10-Q 1 c64600qe10-q.txt QUARTERLY REPORT 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, 2001 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to ----- ----- Commission file number 0-26756 GEOGRAPHICS, INC. (Exact Name of Registrant as Specified in Its Charter) ---------------- DELAWARE 87-0305614 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1555 ODELL ROAD, P. O. BOX 1750, BLAINE, WASHINGTON 98231 (Address and Zip Code of Principal Executive Offices) Registrant's Telephone Number, Including Area Code (360) 332-6711 ---------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, $.001 PAR VALUE Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No ---- ---- The aggregate market value of the common stock held by nonaffiliates of the registrant as of August 3, 2001 was $6,750,983 based on a closing sales price of $0.30 per share on the NASDAQ OTC Bulletin Board on such date. The number of shares outstanding of the registrant's common stock, $.001 par value per share, as of August 3, 2001 was 38,191,676. 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. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.............................................3 PART II - OTHER INFORMATION.............................................................................................4 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................4 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K......................................................................4 SIGNATURE...............................................................................................................5
-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, 2001 (unaudited) and March 31, 2001, the unaudited statements of operations for the three months ended June 30, 2001 and June 30, 2000, and the unaudited consolidated statements of cash flows for the three months ended June 30, 2001 and June 30, 2000, 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, the Company's lack of profitability and questions about its ability to continue as a going concern; material weaknesses in its internal controls; 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; 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, 2001 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 decreased 7.4% to $8,524,185 in the quarter ended June 30, 2001 from $9,204,674 in the quarter ended June 30, 2000. The decrease was attributable to the general decline in sales in the office products industry, coupled with the conversion of the Company's ready-to-assemble plastic storage and filing cabinet business to a direct import representation basis. The Company made higher accruals for sales returns and allowances ($1,495,073 or 14.9% of gross sales for the quarter ended June 30, 2001 compared to $1,233,699 or 11.8% of gross sales for the quarter ended June 30, 2000). 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 14.8% in the quarter ended June 30, 2001, from 25.9% in the same period in fiscal 2000. The lower gross margin is primarily attributable to the increase in accruals for returns and allowances, higher cost of sales and higher freight and shipping expenses. Fiscal 2002 margins are roughly comparable to the margins recorded for the entire fiscal year 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased to $1,914,579 (19.1% of gross sales) in the quarter ended June 30, 2001 from $2,134,858 (20.5% of gross sales) in the quarter ended June 30, 2000. This decrease is primarily attributable to reductions in initial promotional costs and travel costs associated with the startup of the ready-to-assemble plastic storage and filing cabinets, and the integration costs of the Domtar product line acquired in the quarter ended June 30, 2000. OTHER INCOME (EXPENSE). Other expense for the quarter ended June 30, 2001 amounted to $13,289 compared to $14,378 for the quarter ended June 30, 2000. Other expense in both fiscal 2001 and 2000 is principally realized foreign exchange losses INTEREST EXPENSE. Interest expense decreased to $218,264 (2.2% of gross sales) during the quarter ended June 30, 2001, compared to $221,815 (2.1% of gross sales) during the same period in fiscal 2000. The lower interest costs were caused by an overall decrease in the cost of funds from falling interest rates. 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, the opening of its Waukesha, Wisconsin distribution facility and the closing of four warehouse locations, the Company has required, and continues to require, substantial external working capital. During the quarter ended June 30, 2001, operating losses totaled $(429,957), however, the Company experienced positive operating cash flows of $385,787. At the date of this Report, the Company's only available source of working capital consists of borrowings available under its revolving credit facility, which expires on September 30, 2001. 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 qualified inventories. Borrowings under the facility bear interest at LIBOR plus 2.5% and are secured by substantially all of the Company's assets. Borrowings under this facility were $7,931,861 at June 30, 2001. Under the terms of the facility, the Company is required to comply with a number of financial -2- 5 covenants relating to, among other things, the maintenance of minimum net worth, earnings, debt-to-equity ratios and cash flow coverage ratios. As of June 30, 2001 the Company was not in compliance with certain financial covenants as required by the revolving credit facility. The Company has not yet requested waivers for the violations as of June 30, 2001. The Company anticipates waivers will be obtained in the near term, however while in default of the covenants, U.S. Bank has rights and remedies available under the credit agreement, up to an including requiring the loan to be immediately due and payable in full. The Company is in discussions with U.S. Bank for an additional mortgage loan. There can be no assurance that U.S. Bank will grant waivers and/or agree to the additional mortgage loan or that the Company will be able to refinance or replace its revolving credit facility on acceptable terms when and as needed. Management believes that its consolidation of multiple distribution facilities into its Waukesha, Wisconsin facility, licensing agreements with Atlanta Group, BV, and with its Mexican distribution partner, the establishment of the direct supply agreement for GeoFile products, and local manufacture of products for its Australian subsidiary will improve liquidity and contribute positively towards regaining compliance with financial covenants. Management has also prepared preliminary plans for further operational consolidations, should the actions already taken prove insufficient to restore compliance and necessary liquidity. The failure to obtain an additional mortgage 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. The Company operates in a highly competitive environment. Many of the Company's competitors are larger, better capitalized and have substantially greater financial, marketing and human resources. The Company currently does not have the financial ability 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 other items that may be necessary to remain competitive. The Company issued a total of $1,200,000 in 10% Convertible Subordinated Notes dated April 27, 2001. The notes are due and payable on or before April 27, 2003 and are subordinated to indebtedness to the Company's senior bank lender. At the option of the holder, the notes may be converted into shares of the Company's common stock at the rate of $.20 per share of stock. The report of the Company's auditors dated June 28, 2001 relating to the Company's Consolidated Financial Statements for the fiscal year ended March 31, 2001 states that the Company's fiscal year 2001 net loss, working capital deficiency and accumulated deficit at March 31, 2001, raise substantial doubt about the Company's ability to continue as a going concern. The Company's Consolidated Financial Statements for the fiscal quarter ended June 30, 2001 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Substantially all of the revenue and operating expenses of the Company's foreign subsidiaries are denominated in local currencies and translated into US dollars at rates of exchange approximating those existing at the date of the transactions. Foreign currency translation impacts primarily revenue and -3- 6 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 2001 relative to the currencies in which the Company's sales are denominated, income before taxes would decrease by approximately $28,000 for the quarter ended June 30, 2001. 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 The Company issued a total of $1,200,000 in 10% Convertible Secured Subordinated Notes dated April 27, 2001 pursuant to exemptions under Sections 4(2) and 4(6) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The notes bear interest at the rate of 10%, are due and payable on or before April 27, 2003 and are subordinated to indebtedness of U.S. Bank, the Company's senior bank lender. At the option of the holder, the notes may be converted into shares of the Company's common stock at the rate of $.20 per share of stock, in the minimum amount of $10,000 and $5,000 increments thereafter. The following officers and directors of the Company acquired notes pursuant to the offering: James L. Dorman Chairman and Chief Executive Officer $100,000 William T. Graham Director 50,000 Jack Stein Director 100,000 Roger R. Mayer Director 50,000 -------- $300,000 ========
The balance of the notes were issued to accredited investors who had been solicited by officers, directors and shareholders of the Company. ITEM 3. DEFAULTS UPON SENIOR SECURITIES As of June 30, 2001, the Company had borrowings of $7,931,861 on its revolving credit facility with U.S. Bank, which expires September 30, 2001. As of June 30, 2001, the Company was not in -4- 7 compliance with certain covenants under the credit facility regarding minimum earnings and net worth requirements. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) No reports on Form 8-K were filed during the quarter ended June 30, 2001. The following reports were filed during the quarter ended September 30, 2001. - Form 8-K relating to the resignation of KPMG LLP as the Company's independent auditors, filed August 2, 2001. - Form 8-K relating to the appointment of Wipfli Ullrich Bertleson LLP as the Company's independent auditors, filed August 13, 2001, SIGNATURES 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 20th day of August, 2001. GEOGRAPHICS, INC. By: /s/ James L. Dorman ------------------------------------- James L. Dorman President and Chief Executive Officer By: /s/ Michael Oakes ------------------------------------- Michael Oakes Controller -5- 8 GEOGRAPHICS, INC CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2001 AND MARCH 31, 2001 ASSETS
JUNE 30, 2001 MARCH 31, 2001 ------------------ -------------------- (UNAUDITED) CURRENT ASSETS Cash $ 177,135 $ 421,049 Accounts receivable Trade receivables, net of allowances of $1,379,000 and $1,042,000 at June 30 and March 31, 2001, respectively 5,259,308 7,188,772 Other receivables 193,798 155,281 Inventories 7,268,294 6,634,321 Prepaid expenses, deposits, and other current assets 564,605 603,950 ------------ ------------ Total current assets 13,463,140 15,003,373 PROPERTY, PLANT AND EQUIPMENT, NET 9,140,811 9,007,234 LICENSES, TRADEMARKS AND OTHER INTANGIBLE ASSETS 2,906,707 3,126,512 OTHER ASSETS 242,005 198,377 ------------ ------------ TOTAL ASSETS $ 25,752,663 $ 27,335,496 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdrafts $ 401,407 $ 975,489 Note payable to bank 7,931,861 8,406,861 Accounts payable 5,919,094 5,401,482 Accrued liabilities 2,880,972 4,237,110 Current portion of long-term debt 879,934 974,790 ------------ ------------ Total current liabilities 18,013,268 19,995,732 LONG-TERM DEBT 2,626,795 1,628,908 ------------ ------------ Total liabilities 20,640,063 21,624,640 ------------ ------------ STOCKHOLDERS' EQUITY Common stock, $0.001 par value - 100,000,000 shares authorized; 38,191,676 shares issued and outstanding at June 30 and March 31, 2001, respectively 38,192 38,192 Additional paid-in capital 26,196,685 26,190,460 Accumulated other comprehensive income (361,499) (418,528) Accumulated deficit (20,760,778) (20,099,268) ------------ ------------ Total stockholders' equity 5,112,600 5,710,856 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,752,663 $ 27,335,496 ============ ============
F-1 9 GEOGRAPHICS, INC CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2001 2000 --------------- ------------ SALES $ 10,019,258 $ 10,438,343 Returns and Allowances (1,495,073) (1,233,669) ------------ ------------ Net Sales 8,524,185 9,204,674 COST OF SALES 7,039,562 6,499,410 ------------ ------------ Gross Margin 1,484,623 2,705,264 S.G.& A. EXPENSES 1,914,580 2,134,858 ------------ ------------ Operating Income (Loss) (429,957) 570,406 OTHER INCOME (EXPENSE) Interest Expense (218,264) (221,815) Other Income (Expense) (13,289) (14,378) ------------ ------------ Total Other Income (Expense) (231,553) (236,193) ------------ ------------ NET INCOME (LOSS) BEFORE TAX (661,510) 334,213 PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET INCOME (LOSS) $ (661,510) $ 334,213 ============ ============ EARNINGS PER COMMON SHARE Basic $ (0.02) $ 0.01 ============ ============ Diluted $ (0.02) $ 0.01 ============ ============ SHARES USED IN COMPUTING EARNINGS PER COMMON SHARE Basic 35,283,729 35,831,552 ============ ============ Diluted 35,283,729 36,711,254 ============ ============
F-2 10 GEOGRAPHICS. INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2001 2000 -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (661,510) $ 334,213 Adjustments to reconcile net income (loss) to net cash flows from operating activities Depreciation and amortization 687,187 407,313 Loss on sale/disposal of property and equipment 1,263 -- Stock-based compensation 6,225 26,694 Changes in noncash operating assets and liabilities Trade receivables 1,929,465 (569,402) Other receivables (38,516) (23,273) Inventories (633,973) (1,120,036) Prepaid expenses, deposits and other assets 39,345 (74,067) Licenses, trademarks and other intangible assets (31,314) 67,241 Other assets (73,861) 258,263 Accounts payable 517,613 283,206 Accrued liabilities (1,356,137) 683,688 ----------- ----------- Net cash flows from operating activities 385,787 273,840 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in bank overdrafts (574,082) 569,128 Net borrowings on note payable to bank (475,000) 88,025 Repayment of long-term debt (296,973) (386,487) Proceeds from issuance of subordinated debentures 1,200,000 Proceeds from notes payable to officers and directors 1,000,000 1,000,000 Repayment of notes payable to officers and directors (1,000,000) (1,000,000) Proceeds from issuance of common stock -- 4,338,850 ----------- ----------- Net cash flows from financing activities (146,055) 4,609,516 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment (506,940) (77,181) Proceeds from sales of equipment 11,374 -- Acquisition of Domtar Consumer Products assets for cash -- (4,606,924) ----------- ----------- Net cash flows from investing activities (495,566) (4,684,105) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 12,820 (689) ----------- ----------- NET CHANGE IN CASH (243,014) 198,562 CASH, BEGINNING OF PERIOD 420,149 360,612 ----------- ----------- CASH, END OF PERIOD $ 177,135 $ 559,174 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest $ 227,507 $ 207,248 =========== ===========
F-3 11 NOTE 1- BASIS OF PRESENTATION 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, 2001. 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. NOTE 2- FUTURE ACCOUNTING CHANGES In April, 2001, the Emerging Issues Task force (EITF) reached a consensus on certain issues within Issue 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products". The EITF concluded that consideration from a vendor to a reseller of the vendor's products, such cooperative advertising programs, should be recognized as a reduction of revenue when recognized in the vendor's income statement. Application of EITF 00-25 is required no later than in annual or interim financial statement periods beginning after December 15, 2001. Upon application of this Issue, financial statements for prior periods presented for comparative purposes should be reclassified to comply with the income statement display requirements. The Company has not yet determined the impact of the adoption of this Issue on the Company's consolidated financial statements. In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations", and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141 requires the use of the purchase method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how intangible assets acquired outside of a business combination should be accounted for upon acquisition and how goodwill and other intangible assets should be accounted for after they have been initially recognized. SFAS No. 142 eliminates the amortization for goodwill and other intangible assets with indefinite lives. Other intangible assets with a finite life will be amortized over their useful life. Goodwill and other intangible assets with indefinite useful lives shall be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Management, at this time, cannot determine the effect that adoption of SFAS No. 142 may have on the financial statements of the Corporation as the statement requires a comprehensive review of previous combinations accounted for under the purchase accounting method and an analysis of impairment as of the date of adoption. The impairment analysis for goodwill and F-4 12 other intangible assets with an indefinite useful life has not been completed. The impairment analysis will be completed within the timelines outlined in SFAS No. 142. NOTE 3- COMPREHENSIVE INCOME Comprehensive income (loss) was as follows:
Three Months Ended June 30, ----------------------------------- 2001 2000 ---- ---- Net Income (Loss) $(661,510) $ 334,213 Other comprehensive income (loss) Foreign currency translation adjustment 57,029 (689) --------- --------- Comprehensive Income (Loss) $(604,481) $ 333,524 ========= =========
NOTE 4- NET INCOME (LOSS) PER SHARE The numerators and denominators of basic and diluted income (loss) per share during the three month periods ended June 30 are as follows:
2001 2000 ---- ---- Net Income (loss) (numerator) $ (661,510) $ 334,213 ============ ============ Shares used in the calculation (denominator) Weighted average shares outstanding 35,283,729 35,831,552 Effect of dilutive stock options and warrants -- 879,702 ------------ ------------ Diluted shares 35,283,729 36,711,254 ============ ============
Options and warrants to purchase shares of common stock were outstanding during the three-month periods ending June 30, 2001 and 2000. However, these shares were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common shares, and the effect would therefore be antidilutive. The number of shares excluded from the computation were 9,450,000 and 2,570,298 for the three months ended June 30, 2001 and 2000, respectively. F-5