UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended September 30, 2003.
____________________
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 0-4431
AUTO-GRAPHICS, INC.
(Exact name of small business issuer as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
95-2105641
(IRS Employer Identification No.)
3201 Temple Avenue, Pomona, CA 91768
(Address of principal executive offices)
(909) 595 - 7204
(Issuer's telephone number)
Total shares of Common Stock issued and outstanding as of
November 14, 2003 is 5,525,486.
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet................1
Unaudited Condensed Consolidated
Statements of Operations and
Comprehensive Income for the Nine
Months Ended September 30, 2003 and 2002..........2
Unaudited Condensed Consolidated
Statements of Operations and
Comprehensive Income for the Three
Months Ended September 30, 2003 and 2002..........3
Unaudited Consolidated
Statements of Cash Flows for the Nine
Months Ended September 30, 2003 and 2002..........4
Notes to the Unaudited Consolidated
Financial Statements..............................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................................10
Item 3. Controls and Procedures............................16
PART II. OTHER INFORMATION..................................17
Signatures.........................................18
Certifications.....................................19
-1-
AUTO-GRAPHICS, INC.
Form 10-QSB
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Consolidated Balance Sheet
September 30, 2003
ASSETS
Current assets:
Cash $ 97,041
Accounts receivable, less allowance
for doubtful accounts of $25,000 185,049
Unbilled production costs 21,552
Other current assets 189,072
___________
Total current assets 492,714
Software, net 3,086,053
Equipment, furniture
and leasehold improvements, net 505,773
Other assets 95,884
___________
$ 4,180,424
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 74,987
Deferred income 1,153,977
Other accrued liabilities 188,041
Accrued payroll and
related liabilities 171,860
Note Payable (Note 2) 160,161
Current portion of
long-term debt 25,237
___________
Total current liabilities 1,774,263
Long-term debt,
less current portion 15,536
Deferred taxes based on income 73,000
___________
Total liabilities 1,862,799
Stockholders' equity:
Common stock,
12,000,000 shares authorized,
5,525,486 shares issued and
outstanding in 2003 4,274,595
Accumulated deficit ( 1,957,247)
Other comprehensive income/(loss) 277
___________
Total stockholders' equity 2,317,625
___________
$ 4,180,424
===========
See Notes to Unaudited Consolidated Financial Statements.
-2-
AUTO-GRAPHICS, INC.
Form 10-QSB
Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Income
For the Nine Months Ended September 30,
2003 2002
__________ __________
Net sales (See Note 3) $4,442,274 $4,866,022
Costs and expenses:
Cost of sales 2,559,289 2,708,909
Selling, general & administrative 1,549,992 2,063,570
__________ __________
Total costs and expenses 4,109,281 4,772,479
__________ __________
Income from operations 332,993 93,543
Interest/other income/(expense) ( 44,590) ( 44,712)
__________ __________
Income before taxes
and minority interests 288,403 48,831
Provision for taxes
based on income (See Note 4) 3,000 4,600
Minority Interests -- ( 40,779)
__________ __________
Net income and total
comprehensive income $ 285,403 $ 85,010
========== ==========
Basic earnings per share $ .05 $ .02
Basic weighted average
shares outstanding 5,525,486 4,997,234
Diluted earnings per share $ .05 $ .02
Diluted weighted average
shares outstanding 5,905,486 5,109,734
See Notes to Unaudited Consolidated Financial Statements.
-3-
AUTO-GRAPHICS, INC.
Form 10-QSB
Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Income
For the Three Months Ended September 30,
2003 2002
__________ __________
Net sales (See Note 3) $1,449,120 $1,633,762
Costs and expenses:
Cost of sales 873,101 904,066
Selling, general & administrative 480,927 715,104
__________ __________
Total costs and expenses 1,354,028 1,619,170
__________ __________
Income from operations 95,092 14,592
Interest/other income/(expense) ( 11,660) ( 8,786)
__________ __________
Income before taxes
and minority interests 83,432 5,806
Provision for taxes
based on income (See Note 4) -- 1,600
Minority Interests -- ( 26,615)
__________ __________
Net income and total
comprehensive income $ 83,432 $ 30,821
========== ==========
Basic earnings per share $ .02 $ .01
Basic weighted average
shares outstanding 5,525,486 4,997,234
Diluted earnings per share $ .01 $ .01
Diluted weighted average
shares outstanding 5,905,486 5,211,401
See Notes to Unaudited Consolidated Financial Statements.
-4-
AUTO-GRAPHICS, INC.
Form 10-QSB
Unaudited Consolidated
Statements of Cash Flows
For the Nine Months Ended September 30,
Increase (Decrease) in Cash
2003 2002
__________ __________
Cash flows from operating activities:
Net income $ 285,403 $ 85,010
Adjustments to reconcile
net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 911,600 876,280
Minority Interests -- ( 40,779)
Changes in operating assets
and liabilities:
Accounts receivable 147,118 241,398
Unbilled production costs ( 18,154) ( 4,626)
Other current assets ( 13,925) ( 69,831)
Other assets ( 16,437) 16,651
Accounts payable ( 179,583) 6,452
Deferred income ( 227,769) ( 351,094)
Other accrued liabilities ( 197,187) 88,601
Accrued payroll and
related liabilities ( 64,938) ( 261,374)
__________ __________
Net cash provided by
operating activities 626,128 586,688
Cash flows from investing activities:
Capital expenditures ( 406,015) ( 505,840)
Cash flows from financing activities:
Principal borrowings/(payments)
under notes, net ( 167,374) ( 196,428)
Exercise of Warrants 12,425 --
Receipts from notes receivable - stock -- 2,067
__________ __________
Cash used in financing activities ( 154,949) ( 194,361)
__________ __________
Net increase (decrease) in cash 65,164 ( 113,513)
Foreign currency effect on cash -- 13,946
Cash at beginning of period 31,877 122,029
__________ __________
Cash at end of period $ 97,041 $ 22,462
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 53,599 $ 79,679
Income taxes 26,772 6,917
See Notes to Unaudited Consolidated Financial Statements.
-5-
AUTO-GRAPHICS, INC.
Form 10-QSB
Notes to
Unaudited Consolidated Financial Statements
September 30, 2003
NOTE 1. Basis of Presentation
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
September 30, 2003, the results of operations and the statement of cash
flows for the three and nine months ended September 30, 2003 and 2002
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 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-QSB 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, 2002 including, without
limitation, the financial statements and notes therein.
NOTE 2. Notes Payable
The Company was in compliance with its financial loan covenants as of
September 30, 2003 under its bank credit agreement. In October 2003, the
Company's primary bank, Wells Fargo Bank, amended and extended the terms
of its credit agreement at the Company's request for an additional 3 months
to September 30, 2004. Because the Company's bank line of credit facility
matures on September 30, 2004, it is reported as a current liability in the
Company's balance sheet as of September 30, 2003. The credit facility is
a $1.075 million revolving line of credit, which decreases by $175,000 on
October 1, 2003 to $900,000, by $200,000 on January 1, 2004 to $700,000, by
$150,000 on April 1, 2004 to $550,000, and by $125,000 on July 1, 2004 to
$425,000. The interest rate on the line of credit is the bank prime rate
plus 5 percentage points (9.0% at October 1, 2003). The outstanding loan
balance of the line of credit was $160,000 with $915,000 available on
September 30, 2003 ($740,000 on October 1, 2003) out of a total commitment
of $1,075,000 at September 30, 2003 (reducing to $900,000 on October 1, 2003).
The credit line is secured by all of the assets of the Company and its
subsidiaries. It also requires that the Company maintain certain minimum
financial covenant ratios, restricts the payment of cash dividends, and
limits the amount of certain types of equity investments, the repurchase
of Company stock and loans to third parties and subsidiaries.
-6-
AUTO-GRAPHICS, INC.
Form 10-QSB
Notes to
Unaudited Consolidated Financial Statements
September 30, 2003
NOTE 2. Notes Payable (continued)
In February 2003, A-G Canada, Ltd. a wholly-owned Canadian subsidiary of the
Company, pledged a Guaranteed Income Certificate in the amount of $45,000 to
Toronto Dominion Bank as collateral for a four-year Letter of Credit in the
amount of $45,000.
Note 3. Operating Segments
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" 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 nine months ended June
30, 2003, and 2002:
2003 2002
___________ ___________
Geographic areas
Net sales
United States $ 3,695,170 $ 4,249,407
Foreign - Canada/Other 747,104 616,615
Long-lived assets, net
United States 3,586,726 4,280,029
Foreign - Canada 5,100 21,426
Note 4. Income Taxes
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. At December 31, 2002, the Company
had available net operating loss carryforwards for federal income tax
purposes of $3,596,000, $3,130,000 for state income tax purposes and
$216,000 for foreign income tax purposes. A valuation allowance reflects
the unrecognized U.S. and foreign tax loss carryforward. These net operating
loss carryforwards may be used to offset federal income taxes through 2022,
state income taxes through 2010 and foreign income taxes through 2007.
-7-
AUTO-GRAPHICS, INC.
Form 10-QSB
Notes to
Unaudited Consolidated Financial Statements
September 30, 2003
Note 5. Earnings Per Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
requires the presentation of basic earnings per share and diluted earnings
per share. 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.
On May 3, 2002, July 17, 2002 and June 18, 2003, Company's Board of Directors
granted stock options for a total of 380,000 shares of the Company's
"restricted" Common Stock to directors and certain employees.
In February, 2003, the Company issued 621,252 warrants (at an exercise price
of $0.01 per warrant) to two directors to purchase 621,252 shares of the
Company's "restricted" common stock at an exercise price of $0.01 per share.
In May and June 2003, all warrants were exercised and the stock was purchased
and issued.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
Net Income Shares Per Share
__________ _________ _________
Nine months ended September 30, 2003
Basic earnings per share
Net income available to
common stockholders $ 285,403 5,525,486 $ 0.05
Effect of dilutive securities
Stock options 310,556
Diluted earnings per share __________ _________ __________
Net income available to
common stockholders $ 285,403 5,836,042 $ 0.05
Nine months ended September 30, 2002
Basic earnings per share
Net income available to
common stockholders $ 85,010 4,997,234 $ 0.02
Effect of dilutive securities
Stock options 112,500
Diluted earnings per share __________ _________ __________
Net income available to
common stockholders $ 85,010 5,109,734 $ 0.02
-8-
AUTO-GRAPHICS, INC.
Form 10-QSB
Notes to
Unaudited Consolidated Financial Statements
September 30, 2003
Note 5. Earnings Per Share (continued)
Three months ended September 30, 2003
Basic earnings per share
Net income available to
common stockholders $ 83,432 5,525,486 $ 0.02
Effect of dilutive securities
Stock options 380,000
Diluted earnings per share __________ _________ __________
Net income available to
common stockholders $ 83,432 5,905,486 $ 0.01
Three months ended September 30, 2002
Basic earnings per share
Net income available to
common stockholders $ 30,821 4,997,234 $ 0.01
Effect of dilutive securities
Stock options 214,167
Diluted earnings per share __________ _________ __________
Net income available to
common stockholders $ 30,821 5,211,401 $ 0.01
Note 6. Subsequent Events
The Company has a material contract with the Texas Education Agency (TEA) to
provide an Internet-based resource sharing system to all K-12 schools within
the State. The contract accounted for approximately 25% of the Company's 2002
Sales and is expected to account for less than 15% of the Company's 2003 Sales.
The Texas State Legislature did not fund the contract for the fiscal 2003-2005
(9/03-8/05) budget period due to a $10 billion State budget deficit. TEA is
therefore funding the contract by implementing a subscription-based approach
financed directly by the individual schools and school districts. The Company
is working closely with several Texas State agencies and consultants to
implement this new approach. The change in funding approach may result in
additional costs, risks and reduced revenues for the Company depending on the
outcome. However, it is not expected to have a material adverse effect on
the Company's financial statements.
-9-
AUTO-GRAPHICS, INC.
Form 10-QSB
Notes to
Unaudited Consolidated Financial Statements
September 30, 2003
Note 7. Recently Issued Accounting Pronouncements
In May, 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
The Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. The Company believes the adoption of this Statement will have no
material impact on its financial statements.
-10-
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CRITICAL ACCOUNTING POLICIES
The Company maintains its accounting books and records in accordance with
accounting principles generally accepted in the United States of America.
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 materially differ from those estimated. The Company's critical
accounting policies include the following:
- Capitalized software development costs
- Amortization of software development costs
- Revenue Recognition
The Company accounts for internally developed software in accordance with
Statement of Financial Accounting Standard (SFAS) No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed." After
technical feasibility has been established, the Company capitalizes the
average cost per billable hour of its software development process including
payroll and payroll benefits, training and recruiting costs. The Company
collects and records the software development hours invested in software
development projects. Annually, the Company evaluates these accumulated costs
for recoverability against estimated future revenues and determines the
amount, which will be capitalized. The Company generally capitalizes
approximately two-thirds of the annual software development project costs
eligible for capitalization and expenses the remainder. To the extent that
more development costs are capitalized, the Company's current net income
will improve, and, to the extent that more software development costs are
expensed instead of capitalized, the Company's current net income will
decline. Because of the effect on earnings, the Company endeavors to
capitalize a relatively consistent amount year-to-year to minimize the
fluctuation in earnings.
-11-
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
The Company amortizes its software development costs in accordance with the
estimated economic life of the software, which generally is seven years.
The Company's typical product lifecycle has been about 15 years, which was
true for its prior film/fiche product line, CD-ROM product line and current
Internet/Web product line, which has now been deployed for nine years and
is still growing. To the extent the average actual useful life varies
significantly from the estimated useful life, amortization expense may be
understated or overstated. Generally, amortization expense averages less
than 15% of the corresponding revenue stream.
Revenue recognition policies vary according to the nature of the revenue. The
Company's primary revenue stream is outsourced web hosting services, which are
sold on a subscription basis. Services are billed in advance on an annual or
quarterly basis. Revenue is recognized monthly on a pro-rata basis i.e., for
a twelve month contract, one-twelfth of the revenue is recognized each month
as services are rendered. Revenues, which have been billed and collected in
advance, are booked as deferred income until the services are provided and
revenues earned. Certain insignificant annual subscriptions for databases
and software support typically are recognized as revenue in the month they
are billed. Certain cost of sales and overhead costs for providing future
software support services are accrued as expense in accordance with SOP 97-2,
"Software Revenue Recognition," as amended by SOP 98-9, and thereby matching
revenues and expenses. Certain contract job processing services are
progress billed and revenues recognized as the processing services are
performed on a monthly basis. Certain software and hardware sales are billed
when the product is shipped and title passes to the customer.
-12-
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit decreased by $770,000 to a negative $1,282,000
from $2,050,447 as of December 2002, primarily as a result of net cash from
operating activities of $626,000, a reduction in capital expenditures and
repayment of $167,000 in borrowing on the bank line of credit and other term
debt. Net cash provided by operating activities was approximately $626,000
in 2003 up from net cash provided by operating activities of $587,000 in
2002 due an improvement in net income, and collection of accounts receivable.
The Company's primary ASP product lines are sold on an annual subscription
basis with fees for services billed to the customer and paid annually or
quarterly in advance. This cash is received and booked to deferred income
on the balance sheet to be applied as the monthly sales revenues are earned
and recognized on a pro-rata basis. As the cash is received, it is used to
pay down the line of credit. A growing percentage of sales (currently over
70% year-to-date) of the Company's sales revenues are now being paid through
customer advances without flowing through accounts receivable. The average
accounts receivable balance is therefore lower (approximately one-third) from
what it would otherwise historically be and there is a substantial deferred
income balance in current liabilities representing revenues to be earned from
future services to customers who have paid in advance.
At December 31, 2002, the Company's principal financial commitments, other
than its bank line of credit, involved the lease of corporate facilities in
Pomona, California and in Toronto, Canada. Commitments over next five years
total approximately $1.0 million.
The Company's principal uses of cash for investing activities during 2003 and
2002 were directed primarily toward continuing development of the Company's
AGent(TM), VERSO(TM) and Impact/ONLINE(TM) software. The amounts invested
in software development were $375,000 in both 2003 and 2002. The remainder
of the investing activities were to acquire hardware and software used to
expand and enhance online services to the Company's current and prospective
Internet/Web customers. Total capital expenditures were down to $406,000 in
2003 compared to $506,000 in 2002 due to an acquisition in 2002.
-13-
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
Management believes that liquidity and capital resources should be adequate
to fund operations and expected reductions in bank debt in 2003 and 2004. The
Company was in compliance with its financial loan covenants as of September 30,
2003 under its bank credit agreement. In October 2003, the Company's primary
bank, Wells Fargo Bank, amended and extended the terms of its credit agreement
at the Company's request for an additional three months to September 30, 2004.
Because the Company's bank line of credit facility matures on September 30,
2004, it is reported as a current liability in the Company's balance sheet
as of September 30, 2003. The credit facility is a $1.075 million revolving
line of credit, which decreases by $175,000 on October 1, 2003 to $900,000, by
$200,000 on January 1, 2004 to $700,000, by $150,000 on April 1, 2004 to
$550,000, and by $125,000 on July 1, 2004 to $425,000. The interest rate on
the line of credit is the bank prime rate plus 5 percentage points (9.0% at
October 1, 2003). The outstanding loan balance of the line of credit was
$160,000 with $915,000 available on September 30, 2003 ($740,000 on October
1, 2003) out of a total commitment of $1,075,000 at September 30, 2003
(reducing to $900,000 on October 1, 2003). The credit line is secured by
all of the assets of the Company and its subsidiaries. It also requires
that the Company maintain certain minimum financial covenant ratios, restricts
the payment of cash dividends, and limits the amount of certain types of
equity investments, the repurchase of Company stock and loans to third
parties and subsidiaries. The Company has no so-called special purpose
entities, off-balance sheet or derivative financing of any kind. All entities
have been consolidated and all material intercompany accounts and transactions
have been eliminated.
The Company has a material contract with the Texas Education Agency (TEA) to
provide an Internet-based resource sharing system to all K-12 schools within
the State. The contract accounted approximately 25% of the Company's 2002
Sales and is expected to account for less than 15% of the Company's 2003
Sales. The Texas State Legislature did not fund the contract for the fiscal
2003-2005 (9/03-8/05) budget period due to a $10 billion State budget
deficit. TEA is therefore funding the contract by implementing a
subscription-based approach financed directly by the individual schools and
school districts. The Company is working closely with several Texas State
agencies and consultants to implement this new approach. The change in
funding approach may result in additional costs, risks and reduced revenues
for the Company depending on the outcome. However, it is not expected to
have a material adverse effect on the Company's financial statements.
Management believes these funding conditions are temporary and manageable,
and expects that the Company will earn higher profits in 2003 and 2004.
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.
-14-
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
RESULTS OF OPERATIONS
First Nine Months of 2003 as Compared to First Nine Months of 2002
Net sales decreased $424,000 or 9% to $4,442,000 in 2003 from $4,866,000
in 2002 due primarily to declines in sales to publishing customers. The
Company is focusing on its core library services business and not soliciting
new publishing customers.
Cost of sales decreased $150,000 or 6% to $2,559,000 in 2003 from
$2,709,000 in 2002 as a result of cost reductions in publishing production
payroll and office rent. Gross margins decreased to 42% of sales in 2003
from 44% of sales in 2002 due to the decline in net sales.
Selling, general and administrative expenses decreased $514,000 or 25% to
$1,550,000 in 2003 from $2,064,000 in 2002 as a result of a substantial
decrease in legal expenses in 2003 compared to 2002. The substantial legal
fees in 2002 were due primarily to the lawsuits initiated by the Company's
former general counsel, Robert H. Bretz. The Company settled with Mr. Bretz
in January of 2003 ending the litigation.
Income from operations more than doubled to $333,000 in 2003 up $239,000 from
$94,000 in 2002 due to the above expense reductions.
Interest/other income/expense was an expense of $45,000 in 2003 unchanged
from an expense of $45,000 in 2002.
Provision for taxes based on income in 2003 and 2002 reflects the federal
and state net operating loss carryforward and the minimum state income taxes
(See Note 4 of Notes to Unaudited Consolidated Financial Statements).
Minority interests of $41,000 reflects the minority owners' share of the
losses realized by the majority-owned Dataquad subsidiary in 2002. In
December 2002, both majority-owned subsidiaries, Dataquad and LibraryCard
were merged with Auto-Graphics, Inc.
Net income tripled to $285,000 up $200,000 in 2003 compared to $85,000 in
2002 due to the above expense reductions.
Both basic and diluted earnings per share was $0.05 in 2003 compared to
$0.02 in 2002.
-15-
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
Third Quarter of 2003 as Compared to Third Quarter of 2002
Net sales decreased $185,000 or 11% to $1,449,000 in 2003 from $1,634,000
in 2002 due primarily to declines in sales to publishing customers. The
Company is focusing on its core library services business and not soliciting
new publishing customers.
Cost of sales decreased $31,000 or 3% to $873,000 in 2003 from $904,000 in
2002 as a result of cost reductions in publishing production payroll and
office rent. Gross margins decreased from 45% in 2002 to 40% of sales in
2003 due to the decline in net sales.
Selling, general and administrative expenses decreased $234,000 or 33% to
$481,000 in 2003 from $715,000 in 2002 as a result of a substantial decrease
in legal expenses in 2003 compared to 2002. The substantial legal fees in
2002 were due primarily to the lawsuits initiated by the Company's former
general counsel, Robert H. Bretz. The Company settled with Mr. Bretz in
January of 2003 ending the litigation.
Income from operations increased six-fold to $95,000 in 2003 up from $15,000
in 2002 due to the above expense reductions.
Interest/other income/expense was an expense of $12,000 in 2003 up from an
expense of $9,000 in 2002.
Provision for taxes based on income in 2003 and 2002 reflects the federal
and state net operating loss carryforward and the minimum state income taxes
in 2002 (See Note 4 of Notes to Unaudited Consolidated Financial Statements).
Minority interests of $27,000 reflects the outside minority owners'
share of the losses realized by the majority-owned Dataquad subsidiary
in 2002. In December 2002, both majority-owned subsidiaries, Dataquad
and LibraryCard were merged with Auto-Graphics, Inc.
Net income increased 167% to $83,000 in 2003 compared to $31,000 in 2002 due
to the above expense reductions.
Both basic and diluted earnings per share were $0.02 and $0.01 in 2003,
respectively, compared to $0.01 in 2002.
-16-
AUTO-GRAPHICS, INC.
Form 10-QSB
September 30, 2003
ITEM 3. CONTROLS AND PROCEDURES
As of September 30, 2003, an evaluation was performed, under the supervision
and with the participation of the President and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, the President and Chief Financial
Officer, concluded that our disclosure controls and procedures were effective
as of September 30, 2003. No significant changes in internal controls or in
other factors have occurred that could significantly affect controls
subsequent to September 30, 2003.
-17-
AUTO-GRAPHICS, INC.
Form 10-QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
99.1 Certification by the Chief Executive Officer
99.2 Certification by the Chief Financial Officer
(b) None.
-18-
AUTO-GRAPHICS, INC.
Form 10-QSB
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: November 14, 2003 /s/ Robert S. Cope
_________________________
Robert S. Cope, President
Date: November 14, 2003 /s/ Daniel E. Luebben
_____________________
Daniel E. Luebben,
Chief Financial Officer
-19-
AUTO-GRAPHICS, INC.
Form 10-QSB
CERTIFICATIONS
I, Robert S, Cope, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Auto-Graphics, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
-20-
AUTO-GRAPHICS, INC.
Form 10-QSB
CERTIFICATIONS
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: November 14, 2003
/s/ Robert S. Cope
__________________
Robert S. Cope
Chairman of the Board and President
-21-
AUTO-GRAPHICS, INC.
Form 10-QSB
CERTIFICATIONS
I, Daniel E. Luebben, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Auto-Graphics, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
-22-
AUTO-GRAPHICS, INC.
Form 10-QSB
CERTIFICATIONS
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: November 14, 2003
/s/ Daniel E. Luebben
_____________________
Daniel E. Luebben
Chief Financial Officer
and Secretary