<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 8
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 9
GEOGRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND MARCH 31, 1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, March 31,
1998 Restated 1998 Restated
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
F-2
<PAGE> 10
GEOGRAPHICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPT. 30, 1998 SEPT. 30, 1997 SEPT. 30, 1998 SEPT 30, 1997
Restated Restated
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
F-3
<PAGE> 11
GEOGRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
INCREASE (DECREASE) IN CASH (UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
------------- -------------
1998 1997
Restated
------------- -------------
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements
F-4
<PAGE> 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.
<PAGE> 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:
<TABLE>
<CAPTION>
AS PREVIOUSLY AS
REPORTED ADJUSTMENTS RESTATED
-------------- --------------------- -------------
<S> <C> <C> <C>
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
<CAPTION>
AS PREVIOUSLY AS
REPORTED ADJUSTMENTS RESTATED
-------------- --------------------- -------------
<S> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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.
<PAGE> 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.
