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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange
Act of 1934 [Fee Required]
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
For the Fiscal Year ended Commission File Number
December 31, 1999 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
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number: (909) 595-7204
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 31, 2000 was $35,173,000.
The number of shares of the registrant's Common Stock outstanding at March
31, 2000 was 4,822,734 following a 3-for-1 stock split on February 28, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A for
the fiscal year ended December 31, 1999 is incorporated herein by reference
in Part III, Items 11-13 of Form 10-K. The Proxy Statement will be filed
with the Securities and Exchange Commission within 120 days after the close
of the registrant's most recent calendar year.
PART I
ITEM 1. BUSINESS
Auto-Graphics, Inc., including Datacat, Inc. and A-G Canada, Ltd., its
wholly-owned subsidiaries and Dataquad, Inc. and The LibraryCard, Inc., its
majority owned subsidiaries (the "Company"), provides software products and
services used to create, convert, organize, manage and deliver database
information via the Internet/Web, CD-ROM and/or print media. LibraryCard(
is an Internet/Web "portal" site (www.LibraryCard.com) offering a virtual
library on the Web with access to bibliographic and related information and
services for the consumer.
Revenue is generated from direct sales, licensing and support of these
software products and services including outsourcing contracts to provide
hardware, software and other facilities to manage customer Web sites
(outsourced Web "hosting"), and by using this technology to distribute
"content" via the Company's own web sites.
The Company's products and services are presently sold into the following
general customer categories:
1) Libraries, especially library consortia requiring systems to
create, convert, organize, manage, publish and access large bibliographic
and holdings databases of multiple institutions used to implement resource
sharing initiatives and services.
2) Consumers who want Internet/Web access to bibliographic and
related information/services from such virtual library site and/or from
their local library through such library information "portal" site (and
sponsors, commercial vendors and advertisers who want to utilize such
consumer site for delivery of communications and products to users of the
site).
3) Business and government customers who want an XML/SGML based
editorial software system and related services enabling such enterprises to
create, convert, organize, manage, deliver and access databases and other
information dynamically within and outside the enterprise including over
the Internet/Web with e-commerce capability.
4) Corporate publishers, primarily manufacturers and distributors,
who publish catalogs and promotional content used in their sales and
marketing programs. The Company's capability, and customer's needs, now
extends into e-commerce applications as a result of the Company's
Internet/Web and database information expertise; and
5) Traditional database publishers (encyclopedias, dictionaries
and bibles) who use the Company's typesetting products and services to
manage the editorial process and to create and publish valuable content.
Products/Services
The products/services offered by the Company include the following:
Impact/Online(tm) is the Internet/Web based online bibliographic database
locator and interlibrary loan products/services system is marketed by the
Library Services division.
Dataquad(tm) Impact/CMS(tm) (Content Management System) is a modular and
expandable editorial software system that allows users to create, convert,
organize and manage information for multi-purpose publishing. HTML display
is created "on the fly" allowing basic data structures to stay intact and
providing greater page design flexibility. Customizing modules include
e-commerce features providing ordering, credit card purchasing, multi-tier
pricing and content scoping controls. These features provide users with
capabilities to customize Web sites to individual requirements. Data
structures are SGML/XML and are particularly suited to database
applications. The system can be configured from a single user to
enterprise systems. Editorial control, iteration management and SGML/XML
DTD validation are important features of the Company's Dataquad product
line. Impact/CMS/Frame(tm) incorporates a module including Adobe's
Frame+SGML(tm) software to provide WYSIWYG graphics and interactive
database composition. Dataquad(tm) owns and markets the software system to
end users and Datacat uses the software to provide services to its
customers.
Impact/Web(tm) (search and retrieval software) provides custom indexing and
retrieval of web content in business to business applications.
Dataquad(tm) sells the software system to end users and Datacat uses the
software to provide services to its customers.
Applications
The Company provides outsourcing including Web "hosting" services to
various types of customers. The Company has a contract with the State of
Texas (Texas Educational Agency or TEA) to develop and operate, on an
outsourced "hosting" basis, an Internet/Web based online bibliographic
database locator system and interlibrary loan system linking approximately
7,500 kindergarden through grade 12 public school libraries (when the
system is fully developed and implemented). Approximately 4,100 school
libraries are currently included in this Texas state-wide system.
The Company has similar contracts with the States of Connecticut, Kansas,
Oklahoma, Tennessee and the Canadian Provinces of British Columbia and
Ontario. Customers also include regional library organizations in the
States of Illinois, New Jersey, Michigan, Ohio, and New Hampshire.
Outsourced Internet/Web database management services presently support
approximately 8,000 distinct library sites, enabling library users to
access these library services via the Internet/Web from their offices and
homes as well as from within the library. This large number of
customer/users demonstrates the Company's ability to handle large capacity
Internet/Web communications assignments.
The Company has developed a bibliographic database containing over 45
million unique records, together with the holdings of many U.S. and
Canadian public and university libraries. Through the Company's
Internet/Web software, the Company provides online bibliographic records
for use by its U.S. and Canadian library customers.
The Impact/CMS software system is owned and marketed by Dataquad, Inc.
primarily to business customers. Boeing uses the CMS product for the
development and maintenance of the database containing all maintenance and
support documentation for the C-17 Air Transport project for the Air Force.
Houghton-Mifflin uses the CMS product to develop and maintain their English
language database for publication of the American Heritage Dictionary and
its several spin-off dictionaries (College, High School, Paperback, etc.).
Trailer Life uses CMS to develop and maintain its database of North
American campgrounds and amenities published annually in the "Trailer Life
Campground" directory.
In support of a customer's migration to an XML/SGML tagged database, the
Company provides conversion services. Services may include consulting on
the design and development of the document type definition(DTD), which
defines the tagging and structure of the proposed database. The customer
provides manuscripts from which to key and/or legacy data in its native
format, and Company staff use specialized software and utilities to re-tag
the database with the new tags in accordance with the DTD. In 1999, the
Company was awarded a major contract by Northrup-Grumman to convert
thousands of pages to SGML format during 2000.
LibraryCard(tm) is an effort by the Company to combine its extensive
bibliographic database, Internet/Web and e-commerce capabilities into a
public "portal" site offering a wide range of library and related services
and products to consumers, library patrons and librarians, supported by
sponsorships and commercial vendors and advertisers. The Company's plan is
to develop a site that offers high quality information and research
capabilities that will be attractive to consumers. The Company hopes to be
able to obtain a "head start" in this particular Internet/Web "space" as a
result of its relationship with the over 8,000 library customer sites which
already offer library patrons the Company's Impact/Online(tm) library
services on a daily basis.
In the case of the Company's manufacturing and distribution catalog
products, the Company provides services and Internet/Web software to
create, maintain and provide access to product databases for these
customers. One example is an HVACR-specific product database (heating,
ventilation, air conditioning and refrigeration) which is available on an
annual site license basis to wholesalers in the HVACR industry. This HVACR
database, combined with the Company's Internet/Web software, provides HVACR
wholesalers an ability to quickly and easily put their custom catalog on
the Internet. The Company's software flexibility provides customers with
the capability of individualizing their Internet catalogs to include
features such as custom indexing, multi-tier pricing, customer specific
pricing and order entry (e-commerce). From the database which is published
on the Internet/Web, the Company's customer also has the ability to publish
CD-ROM and print catalogs.
The Company provides typesetting services to major publishers such as
Houghton-Mifflin Co., The American Society of Hospital Pharmacists,
Zondervan, TL Enterprises, Columbia University Press and Oxford University
Press. Pages may be produced to the customer's specification for use by
the customer's printer and output as film, camera ready copy or as
postscript datafiles. The Company typeset the previous edition of the
"American Heritage Dictionary", as well as the college, high school, and
paperback editions of the book. The Company has typeset a number of annual
editions of the "Columbia Book of Poetry" for Columbia University Press.
The Company has typeset the 20 volume set of the "American National
Biography" for Oxford University Press. The Company regularly typesets the
annual "Trailer Life Campground" directory for TL Enterprises and the
annual "Drug Information Formulary (DI) Book" for The American Society of
Hospital Pharmacists.
In addition to the Company's Internet/Web database information and
knowledge management products and services, the Company will continue to
provide ancillary services required by the customers/markets it currently
serves. These ancillary services include database entry and database
"clean-up", conversion and database loading services. These services
enable customers to quickly and easily create an electronic database of
information which may then be managed by the customer using the Company's
suite of software and services.
Product Development
Core software embraces industry standard data structures, such as XML,
SGML, and standards specific to the markets served, such as MARC and Z39.50
in the library industry. These standards afford customers the ability to
create, convert, organize, manage and deliver (output)
information/knowledge databases for the benefit of the enterprise and its
customers, suppliers and other category of users independent of the media
used to publish this data.
Flexibility in the ability to distribute and use information/knowledge by
an enterprise is increasingly a primary goal and provides the underlying
premise of the Company's Internet/Web products and services. All new
product development is being written in C++ and runs on Microsoft NT/Intel
platforms. The Company is using N-tiered architecture to allow for
customer implementation flexibility. Microsoft SQL server provides the
database engine for the second generation of the Company's flagship
Impact/Online(tm) library software product family. Development is based on
an architecture that will work on multiple computers affording the system
the ability to grow as the Company's needs increase.
Marketing
Products are distributed to specific markets discretely branded even though
the technology may be similarly applied across all markets served. In
addition to corporate marketing staff, the Company utilizes a small direct
sales force for each of the individual markets: library, publishing,
Datacat(tm) Internet solutions, Dataquad(tm) Impact/CMS(tm) and
LibraryCard(tm) portal site. Marketing activities include public
relations, advertising, attendance at industry trade shows, and targeted
mailings, telemarketing and e-messaging campaigns. LibraryCard is a new
service/product category for the Company, which is not yet fully
developed/implemented; and marketing activities for LibraryCard, directed
at the consumer market, are still under consideration.
Products sold to the library market are generally sold by response to RFP's
(requests for proposals) and, more frequently than not, competitive bidding
managed by governmental purchasing departments. The Company maintains a
proposal writing department. Price points for the Company's various
products/services are instrumental in determining the type of sales effort
deployed by the Company, except that Internet advertising is used in all
markets for the Company's products regardless of the price point of the
various products/services.
With the introduction by the Company of its Internet-centric line of
products, branded advertising is undergoing a transition process. As
indicated above, these Internet/Web products are now branded for a specific
market. However, as to the library market the Company continues to market
its products and services under the Company name (not by the name of the
specific suite of software products and services used by these library
customers).
The Company's strategy for its Internet-centric products and services
includes the continued introduction of new products/services to the
customers and markets the Company currently serves, and to further expand,
develop and refine these products for introduction and marketing to
customers and markets not currently served by the Company. The Company's
strategy for entering new markets in the future will include efforts to
utilize strategic relationships with other companies who are already
present or are otherwise knowledgeable about these prospective
customers/markets.
To be successful in these new products/services, customers and markets, the
Company will need to be able to create, finance, develop and implement new
marketing initiatives and capabilities designed to introduce and market its
Internet/Web line of products and services to prospective users who are not
already familiar with the Company, its products/services and/or their
capabilities. The Company must compete successfully with other companies,
many of whom will be larger, more established, better financed, more
recognized and more experienced in the development, introduction,
marketing, sales and service of the same or similar products and services
to these targeted new customers/markets in a rapidly changing technological
and distribution environment. Moreover, in respect of the Company's new
LibraryCard(tm) public portal site, the Company has no prior experience in
such market "space".
Accordingly, there can be no assurances that the Company will be able to
launch, sustain and profit in the near or long term from these new products
/services, customers and markets initiatives. Likewise, no assurances can
be given that the Company will be successful in efforts to develop and
utilize a strategic alliances strategy to assist in efforts to introduce
and market its Internet/Web products and services to a broader range of
customers/markets. However, as the market for managing and distributing
information and knowledge continues to change, the Company intends, as it
has in the past, to be responsive to the changing needs and requirements of
customers by offering new products and services representing advances in
the information/knowledge.
Competition
The Company was an early entrant into the computerized database composition
business and industry, and believes it may have been offering these
products and services longer than any of the other companies in competition
with the Company today in respect of these products/services to the library
and publishing markets. In the library market, the Company competes with
numerous companies, such as OCLC Online Computer Library Center, Inc.,
which are larger with substantially greater resources than are available to
the Company and offer a wider variety of products and services for the
library industry. Although the Company has been successful to date in
securing many of the awarded contracts involving the development and
implementation of Internet/Web based "online" bibliographic catalog and
interlibrary loan services systems for state-wide, regional or other
consortia of libraries, the Company has not been selected in competitive
bidding for all of such contracts including several recent contracts
which it was hoping to be awarded and, if this category of library
products/services business continues to grow as the Company believes to be
the case, increased emphasis on this products/services niche of the library
market can be expected to generate increased attention, capability and
effort by one or more of the Company's competitors in this now relatively
small niche of the library market.
The software and computerized database processing services business for
corporate and traditional publishing is highly competitive. There are no
definitive market share statistics available. Many competitors are smaller
and local in character, but some are larger and national with greater
financial resources than the Company. Contracts for computerized database
publishing services are awarded according to the results of market pricing,
competitive bidding, technical capability, and customer relationship and/or
past performance.
In seeking to expand its customers/markets in the Internet/Web publishing
market, the Company can be expected to face intense competition from
existing and future competitors with substantially greater financial,
technical, marketing, distribution and other resources than the Company
and, therefore, may be able to respond more quickly than the Company can to
new challenging opportunities, technologies, standards or customer
requirements. The Company will compete with other large, well-known
software development and Internet/Web database platform companies that
offer a variety of software products. In addition to competitors already
present in the market, recently several additional large, well-known
computer hardware manufactures have announced plans to enter the
Internet/Web solutions and outsourced "hosting" business. The Company will
also compete with a number of medium-sized, small and start-up companies
that have introduced or are developing Internet/Web development,
management, publishing and e-commerce products. Increasing competition
could result in pricing pressures negatively impacting margins available to
companies competing in this market and could make it difficult or even
impossible for the Company to gain recognition and acceptance of its
particular line of these products and services. Of course, it is also
possible that companies that are now or in the future may be competing in
the broader market where the Company is seeking to compete may determine to
enter the Company's traditional markets with adverse impact on the Company
as a result of this new competition.
In the case of the Company's LibraryCard(tm) "portal" business, the Company
faces substantial, and possibly even insurmountable, obstacles in
establishing such site's ability to attract and retain sufficient use to
qualify such site as a viable alternative for commercial vendors and
advertisers who have the opportunity to do business with established, well-
known and proven "portal" sites such as Yahoo, AOL and others.
Company Background
The Company was founded in 1950 and incorporated in 1960 in the State of
California. Beginning in 1964, the Company was one of the pioneers in
computerized typesetting and database composition services for the library
and publishing industries. Over the years, the Company has migrated its
products and services to the most current technology required to address
changing customer needs and requirements. The Company started in print,
moved to microfilm/fiche and then to CD-ROM as the media of choice for its
products/services, and is now completing the process of adapting its
products and services to the prevailing Internet/Web environment.
Offices/Employees
The Company's main office is in Pomona, California, in the greater Los
Angeles area. The Company's wholly-owned Canadian subsidiary, A-G Canada,
Ltd., is located in Toronto, Canada. Marketing representatives are located
in California, Missouri, New York, Washington, and Toronto, Canada. The
Company including its subsidiaries employs approximately 90 persons in all
locations.
Financial Information About Geographic Areas
See Note 1, "Segment Reporting" of Notes to the Consolidated Financial
Statements.
ITEM 2. PROPERTIES
The Company leases its corporate office and production facility in Pomona,
California from a limited partnership owned by a current and former
director/stockholder of the Company. The Company has an option to purchase
a one-third interest in the partnership from the former director/stockholder
for an amount not to exceed $150,000. During 1999, the Company leased
29,260 square feet having an annual base rent of $351,000 (plus expenses).
The lease term expires in June 2001. In April 2000, the Company will
complete a planned consolidation, which reduced the square footage occupied
by the Company from 29,260 to 19,460 for a reduction in the Company's
annualized rent expense of $118,000 (plus expenses). (See Note 6 of Notes
to Consolidated Financial Statements, and Item 13. "Certain Relationships
and Related Transactions"). Management believes that the reconfigured
space will be sufficient for the Company's needs for the foreseeable
future, however, should the Company experience substantial growth
necessitating increases in staffing, the Company may require additional
space. The Company leases a small sales and support office for A-G Canada,
Ltd. in Etobicoke, near Toronto, Ontario, Canada. The Company also plans
to reduce the space occupied in this facility from 3700 to1750 square feet
consistent with its expected future needs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock quotations.
1999
Bid Ask
Price Range High Low High Low
First Quarter $ 1.042 $ .792 $ 1.417 $ 1.000
Second Quarter 2.083 .792 2.250 1.333
Third Quarter 2.250 1.792 2.375 2.000
Fourth Quarter 5.333 2.125 5.667 2.333
1998
Bid Ask
High Low High Low
First Quarter $ .875 $ .875 $ 1.333 $ 1.167
Second Quarter 1.167 .875 1.875 1.167
Third Quarter 1.833 1.208 2.500 1.333
Fourth Quarter .917 .833 1.333 1.000
Share prices above have been retroactively adjusted to reflect a 3-for-1
stock split which occurred on February 28, 2000. Trading in the Company's
Common Stock is reported on the electronic OTC Bulletin Board under the
symbol "AUGR" (Cusip Number 052725 10 8). The stock quotations set forth
above have been provided by the National Quotation Bureau, Inc., and
represent the highest and lowest closing bid and asked prices quoted by
broker/dealers making a market in the Company's Common Stock in the OTC
market for the periods presented. Prices quoted do not include retail
markup, markdown or commissions and may not reflect actual transactions in
shares of the Company's stock. The Company plans to apply for listing of its
Common Stock on the National Association of Securities Dealers Automated
Quotation (NASDAQ) system for "Small Cap" stocks. The Company believes that
it meets or will then meet all of the NASDAQ Small Cap listing requirements
(or that the application will be approved conditionally upon the Company
satisfying all applicable requirements).
As of March 31, 2000, the number of holder accounts of record (including
depository and nominee or "street name") of the Company's Common Stock was
approximately 230. The Company believes that the number of record and
beneficial owners of the Company's Common Stock is in excess of 500
stockholders. The Company has never paid a cash dividend and there are no
plans to do so in the near future. (See Note 3 of Notes to Consolidated
Financial Statements for information as to the bank loan restriction on the
payment of dividends).
ITEM 6. SELECTED FINANCIAL DATA
Dollar amounts in thousands except per share data.
(See Note 1 of Notes to Consolidated Financial
Statements under "Other Assets")
Years Ended December 31,
1999 1998 1997 1996 1995
Operating results:
Net sales $ 8,391 $ 9,099 $ 10,036 $ 9,218 $ 9,559
Net income/(loss) 105 ( 1,065) 212 236 194
Basic Earnings/
(loss)per share .03 ( .33) .06 .07 .05
Diluted Earnings/
(loss)per share .03 ( .33) .06 .07 .05
At year-end:
Total assets 10,647 7,573 8,852 7,132 6,688
Long-term debt 3,153 2,588 2,911 2,101 1,906
No cash dividends have been declared.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General and Future Business Trends
Liquidity and Capital Resources
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 $3.1 million through the sale of stock in the Company and in
the Dataquad(tm) and LibraryCard(tm) subsidiaries. At December 31, 1999, the
Company's cash position was approximately $3.8 million; and the balance in
the Company's revolving working capital line of credit was zero. In December
of 1999, the Company accelerated the retirement and paid off the $295,000
balance of the $750,000 term credit facility, which the Company used to
partially fund the 1997 acquisition of the Company's Canadian subsidiary. 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. The average
price per share of the 1,726,200 shares of stock (post 3-for-1 stock split)
sold by the Company in 1999 and in February 2000 was $1.26 for total gross
and net proceeds from the sale of such stock, respectively, of $2,181,000 and
$1,936,000.
Cash flow from operations increased by $740,000, from $1,310,000 in 1998 to
$2,050,000 in 1999, primarily as a result of a return to profitability in
1999. Cash flow attributable to (non-cash) depreciation and amortization was
$1,381,000, net collection of accounts receivable was $276,000 and additional
customer advances (deferred income) was $452,000 in 1999. Accounts
receivable collection improved in 1999 from the prior year due in part to
lower sales and improved cash collections. The average collection days for
accounts receivable declined from 66 days in 1998 to 55 days in 1999.
Liquidity has improved significantly primarily as a result of the cash raised
through the sale of stock as indicated above. Cash at December 31, 1999 was
$3.8 million up $3.5 million over the end of the year in 1998. Working
capital at December 31, 1999 was $3.1 million (compared to a negative
$459,000 at the end of 1998).
At December 31, 1999, the Company's principal financial commitments involved
the lease of computer equipment and the lease of corporate facilities in
Pomona, California and in Toronto, Canada. (See Note 5 of Notes to
Consolidated Financial Statements). As a result of a program to consolidate
the Company's office and production leased space in 2000, the Company reduced
the space leased at its Pomona facility by approximately 36% with a
corresponding reduction in rent and expenses. A 53% reduction in leased
space is also planned in Toronto in June 2000. See Item 2. "Properties"
herein.
The Company's principal use of cash for investing activities, $1,417,000 in
1999, $968,000 in 1998 and $2,141,000 in 1997, were for the continuing system
development of the Company's Impact/ONLINE(tm) software (bibliographic
finding and interlibrary loan service using the Internet), Impact/Web(tm)
search and retrieval engine and Dataquad(tm) Impact/CMS(tm) (Content
Management System) for the management and maintenance of XML/SGML databases,
for the 1997 purchase of a Canadian bibliographic database containing the
holdings of most public and university libraries in Canada and for upgrades
to the Company's computer (Internet servers) equipment used to expand and
enhance online services to the Company's current (and prospective)
Internet/Web customers. The Company's capital resources are available for
use as working capital, for capital investments, and possible future
acquisitions of businesses, products and/or technologies complementary to the
Company's existing and anticipated future information technology business.
Management believes that it is imperative for the Company to continue to
invest in Internet/Web capability for the foreseeable future. Accordingly,
it is likely that the Company will need to raise additional capital in the
future to continue to develop and refine its Internet/Web line of products
and services and to seek to expand the market for such products/services. In
2000, the Company will look for attractive opportunities to raise additional
equity and debt financing - - although there can be no assurances that any
such additional financing will be available on terms and conditions favorable
to the Company or at all.
In 1999, the Company renewed its commercial bank lines of credit through May
2000. (See Notes 2 and 3 of Notes to the Consolidated Financial Statements).
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
term of the loan to $2.0 million, with a somewhat lower rate of interest than
presently applies. The proposed new loan covenants will provide the Company
with greater flexibility to 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. (In this regard, the bank has indicated an interest in
assisting the Company to raise additional equity to be used to finance future
growth plans). Such new bank loan should be finalized in the next 45 days.
Results of Operations
Overall, 1999 consolidated sales were down approximately $708,000 or 8% from
1998 ($9.10 million in 1998 versus $8.39 million in 1999). Revenues from
Internet/Web products and services, however, were up 37% in 1999, and now
account for over 58% of the Company's total sales. The transition from the
Company's CD-ROM products and services to Internet/Web continued in 1999, and
is now largely complete. The Company also completed its plan to discontinue
offering and supporting PC computer sales and service to its library
customers (who now buy such computers/services directly from the
manufacturers or other sources) for use with the Company's software, online
products and services. The decline in 1999 sales was almost entirely
attributable to the Company's traditional publishing business which has been
declining for several years (and is expected to decline further in 2000).
Sales from such traditional publishing business (sophisticated typesetting
services for catalogs, Bibles and reference works) declined over 50% in 1999
(from $2.1 million in 1998 to $1.0 million in 1999).
As desktop publishing software capabilities have improved, and computer
hardware has become more powerful and less expensive, the market for such
"outside" typesetting services has become increasingly competitive especially
as it impacts the Company's relatively "high end" segment of such typesetting
services market. Due to the highly skilled and labor intensive nature of the
typesetting business, profit margins on such business are relatively low.
Consequently, the Company has focused on developing and marketing of its
electronic publishing software and services and e-commerce business via the
Internet/Web and the Company's XML and SGML expertise. Sales attributable to
the Company's electronic publishing business were up 43% in 1999 over 1998.
Overall, sales in Canada were down 15% in 1999 (from $2.0 million in 1998 to
$1.7 million in 1999), primarily as a result of several large information
processing contracts which were completed in 1998. The Company's
bibliographic cataloging business continued to decline in 1999 and was down
11% from 1998 levels. Libraries in both the United States and Canada appear
to be seeking reduced costs (or free) sources for such cataloging services;
and appear to be willing to accept lesser quality records than the Company
offers and such libraries historically preferred, in order to achieve such
cost reduction objective. In response to this trend, the Company has
implemented a revised selling model shifting from a fee per record based
service to a subscription based service offering library customers quality
bibliographic cataloging record information for a flat fee per year.
Overall gross margins increased significantly in 1999 to 41% of sales up from
31% in 1998 (however 1998 results included additional depreciation and
amortization expense of $383,000 associated with adjustments in the useful
life of certain computer hardware and software assets). The Company is
continuing to emphasize its Internet/Web hosting library services, which are
less labor intensive and, therefore, generally have higher profit margins.
As the mix of products and services offered by the Company continues to move
toward such higher margin business, gross margins should continue to improve
in the near future.
As a result of the substantial loss suffered by the Company in 1998, and the
decline in sales in recent years, the Company is implementing a cost
reduction program. Staff levels, particularly in the Company's traditional
typesetting business, have been reduced by 50% as a result of the lower
volume of such work. Likewise, selling, general and administrative expenses
in 1999 declined $793,000 in 1999 from 1998 as staffing was reduced and other
related expenses were curtailed. SG&A expense in 1998 was abnormally high as
a result of certain non-recurring payroll and severance expense and accruals
associated with a reduction in staff, primarily in the Company's Canadian
operation. Further expense reductions in variable product costs, and related
fixed costs, will become increasingly difficult to achieve given the
Company's current largely fixed cost structure. Notwithstanding lower than
average borrowings, interest expense was up $29,000 in 1999 over 1998 as a
result of higher interest rate charges (up 100 basis points) and loan fees
paid in 1999 attributable to renewal of the Company's bank loan in such year
(following the substantial loss incurred by the Company in 1998).
As a result of the pre-tax loss in 1998 in the amount of $1,462,000, the
Company filed amended tax returns for prior years where applicable, and
obtained refunds of income taxes (primarily Federal and California)
previously paid. At December 31, 1999, the Company had available Federal,
state and Canadian net operating loss carryforwards of approximately
$385,000, $498,000 and $337,000, respectively (expiring in 2018 for Federal
taxes and in 2005 for state and Canadian taxes). A valuation allowance in
the amount of $231,000 for unrecognized U.S. and foreign tax loss
carryforwards.
Results of Operations in 2000
Management believes that sales will rebound in 2000. 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 consolidated loss for the
year ended December 31, 2000 in the $750,000-$1 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.
Impact of Inflation
General price inflation is not anticipated to have a material effect on the
Company's business in the near future. Historical dollar accounting does not
reflect changing costs of operations, the future cost of expansion and the
changing purchasing power of the dollar. Should more than moderate inflation
occur in the future, it can be expected to impact the Company in an adverse
manner, as prices cannot be adjusted quickly due to the contract nature of a
substantial amount of the Company's business, while costs of personnel,
materials and other purchases tend to escalate more rapidly.
Foreign Exchange
The functional and reporting currency of the Company is the U.S. dollar,
while the functional and reporting currency for A-G Canada Ltd., the
Company's wholly-owned Canadian subsidiary, is the Canadian dollar.
Accordingly, the Company is exposed to foreign currency translation gains or
losses as the relationship between the Canadian dollar and U.S. dollar
fluctuates. Foreign currency gains, expressed in terms of U.S. dollars, were
approximately $53,000 in 1999 as compared to losses of $47,000 in 1998.
Further increases in the value of the Canadian dollar will result in
additional foreign currency translation gains, and declines in the value of
the Canadian dollar against the U.S. dollar will result in additional foreign
exchange losses. Other than for sales by A-G Canada in Canada, all other
transactions involving the Company are denominated in U.S. dollars. (See
Note 1 of Notes to Consolidated Financial Statements).
Pending Pronouncements
See "Pending Pronouncements" in Note 1 of Notes to 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.
ITEM 7a. MARKET RISK
See Note 1 "Foreign Currency Translation," "Credit Risk," and "Fair Value of
Financial Instruments" of Notes to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS
Index to Financial Statements covered by Reports of Independent
Certified Public Accountants.
Page
Reference
Report of Independent Certified Public Accountants 15
Report of Independent Auditors 16
Consolidated Balance Sheets at December 31, 1999 and 1998 17
Consolidated Statements of Operations for the years ended 18
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years 19
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the 20
years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Auto-Graphics, Inc.
Pomona, California
We have audited the accompanying consolidated balance sheet of Auto-Graphics,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the years then ended. 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 audit.
We conducted our audit 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
presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Auto-
Graphics, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
February 29, 2000
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Auto-Graphics, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Auto-Graphics, Inc. for the year
ended December 31, 1997. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements of Auto-Graphics, Inc. referred to
above present fairly, in all material respects, the consolidated results of
its operations and its cash flows for the year ended December 31, 1997, in
conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Riverside, California
April 8, 1998
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS 1999 1998
Current assets:
Cash $ 3,816,286 $ 292,744
Accounts receivable, less
allowance for doubtful accounts
($38,000 in 1999 and 1998) 1,401,325 1,697,826
Unbilled production costs 27,891 86,573
Other current assets 109,987 360,170
Total current assets 5,355,489 2,437,313
Software, equipment and leasehold
improvements, net (See Note 1) 5,110,231 5,016,627
Other assets 181,595 119,162
$ 10,647,315 $ 7,573,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 293,798 $ 632,809
Deferred income 1,273,873 813,113
Accrued payroll and related
liabilities 497,076 578,569
Other accrued liabilities 124,601 84,282
Current portion of long-term debt 70,000 787,500
Total current liabilities 2,259,348 2,896,273
Long-term debt, less current portion
(See Note 3) 3,153,249 2,587,500
Deferred taxes based on income (See Note 4) 475,236 486,000
Total liabilities 5,887,833 5,969,773
Commitments and contingencies (see Note 5)
Minority Interests 676,850 -
Stockholders' equity:
Notes Receivable - Stock (Note 7) (127,500) -
Common Stock, 12,000,000
shares authorized, 4,784,934
shares issued and outstanding
in 1999 and 3,193,434 shares
issued and outstanding in 1998
(See Note 7) 3,793,332 1,230,347
Retained earnings 438,977 375,389
Accumulated other comprehensive income ( 22,177) (2,407)
Total stockholders' equity 4,082,632 1,603,329
$ 10,647,315 $ 7,573,102
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998, 1997
1999 1998 1997
Net sales $ 8,391,323 $ 9,099,198 $ 10,035,824
Costs and expenses
Cost of sales 4,872,445 6,258,523 6,264,141
Selling, general
and administrative 3,149,754 3,943,143 3,076,078
8,022,199 10,201,666 9,340,219
Income/(loss) from operations 369,124 ( 1,102,468) 695,605
Interest expense, net ( 347,957) ( 311,797) ( 278,591)
Other income/(expense) 52,591 ( 47,357) ( 12,264)
Income/(loss) before taxes 73,758 ( 1,461,622) 404,750
Provision/(benefit) for taxes ( 46,630) ( 397,000) 193,000
Minority Interests 15,200 - -
Net income/(loss) 105,188 ( 1,064,622) 211,750
Foreign currency
translation adjustments ( 19,770) 157 (2,564)
Total comprehensive income/(loss) $ 85,418 $( 1,064,465) $ 209,186
Basic earnings per share $ .03 $ ( .33) $ .06
Weighted average
shares outstanding (See Note 7) 3,684,009 3,199,935 3,271,833
Diluted earnings per share $ .03 $ ( .33) $ .06
Weighted average
shares outstanding (See Note 7) 3,776,004 3,199,935 3,271,833
Note: Shares outstanding have been retroactively adjusted to reflect a 3-for-
1 stock split which occurred on February 28, 2000. (See Notes 1 "Earnings
per Share" and 7 "2000 Stock Split" in Notes to the Consolidated Financial
Statements).
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998, 1997
1999 1998 1997
Cash flows from operating activities:
Net income/(loss) $ 105,188 ($ 1,064,622) $ 211,750
Adjustments to reconcile net
Income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 1,381,053 1,676,056 1,134,348
Deferred taxes ( 10,764) ( 209,000) 30,061
Minority Interest 15,200 - -
Changes in operating assets
and liabilities, net of the
effect of acquisitions
Accounts receivable 276,121 637,971 ( 405,058)
Unbilled production costs 58,682 ( 3,149) 166,380
Other current assets 204,933 ( 241,303) ( 39,908)
Other assets ( 35,362) 22,245 ( 284,166)
Accounts payable ( 341,215) ( 32,062) 338,977
Deferred income 452,067 277,642 ( 99,306)
Accrued payroll and
related liabilities ( 93,925) 313,030 2,275
Other accrued liabilities 37,876 ( 66,698) 28,343
Net cash provided by
operating activities 2,049,854 1,310,110 1,083,696
Cash flows from investing activities:
Capital expenditures ( 664,335) ( 173,233) ( 420,676)
Capitalized software development ( 750,000) ( 795,000) ( 750,676)
Investment in Dataquad, Inc. ( 1,500) - -
Investment in The LibraryCard, Inc.( 1,500) - -
Investment in Datacat, Inc.,
net of cash acquired - - ( 182,175)
Investment in A-G Canada, Ltd. - - ( 787,095)
Net cash used in investing ( 1,417,335) ( 968,233) (2,140,622)
Cash flows from financing activities:
Borrowings under long-term debt - 650,927 1,603,016
Payments under long-term debt ( 375,000) ( 1,030,000) ( 605,000)
Borrowings under life insurance 7,064 150,278 -
Borrowings under capital lease, net 223,250 - -
Proceeds from stock sales 3,106,000 - -
Repurchase of capital stock ( 47,466) ( 101,750) ( 58,000)
Net cash provided by (used in)
financing activities 2,913,848 ( 330,545) 940,016
Net increase(decrease)in cash 3,546,367 11,332 ( 116,910)
Foreign currency effect on cash (22,825) 36,792 ( 2,564)
Cash at beginning of year 292,744 244,620 364,094
Cash at end of year $ 3,816,286 $ 292,744 $ 244,620
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998, 1997
Other
Compre- Total
Common Stock Retained hensive Stockholders'
Shares Amount Earnings Income Equity
Balances at
January
1, 1996 3,327,834 $1,249,579 $ 1,368,780 $ - $ 2,618,359
Net income - - 211,750 - 211,750
Common Stock
Retired ( 56,400) ( 12,212) ( 45,789) - ( 58,001)
Foreign
Currency
Translation
Adjustments - - - ( 2,564) ( 2,564)
Balances at
December
31, 1997 3,271,434 $1,237,367 $ 1,534,741 ($ 2,564) $ 2,769,544
Net loss - - ( 1,064,622) - ( 1,064,622)
Common Stock
Retired ( 78,000) ( 7,020) ( 94,730) - ( 101,750)
Foreign
Currency
Translation
Adjustments - - - 157 157
Balances at
December
31, 1998 3,193,434 1,230,347 375,389 ( 2,407) 1,603,329
Net income - - 105,188 - 105,188
Notes
Receivable - ( 127,500) - - ( 127,500)
Common Stock
Issued in:
Parent 1,654,200 1,225,501 - - 1,225,501
Subsidiaries
Net of Minority
Interests 1,343,350 1,343,350
Common Stock
Retired ( 62,700)( 5,866) ( 41,600) - ( 47,466)
Foreign
Currency
Translation
Adjustments - - - ( 19,770) ( 19,770)
Balances at
December
31, 1999 4,784,934 $3,665,832 $ 438,977 $( 22,177) $ 4,082,632
Note: Shares outstanding have been retroactively adjusted to reflect a 3-for-
1 stock split which occurred on February 28, 2000. (See Notes 1 "Earnings
per Share" and 7 "2000 Stock Split" in Notes to the Consolidated Financial
Statements).
See Notes to Consolidated Financial Statements.
AUTO-GRAPHICS, INC.
____________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. Summary of significant accounting policies.
Description of Business
Auto-Graphics, Inc., including Datacat, Inc. and A-G Canada, Ltd., its
wholly-owned subsidiaries and Dataquad, Inc. and The LibraryCard, Inc., its
majority owned subsidiaries (the "Company"), provides software products and
services used to create, convert, organize, manage and deliver database
information via the Internet/Web, CD-ROM and/or print media. LibraryCard( is
an Internet/Web "portal" site (www.LibraryCard.com) offering a virtual
library on the Web with access to bibliographic and related information and
services for the consumer.
Basis of Presentation
The consolidated financial statements include the accounts of Auto-
Graphics, Inc. and its wholly and majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Revenue Recognition
Sales are recognized as services are rendered monthly or when
finished goods are shipped to customers. Certain future software support
costs are accrued in accordance with American Institute of Certified Public
Accountant's Statement of Position ("SOP") 97-2, "Software Revenue
Recognition", as amended by SOP 98-4 and SOP 98-9.
Use of Estimates
The preparation of the financial statements of the Company in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect reported amounts of assets and
liabilities and sales and expenses during the reporting period. These
estimates are based on information available as of the date of the financial
statements. Actual results may differ from those estimated.
Foreign Currency Translation
The functional and reporting currency for operations located in
Canada is the Canadian dollar. Consequently, assets and liabilities must be
translated into U.S. dollars using current exchange rates and the effects of
the foreign currency translation adjustments are accumulated as other
comprehensive income and included as a component of stockholders' equity.
The net foreign exchange transaction gains for 1999 were $52,591 compared to
transaction losses of $47,357 in 1998. All other Company transactions are
currently denominated in U.S. dollars.
Credit Risk
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential losses from uncollectible accounts, and actual losses have been
within management's expectations. Nevertheless, the Company may be exposed
to credit risk for trade receivables beyond the reserves established by the
Company for such purposes.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical to
estimate that value:
Cash and Receivables. The carrying amounts approximates fair value
because of the short-term maturity of these instruments.
Long-term Debt. The carrying amounts approximates fair value, since
the interest rate on the debt is at least equal to the bank's prime
rate.
Unbilled Production Costs
Costs associated with work in process inventory including labor,
materials, supplies, and overhead (excluding selling, general and
administrative expenses) are stated at the lower of cost or net realizable
value, and are removed from inventory on an average unit cost basis.
Software, Equipment and Leasehold Improvements
Software, equipment and leasehold improvements are recorded at
historical cost. Software, equipment, furniture, fixtures and leasehold
improvements at December 31, 1999 and 1998, consist of the following:
1999 1998
Computer software and database $8,317,115 $7,575,129
Equipment 2,925,612 3,015,946
Furniture and fixtures 563,361 534,134
Leasehold improvements 275,675 273,973
12,081,763 11,399,182
Less accumulated depreciation
and amortization 6,971,532 6,382,555
$5,110,231 $5,016,627
Capitalized Acquisition Costs
Certain legal and accounting costs associated with several asset
acquisitions in 1997 have been capitalized as asset acquisition costs and
are being amortized over a five-year period.
Depreciation and Amortization
Depreciation: Depreciation is based on the straight-line method over
the estimated useful life of the asset and commences in the year the asset is
placed in and/or is available for service or sale using the half-year
convention method.
Amortization: Certain costs incurred related to the development and
purchase of computer software are capitalized and amortized in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed".
Amortization is based on the straight-line method and commences in the first
year of product availability. Unamortized computer software was
approximately $3,909,000 in 1999, $3,695,000 in 1998, and $3,734,000 in 1997.
Amortization of computer software was approximately $838,000 in 1999,
$798,000 in 1998, and $579,000 in 1997.
The following estimated useful lives are generally observed for the
respective asset categories:
Equipment - 5 years
Computer software
and databases - 7 years
Furniture and fixtures - 5 to 10 years
Leasehold improvements - the lesser of 5 to 15 years,
or the lease term
Depreciation and amortization was $1,381,000 in 1999, $1,676,000 in
1998 and $1,134,000 in 1997.
Other Assets
Investment in Dataquad, Inc.
In December 1999, the Company and an associate formed a new
subsidiary called Dataquad, Inc. with nominal cash investments, and the
Company contributed certain software having a net book value of approximately
$800,000 and a backlog of contracts totaling approximately $900,000 to the
new subsidiary. A third party investor (who also invested in the Company's
1999 private placement offering) invested an additional $1.0 million in cash
in return for a 27% interest in Dataquad(tm), and the Company and the
associate hold a 67% and 6% interest, respectively. Dataquad is completing
development and is beginning to market XML/SGML based editorial software
products and services, which enable enterprises to create, convert, organize,
manage and deliver database and other information dynamically within and
outside the enterprise including over the Internet/Web. The financial
statements of Dataquad have been consolidated with the Company's financial
statements for the year ended December 31, 1999.
Investment in The LibraryCard, Inc.
In December 1999, the Company and an associate formed a new
subsidiary called The LibraryCard, Inc. for the purpose of developing and
marketing a new Internet/Web "portal" site ("www.LibraryCard.com") which
offers a virtual library on the Web with access to bibliographic and related
information/services for the consumer. The Company and the associate made
nominal cash investments, and a third party investor (who also invested in
the Company's 1999 private placement offering) invested an additional $1.0
million in cash in return for a 27% interest in LibraryCard(tm), and the
Company and the associate hold a 67% and 6% interest, respectively. The
Company retained the exclusive right to market products and services to the
library market (as opposed to the consumer market). The financial statements
of The LibraryCard have been consolidated with the Company's financial
statements for the year ended December 31, 1999.
Investment in A-G Canada, Ltd.
In July 1997, the Company acquired the assets of the Library
Information Systems ("LIS") division of ISM Information Systems Management
Manitoba Corporation, a subsidiary of IBM Canada, Ltd. The LIS business
includes bibliographic cataloging and interlibrary loan resource sharing
software and related services. The Company formed a wholly-owned Canadian
subsidiary, A-G Canada Ltd., for purposes of acquiring and operating the LIS
business located in Etobicoke, Ontario near Toronto. The financial
statements of A-G Canada have been consolidated with the Company's financial
statements for the six-month period ended December 31, 1997, and the years
ended December 31, 1998 and 1999.
Investment in Datacat, Inc.
Datacat(tm) owns a proprietary database of heating, ventilation, air
conditioning and refrigeration (HVACR) parts, and provides publishing and
related services to the wholesale HVACR industry including Internet/Web
products and services, CD-ROM and printed parts catalogs. Datacat also
provides Internet/Web solutions including outsourced "hosting" services to
the Company's non-library customers. The investment was previously accounted
for using the equity method, prior to the October 2, 1997 purchase by the
Company of the remaining 50% interest in Datacat that it did not already own.
The financial statements of Datacat have been consolidated with the Company's
financial statements for the three-month period ended December 31, 1997, and
the years ended December 31, 1998 and 1999.
Earnings Per Share
Shares outstanding have been retroactively adjusted to reflect a 3-
for-1 stock split, which occurred on February 28, 2000. As of December 31,
1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share". The Statement requires the Company to present
basic earnings per share and diluted earnings per share if applicable, using
a revised methodology and requires restatement of prior earnings per share
data presented. Basic and diluted earnings per share computations presented
by the Company conform to the standard and are based on the weighted average
number of shares of Common Stock outstanding during the year. (See Note 7
"Warrants" and "2000 Stock Split" of Notes to Consolidated Financial
Statements).
Comprehensive Income
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.
Supplemental Disclosure of Cash Flow Information
The Company paid net interest in the amount of $342,815 in 1999,
$326,294 in 1998, and $290,937 in 1997. The Company paid income taxes in the
amount of $19,295 in 1999, $59,609 in 1998 and $182,682 in 1997.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation". As permitted by this statement, the Company has
continued to account for employee stock options under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. There are presently no outstanding grants under the
Company's 1997 Non-Qualified Stock Option Plan, and, therefore, no
compensation expense has been recognized. (See Note 7 "1997 Non-Qualified
Stock Option Plan" of Notes to the Consolidated Financial Statements).
Segment Reporting
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 presented on the
basis of generally accepted accounting principles for the years ended
December 31, 1999, 1998 and 1997:
1999 1998 1997
Geographic areas
Net sales
United States $ 6,648,752 $ 6,967,453 $ 7,856,245
Foreign - Canada 1,693,966 1,924,660 1,648,535
Foreign - Japan/Other 48,605 207,085 531,044
Long-lived assets, net
United States 4,916,734 4,796,917 5,468,218
Foreign - Canada 193,497 219,710 319,083
The Company has one customer, the Texas Education Agency (TEA), which
represents approximately 10% of the Company's 1999 sales. The Company has a
contract with TEA to develop and operate, on an outsourced "hosting" basis,
an Internet/Web based online bibliographic database locator and interlibrary
loan system linking approximately 7,500 kindergarden through grade 12 public
school libraries when the system is fully developed and implemented.
Management believes that the loss of a single large customer, such as the
TEA, would have a material adverse effect on the Company.
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
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 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.
Reclassification
Certain amounts reported in 1998 and 1997 have been reclassified to
conform to the 1999 consolidated financial statement presentation.
2. Note Payable to Bank.
The Company has a revolving credit agreement under which borrowings are
secured by accounts receivable whereby the Company may borrow against its
eligible accounts receivable up to a maximum of $1,000,000 ($1,000,000
available at December 31, 1999) with interest at the bank prime rate plus 1%
(9.75% at December 31, 1999). The credit facility is renewable annually with
the next renewal in June 2000. Among other requirements, the revolving line
of credit requires the Company to maintain minimum financial covenant ratios,
and restricts the payment of cash dividends. There are no compensating
balance requirements and there are currently no guarantor requirements. The
credit facility includes a commitment fee of $44,000 covering both the
working capital line of credit and capital line of credit facilities. For
the year ended December 31, 1999, the Company was not in compliance with
several minor loan covenants, however, the bank has waived its default rights
involving these covenant violations under the Company's bank loan agreements.
(See Note 3 of Notes to the Consolidated Financial Statements).
3. Long-term Debt.
Long-term debt at December 31, 1999 and 1998 consists of the following:
1999 1998
Capital line of credit with interest
at the bank prime rate plus 1% (9.75%
at December 31, 1999) with no principal
payments, maturing in June, 2000 and
secured by software, equipment and
leasehold improvements with a net book
value of approximately $5,122,000 at
December 31, 1999. $3,000,000 $3,000,000
Term note with interest at bank prime
plus 1% (9.75% at December 31, 1999)
and 11 monthly installments of
$16,000 through June 1, 2000.
Fully repaid and retired as of
December 31, 1999 - 375,000
Capital lease of computer equipment
with monthly payments of $7,371 223,249 -
Total long-term debt 3,223,249 3,375,000
Less current portion 70,000 787,500
Long-term portion $ 3,153,249 $ 2,587,500
Maturities of long-term debt due after one year are not material.
The capital line of credit provides for maximum borrowings of $3,000,000
for the purchase of equipment and software, and financing of up to $1,000,000
annually in internal software development costs. The capital line of credit
is renewable annually with the next renewal in June 2000. The loan agreement
contains a one-time option whereby the Company may cancel the capital line of
credit and amortize the outstanding principal balance over a five year term
provided there exists no event of default as defined in the loan agreement.
This agreement contains the same loan covenants as the revolving line of
credit. (See Note 2 of Notes to the Consolidated Financial Statements). The
term note provided financing of $750,000 for the acquisition of the LIS
division of ISM Information Systems Management Manitoba Corporation in July
1997. In December 1999, the Company repaid and retired the remaining
principal balance of the term debt financing.
The Company is negotiating and believes it has an agreement in
principle with the Bank to renew and replace the above line of credit
facilities with a single multi-purpose $3.0 million line of credit
facility for a two year term commencing June 1, 2000. The total credit
commitment will decrease in increments of $250,000 over the two year
period to a maximum of $2.0 million in June 1, 2002. This proposed new
credit facility is intended to reflect the Company's current and
anticipated bank credit requirements over the two year period. The new
facility eliminates commitment fees and will carry a reduced interest
rate. The new facility will contain financial ratio and other
covenants, which should provide the Company with greater flexibility to
invest in new technology and new product ideas, which are expected to
generate consolidated net losses over the next two years.
As of December 31, 1999, the Company had $230,000 in computer equipment
under capital leases. Accumulated amortization on these assets was $23,000
at December 31 1999. The following is a schedule of future minimum lease
payments required under the capital leases together with their estimated
present values:
Year Ending December 31,
2000 $ 88,452
2001 88,452
2002 81,081
Total Minimum Lease Payments 257,985
Interest 34,736
Present Value of
Minimum Lease Payments 223,249
Current Portion ( 70,000)
Long-term Portion $ 153,249
4. Taxes Based on Income.
The provision/(benefit) for taxes based on income is composed of the
following for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
Current taxes based on income
Federal $ 22,000 $(188,000) $ 63,000
State 5,000 ( 35,000) 47,000
Foreign - - 42,000
27,000 223,000) 152,000
Deferred taxes based on income
Federal ( 68,000) ( 147,000) 55,000
State 28,000 ( 27,000) ( 14,000)
Foreign ( 34,000) - -
( 74,000) ( 174,000) 41,000
$( 47,000) $(397,000) $ 193,000
A reconciliation of the provision for taxes based on income follows
for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
Statutory U.S. Federal income tax $ 25,000 ($497,000) $ 137,600
Adjustments for foreign tax rates 9,000 ( 55,000) 11,800
Valuation allowance ( 23,000) 254,000 -
State tax, net of Federal benefit 4,000 ( 77,000) 21,800
Prior year NOL for which no benefit
was previously recognized ( 98,000) - -
Other 36,000 ( 22,000) 21,800
$( 47,000) $(397,000) $ 193,000
The statutory U.S. Federal income tax rate was 34% in 1999, 1998 and
1997. The deferred tax assets and liabilities are composed of the following
at December 31, 1999, 1998 and 1997:
1999 1998 1997
Deferred tax liabilities:
Tax over book amortization and
depreciation $ 595,000 $ 729,000 $ 695,000
State taxes - 28,000 -
Total deferred tax liabilities 595,000 757,000 695,000
Deferred tax assets:
Net operating loss 311,000 462,000 -
Bad debts/accrued vacation/other 103,000 63,000 57,000
State taxes - - 11,000
Total deferred tax assets 414,000 525,000 68,000
Valuation allowance ( 231,000) (254,000) -
Net deferred tax assets 183,000 271,000 68,000
Net deferred tax liability $ 412,000 $ 486,000 $ 627,000
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been reported in the Company's
financial statements or tax returns. The valuation allowance at December 31,
1998 and 1999 reflects an unrecognized U.S. and foreign tax loss carry-
forward. At December 31, 1999, the Company has available federal, state and
Canadian net operating loss carryforwards of approximately $385,000, $498,000
and $337,000, respectively, for income tax purposes. These net operating
loss carryforwards expire in 2018 for federal taxes, 2005 for state and
foreign taxes.
5. Commitments and Contingencies.
The Company incurred total facilities and equipment lease and rental
expense of approximately $374,000 in 1999, $415,000 in 1998 and $509,000 in
1997. The Company is obligated under certain non-cancelable operating leases
for office facilities and equipment. Approximate minimum lease commitments
as of December 31, 1999 are as follows:
Years ended Operating
December 31, Leases
2000 393,000
2001 235,000
2002 81,000
Total minimum lease payments $ 709,000
From time to time, the Company is involved in legal proceedings
incidental to its normal business activities. Management does not believe
that the outcome of these proceedings will have a material adverse effect on
the Company's consolidated financial position, results of operations or cash
flows.
6. Related Party Transactions.
The Company leases its corporate office and production facility from a
limited partnership owned by a current and former director/stockholder of the
Company. The Company has an option to purchase a one-third interest in the
partnership from the former director/stockholder for an amount not to exceed
$150,000. During 1999, the Company leased 29,260 square feet having an
annual base rent of $351,000 (plus expenses). The lease term expires in June
2001. In April 2000, the Company completed a planned consolidation, which
reduced the square footage occupied by the Company from 29,260 to 19,460 for
a reduction in the Company's annualized rent expense of $118,000 (plus
expenses).
In February 2000, the Company accelerated the purchase and retired the
remaining 62,400 shares outstanding under a stock repurchase agreement with a
former director/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.
7. Stockholders' Equity.
1999 Private Placement Offering
In May of 1999, the Company initiated a private placement offering of its
Common Stock at $0.83 per share. Shares offered and sold in the offering
were classified as "restricted" stock, meaning that these shares can not be
sold in the public trading market for the Company's stock for a minimum
period of one year. The offering was concluded in October 1999 with a total
of 1,654,200 shares sold, increasing total shares outstanding to 4,784,934,
and
raising gross proceeds of $1,378,500. The Company sold 1,501,200 shares at
$0.83 per share raising a total of $1,251,000 in cash. An additional 153,000
shares at $0.83 per share (for total investment of $127,500) were sold to
certain senior management of the Company on four year interest bearing full
recourse notes. These notes are presented as "Notes Receivable - Stock" on
the Company's Consolidated Balance Sheet.
Warrants
In May 1999, the Company entered into a selling agreement with an
associate pertaining to the Company's private placement offering. 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 December 31, 1999. Fully
diluted earnings per share computations include the shares of stock
represented by the warrants. Assuming that the warrants and underlying
shares are subjected to a 50% discount due to the restricted nature of such
securities, a 6.25% risk free rate and a 25% volatility factor, under the
Black-Scholes option pricing model, the warrants would carry a value of
$92,705. 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
December 31, 1999.
Dataquad, Inc. and The LibraryCard, Inc.
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(tm). 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%
interests, respectively. (See Note 1 of Notes to the Consolidated Financial
Statements). Utilizing the simplified method under Statement of Financial
Accounting Standards No. 123, "Stock Based Compensation", the Company has
ascribed a fair market value of $60,150 for the shares purchased by the
associate for a total valuation for the stock of both subsidiaries of
$120,300.
2000 Stock Split
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 above referenced share repurchase (See Note 1
"Earnings Per Share", Note 6 of Notes to Consolidated Financial Statements
and the "2000 Private Placement" below). Share amounts in the Statement of
Operations including basic and diluted earnings per share, the Consolidated
Balance Sheet, and Consolidated Statements Of Stockholders' Equity have been
adjusted retroactively to reflect the stock split for the periods presented.
Equity Funding Costs and Expenses
The Company incurred direct and incremental expenses in connection with
the above referenced 1999 $1,251,000 private placement offering, and the sale
of the $2.0 million in shares of the Company's Dataquad, Inc. and The
LibraryCard,Inc. subsidiaries, resulting in gross proceeds from the sale of
such Securities of $3,251,000. Equity funding costs and expenses, including
legal, accounting, and selling expenses totaled $145,000, which have been
offset against the total equity raised for net proceeds of $3,106,000 as
reflected in the Company's Consolidated Statements of Cash Flows herein.
1997 Non-Qualified Stock Option Plan
The Company adopted a 1997 Non-Qualified Stock Option Plan effective
December 31, 1997. The Plan consists of 300,000 shares of the Company's
authorized but unissued Common Stock which shares have been reserved for
possible future issuance under the Plan. The plan is a non-qualified plan
covering only senior executives and related persons. At the inception of the
plan, the Company granted options to four persons whereby they were entitled to
purchase up to a total of 142,500 shares over the next five years at a price of
$0.55 per share. In 1999, all options granted were relinquished by the
participants and as of December 31, 1999, there were no outstanding grants of
options under the Plan. The Company's management intends to propose for
approval by the Company's stockholders at the Company's 2000 Annual Meeting of
Stockholders a qualified (incentive stock option) plan consisting of
approximately 10% (currently 482,000 shares) of the Company's then issued and
outstanding shares of Common Stock to be reserved for future issuance to
employees of the Company.
2000 Private Placement
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.
8. Defined Benefit Plan.
The Company sponsors a defined contribution plan qualified under
Section 401(k) of the Internal Revenue Code for the benefit of its U.S. based
employees. All full time employees are eligible to participate. The Company
pays the administrative expenses of the plan, which are immaterial. Annually,
the Company may, at its sole discretion, award an amount out of the profits
of the Company as a match against employee contributions to the 401(k) plan.
The Company contribution was approximately $23,000 in 1999, $25,000 in 1998,
and $24,000 in 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of, and the positions and
offices within the Company held by, all directors and executive officers of
the Company at December 31, 1999:
Name Age Position
Robert S. Cope 64 Director, President and Treasurer. Has served
in these capacities for more than ten years.
Robert H. Bretz 56 Director and Assistant Secretary. Attorney who
has acted as the Company's outside general legal counsel for more than ten
years.
William J. Kliss 52 Chief Operating Officer. Has served the Company
in this capacity for four years. Prior to this position, Mr. Kliss served as
the Company's Vice President and General Manager of Library Services for two
years. Mr. Kliss formerly served as Vice President of Operations at Scan-
Optics, Inc. for fifteen years prior to his employment with the Company.
Daniel E. Luebben 51 Chief Financial Officer and Secretary. Has
served in these capacities for four years. Prior to these positions, Mr.
Luebben served as the Company's Vice President, Operations and Controller for
the past six years. Mr. Luebben formerly served as Controller of
Ultrasystems Defense, Inc. for two years prior to his employment with the
Company.
Directors serve until their successors are elected at the annual meeting of
stockholders. All executive officers serve at the discretion of the
Company's Board of Directors.
Future Management Decisions
As part of the Company's focus on efforts to increase sales in 2000 and
beyond, the Board of Directors has decided that it will be in the Company's
best interests to seek a successor for Mr. Kliss. In this regard, the Company
will attempt to negotiate an amicable severance arrangement with Mr. Kliss.
However, Mr. Kliss has indicated his expectations regarding such severance
arrangement, and they are substantially in excess of what the Company believes
would be reasonable. Therefore, it is possible that the issue of Mr. Kliss'
separation from the Company will be the subject of legal proceedings while the
parties engage in efforts to negotiate a mutually acceptable severance
arrangement. Although the Company has no current plans regarding a change in
Daniel Luebben's employment status, a similar situation may apply to him.
Recently, both Messrs. Kliss and Luebben asserted positions adverse to the
Company regarding aspects of their employment relationships with the Company
pertaining to their status as "at will" employees under California law, salary
protection in the event that there is a change of control of the Company at
any time in the future and the effect of the outcome of such issues on such
persons' purchase of shares of the Company's (restricted) Common Stock in
the 1999 private placement and the prior relinquishment of options previously
granted to such individuals in consideration of the acquisition of shares in
the private placement offering and the contemplated opportunity for such
persons to receive grants under the Company's proposed new qualified stock
option plan. In any event, the Company believes that such employee related
matters can be successfully resolved consistent with reserves covering employee
severance matters.
New Subsidiaries
In March 2000, the Company's Dataquad(tm) subsidiary appointed William B.
Ting as President of such newly organized majority owned subsidiary.
Dataquad is in the process of finalizing the development and formalization of
a marketing and promotional program for its content management system
software product. This product provides users with a single software system
allowing users to convert, create, edit and manage data on a dynamic basis
using XML and SGML as its technology backbone. The user can then distribute
and publish such enterprise-wide information in simultaneous multi-media
formats including print, CD-ROM and over the Internet/Web including in an e-
commerce environment using the user's own computer system or on an outsourced
"host" basis. (See Item. 1. "Business"). Mr. Ting, age 51, holds a Ph.D. in
Quantitative Methodology and International Political Economics, and he has
extensive background and experience in the areas of business management,
planning, marketing and finance, including in the software and information
systems areas. Mr. Ting has previously served on the faculty of the
University of Michigan, and he also has experience in international trade.
The Company's LibraryCard(tm) majority owned subsidiary is presently seeking
to hire an individual to act as the president of such newly organized
company. Currently, the Executive Vice President - Business Development of
LibraryCard, Leland R. Ireland, is serving as the principal executive officer
of such subsidiary. Mr. Ireland, age 51, holds a MA in Library Sciences and
an MBA in Marketing degrees, and he has been employed by several library
automation companies in sales/marketing capacities. Prior to joining
LibraryCard in January 2000, Mr. Ireland served as the Company's Vice
President - Marketing for approximately one and a half years. LibraryCard is
an Internet/Web "portal" which, when fully developed, will make bibliographic
and other reference type information and services available to consumers.
LibraryCard offers information-related products and services to assist the
general public in taking advantage of the book lending and related
information/services available from their local libraries. Introduction of
the LibraryCard site through the Company's existing customer base, consisting
of approximately 8,000 libraries and schools (which already allows patrons to
access such bibliographic services from their home/office) should provide
LibraryCard with a "first mover" advantage in this particular segment of the
information technology market. (See Item. 1. "Business").
ITEM 11. EXECUTIVE COMPENSATION
A definitive Proxy Statement will be filed with the Securities and Exchange
Commission ("Commission") pursuant to Regulation 14A within 120 days after
the close of the Company's most recent calendar year, and, accordingly, Item
11 is incorporated by reference to said definitive Proxy Statement. The
Proxy Statement includes information covering this item under the caption
"Compensation of Executive Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A definitive Proxy Statement will be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the Company's most recent
calendar year, and, accordingly, Item 12 is incorporated by reference to said
definitive Proxy Statement. The Proxy Statement includes information
covering this item under the caption "Security Ownership of Certain
Beneficial Owners and Management" and "Nominees for Election as Directors".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A definitive Proxy Statement will be filed with the Commission pursuant to
Regulation 14A within 120 days after the close of the Company's most recent
calendar year, and, accordingly, Item 13 is incorporated by reference to said
definitive Proxy Statement. The Proxy Statement includes information
covering this item under the caption "Certain Relationships and Related
Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements and financial statement schedules and
exhibits:
(1) Financial Statements: See Item 8. "Financial Statements".
(2) All schedules are omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
(3) Exhibits:
3.1 Articles of Incorporation of Auto-Graphics, Inc., as amended
(incorporated by reference as filed with the SEC as Exhibit 3.1 to Item 14(a)
in the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989), as amended by within additional Exhibit 3.1 filing of the
amendment to the Articles covering 3-for-1 stock split effectuated February
28, 2000.
3.2 Bylaws, as amended (incorporated by reference as filed with the SEC as
Exhibit 3.2 to Item 14(a) in the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989).
10.8 Lease Agreement between 664 Company and Auto-Graphics, Inc. dated May
27, 1986 (incorporated by reference as filed with the SEC as Exhibit 10.7 to
Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990).
10.9 Agreement by, between and among Auto-Graphics, Inc. and Douglas K. and
Ruth T. Bisch executed February 15, 1995 (incorporated by reference as filed
with the SEC as Exhibit 10.9 to Item 14(a) in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.10 Asset Purchase Agreement between A-G Canada, Ltd., a wholly owned
subsidiary of Auto-Graphics, Inc. and ISM Information Systems Management
Manitoba Corporation, a subsidiary of IBM Canada, Ltd. dated June 30, 1997
incorporated by reference as filed with the SEC in the registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1997).
10.15 Credit Agreement between Wells Fargo Bank and Auto-Graphics, Inc. dated
May 12, 1997 (incorporated by reference as filed with the SEC as Exhibit
10.15 to Item 14(a) in the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998).
10.16 First Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated June 23, 1997 (incorporated by reference as filed with
the SEC as Exhibit 10.16 to Item 14(a) in the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
10.17 Second Amendment to Credit Agreement between Wells Fargo and Auto-
Graphics, Inc. dated October 31, 1997 (incorporated by reference as filed
with the SEC as Exhibit 10.17 to Item 14(a) in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.18 Revolving Line of Credit Note (Working Capital) between Wells Fargo
Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as
filed with the SEC as Exhibit 10.18 to Item 14(a) in the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.19 Revolving Line of Credit Note (Capital Equipment) between Wells Fargo
Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by reference as
filed with the SEC as Exhibit 10.19 to Item 14(a) in the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.20 Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated May
12, 1997 (incorporated by reference as filed with the SEC as Exhibit 10.20 to
Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.21 Continuing Security Agreement Rights to Payment and Inventory between
Wells Fargo Bank and Auto-Graphics, Inc. dated May 12, 1997 (incorporated by
reference as filed with the SEC as Exhibit 10.21 to Item 14(a) in the
registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1998).
10.22 Security Agreement Equipment between Wells Fargo Bank and Auto-
Graphics, Inc. dated May 12, 1997 (incorporated by reference as filed with
the SEC as Exhibit 10.22 to Item 14(a) in the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
10.23 Guaranty between Wells Fargo Bank and Robert S. Cope dated May 12, 1997
(incorporated by reference as filed with the SEC as Exhibit 10.23 to Item
14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.24 Settlement Agreement and Mutual Release between Diversified Printing &
Publishing Services, Inc., Gannam/Kubat Publishing, Inc. Nasib Gannam, and T.
Ron Kahraman, and Datacat, Inc., Auto-Graphics, Inc. and Robert S. Cope dated
September 30, 1997 (incorporated by reference as filed with the SEC as
Exhibit 10.24 to Item 14(a) in the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998).
10.25 1997 Non-Qualified Stock Option Plan dated December 31, 1997
(incorporated by reference as filed with the SEC as Exhibit 10.25 to Item
14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.26 Third Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated June 1, 1998 (incorporated by reference as filed with
the SEC as Exhibit 10.26 to Item 14(a) in the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
10.27 Term Note between Wells Fargo Bank and Auto-Graphics, Inc. dated June
1, 1998 (incorporated by reference as filed with the SEC as Exhibit 10.27 to
Item 14(a) in the registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.28 Fourth Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated September 15, 1998 (incorporated by reference as filed
with the SEC as Exhibit 10.28 to Item 14(a) in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.29 Fifth Amendment to Credit Agreement between Wells Fargo Bank and Auto-
Graphics, Inc. dated December 24, 1998 (incorporated by reference as filed
with the SEC as Exhibit 10.29 to Item 14(a) in the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998).
10.30 Option Agreement dated May 15, 1999 between Robert S. Cope and
Elizabeth Cope and the Cope Family Trust and Corey M. Patick.
10.31 Selling Agreement (formerly Employment Agreement) dated May 15, 1999
between Auto-Graphics, Inc. and Corey M. Patick (as amended).
10.32 Sixth Amendment to Credit Agreement between Auto-
Graphics, Inc. and Wells Fargo Bank dated June 30, 1999.
10.33 Continuing Guaranty between Auto-Graphics, Inc. and Wells Fargo Bank
dated June 30, 1999.
10.34 Amendment to Continuing Guaranty between Auto-
Graphics, Inc. and Wells Fargo Bank dated June 30, 1999.
10.35 Revolving Line of Credit Note (working capital)
$1,000,000 between Auto-Graphics, Inc. and Wells Fargo
Bank dated June 30, 1999.
10.36 Revolving Line of Credit Note (capital) $3,000,000
between Auto-Graphics, Inc. and Wells Fargo Bank dated
dated June 30, 1999.
10.37 Term Note $750,000 between Auto-Graphics, Inc. and Wells Fargo Bank
dated June 30, 1999.
10.38 Stock Purchase Agreement between Auto-Graphics, Inc. and Gibralter
Permanente Assurance dated February 14, 2000.
10.39 Letter of Intent between Auto-Graphics, Inc. and Steve White dated
December 29, 1999.
(b) The Company has filed a Report on Form 8-K dated April 6, 1999
reporting a net loss for the year ended December 31, 1998.
(c) The Company has filed a Report on Form 8-K dated August 9, 1999
reporting a potential for a change in control of the Company.
(d) The following document is filed herewith for information purposes,
but is not part of this Annual Report, except as otherwise
indicated: None.
(d) None.
SIGNATURES
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.
AUTO-GRAPHICS, INC.
(Registrant)
Date: 4/20/00 By ss/ Robert S. Cope
Robert S. Cope, Director, President,
and Treasurer
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 capacity and on the dates indicated.
Date: 4/20/00 By ss/ Robert S. Cope
Robert S. Cope, Director, President,
and Treasurer
Date: 4/20/00 By ss/ Daniel E. Luebben
Daniel E. Luebben,
Chief Financial Officer and Secretary
Date: 4/20/00 By ss/ Robert H. Bretz
Robert H. Bretz, Director