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, 1998 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 Outstanding: Common Stock: 1,064,478
AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 1998
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.......................................6
Part II - Other Information........................9
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AUTO-GRAPHICS, INC.
Form 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Statements of Income
For the Three Months Ended March 31
1998 1997
Net sales $2,393,935 $1,794,368
Costs and expenses:
Cost of sales 1,430,440 970,764
Selling, general & administrative 777,130 678,563
Interest/Other 94,904 56,189
Total costs and expenses 2,302,474 1,705,516
Income from operations 91,461 88,852
Provision for taxes based on income 41,000 39,000
Net income (See Note 4) $ 50,461 $ 49,852
Basic earnings per share $ .05 $ .05
Shares outstanding 1,064,478 1,093,678
See Notes to Unaudited Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Balance Sheets
March 31, 1998 and December 31, 1997
ASSETS 1998 1997
Current assets:
Cash $ 225,406 $ 244,620
Accounts receivable, less allowance
for doubtful accounts ($38,000 in
1998 and 1997) 1,817,802 2,365,837
Unbilled production costs 138,876 65,375
Finished goods inventory 78,212 18,049
Other current assets 281,067 122,416
Total current assets 2,541,363 2,816,297
Software, equipment and leasehold
improvements, net 5,638,355 5,576,409
Other assets 396,364 459,241
TOTAL ASSETS $ 8,576,082 $ 8,851,947
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note Payable $ 188,648 $ -
Accounts payable 499,077 669,237
Deferred income 548,856 536,225
Other accrued liabilities 127,709 155,383
Accrued payroll and related
liabilities 368,577 272,485
Current portion of long-term debt 795,625 842,500
Total current liabilities 2,528,492 2,475,830
Deferred taxes based on income 695,000 695,000
Long-term debt, less current portion 2,634,375 2,911,573
Total liabilities 5,857,867 6,082,403
Stockholders' equity:
Common stock, $.10 par value,
4,000,000 shares authorized,
1,064,478 shares issued and
outstanding in 1998, and
1,090,478 shares issued and
outstanding in 1997 (See Note 2) 106,448 109,048
Capital in excess of par value 1,123,899 1,128,319
Retained earnings 1,490,472 1,534,741
Foreign currency translation adjustments ( 2,604) ( 2,564)
Total stockholders' equity 2,718,215 2,769,544
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 8,576,082 $ 8,851,947
See Notes to Unaudited Consolidated Financial Statements
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AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Statements of
Cash Flows
For the Three Months Ended March 31
Increase (Decrease) in Cash
1998 1997
Cash flows from operating activities:
Net income $ 50,461 $ 49,852
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 302,177 199,556
Deferred taxes - -
Changes in operating assets
and liabilities:
Accounts receivable 510,169 475,725
Unbilled production costs (73,501) (197,930)
Finished goods inventory (60,163) (21,459)
Other current assets (158,647) (30,441)
Other assets 50,301 (47,437)
Accounts payable (132,294) (186,041)
Deferred income 12,631 (80,327)
Other accrued liabilities (27,674) (26,569)
Accrued payroll and
related liabilities 96,092 36,880
Net cash provided by
operating activities 569,552 171,809
Cash flows from investing activities:
Capital expenditures (351,547) (195,117)
Cash flows from financing activities:
Borrowings under long-term debt 389,571 -
Principal payments under debt
agreements (525,000) (150,000)
Repurchase of capital stock (101,750) (50,000)
Cash provided by (used in)
financing activities (237,179) (200,000)
Net increase in cash (19,174) (223,308)
Foreign currency effect on cash (40) -
Cash at beginning of year 244,620 364,094
Cash at end of period $ 225,406 $ 140,786
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 93,461 $ 65,238
Income taxes 105,000 63,000
See Notes to Unaudited Consolidated Financial Statements.
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AUTO-GRAPHICS, INC.
Form 10-Q
Notes to
Unaudited Condensed Financial Statements
March 31, 1998
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, 1998, the
results of operations and the statement of cash flows for the three
months ended March 31, 1998 and 1997 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 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, as amended, for the period ending December 31, 1997
including, without limitation, the financial statements included therein.
NOTE 2. The Company entered into a stock repurchase agreement in February
1995, with a former employee/officer and current director of the
Company, whereby the Company agreed to purchase and retire, over a
seven year period, 156,000 of 171,000 shares of Company stock owned
by the individual. The total transaction cost of $825,000 includes
stock, non-competition and consulting fees. In January of 1995,
1996 and 1997, the Company purchased and retired three blocks of
15,600 shares, and, in January 1998, the Company purchased and
retired 26,000 shares in accordance with the above referenced agreement.
NOTE 3. In June 1995, the Company entered into a stock repurchase agreement
with a former director of the Company, whereby the Company agreed to
purchase and retire, in 1995, 115,000 of 141,000 shares of Company
stock owned by the stockholder. The total transaction cost of
$230,000 is being paid in four annual installments beginning in 1995
plus interest of 5.5% per annum ($65,000 paid in June 1995, and
$55,000 paid in June 1996, 1997 and 1998).
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AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 1998
NOTE 4. Effective 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. Total
comprehensive income for the Company is as follows:
Three Months Ended March 31
1998 1997
Net Income $ 50,461 $ 49,852
Foreign Currency
Translation Adjustments (40) -
Total comprehensive income $ 50,421 $ 49,852
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AUTO-GRAPHICS, INC.
Form 10-Q
March 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
December 31, 1997 to March 31, 1998
Liquidity and capital resources. Working capital decreased $328,000.
Long-term debt was reduced by $325,000. The decline in accounts receivable
was due to higher fourth quarter revenues of $3.3 million (typically the
Company's highest quarter) to lower first quarter revenues of $2.4 million.
The average collection period for accounts receivable increased from 66 days
at December 31, 1997 to 71 days at March 31, 1998. Net cash provided by
operations increased approximately $400,000 to $570,000 in the first quarter
of 1998 from $172,000 in the first quarter 1997 due primarily to the
collection of approximately $510,000 in accounts receivable. Capital
expenditures increased to $352,000 in the first quarter 1998 from $195,000
in the first quarter of 1997 due to the procurement of production equipment
and additional software development costs in the first quarter of 1998.
The Company has a revolving credit facility with maximum
availability of $1,250,000 ($1,061,352 at March 31, 1998), secured by
accounts receivable and renewed bi-annually in June. Management believes
that the current line of credit will again be renewed in June 1999 and is
sufficient to handle the Company's cyclical working capital needs. The
Company also maintains a capital line of credit facility with a maximum
availability of $3,000,000 ($200,927 available at March 31, 1998) secured
by substantially all of the Company's capital assets which also renews
bi-annually in June and management believes that this credit facility will
again be renewed in June 1999. Management does not currently believe that
increased credit availability will be required to finance planned capital
expenditures in 1998, which are estimated at $1,000,000, to be used to
upgrade computers, production equipment and for software development. The
Company obtained a term credit facility of $750,000 to fund the 1997
acquisition of the assets of the Library Information Systems division of ISM
Information Systems Management Manitoba Corporation. The term note is a three
year note with interest only for 12 months followed by a 24 month amortization
schedule at bank prime rate. The Company retired $375,000 of the balance
outstanding in term borrowings in January 1998. The term facility carries an
uncompensated guarantee by an officer/stockholder of the Company. These
credit facilities carry no commitment fees or compensatory balance
requirements, and require that the Company maintain minimum financial ratio
covenants and prohibits the payment of cash dividends.
The Company's capital resources may be used to support working
capital requirements, capital investment and possible acquisitions of
businesses, products or technologies complementary to the Company's current
business. The Company believes that current cash reserves and cash flow from
operations are sufficient to fund its operations in 1998. However, during
this period or thereafter, the Company may require additional financing.
There can be no assurance that such additional financing will be available on
terms favorable to the Company, or at all.
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AUTO-GRAPHICS, INC.
Form 10-Q
The Company entered into a stock repurchase agreement in February
1995, with a former employee/officer and current director of the Company,
whereby the Company agreed to purchase and retire, over a seven year period,
156,000 of 171,000 shares of Company stock owned by the individual. The total
transaction cost of $825,000 includes stock, non-competition and consulting
fees. In January of 1995, 1996 and 1997, the Company purchased and retired
three blocks of 15,600 shares, and, in January 1998, the Company purchased and
retired a fourth block of 26,000 shares in accordance with the above
referenced agreement.
In June 1995, the Company entered into a stock repurchase agreement
with a former director of the Company, whereby the Company agreed to purchase
and retire, in 1995, 115,000 of 141,000 shares of Company stock owned by the
stockholder. The total transaction cost of $230,000 is being paid in four
annual installments beginning in 1995 plus interest of 5.5% per annum ($65,000
paid in June 1995, and $55,000 paid in June 1996, 1997 and 1998).
In June 1997, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information", which is effective for
annual periods beginning after December 15, 1997 and interim periods beginning
after December 15, 1998. The statement establishes standards for reporting of
information about operating segments in interim and annual financial
statements and therefore will have no material effect on the Company's
financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Opinion ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". This SOP is
effective for financial statements for fiscal years beginning after December
15, 1998. This SOP provides guidance on accounting for the costs of computer
software developed or obtained for internal use. The SOP requires that the
Company capitalize certain costs of software developed for internal use once
certain criteria are met. The Company is currently evaluating SOP 98-1, but
does not expect it will have a material effect on its consolidated financial
statements.
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AUTO-GRAPHICS, INC.
Form 10-Q
RESULTS OF OPERATIONS
First Quarter 1998 as Compared to First Quarter 1997
Results for the first quarter of 1998, when compared to the first
quarter of 1997, reflect the consolidated results derived from several
acquisitions consummated in late 1997. In July, 1997, the Company acquired
the assets of the Library Information Systems division of ISM Information
Systems Management Manitoba Corporation. In October, 1997, the Company
acquired the remaining 50% share of Datacat, Inc., that it did not already
own.
Net sales increased $600,000 or 33% from 1997 to $2,394,000 in 1998
due to additional revenues attributable to the acquisition of A-G Canada, Ltd.
and Datacat, Inc., and additional sales of the Company's Impact/ONLINE(tm)
product line. The decline in net sales from the Company's traditional business
lines was more than offset by revenues contributed by the acquisitions.
Cost of sales increased $460,000 or 47%. Gross margins decreased
from 46% in 1997 to 40% in 1998 due to changes in operating costs generally
attributable to variable costs fluctuating with product mix and sales volume.
Selling, general and administrative expenses increased $99,000 or
15% due to the additional sales, marketing and general and administrative
costs associated with the acquisitions of A-G Canada, Ltd. and Datacat, Inc..
As a percentage of sales, these expenses decreased from 38% in 1997 to 32% in
1998 as the acquisitions provided more revenues without a proportional
increase in selling, general and administrative expenses.
Interest expense/other was $95,000 in 1998 up from $56,000 in 1997
due to additional borrowings associated with acquisitions offset by lower
interest rates from the new credit facilities.
Net Income was unchanged at $50,000 in 1998 from 1997.
Basic earnings per share was unchanged at $0.05 per share in 1998
from 1997.
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AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) The Company has not filed any reports on Form 8-K
during the period covered by this report.
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AUTO-GRAPHICS, INC.
Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AUTO-GRAPHICS, INC.
Date 5/15/98 ss/ Robert S. Cope
Robert S. Cope, President
and Treasurer
Date 5/15/98 ss/ Daniel E. Luebben
Daniel E. Luebben, Vice-President,
Chief Financial Officer and Secretary