<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended
March 31, 1999 Commission File Number 0-4431
AUTO-GRAPHICS, INC.
(exact name of registrant as specified in its charter)
California 95-2105641
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3201 Temple Avenue, Pomona, California 91768-3200
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (909) 595-7204
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Total Shares Outstanding:
Common Stock: 1,043,678
</PAGE>
<PAGE>
AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 1999
TABLE OF CONTENTS
Unaudited Condensed Consolidated
Statements of Operations..........................1
Unaudited Consolidated Balance Sheets...............2
Unaudited Consolidated
Statements of Cash Flows..........................3
Notes to the Unaudited Consolidated
Financial Statements..............................4
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................7
Part II. Other Information........................10
</PAGE>
<PAGE>
-1-
AUTO-GRAPHICS, INC.
Form 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended March 31
1999 1998
Net sales $1,982,030 $2,393,935
Costs and expenses:
Cost of sales 1,196,732 1,430,440
Selling, general & administrative 694,553 777,130
Total costs and expenses 1,891,285 2,207,570
Income from operations 90,745 186,365
Interest/other 73,293 94,904
Income before taxes 17,452 91,461
Provision for taxes
based on income (See Note 5) - 41,000
Net income 17,452 50,461
Foreign Currency
Translation Adjustments - (40)
Total comprehensive income (See Note 3) $ 17,452 $ 50,421
Basic earnings per share $ .02 $ .05
Shares outstanding 1,043,678 1,064,478
See Notes to Unaudited Consolidated Financial Statements
</PAGE>
<PAGE>
-2-
AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
ASSETS 1999 1998
Current assets:
Cash $ 214,426 $ 292,744
Accounts receivable, less allowance
for doubtful accounts ($38,000 in
1999 and 1998) 1,470,988 1,697,826
Unbilled production costs 121,121 86,573
Other current assets 373,867 360,170
Total current assets 2,180,402 2,437,313
Software, equipment and leasehold
improvements, net 4,911,637 5,016,627
Other assets 118,303 119,162
$ 7,210,342 $ 7,573,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 345,323 $ 632,809
Deferred income 838,559 813,113
Other accrued liabilities 50,937 84,282
Accrued payroll and related
Liabilities 540,958 578,569
Current portion of long-term debt 881,250 787,500
Total current liabilities 2,657,027 2,896,273
Long-term debt, less current portion 2,493,750 2,587,500
Deferred taxes based on income 486,000 486,000
Total liabilities 5,636,777 5,969,773
Stockholders' equity:
Common stock, $.10 par value,
4,000,000 shares authorized,
1,043,678 shares issued and
outstanding in 1999 and
1,064,478 shares issued and
outstanding in 1998 (See Note 2) 104,368 106,448
Capital in excess of par value 1,120,363 1,123,899
Retained earnings 351,241 375,389
Other comprehensive income ( 2,407) ( 2,407)
Total stockholders' equity 1,573,565 1,603,329
$ 7,210,342 $ 7,573,102
See Notes to Unaudited Consolidated Financial Statements
</PAGE>
<PAGE>
-3-
AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Consolidated
Statements of Cash Flows
For the Three Months Ended March 31
Increase (Decrease) in Cash
1999 1998
Cash flows from operating activities:
Net income $ 17,452 $ 50,461
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 323,147 302,177
Deferred taxes - -
Changes in operating assets
and liabilities:
Accounts receivable 226,838 510,169
Unbilled production costs (34,548) (133,664)
Other current assets (13,697) (158,647)
Other assets - 50,301
Accounts payable (287,486) (132,294)
Deferred income 25,446 12,631
Other accrued liabilities (33,344) (27,674)
Accrued payroll and
related liabilities (37,611) 96,092
Net cash provided by
operating activities 186,197 569,552
Cash flows from investing activities:
Capital expenditures (217,299) (351,547)
Cash flows from financing activities:
Borrowings under long-term debt 150,000 389,571
Principal payments under debt
Agreements (150,000) (525,000)
Repurchase of capital stock (47,216) (101,750)
Cash provided by (used in)
financing activities (47,216) (237,179)
Net increase in cash (78,318) (19,174)
Foreign currency effect on cash - (40)
Cash at beginning of year 292,744 244,620
Cash at end of period $ 214,426 $ 225,406
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 73,885 $ 93,461
Income taxes 9,043 105,000
See Notes to Unaudited Consolidated Financial Statements.
</PAGE>
<PAGE>
-4-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 1999
NOTE 1. The unaudited consolidated financial statements included herein
have been prepared by Registrant and include all normal and recurring
adjustments which are, in the opinion of Management, necessary for a
fair presentation of the financial position at March 31, 1999, the results
of operations and the statement of cash flows for the three months ended
March 31, 1999 and 1998 pursuant to the rules and regulations of the
Securities and Exchange Commission. The consolidated financial statements
include the accounts of Auto-Graphics, Inc. and its wholly-owned
subsidiaries. All material intercompany accounts and transactions have
been eliminated.
The results of operations for the subject periods are not necessarily
indicative of the results for the entire year.
This Quarterly Report on Form 10-Q is qualified in its entirety
by the information included in the Company's Annual Report to the
SEC on Form 10-K, for the period ending December 31, 1998 including,
without limitation, the financial statements and notes therein.
NOTE 2. The Company entered into a stock repurchase agreement in February
1995, with a former employee/officer/director of the Company, whereby the
Company agreed to purchase and retire, over a seven year period, 156,000
of 171,000 shares of Company stock owned by the individual. The total
transaction cost of $825,000 includes stock, non-competition and consulting
fees. In January of 1995, 1996 and 1997, the Company purchased and retired
three blocks of 15,600 shares each. In January 1998 and 1999, the Company
purchased and retired 26,000 and 20,800 shares, respectively, in
accordance with the above referenced agreement.
</PAGE>
<PAGE>
-5-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 1999
NOTE 3. Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". The statement establishes standards for reporting and
display of comprehensive income and its components in interim and
annual financial statements. Comprehensive income is defined as
the change in the equity (net assets) of an entity during a
period from transactions, events and circumstances excluding all
transactions involving investments by or distributions to the
owners.
Note 4. In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The
FAS is effective for fiscal years beginning after December 15,
1997 and the Company has adopted the statement in fiscal year
ending December 31, 1998. The statement establishes standards
for reporting of information about operating segments in interim
and annual financial statements.
The following table summarizes sales and total assets presented
on the basis of GAAP (generally accepted accounting principles)
accounting for the quarters ending March 31, 1999, and 1998.
1999 1998
Geographic areas
Net sales
United States $ 1,484,270 $ 1,611,557
Foreign - Canada 493,668 641,631
Foreign - Japan/Other 4,092 140,747
Long-lived assets, net
United States 4,709,181 5,427,458
Foreign - Canada 202,456 210,897
Note 5. Deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
At December 31, 1998, the Company has available federal, state
and Canadian net operating loss carry-forwards of approximately
$462,000, $886,000 and $569,000, respectively, for income tax
purposes. These net operating loss carry-forwards expire in 2018
for federal taxes, 2005 for state and for foreign taxes.
</PAGE>
<PAGE>
-6-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 1999
Note 6. Pending Pronouncements
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Opinion ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The SOP
provides guidance on accounting for the costs of computer
software developed or obtained for internal use. The SOP
requires that the Company continue to capitalize certain costs of
software developed for internal use once certain criteria are
met. The Company does not expect this SOP will have a material
effect on the Company's financial position or results of
operations.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Opinion ("SOP") 98-5, "Reporting
on the Costs of Start-up Activities." This SOP is effective for
financial statements for fiscal years beginning after December
15, 1998. The SOP provides guidance and examples of the types of
expenses associated with one-time (start-up) activities which
under this SOP must be expensed as incurred. The Company does
not expect this SOP will have a material effect on the Company's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which is
effective for fiscal quarters of all fiscal years beginning after
June 15, 1999. The Company plans to adopt the statement in the
fiscal year ending December 31, 2000. The statement establishes
standards for accounting for derivatives and hedging instruments
(of which the Company currently has none) and therefore the
Company does not expect this FAS will have a material effect on
the Company's financial position or results of operations.
</PAGE>
<PAGE>
-7-
AUTO-GRAPHICS, INC.
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION
December 31, 1998 to March 31, 1999
Liquidity and capital resources. Working capital decreased
$18,000. Long-term debt was unchanged. Accounts receivable declined
$227,000 due to lower first quarter sales. The average collection period
for accounts receivable increased from 66 days at December 31, 1998 to 69
days at March 31, 1999. Net cash provided by operations decreased
approximately $384,000 to $186,000 in the first quarter of 1999 from
$570,000 in the first quarter of 1998 due primarily to lower collection of
accounts receivable of approximately $227,000 and higher payment of
accounts payable of approximately $288,000. Capital expenditures decreased
to $217,000 in the first quarter of 1999 from $352,000 in the first quarter
of 1998.
Management believes that liquidity and capital resources will be
adequate for operations in 1999. The Company has a revolving credit
facility with maximum availability of $1,250,000 ($1,250,000 available at
March 31, 1999), secured by accounts receivable, and renewable annually.
Management believes that the current line of credit will again be renewed
in 1999 and is sufficient to handle the Company's cyclical working capital
needs. The Company also maintains a capital line of credit facility with
a maximum availability of $3,000,000 (fully utilized at March 31, 1999),
secured by substantially all of the Company's capital assets, and
renewable annually. Management believes that this credit facility will
again be renewed in 1999. Management believes that increased credit
availability may be required to finance planned capital expenditures in
1999 which are estimated at $1,200,000, to be used to upgrade Internet
server computers and for software development primarily for the next
generation of Impact/ONLINE software required to accommodate the growing
number of libraries, and resulting increasing volume of transactions,
using the Company's Internet/Web product. The Company is evaluating
alternative means of financing this investment, including lease financing
for planned computer hardware purchases. The Company obtained an
additional credit facility of $750,000 used to fund the 1997 acquisition
of the Company's Canadian subsidiary. The term note is a three year note
with interest only for 12 months followed by a 24 month amortization
schedule. In January 1998, the Company prepaid $375,000 of the term loan.
The balance outstanding at March 31, 1999 was $375,000 and the loan is
scheduled to be repaid by June of 2000. The term facility carries an
uncompensated guarantee by an officer/stockholder of the Company. These
credit facilities carry no commitment fees or compensatory balance
requirements, and require that the Company maintain minimum financial
ratio covenants.
The Company was in non-compliance with certain financial ratio
loan covenants under its bank credit facility in the quarters ending
September 30, 1998, December 31, 1998 and March 31, 1999. The Company's
bank has agreed to waive its default rights under the Company's bank loan
</PAGE>
<PAGE>
-8-
AUTO-GRAPHICS, INC.
Form 10-Q
agreements pertaining to all these financial ratio loan covenant
violations through March 31, 1999, and implement less restrictive
financial ratio loan covenants on a going forward basis. The Company is
in the process of re-negotiating terms and conditions of its bank loan
agreements to reflect the Company's anticipated results of operations and
financial condition in 1999 and beyond. The Company was timely in all
payments to the bank in 1998, and anticipates timely payments in 1999.
The Company's capital resources are available for use as working
capital, for capital investments and, although less likely for the
immediate future, possible acquisitions of businesses, products or
technologies complementary to the Company's business. Management believes
that cash reserves and cash flow from operations will be sufficient to
fund operations in 1999, although the Company believes that the bank may
require the Company to seek alternative sources of financing to complement
use of bank financing for planned 1999 capital expenditures. The Company
believes that it is imperative to continue to invest in Internet/Web
capability for the foreseeable future. Accordingly in 1999, and
thereafter, the Company may and likely will require additional financing
to continue to develop and refine its new Internet/Web line of products
and to seek to expand the market for these products. There can, however,
be no assurance that any additional financing, if and when needed, will be
available on terms favorable to the Company, or at all.
This Report may include forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
</PAGE>
<PAGE>
-9-
AUTO-GRAPHICS, INC.
Form 10-Q
RESULTS OF OPERATIONS
First Quarter 1999 as Compared to First Quarter 1998
Net sales decreased $412,000 or 17% from 1998 to $1,982,000 in
1999 due to lower demand primarily in the Company's traditional business
lines, such as bibliographic cataloging, and computerized typesetting, and
also the loss of sales from the Company's international business from
Japan, as a result of that country's continuing recession. The Company's
new Internet/Web based products such as HVACRCat(TM) and MSDSCat(TM) should
begin to contribute sales later in 1999.
Cost of sales decreased $234,000 or 16% corresponding to the
decline in sales. Gross margins were unchanged at about 40% in 1999 and
1998.
Selling, general and administrative expenses decreased $83,000 or
11% due to staff reductions in publishing and library sales. As a
percentage of sales, these expenses increased from 32% in 1998 to 35% in
1999 due to the decline in sales revenues.
Interest expense/other was $73,000 in 1999 down $22,000 or 23%
from $95,000 in 1998 due to lower average borrowings and lower interest
rates.
Provision for taxes based on income was zero due to the net
operating loss carry-forwards generated by the losses experienced in the
third and fourth quarter of 1998.
Net Income was $18,000 in 1999 which, although down from $50,000
in 1998, was once again positive due to staff and cost reduction measures
implemented in 1998 and early 1999.
Basic earnings per share was $0.02 in 1999 down from $0.05 per
share in 1998.
</PAGE>
<PAGE>
-10-
AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) The Company has filed a Report on Form 8-K dated April 6,
1999 disclosing a letter also dated April 6, 1999 addressed and mailed to
the Company's stockholders.
</PAGE>
<PAGE>
-11-
AUTO-GRAPHICS, INC.
Form 10-Q
SIGNATURES
Pursuant to the requirements 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.
AUTO-GRAPHICS, INC.
Date 5/14/99 ss/ Robert S. Cope
Robert S. Cope, President
and Treasurer
Date 5/14/99 ss/ Daniel E. Luebben
Daniel E. Luebben, Vice-President,
Chief Financial Officer and Secretary
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet and related Statement of Operations of Auto-Graphics, Inc.
as of March 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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<PERIOD-END> MAR-31-1999
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