<PAGE>   1


                    U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-K

       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

         X        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                    For the Fiscal Year Ended March 31, 1998
                                       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
                                                                ---------------
Indicate by checkmark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's            __
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

     The aggregate market value of the common stock held by nonaffiliates of the
registrant as of May 21, 1999 was $3,696,470 based on a closing sales price of
$0.375 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 May 21, 1999 was 9,857,252.

                      DOCUMENTS INCORPORATED BY REFERENCE.
                                     None.





<PAGE>   2


                               TABLE OF CONTENTS


<TABLE>
<S>                                                               <C>
PART I                                                           PAGE
    ITEM 1.
         BUSINESS                                                   1
         GENERAL                                                    1
         LATE-FILING; SUBSEQUENT EVENTS & FILINGS                   1
         FORWARD-LOOKING STATEMENTS                                 2
         BACKGROUND                                                 2
         INDUSTRY                                                   3
         PRODUCTS                                                   4
         SALES BY PRODUCT CATEGORY                                  4
         SALES/ASSETS BY GEOGRAPHIC LOCATION                        5
         BUSINESS CONCENTRATIONS                                    6
         PURCHASING                                                 6
         DISTRIBUTION                                               7
         COMPETITION                                                7
         TRADEMARKS AND COPYRIGHTS                                  8
         SEASONALITY                                                8
         EMPLOYEES                                                  8
         EQUIPMENT INTEGRATION                                      9
         INVESTIGATION OF FORMER MANAGEMENT                         9
         RISK FACTORS                                              11
         ABILITY TO CONTINUE AS A GOING CONCERN; DEFAULTS UNDER
         CREDIT FACILITY; NEED FOR ADDITIONAL WORKING CAPITAL      11
         COMPETITION                                               12
         CUSTOMER CONCENTRATIONS                                   12
         DEPENDENCE ON KEY VENDORS                                 13
         TECHNOLOGY CHANGES AFFECTING PRODUCTS                     13
         UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS      13
         DELISTING FROM NASDAQ SMALLCAP MARKET AND TORONTO
         STOCK EXCHANGE                                            14
         APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCK       14
         EXISTENCE OF WARRANTS AND OPTIONS AND POSSIBLE DILUTION   14
         FLUCTUATIONS OF QUARTERLY RESULTS; SEASONALITY            15
         VOLATILITY OF STOCK PRICE                                 15
</TABLE>


                                       -i-



<PAGE>   3

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<S>                                                               <C>
                                                                 PAGE
             YEAR 2000 ISSUES                                      15
    ITEM 2.  DESCRIPTION OF PROPERTIES                             16
    ITEM 3.  LEGAL PROCEEDINGS                                     16
    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS   17
PART II                                                            17
    ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
             STOCKHOLDER MATTERS                                   17
             PRICE RANGE OF COMMON STOCK                           17
             DIVIDENDS                                             18
    ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA                  18
    ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS                   20
             RESULTS OF OPERATIONS                                 20
             1998 COMPARED TO 1997                                 21
             1997 COMPARED TO 1996                                 22
             LIQUIDITY AND CAPITAL RESOURCES                       23
    ITEM 8.  FINANCIAL STATEMENTS                                  24
    ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE                   25
PART III                                                           25
    ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT   25
              BOARD AND COMMITTEE MEETINGS                         26
              BOARD INTERLOCKS AND INSIDER PARTICIPATION           26
              SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
              COMPLIANCE                                           26
    ITEM 11.  EXECUTIVE COMPENSATION                               27
              STOCK OPTION GRANTS AND EXERCISES                    27
              DIRECTOR COMPENSATION                                27
              EMPLOYMENT AGREEMENTS                                27
    ITEM 12.  STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER
              HOLDERS                                              28
    ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS       28
PART IV                                                            28
    ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
              REPORTS ON FORM 8-K                                  28
</TABLE>


                                      -ii-



<PAGE>   4

                               TABLE OF CONTENTS
                                  (continued)


<TABLE>                                                          PAGE
<S>                                                               <C>

SIGNATURES                                                         30
</TABLE>


                                      -iii-



<PAGE>   5


                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Geographics, Inc.  (the "Company" or "Geographics") was incorporated as a
Wyoming corporation on September 20, 1974.  The Company is engaged in the
development, manufacture, marketing and distribution of specialty paper
products, generally made using pre-printed designs, including stationery,
business cards, brochures, memo pads and paper cubes.

     The Company's fiscal year end is March 31.  The Company's executive
offices and domestic operations are located at 1555 Odell Road, Blaine,
Washington 98231, and its telephone number is (360) 332-6711.

LATE-FILING; SUBSEQUENT EVENTS & FILINGS

     The Company has not timely filed all reports required to be filed by it by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, despite the fact that it has been subject to such filing
requirements for the past 90 days.

INFORMATION SET FORTH IN THIS FORM 10-K GENERALLY COVERS THE COMPANY'S FISCAL
YEAR ENDED MARCH 31, 1998 AND MUST ONLY BE READ IN CONJUNCTION WITH THE
COMPANY'S MOST RECENT REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.

     There has been a significant change in the composition of the Company's
senior management and the Board of Directors in the past two years.  As of
March 31, 1997, the Board of Directors of the Company consisted of Mr. Ronald
S. Deans, Mr. Mark G. Deans, Mr. R. Scott Deans, Mr. Luis Alberto Morato, Mr.
Alan D. Tuck, Jr. and Mr. Robert S. Parker.  During the year ended March 31,
1998, Messrs. Mark Deans, Scott Deans, Morato and Tuck resigned from the Board
and were replaced by Mr. David P. McCleery and Mr. Raymond P. Maxon.  In July
1998, Messrs. Ron Deans, McCleery and Maxon resigned from the Board and were
replaced by Richard C. Gockelman, who became the sole director, President and
Chief Executive Officer of the Company.   In December 1998, Messrs. William T.
Graham, C. Joseph Barnette, John F. Kuypers,  William S. Hanneman and David C.
Lentz  were appointed as directors.  On April 16, 1999, the Company held a
special meeting of shareholders (the "Special Meeting") (the first
shareholders' meeting in over two years).  At the Special Meeting, the
shareholders removed Messrs. Gockelman, Hanneman, Lentz and Kuypers, as
Directors, re-elected Messrs. Graham and Barnette as Directors and elected Mr.
James L. Dorman as Director.  The newly appointed Board of Directors appointed
Mr. Dorman as Chairman and Chief Executive Officer and placed Mr. Gockelman,
the Company's President, on paid administrative leave.

     The Company's former directors and officers did not comply with the
Company's obligations to timely file its reports under the Securities Exchange
Act of 1934, as amended, including the filing of this Annual Report on Form
10-K. None of current directors served on the Board during the fiscal year
ended March 31, 1998.  Therefore, the information contained in this Annual
Report on Form 10-K is based solely upon the Company's books and records and
upon the audit report of Moss Adams LLP attached hereto.  Although the current
Board of Directors believes that the information contained in this Annual
Report on Form 10-K is materially accurate, they are unable to independently
verify such information.

     Potential investors should realize that material, subsequent developments
with respect to the Company's business, operations and financial condition
which have occurred from and after March 31,

                                       -1-



<PAGE>   6




1998 are more fully described in each of the following reports filed by the
Company on or before March 23, 1999:

      1.   Form 10-Q for the period ending December 31, 1998;
      2.   Form 10-Q for the period ending September 30, 1998; and
      3.   Form 10-Q for the period ending June 30, 1998.

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 its electronic data interchange system, adequate
to meet operations requirements in the future and to improve its internal
controls; the ability of the Company to refinance its existing revolving credit
facility, to identify potential buyers for all or part of its business or to
raise additional debt or equity financing sufficient to meet its working
capital requirements; and the ability of the Company to continue operations as
a going concern.

     Relevant risks and uncertainties include, but are not limited to, slower
than anticipated growth of the preprint papers market; loss of certain key
customers; insufficient consumer acceptance of the Company's specialty paper
products; unanticipated actions, including price reductions, by the Company's
competitors; unanticipated increases in the costs of raw materials used to
produce the Company's products; loss of favorable trade credit, supply terms,
reliable and immediately available raw material supply and other favorable
terms with certain key vendors; greater than expected costs incurred in
connection with the implementation of a management information system; failure
to realize expected economic efficiencies of the Company's automated production
system; the inability to hire and retain key personnel; unexpected increases in
the overall costs of production as a result of collective bargaining
arrangements; unfavorable determinations of pending lawsuits or disputes; and
inability to secure additional working capital when and as needed.

     Additional risks and uncertainties include those described under "Risk
Factors" below and those described from time to time in the Company's other
filings with the Securities and Exchange Commission, press releases and other
communications.

BACKGROUND

     From its inception in 1974 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 made using Geopaper
designs, including stationery, business cards, brochures, memo pads, poster
boards and paper cubes which, in North America, are sold primarily to office
supply superstores, including Office Depot, and mass market retailers, such as
Wal-Mart, and which are also distributed internationally through the


                                       -2-



<PAGE>   7


Company's subsidiaries in Europe and Australia.  The specialty papers group
constitutes the Company's principal business, with approximately 78% of the
Company's total sales in fiscal year 1998 attributable to sales of Geopaper
products.  On May 4, 1998, the Company sold substantially all of its assets
related to its signage and lettering operating assets to Identity Group, Inc.
for aggregate consideration of $16,820,000.  Primarily as a result of sales
generated by the specialty papers group, the Company experienced growth, with
total sales increasing from $6,900,875 from fiscal year 1994 to $24,097,845 for
fiscal year 1998, an increase of 246%.

     Primarily to develop its specialty papers group, the Company made
substantial investments to expand facilities, purchase and install automated
production equipment and an integrated management information system and
enhance administrative and other infrastructure systems.  The Company
experienced delays and unanticipated additional expenses in the installation of
the production equipment and its management information system.  Unanticipated
expenses relating to problems with the installment of the company's management
information systems and operational inefficiencies, together with price
reductions for the Company's products and cost increases for certain raw
materials, had a negative impact on the Company's gross margins and contributed
to a substantial net loss for fiscal year 1998.

     Since May 1997, the Company has been in default of several financial
covenants under its revolving credit facility, the Company's primary source of
working capital, and borrowings under the facility have exceeded permitted
borrowing base limitations.  The existence of these defaults constitutes a
default under the Company's mortgage loans and equipment lease facilities.  The
report of the Company's auditors included in this Form 10-K states that the
Company's fiscal year 1998 losses and non-compliance with covenants under its
revolving credit facility raise and continue to raise substantial doubt about
the Company's ability to continue as a going concern.

     The Company has been able to successfully negotiate a forbearance
agreement with its revolving credit lender.  However, a failure by the Company
to obtain (a) an increase in borrowing availability under the revolving credit
facility, (b) an extension to its forbearance agreement and (c) additional,
alternative funds when and as needed to satisfy its working capital
requirements may force the Company to curtail operations, seek extended payment
terms from its vendors or seek protection under the federal bankruptcy law.
See "Risk Factors--Ability to Continue as a Going Concern; Defaults under
Credit Facility; Need for Additional Working Capital" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

INDUSTRY

     The market for preprinted papers ("preprints") includes preprinted cut
sheet papers used for letterheads, brochures, flyers and bulletins.  Suppliers
within the preprint industry also offer combination sets made up of multiple
products such as matching letterhead, envelopes and business cards, or software
packages that improve ease of use of preprints by the consumer.  New designs
and a large variety of preprints and related specialty products have been
important elements of success and growth for businesses in the preprint market.

     The preprint market is segmented among two major methods of distribution:
retail and direct mail.  Within the retail segment of the preprint market there
are numerous sub-segments, including office supply superstores, mass market
retailers, arts & crafts stores, party stores, specialty paper retailers, and
office supply business-to-business retailers.  The Company sells its specialty
paper


                                       -3-



<PAGE>   8


products exclusively in the retail segment of the preprint market, primarily to
office supply superstores such as Office Depot and Office Max and mass market
retailers such as Wal-Mart.

     Large retailers somewhat dominate the retail segment of the preprint
industry, and as such, exert considerable influence over the operations of the
relatively smaller suppliers, such as the Company, that service them in the
preprint market.  Of particular importance are factors such as pricing,
monetary requirements for retailer's selling programs (including such expenses
as volume rebates and advertising allowances), prompt order turnaround which in
turn requires the maintenance of large inventories, and payment terms,
including prompt pay discounts and extended and seasonal terms.  See "Risk
Factors--Competition", "--Maintenance of Large Inventory of Products" and
"--Customer Concentrations."

     Compared to the preprint market, during fiscal year 1998, the market for
the Company's lettering and signage products was smaller, more mature,
slower-growing and more narrowly focused on the office supply and arts and
crafts market.  Though the total dollar volume of this market segment is
unknown, the Company experienced little or no growth in its lettering and
signage revenues over the past five years.

PRODUCTS

     After the sale of its signage and lettering business on May 4, 1998, the
Company's product line is specialty papers.

SALES BY PRODUCT CATEGORY

     The percentage of the Company's approximate total sales attributable to
each class of product offered by the Company for the last three years is set
forth below.

                            AS A PERCENTAGE OF SALES

<TABLE>
<CAPTION>
CLASS OF PRODUCT                                        FISCAL YEAR
----------------                                      ----------------
                                                      1998  1997  1996
                                                      ----  ----  ----
<S>                                                   <C>   <C>   <C>
Designer stationaries and specialty papers            75%   67%   71%
Lettering, signage, stencil and graphic art products  25%   33%   29%
</TABLE>

                       STATED IN U.S.  DOLLARS (ROUNDED)

<TABLE>
<CAPTION>
CLASS OF PRODUCT                                                   FISCAL YEAR
----------------                                      --------------------------------------
                                                         1998         1997          1996
                                                      -----------  -----------  ------------
<S>                                                   <C>          <C>          <C>
Designer stationeries and specialty papers            $19,976,920  $14,028,746   $16,075,000
Lettering, signage, stencil and graphic art products  $ 6,599,000  $ 6,789,000   $ 6,500,000
</TABLE>


                                       -4-



<PAGE>   9




                      SALES/ASSETS BY GEOGRAPHIC LOCATION

     Financial information relating to foreign and domestic operations and
export sales (all foreign sales are export sales) is as follows:

<TABLE>
<CAPTION>
CLASS OF PRODUCT                                  FISCAL YEAR
----------------                ------------------------------------------------
                                         1998          1997            1996
                                     ------------  -------------  --------------
<S>                                  <C>           <C>            <C>
Sales to Domestic and Foreign
Customers
 United States                       $17,774,299    $11,637,497      $12,939,098
 Canada(1)                           $ 4,082,664    $ 3,872,621      $ 2,854,935
 Europe                              $ 1,197,192    $   715,327      $   281,330
 Australia                           $ 1,043,690    $   825,697                0
                                     -----------   ------------   --------------
Total                                $24,097,845    $17,051,142      $16,075,363
                                     ===========   ============   ==============
Operating profit or (loss):
 United States                        (7,261,961)    (6,587,756)     $   944,157
 Canada(1)                              (301,179)      (473,296)     $   377,328
 Europe                                 (489,263)      (727,467)     $    65,316
 Australia                           $    40,684    $   189,715                0
                                                   ------------   --------------
Total                                 (8,011,719)    (7,598,804)     $ 1,386,801
                                     ===========   ============   ==============
Identifiable assets:
 United States                       $21,677,859    $27,464,715      $24,263,181
 Canada(1)                           $ 1,122,452    $   940,046      $   410,060
 Europe                              $ 1,321,662    $ 1,058,046      $    64,800
 Australia                           $ 1,222,992    $   782,894                0
                                     -----------   ------------   --------------
Total                                $25,344,965    $30,245,701      $24,738,041
                                     ===========   ============   ==============
</TABLE>

(1) Effective April 1, 1996, Geographics--Canada succeeded Martin Distribution,
Inc.  ("Martin Distribution") as the exclusive importer of Geographics products
into Canada.  Martin Distribution was at the time owned and controlled by one
of the Company's then-acting directors.  All export sales to Canada in fiscal
year 1997 were to Geographics--Canada.  All export sales to Canada in fiscal
year 1996 and fiscal 1995 were to Martin Distribution.

     International sales accounted for approximately 20%, 32%, and 26% of the
Company's total net sales in fiscal years 1996, 1997 and 1998, respectively.
International sales were concentrated in Canada, Europe and Australia.  As a
result of such international sales, a significant portion of the Company's
revenues will be subject to certain risks, including unexpected changes in
regulatory requirements, exchange rates, tariffs and other barriers, political
and economic instability and other risks.  See "--Risk Factors-International
Subsidiaries" and "--Risk Factors--Foreign Exchange and International Trade."


                                       -5-



<PAGE>   10




BUSINESS CONCENTRATIONS

     Historically, a substantial portion of the Company's sales have been to a
limited number of customers.  Concentration of sales to the Company's five
largest customers is detailed below:

<TABLE>
<CAPTION>
CUSTOMER                  FISCAL YEAR ENDED MARCH 31,
--------                -------------------------------
                          1998       1997       1996
                        ---------  ---------  ---------
<S>                     <C>        <C>        <C>
Office Depot Inc              31%        31%        40%
Office Max Inc                15%        26%        24%
Business Depot, Inc(1)        11%        10%        13%
United Stationers Inc          3%         0%         0%
Wal-Mart Stores, Inc           6%         0%         0%
                        --------   --------   --------
                              66%        67%        77%
                        ========   ========   ========
</TABLE>

(1) Business Depot, Inc. (Staples of Canada) sales were included in sales of
Martin Distribution for 1996 and 1995.

     The Company expects that sales to relatively few customers will continue
to account for a high percentage of its net sales in the foreseeable future and
believes that its financial results will continue to depend in significant part
upon the success of these few customers.  See "Risk Factors--Customer
Concentrations."

PURCHASING

     The Company's principal purchases are materials for use in the manufacture
of specialty paper.  In particular, the Company routinely purchases sheets,
rolls and reams of commodity paper, as well as other direct materials involved
in the printing and packaging of its Geopaper product lines, such as inks,
packaging film, labels, shipping boxes and other materials.  Certain of the
products used in the manufacture of the Company's products are considered
commodities, and as such can vary significantly in cost from time to time.
Though prices may vary, the Company has not experienced and does not currently
anticipate any market shortages of supply of the specific raw materials that it
purchases and uses in the manufacture of its products.

     The Company's success depends in large part on reliable and uninterrupted
supply of raw materials from its major vendors.  Although the Company purchases
goods from approximately 700 vendors, it historically has practiced a "sole
source" approach to vendor selection in that it typically relied on a single
vendor for all purchases on its various categories of production materials, and
other major categories of purchased goods and services.  One key vendor of
commodity paper and related products is Unisource Corporation, a broker/vendor
from whom a significant portion of the Company's total purchases during the
fiscal years 1998 and 1997.

     Unisource has provided the Company an immediately available and
uninterrupted supply of paper.  In addition, Unisource and other key vendors
have granted the Company significant amounts of trade credit, along with
favorable pricing and payment terms.  Although the Company may be able to find


                                       -6-



<PAGE>   11




other sources of supply for commodity paper and other major raw material
categories, there can be no assurance that potential new vendors, once sourced,
would provide an uninterrupted supply of raw materials or adequate levels of
trade credit, competitive prices or acceptable payment terms.  See "Risk
Factors-Dependence on Key Vendors."

DISTRIBUTION

     The Company sells its products on a wholesale basis primarily to
retailers, including office supply superstores, mass market retailers, arts &
crafts stores, party stores, specialty paper retailers, and office supply
business-to-business catalog retailers.  The Company also markets its products
to office supply distributors in the U.S.  and to distributors in those
countries where the Company does not service retailers directly.  Historically,
the Company has sold a substantial portion of its products to a limited number
of retail customers, and the Company believes that this trend can be expected
to continue in the future.  See "--Business Concentrations" and "Risk
Factors-Customer Concentrations."

     The Company conducts its export operations through three subsidiaries:

o    Geographics Marketing Canada, Inc.  ("Geographics--Canada") was
     incorporated as a British Columbia, Canada corporation on July 31, 1995,
     and was established to import the Company's products into Canada and
     market them to wholesale and retail distribution channels.

o    Geographics (Europe) Limited ("Geographics--Europe") was incorporated in
     England on December 12, 1995.  The offices of Geographics--Europe are
     located at 4 Iceni Court, Letchworth, Herts SG6 1TN, England, and its
     telephone number is 01462-487100.  Geographics--Europe was established to
     import, warehouse, market and distribute the Company's products throughout
     Europe.

o    Geographics Australia Pty.  Ltd.  ("Geographics--Australia") was
     incorporated in Brisbane, Australia on June 28, 1996.  The offices of
     Geographics--Australia are located at 3/32 Lillian Fowler Place,
     Marrickville NSW 2204, Australia and its telephone number is
     61-2-9519-4488.  Geographics--Australia was organized to import,
     warehouse, market and distribute the Company's products throughout
     Australia.

COMPETITION

     The Company operates in a highly competitive environment.  The Company's
designer stationery products compete in most of the Company's markets with
Domtar Papers, Great Papers, Action Communications, Inc., Avery Dennison Office
Products, First Base, Paper Direct, Inc., American Pad and Paper, Inc.,
Z-International, Inc., and REDIFORM, Inc.  (a division Moore Corp Ltd.).  The
Company's designer stationery products compete for limited shelf space in the
office products superstores, office product stores, mass market stores,
contract stationers, wholesalers, office product catalogs and mail order
catalogs.

     The Company believes that its product designs, product quality,
merchandising programs, distribution channels, customer service and competitive
pricing distinguishes the Company from its competitors.  However, many of the
Company's competitors are larger, better capitalized and have substantially
greater financial, marketing and human resources. In order to remain
competitive, the Company may be required to continue 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.  Additional
financing might be required to fund the Company's investments in those areas.
There can be no assurance that additional


                                       -7-



<PAGE>   12




financing will be available on terms acceptable to the Company, or at all.  See
"--Risk Factors--Competition" and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operation--Liquidity and Capital
Resources."

TRADEMARKS AND COPYRIGHTS

     The Company maintains twelve registered trademarks in the United States,
Canada and Australia and has applied for two additional marks.  The Company's
trademarks have various expiration dates from 2002 to 2006 in the U.S.,
expiration dates in 2005 in Canada, and expiration dates in 2011 in Australia.

     The Company considers consumer awareness of its products and brand names
an important factor in creating demand for its products among office supply
stores and other existing or prospective customers.  Part of the Company's
strategy for increasing consumer awareness is to establish consistent brand
identity across all of its major product lines.  The Company believes that its
trademarks and copyrights play an important role in this effort

     While the Company has made reasonable efforts to protect its intellectual
property, including registering them as trademarks and copyrights in the
countries where the product lines are marketed, to the extent that such
protections are inadequate, the Company could lose all or a part of these
rights which, in turn, could result in the diminution of the Company's overall
brand identity or individual product line identities.  Either the loss of
intellectual property rights or the diminution of the Company's brand
identities could have a material adverse effect on the Company.  See "Risk
Factors--Uncertain Protection of Intellectual Property Rights".

BACKLOG

     The Company's backlog of orders as of September 8, 1998 was $2,180,117.
The Company expects to fill substantially all of these orders during the second
quarter of 1998.  The Company includes in backlog the value of all purchase
orders received from customers for product not yet shipped and invoiced.
Because the Company only recently implemented internal controls necessary to
determine backlog, the Company is unable to determine backlog at March 31, 1998
or at the end of any prior period.  The Company's backlog is subject is subject
to fluctuations as a result of seasonality in the Company's business and other
factors and is, therefore, not necessarily indicative of future sales.  There
can be no assurance that current backlog will necessarily lead to sales in any
future period.  The Company's inability to ship product with respect to a
purchase order could result in cancellation of such purchase order and
reduction of backlog and could have a material adverse effect on the Company's
business, financial condition and results of operations.

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 third fiscal
quarter, 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 expects to continue experiencing, seasonal
fluctuations in its operating results based upon past purchasing patterns.

EMPLOYEES

     At March 31, 1999, the Company had approximately 112 employees, 99 of whom
were employed at its headquarters in Blaine, Washington, 6 of whom were
employed at the Company's facilities in the


                                       -8-



<PAGE>   13




United Kingdom, and 7 of whom were employed at the Company's facilities in
Australia. As of the date of this Report, none of the Company's employees were
subject to a collective bargaining agreement.

EQUIPMENT INTEGRATION

     In 1996 and 1997, the Company purchased an integrated printing line
combining a high speed press with a slitter and packaging line.  As the system
consisted of major components from different manufacturers, an outside firm was
retained to perform system integration services.  Management does not believe
that the system is capable of producing the full scope of product for which its
design was intended at this time.  Alternative manufacturing techniques have
been developed which are currently in place.  In addition, an integrated
packaging line was also installed in 1996.  This line has experienced similar
issues with respect to its ability to perform as envisioned, and consequently
alternate manufacturing techniques have been employed.  Significant resources
may be required for modification of these systems in order to achieve the
manufacturing efficiencies and cost targets originally envisioned.

INVESTIGATION OF FORMER MANAGEMENT

     In January 1998, the Company's board of directors appointed a special
committee to conduct an examination of the performance and conduct of the
Company's management (the "Special Committee").  The Special Committee engaged
independent counsel to assist with this examination.  The focus of the
examination has been on the adequacy of documentation related to a number of
expenses incurred by Mr. Ronald L. Deans, the Company's former President and
Chief Executive Officer, and other members of management which were paid or
reimbursed by the Company, whether such expenses were business or personal in
nature, the tax reporting and accounting for certain stock option exercises by
Mr. Deans and his sons in January 1996, the basis for compliance with the
registration requirements of applicable securities laws in connection with
three separate issuances of common stock by the Company in 1996 and 1997 and
certain other securities-secured mattes.

     In March 1998, based on the findings of the Special Committee to that
point in time, the Special Committee requested that Mr. Deans undertake certain
corrective measures and implement certain policies and procedures.  Certain of
the findings and recommendations of the Special Committee are summarized below.

     Expenses

     Based on a review by the accountants hired by independent counsel for the
Special Committee of Company records of expenses reimbursed or paid by the
Company in 1997, it appears that a substantial portion of the approximately
$125,000 of expenses reimbursed or paid by the Company in 1997 for Mr. Deans
lacked adequate documentation for tax purposes and/or appeared to be primarily
personal in nature.  Based on a limited review of Mr. Deans' expense accounts
for 1996 by independent counsel, it appears that most of the approximately
$150,000 in reimbursed expenses for Mr. Deans in that year also lacked adequate
documentation for tax purposes or appeared to be personal expenses.  Pending
further review of Company records and possible explanation by Mr. Deans, the
Special Committee requested that Mr. Deans reimburse the Company $100,000 with
respect to 1997 and 1996 and agree to provide further reimbursement to the
Company if and to the extent that expenses paid or reimbursed by the Company
for him in excess of that amount are later determined not to be deductible for
tax purposes.  Mr. Deans reviewed certain of his expense records and agreed
that certain expenses may not have been properly substantiated and, pending his
further review of the remainder of his expense records, he has offered to
reimburse the Company $32,000 with respect to 1997 and 1996 by reducing a note
payable by the Company to a company affiliated with Mr. Deans.  As of the date
of this report, the Board of Directors and Mr. Deans have not reached agreement
on either the amount to be paid by Mr. Deans or Mr. Deans'


                                       -9-



<PAGE>   14


proposed method of payment.  In addition, to the extent that it is determined
that additional expenses were not properly substantiated, Mr. Deans has agreed
to reimburse the Company for such additional amounts.  The accountants engaged
by independent counsel also found that the documentation related to a
substantial portion of reimbursed expenses of several other corporate officers
is inadequate, and the Special Committee has directed that those employees also
reimburse the Company for those expenses that are personal or lack adequate
documentation.  The new Board of Directors has implemented policies that will
insure proper expense reporting in the future.

     To the extent it is determined that expenses paid or reimbursed by the
Company for the benefit of Mr. Deans or any other officer were personal in
nature or not adequately documented, such expenses may not be deductible for
tax purposes and the Company may owe additional tax, together possibly with
interest and penalties, for prior periods in which it otherwise did not incur a
loss for tax purposes.  In addition, the net income reported by the Company for
periods in which the expenses were deducted may have been overstated to the
extent of the tax savings realized from the deduction of expenses which are
later determined to be nondeductible, if any.  Also, unless these expenses are
repaid, the amount of income for such individuals reported in prior Securities
and Exchange Commission reports may have been understated to the extent such
expenses were personal in nature.  Due to the volume of transactions and the
complexity of the questions involved, it is not possible at this time to
quantify such amounts.

Stock Option Exercises

     In January 1996, Mr. Deans, his sons, Scott and Mark Deans, and other
Company personnel exercised certain non-qualified stock options to purchase
shares of the Company's common stock.  The difference between the exercise
prices of the options exercised by the Deans the market value of the shares of
the Company's common stock issued upon exercise of such options yielded a gain
of $1,089,049 in the aggregate as of the date of exercise.  Although this gain
likely should have been reported for tax purposes as income by the Deans in
1996 and recorded as an expense by the Company in that year, it was not.  With
respect to these option exercises, the Special Committee has (i) directed Mr.
Deans to cause the Company to issue amended 1996 Form W-2s to himself, Mark and
Scott Deans to include previously unreported income associated with such
exercises and to instruct the Company's tax preparer to seek a deduction for
the Company in that amount, and (ii) asked Mr. Deans, Mark Deans and Scott
Deans each to include such amounts on amended tax returns for the tax year
1996.  Mr. Deans has agreed to instruct the Controller to issue an amended Form
W-2 to himself and his sons, and to instruct the Company's accountants to seek
the appropriate deduction.  Mr. Deans also agreed to include the appropriate
income on his tax return and request Mark and Scott Deans to do the same.  The
deemed gain associated with these options exercises should have been, but was
not, reported in the Company's annual report on Form 10-K for the fiscal year
ended March 31, 1996.

Issuance Of Common Stock

     In July 1996, October 1997 and November 1997, Mr. Deans caused the Company
to issue shares of common stock in three separate transactions.  It appears that
the Company may not have complied with the registration requirements of federal
and state securities laws in connection with such transactions.  The Company
initially made certain disclosures regarding the 1996 transaction in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
If it is determined that these issuances of stock did not comply with an
exemption from the registration requirements of applicable securities laws, the
Company may be subject to penalties or liability for damages.  It is not
possible to determine at this time whether the issuance of stock will subject
the Company to liability.

     The Company's management believes that the ultimate resolution of these
matters will not have a material adverse effect on the Company's business,
financial condition or results of operations.


                                      -10-



<PAGE>   15




RISK FACTORS

     PROSPECTIVE INVESTORS ARE STRONGLY CAUTIONED THAT AN INVESTMENT IN THE
COMPANY INVOLVES A VERY HIGH DEGREE OF RISK.  PROSPECTIVE INVESTORS SHOULD NOT
DISMISS, AS "BOILERPLATE" OR "CUSTOMARY," DISCLOSURE OF THE RISK FACTORS SET
FORTH BELOW.  THE CONTINGENCIES AND OTHER RISKS DISCUSSED BELOW COULD AFFECT
THE COMPANY IN WAYS NOT PRESENTLY ANTICIPATED BY ITS MANAGEMENT AND THEREBY
HAVE A MATERIAL ADVERSE EFFECT ON THE VALUE OF ITS COMMON STOCK.  A CAREFUL
REVIEW AND UNDERSTANDING OF EACH OF THE RISK FACTORS SET FORTH BELOW, AS WELL
AS THE OTHER INFORMATION CONTAINED IN THIS REPORT IS ESSENTIAL FOR AN INVESTOR
SEEKING TO MAKE AN INFORMED DECISION WITH RESPECT TO THE COMPANY.

ABILITY TO CONTINUE AS A GOING CONCERN; DEFAULTS UNDER CREDIT FACILITY; NEED
FOR ADDITIONAL WORKING CAPITAL

     As a result of the rapid growth of the Company's specialty papers group,
capital expenditures relating to the purchase and installation of an automated
production system 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 year 1998,
the Company experienced working capital short-falls which required the Company
to delay payments to certain vendors, delay purchases, institute internal cost
reduction measures and take other steps to conserve operating capital.

     At the end of fiscal year 1998, the Company's only available source of
working capital consisted of borrowings available under its revolving credit
facility.  See "Management's Discussion and Analysis of Financial Condition and
Results of Operation,--Liquidity and Capital Resources." Since May 1997, the
Company has failed to comply with the net worth, debt-to-equity ratios and cash
flow coverage ratios under the revolving credit facility, and borrowings under
the facility exceeded the permitted borrowing base limitations.  The Company's
lender has also provided the Company with several mortgage loans and equipment
loans, and the existence of the defaults under the revolving credit facility
constitutes a default under these other loans.  The report of the Company's
auditors included in this Report states that the Company's fiscal year 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.

     The Company entered into a forbearance agreement with its lender,
effective August 31, 1997, pursuant to which the lender agreed to extend the
expiration date of the revolving credit facility to October 31, 1997, to
increase the $12.0 million commitment by a $300,000 stand-by letter of credit,
to permit borrowings of up to $2.25 million in excess of the applicable
borrowing base limitation (not to exceed the $12.0 million revolving credit
facility commitment) and to forbear from asserting its rights with respect to
the Company's non-compliance with the financial covenants as well as the
defaults under the Company's mortgage loans and equipment loans.  However, on
September 12, 1997, the Company was required to request borrowings in excess of
the amended borrowing limits in order to meet payroll and other expenses.
Although the Company's lender permitted the requested borrowings, it did not
formally waive this additional default.  The Company is continuing to seek
extended payment terms from its vendors, delayed purchases of raw materials,
internal cost reduction measures and 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.  See
"--Dependence on Key Vendors." In addition, the Company will continue to
actively pursue additional sources of working capital, which could include the
issuance of debt or equity securities or the sale of some or all of the
Company's assets.  However, at the


                                      -11-



<PAGE>   16




end of fiscal year 1998, the Company had received no firm commitments with
respect to any such transactions and there can be no assurance that any such
transaction will be identified.  Further, there can be no assurance that the
Company will be able to obtain more sources of additional working capital when
and as needed or that the terms of any such funding will be acceptable to the
Company or in the best long-term interests of the Company's shareholders.

     The failure to obtain an increase in borrowing availability under, and to
extend the expiration date of, the Company's revolving credit facility, or to
otherwise obtain sufficient funds when and as needed to satisfy the Company's
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.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

COMPETITION

     The Company believes that its product designs, product quality,
merchandising programs, distribution channels, customer service and competitive
pricing distinguishes the Company from its competitors.  However, many of the
Company's competitors, particularly in the designer stationery industry, are
larger, better capitalized, more established and have substantially greater
financial, marketing and human resources.  Moreover, the development and
manufacture of new designer stationeries and specialty papers are highly
capital intensive.  In order to remain competitive, the Company may be required
to continue 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.  Additional financing might be required to fund the Company's
investments in those areas.  There can be no assurance that additional
financing will be available on terms acceptable to the Company, or at all.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."

CUSTOMER CONCENTRATIONS

     The Company's three largest customers, Office Depot Inc., Office Max, Inc.
and Business Depot, Inc., in the aggregate accounted for approximately 55% and
67% of the Company's total sales for fiscal year 1998 and fiscal year 1997,
respectively.  The Company expects that sales to relatively few customers will
continue to account for a high percentage of its net sales in the foreseeable
future and believes that its financial results depend in significant part upon
the success of a limited number of customers.  See "Business Concentrations."
Although the composition of the group comprising the Company's largest
customers may vary from period to period, the loss of a significant customer or
any reduction in orders by any significant customer, including reductions due
to market, economic or competitive conditions in the designer stationery or
specialty papers industry, would have a material adverse effect on the
Company's business, financial condition and results of operations.

     As a result of the concentration occurring in the office supply industry
in which the major office megastores are accounting for a greater percentage of
industry-wide sales, it is anticipated that an increasing number of the smaller
outlets and retail stores will discontinue operations in the years ahead.
While the Company anticipates that certain of such sales will be transferred to
the larger megastores to which the Company currently supplies its products,
there can be no assurance that any loss of sales to smaller outlets and retail
stores will be replaced in this manner.


                                      -12-



<PAGE>   17




DEPENDENCE ON KEY VENDORS

     The Company's success depends in large part on reliable and uninterrupted
supply of raw materials from its major vendors.  Although the Company purchases
goods from approximately 700 vendors, it historically practiced a "sole source"
approach to vendor selection in that it typically relied on a single vendor for
all purchases on its various categories of production materials, and other
major categories of purchased goods and services.  One key vendor of commodity
paper and related products is Unisource, a broker/vendor from whom significant
portions of the Company's total purchases during the fiscal years 1998 and
1997.

     Unisource has provided the Company an immediately available and
uninterrupted supply of paper.  In addition, Unisource and other key vendors
have granted the Company significant amounts of trade credit, along with
favorable pricing and payment terms.  Although the Company may be able to find
other sources of supply for commodity paper and other major raw material
categories, there can be no assurance that potential new vendors, once sourced,
would provide an uninterrupted supply of raw materials or adequate levels of
trade credit, competitive prices or acceptable payment terms.

TECHNOLOGY CHANGES AFFECTING PRODUCTS

     The design and manufacture of production equipment used in the designer
stationery and specialties paper industries has undergone and continues to
undergo rapid and significant technological change.  In particular,
developments in the software industry may afford customers and consumers with
the ability to produce paper products which offer quality characteristics
comparable with that provided by the Company.  Any such developments may,
therefore, have a material adverse effect on the Company's business, financial
condition and results of operations.  In addition, the Company's business is,
to a significant degree, dependent on the enhancement of its current products
and development of new products.  Product development and enhancement involve
substantial expenditures and a high degree of risks, and there is no assurance
that product development efforts of the Company will be successful, will have
sufficient utility or will be superior to efforts by others, including current
customers and consumers of the Company's products.  There can be no assurances
that future technological developments will not render existing or proposed
products of the Company uneconomical or obsolete, or that the Company will not
be adversely affected by the future development of commercially viable products
by others.  The development of superior products by others could have a
material adverse effect on the Company's business, financial condition or
results of operations.

UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

     The Company owns a number of trademarks and copyrights, and certain of the
Company's proprietary manufacturing processes are protected by trade secrets.
There can be no assurance that the Company's trade secrets, trademarks,
copyrights or other proprietary rights will be effective in discouraging
competition or held valid if subsequently challenged, or that others will not
assert rights in, or ownership of, any of such proprietary rights.  In
addition, there can be no assurance that the actions taken by the Company to
protect its proprietary rights will be adequate to prevent imitation of its
products, that the Company's proprietary information will not become known to
competitors or that others will not independently develop products
substantially equivalent or superior to the Company's products without
infringing on the Company's proprietary rights.  There can be no assurance that
any pending trademark application will result in the issuance or a registered
trademark.  In addition, the laws of certain foreign countries do not protect
proprietary rights to the same extent as do the laws of the United States.
While the Company has made reasonable efforts to protect all of its trade
secrets, trademarks, copyrights and other proprietary rights, to the extent
such protections are inadequate, the


                                      -13-



<PAGE>   18




Company could lose a part or all of these rights which, in turn, could have a
material adverse effect on the Company's business, financial condition or
results of operations.

DELISTING FROM NASDAQ SMALLCAP MARKET AND TORONTO STOCK EXCHANGE

     The Company's securities were delisted from the NASDAQ National Market and
subsequently the NASDAQ Smallcap Market during fiscal 1998.  Trading of the
Company's securities has continued on the NASDAQ OTC Electronic Bulletin Board.
However, the delistings may restrict marketability of the Company's common
stock.  Further, the Securities and Exchange Commission has adopted regulations
which generally define a "penny stock" to be any equity security that has a
market price (as defined) of less than $5 per share, subject to certain
exceptions. As the Common Stock is not listed on the Nasdaq National Market or
the Nasdaq SmallCap Market, it may be deemed to be "penny stock" and thus may
be subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors.  These rules could adversely effect the
ability and willingness of broker-dealers to sell the Common Stock, which could
reduce the liquidity of the Common Stock and have a material adverse effect on
the trading market and the market price for the Common Stock.

     In addition, the common shares of the company were suspended from trading
on The Toronto Stock Exchange on June 11, 1998 due to the failure of the
Company to provide the required financial information and filings.  Securities
suspended from trading on the Toronto Exchange which have not been approved for
reinstatement will be automatically delisted after a period of one year.  To
obtain approval for reinstatement, suspended companies are required to fulfill
original listing requirements for new listings.  During the term of the
suspension, the original listing requirements of The Toronto Stock Exchange
were revised and increased.  Under these requirements, companies suspended from
trading are required to fulfil listing requirements made of new listings.  The
Company does not currently meet the minimum net worth requirement of Cdn.
$7,500,000.  However, management expects the Company to be able to meet this
requirement following its anticipated private placement of a combination of
debt and/or equity in the amount of $3,000,000 to $5,000,000.  See "Liquidity
and Capital Resources."  Consequently, management expects to move forward with
a new listing application following completion of the recapitalization efforts
referenced above.

APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCK

     The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as defined) of less than $5 per share, subject to certain exceptions.
Unless the Common Stock is listed on the Nasdaq National Market or the Nasdaq
SmallCap Market, it will be deemed to be "penny stock" and will continue to be
subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors.  These rules adversely effect the ability
and willingness of broker-dealers to sell the Common Stock, which could reduce
the liquidity of the Common Stock and have a material adverse effect on the
trading market and the market price for the Common Stock.

EXISTENCE OF WARRANTS AND OPTIONS AND POSSIBLE DILUTION

     As of March 31, 1998, there were outstanding warrants for the purchase of
an aggregate of 1,342,293 shares of Common Stock at an exercise price of $.77
to $6.50 per share.  In addition, as of March 31, 1998, there were outstanding
options granted under the Company's stock option plan to purchase up to 173,500
shares of Common Stock at exercise prices ranging from Cdn.  $1.00 to Cdn.
$4.15 per share.  In the event that the outstanding warrants and options are
exercised, the holders will be


                                      -14-



<PAGE>   19




given the opportunity to profit from a rise in the market price of the
underlying shares.  This may have certain dilutive effects on, and a materially
depressive effect on, the market price for the Common Stock.  The terms on
which the Company could obtain additional capital during the life of such
warrants and options may be adversely affected because the holders may be
expected to exercise them at a time when the Company might otherwise be able to
obtain comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of such options and warrants.  As a
result, the existence and possible exercise of such options or warrants could
have a material adverse effect on the Company's ability to raise capital
through the sale of its equity securities.

FLUCTUATIONS OF QUARTERLY RESULTS; SEASONALITY

     Management continues to expect that the Company's financial results may
vary materially from period to period.  Most of the Company's customers order
products for immediate delivery.  As a result, a substantial amount of the
Company's net sales in each quarter results from orders received in that
quarter.  The Company's net sales and operating results may, therefore, vary
significantly as a result of, among other things, volume and timing of orders
received during the quarter, variations and sales mix, and delays in production
schedules.  Accordingly, the Company's historical financial performance is not
necessarily a meaningful indicator of future results.  Moreover, a significant
portion of the Company's customer orders are placed between August and October
of each year in anticipation for shipment during the Company's third fiscal
quarter (i.e., the Christmas period).  As a result, the Company has experienced
and is expected to continue to experience seasonal fluctuations in its
operating results based on such purchasing patterns.  See "--Seasonality."
These fluctuations in quarterly operating results could have a material adverse
effect on, among other things, the market price for the Company's Common Stock.

VOLATILITY OF STOCK PRICE

     The market price of the Common Stock has been, and is likely to continue
to be, volatile.  See Market for Registrant's Common Equity and Related
Stockholder Matters." The market price of the Common Stock could fluctuate,
perhaps substantially, in response to a number of factors, such as actual or
anticipated variations in the Company's quarterly operating results,
announcements of technological innovations or new products or enhancements by
the Company or its competitors, developments in the Company's relationships
with its customers or suppliers, changes in the general condition of, or trends
in, the designer stationery and specialty paper industry, paper prices, changes
in governmental regulations, or changes in securities analysts' estimates of
the Company's or its competitors' or industry's, future performance.  In
addition, in recent years the stock market in general, and the market for
shares of small capitalization stocks in particular, including the Company's,
have experienced extreme price and volume volatility, which has had a
substantial effect on the market prices of securities of many smaller public
companies for reasons frequently unrelated to the operating performance of such
companies.  These broad market fluctuations may have a material adverse effect
on the market price of the Common Stock.

YEAR 2000 ISSUES

     The Company uses three principal software packages at its North American
production, warehousing and administrative facilities.  These include an
operating system, an electronic data interchange software and an integrated
operations and accounting application package.  Of particular importance, the
Company's operations and accounting applications were determined to not be Year
2000 ready.  Accordingly, the Company is in negotiations to secure a new
operating and accounting software package with installation to be scheduled as
soon as practicable.  The Company estimates that the costs of acquiring and
installing this new software package will range between $125,000 and $150,000.


                                       -15-



<PAGE>   20




     The Company continues to evaluate its remaining principle software
packages and believes that existing available upgrades will mitigate the risk
of significant operational problems.  However, the Company has not completed an
assessment of its hardware and other systems, including those of vendors,
customers and other third parties.  Until a complete assessment is completed,
the Company is unable to estimate the total expense of assuring that all of its
software and hardware are Year 2000 compliant.  The Company plans to complete
these assessments no later than June 1999.

ITEM 2.  DESCRIPTION OF PROPERTIES

     The Company considers its properties to be suitable and adequate for their
intended uses for the foreseeable future.  These properties consist of the
following:

     Executive Offices And Domestic Facilities

     The Company's headquarters and manufacturing facility in Blaine,
Washington has approximately 96,500 square feet of office, warehouse and
manufacturing space located on ten and one-half acres of Company-owned land.
The Company's Blaine, Washington facility was increased from 34,000 sq. ft to
49,000 sq. ft in December 1994.  The facility was increased to its current size
during fiscal year 1996.

     Other Whatcom County Facilities

     During 1998 and 1997, the Company also leased 4 additional 10,000 sq. ft.
buildings at a business park facility near Ferndale, Washington, each facility
on a renewable six month lease of $15,000 per month, triple net.

     European Facilities

     In connection with the distribution of the Company's products in Europe,
Geographics--Europe leases 6,700 square feet of warehouse space near London,
England.  The lease requires quarterly lease payments of approximately $13,600,
triple net, and expires on February 14, 2006.

     Australian Facilities

     In connection with the distribution of the Company's products in
Australia, Geographics--Australia leases 5,000 square feet of warehouse space
near Brisbane, Australia.  The lease requires lease payments of $3,400 per
month, triple net (with annual review of the rental rate beginning in August
1997), and expires on August 31, 1999.

ITEM 3.  LEGAL PROCEEDINGS

     In its Form 10-Q filed with the Securities and Exchange Commission on
April 29, 1998 for the period ending December 31, 1997, the Company reported
that in July 1997, three related class actions were filed against it, its then
Chairman of the Board, Ronald S. Deans, and its then chief financial officer,
Terry A. Fife. These suits alleged that the defendants violated Section 10(b)
of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder.  In August 1998, the Company, its insurance carrier and the
plaintiffs reached an agreement to settle the lawsuits, which had previously
been consolidated as one lawsuit (the "Settlement"). On October 30, 1998, the
judge presiding over this lawsuit approved the Settlement. Under the terms of
the Settlement, the plaintiffs received a cash payment of $1.6 million without
any admission of liability or wrongdoing by the defendants. In light of the
defendants' insurance carrier's proposed substantial contribution to any final
settlement amount, the Company does

                                      -16-


<PAGE>   21



not believe that the funding of the settlement will have a material impact on
its financial condition or operations.

     In addition to the litigation matter described above, the Company is
subject to additional claims and actions incident to the operation 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 adverse
effect on the Company's business, financial condition or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the quarter
ended March 31, 1998.

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
     MATTERS

PRICE RANGE OF COMMON STOCK

     The Company's Common Stock began trading on the Nasdaq National Market
under the symbol "GGIT" on March 8, 1996.  From May 5, 1995 to March 7, 1996
the Company's Common Stock traded on the OTC Bulletin Board under the symbol
"GGIT".

     The following table sets forth the high and low closing bid prices or
closing sales prices, as the case may be, of the Common Stock, as reported on
the OTC Bulletin Board or the Nasdaq National Market System, as the case may
be, for each fiscal quarter beginning with the first fiscal quarter of the
fiscal year ended March 31, 1997.

<TABLE>
<CAPTION>
1997                                    HIGH   LOW
----                                    ----   ---
<S>                                     <C>    <C>
First Quarter (June 30, 1996)           $6.94  $4.75
Second Quarter (September 30, 1996)     $5.96  $2.88
Third Quarter (December 31, 1996)       $5.38  $2.75
Fourth Quarter (March 31, 1997)         $5.25  $3.25
</TABLE>

<TABLE>
<CAPTION>
1998                                    HIGH   LOW
----                                    ----   ---
<S>                                     <C>    <C>
First Quarter (June 30, 1997)           $3.48  $0.88
Second Quarter (September 30, 1997)     $1.16  $0.44
Third Quarter (December 31, 1997)       $1.00  $0.33
Fourth Quarter (March 31, 1998)         $0.63  $0.27
</TABLE>


                                      -17-



<PAGE>   22




     The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.  As
of March 31, 1998, there were approximately 272 holders of record of the
Company's Common Stock.

DIVIDENDS

     The Company has not paid dividends at any time during the two fiscal year
period ending on March 31, 1998.  The Company anticipates that any future
earnings will be retained for investment in its business.  Any payment of cash
dividends in the future will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, extent of indebtedness and
contractual restrictions with respect to the payment of dividends.
Specifically, the Company's current bank facilities restrict its ability to pay
dividends.

     On April 29, 1999, the Company issued an aggregate of $100,000 in
convertible subordinated notes (the "Notes") pursuant to exemption under
Section 4(2) of the Securities Act of 1933, as amended.  One $50,000 Note was
issued to Mr. James L. Dorman, the Company's Chairman of the Board and Chief
Executive Officer, and one $50,000 Note was issued to William T. Graham, a
Director of the Company.  The Notes bear interest at a rate equal to the prime
rate (as determined by U.S. Bank National Association ("U.S. Bank")) plus two
percent (2%) per annum.  The Notes are subordinated to the Company's senior
indebtedness to U.S. Bank and are convertible into shares of the Company's
common stock at $0.3927 per share.  Proceeds from the sale of the Notes were
used to fund the Company's operations when the Company had reached its
borrowing limit under its credit facilities with U.S. Bank and had no other
sources of working capital.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data are derived from the
Company's Consolidated Financial Statements for the periods indicated.  The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's 1998 Consolidated Financial Statements and notes thereto
contained elsewhere in this Report.


                                      -18-



<PAGE>   23




                          STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
                              1994          1995          1996          1997          1998
                          ------------  ------------  ------------  ------------  ------------
<S>                       <C>           <C>           <C>           <C>           <C>
Sales                     $ 6,901,845   $10,186,136   $16,075,363   $17,051,142   $24,097,845
Cost of sales               4,488,176     5,881,649    10,343,463    16,522,236    21,035,139
Gross margin                2,413,669     4,304,487     5,731,900       528,906     3,062,706
Selling, general and
administrative              2,981.861     2,873,476     4,185,331     8,127,710    11,074,425
Amortization of goodwill      479,300       639,067       159,768            --            --
                          -----------   -----------   -----------   -----------   -----------
Income (loss) from
operations                 (1,047,492)      791,944     1,386,801    (7,598,804)   (8,011,719)
Other income (expense)        209,521        15,398       130,684        24,907       (38,365)
Gain (loss) on sales of
property and equipment        (12,687)      (13,468)         (594)      (86,048)     (159,406)
Reserve for impairment
on EDP
installation-in-progress           --            --                    (620,759)           --
Interest expense             (356,060)     (457,499)     (539,394)     (805,079)   (1,413,219)
                          -----------   -----------   -----------   -----------   -----------
Income (loss) before
provision for income
taxes                      (1,206,718)      336,375       977,497    (9,085,783)   (9,622,709)
Income tax provision
(benefit)                      34,800      (411,367)      332,350       (55,972)           --
                          -----------   -----------   -----------   -----------   -----------
Income (loss)
From Continuing
Operations                  1,241,518       747,742       645,147    (9,029,811)   (9,622,709)
                          ===========   ===========   ===========   ===========   ===========

Income (loss) from
continuing operations per
average common share
outstanding               $     (0.28)  $      0.16   $      0.10   $     (0.97)  $     (1.00)
                          ===========   ===========   ===========   ===========   ===========

Income from discontinued
operations per average
common share outstanding           --            --   $      0.09   $      0.12   $      0.10
                          ===========   ===========   ===========   ===========   ===========

Income From
Discontinued Operations
net of income taxes in
1996 of $302,329*                                         586,877     1,079,510       973,091
Net Income (loss)         $(1,241,518)  $   747,742   $ 1,232,024   $(7,950,301)  $(8,649,618)
Net income (loss) per
average common share
outstanding               $     (0.28)  $      0.16   $      0.19   $     (0.85)  $     (0.90)
Weighted average shares
outstanding used in
computing per share
data                        4,424,535     4,549,101     6,606,499     9,322,278     9,626,335
</TABLE>

* Substantially all sales in years 1995, 1994 were from Lettering Signage.


                                      -19-



<PAGE>   24




                              BALANCE SHEET DATA:


<TABLE>
<S>                   <C>         <C>          <C>          <C>          <C>
For the year ended:      1994        1995        1996(1)      1997(1)        1998
                      ----------  -----------  -----------  -----------  ------------
Working capital        $ 869,651  $ 1,836,436  $ 5,886,703   $  401,550  ($8,795,125)
Total assets           6,788,067   10,614,673   24,738,041   30,245,701   25,344,965
Long-term
obligations, less
current portion        2,484,634    3,319,948    3,690,360    4,322,371    4,853,254
Stockholders' equity   1,471,514    2,803,341    9,989,852    7,917,023     (427,218)
</TABLE>

(1) Certain amounts for the fiscal year ended March 31, 1996 and 1997 have been
reclassified to conform to the current year presentation of the fiscal year
ended March 31, 1998 amounts.  Such reclassifications had no effect on
previously reported earnings or financial position.

ITEM 7.  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.

RESULTS OF OPERATIONS

     The following table sets forth the percentages which the items in the
Company's consolidated statements of income bear to net sales for the periods
indicated:

<TABLE>
<CAPTION>
                               1998    1997    1996
                              ------  ------  ------
<S>                           <C>     <C>     <C>
Net sales                     100.0%  100.0%  100.0%
Cost of sales                  87.3    96.9    64.3
Gross margin                   12.7     3.1    35.7
Selling, general and
Administrative expenses        45.9    47.7    26.0
Amortization of goodwill         --      --     0.9
Income from operations        (33.2)  (44.6)    8.6
Other income                     --      .1      .8
Interest expense               (5.9)   (4.7)   (3.4)
Total other income (expense)   (6.7)   (8.7)   (2.5)
Income before provision for
Income taxes                  (39.9)  (53.3)    6.1
Income tax provision
(benefit)                        --     (.3)    2.1
Income From Discontinued
Operations                      4.0     6.3     3.6
Net income                    (35.9)  (46.6)    7.7
</TABLE>


                                      -20-


<PAGE>   25




1998 COMPARED TO 1997

     NET SALES.  Net sales increased 41.3% to $24,097,845 in fiscal year 1998
from $17,051,142 in fiscal year 1997.  This increase was primarily attributable
to the continued growth of the Geopaper product line, which offset certain
factors in the third and fourth quarters that negatively impacted fiscal year
1998 sales. Revenue growth with respect to the Geopaper product line slowed
compared to the two prior years.  Geopaper sales increases in 1998 were due
primarily to sales for new store openings by Office Depot, and initial
shipments of Geopaper products to new customers, including Wal-Mart, Target and
Kmart.  In addition, Geopaper sales increased due to the introduction of the
Geoposterboard product line in over 900 Wal-Mart stores, 500 Office Depot
stores in the United States and Canada, and 80 Staples/Business Depot stores in
Canada.

     The shift in the Company's sales mix toward Geopaper and related products
continued in fiscal year 1998.  In 1998, the percentage of total Company sales
represented by Geopaper increased to 78%, compared to 71% of total sales in
fiscal year 1997, while signage and lettering sales declined to 22% of total
sales. In fiscal year 1997, the sales mix of signage and lettering was 29% of
sales.  Sales for signage and lettering products are not presented with net
sales in the Statement of Operations, but are included in discontinued
operations, which is discussed later in this section.

     GROSS MARGIN.  Cost of sales includes product manufacturing costs,
occupancy and distribution costs.  Gross profit as a percentage of sales
increased to 12.7% in fiscal year 1998, from 3.1% in fiscal year 1997.  The
higher gross margin is primarily attributable to an increase in selling prices
for the Company's paper products coupled with modest cost decreases and a
continuing shift in mix of sales to higher margin products

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses ("SG&A") are those expenses that are incurred to
support the Company's selling, marketing and manufacturing efforts.  SG&A
expenses increased to $11,074,425 (45.9% of sales) in fiscal year 1998 from
$8,127,710 (47.7% of sales) in fiscal year 1997.  The SG&A expense for fiscal
year 1998 was attributable to an increase in advertising rebates and other
rebates and promotions to customers, and increases in salaries and wages of
administrative, and sales & marketing personnel and an increase in legal
expenses incurred by the Company.

     INCOME/LOSS FROM OPERATIONS.  The Company incurred a loss from operations
in fiscal year 1998 of $8,011,719 compared to an operating loss of $7,598,804
during fiscal year 1997.  The operating loss was the result of higher gross
margins more than offset by significantly higher sales, general and
administrative expenses.

     OTHER INCOME (EXPENSE).  There was no other income in fiscal year 1998
compared to $24,907 in fiscal year 1997.  In previous years, this category
included such items such as management fees, foreign exchange gains, gains on
disposition of fixed assets, and other miscellaneous items.

     INTEREST EXPENSE.  Interest expense increased to $1,413,219 (5.9% of
sales) during fiscal year 1998, compared to $805,079 (4.7% of sales) during
fiscal year 1997.  The higher interest costs were caused by increased average
borrowings to support the Company's operating losses, and the acquisition of
equipment used in the manufacture of Geopaper in 1998 and 1997.

     INCOME/LOSS BEFORE PROVISION FOR INCOME TAXES.  The loss before provision
for income taxes was $9,622,709 (39.9% of sales) in fiscal year 1998 compared
to the loss before provision for


                                      -21-



<PAGE>   26




income taxes of $9,085,783 (53.3% of sales) in fiscal year 1997.  The 1998 loss
before provision for income taxes was primarily the result of the Company's
operating losses and increased interest expense.

     The Company did not recognize a tax benefit resulting from its loss from
continuing operations in 1998 because of uncertainty concerning the use of this
loss to reduce future taxes.  A portion of the loss was used to reduce taxes
that would have been attributable to income from discontinued operations.  The
amount of taxes eliminated on discontinued operations was estimated to be
approximately $330,000.  As of March 31, 1998, the total deferred tax assets
estimated to be available to the Company were $5,801,000 which had been reduced
in their entirety by a valuation allowance.

     DISCONTINUED OPERATIONS.  On May 4, 1998, the Company sold substantially
all of its signage and lettering operating assets, licenses, inventory and
other rights to a corporation for total consideration of $6,820,000.

     Signage and lettering net sales for fiscal year 1998 decreased 3% to
approximately $6,598,000 from $6,789,000 in fiscal year 1997.  The decline in
the sales of the signage and lettering product lines was attributable to a
general decline in the demand for products of this type and increased
management attention on the development of the specialty papers group.
Management believes that sales of signage and lettering products will continue
to decline in the future as the computerization of homes and offices will allow
the efficient production of lettering and signage products by current
end-users.

     NET INCOME/LOSS.  Net loss of $8,649,618 in fiscal year 1998, or 35.9% of
sales, compares to net income of $7,950,301 in fiscal year 1997, 46.6% of
sales.

1997 COMPARED TO 1996

     NET SALES.  Net sales increased 6.1% to $17,051,142 in fiscal year 1997
from $16,075,363 in fiscal year 1996.  This increase was primarily attributable
to the acceptance of the Geopaper product line.  Geopaper experienced a sales
increase of 665% in fiscal year 1996 to $16,075,363 compared to $2,100,000 for
fiscal 1995. Geopaper sales increases in fiscal year 1996 were due to shipments
of Geopaper products to all Office Depot Inc.  and OfficeMax stores in North
America, as well as shipments of Geopaper products to 248 Wal-Mart stores in
March 1996.

     Signage and lettering sales for fiscal year 1997 increased 4% to
$6,789,364 from $6,538,272 in fiscal year 1996.  The majority of the increase
in signage and lettering sales was due to increased sales to OfficeMax.

     The sales mix of Geopaper products remained unchanged in fiscal year 1997
and 1996.  Lettering and signage sales also remained unchanged for the same
periods.

     GROSS MARGIN.  Gross margin as a percentage of sales decreased to 3.1% in
fiscal year 1997, from 35.7% in fiscal year 1996.  The decrease in the gross
margin was the result of a change in sales mix to products with lower gross
margins.  Geopaper represented 71% of sales while lettering and signage
represented 29% of sales in 1997, compared to 71% and 29% of sales in 1996,
respectively.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  SG&A expenses increased in
fiscal year 1997 to $8,127,710 (47.7% of sales) from $4,185,331 (26.0% of
sales) in fiscal year 1996.

     AMORTIZATION OF GOODWILL.  Goodwill amortization declined to $0 from
$159,768 (.98% of sales) for fiscal years 1997 and 1996 respectively.  The
decrease was due to the completion of the amortization of the goodwill related
to the 1993 purchase of the lettering division of E-Z Industries.


                                      -22-



<PAGE>   27




     INCOME FROM OPERATIONS.  Income from operations decreased to $(7,598,804)
(44.6% of sales) during fiscal year 1997, a decrease from $1,386,801 (8.6% of
sales) in fiscal year 1996.

     OTHER INCOME.  Other income was $24,907 (0.14% of sales) in fiscal year
1997, compared to $130,684 (0.8% of sales) during fiscal year 1996.

     INTEREST EXPENSE.  Interest expense increased to $805,079 (4.7% of sales)
during fiscal year 1997, compared to $539,394 (3.4% of sales) for fiscal year
1996.  The acquisition of equipment used in the manufacture of Geopaper, in
addition to higher bank debt related to facilities expansion and working
capital requirements resulted in higher interest costs during fiscal year 1997.

     INCOME BEFORE PROVISION FOR INCOME TAXES.  Income before provision for
income taxes declined to $(9,085,783) (53.2% of sales) in fiscal year 1997
compared to $977,497 (6.1% of sales) in fiscal year 1996.

     INCOME TAX PROVISION/BENEFIT.  There is no ITP in fiscal year 1998.  In
fiscal year 1997, the Company recorded a current income tax benefit of $55,972,
which represents the amount of income tax recoverable from net operating loss
carry-backs.  The total potential income tax benefit for fiscal year 1997, and
corresponding increase in the Company's deferred tax asset as of March 31,
1997, was an estimated $3,162,000.  The total potential deferred tax asset
(before valuation allowance) as of March 31, 1997 was $3,774,000.  Based on the
Company's current operating income and available projections for operating
income, the Company determined that future operating and taxable income may not
be sufficient to fully or partially recognize the deferred tax asset of
$3,774,000 at March 31, 1997.  As a result, the Company decided to provide a
valuation allowance on all of its deferred tax assets at March 31, 1997.  This
valuation analysis was recorded in the fourth quarter and totaled $3,774,000.
The income tax provision in fiscal year 1996 was 2.1% of sales in fiscal year
1996.  This provision was 34% of pre-tax net income.

     NET INCOME.  Net income of $(7,950,301) in fiscal year 1997 (46.6% of
sales) compares to net income of $1,232,024 in fiscal year 1996 (7.7% of
sales).

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 an automated
production system and a management information system, operating losses and
other factors, the Company has required, and continues to require, substantial
external working capital.  The Company has experienced working capital
shortfalls, which have required the Company to delay payments to certain
vendors, institute internal cost reduction measures and take other steps to
conserve operating capital.  During fiscal 1999, operating losses totaled
$3,347,175, and the Company experienced positive operating cash flows of
$8,297,015.

     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 $5.5 million subject
to a borrowing base limitation of 70% of the value of the Company's eligible
accounts 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.

     Since May 1997, borrowings under the Company's revolving credit facility
exceeded the permitted borrowing limitations.  In addition, the Company has
failed to comply with the net worth, debt-


                                      -23-



<PAGE>   28




to-equity ratios and cash flow coverage ratios under the revolving credit
facility.  The Company's lender has also provided the Company with several
mortgage loans and equipment loans, and the existence of the defaults under the
revolving credit facility constitutes default under these other loans.  The
report of the Company's auditors included in this Report states that the
Company's fiscal 1999 and 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.

     In May of 1999, the Company secured agreement from its principal lender,
U.S. Bank, to extend the fifth forbearance agreement until June 30, 1999.
Further, an extension of credit over and above the borrowing base in the amount
of $750,000 has been granted. Discussions with alternate lenders are currently
under way.  It is management's intention to restructure all debt to terms that
are consistent with the Company's cash flow, and to raise $3,000,000 to
$5,000,000 of debt, equity, or a combination of both via private placement
offering for recapitalization of the Company.

     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.  See "Item 1.  Business--Risk Factors--Ability to Continue as a Going
Concern; Defaults under Credit Facility; Need for Additional Working Capital."

ITEM 8.  FINANCIAL STATEMENTS

     The following consolidated financial statements of Geographics, Inc. are
incorporated into this Item 8 by reference to another section of this Report as
follows:

<TABLE>
<S>                                                                          <C>
(a) Report of Moss Adams LLP regarding Financial Statements                  F-1
(b) Consolidated Balance Sheets as of March 31, 1998 and 1997                F-2
(c) Consolidated Statements of Income for the years ended March 31, 1998,
1997 and 1996                                                                F-3
(d) Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1998, 1997 and 1996                                                F-4
(e) Consolidated Statements of Cash Flows for the years ended March 31,
1998, 1997 and 1996                                                          F-5
(f) Notes to Consolidated Financial Statements                               F-8
</TABLE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURE

   Not applicable.






                                      -24-



<PAGE>   29




                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets for the names, ages and positions with the
Company of the executive officers and directors of the Company as of May 24,
1999.  None of the current directors were directors during the year ended March
31, 1998. Directors are elected for one year terms or until their successors
are elected and qualified.  Officers are elected by the Board and their terms
of office are at the discretion of the Board.


<TABLE>
<CAPTION>
NAME                AGE                         POSITION
----                ---  -------------------------------------------------------
<S>                 <C>  <C>
James L. Dorman     66   Chairman of the Board of Directors and Chief Executive
                         Officer
William T. Graham   74   Director
C. Joseph Barnette  57   Director
</TABLE>

     James L. Dorman is the Chairman and Chief Executive Officer Chairman of
the Board of Intercontinental Trading, Ltd., a position he has held President
and Chief Executive Officer since 1984.  Intercontinental Trading specializes
in assisting smaller companies with importing and exporting issues.  In
addition, Mr. Dorman is the Chairman and Chief Executive Officer of Amalga
Composites, Inc., a position he has held since 1989.  Amalga designs, engineers
and manufacturers composite components parts.  Mr. Dorman is also a
stockholder, director and officer of Panint Electric Ltd. of Hong Kong, a
developer and manufacturer of consumer home products.

     William T. Graham was a shareholder, officer and director and co-founder of
Uniek, Inc. from 1987 until July 1998.  Uniek is engaged in the business of
crafts, photo frames and photo albums which are distributed to the mass market
and office superstores.  Mr. Graham sold his interest in Uniek in July, 1998. In
1949, Mr. Graham founded W.T. Rogers, Inc. ("W.T. Rogers").  Under Mr. Graham's
leadership, W.T. Rogers became a leading manufacturer and supplier of office
products to mass market retailers and office superstores.  In 1990, the year
before W.T. Rogers was merged with a wholly-owned subsidiary of Newell, Inc.,
its sales had reached $45,000,000 annually.

     C. Joseph Barnette is the co-founder and President of Kent Adhesive
Products Company ("KAPCO"), a privately held adhesive products company, a
position he has held since KAPCO's beginning in 1972.

BOARD AND COMMITTEE MEETINGS

     During the fiscal year ended March 31, 1998, there were two meetings of
the Board.  Each of the incumbent directors attended at least 75% of the
meetings of the Board.

     As of the end of the fiscal year ended March 31, 1998, the Company had
established two standing committees of the Board: an Audit Committee and a
Compensation Committee.

     The Audit Committee's function is to make recommendations concerning the
effectiveness of the Company's internal auditing methods and procedures, to
determine through discussions with independent auditors whether any limitations
or restrictions have been placed upon them connection with either the scope of
the audit or its implementation, review the Company's financial statements and
related notes with the auditors to ensure that the statements and notes fully
disclose all material facts of the Company, and to recommend approval or
non-approval of such financial statements and related notes.  The Audit

                                      -25-



<PAGE>   30




Committee met one time during the fiscal year ended March 31, 1998, with all
members attending such meeting.

     The Compensation Committee's function is to monitor and make
recommendations with respect to compensation of senior officers, as well as the
granting of stock options and stock awards.  The Compensation Committee met one
time during the fiscal year ended 1998, with all members attending such
meeting.

     No Compensation Committee report is included since the members of the
Compensation Committee during the year ended March 31, 1998 are no longer
directors of the Company.

BOARD INTERLOCKS AND INSIDER PARTICIPATION

     During the year ended March 31, 1998, Ronald S. Deans served as a member
of the Compensation Committee.  During that fiscal year, Mr. Deans was the
President, Chief Executive Officer, Chief Financial Officer and Secretary of
the Company and the Chairman of the Company's Board of Directors.  Mr. Deans is
also the father of Mark G. Deans and R. Scott Deans, former Executive Vice
President--Sales and Marketing and Executive Vice President--Operations,
respectively, of the Company.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, certain officers and persons
who own more than ten percent (10%) of the Company's outstanding Common Stock
("Reporting Persons") to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company.  Reporting Persons
are required by Commission regulations to furnish the Company with copies of
all Section 16(a) reports.

     To the Company's knowledge, based solely on its review of copies of all
Section 16(a) reports furnished to the Company and written representations that
no other reports were required, all Section 16(a) filing requirements
applicable to the Company's directors and officers were complied with during
the fiscal year ended March 31, 1998.

ITEM 11.  EXECUTIVE COMPENSATION

     The following table shows compensation paid by the Company for services
rendered during its fiscal years ended March 31, 1996, 1997 and 1998 to (a) the
Company's Chief Executive Officer and (b) the two most highly compensated
individuals (other than the Chief Executive Officer) who were serving as
executive officers of the Company at March 31, 1998 and whose total annual
salary and bonus for the fiscal year ended March 31, 1998 exceeded $100,000
(collectively, the "Named Executive Officers").  None of the current directors
or executive officer was an executive officer during these periods.












                                      -26-



<PAGE>   31




                           SUMMARY COMPENSATION TABLE


<TABLE>
<S>                   <C>   <C>         <C>                 <C>                   <C>
                               ANNUAL COMPENSATION           LONG-TERM
                            --------------------------       COMPENSATIONS
                                                             AWARDS
                                                             SECURITIES
NAME AND PRINCIPAL                                           UNDERLYING          ALL OTHER
POSITION              YEAR    SALARY        BONUS            OPTIONS(#)       COMPENSATION(1)
--------------------  ----  ----------  --------------  --------------------  ---------------
Ronald S. Deans,      1998    $264,018         $     0           0                  $5,559
Chairman, President   1997    $275,000          86,379           0                  --
& CEO                 1996    $234,000          87,629        30,0000               --
Mark G. Deans
Executive Vice
                      1998    $130,738         $     0           0                  $  674
President-Sales and   1997    $149,903         $29,531           0                  --
Marketing             1996    $111,694         $28,184         32,000               --
R. Scott Deans        1998    $124,969         $     0           0                  $  674
Executive Vice        1997    $149,221         $29,531           0                  --
President-Operations  1996    $111,694         $28,184         32,000               --
</TABLE>


(1)  The amount reported for Ronald S. Deans includes $4,680 life insurance
     premium paid by the Company on Mr. Deans' behalf.  All other amounts
     reflected in the column reflect 401(k) matching amounts paid by the
     Company.  The Company matches employee 401(k) contributions with Common
     Stock.

STOCK OPTION GRANTS AND EXERCISES

     The Company did not grant any stock options during the fiscal year ended
March 31, 1998.   In addition, none of the Named Executive Officers exercised
any stock options held by any of them during the fiscal year ended March 31,
1998.

DIRECTOR COMPENSATION

     The Company pays each director a fee of $500 per month plus $750 for each
meeting of the Company's Board of Directors attended.  Directors are entitled to
reimbursement for reasonable travel and other out-of-pocket expenses incurred in
connection with attendance of meetings of the Company's Board of Directors.

EMPLOYMENT AGREEMENTS

     The Company had no written employment agreements with any of its directors
or officers as of March 31, 1998.

ITEM 12.  STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER HOLDERS

     The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as May 21, 1999 with respect to (i)
each shareholder known by the Company to be the beneficial owner of more than
five percent (5%) of the outstanding Common Stock; (ii) each


                                      -27-



<PAGE>   32




director of the Company; (iii) each of the Named Executive Officers; and (iv)
all current directors and executive officers as a group.  Unless otherwise
noted, the Company believes that the beneficial owners of the Common Stock
listed below have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.  This table is based upon
information supplied to the Company by directors, officers, and principal
shareholders.

<TABLE>
<CAPTION>
                                                    NUMBER OF SHARES   PERCENT
      NAME AND ADDRESS OF BENEFICIAL OWNER         BENEFICIALLY OWNED   OWNED
-------------------------------------------------  ------------------  -------
<S>                                                <C>                 <C>
Dean Family Limited Partnership (1)
8373 Semiahmoo Drive
Blaine, WA  98230                                      1,225,537        12.5%

Fidel Garcia Carrancedo (2)
c/o Geographics, Inc.
1555 Odell Road
Blaine, WA  98231                                      1,001,968        10.2%

Wellington Management Company LLP (3)
75 State Street
Boston, MA  02109                                       780,000         7.9%

William T. Graham (4)
4918 Femrite Drive
Madison, WI  53716                                      446,678         4.5%

James L. Dorman (5)
c/o Geographics, Inc.
1555 Odell Road
Blaine, WA  98231                                       510,011         4.9%

C. Joseph Barnette
1000 Cherry St.
Kent, OH  44240-7520                                       0              *

Total Executive Officers and Directors as a Group
(3 persons) (6)                                         956,689         9.1%
</TABLE>

1)   The Deans Family Limited Partnership has not filed a Schedule 13D or
     Schedule 13G with respect to its holdings.  The share ownership of The
     Deans Family Limited Partnership is based solely upon information
     previously provided to the Company, and the Company is unable to
     independently verify such information.  The Company had been previously
     informed that these shares are held for the benefit of Ronald S. Deans,
     Mark G. Deans and R. Scott Deans.  Ronald Deans was the Company's former
     Chief Executive Officer.  Mark Deans and Scott Deans are former officers
     of the Company.

(2)  Fidel Garcia Carrancedo has not filed a recent Schedule 13D or Schedule
     13G with respect to his holdings.  The share ownership of Fidel Garcia
     Carrancedo is based solely upon information previously provided to the
     Company, and the Company is unable to independently verify this
     information.


                                      -28-



<PAGE>   33




(3)  This information is based on a report on Schedule 13G dated February 9,
     1999 (the "Schedule 13G") filed by Wellington Management Company LLP.
     Based on the Schedule 13G, these shares are held of record by clients of
     Wellington Management LLP.  Such clients have the power to receive, or the
     power to direct the receipt of, dividends from, or the proceeds from the
     sale of, such shares.  Based upon the Schedule 13G, no client of
     Wellington Management Company LLP is known to have such right or power
     with respect to more than 5% of the shares.

(4)  Includes 126,678 shares of Common Stock issuable upon conversion of the
     $50,000 Convertible Subordinated Note.  See "Certain Relationships and
     Related Transactions."

(5)  Consists of currently exercisable options to purchase 327,778 shares of
     Common Stock, options that become exercisable within 60 days to purchase
     55,555 shares of Common Stock and 126,678 shares of Common Stock issuable
     upon conversion of the $50,000 Convertible Subordinated Note.  See
     "Certain Relationships and Related Transactions."

(6)  Includes currently exerciable options to purchase 327,778 shares of
     Common Stock options that became exercisable within 60 days to purchase
     55,555 shares of Common Stock and 253,356 shares of Common Stock issuable
     upon conversion of the two $50,000 Convertible Subordinated Notes.  See
     "Certain Relationships and Related Transactions."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

A. List of documents are filed as part of this Report:

     1. FINANCIAL STATEMENTS

            (a)  Report of Moss Adams LLP regarding Financial
                 Statements

            (b)  Consolidated Balance Sheets as of March 31, 1998
                 and 1997

            (c)  Consolidated Statements of Operations for the
                 years ended March 31, 1998, 1997 and 1996

            (d)  Consolidated Statements of Stockholders' Equity
                 for the years ended March 31, 1998, 1997 and 1996

            (e)  Consolidated Statements of Cash Flows for the
                 years ended March 31, 1998, 1997 and 1996

            (f)  Notes to Consolidated Financial Statements

     All other schedules have been omitted because the required information is
included in the financial statements or the notes thereto, or is not applicable
or required.






                                      -29-



<PAGE>   34




     2. EXHIBITS FILED AS PART OF THIS REPORT

<TABLE>
<CAPTION>
EXHIBIT NUMBER  DESCRIPTION OF DOCUMENT
--------------  -----------------------
<S>             <C>
3.1             Restated Articles of Incorporation of Geographics, Inc.
                (incorporated by reference to Exhibit 3.1 to the Registration
                Statement on Form 10, as amended, filed on September 12, 1995).

3.2             Restated Bylaws of Geographics, Inc. (incorporated by reference
                to Exhibit 3.2 to the Registration Statement on Form 10, as
                amended, filed on September 12, 1995).

10.1            Business Loan Agreement, dated as of February 13, 1996 (the
                "Loan Agreement"), between Geographics, Inc. and U.S. Bank of
                Washington, N.A. (incorporated by reference to Exhibit 10.1 to
                the Company's Annual Report on Form 10-K for the year ended
                March 31, 1997).

10.2            Promissory Note, dated February 13, 1996, made by Geographics,
                Inc.  payable to U.S.  Bank of  Washington, N.A., pursuant to
                the Loan Agreement (incorporated by reference to Exhibit 10.2
                to the Company's Annual Report on Form 10-K for the year ended
                March 31, 1997).

10.3            Loan and Security Agreement, dated as of July 10, 1992, between
                Geographics, Inc. and U.S. Bank of Washington, N.A.
                (incorporated by reference to Exhibit 10.3 to the Company's
                Annual Report on Form 10-K for the year ended March 31, 1997).

10.4            Master Equipment Lease Agreement, dated as of May 22, 1996 (the
                "Master Lease"), between Geographics, Inc. and KeyCorp Leasing
                Ltd. (incorporated by reference to Exhibit 10.4 to the
                Company's Annual Report on Form 10-K for the year ended March
                31, 1997).

10.5            Subordination Agreement, dated as of May 22, 1996, among U.S.
                Bank of Washington, N.A., c/o U.S. Bancorp Mortgage Company and
                KeyCorp Leasing Ltd. (incorporated by reference to Exhibit 10.5
                to the Company's Annual Report on Form 10-K for the year ended
                March 31, 1997).

10.6            Equipment Schedule No.  4 to the Master Lease, dated as of
                December 4, 1996, between Geographics,  Inc. and KeyCorp
                Leasing Ltd. (incorporated by reference to Exhibit 10.6 to the
                Company's Annual Report on Form 10-K for the year ended March
                31, 1997).

10.7            Equipment Schedule No.  4 to the Master Lease, dated as of May
                23, 1997, between Geographics, Inc. and KeyCorp Leasing Ltd.
                (incorporated by reference to Exhibit 10.7 to the Company's
                Annual Report on Form 10-K for the year ended March 31, 1997).
</TABLE>


                                      -30-



<PAGE>   35






<TABLE>
<S>    <C>
10.8   Agreement for Sale of Business, dated November 26, 1996, between
       Geographics, Inc. and Graham's  Graphics Pty. Ltd. (incorporated by
       reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K
       for the year ended March 31, 1997).

10.9   Form of Stock Option Agreement relating to options granted by
       Geographics, Inc. prior to the adoption of the Geographics, Inc. 1996
       Stock Option Plan (incorporated by reference to Exhibit 10.9 to the
       Company's Annual Report on Form 10-K for the year ended March 31, 1997).

10.10  Geographics, Inc. 1996 Stock Option Plan (incorporated by reference to
       Exhibit 4(a) to the Company's Registration Statement on Form S-8 filed
       on November 26, 1996).

10.11  Form of Stock Option Agreements issued pursuant to the Geographics, Inc.
        1996 Stock Option Plan (incorporated by reference to Exhibit 4(b) to
       the Company's Registration Statement on Form S-8 filed on November 26,
       1996).

10.12  Form of Subscription Agreement (the "Subscription Agreement") between
       Geographics, Inc.  and each of the persons participating in a private
       placement of units consisting of common stock and warrants completed in
       May 1996 (the "Private Placement") (incorporated by reference to Exhibit
       10.12 to the Company's Annual Report on Form 10-K for the year ended
       March 31, 1997).

10.13  Warrant Indenture, dated as of February 4, 1997 (the "Warrant
       Agreement") between Geographics, Inc. and Montreal Trust Company of
       Canada relating to the warrants issued in the Private Placement
       (incorporated by reference to Exhibit 10.13 to the Company's Annual
       Report on Form 10-K for the year ended March 31, 1997).

10.14  Form of Warrant to Purchase Common Stock issued in the Private Placement
       pursuant to the Warrant Agreement (incorporated by reference to Exhibit
       10.14 to the Company's Annual Report on Form 10-K for the year ended
       March 31, 1997).

10.15  Form of Registration Rights Agreement between Geographics, Inc. and each
       purchaser of units sold in the Private Placement (incorporated by
       reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K
       for the year ended March 31, 1997).

10.16  Financial Advisory Agreement, dated August 6, 1997, between Geographics,
       Inc. and Cruttenden Roth, Incorporated (incorporated by reference to
       Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the
       quarter ended September 30, 1997).
</TABLE>


                                      -31-



<PAGE>   36






<TABLE>
<S>    <C>
10.17  Subscription Agreement, dated October 9, 1997, between Geographics, Inc.
       and First Prudential Investment Fund, Inc. (incorporated by reference to
       Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the
       quarter ended September 30, 1997).

10.18  Amended and Restated Asset Purchase Agreement by and among Geographics,
       Inc., Identity Group, Inc., and U.S. Bank National Association, dated
       May 4, 1998 (incorporated by reference to Exhibit 10.18 to the Company's
       Report on Form 8-K filed on June 29, 1998).

10.19  Escrow Agreement by and among Geographics, Inc., Identity Group, Inc.,
       U.S. Bank National Association and Lawyers Title Insurance Corporation,
       dated May 4, 1998 (incorporated by reference to Exhibit 10.19 to the
       Company's Report on Form 8-K filed on June 29, 1998).

10.20  Third Forbearance Agreement, between U.S. Bank, N.A. and Geographics,
       Inc., dated May 1, 1998 (incorporated by reference to Exhibit 10.1 to
       the Company's Quarterly Report on Form 10-Q for the quarter ended June
       30, 1998).

10.21  Fourth Forbearance Agreement, between U.S. Bank, N.A. and Geographics,
       Inc., dated November 1, 1998 (incorporated by reference to Exhibit 10.1
       to the Company's Quarterly Report on Form 10-Q for the quarter ended
       December 31, 1998).

10.22  Convertible Subordinated Note between Geographics, Inc. and James L.
       Dorman, dated April 29, 1999, filed herewith.

10.23  Convertible Subordinated Note between Geographics, Inc. and William T.
       Graham, dated April 29, 1999, filed herewith.

11.1   Statement regarding computation of per share earnings.

21.1   List of the subsidiaries of Geographics, Inc.

23.1   Consent of Moss Adams LLP.

27.1   Financial Data Schedule.
</TABLE>

B.   No Current Reports on Form 8-K were filed during the quarter ended March
     31, 1999.


                                      -32-



<PAGE>   37




SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the date indicated.

     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 9th day of
June, 1999.

     GEOGRAPHICS, INC.
     By:        /s/ James L. Dorman
                -------------------
                James L. Dorman
                Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the date indicated.


     /s/ James L. Dorman
     --------------------
     James L. Dorman
     Chief Executive Officer
     and Chairman of the Board


     /s/ William T. Graham
     --------------------
     William T. Graham
     Director


     /s/ C. Joseph Barnette
     --------------------
     C. Joseph Barnette
     Director



                                      -33-



<PAGE>   38




                                                               GEOGRAPHICS, INC.
                                                               TABLE OF CONTENTS
                                                   MARCH 31, 1998, 1997 AND 1996





<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
              <S>                                                            <C>
              INDEPENDENT AUDITOR'S REPORT. . . . . . . . . . . . . . . . .  F-1


              CONSOLIDATED FINANCIAL STATEMENTS

                  Balance Sheet . . . . . . . . . . . . . . . . . . . . . .  F-2

                  Statement of Operations . . . . . . . . . . . . . . . . .  F-3

                  Statement of Stockholders' Equity (Deficit) . . . . . . .  F-4

                  Statement of Cash Flows . . . . . . . . . . . . . . . . .  F-5

                  Notes to Financial Statements. . . . . . . . . . . . . . . F-

</TABLE>








<PAGE>   39






                          INDEPENDENT AUDITOR'S REPORT


To the Stockholders
Geographics, Inc.

We have audited the accompanying consolidated balance sheets of Geographics,
Inc. as of March 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
ended March 31, 1998, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion the consolidated financial statements referred to above, present
fairly in all material respects, the consolidated financial position of
Geographics, Inc. as of March 31, 1998 and 1997 and the consolidated results of
its operations and its cash flows for each of the years ended March 31, 1998,
1997 and 1996 in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 15 to
the financial statements, the Company has incurred substantial losses in 1998
and 1997 and is out of compliance with its borrowing agreements, which raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.






Bellingham, Washington
September 22, 1998


                                       F-1



<PAGE>   40




                                                               GEOGRAPHICS, INC.
                                                      CONSOLIDATED BALANCE SHEET
                                                         MARCH 31, 1998 AND 1997


                                     ASSETS


<TABLE>
<CAPTION>
                                                           1998         1997
                                                        -----------  -----------
<S>                                                     <C>          <C>
CURRENT ASSETS
  Cash                                                     $316,078     $408,757
  Accounts receivable
     Trade receivables, net of allowance for doubtful
        accounts, sales returns and cash discounts of
        $930,958 in 1998 and $814,841 in 1997             4,164,861    6,654,500
     Other receivables                                      148,050      993,243
  Inventory, net of allowance for obsolete inventory
     of $586,000 in 1998 and $1,290,000 in 1997           6,763,508    9,457,874
  Prepaid expenses, deposits, and other current assets      731,307      893,483
                                                        -----------  -----------
        Total current assets                             12,123,804   18,407,857
PROPERTY, PLANT AND EQUIPMENT, net                       12,881,118   10,832,231
OTHER ASSETS                                                340,043    1,005,613
                                                        -----------  -----------
TOTAL ASSETS                                            $25,344,965  $30,245,701
                                                        ===========  ===========
</TABLE>



                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
          <S>                                  <C>         <C>
          CURRENT LIABILITIES
            Bank overdrafts                      $301,716    $467,446
            Note payable to bank               11,300,808   8,649,390
            Accounts payable                    3,285,467   2,421,768
            Accrued liabilities                 2,680,594   2,145,030
            Note payable to officer/director   -              850,000
            Current portion of long-term debt   3,350,344   3,472,674
                                               ----------  ----------
                  Total current liabilities    20,918,929  18,006,307
          LONG-TERM DEBT                        4,853,254   4,322,371
                                               ----------  ----------
                  Total liabilities            25,772,183  22,328,678
                                               ----------  ----------
</TABLE>


<TABLE>
<S>                                                   <C>                                    <C>
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
No par common stock - 100,000,000 authorized, 9,857,252 and
9,467,877 issued and outstanding in 1998 and 1997, respectively                  15,769,018   15,574,018
  Foreign currency translation adjustment                                            33,899      (76,478)
  Accumulated deficit                                                           (16,230,135)  (7,580,517)
                                                                                -----------  -----------
        Total stockholders' equity (deficit)                                       (427,218)   7,917,023
                                                                                -----------  -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                            $25,344,965  $30,245,701
                                                                                ===========  ===========
</TABLE>




                                       F-2



<PAGE>   41




                                                               GEOGRAPHICS, INC.
                                            CONSOLIDATED STATEMENT OF OPERATIONS
                                       YEARS ENDED MARCH 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                  1998          1997               1996
                                               -----------   -----------      --------------
<S>                                            <C>           <C>              <C>
SALES
  Wholesale sales                                 $24,097,845   $17,051,142     $13,220,428
  Related party sales                                       -             -       2,854,935
                                                 ------------  ------------   -------------
    Total sales                                    24,097,845    17,051,142     16,075,363
COST OF SALES                                      21,035,139    16,522,236      10,343,463
                                                 ------------  ------------   -------------
     Gross margin                                   3,062,706       528,906       5,731,900
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES       11,074,425     8,127,710       4,185,331
AMORTIZATION OF GOODWILL                                    -             -         159,768
                                                 ------------  ------------   -------------
     Income (loss) from operations                 (8,011,719)   (7,598,804)      1,386,801
                                                 ------------  ------------   -------------
OTHER INCOME (EXPENSE)
  Other income                                              -        24,907         130,684
  Miscellaneous expense                               (38,365)            -               -
  Loss on sales of property and equipment            (159,406)      (86,048)           (594)

     Reserve for impairment on EDP
     installation-in-progress                               -      (620,759)              -

  Interest expense                                 (1,413,219)     (805,079)       (539,394)
                                                 ------------  ------------   -------------
     Total other income (expense)                  (1,610,990)   (1,486,979)       (409,304)
                                                 ------------  ------------   -------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES    (9,622,709)   (9,085,783)        977,497
INCOME TAX PROVISION (BENEFIT)                              -       (55,972)        332,350
                                                 ------------  ------------   -------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS       (9,622,709)   (9,029,811)        645,147
INCOME FROM DISCONTINUED OPERATIONS,
net of income taxes in 1996 of $302,329                973,091     1,079,510        586,877
                                                 ------------  ------------   -------------
NET INCOME (LOSS)                                 $(8,649,618)  $(7,950,301)  $   1,232,024
                                                 ============  ============   =============
BASIC EARNINGS PER SHARE
  Income (loss) from continuing operations             $(1.00)       $(0.97)   $       0.10
                                                 ============  ============   =============
  Discontinued operations                               $0.10         $0.12    $       0.09
                                                 ============  ============   =============
  Net income (loss)                                    $(0.90)       $(0.85)   $       0.19
                                                  ============  ============  =============
DILUTED EARNINGS PER SHARE
  Income (loss) from continuing operations             $(1.00)       $(0.97)   $       0.09
                                                 ============  ============   =============
  Discontinued operations                               $0.10         $0.12    $       0.08
                                                 ============  ============   =============
  Net income (loss)                                    $(0.90)       $(0.85)   $       0.17
                                                 ============  ============   =============
SHARES USED IN COMPUTING EARNINGS PER SHARE
  Basic                                             9,626,335     9,322,278       6,606,499
                                                 ============  ============   =============
  Diluted                                           9,626,335     9,322,278       7,204,220
                                                 ============  ============   =============
</TABLE>



                                       F-3



<PAGE>   42




                                                               GEOGRAPHICS, INC.
                        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                       YEARS ENDED MARCH 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                              Foreign
                                                              Currency     Retained
                                     Common Stock             Translation  Earnings
                                     ------------
                                     Shares     Amount        Adjustment   (Deficit)      Total
                                     ------     ------        ----------   ---------      -----
<S>                                  <C>        <C>           <C>          <C>            <C>
BALANCE, March 31, 1995              5,176,213  $ 3,665,581   $        -     $ (862,240)  $ 2,803,341
Proceeds from issuance
of common stock                        520,000    1,986,100            -              -     1,986,100
Notes payable, debentures and other
liabilities converted to common
stock                                1,540,371    2,169,233            -              -     2,169,233
Common stock issued for cash on
exercise of stock options and
warrants,
including income tax benefit           768,000    1,799,154            -              -     1,799,154
Net income                                   -            -            -      1,232,024     1,232,024
                                             -            -            -   ------------   -----------
BALANCE, March 31, 1996              8,004,584    9,620,068            -        369,784     9,989,852
Proceeds from issuance of
common stock                         1,269,293    6,114,062            -              -     6,114,062
Notes payable, converted to
common stock                            30,000       52,005            -              -        52,005
Common stock issued for acquisition
of subsidiary                           50,000      200,000            -              -       200,000
Common stock issued for cash on
exercise of stock options and
warrants                               114,000      345,883            -              -       345,883
Revision of estimate of income tax
benefit from exercise of stock
options
and warrants                                 -     (758,000)           -              -      (758,000)
Foreign currency translation
adjustment                                   -            -      (76,478)             -       (76,478)
Net loss                                     -            -            -     (7,950,301)   (7,950,301)
                                             -            -            -   ------------   -----------
BALANCE, March 31, 1997              9,467,877   15,574,018      (76,478)    (7,580,517)    7,917,023
Proceeds from issuance of common
stock                                  389,375      195,000            -              -       195,000
Foreign currency translation
adjustment                                   -            -      110,377              -       110,377
Net loss                                     -            -            -     (8,649,618)   (8,649,618)
                                     ---------  -----------     --------   ------------   -----------
BALANCE, March 31, 1998              9,857,252  $15,769,018     $ 33,899   $(16,230,135)  $  (427,218)
                                     =========  ===========     ========   =============  ===========
</TABLE>


                                       F-4



<PAGE>   43





                                                               GEOGRAPHICS, INC.
                                            CONSOLIDATED STATEMENT OF CASH FLOWS
                                       YEARS ENDED MARCH 31, 1998, 1997 AND 1996

                          Increase (Decrease) in Cash

<TABLE>
<CAPTION>
                                                                                          1998          1997          1996
                                                                                          ----          ----          ----
<S>                                                                                       <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
                   Net income (loss)                                                      $(8,649,618)  $(7,950,301)  $ 1,232,024
Adjustments to reconcile net income to net
cash flows from operating activities
                   Depreciation and amortization                                            1,849,706     1,372,292     1,124,999
                   Deferred income taxes                                                            -       404,000       125,000
                   Loss on sales of property and equipment                                    159,406        86,048           594
                   Reserve for impairment on EDP installation-in-progress                           -       620,759             -
                   Services rendered in exchange for common stock                             195,000             -             -
Changes in noncash operating assets and liabilities
                   Trade receivables                                                        2,489,639    (1,500,098)   (2,561,832)
                   Related party receivables                                                        -       899,422      (560,447)
                   Other receivables                                                          845,193      (930,671)       (3,357)
                   Inventory                                                                2,694,366      (121,153)   (6,238,118)
                   Prepaid expenses, deposits and other current assets                        162,176       (44,402)     (517,278)
                   Accounts payable                                                           863,699      (212,830)    1,315,997
                   Accrued liabilities                                                        535,564       920,286       814,756
                   Income tax payable                                                               -      (145,278)      336,645
                                                                                          -----------   -----------   -----------
                                                Net cash flows from operating activities    1,145,131    (6,601,926)   (4,931,017)
                                                                                          -----------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES
                   Increase in (repayment of) bank overdrafts                                (165,729)      467,445             -
                   Net borrowings on note payable to bank                                   2,651,418     3,326,451     3,139,463
                   Proceeds from long-term debt borrowings                                          -     2,333,526     1,003,029
                   Repayment of long-term debt                                             (1,790,535)     (875,134)     (467,986)
                   Proceeds from notes payable to officers and directors                            -             -     2,452,573
                   Repayments of notes payable to officer/directors                          (850,000)     (362,706)     (398,629)
                   Proceeds from issuance of common stock                                           -     6,459,945     2,827,254
                   Foreign currency translation                                               110,377       (76,478)            -
                                                                                          -----------   -----------   -----------
                                                Net cash flows from financing activities      (44,469)   11,273,049     8,555,704
                                                                                          -----------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES
                   Purchase of plant and equipment                                         (1,933,911)   (4,159,500)   (3,296,165)
                   Proceeds from sales of equipment                                            75,000        50,887        16,741
                   Net advances from (repayments to) partnerships                                   -       (34,484)      (56,786)
                   (Increase) decrease in other assets                                        665,570      (169,297)     (253,797)
                                                                                          -----------   -----------   -----------
                                                Net cash flows from investing activities   (1,193,341)   (4,312,394)   (3,590,007)
                                                                                          -----------   -----------   -----------
NET CHANGE IN CASH                                                                            (92,679)      358,729        34,680
CASH, beginning of year                                                                       408,757        50,028        15,348
                                                                                          -----------   -----------   -----------
CASH, end of year                                                                         $   316,078   $   408,757   $    50,028
                                                                                          ===========   ===========   ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
                   Financing obtained in acquisition of equipment                         $ 2,199,088   $ 1,989,895   $ 1,110,242
                                                                                          ===========   ===========   ===========
</TABLE>


                                       F-5



<PAGE>   44






<TABLE>
<C>                                             <C>       <C>         <C>
Issuance of common stock in exchange for        $195,000  $ -         $ -
                                                ========  =========   ==========
services rendered
Issuance of common stock on conversion of
notes payable,
debentures and other liabilities                $ -       $  52,005   $2,169,233
                                                ========  =========   ==========
Issuance of common stock for acquisition of     $ -       $ 200,000   $ -
                                                ========  =========   ==========
subsidiary
Income tax benefit (expense) related to
exercise of stock
options and warrants                            $ -       $(758,000)  $  958,000
                                                ========  =========   ==========
</TABLE>






<PAGE>   45





NOTE 1 - DESCRIPTION OF OPERATIONS

     Geographics, Inc. (the "Company") is a Wyoming corporation with its
     offices and main manufacturing facilities located in Blaine, Washington.
     The Company also has warehouse/distribution facilities near London,
     England, and Sydney, Australia and a warehouse/distribution facility in
     Bellingham, Washington. The Company is a manufacturer of designer
     stationeries, value-added papers, lettering, signage and graphic art
     products (see Note 16 regarding the sale of certain business operations).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
     include the accounts of the Company and its wholly-owned subsidiaries,
     Geographics (Europe) Limited, Geographics Pty. Limited and Geographics
     Marketing Canada Inc. Significant intercompany transactions have been
     eliminated in consolidation. On July 1, 1996, a merger between the Company
     and Grahams Graphics Pty. Ltd., an Australian distributor, was completed.
     In connection with this transaction, the Company issued 50,000 shares of
     common stock, valued at approximately $200,000 (approximate market value),
     assumed liabilities of approximately $150,000 and paid cash of $40,000.
     This merger was accounted for as a purchase, with no goodwill recognized
     on the transaction.

     CASH AND EQUIVALENTS - For purposes of the statement of cash flows, cash
     and equivalents include cash on deposit with banks and other highly liquid
     investments with original maturities of ninety days or less.

     CASH AND OVERDRAFT BALANCES - The Company maintains its cash in bank
     deposit accounts which, at times, may exceed federally insured limits. The
     Company has not experienced any losses in such accounts.

     The nature and content of bank overdrafts include disbursements from the
     payroll checking account which are covered via transfers of funds from the
     general operating cash account as payroll checks are presented for
     payment. The Company also has an account for which the bank funds
     disbursements as they are presented for payment via an overnight
     investment sweep account.

     ACCOUNTS RECEIVABLE - The Company typically offers credit terms to its
     customers, which generally require payment within sixty days. Management
     considers all accounts receivable in excess of the allowance for doubtful
     accounts to be fully collectible. Accounts receivable are not
     collateralized.

     INVENTORY - Inventory is valued at the lower of cost on a first-in,
     first-out (FIFO) basis or market.

     PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at
     historical cost. Depreciation is provided based on useful lives of three
     to forty years, using primarily the straight-line method. Betterments,
     renewals and repairs that extend the life of assets are capitalized.
     Repairs and maintenance items are expensed when incurred. Depreciation
     expense was $1,729,706, $1,280,801 and $894,570 during the years ended
     March 31, 1998, 1997 and 1996, respectively.

     FEDERAL INCOME TAXES - The Company accounts for income taxes using the
     liability method. Under this method, deferred tax assets and liabilities
     represent the estimated tax effects of future deductible or taxable
     amounts attributed to differences between the financial statement carrying
     amounts and the tax bases of existing assets and liabilities. This method
     also allows recognition of income tax benefits for loss carryforwards,
     credit carryforwards and certain temporary differences for which tax
     benefits

See accompanying notes to these consolidated statements.

                                       F-6



<PAGE>   46




     have not previously been recorded. The tax benefits recognized as assets
     must be reduced by a valuation allowance where it is more likely than not
     the benefits may not be realized.

     FOREIGN CURRENCY TRANSLATION - The financial statements of the Company's
     non-U.S. subsidiaries whose "functional" currencies are other than U.S.
     dollars are translated at current rates of exchange. Income and expense
     items are translated at the average exchange rate for the year. The
     resulting translation adjustments are recorded directly into a separate
     component of stockholders' equity, if significant. Certain other
     translation adjustments and transaction gains and losses are reported in
     net income in the period they are realized.

     USE OF ESTIMATES - The preparation of consolidated financial statements in
     conformity with generally accepted accounting principles requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities at the date of the consolidated
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     The following significant estimates are included in the financial
     statements.

     o    DEPRECIATION - Depreciation represents an expense allocation
          matching asset costs to revenue earned over the estimated lives of
          assets owned by the Company. Periodically, the Company re-evaluates
          the lives and methods of depreciation applied to its property and
          equipment and considers such things as general condition and utility,
          technological status and economic viability. Such evaluations may
          result in the Company's revision and adjustment of asset carrying
          values in relatively short-term time periods.

     o    PROPERTY, PLANT AND EQUIPMENT - It is the Company's policy to
          record property, plant and equipment and other long-lived assets at
          historical cost and depreciate these assets over their expected
          useful life. The Company has sustained significant losses as shown in
          the accompanying consolidated financial statements and described in
          Note 15, and may be unable to continue as a going concern. It is
          reasonably possible that the Company's estimate that it will recover
          the carrying amount of long-lived assets from future operations will
          change in the near term.

     o    INCOME TAXES - The Company operates in a number of taxing
          jurisdictions and endeavors to comply with all tax laws as
          applicable, consistent with minimizing taxes paid by the Company
          where possible. To comply with these laws the Company must allocate
          and prorate certain items of revenue and expense in addition to
          establishing appropriate transfer pricing policies. These allocations
          and policies are subject to scrutiny and audit which may result in
          the Company's need to adjust its tax accruals and provisions as a
          result of its interactions with taxing authorities.

     o    SALES RETURNS AND ALLOWANCES - The Company currently estimates
          an allowance for sales returns as a percentage of sales, based on
          historical information. Changes in market conditions and demand for
          the Company's products could result in customers returning products
          in an amount greater than that currently allowed for. Depending upon
          the volume of sales returns, such amounts could impact future gross
          margins.

     o    INVENTORY - The Company makes provisions for obsolete inventory
          by reviewing recent sales information, inventory turnover rates and
          volumes on hand. The Company will often offer substantial dealer
          discounts and may enter into agreements with discount distributors to
          sell slower moving product lines. The provision for obsolete
          inventory attempts to account for reduced margins expected on slower
          moving products, however, it is possible that additional


                                        2



<PAGE>   47




        discounts or incentives may be necessary to liquidate slow-moving
        inventory and the provisions for obsolete inventory will need to be
        increased.

     ADVERTISING COSTS - Advertising costs are charged to expense in the period
     in which they occur except for direct response advertising which is
     capitalized and amortized over its expected period of future benefits.
     Direct response advertising consists primarily of advertisements placed
     with industry related catalogs and are amortized over the period following
     the mailing date at a rate approximating the rate and timing of customer
     response. Unamortized advertising costs of $149,609 and $40,950 are
     included in other assets at March 31, 1998 and 1997, respectively.

     The Company also participates with its customers in cooperative
     advertising and other promotional programs, in which the Company
     reimburses the customers for a portion of their advertising costs.
     Advertising expense amounted to $1,393,001, $1,924,442 and $867,198 in
     1998, 1997 and 1996, respectively.

     EARNINGS PER SHARE - During fiscal 1998 the Company adopted Statement of
     Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This
     Statement superseded Accounting Principles Board (APB) No. 15 Earnings Per
     Share and establishes standards for computing and presenting earnings per
     share. All prior years presented have been restated to conform with the
     new requirements.

     Basic earnings per share amounts are computed based on the weighted
     average number of shares outstanding during the period after giving
     retroactive effect to stock dividends and stock splits. Diluted earnings
     per share amounts are computed by determining the number of additional
     shares that are deemed outstanding due to stock options and warrants under
     the treasury stock method.

     FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
     Standard ("SFAS") No. 107, Disclosure About Fair Value Of Financial
     Instruments, requires disclosure of the fair value of financial
     instruments, both assets and liabilities, recognized and not recognized,
     in the consolidated balance sheet of the Company for which it is
     practicable to estimate fair value. The estimated fair values of financial
     instruments which are presented herein have been determined by the Company
     using available market information and appropriate valuation
     methodologies. However, considerable judgment is required in interpreting
     market data to develop estimates of fair value. Accordingly, the estimates
     presented herein are not necessarily indicative of amounts the Company
     could realize in a current market exchange.

     The following methods and assumptions were used to estimate fair value:

     CASH, RECEIVABLES, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - The carrying
     amounts of cash, receivables, accounts payable and accrued liabilities
     approximate fair value due to their short-term nature.

     NOTES PAYABLE AND LONG-TERM DEBT - Discounted cash flows using current
     interest rates for financial instruments with similar characteristics and
     maturity were used to determine the fair value of notes payable and
     long-term debt.

     There were no significant differences as of March 31, 1998 and 1997 in the
     carrying value and fair value of financial instruments.

     NEW ACCOUNTING STANDARDS - In June 1997, the FASB issued SFAS No. 130,
     Comprehensive Income and SFAS No. 131, Disclosures About Segments of an
     Enterprise and Related Information.


                                        3



<PAGE>   48




     SFAS No. 130 establishes standards for reporting and display of
     comprehensive income and its components. SFAS No. 131 establishes
     standards for reporting about operating segments, products and services,
     geographic areas, and major customers. The standards become effective for
     fiscal years beginning after December 15, 1997. Management plans to adopt
     these standards in the year ending March 31, 1999. Management believes
     that adoption of these standards will result in some changes in the
     presentation of its financial information but will not have a material
     impact on its reported financial condition or results of operation.

     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 3 - INVENTORY

<TABLE>
<CAPTION>
                                       1998        1997
                                       ----        ----
<S>                                    <C>         <C>
Raw materials                          $  609,183  $   672,635
Work-in-progress                        1,483,308    3,396,754
Finished goods                          5,257,515    6,678,485
                                       ----------  -----------
                                        7,350,006   10,747,874
Less allowance for obsolete inventory     586,498    1,290,000
                                       ----------  -----------
                                       $6,763,508  $ 9,457,874
                                       ==========  ===========
</TABLE>

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                           Accumulated
                                           Depreciation
                                           and           Net Book Value
                                                         --------------
                              Cost         Amortization  1998         1997
                              ----         ------------  ----         ----
<S>                           <C>          <C>           <C>          <C>
Land                            $ 114,563  $          -     $114,563    $ 114,563
Buildings                       3,874,478       852,823    3,021,655    3,070,234
Machinery and equipment         3,706,786     1,656,507    2,050,279    1,635,018
Machinery and equipment
under capital lease             7,107,475     1,274,937    5,832,538    4,281,155
Display racks                   3,287,340     1,659,652    1,627,688    1,155,824
Computers and software            499,615       330,461      169,154      224,229
Automobiles                       187,615       140,139       47,476      258,340
Leasehold improvements             32,415        14,650       17,765       26,790
EDP installation-in-progress            -             -            -       66,078
                              -----------    ----------  -----------  -----------
                              $18,810,287    $5,929,169  $12,881,118  $10,832,231
                              ===========    ==========  ===========  ===========
</TABLE>

NOTE 5 - OTHER ASSETS

<TABLE>
<CAPTION>
                      1998        1997
                      ----        ----
<S>                 <C>       <C>
Other               $205,808    $236,168
Trademarks           134,235     109,480
Equipment deposits     -         556,390
Setup costs            -         103,575
                    --------  ----------
                    $340,043  $1,005,613
                    ========  ==========
</TABLE>

NOTE 6 - FINANCING ARRANGEMENTS


                                        4



<PAGE>   49






<TABLE>
<CAPTION>
                                                          1998        1997
                                                          ----        ----
<S>                                                       <C>         <C>
Installment notes payable to a bank, fixed interest
rates ranging from 8.825% to 10%, payable in monthly
installments through November 2010, collateralized by
real estate.                                              $2,200,029  $2,408,948

Capital lease obligations collateralized by certain
equipment and fixtures.                                    5,877,633   5,133,327

Installment notes payable to banks, interest rates
ranging from fixed at 9.75% to variable rates from
prime plus 1% to prime plus 1.5%, payable in monthly
installments through October 2000, collateralized by
certain equipment.                                           125,936     252,770
                                                          ----------  ----------
                                                           8,203,598   7,795,045
Less current portion                                       3,350,344   3,472,674
                                                          ----------  ----------
                                                          $4,853,254  $4,322,371
                                                          ==========  ==========
</TABLE>

     The prime rate was 8.5% at March 31, 1998 and 1997.

     The Company has a revolving credit agreement with a bank for up to
     $12,000,000, subject to borrowing base limitations of 80% of eligible
     accounts receivable and 55% of inventories, net of reserves. Interest on
     outstanding advances is payable monthly at the bank's prime rate, with a
     stated due date of April 15, 1998. Total outstanding advances under the
     revolving credit agreement were $11,300,808 and $8,649,390 at March 31,
     1998 and 1997, respectively. The revolving credit agreement and
     installment notes are collateralized by substantially all of the assets of
     the Company.

     The revolving credit agreement and term debt (included in installment
     notes payable above) with the same bank are subject to the "Second
     Forbearance Agreement" with the bank which acknowledges the Company's
     default with respect to the original terms of the debt obligations, but
     allows continued borrowing pursuant to the terms of the forbearance
     agreement which expires April 15, 1998. On May 1, 1998 the Company and the
     bank entered into the "Third Forbearance Agreement" which required the
     Company to sell its signage and lettering, intangible and operating assets
     (the "Core Business" - see note 16) to a corporation for total
     consideration of approximately $6.8 million, the net proceeds of which
     were to be applied to the revolving credit obligation. The Third
     Forbearance Agreement expires November 1, 1998 and reduces the maximum
     borrowings under the revolving agreement to $5.5 million during May
     through July 1998 and $6.0 million during August through October of 1998.
     The advance rate against eligible accounts receivable was reduced to 70%,
     and the maximum advance rate against eligible inventory was reduced to
     $3.5 million. All outstanding obligations with this bank have been shown
     as currently due, pursuant to the terms of the forbearance agreements.

     At March 31, 1998, the terms of the agreements provide principal payments
     on long-term debt and capital lease obligations as follows:


                                        5



<PAGE>   50






<TABLE>
<C>                                   <C>
      1998                            $3,350,344
      1999                             1,124,757
      2000                             1,175,066
      2001                               957,129
      2002                               705,189
Thereafter                               891,113
                                      ----------
                                      $8,203,598
                                      ==========
</TABLE>

     Future minimum lease payments under capital leases together with the
     present value of minimum lease payments as of March 31, 1998 are as
     follows:

<TABLE>
<S>                                        <C>
       1999                                $1,586,211
       2000                                 1,557,436
       2001                                 1,483,659
       2002                                 1,122,109
       2003                                   829,847
 Thereafter                                   825,919
                                           ----------
Total minimum lease payments                7,405,181
Less amount representing imputed interest   1,527,548
                                           ----------
Present value of minimum lease payments    $5,877,633
                                           ==========
</TABLE>

NOTE 7 - FEDERAL INCOME TAXES

     The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                        1998     1997       1996
                                        ----     ----       ----
<S>                                     <C>   <C>         <C>
Current provision (benefit)             $  -  $(459,972)  $509,679
Deferred provision (benefit)               -    404,000    125,000
                                        ----  ---------   --------
  Total income tax provision (benefit)  $  -  $ (55,972)  $634,679
                                        ====  =========   ========
</TABLE>

     Income taxes are allocated between continuing and discontinued operation
     as follows:

<TABLE>
<CAPTION>
                                               1998     1997       1996
                                               ----     ----       ----
<S>                                            <C>    <C>        <C>
Total income tax provision (benefit)           $  -   $(55,972)  $634,679
Amounts applicable to discontinued operations     -          -    302,329
                                               ----   --------   --------
  Taxes allocated to continuing operations     $  -   $(55,972)  $332,350
                                               ====   ========   ========
</TABLE>

     The total tax provision differs from the amount computed using the
     statutory federal income tax rate as follows:


                                        6



<PAGE>   51






<TABLE>
<CAPTION>
                            1998                           1997                   1996
                            ----                           ----                   ----
                            Amount        %        Amount          %        Amount      %
                            ------        -        ------          -        ------      -
<S>                         <C>           <C>      <C>             <C>      <C>         <C>
 Tax expense (benefit) at
statutory
  rate on continuing
operations                  $(3,272,000)  (34.0)%    $(3,089,000)  (34.0)%    $332,350  34.0%
 Exercise of stock options
  and warrants                   367,000      3.8       (758,000)    (8.2)           -      -
 Other differences, net          548,000      5.6       (350,972)    (3.4)           -      -
 Change in valuation
allowance
  for deferred tax assets      2,027,000     21.1       3,774,000    41.5            -      -
 Benefit absorbed by
income from
  discontinued operations        330,000      3.5         368,000     4.0            -      -
                            ------------  -------  --------------  ------     --------  -----
  Total income tax
provision
   (benefit)                $ -               - %       $(55,972)     (.1)%   $332,350  34.0%
                            ============  =======  =============   ======     ========  =====
</TABLE>

     The significant components of deferred income tax expense (benefit) are as
     follows:

<TABLE>
<CAPTION>
                                                     1998          1997          1996
                                                     ----          ----          ----
<S>                                                  <C>           <C>           <C>
 Change in valuation allowance for deferred tax
assets                                               $ 2,027,000   $ 3,774,000   $      -
 Depreciation of plant and equipment                     302,000       244,000     88,000
 Change in tax credit carryforward                             -        34,000    105,000
 Amortization of goodwill and intangibles                 17,000        31,000    (31,000)
 Other differences, net                                  (13,000)       (4,000)   (20,000)
 Change in allowance for doubtful accounts              (259,000)       (8,000)   (38,000)
 Increase in cash surrender value of life insurance       (2,000)      (35,000)         -
 Accruals for financial reporting purposes                 3,000       (50,000)         -
 Inventory differences                                   239,000      (416,000)   (10,000)
 Effect of net operating loss carryforwards           (2,214,000)   (3,162,000)         -
                                                     -----------   -----------   --------
  Total deferred income tax expense (benefit)        $         -   $   404,000   $125,000
                                                     ===========   ===========   ========
</TABLE>

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities are as
     follows:

<TABLE>
<CAPTION>
                                                              1998        1997
                                                              ----        ----
<S>                                                           <C>         <C>
Deferred Tax Assets
 Net operating losses                                         $5,476,000  $3,162,000
 Inventory, principally due to additional cost inventoried
for tax purposes
  and financial statement allowances                             236,000     475,000
 Goodwill and intangible assets, principally due to
amortization differences                                         332,000     349,000
 Accruals for financial reporting purposes                        68,000      71,000
 Alternative minimum tax credit carryforwards                     70,000      70,000
 Accounts receivable, due to allowance for doubtful accounts     317,000      58,000
 Cash surrender value of life insurance                           37,000      35,000
 Other differences, net                                           25,000      12,000
                                                              ----------  ----------
</TABLE>


                                        7



<PAGE>   52






<TABLE>
<S>                                                                <C>          <C>
   Net deferred tax assets                                          6,561,000    4,232,000
Deferred Tax Liabilities
 Plant and equipment, principally due to depreciation differences     760,000      458,000
                                                                   ----------   ----------
   Net deferred tax assets before valuation allowance               5,801,000    3,774,000
 Valuation allowance                                               (5,801,000)  (3,774,000)
                                                                   ----------   ----------
   Net deferred tax assets                                         $        -   $        -
                                                                   ==========   ==========
</TABLE>

     Based on the Company's current operating income and expectations for the
     future, management determined that future operating and taxable income may
     not be sufficient to fully recognize all deferred tax assets existing at
     March 31, 1998 and 1997. As a result, the carrying value of net deferred
     tax assets was reduced to $-0- at March 31, 1998 and 1997 by increasing
     the valuation against deferred tax assets.

     Net operating loss carryforwards approximating $14,200,000 are available
     to offset future taxable income through 2013. In addition, net operating
     losses on foreign operations of approximately $1,800,000 are available to
     the Company subject to foreign tax rules.

NOTE 8 - STOCKHOLDERS' EQUITY

     STOCK OPTION AND INCENTIVE PLANS - As of March 31, 1998, the Company had
     reserved 1,000,000 shares of common stock for issuance to key employees,
     officers and directors pursuant to the 1996 Stock Option Plan. Options
     granted under the Plan qualify as incentive stock options and will
     generally not be taxable to the holder until the share subject to the
     option is ultimately sold by the holder of the option. There were no
     shares granted pursuant to this Plan as of March 31, 1998. Options to
     purchase the Company's common stock are granted at a price equal to or
     greater than the market price of the stock at the date of grant, and are
     exercisable pursuant to the terms of the grant. All options expire no more
     than ten years after the date of grant. Prior to the formation of the 1996
     Stock Option Plan, the Company granted nonqualified stock options on a
     case-by-case basis as deemed appropriate by the Board of Directors.

     Pro forma information regarding net income and earnings per share is
     required by Statement of Financial Accounting Standards No. 123 Accounting
     for Stock-Based Compensation. The pro forma information recognizes, as
     compensation, the value of stock options granted using an option valuation
     model. Pro forma earnings per share amounts also reflect an adjustment for
     an assumed purchase of stock from proceeds deemed obtained from the
     issuance of stock options. The fair value for options issued in 1996 is
     estimated at $181,000, net of tax. There were no options issued in 1998 or
     1997 and therefore no presentation is required for 1998 or 1997.

     The following assumptions were used to estimate the fair value of the
     options:

<TABLE>
<CAPTION>
                                           1996
                                           ----
<S>                                        <C>
Risk-free interest rate                      6.26%
Dividend yield rate                              -%
Price volatility                            .6787
Weighted average expected life of options  1.60 yr.
</TABLE>


                                        8



<PAGE>   53




     Management believes that the assumptions used in the option pricing model
     are highly subjective and represent only one estimate of possible value,
     as there is no active market for the options granted. The fair value of
     the options granted in 1996 are recognized in the period issued because
     they are immediately exercisable.

     Pro forma disclosures:

<TABLE>
<CAPTION>
                                                                      1996
                                                                      ----
<S>                                                                   <C>
Net income as reported                                                $1,232,024
Additional compensation for fair value of stock options               $  181,000
Pro forma net income                                                  $1,051,024
Pro forma earnings per share
 Basic                                                                $      .16
 Diluted                                                              $      .15
</TABLE>

     The changes in stock options outstanding are as follows:

<TABLE>
<S>                                                <C>              <C>
                                                   Nonqualified
                                                    Common Stock    Option Price
                                                   Options          Per Share
                                                   -------          ---------
BALANCE, March 31, 1995                                   452,000
 Granted                                                  496,000      $1.47 to 3.57
 Exercised                                               (628,000)       $.73 to 2.56
                                                   --------------
BALANCE, March 31, 1996                                   320,000
 Granted                                                        -
 Exercised                                               (144,000)       $.73 to 2.56
 Expired                                                   (2,500)              $3.04
                                                   --------------
BALANCE, March 31, 1997                                   173,500
 Granted                                                        -
 Exercised                                                      -
 Expired                                                        -
                                                   ---------------
BALANCE, March 31, 1998                                    173,500
                                                   ===============
</TABLE>

<TABLE>
<CAPTION>
                   Options Outstanding                  Options Exercisable
           ------------------------------------     ---------------------------
                         Weighted
                          Average      Weighted                       Weighted
Range of                 Remaining      Average                       Average
Exercise     Number     Contractual    Exercise       Number          Exercise
 Prices    Outstanding      Life        Price       Exercisable         Price
-------    -----------  -----------   ----------    -----------       ---------
<S>        <C>          <C>          <C>            <C>               <C>
Up to $2     86,000      2.07 years      $1.46         86,000           $1.46
 $2 to 4     87,500      2.55 years       2.93         87,500            2.93
</TABLE>


                                        9



<PAGE>   54




     In addition, warrants to purchase 1,342,293 and 24,000 shares of common
     stock at prices ranging from $.77 to $6.50, and $.75 to $4.77, were
     outstanding as of March 31, 1997 and 1996, respectively. These warrants
     are exercisable upon issuance and expire from April 15, 1998 to December
     1, 2001. The exercise price of the warrants was equal to the market price
     of the stock at the date the warrants were issued.

     During the year ended March 31, 1997, the Company's shareholders and its
     Board of Directors approved a resolution to increase the Company's
     authorized shares from ten million to one hundred million. The Company
     filed the Articles of Amendment during the current year end.

NOTE 9 - EARNINGS PER SHARE

The numerators and denominators of basic and diluted earnings per share are as
follows:

<TABLE>
<CAPTION>
                                                                 1998                   1997                      1996
                                                             ------------            ------------              ----------
<S>                                                        <C>                     <C>                        <C>
     Net income (loss) (numerator)                           $(8,649,618)            $(7,950,301)              $1,232,024
                                                             ============            ============              ==========
     Shares used in the calculation (denominator)
       Weighted average shares outstanding                      9,626,335               9,322,278               6,604,499
       Effect of dilutive stock options                                 -                       -                 599,721
                                                             ------------            ------------              ----------
       Diluted shares                                           9,626,335               9,322,278               7,204,220
                                                             ============            ============              ==========
</TABLE>


     As described in Note 8, the Company has granted stock options and warrants
     to purchase up to 1,515,793 shares. The potential dilutive effects of
     these potential shares outstanding were disregarded in 1998 and 1997
     because the Company reported losses in those years and the effects of the
     instruments would have been anti-dilutive to the reported per share
     losses. In future periods, these instruments may reduce the reported net
     income per share once profitable operations are attained.

NOTE 10 - RELATED PARTY TRANSACTIONS

     On September 15, 1995, officers and directors converted debentures in an
     aggregate face amount of $200,000 into 219,178 common shares. The
     debentures were convertible at the holder's option into common shares of
     the Company at Cdn. $1.25 per share, to a maximum of 219,178 common
     shares. There is no remaining balance of debentures outstanding at March
     31, 1997.

     The Company issued $996,000 of convertible debentures payable to officers
     and directors on September 26, 1995. The debentures were convertible at
     the holder's option into common shares of the Company at Cdn. $4.45 per
     share, to a maximum 274,233 common shares. On December 22, 1995, these
     debentures were converted into 274,233 common shares, and are no longer
     outstanding.

     At March 31, 1996, a certain officer and directors had advanced the
     Company $1,264,711 in the form of uncollateralized notes payable. The
     notes are payable on demand and are classified as current liabilities.
     Interest on these notes are payable monthly at the rate of prime plus 1%.
     As of March 31, 1997, the balance remaining on these notes payable to a
     certain officer totaled $850,000, which was paid in full subsequent to
     year end.

     Total interest costs associated with these notes and debentures was
     approximately $11,200 and $92,000 for the years ended March 31, 1998 and
     1997, respectively, and $60,000 during the year ended March 31, 1996.


                                       10



<PAGE>   55




     On January 23, 1996, the Company completed a private placement of 500,000
     common shares to officers and directors at a price of Cdn. $5.75. Total
     cash received, net of issuance costs, totaled $1,986,100.

     Effective April 1, 1996, the Company transferred to Geographics Marketing
     Canada, Inc., a wholly-owned subsidiary, the exclusive rights to market
     and distribute the Company's products in Canada. These marketing and
     distribution rights were previously maintained by Martin Distribution,
     Inc. ("Martin"), a company related through common directorship. As such,
     the financial results of Geographics Marketing Canada, Inc. have been
     included in the consolidated results of Geographics, Inc. for the fiscal
     years ended March 31, 1998 and 1997, with all material intercompany
     transactions eliminated.

     Sales to Martin amounted to $2,854,935 during the year ended March 31,
     1996. No sales to Martin were made during the years ended March 31, 1998
     and 1997, and there were no amounts due from Martin as of those dates.

     International Geographics of Ontario recorded purchases from Martin in the
     aggregate amount of $118,659 during the year ended March 31, 1996. No
     purchases were made from Martin during the years ended March 31, 1998 and
     1997.

     The Company has approximately $32,800 and $210,000 due to Guildmark, Inc.,
     a company related through common ownership, included in accounts payable
     at March 31, 1998 and 1997.

NOTE 11 - EMPLOYEE BENEFIT PLANS

     On April 1, 1995, the Board of Directors approved a retirement savings
     plan, which permits eligible employees to make contributions to the plan
     on a pretax salary reduction basis in accordance with the provisions of
     Section 401(k) of the Internal Revenue Code. The Company makes a matching
     stock contribution of 10% of the employee's pretax contribution. Eligible
     employees may contribute up to 18% of their pretax compensation. Total
     expense related to this plan was $11,471 and $36,296 during the year ended
     March 31, 1998 and 1997, respectively.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

     Leases - The Company conducts certain operations in a leased facility,
     under a lease that is classified as an operating lease for financial
     statement purposes. The lease requires 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 1999. The total minimum lease commitment is $64,770 in
     1999. Rental expense under all operating leases were $320,000, $257,000
     and 100,000 in 1998, 1997 and 1996, respectively.

     Litigation - In July 1997, three related class action suits were filed in
     the United States District Court for the Western District of Washington
     against the Company, its former President, Chief Executive Officer and
     Chairman of its Board of Directors, and the Company's Vice President of
     Finance and Chief Financial Officer. In August 1998, the Company, its
     insurance company and the plaintiffs reached an agreement to settle the
     suits. The settlement is subject to review by the court prior to being
     ratified, which is expected to occur in October 1998. The Company has
     recorded its portion of the settlement to be paid, representing the
     deductible on its insurance policy. The total settlement was $1.6 million.


                                       11



<PAGE>   56




     Special Committee Investigation - In the Company's 10 Q filed for the
     third quarter ending December 31, 1997, the Company announced that a
     special committee of its audit committee was appointed to examine the
     performance and conduct of the Company's management. As a result of their
     examination, issues were raised concerning the adequacy of documentation
     for certain travel and entertainment expenses submitted to the Company for
     payment in prior periods, the propriety of certain issuances of common
     stock, and appropriate treatment and reporting of taxable income
     associated with stock options. The Company is continuing to evaluate these
     matters and believes they will be resolved in a manner that will not
     result in a material impact to the Company's financial position or results
     of operations. However, the ultimate outcome of these matters is
     uncertain.

     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 uses three principal
     software packages at its North American production, warehousing and
     administrative facilities. These include an operating system, an
     electronic data interchange software and an integrated operations and
     accounting application package. Of particular importance, the Company's
     operations and accounting applications were determined to not be Year 2000
     ready. Accordingly, the Company is in negotiations to secure a new
     operating and accounting software package with installation to be
     scheduled as soon as practicable. The Company estimates that the costs of
     acquiring and installing this new software package will range between
     $125,000 and $150,000.

     The Company continues to evaluate its remaining principle software
     packages and believes that existing available upgrades will mitigate the
     risk of significant operational problems. However, the Company has not
     completed an assessment of its hardware and other systems, including those
     of vendors, customers and other third parties. Until a complete assessment
     is completed, the Company is unable to estimate the total expense of
     assuring that all of its software and hardware are Year 2000 compliant.
     The Company plans to complete these assessments no later than March 1999.

NOTE 13 - INFORMATION ABOUT CREDIT RISK AND BUSINESS CONCENTRATIONS

     Assets for which the Company has credit risk include trade accounts
     receivable, which amounted to $4,164,861 and $6,654,500 at March 31, 1998
     and 1997, respectively. The Company's trade customers are concentrated in
     the retail office products industry and mass market retail stores. Sales
     to four major customers approximated 72%, 74% and 80% of total sales for
     the years ended March 31, 1998, 1997 and 1996, respectively. Amounts due
     from three customers approximated 74% and 89% of the total accounts
     receivable at March 31, 1998 and 1997, respectively.

     Historically, a substantial portion of the Company's sales have been to a
     limited number of customers.  Concentration of sales to the Company's five
     largest customers is detailed below:


                                       12



<PAGE>   57





<TABLE>
<CAPTION>
                                                 Fiscal Year
                                                 -----------
              Customer                     1998     1997      1996
                                           ----  -----------  ----
              <S>                          <C>   <C>          <C>
                Office Depot Inc.           31%          31%   40%
                Office Max, Inc.             15           26    24
                Business Depot, Inc.         11           10     0
                Wal-Mart Stores               6            0     0
                United Stationers Inc.        3            0     0
                Martin Distribution, Inc.     0            0    13
                                           ----  -----------  ----
                                            66%          67%   77%
                                           ====  ===========  ====
</TABLE>


     Effective April 1, 1996, Geographics-Canada succeeded Martin Distribution
     as the exclusive Importer of Geographics products into Canada.

     Business Depot, Inc. (Staples of Canada) sales were included in sales of
     Martin Distribution for 1996.

     The Company expects that sales to relatively few customers will continue
     to account for a high percentage of its net sales in the foreseeable
     future and believes that its financial results depend in significant part
     upon the success of these few customers. Although the composition of the
     group comprising the Company's largest customers may vary from period to
     period, the loss of a significant customer or any reduction in orders by
     any significant customers, including reductions due to market, economic or
     competitive conditions in the designer stationary or specialty papers
     industry, may have a material adverse effect on the Company's business,
     financial condition and results of operations.

     The following table represents approximate sales and trade accounts
     receivable related to the geographic regions in which the Company
     operates.

<TABLE>
<CAPTION>
                                    1998
                                    ----
                     Total  United States  Canada  Other
                     -----  -------------  ------  -----
<S>                  <C>    <C>            <C>     <C>
Sales                 100%            79%     13%     8%
                      ====           ====    ====    ===
Accounts receivable   100%            73%     18%     9%
                      ====           ====    ====    ===
                                    1997
                                    ----
                     Total  United States  Canada  Other
                     -----  -------------  ------  -----
Sales                 100%            78%     16%     6%
                      ====           ====    ====    ===
Accounts receivable   100%            86%      9%     5%
                      ====           ====    ====    ===
                                    1996
                                    ----
                     Total  United States  Canada  Other
                     -----  -------------  ------  -----
Sales                 100%            86%     13%     1%
                      ====           ====    ====    ===
Accounts receivable   100%            83%     15%     2%
                      ====           ====    ====    ===
</TABLE>

     The Company purchases goods from approximately 700 vendors. One vendor
     accounted for a significant portion of the Company's total merchandise
     purchases during the years ended March 31, 1998, 1997 and 1996. The
     Company purchases commodity paper and other related products from this
     broker/vendor that could be supplied by other sources. There can be no
     assurances that the


                                       13



<PAGE>   58




     relationship between the Company and this vendor will continue and the
     loss of the purchasing power the Company has established with this company
     would likely have a material adverse effect on the Company. The Company
     does not consider itself dependent on any single source for materials to
     manufacture its products.

     Financial information relating to foreign and domestic operations and
     export sales (all foreign sales are export sales) is as follows:

<TABLE>
<CAPTION>
                                                       Fiscal Year
                                                       ------------
Sales to Domestic and Foreign Customers      1998          1997         1996
                                         ------------  ------------  -----------
<S>                                      <C>           <C>           <C>
 United States                            $17,774,299   $11,637,497  $12,939,098
 Canada                                     4,082,664     3,872,621    2,854,935
 Europe                                     1,197,192       715,327      281,330
 Australia                                  1,043,690       825,697            -
                                         ------------  ------------  -----------
    Total                                 $24,097,845   $17,051,142  $16,075,363
                                         ============  ============  ===========
Operating profit or (loss):
 United States                           $(7,261,961)  $(6,587,756)     $944,157
 Canada                                     (301,179)     (473,296)      377,328
 Europe                                     (489,263)     (727,467)       65,316
 Australia                                     40,684       189,715            -
                                         ------------  ------------  -----------
    Total                                $(8,011,719)  $(7,598,804)   $1,386,801
                                         ============  ============  ===========
Identifiable assets:
 United States                            $21,677,859   $27,464,715  $24,263,181
 Canada                                     1,122,452       940,046      410,060
 Europe                                     1,321,662     1,058,046       64,800
 Australia                                  1,222,992       782,894            -
                                         ------------  ------------  -----------
    Total                                 $25,344,965   $30,245,701  $24,738,041
                                         ============  ============  ===========
</TABLE>


     Effective April 1, 1996, Geographics - Canada succeeded Martin
     Distribution, Inc. ("Martin Distribution") as the exclusive importer of
     Geographics products into Canada.  Martin Distribution was at the time
     owned and controlled by one of the Company's then-acting directors.  All
     export sales to Canada in fiscal 1997 were to Geographics - Canada.  All
     export sales to Canada in fiscal 1996 and fiscal 1995 were to Martin
     Distribution.

     International sales accounted for approximately 20%, 32%, and 26% of the
     Company's total net sales in fiscal years 1996, 1997, and 1998,
     respectively.  International sales were concentrated in Canada, Europe and
     Australia.  As a result of such international sales, a significant portion
     of the Company's revenues will be subject to certain risks, including
     unexpected changes in regulatory requirements, exchange rates, tariffs and
     other barriers, political and economic instability and other risks.  See
     "-Risk Factors-International Subsidiaries" and "-Risk Factors-Foreign
     Exchange and International Trade."

NOTE 14 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                 1998         1997      1996
                                                 ----         ----      ----
<S>                                              <C>          <C>       <C>
Cash paid during the year for interest           $1,659,150   $995,691  $812,416
                                                 ===========  ========  ========
Net cash paid (refund) during the year for
income taxes                                     $ (371,528)  $304,303  $173,034
                                                 ===========  ========  ========
</TABLE>


                                       14



<PAGE>   59




     Interest expense of approximately $250,000, $258,000 and $248,000 was
     included in income from discontinued operations during 1998, 1997 and
     1996, respectively.

NOTE 15 - LIQUIDITY AND OPERATIONS

     As shown in the accompanying financial statements, the Company incurred a
     net loss of $8,649,618 and $7,950,301 for the years ended March 31, 1998
     and 1997, respectively. As a result of these losses, a decline in gross
     profit margins, the Company's failure to comply with certain covenants
     under its line of credit and other factors, the report of the Company's
     auditors 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 does not include any adjustments to reflect the possible
     future effects on the recoverability and classification of assets and
     liabilities that may result from this uncertainty.

     As described in Note 16, in July 1998 the Company appointed a new
     President and CEO who was planning to take steps necessary to enable the
     Company to continue as a going-concern. This includes the development of a
     detailed business plan that will enable the Company to identify and focus
     on profitable products and the profitability of its current market share
     positions, thereby reducing the demand for Company resources on
     unprofitable business. In addition, the Company will take steps to
     identify and reduce unnecessary selling, general and administrative
     expenses, continue to improve the operating efficiency of its
     manufacturing processes and reduce its raw material costs, in order to
     return the Company to profitability. Management anticipates that these
     steps will enable the Company to better estimate the correct levels of
     working capital required and supporting debt and equity financing
     necessary to stabilize the Company and position it for profitable and
     controlled growth. The Company then plans to cost effectively refinance
     its equity and debt funding in amounts necessary to meet its objectives.

     The successful development and execution of this plan is dependent upon
     the Company's ability to achieve adequate gross margins on sales, maintain
     its liquidity through its current borrowing arrangements, maintain
     adequate working relationships with its vendors, customers and employees,
     and the successful management of contingencies and uncertainties affecting
     the viability of the Company. The outcome of these matters is uncertain.

NOTE 16 - SUBSEQUENT EVENTS

     Subsequent to year end, the Company sold substantially all of its signage
     and lettering operating assets, licenses, inventory and other rights
     (collectively the, "Core Business") to a corporation for total
     consideration of $6,820,000. Total assets sold, which are included in the
     year end balance sheet, were approximately $1.0 million. The signage and
     lettering operations which have been discontinued accounted for
     approximately 22% of consolidated total revenues during the year ended
     March 31, 1998. The remaining 78% of total consolidated revenues are
     generated from the Company's ongoing paper product operations. The gain of
     approximately $5.5 million from the sale of the Core Business will be
     included in the Company's 1999 statement of operations. The available net
     proceeds from the sale were used to reduce the outstanding balance on the
     Company's revolving line of credit.

     Summarized results of operations for the Core Business for fiscal years
     1998, 1997 and 1996 are as follows:


                                       15



<PAGE>   60



<TABLE>
<CAPTION>
                                            1998        1997        1996
                                            ----        ----        ----
<S>                                         <C>         <C>         <C>
Net sales                                   $6,598,881  $6,789,364  $6,538,272
                                            ==========  ==========  ==========
Operating income                            $1,222,688  $1,337,506  $1,137,660
                                            ==========  ==========  ==========
Income from discontinued operations before
 provision for income taxes                 $  973,091  $1,079,510  $  889,206
                                            ==========  ==========  ==========

</TABLE>

     In July 1998, the Company's Board of Directors appointed a new President
     and CEO who also became the sole director of the Company. The terms for
     employment were established pursuant to a board resolution which provides
     for a three-year employment contract at a specified salary, reimbursement
     for out-of-pocket costs incurred in relocation and 500,000 stock options
     at a strike price of $.43 per share. The resolution also provides for the
     creation of an incentive compensation arrangement to be ratified by a
     newly established board of directors to be recruited for the Company.

NOTE 17 - STOCK EXCHANGE LISTING REQUIREMENTS

     The Company's securities were delisted from the Nasdaq National Market and
     subsequently the Nasdaq SmallCap Market during fiscal 1998. Trading of the
     Company's securities has continued on the Nasdaq's OTC Electronic Bulletin
     Board. However, the delistings may restrict marketability of the Company's
     common stock.





                                       16