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, 2001 Commission File Number 0-4431
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AUTO-GRAPHICS, INC.
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(exact name of registrant as specified in its charter)
California 95-2105641
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3201 Temple Avenue, Pomona, California 91768-3200
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(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (800) 776-6939
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
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Total shares of Common Stock issued and outstanding as of March 31, 2001 was
4,997,234.
AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 2001
TABLE OF CONTENTS
Unaudited Condensed Consolidated
Statements of Operations and Comprehensive
Income (Loss).....................................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........................11
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AUTO-GRAPHICS, INC.
Form 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income/(Loss)
For the Three Months Ended March 31,
2001 2000
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Net sales (See Note 3) $3,122,069 $2,109,881
Costs and expenses:
Cost of sales 1,511,488 1,100,060
Selling, general & administrative 1,163,869 1,130,376
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Total costs and expenses 2,675,357 2,230,436
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Income(loss) from operations 446,712 ( 120,555)
Interest/other income/(expense) ( 34,888) ( 63,447)
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Income(loss) before taxes
and minority interests 411,824 ( 184,002)
Provision for taxes
based on income (See Note 4) 62,000 4,368
Minority Interests ( 101,874) ( 66,152)
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Net income(loss) and total
comprehensive income(loss) $ 451,698 ($ 122,218)
========== ==========
Basic earnings(loss) per share $ .09 ($ .03)
Shares outstanding 4,997,234 4,822,734
Diluted earnings(loss) per share $ .09 ($ .03)
Shares outstanding 4,997,234 4,822,734
See Notes to Unaudited Consolidated Financial Statements.
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
ASSETS 2001 2000
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Current assets:
Cash $ 1,180,610 $ 1,202,442
Accounts receivable, less allowance
for doubtful accounts ($38,000 in
2001 and 2000) 690,354 1,280,977
Unbilled production costs 217,522 251,088
Other current assets 185,077 181,902
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Total current assets 2,273,563 2,916,409
Software, equipment and leasehold
improvements, net 5,177,843 5,121,592
Other assets 113,836 114,696
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$ 7,565,242 $ 8,152,697
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 164,680 $ 481,136
Deferred income 913,661 982,166
Other accrued liabilities 492,203 63,845
Accrued payroll and related
Liabilities 261,119 436,510
Current portion of long-term debt 77,257 77,257
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Total current liabilities 1,908,920 2,040,914
Long-term debt, less current portion 1,251,590 2,056,876
Deferred taxes based on income 387,900 387,900
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Total liabilities 3,548,410 4,485,690
Minority Interests 146,241 248,114
Stockholders' equity:
Notes Receivable - Stock ( 77,500) ( 77,500)
Common stock, 12,000,000
shares authorized, 4,997,234
shares issued and outstanding
in 2001 and 2000 4,201,755 4,201,755
Retained earnings ( 242,683) ( 694,381)
Other comprehensive income ( 10,981) ( 10,981)
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Total stockholders' equity 3,870,591 3,418,893
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$ 7,565,242 $ 8,152,697
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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
2001 2000
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Cash flows from operating activities:
Net income(loss) $ 451,698 ($ 122,218)
Adjustments to reconcile
net income(loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 389,478 314,564
Minority Interests ( 101,874) ( 66,152)
Changes in operating assets
and liabilities:
Accounts receivable 590,624 158,049
Unbilled production costs 33,566 ( 128,418)
Other current assets ( 3,175) ( 102,092)
Other assets - 72,987
Accounts payable ( 316,455) 79,873
Deferred income ( 68,504) ( 376,981)
Other accrued liabilities 428,358 168,209
Accrued payroll and
related liabilities ( 151,378) ( 76,984)
Net cash provided by (used in) ---------- ----------
operating activities 1,252,338 ( 79,163)
Cash flows from investing activities:
Capital expenditures ( 444,870) ( 461,568)
Cash flows from financing activities:
Principal payments under debt
Agreements ( 829,300) ( 617,356)
Sale of Capital Stock, Net - 645,441
Repurchase of capital stock - ( 275,508)
Cash used in ---------- ----------
financing activities ( 829,300) ( 247,423)
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Net decrease in cash ( 21,832) ( 788,154)
Cash at beginning of period 1,202,442 3,816,286
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Cash at end of period $1,180,610 $3,028,132
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 67,463 $ 83,211
Income taxes 5,659 2,768
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, 2001
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, 2001, the results of operations and the statement of cash
flows for the three months ended March 31, 2001 and 2000 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, 2000
including, without limitation, the financial statements and notes
therein.
NOTE 2. In May 1999, Robert S. Cope and the Cope Family Trust granted
an option to Corey M. Patick to purchase 1,125,000 (or 22%) of the
Company's Common Stock for $1.67 per share (adjusted for the 3-for-1
stock split effective February 28, 2000). Patick subsequently
exercised the option in November of 2000 and the closing for the
purchase of and payment for the option shares, originally scheduled
for November 2000, has been extended several times by the parties;
and such closing is currently scheduled to take place no later than
August 31, 2001. Mr. Patick owns 91,980 or 2% of the shares of the
Company's Common Stock (without taking the option shares into
account). Purchase of the option shares by Mr. Patick would
increase his stock ownership to 1,216,980 shares (or 24%) of the
Company's issued and outstanding stock and would represent a "change
of control" of the Company (under applicable securities law
definitions).
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 2001
On June 30, 2000 the Company's LibraryCard and Dataquad
subsidiaries implemented a previously planned stock purchase/option
plan whereby each of such subsidiaries sold and issued 700,000
shares of its capital stock representing 10% of total outstanding
stock following such issuance by each such corporation. Such stock
was sold and issued by the subsidiaries to Corey M. Patick as
"trustee" for use in implementing such subsidiaries' employee and
related party stock ownership/option plans. Patick purchased the
stock using promissory notes totaling an aggregate of $280,500
representing the per share price paid by a third party investor in
such subsidiaries in "arm's length" transactions at the time of the
organization of the subsidiaries in December of 1999. (See Exhibit
10.40 to the Company's 10-K for the year ended December 31, 2000).
If the subject stock is not subsequently sold or optioned to the
intended recipients, the trustee has the right to return such stock to
the subsidiaries in return for the cancellation of the balance due and
owing on the purchaser's full recourse promissory note, and the subsidiaries
have the right in December of 2002 to reacquire such stock from the trustee
at the price paid to the subsidiaries for such stock. If the subsidiaries
10% stock purchase plan/option stock should be returned by the
purchaser/trustee, a balance sheet reduction of stockholders' equity,
representing the principal balance of the purchase promissory notes used
to purchase such stock, would be required ($280,500 at March 31, 2001).
There were no transactions by Patick regarding the subsidiaries' stock
purchase/option plans stock in 2000. Effective January 1, 2001, Robert S.
Cope replaced Patick as the owner/trustee of the subsidiaries stock
purchase/option plans stock and assumed the respective full recourse
promissory notes.
In February of 2001, the Company completed the purchase of
software and related assets of Maxcess Library Services, Inc. for
approximately $200,000. This purchase and resulting software product
offering will afford the Company the opportunity to expand its current
ASP (Application Service Provider) IMPACT/Online(TM) product/services
in the library automation area to include a fully web-based integrated
library system (ILS) which will be offered to libraries, including those
who currently use the Company's SLiMS (Small Library Management System)
product, for license for "in library" use or as an ASP service under the
trade name IMPACT/Verso(TM). Acquisition of the Company's new ILS software
on an ASP basis will provide libraries with a low capital investment
alternative to their ILS needs, with no local software/hardware
requirements (other than a web browser and a PC workstation), allowing the
library and their patrons to access and utilize the library's bibliographic
holdings information via the Internet/Web.
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Consolidated Financial Statements
March 31, 2001
In March 2001, the Company licensed the use of its REMARC(TM)
bibliographic database of Library of Congress pre-1968 holdings to
a Japanese Company for use exclusively in Japan for a one-time
payment of U.S. $1.5 million. Such transaction has had a material
affect on the results of operations reported by the Company for the
first quarter ended March 31, 2001.
The Company's management intends to propose for approval by the
Company's stockholders at the Company's 2001 Annual Meeting of
Stockholders a qualified (incentive stock option) plan consisting
of approximately 10% (currently 500,000 shares) of the Company's
then issued and outstanding shares of Common Stock to be reserved
for future issuance to key employees of the Company.
Note 3. 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, 2001 and 2000:
2001 2000
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Geographic areas
Net sales
United States $ 1,303,060 $ 1,677,029
Foreign - Canada/Other 1,819,009 432,852
Long-lived assets, net
United States 5,075,174 5,078,568
Foreign - Canada 102,669 179,528
Note 4. 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,
2000, the Company has available federal, state and Canadian net
operating loss carry-forwards of approximately $2,454,000, $615,000
and $137,000, respectively, for income tax purposes. These net
operating loss carry-forwards expire in 2020 for federal taxes,
2006 for state and 2005 for foreign taxes.
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AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
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December 31, 2000 to March 31, 2001
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Liquidity and capital resources. Working capital decreased
$511,000 primarily as a result of additional principal payments on long-term
bank debt in the amount of $829,000. Accounts receivable declined $591,000
despite an increase in sales because the licensing of the Remarc(TM) database
in March 2001 was a cash transaction in the amount of $1.5 million. Net cash
provided by operations was $1,252,000 in the first quarter of 2001 which was
an increase of $1,332,000 from the $79,000 net cash used in the first quarter
of 2000. This was due primarily to the net income of $452,000 generated in
the quarter and a decrease of $591,000 in accounts receivable.
The equity raised by the Company in 1999 and 2000 was used in 2000
to fund the Company's Internet/Web initiatives and the Company's new
LibraryCard and Dataquad subsidiaries. Under AICPA Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities", all costs incurred by
such subsidiaries of a "start-up" nature were expensed as incurred. Such
"start-up" expenses, and other non-capitalized costs/expenses, associated
with such activities are not anticipated to have the same impact in 2001 as
in 2000. LibraryCard's available cash resources were substantially consumed
in 2000 in the development of the consumer "portal" Internet/Web site,
www.LibraryCard.com. On November 1, 2000 the Company entered into a
revolving line of credit agreement with it's majority-owned subsidiary,
LibraryCard, whereby the Company agreed to loan LibraryCard up to $250,000
for use as working capital. Amounts loaned to LibraryCard under the line of
credit bear interest at the rate of 10.0% (which was the then current rate
applicable under the Company's line of credit with Wells Fargo Bank). At
December 31, 2000, no funds had been loaned by the Company to LibraryCard.
LibraryCard received and used an advance of approximately $225,000 from the
Company in the first quarter of 2001 to continue such development efforts.
The full amount of the 250,000 credit line had been loaned to LibraryCard by
the end of April 2001. Repayment of the credit line is unlikely by the
October 31, 2001 due date unless LibraryCard is successful in finding
additional outside funding, or one or more sponsors. Management believes
that LibraryCard's ability to raise additional funds in late 2000 and early
2001 were, and remain, negatively affected by the existing unfavorable market
conditions for Internet and related companies' stock offerings. LibraryCard's
ability to raise capital in the near future is limited until the investment
environment is more receptive to an offering of stock. The Company's ability
to advance further monies to LibraryCard is limited by the Company's bank line
of credit agreement that limits loans by the Company to its subsidiaries to a
maximum aggregate total amount of $350,000.
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AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 2001
Management believes that liquidity and capital resources will be
adequate to fund operations and scheduled reductions in bank debt during 2001
and into 2002.
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 and 2000, the
Company raised approximately $4.0 million through the sale of stock in the
Company and in the Dataquad(TM) and LibraryCard(TM) subsidiaries
In August 2000, the Company implemented a revolving credit agreement
to replace and repay its prior Capital line of credit. Upon commencement of
the new line of credit, the maximum credit availability was $3,000,000. The
maximum credit commitment under the new line of credit reduces periodically
over the term of the credit agreement and reaches a maximum credit
availability of $2,000,000 on April 2, 2002 and, the agreement matures on
June 2, 2002. The interest rate on the line of credit is one-half of one
percent above the bank prime rate in effect from time to time. The agreement
also requires that the Company maintain consolidated cash balances equal to
40% of the maximum credit commitment in effect throughout the term of the
agreement. The credit line is secured by all of the assets of the Company
and its subsidiaries. It also requires that the Company maintain certain
minimum financial covenant ratios, restricts the payment of cash dividends
and limits the amount of certain types of equity investments, including the
repurchase of Company stock as well as limiting the amount of loans to third
parties, including, subsidiaries. As of March 31, 2001, the Company was in
compliance with all of its loan covenants.
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AUTO-GRAPHICS, INC.
Form 10-Q
RESULTS OF OPERATIONS
---------------------
First Quarter 2001 as Compared to First Quarter 2000
----------------------------------------------------
Net sales increased $1,012,000 or 48% to $3,122,000 in 2001. Sales
to the Company's library customers were up $1,232,000 or 75%. Sales were
positively impacted in March 2001 when the Company licensed use of its
Remarc(TM) bibliographic database of Library of Congress pre-1968 holdings to
a Japanese Company for use exclusively in Japan for a one-time payment of U.S.
$1.5 million. Such transaction has had a material affect on the results of
operations reported by the Company for the first quarter of 2001. The
licensing of the database is an unusual occurrence that is not expected to
repeat in the foreseeable future. Sales to other library and publishing
customers were $500,000 lower than the same period last year primarily as a
result of a decrease in one-time projects.
Cost of sales increased $411,000 or 37%. Gross margins improved to
52% in 2001 up from 48% in 2000 primarily as a result of the licensing of
the Remarc(TM) database as described above. In addition, the Company is
continuing to shift its 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 2001.
Selling, general and administrative expenses increased $34,000 or
3% due to increased payroll and related expenses for the period. The
Company took steps to reduce payroll and related expense during the period
and expects to continue to reduce costs if ongoing sales continue to decline.
Interest expense/other was $35,000 in 2001 down $28,000 or 44% from
$63,000 in 2000 due to lower average borrowings and higher interest income.
Provision for taxes based on income reflects the amount of federal
and state income taxes payable (See Note 4 of Notes to Unaudited Consolidated
Financial Statements).
Minority interests reflects the outside owners' share of the losses
realized by the two majority-owned (61%) subsidiaries, Dataquad and
Librarycard.
Net income was $452,000 in 2001 compared to a net loss of $122,000
in 2000. The increase in net income results from the licensing of the
Remarc(TM) database as described above.
Basic earnings per share were $0.09 in 2001 compared to a basic
loss per share of $0.03 for the comparative quarter in 2000. The diluted
earnings per share were $0.09 in 2001 compared to a diluted loss per share
of $0.03 for the comparative quarter in 2000. Shares outstanding have been
retroactively restated for a 3-for-1 stock split in February 2000.
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AUTO-GRAPHICS, INC.
Form 10-Q
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.
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AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Use of Proceeds. 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) 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 May 15, 2001 ss/ Michael K. Skiles
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Michael K. Skiles, President
Date May 15, 2001 ss/ Michael F. Ferguson
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Michael F. Ferguson,
Chief Financial Officer