certain key customers; insufficient consumer acceptance of the Company's specialty paper products and file and storage cabinets; 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; supply terms, reliable and immediately available raw material supply and other favorable terms with certain key vendors, 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; 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, 1999 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- 5 RESULTS OF OPERATIONS Three Months Ended December 31, 1999 vs. Three Months Ended December 31, 1998 NET SALES. Net sales increased 82% to $8,453,312 in the quarter ended December 31, 1999 from $4,657,676 in the quarter ended December 31, 1998. The increase was primarily attributable to new business generated from Sam's Club and a significant increase in the Company's seasonal programs at Office Depot and Business Depot which collectively accounted for net sales for the quarter of $2,240,025. In addition, the Company made higher accruals for customer program costs and credits ($1,332,015 or 14% of gross sales for the quarter ended December 31, 1999 compared to $408,240 or 8% of gross sales for the quarter ended December 31, 1998). The higher accruals are primarily due to increased sales return accruals due to the guaranteed sales associated with the seasonal sales programs. The Company's new management has adopted a philosophy to accrue the realistic amounts due under our customer programs throughout the year to better reflect anticipated results. GROSS MARGIN. Gross margin as a percentage of gross sales increased to 34% in the quarter ended December 31, 1999, from 30% in the same period in fiscal 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. While selling, general and administrative expenses increased to $2,466,088 in the quarter ended December 31, 1999 from $1,459,595 in the same period in fiscal 1999, the Company saw a decrease in these expenses as a percentage of gross sales to 25% in the quarter ended December 31, 1999 from 29% during the quarter ended December 31, 1998. The increase is primarily attributable to an increase in administrative salaries ($73,082), commissions and royalties ($66,875), catalog expenses ($80,124), and costs of refinancing ($85,316). OTHER INCOME (EXPENSE). Other income for the quarter ended December 31, 1999 amounted to $72,970 compared to other income of $4,834 for the quarter ended December 31, 1998. The change is due to the income recognized from favorable settlements of amounts owed vendors and others. INTEREST EXPENSE. Interest expense decreased to $266,231 (2.7% of gross sales) during the quarter ended December 31, 1999, compared to $274,029 (5.4% of gross sales) during the same period in fiscal 1999. The lower interest costs were caused by a decrease in borrowings of the Company, which were refinanced with the proceeds from the private placement of the Company's common stock, partially offset by amounts borrowed for working capital. See "Liquidity and Capital Resources." NET INCOME. Net income for the quarter ended December 31, 1999 was $221,391 or $0.01 per share compared to a loss of $331,832 or $.03 per share for the quarter ended December 31, 1998, primarily due to the aforementioned increase in sales and gross margin improvement. Nine Months Ended December 31, 1999 vs. Nine Months Ended December 31, 1998 NET SALES. Net sales increased 33% to $20,475,102 in the nine months ended December 31, 1999 from $15,422,540 in the nine months ended December 31, 1998. The increase was primarily attributable to new business generated from Sam's Club and an increase in the Company's seasonal programs to Office Depot and Business Depot which collectively accounted for net sales for the period of $3,161,959. In addition, the Company made higher accruals for customer program costs and credits ($2,986,069 or 13% of gross sales for the nine months ended December 31, 1999 compared to $1,487,048 or 9% of gross sales for the nine months ended December 31, 1998). The higher accruals are primarily due to increased sales return accruals due to the guaranteed sales associated with the seasonal sales programs. The Company's new management has adopted a philosophy to accrue the realistic amounts due under our customer programs throughout the year to better reflect anticipated results. -2- 6 GROSS MARGIN. Gross margin as a percentage of gross sales decreased to 27% in the nine months ended December 31, 1999, from 33% in the same period in fiscal 1999. The lower gross margin percentage is primarily attributable to the lower net sales as a result of the accruals of customer program costs as explained above, an increase in the cost of the Company's paper, plant wages and supplies, and an increase in freight accruals, and shipping costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $5,795,896 (25% of gross sales) during the nine months ended December 31, 1999 from $5,046,548 (30% of gross sales) in the same period in fiscal 1999. The increase is primarily attributable to an increase in travel expenses ($108,603), commissions and royalties ($65,200), refinancing costs ($81,575), and product development expenses ($51,180). OTHER INCOME (EXPENSE). Other income for the nine months ended December 31, 1999 amounted to $382,641 compared to other expense of $35,380 for the nine months ended December 31, 1998. The change is due to the income recognized from favorable settlements of amounts owed to vendors and others. INTEREST EXPENSE. Interest expense decreased to $687,800 (2.9% of gross sales) during the nine months ended December 31, 1999, compared to $881,939 (5.2% of gross sales) during the same period in fiscal 1999. The lower interest costs were caused by a decrease in borrowings of the Company which were refinanced with the proceeds from the private placement of the Company's common stock. See "Liquidity and Capital Resources." NET INCOME. Net income decreased to $303,003 or $0.02 per share for the nine months ended December 31, 1999 compared to net income of $5,103,196 for the nine months ended December 31, 1998, primarily due to the gain on the sale of the Core Business of $5,510,762 in 1998. On a comparable basis, for the nine months ended December 31, 1999 results of continuing operations improved to a net income of $303,003, or $.02 per share, compared to a net loss of $407,566, or $0.04 per share, for the nine months ended December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES As a result of the rapid growth of the Company's specialty papers, capital expenditures relating to the purchase and installation of an automated production system and a management information system, prior year operating losses, the Company has required substantial external working capital. The Company has previously experienced working capital shortfalls, which required the Company to delay payments to certain vendors, institute internal cost reduction measures and take other steps to conserve operating capital. The recapitalization has alleviated this problem. For the year ended March 31, 1999, operating losses totaled $3,166,163, however the Company experienced positive operating cash flows of $1,701,128. At the date of this Report, the Company's available source of working capital consisted of borrowings available under its revolving credit facility. On December 22, 1999, the Company successfully refinanced its revolving credit facility with US Bank, Milwaukee, Wisconsin. The revolving credit facility permits borrowings of up to $7.5 million subject to a borrowing base limitation of 75% 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. -3- 7 As of January 21, 2000, Geographics has received over $5,150,000 in a private placement of common stock through the Company and using Culverwell & Co., Inc. as placement agent, with proceeds to the Company at $0.30 per share. The offering prices were determined after giving effect to liquidity and minority discounts. The Company estimates that the effect of the Company's recapitalization plan will result in a decrease in interest expense in excess of $600,000 on an annualized basis. 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 3% in fiscal year 2000 relative to the currencies in which the Company's sales are denominated, income before taxes would decrease by $52,000 for the quarter ended December 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. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Sales Of Unregistered Securities During the quarter ended December 31, 1999, the Company issued 1,520,000 shares of common stock in a private placement at $.30 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 officers and directors of the Company purchased shares pursuant to the offering:
NAME POSITION SHARES ---- -------- ------ C. Joseph Barnette Director 170,000 ------- Total 170,000 =======
The balance of the shares were issued to accredited investors who had been solicited by Culverwell & Co., Inc. of Boston, Massachusetts. See "Liquidity and Capital Resources." -4- 8 ITEM 5 - OTHER INFORMATION New Products The Company has received substantial orders and commitments from several key customers for its line of plastic ready to assemble filing and storage cabinets. The Company expects these commitments to enhance its revenues beginning in the next two fiscal quarters. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 10.1 Loan and Security Agreement dated as of December 22, 1999 between the Company and U.S. Bank N.A. Milwaukee, Wisconsin 27.1 Financial Data Schedule for the quarter ended December 31, 1999. (b) There were no reports on Form 8-K filed during the quarter ended December 31, 1999. SIGNATURE 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 7th 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 -5- 9 GEOGRAPHICS, INC. FORM 10-Q EXHIBIT INDEX FOR THE QUARTER ENDED DECEMBER 31, 1999 Exhibit Number 10.1 Loan and Security Agreement dated as of December 22, 1999 between the Company and U.S. Bank N.A. Milwaukee, Wisconsin 27.1 Financial Data Schedule 10 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 (UNAUDITED) ASSETS
DECEMBER 31, 1999 MARCH 31, 1999 ----------------- -------------- RESTATED RESTATED (NOTE 2) (NOTE 2) CURRENT ASSETS Cash $ 643,345 $ 130,967 Accounts receivable Trade receivables, net 3,703,883 3,048,755 Other receivables 124,969 261,091 Inventory, net of allowance for obsolete inventory of $647,000 and $897,000 at December 31 and March 31, 1999 respectively 4,632,431 3,532,684 Prepaid expenses, deposits, and other current assets 651,911 853,357 ------------ ------------ Total current assets 9,756,539 7,826,854 PROPERTY, PLANT AND EQUIPMENT, NET 9,383,396 9,945,634 OTHER ASSETS 818,014 367,501 ------------ ------------ TOTAL ASSETS $ 19,957,949 $ 18,139,989 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Bank overdrafts $ 168,502 $ 253,425 Note payable to bank 5,531,192 4,896,912 Accounts payable 3,199,232 2,961,079 Accrued liabilities 1,415,895 2,896,332 Current portion of long-term debt 1,202,568 3,072,601 ------------ ------------ Total current liabilities 11,517,389 14,080,349 LONG-TERM DEBT 2,743,004 3,776,432 ------------ ------------ Total liabilities 14,260,393 17,856,781 ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT) No par common stock - 100,000,000 authorized, 26,935,589 and 9,857,252 issued and outstanding at December 31 and March 31, 1999 respectively 20,920,946 15,769,018 Accumulated other comprehensive income (262,630) (157,223) Accumulated deficit (14,960,760) (15,328,587) ------------ ------------ Total stockholders equity (deficit) 5,697,556 283,208 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 19,957,949 $ 18,139,989 ============ ============
F-1 11 GEOGRAPHICS, INC CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 ------------ ------------ ------------- ------------ RESTATED RESTATED RESTATED RESTATED (NOTE 2) (NOTE 2) (NOTE 2) (NOTE 2) SALES $ 9,785,327 $ 5,065,916 $ 23,461,171 $ 16,909,588 Allowances and Credits (252,185) (311,817) (1,202,102) (934,725) Sales Returns (1,079,830) (96,423) (1,783,967) (552,323) ------------ ------------ ------------- ------------ Net Sales 8,453,312 4,657,676 20,475,102 15,422,540 COST OF SALES 5,572,572 3,260,718 14,071,044 9,866,239 ------------ ------------ ------------- ------------ Gross Margin 2,880,740 1,396,958 6,404,058 5,556,301 S.G.& A. EXPENSES 2,466,088 1,459,595 5,795,896 5,046,548 ------------ ------------ ------------- ------------ Operating Income (Loss) 414,652 (62,637) 608,162 509,753 OTHER INCOME (EXPENSE) Interest Expense (266,231) (274,029) (687,800) (881,939) Other Income (Expense) 72,970 4,834 382,641 (35,380) ------------ ------------ ------------- ------------ Total Other Income (Expense) (193,261) (269,195) (305,159) (917,319) NET INCOME (LOSS) FROM CONTINUING OPERATIONS 221,391 (331,832) 303,003 (407,566) DISCONTINUED OPERATIONS Income from and gain on disposal of Core Business -- -- -- 5,510,762 ------------ ------------ ------------- ------------ NET INCOME (LOSS) $ 221,391 $ (331,832) $ 303,003 $ 5,103,196 ============ ============ ============= ============ EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Basic $ 0.01 $ (0.03) $ 0.02 $ 0.52 ============ ============ ============= ============ Diluted $ 0.01 $ (0.03) $ 0.02 $ 0.52 ============ ============ ============= ============ SHARES USED IN COMPUTING EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Basic 15,043,364 9,857,252 12,450,308 9,857,252 ============ ============ ============= ============ Diluted 15,422,953 9,857,252 12,829,897 9,857,252 ============ ============ ============= ============
F-2 12 GEOGRAPHICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1999 1998 -------------- ------------- RESTATED RESTATED (NOTE 2) (NOTE 2) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 303,003 $ 5,103,196 Adjustments to reconcile net income (loss) to net cash flows from operating activities Depreciation and amortization 989,450 1,138,905 (Gain) loss on sale/disposal of property and equipment 3,643 - Changes in noncash operating assets and liabilities Trade receivables (655,128) 949,842 Other receivables 136,122 76,663 Inventory (1,099,747) 1,748,355 Prepaid expenses, deposits and current assets 201,446 (84,168) Accounts payable 238,153 (97,260) Accrued liabilities (1,472,508) (853,164) -------------- ------------- Net cash flows from operating activities (1,355,566) 7,982,369 CASH FLOWS FROM FINANCING ACTIVITIES Decrease in bank overdrafts (91,923) 84,517 Net borrowings on note payable to bank 634,280 (6,721,970) Repayment of long-term debt (2,903,461) (1,007,055) Proceeds from notes payable to officers and directors 100,000 Repayment of notes payable to officers and directors (100,000) -- Proceeds from the issuance of common stock 4,951,648 -- Proceeds from the issuance of common stock for assets 200,280 -- Net change, foreign currency translation (41,662) (136,949) -------------- ------------- Net cash flows from financing activities 2,749,162 (7,781,456) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment (251,541) (76,508) Purchase of Innovative Storage Design Assets (261,163) -- Proceeds from sales of equipment 5,000 -- Increase in other assets (373,514) -- -------------- ------------- NET CHANGE IN CASH 512,378 124,405 CASH, BEGINNING OF PERIOD 130,967 316,078 -------------- ------------- CASH, END OF PERIOD $ 643,345 $ 440,483 ============== =============
F-3 13 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, 1999. 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. F-4 14 NOTE 2- RESTATEMENT AND RECLASSIFICATIONS The Company has determined to restate its annual consolidated financial statements and its quarterly condensed consolidated financial statements for the years ended March 31, 1999 and 1998, and interim quarters of 2000. The following sets forth the effect and explanation of these adjustments and reclassifications:
AS PREVIOUSLY AS REPORTED ADJUSTMENTS RESTATED -------- ----------- -------- AT DECEMBER 31, 1999 Accounts receivable, net $ 3,842,655 $ (138,772) (a)(b) $ 3,703,883 Current assets 9,895,311 (138,772) (a)(b)(c) 9,756,539 Total Assets 20,096,721 (138,772) (a)(b)(c) 19,957,949 - Accrued Liabilities 1,191,369 224,526 (d)(e) 1,415,895 Current Liabilities 11,292,863 224,526 (d)(e) 11,517,389 Total Liabilities 14,035,867 224,526 (d)(e) 14,260,393 Accumulated Deficit (14,597,462) (363,298) (a)(c)(d)(e) (14,960,760) Stockholders' Equity 6,060,854 363,298 (a)(c)(d)(e) 5,697,556 Total Liabilities and Stockholders' Equity $ 20,114,272 $ (138,772) $ 19,975,500
AS PREVIOUSLY ADJUSTMENTS AND AS REPORTED RECLASSIFICATIONS RESTATED -------- ----------------- -------- FOR THE QUARTER ENDED DECEMBER 31, 1999: Net sales $ 7,734,460 $ 718,852 (b)(d)(f) $ 8,453,312 Gross Margin 2,161,888 $ 718,852 (b)(c)(d)(f)(g) 2,880,740 Selling, General and Administrative Expenses 1,747,236 $ 718,852 (b)(c)(d)(f)(g) 2,466,088 FOR THE NINE MONTHS ENDED DECEMBER 31, 1999: Net sales $ 18,826,679 $ 1,648,423 (b)(d)(f) $ 20,475,102 Gross Margin 4,755,635 $ 1,618,723 (b)(c)(d)(f)(g) 6,404,058 Selling, General and Administrative Expenses 4,323,101 $ 1,472,795 (b)(c)(d)(f)(g) 5,795,896 Income (loss) from Operations 432,534 $ 175,628 (b)(c)(d)(f)(g) 608,162 Net Income (loss) $ 127,375 $ 175,628 (b)(c)(d)(f)(g) $ 303,003 Net Income(Loss) Per Share $ 0.01 $ 0.01 $ 0.02
F-5 15 NOTE 2- RESTATEMENT AND RECLASSIFICATIONS (CONTINUED) (a) In preparing its prior financial statements, Geographics relied on information of a former sales manager. Geographics later discovered that this former sales manager, who has since been terminated, 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 years ended March 31, 1998 and 1999 of $19,201 and 119,571, respectively. (b) Geomarketing Canada ("GMC"), a wholly-owned subsidiary of Geographics, is required to pay Canadian goods and services tax on the value of items sold in Canada. However, subsequent to June 30, 1999, Geographics 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 understatement sales, general and administrative expenses for the years ended March 31, 1998 and 1999 by $78,828 and $166,201, respectively. (c) At March 31, 1999, Geographics accrued $132,500 severance costs for certain former executives of Geographics. The restatement reflects Geographics' change in its accounting practices so as to accrue these expenses in the period in which they incurred in accordance with Staff Accounting Bulletin 100, dated November 24, 1999. (d) At March 31, 1999, Geographics accrued an estimated amount of $200,000 for incurred, but unbilled legal expenses. Subsequently, it was confirmed that the actual incurred legal expenses was approximately $100,000. (e) During the fiscal quarter ended March 31, 1999, Geographics implemented a new accounting program to calculate costs associated with customer promotions. Subsequently, Geographics discovered that the program did not accurate calculate these costs. This error resulted in an understatement of sales, general and administrative expenses for the year ended March 31, 1999 by $261,310. (f) In connection with the sale of its sign business in the year ended March 31, 1999, Geographics mistakenly received approximately $146,818 in escrowed amounts that it was not entitled to. Geographics initially kept the escrowed funds after the escrow company made an initial attempt to have the funds returned. However, Geographics never made a reserve for the potential loss of the funds. This resulted in an understatement of sales, general and administrative expenses from discontinued operations for the year ended March 31, 1999 of $146,818. (g) Reflects an accounting change to classify "back-end selling expenses," or certain advertising and promotional expenses, as sales, general and administrative expenses, rather than sales returns and allowances for the nine months ended December 31, 1999 in the amount of $1,387,113. F-6