SECURITIES AND EXCHANGE COMMISSION 	Washington, D. C. 20549 	Form 10-Q 	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 2000 Commission File Number 0-4431 AUTO-GRAPHICS, INC. 	(exact name of registrant as specified in its charter) California 95-2105641 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3201 Temple Avenue, Pomona, California 91768-3200 (Address of principal executive offices)(zip code) Registrant's telephone number, including area code: (909) 595-7204 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 	Yes X No Total shares of Common Stock issued and outstanding as of March 31, 2000 was 4,822,734. 	 AUTO-GRAPHICS, INC. 	Form 10-Q 	March 31, 2000 	TABLE OF CONTENTS Unaudited Condensed Consolidated Statements of Operations..........................1 Unaudited Consolidated Balance Sheets...............2 Unaudited Consolidated Statements of Cash Flows..........................3 Notes to the Unaudited Consolidated Financial Statements..............................4 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................7 Part II. Other Information........................10 -1- 	AUTO-GRAPHICS, INC. 	Form 10-Q PART I -- FINANCIAL INFORMATION Item 1. Financial Statements. 	Unaudited Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2000 1999 Net sales $2,109,881 $1,982,030 Costs and expenses: Cost of sales 1,100,060 1,196,732 Selling, general & administrative 1,130,376 694,553 Total costs and expenses 2,230,436 1,891,285 Income(loss) from operations ( 120,555) 90,745 Interest/other 63,447 73,293 Income(loss) before taxes ( 184,002) 17,452 Provision for taxes based on income (See Note 5) 4,368 - Minority Interests ( 66,152) - Net income(loss) and total comprehensive income(loss) (See Note 3) ($ 122,218) $ 17,452 Basic earnings(loss) per share ($ .03) $ .01 Shares outstanding 4,822,734 3,131,034 Diluted earnings(loss) per share ($ .03) $ .01 Shares outstanding 4,822,734 3,131,034 See Notes to Unaudited Consolidated Financial Statements -2- 	AUTO-GRAPHICS, INC. Form 10-Q Unaudited Consolidated Balance Sheets 	March 31, 2000 and December 31, 1999 ASSETS 2000 1999 Current assets: Cash $ 3,028,132 $ 3,816,286 Accounts receivable, less allowance for doubtful accounts ($38,000 in 2000 and 1999) 1,243,276 1,401,325 Unbilled production costs 156,309 27,891 Other current assets 212,079 109,987 Total current assets 4,639,796 5,355,489 Software, equipment and leasehold improvements, net 5,258,096 5,110,231 Other assets 107,749 181,595 $10,005,641 $10,647,315 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 373,670 $ 293,798 Deferred income 896,892 1,273,873 Other accrued liabilities 292,811 124,601 Accrued payroll and related Liabilities 420,092 497,076 Current portion of long-term debt 70,000 70,000 Total current liabilities 2,053,465 2,259,348 Long-term debt, less current portion 2,535,893 3,153,249 Deferred taxes based on income 475,236 475,236 Total liabilities 5,064,594 5,887,833 Minority Interests 610,698 676,850 Stockholders' equity: Notes Receivable - Stock ( 127,500) ( 127,500) Common stock, 12,000,000 shares authorized, 4,822,734 shares issued and outstanding in 2000 and 4,784,934 shares issued and outstanding in 1999 (See Note 2) 4,421,925 3,793,332 Retained earnings 58,101 438,977 Other comprehensive income ( 22,177) ( 22,177) Total stockholders' equity 4,330,349 4,082,632 $10,005,641 $10,647,315 See Notes to Unaudited Consolidated Financial Statements -3- 	AUTO-GRAPHICS, INC. 	Form 10-Q 	Unaudited Consolidated Statements of Cash Flows 	For the Three Months Ended March 31, 	Increase (Decrease) in Cash 2000 1999 Cash flows from operating activities: Net income(loss) ($ 122,218) $ 17,452 Adjustments to reconcile net income(loss) to net cash provided by operating activities: Depreciation and amortization 314,564 323,147 Minority Interests ( 66,152) - Deferred taxes - - Changes in operating assets and liabilities: Accounts receivable 158,049 226,838 Unbilled production costs ( 128,418) ( 34,548) Other current assets ( 102,092) ( 13,697) Other assets 72,987 - Accounts payable 79,873 ( 287,486) Deferred income ( 376,981) 25,446 Other accrued liabilities 168,209 ( 33,344) Accrued payroll and related liabilities ( 76,984) ( 37,611) Net cash provided by (used in) operating activities ( 79,163) 186,197 Cash flows from investing activities: Capital expenditures ( 461,568) ( 217,299) Cash flows from financing activities: Borrowings under long-term debt - 150,000 Principal payments under debt Agreements ( 617,356) ( 50,000) Sale of Capital Stock, Net 645,441 - Repurchase of capital stock ( 275,508) ( 47,216) Cash used in financing activities ( 247,423) ( 47,216) Net decrease in cash ( 788,154) ( 78,318) Cash at beginning of year 3,816,286 292,744 Cash at end of period $3,028,132 $ 214,426 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 83,211 $ 73,885 Income taxes 2,768 9,043 	See Notes to Unaudited Consolidated Financial Statements. -4- AUTO-GRAPHICS, INC. Form 10-Q Notes to 	Unaudited Consolidated Financial Statements March 31, 2000 NOTE 1. The unaudited consolidated financial statements included herein have been prepared by Registrant and include all normal and recurring adjustments which are, in the opinion of Management, necessary for a fair presentation of the financial position at March 31, 2000, the results of operations and the statement of cash flows for the three months ended March 31, 2000 and 1999 pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements include the accounts of Auto-Graphics, Inc. and its wholly-owned and majority- owned subsidiaries. All material intercompany accounts and transactions have been eliminated. The results of operations for the subject periods are not necessarily indicative of the results for the entire year. This Quarterly Report on Form 10-Q is qualified in its entirety by the information included in the Company's Annual Report to the SEC on Form 10-K for the period ending December 31, 1999 including, without limitation, the financial statements and notes therein. NOTE 2. In May 1999, the Company entered into a selling agreement with an associate pertaining to the Company's 1999 private placement offering, which raised $1,251,000 in equity investment and resulted in the sale/issuance of an additional 1,501,200 shares of the Company's (restricted) Common Stock. Pursuant to the agreement, the Company sold and issued 240,000 3-year warrants for $800 entitling the associate to purchase one share of the Company's (restricted) Common Stock for each warrant for $.03 per share, which warrants remain issued and outstanding but unexercised at March 31, 2000. The 240,000 shares of Common Stock issuable through the exercise of these warrants reflect the Company's only potentially dilutive securities currently outstanding. The Company's principal director/shareholder granted an option to the associate to purchase 1,125,000 shares of the Company's (restricted) Common Stock owned by such individual (and his Family Trust) through November 2000, subject to a one year renewal provision in favor of the recipient, for $1.67 per share. The shares which are the subject of this option represent approximately 23% of the Company's issued and outstanding Common Stock at March 31, 2000. In December 1999, the Company and an associate formed two new subsidiaries, Dataquad, Inc. and The LibraryCard, Inc., and contributed nominal cash consideration to such subsidiaries, and the Company contributed certain software and other assets to Dataquad. A third party investor (who also invested in the Company's 1999 private placement offering) contributed $1.0 million in cash to each of the subsidiaries in return for a 27% ownership interest, and the Company and the associate hold 67% and 6% -5- AUTO-GRAPHICS, INC. Form 10-Q Notes to Unaudited Consolidated Financial Statements March 31, 2000 interests, respectively. Ten percent of the issued and outstanding shares of Common Stock in each of the two subsidiaries have been reserved for issuance to employees under an employee stock option plan which is currently under development. On January 31, 2000, the Company announced a 3-for-1 stock split of its Common Stock to shareholders of record on February 12, 2000, which occurred on February 28, 2000. Two additional shares were issued for each share held on the record date. Following the stock split, shares authorized increased from 4,000,000 to 12,000,000 and shares issued and outstanding from 1,607,578 to 4,822,734 following the private placement and share repurchase referenced below. Share amounts in the Statement of Operations including basic and diluted earnings per share, and the Consolidated Balance Sheet have been adjusted retroactively to reflect the stock split for the periods presented. In February 2000, the Company consummated a private placement of 225,000 shares (after giving effect to the 3-for-1 stock split) of its (restricted) Common Stock with an offshore investment company for $4.125 per share for gross proceeds of $930,000. The Company used a portion of the net proceeds from the sale of such stock to reduce its capital line of credit with the bank by $600,000. In February 2000, the Company accelerated the purchase and retired the remaining 187,200 shares outstanding (after giving effect to the 3-for-1 stock split) under a stock repurchase agreement with a former director and stockholder of the Company for $203,000 in cash consideration. The Company also transferred an insurance policy to the seller having a cash surrender value of approximately $75,000. The Company incurred direct and incremental expenses in connection with the 1999 $1,251,000 private placement offering, the sale of the $2.0 million in shares of the Company's Dataquad, Inc. and The LibraryCard,Inc. subsidiaries, and the above referenced 2000 private placement offering of $930,000 resulting in gross proceeds from the sale of all such securities of $4,181,000. 2000 equity funding costs and expenses, including legal, and selling expenses totaled $279,000 which have been offset against the total equity raised. NOTE 3. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The Statement establishes standards for reporting and display of comprehensive income and its components in interim and annual financial statements. Comprehensive income is defined as the change in the equity (net assets) of an entity during a period from transactions, events and circumstances excluding all transactions involving investments by or distributions to the owners. -6- 	AUTO-GRAPHICS, INC. 	Form 10-Q Notes to 	Unaudited Consolidated Financial Statements March 31, 2000 Note 4. As of the year ended December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Statement establishes standards for reporting information about operating segments in interim and annual financial statements. The following table summarizes sales based on the location of the customers and assets based on the location of the asset for the quarters ending March 31, 2000 and 1999: 2000 1999 Geographic areas Net sales United States $ 1,677,029 $ 1,484,270 Foreign - Canada/Other 432,852 497,760 Long-lived assets, net United States 5,078,568 4,709,181 Foreign - Canada 179,528 202,456 Note 5. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. At December 31, 1999, the Company has available federal, state and Canadian net operating loss carry-forwards of approximately $385,000, $498,000 and $337,000, respectively, for income tax purposes. These net operating loss carry-forwards expire in 2018 for federal taxes and 2005 for state and for foreign taxes. Note 6. Pending Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", which was amended by Statement of Financial Accounting Standards No. 137, effective for fiscal quarters of all fiscal years beginning after June 15, 1999. The Company has adopted the Statement in the fiscal year ending December 31, 2000. The Statement establishes standards for accounting for derivatives and hedging instruments (of which the Company currently has none) and, therefore, the Company does not expect this Statement will have a material effect on the Company's financial position or results of operations. In February 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 135, "Rescission of FASB Statement No. 75 and Technical Corrections", which is effective for financial statements issued for fiscal years ending after February 15, 1999. The Company does not expect this Statement will have a material effect on the Company's financial position or results of operations. -7- 	AUTO-GRAPHICS, INC. 	Form 10-Q Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION December 31, 1999 to March 31, 2000 Liquidity and capital resources. Working capital decreased $510,000 primarily as a result of principal payments on long-term debt in the amount of $617,000. Accounts receivable declined $158,000 despite an increase in sales as a growing proportion of the Company's sales and accounts receivable are being paid via customer deposits. The average collection period for accounts receivable was unchanged at 55 days at December 31, 1999 and March 31, 2000. Net cash provided by/(used in) operations was ($79,000) in the first quarter of 2000 down from $186,000 in the first quarter of 1999 due primarily to a normal cyclical increase in inventory of $128,000 and a reduction in deferred income of $377,000 reflecting the application of customer deposits. Capital expenditures increased to $462,000 in the first quarter of 2000 from $217,000 in the first quarter of 1999 due to the procurement of computer equipment, and office equipment and furniture associated with the consolidation of office space at the Company's Pomona headquarters. Management believes that liquidity and capital resources will be adequate to fund operations including development of the business of the Company's two new majority-owned subsidiaries, Dataquad(tm) and LibraryCard(tm), during 2000 and into 2001. In order to accelerate development and expand the scope of the Company's Internet/Web initiatives and business, the Company will continue to explore opportunities to raise additional equity. In 1999, the Company raised approximately $3.0 million through the sale of stock in the Company and in the Dataquad(tm) and LibraryCard(tm) subsidiaries. At March 31, 2000, the Company's cash position was approximately $3.0 million; and the balance in the Company's revolving working capital line of credit was zero. In February 2000, the Company raised an additional $930,000 in equity through the sale of stock, and used $600,000 of such proceeds to pay down the Company's $3.0 million capital line of credit to $2.4 million. In 1999, the Company renewed its commercial bank lines of credit through May 2000. The Company has reached an agreement in principle with its bank (Wells Fargo Bank, N.A.) to restructure and extend the term of its bank loan through May 2002. The plan is to consolidate the Company's two existing lines of credit into a single revolving line of credit. In light of the Company's present and anticipated cash resources, and resulting need for bank credit, the newly implemented line of credit will start at $3.0 million and decrease over the two year term of the loan to $2.0 million with a lower rate of interest than presently applies. The proposed new loan covenants will provide the Company with greater flexibility to incur consolidated net losses and commit its cash resources to new initiatives consistent with such revised financial ratio covenants; and the Company will agree to maintain conservative liquidity ratios which are designed to encourage the Company to finance future growth with investment (as opposed to bank) capital -8- 	AUTO-GRAPHICS, INC. 	Form 10-Q RESULTS OF OPERATIONS First Quarter 2000 as Compared to First Quarter 1999 Net sales increased $128,000 or 7% to $2,110,000 in 2000. Sales in the Company's library division were up $196,000 offset by lower sales primarily in the Company's traditional business lines, such as bibliographic cataloging, and computerized typesetting. Cost of sales decreased $97,000 or 8%. Gross margins improved to 48% in 2000 up from 40% in 1999 due to the continuing shift in product mix away from the Company's traditional labor intensive services to higher margin Internet/Web hosting services. This trend is expected to continue through 2000. Selling, general and administrative expenses increased $435,000 or 63% due to additional staff and other recurring and non-recurring expenses related to the start-up of two new subsidiaries: Dataquad(tm) and LibraryCard(tm). The Company expects these elevated expense levels to increase through 2000 and into 2001. Interest expense/other was $63,000 in 2000 down $10,000 or 13% from $73,000 in 1999 due to lower average borrowings. Provision for taxes based on income reflects minimum state income taxes payable (See Note 5 of Notes to Unaudited Consolidated Financial Statements). Minority Interests reflects the outside partners' share of the losses realized by the two new subsidiaries referenced above. Net Loss was $122,000 in 2000 compared to net income of $17,000 in 1999 due to additional staff and other expenses related to the start-up of two new subsidiaries referenced above. Basic loss per share was $0.03 in 2000 compared to basic earnings per share of $0.01 for the comparative quarter in 1999. The diluted loss per share was $0.03 in 2000 compared to diluted earnings per share of $0.01 for the comparative quarter in 1999. Shares outstanding have been retroactively restated for a 3-for-1 stock split in February 2000. (See Note 2 of Notes to Unaudited Consolidated Financial Statements). Net Loss in 2000 Management believes that 2000 sales will increase over 1999 sales. The additional equity raised by the Company in 1999 and in 2000 will be used to fund the Company's Internet/Web initiatives in 2000 (and 2001). Under AICPA Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", all costs incurred by the Company of a "start-up" nature will necessarily need to be expensed as incurred. Such "start-up" expenses, and other non- capitalized costs/expenses associated with the Company's new Internet/Web initiatives, primarily in the Company's Dataquad(tm) and LibraryCard(tm) subsidiaries, are anticipated to result in the Company reporting a -9- 	AUTO-GRAPHICS, INC. 	Form 10-Q consolidated net loss for the year ending December 31, 2000 in the $750,000- $1.0 million range (although the Company's on-going business is expected to be profitable again in 2000). Information Relating To Forward-Looking Statements This Report includes forward-looking statements which reflect the Company's current views with respect to future events and financial performance. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Pending Pronouncements See Note 6 of Notes to Unaudited Consolidated Financial Statements. Year 2000 The Company is continuing to monitor its mission critical systems for potential Year 2000 related software problems, and has experienced only minor, readily correctable problems. Should the Company experience an unforeseen Year 2000 problem with its products/services, it is believed that the Company has sufficient technical personnel and resources to address and resolve any such problems. -10- 	AUTO-GRAPHICS, INC. Form 10-Q 	PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. (a) Securities Sold - On February 14, 2000, the Company consummated a private placement of 225,000 shares (after giving effect to a 3-for-1 stock split) of its (restricted) Common Stock for $4.125 per share. (b) Purchasers - The stock was sold to an offshore investment company. (c) Consideration - The gross cash consideration was $930,000. Finder's fees and legal fees totaled $85,500 for net proceeds of $844,500. (d) Exemption From Registration Claimed - The sale and issuance of the securities was exempt under Section 4(2) of the Securities Act of 1933, SEC Regulation D and otherwise based upon, among other things, the fact that the purchaser is an offshore investment company represented by professional financial advisors. (e) Terms of Conversion or Exercise - Not applicable. (f) Use of Proceeds - The Company used a portion of the net proceeds from the sale of such stock to reduce its capital line of credit with the bank by $600,000, and the balance for working capital. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: None. (b) None. -11- AUTO-GRAPHICS, INC. Form 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AUTO-GRAPHICS, INC. Date 5/15/00 ss/ Robert S. Cope Robert S. Cope, Chairman of the Board Date 5/15/00 ss/ Daniel E. Luebben Daniel E. Luebben, Chief Financial Officer