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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:
September 30, 2002 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
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(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
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Total shares of Common Stock outstanding: 4,997,234 (1)
---------------
(1) The Company has filed a motion in Federal District Court under Case No.
CV 01-5891 PA seeking to impose a constructive trust over 231,000 shares
of Common Stock for the benefit of Auto-Graphics, Inc. and its shareholders
(See Part II - Legal Proceedings).
-2-
AUTO-GRAPHICS, INC.
Form 10-Q
September 30, 2002
TABLE OF CONTENTS
Part I - Financial Information 3
Unaudited Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) for
Nine Months Ended September 30, 2002 and 2001 3
Unaudited Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) for
Three Months Ended September 30, 2002 and 2001 4
Unaudited Condensed Consolidated Balance Sheets
September 30, 2002 and December 31, 2001 5
Unaudited Condensed Consolidated Statements
of Cash Flows For Nine Months Ended
September 30, 2002 and 2001 6
Notes to the Unaudited Condensed
Consolidated Financial Statements 7
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17
Part II - Other Information 23
Signatures 26
Certifications 27
-3-
AUTO-GRAPHICS, INC.
Form 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2002 and 2001
2002 2001
---------- ----------
Net sales (See Note 3) $4,866,022 $6,658,139
Costs and expenses:
Cost of sales 2,708,909 4,597,657
Selling, general & administrative 2,063,570 3,402,704
---------- ----------
Total costs and expenses 4,772,479 8,000,361
---------- ----------
Income (loss) from operations 93,543 (1,342,222)
Interest/other (44,712) (102,488)
---------- ----------
Income (loss) before taxes 48,831 (1,444,710)
Provision (benefit) for taxes
based on income (See Note 4) 4,600 (213,915)
Minority interest (40,779) (252,863)
---------- ----------
Net income (loss) and
comprehensive income (loss) $ 85,010 $ (977,932)
========== ==========
Basic earnings (loss) per share $ 0.02 $ (0.20)
Weighted average shares outstanding 4,997,234 4,997,234
Diluted earnings (loss) per share $ 0.02 $ (0.20)
Weighted average shares outstanding 5,109,734 4,997,234
See Notes to Unaudited Condensed Consolidated Financial Statements
-4-
AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss)
For Three Months Ended September 30, 2002 and 2001
2002 2001
---------- ----------
Net sales (See Note 3) $1,633,762 $1,942,027
Costs and expenses:
Cost of sales 904,066 1,668,674
Selling, general & administrative 715,104 1,263,235
---------- ----------
Total costs and expenses 1,619,170 2,931,909
---------- ----------
Income (loss) from operations 14,592 (989,882)
Interest/other expense (8,786) (37,704)
---------- ----------
Income (loss) before taxes 5,806 (1,027,586)
Provision (benefit) for taxes
based on income (See Note 4) 1,600 (219,131)
Minority interest (26,615) (67,956)
---------- ----------
Net income (loss) and
comprehensive income (loss) $ 30,821 $ (740,499)
========== ==========
Basic earnings (loss) per share $ 0.01 $ (0.15)
Weighted average shares outstanding 4,997,234 4,997,234
Diluted earnings (loss) per share $ 0.01 $ (0.15)
Weighted average shares outstanding 5,211,401 4,997,234
See Notes to Unaudited Condensed Consolidated Financial Statements
-5-
AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Condensed Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
ASSETS 2002 2001
- ---------------------------------------- ----------- -----------
(Audited)
Current Assets:
Cash & cash equivalents $ 22,462 $ 122,029
Accounts receivable, less allowance
for doubtful accounts ($145,000 in
2002 and 2001) 444,102 695,789
Unbilled production costs 15,639 11,013
Other current assets 277,224 210,288
----------- -----------
Total current assets 759,427 1,039,119
Software, net 3,400,417 3,458,256
Equipment, furniture and leasehold
improvements, net 901,038 1,216,175
Other assets 70,546 87,210
----------- -----------
$ 5,131,428 $ 5,800,760
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Current liabilities:
Accounts payable $ 366,125 $ 361,421
Deferred income 896,894 1,255,006
Other accrued liabilities 291,529 205,316
Accrued payroll and related
liabilities 202,439 468,408
Notes Payable 1,184,004 1,380,427
----------- -----------
Total current liabilities 2,940,991 3,670,578
Deferred taxes based on income 151,600 148,900
----------- -----------
Total liabilities 3,092,591 3,819,478
Minority interests (160,492) (119,714)
Stockholders' equity:
Notes receivable - stock (73,297) (75,364)
Common stock, 12,000,000
shares authorized, 4,997,234
shares issued and outstanding
in 2002 and 2001 4,201,755 4,201,755
Accumulated deficit (1,929,407) (2,014,414)
Accumulated comprehensive income (loss) 278 (10,981)
----------- -----------
Total stockholders' equity 2,199,329 2,100,996
----------- -----------
$ 5,131,428 $ 5,800,760
=========== ===========
See Notes to Unaudited Condensed Consolidated Financial Statements
-6-
AUTO-GRAPHICS, INC.
Form 10-Q
Unaudited Statements of Cash Flows
For the Nine Months Ended September 30, 2002 and 2001
2002 2001
---------- ----------
Cash flows from operating activities:
Decrease in Cash
Net income (loss) $ 85,010 $ (977,932)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 876,280 1,078,172
Allowance for doubtful accounts 50,000
Deferred income taxes (219,131)
Minority interest (40,779) (252,863)
Changes in operating assets
and liabilities:
Accounts receivable 241,398 564,462
Unbilled production costs (4,626) 195,931
Other current assets (69,831) (13,650)
Other assets 16,651 --
Accounts payable 6,452 32,182
Deferred income (351,094) (146,631)
Other accrued liabilities 88,601 160,270
Accrued payroll and
related liabilities (261,374) (4,028)
---------- ----------
Net cash provided by
operating activities 586,688 466,782
Cash flows from investing activities:
Capital expenditures (505,840) (1,036,893)
Cash flows from financing activities:
Net principal borrowings (payments)
under debt agreements (196,428) 311,161
Sale of capital stock, net 2,067 2,136
---------- ----------
Net cash provided by (used in)
financing activities (194,361) 313,297
---------- ----------
Net decrease in cash (113,513) (256,814)
Foreign currency effect on cash 13,946 --
Cash & cash equivalents at beginning of year 122,029 1,202,442
---------- ----------
Cash & cash equivalents at end of period $ 22,462 $ 945,628
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 79,679 $ 135,355
Income taxes 6,917 2,147
See Notes to Unaudited Condensed Consolidated Financial Statements
-7-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
NOTE 1. Basis of Presentation
The unaudited condensed consolidated financial statements included
herein have been prepared by the 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, 2002, the
results of operations for the three and nine months ended September 30, 2002
and 2001 and the statement of cash flows for the nine months ended September
30, 2002 and 2001 pursuant to the rules and regulations of the Securities and
Exchange Commission("SEC"). The consolidated financial statements include
the accounts of Auto-Graphics, Inc., its wholly-owned and its 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/A for the period ending December 31, 2001 including, without limitation,
the financial statements and notes included therein.
NOTE 2. Business
As of September 30, 2002, the Company was in compliance with all of
its loan covenants. The Company's primary bank renewed and extended the
terms of its credit agreement for an additional year through June 2, 2003.
The credit facility is a $1.6 million revolving line of credit, which
decreases by $175,000 each quarter on September 30, 2002, December 31, 2002
and March 31, 2003 consistent with the Company's forecasted declining
requirements for bank financing.
In March 2001, the Company licensed the use of its REMARC(TM)
bibliographic database of Library of Congress pre-1968 holdings to a
Japanese Company for use exclusively in Japan for a one-time payment
of $1.5 million. This transaction has had a material positive effect
on the results of operations reported by the Company for the first nine
months ended September 30, 2001.
-8-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
Asset Purchase of Maxcess Library Systems Verso Software: In
February 2001, the Company completed the purchase of software, customer
contracts and related assets of Maxcess Library Systems, Inc. The Verso
software product expands the Company's ASP (Application Service Provider)
product line into the integrated library automation business.
Asset Purchase of Pigasus Wings Software: In June 2001, the
Company acquired the software and rights to Wings, an ISO compliant inter-
library loan software program developed by Pigasus, Inc. On November 6,
2001, the Company filed suit against Pigasus, Inc. and its principals
(See Note 7 Legal Proceedings). In August 2002, following delivery by
Pigasus of a complete and fully functional ISO (International Standards
Organization) compliant interlibrary loan software product, the Company
concluded the acquisition of the Wings software product in settlement of
the lawsuit. The Wings software will provide ISO compliant functionality
for the Company's Impact/ONLINE(TM) interlibrary loan software module
currently in use at over 10,000 libraries.
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 September 30, 2002, and 2001:
2002 2001
----------- -----------
Geographic areas
Net sales
United States $ 4,249,407 $ 4,064,376
Foreign - Canada/Other 616,615 2,593,763
Long-lived assets, net
United States 4,280,029 5,002,663
Foreign - Canada 21,426 80,245
-9-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
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, 2001, the Company had
available approximately $1,115,000 in federal ($3,728,000 including Dataquad
and LibraryCard subsidiaries), $1,055,000 in state and $199,000 in foreign
net operating loss carryforwards, for income tax purposes. These net
operating loss carryforwards expire in 2021 for federal taxes, 2007 for
state and 2006 for foreign taxes. Because the NOL tax benefit for losses
incurred in Dataquad and LibraryCard is unlikely to be realized, no tax
benefit has been recognized and a valuation allowance has been established
offsetting these potential future tax benefits.
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. For the year ended December 31, 2001, there were no common stock
equivalents (warrants, options or convertible securities) outstanding. On
May 3, 2002, the Company's Board of Directors granted stock options for
220,000 shares of the Company's restricted Common Stock to a director and
certain officers and technical staff.
The following is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations:
Net Income Shares Per Share
---------- ---------- ---------
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
-10-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
Note 5. Earnings Per Share (Continued)
Net Income Shares Per Share
---------- ---------- ---------
Three months ended September 30, 2001
- -------------------------------------
Basic earnings per share
Net income available to
common stockholders ($ 740,499) 4,997,234 ($ 0.15)
Effect of dilutive securities
---------- ---------- ---------
Diluted earnings per share
Net income available to
common stockholders ($ 740,499) 4,997,234 ($ 0.15)
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
Nine months ended September 30, 2001
- ------------------------------------
Basic earnings per share
Net income available to
common stockholders ($ 977,932) 4,997,234 ($ 0.20)
Effect of dilutive securities
---------- ---------- ---------
Diluted earnings per share
Net income available to
common stockholders ($ 977,932) 4,997,234 ($ 0.20)
The Company has filed a motion in Federal District Court under
Case No. CV 01-5891 PA seeking to impose a constructive trust over 231,000
shares of Common Stock for the benefit of Auto-Graphics, Inc. (See Note 7
of Notes to Unaudited Condensed Consolidated Financial Statements).
-11-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
Note 6. Stock Option Plans
As permitted by Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation", 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.
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. As of
September 30, 2002, there were no outstanding grants of options under the
plan and no grants are currently planned.
The Company adopted a qualified and non-qualified stock option
plan following approval by its shareholders at its 2001 annual shareholder's
meeting held on February 27, 2002. The plan consists of 499,000 shares with
approximately 350,000 qualified shares reserved for employees and 149,000
non-qualified shares reserved for directors. On May 3, 2002, the Company's
Board of Directors granted stock options for 220,000 shares of the Company's
restricted Common Stock to an outside director (60,000 non-qualified shares),
and officers and technical staff (160,000 qualified shares). On July 17,
2002, the Company's Board of Directors granted stock options for 35,000 non-
qualified shares of the Company's restricted Common Stock to its outside
directors.
In June 2000, 700,000 shares each of Dataquad and LibraryCard
Common Stock were sold to a trustee (Corey M. Patick) on a note to be held
in trust ("trust shares") for use in a future stock purchase/option plan.
As a result of the issuance, the Company's interest in the subsidiaries was
diluted which resulted in a charge to Stockholders' Equity in the amount of
$104,769. In January 2001, Robert S. Cope replaced Mr. Patick as trustee
for the above trust shares. Under the trust agreement, the subsidiaries
have the option to repurchase the stock on December 31, 2002. The effect
of the repurchase would be a charge to earnings of approximately $120,000,
a net increase in Minority Interests and a corresponding decrease in
Stockholder's Equity of up to $280,500 ($180,250 for Dataquad and $100,250
for LibraryCard). In July, 2002 the Company exercised its right of first
refusal and acquired 1,919,400 shares of common stock in each of its
majority-owned subsidiaries, Dataquad, Inc. and LibraryCard, Inc. from a
major investor bringing the Company's ownership to 6,609,400 (85.8%) in
each subsidiary.
-12-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
Note 7. Legal Proceedings
On May 9, 2001 the Company terminated its long-time outside counsel,
Robert H. Bretz, who had provided legal services and was compensated through
his professional corporation, Robert H. Bretz, PC. Mr. Bretz is also a
former director of the Company. Following Mr. Bretz' termination he began
to file lawsuits for and on behalf of the Company that had not been
authorized by Company's management or the Board of Directors. On August 8,
2001 one particular case filed by Mr. Bretz in the name of the Company, Case
No. BC252517, was dismissed by the Los Angeles California Superior Court
holding that the Action by Unanimous Written Consent signed solely by Mr.
Bretz in reference to the filing of the case was invalid because it failed
to satisfy the requirements of California Corporations Code Section 307(b).
On June 29, 2001 the Company filed Case No. BC253322 in Los Angeles
California Superior Court captioned Auto-Graphics, Inc. vs. Robert H Bretz
et al., alleging breach of fiduciary duty by Mr. Bretz and that Mr. Bretz
had become disruptive and harmful to the business operations of the Company
and damaged the Company by his various actions including his excessive
billings to the Company. In retaliation to the complaint filed by the
Company, Mr. Bretz filed a derivative cross-complaint against three of
the Company's officers, Robert S. Cope, Michael K. Skiles and Michael F.
Ferguson for breach of fiduciary duty, fraud & deceit, misrepresentation,
breach of contract/employment, removal for cause and other declaratory
and injunctive relief. The original cross-complaint was filed on July 16,
2001 in Los Angeles California Superior Court under Case No. BC253322. The
Company's management believes that the derivative cross-complaint filed by
Mr. Bretz does not have any merit and that the Company will eventually
prevail. The court ruled that the derivative cross-complaint was unlikely
to benefit the Company or its shareholders and ordered Mr. Bretz to post
the maximum ($50,000) bond in order to continue his lawsuit. The Company
was notified that Mr. Bretz posted the bond on March 21, 2001. Mr. Bretz
filed a motion to exonerate the bond or for reconsideration of the court
order to post the bond. The court ruled against Mr. Bretz and upheld the
bond requirement. Mr. Bretz appealed the ruling to the Court of Appeal of
the State of California, Second Appellate District. The court of appeal
ruled against Mr. Bretz and denied the appeal. Mr. Bretz filed a motion
for summary judgement in this case, which was denied by the court at a
hearing on November 8, 2002. Mr. Bretz also filed a motion to dismiss the
derivative cross-complaint against the Company (a nominal defendant) and
against the above three officers, which was granted by the court at the
same hearing. Mr. Bretz also filed a motion to exonerate his $50,000 bond,
which was deferred by the court to a hearing on January 14, 2003. The
Company intends to seek recovery of the bond as reimbursement for legal
fees expended in defending the Company and its officers in the cross-
complaint.
-13-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
On December 10, 2001, Mr. Bretz filed another complaint in Los
Angeles Superior Court under Case No. BC263256 against the Company, two of
the Company's officers, Robert S. Cope and Daniel E. Luebben, the Company's
general counsel, Craig O. Dobler, and a director, James R. Yarter. The
complaint seeks to enforce a director's inspection and copying rights under
California Corporations Code ("CCC") Section 1602 and seeks injunctive relief,
attorney's fees and costs. The Company and individual defendants filed a
demurrer (a formal objection to the legal sufficiency of the opponent's
pleading). In response, Mr. Bretz amended his complaint and has dismissed
all of the above individual defendants. The Company has provided Mr. Bretz
with copies of the minutes of the Board of Director meetings and copies of
the Company's financial statements to which Mr. Bretz is entitled as a
shareholder, but is withholding other documents pending a final determination
by the court. At a hearing on November 8, 2002, the court denied a motion
for summary judgement filed by Mr. Bretz.
On February 19, 2002, Robert H. Bretz amended a complaint in
Federal District Court under Case No. CV 01-5891 PA originally filed in
June 2001 by Mr. Bretz in the name of the Company seeking a temporary
restraining order (TRO) and preliminary injunction blocking the 2001
annual shareholder's meeting scheduled for February 27, 2002, which had
been delayed from October 31, 2001. At a hearing on February 26, 2002,
the court denied the application for a temporary restraining order and
ruled that the shareholder meeting could proceed as scheduled, but
requested that the results of the proxy solicitation not be made public
or be implemented until after a further hearing on March 22, 2002. The
2001 annual shareholder's meeting was conducted on February 27, 2002
and adjourned solely for the purpose of consideration on March 27, 2002
of a shareholder proposal sponsored by Mr. Bretz establishing a maximum
age limit for directors of 67 years, which was the subject of a
supplemental proxy statement later issued on March 4, 2002. On March
27, 2002, the vote was conducted at the adjourned meeting on the
shareholder proposal. On April 26, 2002 the court issued its ruling,
which denied the request by Mr. Bretz for a preliminary injunction and
authorized the Company to release and implement the results of the vote
from its February 27, 2002 shareholder meeting following completion of
the vote on the shareholder proposal. As a result of a vote by the
shareholders, Mr. Bretz is no longer a director of the Company. The
Company recently filed a motion to disqualify Mr. Bretz as a derivative
plaintiff and establish a constructive trust for 231,000 shares of Company
stock and cash received by Mr. Bretz from defendant, Steve White. At a
hearing on October 4, 2002, the court heard oral arguments, took the matter
under submission and is expected to rule shortly.
-14-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
The Company has filed complaints with the California State Bar
alleging violations of ethics codes by Mr. Bretz and the State Bar has
conducted an investigation of the matter. The State Bar has announced
publicly that charges were filed against Mr. Bretz on September 26, 2002.
The State Bar complaint contains nine counts, eight of which were based on
information provided by the Company.
Recently, a former officer, Corey M. Patick and Mr. Bretz have
offered to terminate the above lawsuits if a shareholder group led by
Robert S. Cope, the Company's Chairman and President, will purchase 1,000,000
shares of the Company's outstanding Common Stock for $1.08 per share (having
a current market price of $0.45 per share). It is the Company's understanding
that no Schedule 13d's have been filed with the SEC by Messrs. Patick and
Bretz reporting their shareholder group's holdings (which exceed 20% of the
outstanding shares) and their intentions. No agreement has been entered and
Mr. Bretz' conduct was reported to the court in the motion to remove Mr.
Bretz as a derivative plaintiff in Case No. CV 01-5891 PA.
The Company filed a complaint in Los Angeles, California, Superior
Court, Case No. BC261175 on November 6, 2001 against Pigasus, Inc. and its
principals, Arthur and Candy Zemon. The suit alleges a lack of informed
consent, fraud, deceit, intentional and negligent misrepresentation, lack of
consideration, and breach of contract and seeks to rescind the contract for
the Company's acquisition of the Wings software developed by Pigasus and
seeks damages in excess of $400,000. Subsequently, Pigasus Software, Inc.,
Arthur Zemon and Candace Zemon filed suit in the Circuit Court of Saint
Charles County, State of Missouri, Civil Action No. 01CV129525, against
Auto-Graphics, Inc. for breach of contract, and they seek damages in excess
of $500,000. Both actions were removed to the local Federal District Courts
and the California District Court has transferred the matter to the District
Court in Missouri. The parties reached an agreement in principle on a
settlement following the delivery of a fully functional and compilable ISO
interlibrary loan software system by Pigasus to the Company in July 2002.
The settlement was concluded on August 21, 2002.
-15-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
Note 8. Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible
Assets (SFAS 142):
SFAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001. SFAS 141 also requires
that the Company recognize acquired intangible assets apart from goodwill if
the acquired intangible assets meet certain criteria. SFAS 141 applies to
all business combinations initiated after June 30, 2001 and for purchase
business combinations completed on or after July 1, 2001. It also requires,
upon adoption of SFAS 142, that the Company reclassify the carrying amounts
of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least
annually. In addition, SFAS 142 requires that the Company identify
reporting units for the purposes of assessing potential future impairments
of goodwill, reassess the useful lives of other existing recognized
intangible assets, and cease amortization of intangible assets with an
indefinite useful life. An intangible asset with an indefinite useful
life should be tested for impairment in accordance with the guidance in
SFAS 142. SFAS 142 is required to be applied in fiscal years beginning
after December 15, 2001 to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially
recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The
Company is also required to reassess the useful lives of other
intangible assets within the first interim quarter after adoption of
SFAS 142.
The Company adopted SFAS 141 and SFAS 142 as of January 1, 2002
and the adoption had no material impact on its financial statements.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires the fair value of a liability
for an asset retirement obligation to be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Company believes the adoption of this
Statement will have no material impact on its financial statements.
-16-
AUTO-GRAPHICS, INC.
Form 10-Q
Notes to Unaudited Condensed
Consolidated Financial Statements
September 30, 2002
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. SFAS 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer
be measured at net realizable value or include amounts for operating losses
that have not yet occurred. SFAS 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and, generally,
are to be applied prospectively. The Company adopted this Statement as of
January 1, 2002 and the adoption had no material impact on its financial
statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, which rescinds FASB Statement No. 4, Reporting Gains
and Losses from Extinguishment of Debt, and an amendment of that Statement,
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The Company believes the adoption of this Statement will have
no material impact on its financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force (EITF) Issue No.
94-3. The Company will adopt the provisions of SFAS No. 146 for
restructuring activities initiated after December 31, 2002. SFAS No. 146
requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF No. 94-3,
a liability for an exit cost was recognized at the date of a company's
commitment to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value.
Accordingly, SFAS No. 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized. The Company believes
the adoption of this Statement will have no material impact on its financial
statements based on the Company's current plans.
-17-
AUTO-GRAPHICS, INC.
Form 10-Q
September 30, 2002
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. To the extent that more development
costs are capitalized, the Company's net income will improve, and, to the
extent that more software development costs are expensed instead of
capitalized, the Company's net income will decline.
-18-
AUTO-GRAPHICS, INC.
Form 10-Q
September 30, 2002
The Company amortizes its software development costs in accordance
with the estimated economic life of the software, which generally is seven
years. Studies within the library community have indicated that the typical
library automation system once installed remains in use for an average of
approximately 10 years. Because libraries are generally under-funded,
libraries frequently cannot afford the latest computer hardware and software
and therefore tend to utilize their system for a longer period of time than
in the commercial world. The Company's typical product lifecycle has been
about 15 years, which was true for its prior film/fiche product line, current
CD-ROM product line and current Internet/Web product line, which has now been
deployed for eight 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, amorti-
zation expense averages less than 10% 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 to deferred income
until the revenues are earned and services provided. Certain small annual
subscriptions for databases and software support typically are recognized
as revenue in the month they are billed during the year. Certain 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 98-4 and 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.
-19-
AUTO-GRAPHICS, INC.
Form 10-Q
September 30, 2002
FINANCIAL CONDITION
December 31, 2001 to September 30, 2002
- ----------------------------------
Liquidity and capital resources. Working capital deficit decreased
$450,000 in 2002 over 2001 primarily as a result of a decrease in deferred
income, accrued payroll and notes payable. Net cash provided by operating
activities was $587,000 up $120,000 from $467,000 in the first nine months
of 2001. 2001 included a significant cash sale in March 2001 when the
Company licensed the use of its REMARC(TM) bibliographic database of Library
of Congress pre-1968 holdings to an unaffiliated Japanese Company (for use
exclusively in Japan) for a one-time license fee of $1.5 million. This
transaction had a material positive effect on the results of operations
reported by the Company for the first nine months of 2001.
Capital expenditures are down $531,000 from $1,037,000 for the first
nine months of 2001 to $506,000 in 2002. Major expenditures for 2001 included
the acquisition of Maxcess Verso software, acquisition of Pigasus Wings
software, internally developed software and computer equipment. 2002 capital
expenditures include internally developed software, acquisition of Pigasus
Wings software and computer equipment.
Management believes that liquidity and capital resources should be
adequate to fund operations and expected reductions in bank debt during
2002 and into 2003. As of September 30, 2002, the Company was in compliance
with all of its loan covenants. The Company's primary bank renewed and
extended the terms of its credit agreement for an additional year to June 2,
2003. The credit facility is a $1.6 million revolving line of credit, which
decreases by $175,000 each quarter on September 30, 2002, December 31, 2002
and March 31, 2003 consistent with the Company's forecasted declining
requirements for financing.
-20-
AUTO-GRAPHICS, INC.
Form 10-Q
RESULTS OF OPERATIONS
- ---------------------
First Nine Months of 2002 as Compared to First Nine Months of 2001
- ------------------------------------------------------------------
Net sales decreased $1,792,000 or 27% from $6,658,000 in 2001 to
$4,866,000 in 2002. In March 2001, the Company licensed the use of its
REMARC(TM) bibliographic database of Library of Congress pre-1968 holdings
to an unaffiliated Japanese Company (for use exclusively in Japan) for a one-
time license fee of $1.5 million. This transaction had a material positive
effect on the results of operations reported by the Company for the first nine
months of 2001. Excluding this license fee, sales were down $292,000 from
$5,158,000 in 2001 versus $4,866,000 in 2002 due primarily to sales declines
in the Company's Canadian subsidiary.
Cost of sales decreased $1,889,000 or 41% as a result of major cost
reductions in payroll and production costs in late 2001. Gross margins
improved from 31% in 2001 to 44% in 2002. 2001 gross margins were unusually
high primarily as a result of the licensing of the Remarc(TM) database as
described above, which had insignificant costs associated with its production
and delivery. Excluding this transaction, gross margins which would have
been 11% in 2001 improving to 44% in 2002.
Selling, general and administrative expenses decreased $1,339,000
or 39% in 2002 as a result of major expense reductions in administrative and
sales and marketing payroll and expenses in late 2001. 2002 general &
administrative expenses include $750,000 in legal expenses due primarily to
the ongoing lawsuits initiated by the Company's former general counsel,
Robert H. Bretz. (See Note 7 of Notes to Unaudited Consolidated Financial
Statements).
Income/(loss) from operations increased $1,436,000 from a loss of
$1,342,000 in 2001 to an income of $94,000 in 2002. The first nine months
of 2001 would have been a loss from operations of $2,842,000 excluding the
effect of the above Remarc(TM) license fee of $1.5 million.
Interest/other expense was $45,000 in 2002 down from $102,000 in
2001 due to lower average borrowings, lower interest rates and bad debt
collection.
-21-
AUTO-GRAPHICS, INC.
Form 10-Q
Provision for taxes based on income in 2002 and 2001 reflect
minimum state tax payments and the effect of federal and state net operating
loss carryforwards (See Note 4 of Notes to Unaudited Consolidated Financial
Statements).
Minority interests reflects the outside owners' share of the
losses realized by the majority-owned Dataquad subsidiary in 2002 compared
to the two majority-owned (85%) subsidiaries, Dataquad and Librarycard in
2001. The reduction of $212,000 in the minority interests in the losses of
majority-owned subsidiaries reflects the major reductions in payroll and
expenses and a substantial curtailment of the losses of these two
subsidiaries. Having exhausted the minority investor's capital, the Company
must now recognize 100% of the losses for LibraryCard, although these losses
are now immaterial.
Net income was $85,000 in 2002 compared to a net loss of $978,000
in 2001, an improvement of $1,063,000. Both basic and diluted earnings per
share were $0.02 in 2002 compared to a loss per share of $0.20 in 2001. The
2001 net loss would have been approximately $2,478,000 excluding the
Remarc(TM) database license fee (as described above) of $1.5 million,
which represents a net income improvement of $2,563,000 in 2002. The 2001
net loss would have resulted in a basic and diluted loss per share of
approximately $0.50, excluding the Remarc(TM) database license fee (as
described above) of $1.5 million.
Third Quarter of 2002 as Compared to Third Quarter of 2001
- ------------------------------------------------------------
Net sales were down $308,000 or 16% at $1,634,000 in 2002 as compared
to $1,942,000 in 2001 due primarily to the completion of a major processing
project in the Company's Canadian subsidiary in 2001.
Cost of sales decreased $765,000 or 46% as a result of major cost
reductions in payroll and production costs in late 2001. Gross margins
improved from 14% in 2001 to 45% in 2002 as the Company has refocused on its
core library ASP (Application Software Provider) services business.
Selling, general and administrative expenses decreased $548,000
or 43% in 2002 as a result of major reductions in administrative and sales
and marketing payroll and expenses in late 2001. 2002 general &
administrative expenses also include $216,000 in legal expenses due primarily
to the ongoing dispute with the Company's former general counsel, Robert H.
Bretz. (See Note 7 of Notes to Unaudited Consolidated Financial Statements).
Income from operations increased $1,005,000 from a loss of $990,000
in 2001 to an income of $15,000 in 2002 as a result of substantial cost and
expense reduction measures in late 2001.
-22-
AUTO-GRAPHICS, INC.
Form 10-Q
Interest/other expense was $9,000 in 2002 down from $38,000 in
2001 due to lower average borrowings, lower interest rates and bad debt
collections.
Provision for taxes based on income in 2002 and 2001 reflect
minimum state tax payments and the effect of federal and state net
operating loss carryforwards (See Note 4 of Notes to Unaudited Consolidated
Financial Statements).
Minority interests reflects the outside owners' share of the
losses realized by the majority-owned Dataquad subsidiary in 2002 compared
to the two majority-owned (61%) subsidiaries, Dataquad and Librarycard in
2001. The reduction of $41,000 in the minority interests in the losses
of majority-owned subsidiaries reflects the major reductions in payroll
and expenses and a substantial curtailment of the losses of these two
subsidiaries. Having exhausted the minority investor's capital, the
Company must now recognize 100% of the losses for LibraryCard, although
these losses are now immaterial.
Net income was $31,000 in 2002 compared to a net loss of $740,000
in 2001, an improvement of $771,000. Both basic and diluted earnings per
share were $0.01 in 2002 compared to a net loss per share of $0.15 in 2001
for the reasons covered above.
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.
Recently Issued Accounting Pronouncements
See Note 8 to Unaudited Condensed Consolidated Financial Statements.
ITEM 4. Controls and Procedures
As of September 30, 2002, 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, 2002. No significant changes in internal
controls or in other factors have occurred that could significantly affect
controls subsequent to September 30, 2002.
-23-
AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On May 9, 2001 the Company terminated its long-time outside counsel,
Robert H. Bretz, who had provided legal services and was compensated through
his professional corporation, Robert H. Bretz, PC. Mr. Bretz is also a
former director of the Company. Following Mr. Bretz' termination he began
to file lawsuits for and on behalf of the Company that had not been
authorized by Company's management or the Board of Directors. On August 8,
2001 one particular case filed by Mr. Bretz in the name of the Company, Case
No. BC252517, was dismissed by the Los Angeles California Superior Court
holding that the Action by Unanimous Written Consent signed solely by Mr.
Bretz in reference to the filing of the case was invalid because it failed
to satisfy the requirements of California Corporations Code Section 307(b).
On June 29, 2001 the Company filed Case No. BC253322 in Los Angeles
California Superior Court captioned Auto-Graphics, Inc. vs. Robert H Bretz
et al., alleging breach of fiduciary duty by Mr. Bretz and that Mr. Bretz
had become disruptive and harmful to the business operations of the Company
and damaged the Company by his various actions including his excessive
billings to the Company. In retaliation to the complaint filed by the
Company, Mr. Bretz filed a derivative cross-complaint against three of
the Company's officers, Robert S. Cope, Michael K. Skiles and Michael F.
Ferguson for breach of fiduciary duty, fraud & deceit, misrepresentation,
breach of contract/employment, removal for cause and other declaratory
and injunctive relief. The original cross-complaint was filed on July 16,
2001 in Los Angeles California Superior Court under Case No. BC253322. The
Company's management believes that the derivative cross-complaint filed by
Mr. Bretz does not have any merit and that the Company will eventually
prevail. The court ruled that the derivative cross-complaint was unlikely
to benefit the Company or its shareholders and ordered Mr. Bretz to post
the maximum ($50,000) bond in order to continue his lawsuit. The Company
was notified that Mr. Bretz posted the bond on March 21, 2001. Mr. Bretz
filed a motion to exonerate the bond or for reconsideration of the court
order to post the bond. The court ruled against Mr. Bretz and upheld the
bond requirement. Mr. Bretz appealed the ruling to the Court of Appeal of
the State of California, Second Appellate District. The court of appeal
ruled against Mr. Bretz and denied the appeal. Mr. Bretz filed a motion
for summary judgement in this case, which was denied by the court at a
hearing on November 8, 2002. Mr. Bretz also filed a motion to dismiss the
derivative cross-complaint against the Company (a nominal defendant) and
against the above three officers, which was granted by the court at the
same hearing. Mr. Bretz also filed a motion to exonerate his $50,000 bond,
which was deferred by the court to a hearing on January 14, 2003. The
Company intends to seek recovery of the bond as reimbursement for legal
fees expended in defending the Company and its officers in the cross-
complaint.
-24-
AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
On December 10, 2001, Mr. Bretz filed another complaint in Los
Angeles Superior Court under Case No. BC263256 against the Company, two of
the Company's officers, Robert S. Cope and Daniel E. Luebben, the Company's
general counsel, Craig O. Dobler, and a director, James R. Yarter. The
complaint seeks to enforce a director's inspection and copying rights under
California Corporations Code ("CCC") Section 1602 and seeks injunctive relief,
attorney's fees and costs. The Company and individual defendants filed a
demurrer (a formal objection to the legal sufficiency of the opponent's
pleading). In response, Mr. Bretz amended his complaint and has dismissed
all of the above individual defendants. The Company has provided Mr. Bretz
with copies of the minutes of the Board of Director meetings and copies of
the Company's financial statements to which Mr. Bretz is entitled as a
shareholder, but is withholding other documents pending a final determination
by the court. At a hearing on November 8, 2002, the court denied a motion
for summary judgement filed by Mr. Bretz.
On February 19, 2002, Robert H. Bretz amended a complaint in
Federal District Court under Case No. CV 01-5891 PA originally filed in
June 2001 by Mr. Bretz in the name of the Company seeking a temporary
restraining order (TRO) and preliminary injunction blocking the 2001
annual shareholder's meeting scheduled for February 27, 2002, which had
been delayed from October 31, 2001. At a hearing on February 26, 2002,
the court denied the application for a temporary restraining order and
ruled that the shareholder meeting could proceed as scheduled, but
requested that the results of the proxy solicitation not be made public
or be implemented until after a further hearing on March 22, 2002. The
2001 annual shareholder's meeting was conducted on February 27, 2002
and adjourned solely for the purpose of consideration on March 27, 2002
of a shareholder proposal sponsored by Mr. Bretz establishing a maximum
age limit for directors of 67 years, which was the subject of a
supplemental proxy statement later issued on March 4, 2002. On March
27, 2002, the vote was conducted at the adjourned meeting on the
shareholder proposal. On April 26, 2002 the court issued its ruling,
which denied the request by Mr. Bretz for a preliminary injunction and
authorized the Company to release and implement the results of the vote
from its February 27, 2002 shareholder meeting following completion of
the vote on the shareholder proposal. As a result of a vote by the
shareholders, Mr. Bretz is no longer a director of the Company. The
Company recently filed a motion to disqualify Mr. Bretz as a derivative
plaintiff and establish a constructive trust for 231,000 shares of Company
stock and cash received by Mr. Bretz from defendant, Steve White. At a
hearing on October 4, 2002, the court heard oral arguments, took the matter
under submission and is expected to rule shortly.
-25-
AUTO-GRAPHICS, INC.
Form 10-Q
PART II - OTHER INFORMATION
The Company has filed complaints with the California State Bar
alleging violations of ethics codes by Mr. Bretz and the State Bar has
conducted an investigation of the matter. The State Bar has announced
publicly that charges were filed against Mr. Bretz on September 26, 2002.
The State Bar complaint contains nine counts, eight of which were based on
information provided by the Company.
Recently, a former officer, Corey M. Patick and Mr. Bretz have
offered to terminate the above lawsuits if a shareholder group led by
Robert S. Cope, the Company's Chairman and President, will purchase 1,000,000
shares of the Company's outstanding Common Stock for $1.08 per share (having
a current market price of $0.45 per share). It is the Company's understanding
that no Schedule 13d's have been filed with the SEC by Messrs. Patick and
Bretz reporting their shareholder group's holdings (which exceed 20% of the
outstanding shares) and their intentions. No agreement has been entered and
Mr. Bretz' conduct was reported to the court in the motion to remove Mr.
Bretz as a derivative plaintiff in Case No. CV 01-5891 PA.
The Company filed a complaint in Los Angeles, California, Superior
Court, Case No. BC261175 on November 6, 2001 against Pigasus, Inc. and its
principals, Arthur and Candy Zemon. The suit alleges a lack of informed
consent, fraud, deceit, intentional and negligent misrepresentation, lack of
consideration, and breach of contract and seeks to rescind the contract for
the Company's acquisition of the Wings software developed by Pigasus and
seeks damages in excess of $400,000. Subsequently, Pigasus Software, Inc.,
Arthur Zemon and Candace Zemon filed suit in the Circuit Court of Saint
Charles County, State of Missouri, Civil Action No. 01CV129525, against
Auto-Graphics, Inc. for breach of contract, and they seek damages in excess
of $500,000. Both actions were removed to the local Federal District Courts
and the California District Court has transferred the matter to the District
Court in Missouri. The parties reached an agreement in principle on a
settlement following the delivery of a fully functional and compilable ISO
interlibrary loan software system by Pigasus to the Company in July 2002.
The settlement was concluded on August 21, 2002.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) The Company filed a report on Form 8-K on August 14, 2002
in conjunction with the filing by the Company of its report
on Form 10-Q including the certification of its financial
statements by the Company's President and Chief Financial
Officer under the Sarbanes-Oxley Act of 2002.
-26-
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: November 14, 2002 By: /s/ Robert S. Cope
------------------- ------------------------------------
Robert S. Cope
Chairman of the Board and President
Date: November 14, 2002 By: /s/ Daniel E. Luebben
------------------- ------------------------------------
Daniel E. Luebben
Chief Financial Officer
and Secretary
-27-
AUTO-GRAPHICS, INC.
Form 10-Q
CERTIFICATIONS
I, Robert S, Cope, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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;
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, 2002
---------------------
ss/Robert S. Cope
-----------------------------------
Robert S. Cope
Chairman of the Board and President
-28-
AUTO-GRAPHICS, INC.
Form 10-Q
CERTIFICATIONS
I, Daniel E. Luebben, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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;
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, 2002
---------------------
ss/Daniel E. Luebben
-----------------------
Daniel E. Luebben
Chief Financial Officer
and Secretary