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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported): April 6, 1999
AUTO-GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
California 0-4431 95-2105641
State or Other Commission I.R.S. Employer
Jurisdiction File Number Identification
of Incorporation Number
3201 Temple Avenue
Pomona, California 91768-3200
Address of Principal Zip Code
Executive Offices
Registrant's telephone number: (909) 595-7204
FORM 8-K
ITEM 5. Other Events.
Attached to this Report is a copy of the Registrant's Letter to Stockholders
dated April 6, 1999.
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(letterhead)
AUTO-GRAPHICS, INC.
2301 Temple Avenue
Pomona, CA 91768-3200
(800) 776-6939
April 6, 1999
Dear Stockholders:
For the year ended December 31, 1998, the Company reported
a loss of approximately $1.5 million ($1,065,000 or $1.00 per share net
of anticipated tax benefit) on sales of $9,099,000 (compared to net
income of $212,000 or $.19 per share on sales of $10,036,000 in 1997).
The loss included approximately $500,000 associated with staff reductions
and related costs primarily at the Company's Canadian subsidiary, and
$400,000 associated with previously capitalized software development
costs which were written off by the Company at December 31, 1998. The
loss combined with stock repurchase expenditures resulted in a decrease
in stockholder's equity of $1,167,000 at December 31, 1998 from the prior
year-end. Total liabilities decreased approximately $96,000, and current
liabilities increased approximately $420,000 at 1998 as compared to 1997.
Cash on hand at year-end increased approximately $48,000 to $293,000 as a
result of increased customer deposits of approximately $277,000 in 1998
as compared to year-end 1997, but accounts receivable decreased
approximately $638,000 as a result of the decrease in 1998 sales.
Although the Company is reporting a substantial loss for 1998, earnings
before interest, taxes, depreciation and amortization (EBITDA) was
positive by approximately $526,000.
As a result of the 1998 loss, the Company was in violation of
certain financial loan covenants in its bank lending agreements; however,
the Company's bank has agreed to waive compliance with these covenants at
year-end and for the ensuing quarter. The Company and the bank are in
the process of negotiating revised financial covenants to apply on a
going forward basis consistent with the Company's anticipated results of
operations in 1999. Adjustments in the mix of revenue from sales should
continue in 1999. Sales are targeted to be in the $8 plus million range
resulting in an approximately break-even year. The Company was current on
all payments to the bank in 1998, and anticipates timely payment of all
regularly scheduled bank debt in 1999. The Company's capital
improvements (including software development costs) and accounts
receivable bank lines of credit, $3,000,000 and $1,250,000 respectively,
come up for renewal in 1999. The Company believes that the bank will
extend its lines of credit during the ensuing year, but the bank may
require the Company to seek alternative sources of financing to
complement use of bank financing for planned 1999 capital expenditures
(computer equipment, purchased and internally developed software)
currently estimated to be approximately $1,200,000. The Company believes
that it is imperative to continue to invest in Internet capability during
this transition period. Planned capital expenditures will double present
capacity providing the Company with the ability to increase the number of
its library or other high demand/use clients by approximately 50% and to
meet commitments to the Company's current installed customer base. It is
presently believed that potential Y2K problems have been identified, and
that the Company's software products and related services will be Y2K
compliant before the end of the year.
The Company has requested an extension of 15 days for the
filing of its Annual Report on Form 10-K with the SEC to on or before
April 15, 1999. Summary (unaudited) financial information to be included
in the Report is attached hereto.
The operating loss experienced by the Company in 1998
resulted from the further deterioration of sales in the Company's
traditional (such as bibliographic cataloging and computerized
typesetting) library and publishing business. Beginning in 1964, the
Company was one of the pioneers in computerized typesetting and database
composition services for both library and publishing industries. Over
the years, the Company has migrated its products/services through the
print, microfilm and fiche, CD-ROM and most recently the Web/Internet
predominant periods. The Company is nearing completion of efforts to
adapt its product/services offerings to the newly prevailing Internet
and World Wide Web environment. Some of the Company's products/services
such as bibliographic cataloging services, which historically provided
the Company with significant revenue, are increasingly available to the
Company's customers from alternative sources including The Library of
Congress and book publishers and distributors free of charge. Revenues
from the Company's Canadian subsidiary have been disappointing as
customers are experimenting with alternative sources for their
cataloging services in an effort to reconcile competing demands for
services/funding. The acquisition should still provide the Company with
a good foothold for efforts to sell the Company's web-based library
services in Canada. Library customers who in the recent past had been
regularly publishing their holdings of books and periodicals on CD-ROM
reduced the frequency of their activity and have been slow to commit to
replacing such activity with electronic publishing systems embracing the
Web/Internet. For libraries who are seeking greater efficiencies in
their operating budgets, the Company's "resource sharing" (interlibrary
loan and catalog resource sharing) line of products should become
increasingly attractive as a cost effective way to help keep costs down
(by reducing redundant book purchasing) while maintaining a high level
of patron services.
Although the operating loss incurred by the Company was
substantial and disappointing, 1998 is believed to have been a pivotal
time. The Company took additional steps to reduce its staff and
corresponding costs to a more appropriate level for the short-term while
the Company's newer Web/Internet based products/services are embraced by
the Company's historical library and publishing customers and the
Company is able to implement a plan to expand its customer base for Web
based publishing services/products. The Company has now evolved from a
CD-ROM based business to an Internet centric business.
The Company's Web/Internet products/services revenues grew
over 33% in 1998, and these revenues should reach 50% of total revenues
in 1999. The Company presently provides outsourced Web/Internet database
publishing services (computer, communications and software) to various
government entities, including the State of Texas whereby the Company has
been hired to create an intranet system covering and providing
bibliographic services to school libraries. To date, over 3,500
libraries are already included in this state wide system which, when
completed, will include a total of approximately 7,000 participating
libraries. The Company has similar contracts with multi-type libraries
in the States of Kansas, Oklahoma, Tennessee and the Canadian Provinces
of British Columbia and Ontario, and is the announced winning bidder for
a contract with the State of Connecticut. Customers also include
regional library organizations in the States of Illinois, New Jersey,
Michigan, Ohio and New Hampshire. Outsourced Internet database
management services presently cover approximately 7,500 distinct library
sites, and enable library patrons to also access the system from their
offices and homes as well as in the library, demonstrating the Company's
increasing capability to handle large capacity Internet communications
systems.
The Company's Web access products/services, developed over
the last five years for the library and publishing industries, should
provide the Company with the opportunity to further develop and package
its capabilities for use by a much broader category of customers,
including for use as "knowledge management" (highly structured, dynamic
database creation, organization, maintenance and retrieval resource)
tools.
For example, as an outgrowth of a contract with one of the
Company's large commercial publishing customers, the Company has
developed and is currently refining an SGML "editor" product for sale to
business and other users who want to create, organize, maintain and
publish large content database products simultaneously in print, CD-ROM
and Web/Internet media. The Company was selected by Gates Rubber Company
to create an SGML (Standard Generalized Markup Language) database of its
hydraulic hose product line. This project could act as a precursor of a
follow-on effort by Gates to develop an enterprise-wide system of such
product and pricing information for both internal and external use.
The Company is nearing completion of the development of its
existing proprietary HVACR (heating, ventilation, air conditioning and
refrigeration) commercial database to include an e-commerce capability
whereby users can identify, select and purchase items in our HVACR
catalog from participating wholesalers using the Internet. The Company's
HVACR database, combined with the Company's Internet solutions software,
also provides wholesalers with the ability to create a customized catalog
of the specific products they offer for sale for publication over the
Internet (and in print and CD-ROM media where desired). The flexibility
of the Company's proprietary software provides users with the ability to
individualize their Internet catalogs to include features such as custom
indexing, multi-tier pricing, customer specific pricing and order entry
(e-commerce). The Company will seek to expand its e-commerce catalog
solutions business into other business areas beginning in 1999.
The Company has recently introduced a new HVACR service where
re-sellers of chemical based products can obtain and distribute
government mandated manufacturer safety data sheets (MSDS) which have
been integrated into the Company's HVACR database and are accessible via
the Internet or CD-ROM on a subscription basis.
All of the Company's database management, retrieval and
publishing products/services are based on core system software designed
to industry data structure standards (SGML, HTML and XML), and standards
specific to the markets served by the Company such as MARC and Z39.50 in
the library industry. These standards allow customers to create,
organize, manage and output information/knowledge databases for the
benefit of the enterprise and other users independent of the media used
to publish data. Flexibility in the ability to distribute and use
information and knowledge both within and without the enterprise is
increasingly a goal of business and governmental organizations, and is
the underlying premise in the Company's products/services.
Accordingly, the Company believes it is now capable of
offering attractive solutions to a wide range of users who are interested
in developing the capability of creating, maintaining and publishing
their product offerings or other large content (database) information
simultaneously in one or more of print, CD-ROM and/or over the Internet
including e-commerce capability. The Company's Web/Internet solutions,
for government-patron, business-to-business and business-to-consumer
customers, are available for purchase for internal implementation by the
customer and/or on an outsourced (or web hosting) basis where the Company
performs all or a portion of these services for its customers at its
corporate location on a fee basis.
The challenge the Company faces now will be to develop,
finance and successfully implement a plan for the marketing and sale of
its knowledge management and Web based access and publishing products
and services to a broader market of buyers so that the Company can grow
significantly and generate self-sustaining profits which will allow the
Company to maintain a competitive position in this ever changing
"digital" world.
For additional information regarding the Company and its
products, see the Company's Web sites at www.auto-graphics.com and
www.datacat.com. The Company's 1998 Report To Stockholders, including
audited year-end financial statement and related information, will be
published and mailed to you in the near future.
Very truly yours,
Robert S. Cope,
President
enc.
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AUTO-GRAPHICS, INC.
SELECTED FINANCIAL DATA
1998 - 1994
(Unaudited)
<S> <C> <C> <C> <C> <C>
Years Ended December 31 `
1998 1997 1996 1995 1994
Operating results:
Net sales $ 9,099 $10,036 $9,218 $9,559 $9,165
Net income/(loss) (1,065) 212 236 194 158
Earnings /(loss)
per share ( 1.00) .19 .21 .16 .12
At year-end:
Total assets 7,590 8,852 7,132 6,688 6,106
Long-term debt 2,588 2,911 2,101 1,906 1,696
Dollar amounts in thousands except per share data.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AUTO-GRAPHICS, INC.
(Registrant)
Date: April 6, 1999 By: ss/Robert S. Cope
Robert S. Cope, President,
Treasurer, and Director
Date: April 6, 1999 By: ss/Daniel E. Luebben
Daniel E. Luebben
Vice President, Chief
Financial Officer &
Secretary
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