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, 2000 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 of Common Stock issued and outstanding as of March 31, 2000 was
4,822,734.
AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 2000
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
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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,
2000 1999
Net sales $2,109,881 $1,982,030
Costs and expenses:
Cost of sales 1,100,060 1,196,732
Selling, general & administrative 1,130,376 694,553
Total costs and expenses 2,230,436 1,891,285
Income(loss) from operations ( 120,555) 90,745
Interest/other 63,447 73,293
Income(loss) before taxes ( 184,002) 17,452
Provision for taxes
based on income (See Note 5) 4,368 -
Minority Interests ( 66,152) -
Net income(loss) and total
comprehensive income(loss)
(See Note 3) ($ 122,218) $ 17,452
Basic earnings(loss) per share ($ .03) $ .01
Shares outstanding 4,822,734 3,131,034
Diluted earnings(loss) per share ($ .03) $ .01
Shares outstanding 4,822,734 3,131,034
See Notes to Unaudited Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
ASSETS 2000 1999
Current assets:
Cash $ 3,028,132 $ 3,816,286
Accounts receivable, less allowance
for doubtful accounts ($38,000 in
2000 and 1999) 1,243,276 1,401,325
Unbilled production costs 156,309 27,891
Other current assets 212,079 109,987
Total current assets 4,639,796 5,355,489
Software, equipment and leasehold
improvements, net 5,258,096 5,110,231
Other assets 107,749 181,595
$10,005,641 $10,647,315
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 373,670 $ 293,798
Deferred income 896,892 1,273,873
Other accrued liabilities 292,811 124,601
Accrued payroll and related
Liabilities 420,092 497,076
Current portion of long-term debt 70,000 70,000
Total current liabilities 2,053,465 2,259,348
Long-term debt, less current portion 2,535,893 3,153,249
Deferred taxes based on income 475,236 475,236
Total liabilities 5,064,594 5,887,833
Minority Interests 610,698 676,850
Stockholders' equity:
Notes Receivable - Stock ( 127,500) ( 127,500)
Common stock, 12,000,000
shares authorized, 4,822,734
shares issued and outstanding
in 2000 and 4,784,934 shares
issued and outstanding in 1999
(See Note 2) 4,421,925 3,793,332
Retained earnings 58,101 438,977
Other comprehensive income ( 22,177) ( 22,177)
Total stockholders' equity 4,330,349 4,082,632
$10,005,641 $10,647,315
See Notes to Unaudited Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Consolidated
Statements of Cash Flows
For the Three Months Ended March 31,
Increase (Decrease) in Cash
2000 1999
Cash flows from operating activities:
Net income(loss) ($ 122,218) $ 17,452
Adjustments to reconcile
net income(loss) to net cash
provided by operating activities:
Depreciation and amortization 314,564 323,147
Minority Interests ( 66,152) -
Deferred taxes - -
Changes in operating assets
and liabilities:
Accounts receivable 158,049 226,838
Unbilled production costs ( 128,418) ( 34,548)
Other current assets ( 102,092) ( 13,697)
Other assets 72,987 -
Accounts payable 79,873 ( 287,486)
Deferred income ( 376,981) 25,446
Other accrued liabilities 168,209 ( 33,344)
Accrued payroll and
related liabilities ( 76,984) ( 37,611)
Net cash provided by (used in)
operating activities ( 79,163) 186,197
Cash flows from investing activities:
Capital expenditures ( 461,568) ( 217,299)
Cash flows from financing activities:
Borrowings under long-term debt - 150,000
Principal payments under debt
Agreements ( 617,356) ( 50,000)
Sale of Capital Stock, Net 645,441 -
Repurchase of capital stock ( 275,508) ( 47,216)
Cash used in
financing activities ( 247,423) ( 47,216)
Net decrease in cash ( 788,154) ( 78,318)
Cash at beginning of year 3,816,286 292,744
Cash at end of period $3,028,132 $ 214,426
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 83,211 $ 73,885
Income taxes 2,768 9,043
See Notes to Unaudited Consolidated Financial Statements.
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 2000
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, 2000, the results of operations and the statement of cash
flows for the three months ended March 31, 2000 and 1999 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 and majority-
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, 1999 including,
without limitation, the financial statements and notes therein.
NOTE 2. In May 1999, the Company entered into a selling agreement with an
associate pertaining to the Company's 1999 private placement
offering, which raised $1,251,000 in equity investment and resulted
in the sale/issuance of an additional 1,501,200 shares of the
Company's (restricted) Common Stock. Pursuant to the agreement,
the Company sold and issued 240,000 3-year warrants for $800
entitling the associate to purchase one share of the Company's
(restricted) Common Stock for each warrant for $.03 per share,
which warrants remain issued and outstanding but unexercised at
March 31, 2000. The 240,000 shares of Common Stock issuable
through the exercise of these warrants reflect the Company's only
potentially dilutive securities currently outstanding. The
Company's principal director/shareholder granted an option to the
associate to purchase 1,125,000 shares of the Company's
(restricted) Common Stock owned by such individual (and his Family
Trust) through November 2000, subject to a one year renewal
provision in favor of the recipient, for $1.67 per share. The
shares which are the subject of this option represent approximately
23% of the Company's issued and outstanding Common Stock at March
31, 2000.
In December 1999, the Company and an associate formed two new
subsidiaries, Dataquad, Inc. and The LibraryCard, Inc., and
contributed nominal cash consideration to such subsidiaries, and
the Company contributed certain software and other assets to
Dataquad. A third party investor (who also invested in the
Company's 1999 private placement offering) contributed $1.0 million
in cash to each of the subsidiaries in return for a 27% ownership
interest, and the Company and the associate hold 67% and 6%
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 2000
interests, respectively. Ten percent of the issued and outstanding
shares of Common Stock in each of the two subsidiaries have been
reserved for issuance to employees under an employee stock option
plan which is currently under development.
On January 31, 2000, the Company announced a 3-for-1 stock split of
its Common Stock to shareholders of record on February 12, 2000,
which occurred on February 28, 2000. Two additional shares were
issued for each share held on the record date. Following the stock
split, shares authorized increased from 4,000,000 to 12,000,000 and
shares issued and outstanding from 1,607,578 to 4,822,734 following
the private placement and share repurchase referenced below. Share
amounts in the Statement of Operations including basic and diluted
earnings per share, and the Consolidated Balance Sheet have been
adjusted retroactively to reflect the stock split for the periods
presented.
In February 2000, the Company consummated a private placement of
225,000 shares (after giving effect to the 3-for-1 stock split) of
its (restricted) Common Stock with an offshore investment company
for $4.125 per share for gross proceeds of $930,000. The Company
used a portion of the net proceeds from the sale of such stock to
reduce its capital line of credit with the bank by $600,000.
In February 2000, the Company accelerated the purchase and retired
the remaining 187,200 shares outstanding (after giving effect to
the 3-for-1 stock split) under a stock repurchase agreement with a
former director and stockholder of the Company for $203,000 in cash
consideration. The Company also transferred an insurance policy to
the seller having a cash surrender value of approximately $75,000.
The Company incurred direct and incremental expenses in connection
with the 1999 $1,251,000 private placement offering, the sale of
the $2.0 million in shares of the Company's Dataquad, Inc. and The
LibraryCard,Inc. subsidiaries, and the above referenced 2000
private placement offering of $930,000 resulting in gross proceeds
from the sale of all such securities of $4,181,000. 2000 equity
funding costs and expenses, including legal, and selling expenses
totaled $279,000 which have been offset against the total equity
raised.
NOTE 3. As of 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.
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 2000
Note 4. As of the year ended December 31, 1998, the Company adopted
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The
Statement establishes standards for reporting information about
operating segments in interim and annual financial statements. The
following table summarizes sales based on the location of the
customers and assets based on the location of the asset for the
quarters ending March 31, 2000 and 1999:
2000 1999
Geographic areas
Net sales
United States $ 1,677,029 $ 1,484,270
Foreign - Canada/Other 432,852 497,760
Long-lived assets, net
United States 5,078,568 4,709,181
Foreign - Canada 179,528 202,456
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,
1999, the Company has available federal, state and Canadian net
operating loss carry-forwards of approximately $385,000, $498,000
and $337,000, respectively, for income tax purposes. These net
operating loss carry-forwards expire in 2018 for federal taxes and
2005 for state and for foreign taxes.
Note 6. Pending Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", which was
amended by Statement of Financial Accounting Standards No. 137,
effective for fiscal quarters of all fiscal years beginning after
June 15, 1999. The Company has adopted 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 Statement will have a material effect on the
Company's financial position or results of operations.
In February 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 135, "Rescission of
FASB Statement No. 75 and Technical Corrections", which is
effective for financial statements issued for fiscal years ending
after February 15, 1999. The Company does not expect this
Statement will have a material effect on the Company's financial
position or results of operations.
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AUTO-GRAPHICS, INC.
Form 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
December 31, 1999 to March 31, 2000
Liquidity and capital resources. Working capital decreased
$510,000 primarily as a result of principal payments on long-term debt in
the amount of $617,000. Accounts receivable declined $158,000 despite an
increase in sales as a growing proportion of the Company's sales and
accounts receivable are being paid via customer deposits. The average
collection period for accounts receivable was unchanged at 55 days at
December 31, 1999 and March 31, 2000. Net cash provided by/(used in)
operations was ($79,000) in the first quarter of 2000 down from $186,000 in
the first quarter of 1999 due primarily to a normal cyclical increase in
inventory of $128,000 and a reduction in deferred income of $377,000
reflecting the application of customer deposits. Capital expenditures
increased to $462,000 in the first quarter of 2000 from $217,000 in the
first quarter of 1999 due to the procurement of computer equipment, and
office equipment and furniture associated with the consolidation of office
space at the Company's Pomona headquarters.
Management believes that liquidity and capital resources will be
adequate to fund operations including development of the business of the
Company's two new majority-owned subsidiaries, Dataquad(tm) and
LibraryCard(tm), during 2000 and into 2001.
In order to accelerate development and expand the scope of the
Company's Internet/Web initiatives and business, the Company will continue
to explore opportunities to raise additional equity. In 1999, the Company
raised approximately $3.0 million through the sale of stock in the Company
and in the Dataquad(tm) and LibraryCard(tm) subsidiaries. At March 31,
2000, the Company's cash position was approximately $3.0 million; and the
balance in the Company's revolving working capital line of credit was zero.
In February 2000, the Company raised an additional $930,000 in equity
through the sale of stock, and used $600,000 of such proceeds to pay down
the Company's $3.0 million capital line of credit to $2.4 million.
In 1999, the Company renewed its commercial bank lines of credit
through May 2000. The Company has reached an agreement in principle with
its bank (Wells Fargo Bank, N.A.) to restructure and extend the term of its
bank loan through May 2002. The plan is to consolidate the Company's two
existing lines of credit into a single revolving line of credit. In light
of the Company's present and anticipated cash resources, and resulting need
for bank credit, the newly implemented line of credit will start at $3.0
million and decrease over the two year term of the loan to $2.0 million with
a lower rate of interest than presently applies. The proposed new loan
covenants will provide the Company with greater flexibility to incur
consolidated net losses and commit its cash resources to new initiatives
consistent with such revised financial ratio covenants; and the Company will
agree to maintain conservative liquidity ratios which are designed to
encourage the Company to finance future growth with investment (as opposed
to bank) capital
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AUTO-GRAPHICS, INC.
Form 10-Q
RESULTS OF OPERATIONS
First Quarter 2000 as Compared to First Quarter 1999
Net sales increased $128,000 or 7% to $2,110,000 in 2000. Sales in
the Company's library division were up $196,000 offset by lower sales
primarily in the Company's traditional business lines, such as bibliographic
cataloging, and computerized typesetting.
Cost of sales decreased $97,000 or 8%. Gross margins improved to
48% in 2000 up from 40% in 1999 due to the continuing shift in product mix
away from the Company's traditional labor intensive services to higher
margin Internet/Web hosting services. This trend is expected to continue
through 2000.
Selling, general and administrative expenses increased $435,000 or
63% due to additional staff and other recurring and non-recurring expenses
related to the start-up of two new subsidiaries: Dataquad(tm) and
LibraryCard(tm). The Company expects these elevated expense levels to
increase through 2000 and into 2001.
Interest expense/other was $63,000 in 2000 down $10,000 or 13% from
$73,000 in 1999 due to lower average borrowings.
Provision for taxes based on income reflects minimum state income
taxes payable (See Note 5 of Notes to Unaudited Consolidated Financial
Statements).
Minority Interests reflects the outside partners' share of the
losses realized by the two new subsidiaries referenced above.
Net Loss was $122,000 in 2000 compared to net income of $17,000 in
1999 due to additional staff and other expenses related to the start-up of
two new subsidiaries referenced above.
Basic loss per share was $0.03 in 2000 compared to basic earnings
per share of $0.01 for the comparative quarter in 1999. The diluted loss
per share was $0.03 in 2000 compared to diluted earnings per share of $0.01
for the comparative quarter in 1999. Shares outstanding have been
retroactively restated for a 3-for-1 stock split in February 2000. (See
Note 2 of Notes to Unaudited Consolidated Financial Statements).
Net Loss in 2000
Management believes that 2000 sales will increase over 1999 sales. The
additional equity raised by the Company in 1999 and in 2000 will be used to
fund the Company's Internet/Web initiatives in 2000 (and 2001). Under AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities",
all costs incurred by the Company of a "start-up" nature will necessarily
need to be expensed as incurred. Such "start-up" expenses, and other non-
capitalized costs/expenses associated with the Company's new Internet/Web
initiatives, primarily in the Company's Dataquad(tm) and LibraryCard(tm)
subsidiaries, are anticipated to result in the Company reporting a
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AUTO-GRAPHICS, INC.
Form 10-Q
consolidated net loss for the year ending December 31, 2000 in the $750,000-
$1.0 million range (although the Company's on-going business is expected to
be profitable again in 2000).
Information Relating To Forward-Looking Statements
This Report includes 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.
Pending Pronouncements
See Note 6 of Notes to Unaudited Consolidated Financial Statements.
Year 2000
The Company is continuing to monitor its mission critical systems
for potential Year 2000 related software problems, and has experienced only
minor, readily correctable problems. Should the Company experience an
unforeseen Year 2000 problem with its products/services, it is believed that
the Company has sufficient technical personnel and resources to address and
resolve any such problems.
-10-
AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Use of Proceeds.
(a) Securities Sold - On February 14, 2000, the Company
consummated a private placement of 225,000 shares (after giving
effect to a 3-for-1 stock split) of its (restricted) Common Stock
for $4.125 per share.
(b) Purchasers - The stock was sold to an offshore investment
company.
(c) Consideration - The gross cash consideration was $930,000.
Finder's fees and legal fees totaled $85,500 for net proceeds of
$844,500.
(d) Exemption From Registration Claimed - The sale and issuance
of the securities was exempt under Section 4(2) of the Securities
Act of 1933, SEC Regulation D and otherwise based upon, among
other things, the fact that the purchaser is an offshore
investment company represented by professional financial
advisors.
(e) Terms of Conversion or Exercise - Not applicable.
(f) Use of Proceeds - The Company used a portion of the net
proceeds from the sale of such stock to reduce its capital line
of credit with the bank by $600,000, and the balance for working
capital.
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) None.
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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 5/15/00 ss/ Robert S. Cope
Robert S. Cope, Chairman of the Board
Date 5/15/00 ss/ Daniel E. Luebben
Daniel E. Luebben, Chief Financial Officer
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