As filed with the Securities and Exchange Commission on
October 2, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ARROW-MAGNOLIA INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Texas 75-0408335
(State or other jurisdic- (Primary
Standard (I.R.S. Employer
tion of incorporation Industrial Classi-
Identification
or organization) fication Code No.)
No.)
2646 Rodney Lane
Dallas, Texas 75229
(214) 247-7111
(Address and telephone number of principal executive
offices)
2646 Rodney Lane
Dallas, Texas 75229
(214) 247-7111
(Address of principal place of business)
MORRIS SHWIFF
President
2646 Rodney Lane
Dallas, Texas 75229
(214) 247-7111
(Name, address and telephone number of agent for service)
Copies to:
CHRISTOPHER M. HEWITT
Hewitt & Hewitt, P.C.
3100 Monticello, Suite 770
Dallas, Texas 75205
(214) 520-9399
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, check the following box.
PAGE
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Title of Proposed Proposed
Each Class Maximum Maximum Amount
of Securities Amount Offering Aggregate Regis-
to be to be Price Per Offering tration
Registered Registered Unit(1) Price(1) Fee
Common Stock
(par value 100,000 $4.25 $425,000 $146.55
$.10) shares
Warrants to
Purchase
Common Stock - - - -
Common Stock
Issuable Upon
Exercise of 27,500 $2.50 $68,750 $ 23.71
Warrant shares
</TABLE>
(1) Estimated solely for the purpose of calculating the amount
of the registration fee pursuant to Rule 457(c) and Rule 457(g)
under the Securities Act.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
<PAGE>
125,000 Shares
ARROW-MAGNOLIA INTERNATIONAL, INC.
COMMON STOCK
Of the shares offered hereby, 100,000 shares will be offered
by the Company and 25,000 shares may be acquired and resold by
the holder of a warrant to purchase Common Stock. The Company
and the warrant holder will offer shares for sale from time to
time at prices not less than prevailing prices in the
over-the-counter market on the date of sale. The proceeds to the
Company include amounts to be received upon purchase of shares
offered directly by the Company and upon exercise of the warrant,
but not any additional amounts which may be received by the
warrant holder upon resale of the Common Stock which may be
acquired by it.
The Common Stock of the Company is traded in the
over-the-counter market. On September 28, 1995, the closing bid
and asked prices as reported on the NASDAQ OTC Bulletin Board
were $3.50 and $5.00, respectively per share. See "Price Range
of Common Stock and Dividend Policy."
The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
Price Underwriting Proceeds Proceeds
to Discounts and to to Selling
Public(1) Commissions Company(1)(2) Stockholder(1)
Per Share
Sold
Directly $3.50 $ - $3.50 $ -
Per Share
Sold Under
Warrant $3.50 $ - $2.50 $1.00
Total
Minimum - $ - $- $ -
Total
Maximum $446,250 $ - $418,750 $27,500
</TABLE>
(1) Based upon the bid price as reported on the NASDAQ OTC
Bulletin Board on September 28, 1995. Actual price offered shall
not be less than actual prices quoted on the NASDAQ OTC Bulletin
Board on the date of sale.
(2) Before deducting expenses estimated at $12,500 payable by
the Company. Total proceeds to the Company include $62,500 which
shall be received if the warrant holder elects to exercise the
warrants currently held.
SUBJECT TO COMPLETION
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
October 2, 1995
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 and in accordance therewith
files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other
information can be inspected and coped at the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices
at Room 1100, Jacob K. Javits Federal Building, 26 Federal Plaza,
New York, New York 10278; and Room 1204, Everett McKinley Dirksen
Building, 219 South Dearborn Street, Chicago, Illinois 60604.
Copies of such materials also can be obtained at prescribed rates
by writing to the Public Reference Sections of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549.
Except as otherwise noted, information in this prospectus
relating to the Company's Common Stock has been adjusted to
reflect a 10% stock dividend declared on April 5, 1995.
PAGE
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the
more detailed information and consolidated financial statements,
including the notes thereto, appearing elsewhere in this
Prospectus.
The Company
The Company's business consists primarily of the manufacture
and distribution of approximately 400 specialty chemical products
for use in cleaning and maintaining equipment and general
maintenance and sanitation. The Company's manufacturing
operations blend, to the Company's specifications and according
to the Company's procedures, a variety of chemicals to create the
Company's products. The Company packages products that it blends
or manufactures and, in addition, purchases products that have
been blended or manufactured and then packaged under the
Company's labels by third parties. The Company also distributes
certain nonchemical products, such as paper and other janitorial
supplies, related to its chemical products. The Company's
products, including its nonchemical products, are marketed
throughout the United States, Canada and other countries to a
variety of consumers, including customers in the aircraft
industry, the construction industry and the telecommunications
industry.
Prospective investors should consider carefully the factors
indicated under "Risk Factors."
The Offering
Common Stock offered by:
The Company................... 125,000 shares(1)
A Warrant Holder ............. 25,000 shares(1)
Common Stock to be outstanding after
offering...................... 1,225,000 shares
Use of proceeds by the Company...... Working capital and
general corporate
purposes
(1) The shares offered by the Company include the shares which
may be acquired by a warrant holder and subsequently resold.
<PAGE> <PAGE>
<TABLE>
<CAPTION>
Summary Consolidated Financial Data
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated
Statement of
Operations Six Months
Data: Fiscal Year Ended December 31 Ended June 30
1994 1993 1992 1995
1994
(unaudited)
Net sales... $6,687 $6,262 $6,661 $3,949
$3,340
Net earnings 361 309 157 313
211
Net earnings
per common
share:..... $ 0.33 $ 0.28 $ 0.15 $ 0.29 $
0.19
Weighted
average
number of
common
shares(2).. 1,100 1,097 1,092 1,100
1,100
</TABLE>
<TABLE>
<S> <C> <C> <C>
December 31
Balance Sheet Data: 1994 June 30, 1995
Actual As Adjusted
(unaudited) (1)
Working capital $1,791 $2,019 $2,406
Total assets 3,036 3,305 3,692
Long-term debt
less current
installments 1,051 927 927
Stockholders'
equity 1,322 1,636 2,023
</TABLE>
(1) Adjusted to give effect to the application of the estimated
net proceeds of the sale of 125,000 shares of Common Stock by the
Company, assuming the exercise of a warrant to acquire up to
25,000 shares of Common Stock, but without adjustment for up to
275,000 shares of Common Stock issuable upon exercise of stock
options presently exercisable. See "Use of Proceeds" and
"Management - Stock Option Plan."
<PAGE> <PAGE>
THE COMPANY
Arrow-Magnolia International, Inc. (the "Company" or
"Arrow-Magnolia") manufactures and distributes approximately 400
specialty chemical products for use in cleaning and maintaining
equipment and general maintenance and sanitation. The Company's
manufacturing operations blend, to the Company's specifications
and according to the Company's procedures, a variety of chemicals
to create the Company's products. The Company packages products
that it blends or manufactures and, in addition, purchases
products that have been blended or manufactured and then packaged
under the Company's labels by third parties. The Company also
distributes certain nonchemical products, such as paper and other
janitorial supplies, related to its chemical products. The
Company's products, including its nonchemical products, are
marketed throughout the United States, Canada and other countries
to a variety of consumers, including customers in the aircraft
industry, the construction industry and the telecommunications
industry.
The Company was incorporated in the State of Texas in 1937.
Its executive offices are located at 2646 Rodney Lane, Dallas,
Texas 75229 and its telephone number is (214) 247-7111.
RISK FACTORS
The following factors should be considered carefully, in
addition to the other information in this Prospectus, in
evaluating an investment in the Company's Common Stock:
Dependence Upon Key Personnel. Morris Shwiff has been
President and Chief Executive Officer of Arrow-Magnolia since
1985 and was President of a predecessor corporation for 17 years
prior to that time. Mr. Mark Kenner has been Executive Vice
President of Arrow-Magnolia since 1985 and held similar positions
with its predecessor corporation for 17 years prior to that time.
Messrs. Shwiff and Kenner have been primarily responsible for
directing the corporate strategy which has determined
Arrow-Magnolia's growth. The loss of either of these individuals
could have an adverse effect on the Company. See "Management -
Directors and Executive Officers."
Size and Competition. The business of the Company is
highly competitive in all of its phases and two companies are
significantly larger than other companies engaged in its
industry. However, the industry in which the Company competes is
very fragmented, and no single firm or group of firms dominates
the industry as a whole. The total sales volume of the Company's
products constitutes only a very minor portion of the total
available market. See "Business - Competition."
<PAGE>
Possible Volatility of Stock Price. The price of the
Common Stock may be subject to wide fluctuations and possible
rapid increases or declines in a short time period. These
fluctuations may be due to factors specific to the Company such
as variations in quarterly operating results or changes in
earnings estimates, or to factors relating to its industry or to
the securities markets in general. Investors in the Company's
Common Stock should be willing to incur the risk of such
fluctuations.
Limited Marketability; Shares Eligible for Sale. Although
the Common Stock has occasionally traded in the over-the-counter
market, it is sporadically traded at low volumes. Sales of
substantial amounts of Common Stock in the public market after
the offering could adversely affect the market price of the
Company's Common Stock. See "Price Range of Common Stock and
Dividend Policy" and "Shares Eligible for Future Sale."
Voting Control. Messrs. Shwiff, Kenner and Kenner, the
present Directors and officers of Arrow-Magnolia, currently own
beneficially 75% of the Company's outstanding Common Stock and,
assuming all shares to be offered by the Company are sold, will
own beneficially approximately 68.5% of the Company's outstanding
Common Stock assuming all shares to be offered hereby are sold.
Therefore, these individuals will continue to exercise practical
control over the affairs of the Company.
Directors Liability Limited. Under the Company's Articles
of Incorporation, Directors of Arrow-Magnolia cannot be held
liable to the Company or its shareholders for monetary damages
for an act or omission in the Director's capacity as a Director
except (i) for any breach of the Director's duty of loyalty to
the Company or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for any transaction from which
the director derive an improper personal benefit, (iv) for an act
or omission for which the liability of a Director is expressly
provided for by statute, or (v) for an act related to an unlawful
stock repurchase or payment of a dividend. This provision does
not affect the liability of any Director under federal or
applicable state securities laws.
Indemnification of Officers and Directors. The Bylaws of
the Company provide for indemnification of officers and Directors
to the full extent permitted by the Texas Business Corporation
Act. Arrow-Magnolia may be required to pay certain judgments,
fines and expenses incurred by an officer or Director, including
reasonable attorneys' fees, as a result of actions or proceedings
in which such officers and Directors are involved by reason of
being or having been an officer or Director provided that said
officers or Directors acted in good faith.
<PAGE> <PAGE>
USE OF PROCEEDS
The estimated net proceeds to be received by the Company
from the issuance and sale, assuming 125,000 shares of Common
Stock are sold, total $400,000. The Company intends to use the
entire amount of the net proceeds to increase working capital and
shareholders equity. These additional resources will be applied
to obtain further growth of the Company, either through
improvement of the sales effort internally or through the
acquisition of other companies engaged in similar or
complementary businesses. Although the Company has sought to
identify potential acquisition candidates and has entered
discussions with companies from time to time, it currently has no
binding commitment to acquire any business or company.
In addition, successful completion of the offering may
permit the Company to apply for quotation of the Common Stock on
the NASDAQ SmallCap Market. Assuming that the Company receives
the net proceeds described above, of which there can be no
assurance, the Company will meet the current listing criteria for
inclusion on the NASDAQ SmallCap Market, provided that the market
price of its Common Stock continues to meet or exceed the current
prices being quoted on the NASDAQ OTC Bulletin Board. See "Price
Range of Common Stock.". In light of these contingencies,
however, no assurances can be given that such listing will be
successfully accomplished. See "Principal and Selling
Stockholders."
<PAGE>
<PAGE>
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Company's common stock is traded in the over-the-counter
market, but such trading occurs sporadically and in relatively
small volumes. See "Shares Eligible for Future Sale."
Since April 1995, the Company's common stock has been
included for quotation on the NASDAQ OTC Bulletin Board under the
trading symbol "ARWM". The following table sets forth the high
and low sales prices and volume of trading in the common stock
for each month since such inclusion:
High Low Share Volume
August 1995 4 1/4 3 1/4 17,576
July 1995 4 3 1/4 5,367
June 1995 3 3/4 2 1/2 5,566
May 1995 4 2 3/8 31,200
April 1995 3 1/2 3 1/2 1,000
The approximate number of record holders of the Company's
Common Stock as of September 26, 1995 was 400.
The Company has paid no cash dividends with respect to its
Common Stock since 1988, when it paid a dividend of $0.05 per
share. The Company currently intends to retain any earnings for
use in its business and does not anticipate paying any cash
dividends in the foreseeable future.
PAGE
<PAGE>
BUSINESS
Introduction
Arrow-Magnolia International, Inc., a Texas corporation (the
"Company" or "Arrow-Magnolia"), was incorporated in the State of
Texas in 1937.
The Company's business consists primarily of the manufacture
and distribution of approximately 400 specialty chemical products
for use in cleaning and maintaining equipment and general
maintenance and sanitation. The Company's manufacturing
operations blend, to the Company's specifications and according
to the Company's procedures, a variety of chemicals to create the
Company's products. The Company packages products that it blends
or manufactures and, in addition, purchases products that have
been blended or manufactured and then packaged under the
Company's labels by third parties. The Company also distributes
certain nonchemical products, such as paper and other janitorial
supplies, related to its chemical products. The Company's
products, including its nonchemical products, are marketed
throughout the United States, Canada and other countries to a
variety of consumers, including customers in the aircraft
industry, the construction industry and the telecommunications
industry, which collectively accounted for approximately 35% of
the Company's sales during 1994. No single customer accounted
for as much as 10% of its total net sales during 1994 or 1993.
The products sold by the Company include aircraft coatings,
cleaners, corrosion preventatives, degreasers, and air
fresheners; construction chemicals such as release agents,
concrete strippers, safety solvents, custom lubricants and rust
reconverters; and telecommunication formulations such as
refinishers, cable cleaners, graffiti removers and fiber optic
lubricants. Other sanitation and maintenance products sold by
the Company include soaps, deodorants, germicides, insecticides,
disinfectants and miscellaneous janitorial supplies. Nonchemical
products sold by the Company include mops, brooms, paper products
and poly liners. The Company's products are designed and
packaged for large-scale users rather than individual household
consumers.
The Company currently manufactures certain of its products
in order to give the Company greater control over its inventory
in terms of quality and availability of goods. Cost savings are
also effected through elimination of outside vendor overhead and
profit and through reductions in the cost of carrying finished
goods inventory versus raw materials. Currently the Company
manufactures approximately 60% of its products (measured by 1994
sales expressed in dollars). The raw materials necessary for
manufacture of the Company's products and the finished products
resold by the Company are readily available from numerous sources
and the Company is not dependent on any particular supplier for
these items.
The Company markets its products primarily through its own
sales persons and independent contractors and manufacturers'
representatives. In addition, the Company exhibits its products
at trade shows. The Company attends, on a regular basis,
approximately six trade shows. The Company has no material
backlog of orders for its products.
The Company does not incur any material costs in complying
with applicable environmental laws.
Competition
The business of the Company is highly competitive in all of
its phases. However, the industry in which the Company competes
is very fragmented and, although two companies are significantly
larger than other companies engaged in this industry, no single
firm or group of firms dominates the industry as a whole.
Further, the total sales volume of the Company's products
constitutes only a very minor portion of the total available
market.
The principal methods of competition in the business of the
Company are sales personnel, price, quality and delivery
capability. The Company competes with numerous other companies,
both domestic and foreign, and with major chemical companies that
have many products that are substantially similar to those sold
by the Company. Due to the substantial similarity in available
products and technology, product differentiation and preference
is largely a function of the sales effort. Management therefore
believes that the Company is able to compete successfully
whenever it maintains aggressive sales personnel.
To the best knowledge of the Company's management, the
Company is the only distributor of several products which are
specially formulated to the Company's specifications for the
particular applications of the telecommunications industry. There
is no assurance, however, that other manufacturers will not enter
the market in the future.
<PAGE>
<PAGE>
Employees
As of December 31, 1994, the Company employed approximately
ninety-five (95) full-time employees, including its warehouse
personnel and administrative, accounting, clerical and sales
personnel. None of the Company's employees are covered by union
contracts, and the Company considers its relationship with its
employees to be excellent.
Facilities
The principal executive and warehouse facilities of the
Company are located in a steel, glass, brick and concrete
building owned by the Company at 2646 Rodney Lane, Dallas, Texas.
These facilities occupy approximately 40,000 square feet of floor
space, of which 33,000 square feet are devoted to warehousing and
shipping and manufacturing, and 7,500 square feet to
administrative and executive offices. A deed of trust has been
granted with respect to this property to secure certain
indebtedness of the Company.
The Company believes that all of its plant and office
facilities are in good condition, sufficient for its present
activities and adequately insured.
The Company does not as a regular aspect of its business
acquire interests in real estate for purposes of investment or
acquire securities of or interests in persons engaged in real
estate activities.
Legal Proceedings
The Company is not a party to, nor is any of its property
the subject of, any legal proceedings other than routine
litigation incidental to its business.
PAGE
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following table sets forth for the periods indicated the
relative percentages which certain items included in the
consolidated statements of earnings bear to net sales and the
percentage changes of such items as compared to the indicated
prior period:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease)
From Prior Period
Six
Months
Percentage of Net Sales
Ended Years Ended
Six Months
1995 1994 1993
Ended June 30 Years Ended December 31
vs. vs. vs.
1995 1994 1994 1993 1992
1994 1993 1992
(unaudited)
Net sales 100.0% 100.00% 100.0% 100.0% 100.0%
18.2% 6.8% (6.0)%
Cost of sales 49.3% 49.3% 58.6% 61.7% 62.4%
18.3% 1.4% (7.1)%
Gross profit 50.7% 50.7% 41.4% 38.3% 37.6%
18.2% 15.5% (4.2)%
General and
administra-
tive expenses 37.6% 39.8% 31.3% 31.9% 31.4%
11.7% 4.9% (4.6)%
Operating income 13.1% 13.9% 10.1% 6.4% 6.2%
11.3% 68.1% (2.5)%
Interest expense 1.4% 1.5% 1.5% 1.8% 2.3%
8.0% (10.0)% (28.0)%
Income before
extraordinary
item 7.9% 6.3% 5.4% 2.9% 1.6%
48.5% 96.3% 71.0%
Extraordinary
item - - - - 0.7% -
- -
Earnings before
effect of change
in method of
accounting for
income taxes 7.9% 6.3% 5.4% 2.9% 2.3% 48.5%
96.3% 17.3%
Effect of change
in method - - - 2.0% - -
- -
Net earnings 7,9% 6.3% 5.4% 4.9% 2.3%
48.5% 16.7% 97.4%
</TABLE>
<PAGE>
Comparison of Annual Results
Net sales for fiscal year 1994 increased by 6.8% from
$6,262,192 to $6,686,615 versus fiscal year 1993, after
decreasing 6.0% from fiscal 1992 to fiscal 1993. Cost of sales
as a percentage of net sales improved from 62.4% to 61.7% to
58.6% from 1992 through 1993 and 1994. The decrease in sales
from 1992 to 1993 is attributable to the sale of the assets of
Bio/Dyne Chemical Company, Inc. ("Bio/Dyne") in November 1992,
which resulted in lower sales volume but increased efficiency.
Efficiencies of scale subsequently realized upon additional
volume of sales further improved results in 1994. As a result of
increased sales combined with cost control, gross profit
increased by 15.5% from $2,398,129 to $2,769,295 for fiscal 1994
versus fiscal 1993, after decreasing by 4.2% from fiscal 1992 to
fiscal 1993. For the fiscal year, the gross profit margin
reached a record 41.4% of net sales, as compared to 38.3% for
1993 and 37.6% for 1992.
General and administrative expenses remained relatively
constant as a percentage of net sales from 1992 through 1994.
Interest expense fell as a percentage of net sales from 2.3% to
1.8% to 1.5% from 1992 through 1994 due to application of funds
generated from continued profitability to reduce debt.
The Company also realized a one-time positive adjustment in
the amount of $125,528 in 1993 from the cumulative effect of a
change in accounting principle to recognize the timing difference
between incurring and paying income tax for financial reporting
purposes.
As a result of these factors, for the fiscal year ended
December 31, 1994, net income increased to $361,064 from $309,482
(which included the $125,528 tax adjustment), or 16.7%, versus
the same period in 1993. These results compare favorably to net
earnings for 1992 of $156,818.
Comparison of Interim Results
Net sales for the six months ended June 30, 1994 increased
to $3,948,563 from $3,340,249, or 18.2%, from the same period of
the previous year and to $1,978,745 from $1,688,073, or 17.2%,
from the second quarter of 1994 to the corresponding quarter of
1995. These increases are attributable to the Company's focused
marketing efforts permitted by its continuing financial strength.
Cost of sales, including salesmen expenses, as a percentage
of net sales remained steady at 49.3% of net sales for the six
months ended June 30, 1994 and the same period of 1995. For the
second quarters of 1994 and 1995, cost of sales were 51.5% and
52.4% of net sales, respectively.
<PAGE>
For the foregoing reasons, gross profit increased
significantly from $1,693,0008 to $2,000,615 for the six months
ended June 30, 1995 versus the six months ended June 30, 1994, an
increase of 18.2%. The increase realized during the second
quarter of the two years was less dramatic, an increase from
$742,292 to $819,330, or 14.9%.
Selling, general and administrative expenses increased by
11.7% and 14.0% for the comparable six month and three month
periods, respectively, as the Company incurred additional costs
to support its sales growth.
Liquidity and Capital Resources
The Company's working capital (total current assets less
total current liabilities), which was $1,445,090 as of December
31, 1993, improved during 1994 to $1,790,794 as of December 31,
1994. The Company's current assets increased significantly during
this period as the Company's cash, accounts receivable and
inventory all increased due to increased sales and profitability.
Current liabilities also increased but less dramatically largely
due to the accrual of income taxes.
The Company's working capital further increased to
$2,018,534 as of June 30,1995. The Company's current ratio
remained steady at 3.7. The continued increase in working
capital was primarily the result of growth in trade accounts
receivable as a result of improved sales in the quarter,
partially offset by increased accounts payable necessary to
support increased sales.
As shown in the Company's consolidated statements of cash
flows, the Company generated approximately $454,000 in cash flow
from operations during fiscal 1994 as a result of its continuing
profitability, partially offset by increases in receivables and
inventories resulting from increases in the Company's business.
A portion of these funds was used to reduce the Company's
outstanding secured indebtedness, resulting in a total use of
cash for financing activities of $113,470. As a result of these
factors, the Company's cash position improved by almost $340,000
during the course of the fiscal year.
The Company experienced negative cash flow from operations
during the first six months of 1995 as earnings were used to fund
additional growth. In addition, funds were utilized to reduce
debt, resulting in a net decrease in cash for the first six
months.
The Company anticipates no material commitments for capital
expenditures in the near future and management therefore
anticipates that its current cash position and available funding
will be adequate to fund its needs for the foreseeable future.
<PAGE>
MANAGEMENT
Directors and Executive Officers
The Directors and executive officers of the Company as of
September 26, 1995, their ages and positions are as follows:
Name Age Position With Registrant
Morris Shwiff 74 Chairman of the Board and
President
Mark I. Kenner 64 Director and Executive Vice
President
Fred Kenner 43 Director and Vice President,
Secretary and Treasurer
Messrs. Shwiff, Mark Kenner and Fred Kenner were elected as
Directors of the Company on June 29, 1988 and will hold their
positions until their successors are elected.
Each of the above named officers was elected to his
respective offices with the Company by the Board of Directors of
the Company on June 29, 1988, and serve as officers of the
Company at the discretion of the Board of Directors. Mr. Mark I.
Kenner is the father of Mr. Fred Kenner. No other family
relationship exists between any of the executive officers or
Directors of the Company.
The principal occupation and employment during the past five
years of the Directors and each of the executive officers of the
Company are as follows:
Morris Shwiff has served as Chairman of the Board of
Directors and President of the Company since December 1985. For
more than five years prior to December 1985, Mr. Shwiff was a
Director, President and principal stockholder of Arrow Chemical
Corporation, which corporation was acquired by the Company in
December 1985.
Mark I. Kenner has served as Director and Executive Vice
President of the Company since December 1985. For more than five
years prior to December 1985, Mr. Kenner was a Director, Vice
President and stockholder of Arrow Chemical Corporation.
Fred Kenner has served as Director and Vice President,
Secretary and Treasurer of the Company since December 1985. For
more than five years prior to December 1985, Mr. Kenner was a
Director, Secretary, Treasurer and stockholder of Arrow Chemical
Corporation.
Directors are elected annually and serve until their
successors are duly elected and qualified. Officers serve at the
discretion of the Board.
Executive Compensation
The following tables summarizes the monetary and
non-monetary compensation paid by the Company during the three
fiscal years ended December 31, 1994 to the Company's chief
executive officer and to the Company's other executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C>
Long Term
Compensation
Awards
Number
Name and Annual of Shares
Principal Compensation Subject to
Position Year Salary Bonus Options Granted
Morris Shwiff, 1994 $119,000 $8,745 77,000
Chairman of 1993 $116,600 $ 0 0
the Board 1992 $106,080 $ 0 0
and President
Mark I. Kenner, 1994 $112,580 $8,208 72,600
Director and 1993 $109,445 $ 0 0
Executive 1992 $ 99,320 $ 0 0
Vice President
Fred Kenner, 1994 $106,600 $7,751 70,400
Director and 1993 $103,350 $ 0 0
Vice President, 1992 $ 93,600 $ 0 0
Secretary and
Treasurer
</TABLE>
<PAGE>
<PAGE>
Option Grants
The following table contains information about stock options
granted to the executive officers named in the preceding table
during the fiscal year ended December 31, 1994, after giving
effect to a 10% stock dividend declared on April 5, 1995:
<TABLE>
<S> <C> <C> <C> <C>
Percentage
of Total Exercise
Options or
Number of Granted to Base
Shares Underlying Employees in Price Expiration
Name Options Granted Fiscal Year ($/Share) Date
Morris
Shwiff 77,000 35% $1.00 12/1/2004
Mark I.
Kenner 72,600 33% $1.00 12/1/2004
Fred
Kenner 70,400 32% $1.00 12/1/2004
</TABLE>
No additional grants of options have been made to these
individuals since December 31, 1994.
Option Exercises and Fiscal Year End Option Values
The following table reflects option exercises during the
fiscal year ended December 31, 1994, the number of shares
underlying both exercisable and unexercisable options as of the
fiscal year end and the value of unexercised "in the money"
options as of the fiscal year end, after giving effect to a 10%
stock dividend declared on April 5, 1995:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of
Number Shares Underlying Value of
Unexercised
of Shares Unexercised Options In the
Money Options
Acquired at Fiscal Year End at Fiscal
Year End
on Value Unexer-
Unexer-
Name Exercise Realized Exercisable cisable
Exercisable cisable
Morris
Shwiff 0 0 77,000 - 0
-
Mark I.
Kenner 0 0 72,600 - 0
-
Fred
Kenner 0 0 70,400 - 0
-
PAGE
<PAGE>
Non-Qualified Stock Option Plan
Effective December 1, 1994, the Company's Board of Directors
adopted a Non-Qualified Stock Option Plan (the "Plan") covering
200,000 shares of the Company's common stock. Participants in
the Plan are selected by the Company's Board of Directors from
the executive officers and other key employees of the Company.
The Plan provides that the option price per share and vesting
period for stock options issued under the Plan are determined by
the Company's Board of Directors. The Plan also permits the
award of cashless exercise rights, which permit the optionee to
acquire the number of shares equal to the net appreciation in
value of the option shares above their exercise price. All
options terminate upon termination of employment, except that in
the event of death an option may be exercised during its
remaining term or within one year, and in the event of retirement
or disability an option may be exercised during its remaining
term or within three months.
In December 1994, an aggregate of 200,000 stock options were
granted to Messrs. Shwiff, Mark Kenner and Fred Kenner at the
exercise price of $1.00 per share. These stock options were
fully vested and exercisable at the date of grant. Under the
terms of the Plan, options granted may be exercised at any time
during the ten year period following issuance, unless a shorter
term is specified. At December 31, 1994, none of the stock
options granted under the Plan had been exercised.
In January 1995, the Plan was amended to increase the number
of shares subject to the Plan to 250,000 shares, and an
additional 50,000 shares were issued to certain key employees.
These stock options were issued at an option price of $1.00 per
share, and will vest in annual increments of 20% with the first
20% vesting occurring on the date of issuance.
On April 5, 1995, the Company declared a 10% stock dividend
on the Common Stock. Subsequently, the Plan was amended to
increase the number of shares subject to the Plan to 110% of the
original number authorized, or 275,000 shares, and outstanding
options were adjusted to 110% of their original amount. The
exercise prices were not adjusted.
Indemnification
Article 10 of the Company's Articles of Incorporation
provides that the Company may indemnify each Director and officer
of the Company against reasonable costs and expenses incurred by
him in connection with any action, suit or proceeding to which he
may be made a party by reason of his being or having been such
Director or officer, except in relation to any actions, suits or
proceedings in which he has been adjudged liable because of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. I
the absence of a determination which expressly absolves the
Director or officer of liability to the Company or its
shareholders for willful misfeasance, bad faith, gross negligence
and reckless disregard of the duties involved in the conduct of
his office, or in the event of a settlement, each Director and
officer may be indemnified by the Company against payments made,
including reasonable costs and expenses, provided that such
indemnity shall be conditioned upon the prior determination by a
resolution of two thirds of those members of the Board of
Directors who are not involved in the action, suit or proceeding
that the Director or officer has no liability by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
and provided further that if a majority of the members of the
Board of Directors are involved in the action, suit or
proceeding, such determination shall have been made by a written
opinion of independent counsel. Article 10 further provides that
its terms are not exclusive of any other rights to which officers
and Directors may be entitled according to law.
In addition, Article 2.02-1 of the Texas Business
Corporation Act provides broad powers of indemnification of
Directors and officers. For example, the board of directors, the
shareholders, or independent legal counsel in some circumstances
may authorize the Company to indemnify any officer or Director
against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement, actually and reasonably incurred
by him in connection with any "threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such
an action, suit or proceeding and any inquiry or investigation
that could lead to such an action,suit or proceeding" by reason
of the fact that he is or was a Director or officer of the
Company, if such Director or officer "acted in good faith and in
a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful." A Director may not be indemnified where
such Director improperly received a personal benefit whether or
not the benefit resulted from an action taken in his official
capacity and may not be indemnified where he is found liable to
the Company.
If a Director or officer defends litigation arising out of
his office and is successful on the merits or otherwise in
defense of the action, Article 2.02-1 provides that such officer
or Director shall be indemnified against expense (including
attorney's fees) actually and reasonably incurred by him in
connection therewith. Additionally, a Director or officer's
reasonable expenses may be paid or reimbursed where a written
request is submitted with an undertaking to repay said expense if
such person is ultimately determined to not be entitled to
indemnification.
Finally, the Company has power to purchase and maintain
insurance on behalf of any Director or officer against any
liability asserted against him and incurred by him in such
capacity or arising out of his status as an officer or a
Director, whether or not the Company would have the power to
indemnify him against such liability under the before described
provisions of Article 2.02-1.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers, and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event a claim for
indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful
defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the
Company's Common Stock owned at September 26, 1995 by (i) each
shareholder known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's
Directors and executive officers, (iii) all officers and
Directors as a group and (iv) the selling warrant holder.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Shares
Name and Shares Number Beneficially
Address of Beneficially Owned of Owned After
Beneficial Before Offering Shares Offering(7)
Owner Number Percent Offered Number
Period
Morris Shwiff 500,501(2) 42.5% - 500,501(2)
38.4%
2646 Rodney Lane
Dallas, TX 75229
Mark I. Kenner 303,599(3) 25.9% - 303,599(3)
23.4%
2646 Rodney Lane
Dallas, TX 75229
Fred Kenner 185,000(4) 15.9% - 185,900(4)
14.4%
2646 Rodney Lane
Dallas, TX 75229
All Directors 990,000(5) 75.0% - 990,000(5)
68.5%
and Officers as
a Group
(Three Persons)
Howell 27,500(6) 2.00% 27,500 -
- - Communications,
Inc.
</TABLE>
(1) The persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown
as beneficially owned by them, subject to community property
laws, where applicable, and the information contained in the
footnotes to the table. Except as otherwise indicated, shares of
the Common Stock not outstanding which are subject to options
exercisable within 60 days of the date of this prospectus are
deemed to be outstanding for the purpose of computing the
percentage of outstanding Common Stock with respect to the holder
of such options, but are not deemed to be outstanding for the
purpose of computing the percentage of any other person.
(2) Includes 77,000 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
(3) Includes 72,600 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
(4) Includes 70,400 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
(5) Includes 220,000 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
(6) Comprised of 27,500 shares which may be acquired upon
exercise of a warrant which shall vest in increments of 13,750 on
November 1, 1995 and May 1, 1995 at an exercise price of $2.50
per share.
(7) Assumes all shares offered by this prospectus are sold.
PAGE
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
10,000,000 shares of Common Stock and 500,000 shares of preferred
stock.
Common Stock
At September 26, 1995, there were 1,100,000 shares of Common
Stock outstanding and held of record by approximately 400
stockholders. The holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of stockholders. Subject to preferences that may be
applicable to any preferred stock outstanding, holders of Common
Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding
up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment, or provisions for
payment, of liabilities and the liquidation preference of any
preferred stock outstanding. Shares of Common Stock do not have
cumulative voting rights which means that the holders of a
majority of the shares voting for the election of the Board of
Directors can elect all of the Directors and, in such event, the
holders of the remaining shares will not be able to elect any
Directors. See "Risk Factors - Voting Control." Holders of
Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities. The shares
of Common Stock outstanding are, and the Common Stock to be
outstanding upon completion of this offering will be, fully paid,
validly issued and nonassessable. See "Price Range of Common
Stock and Dividend Policy."
Preferred Stock
No shares of preferred stock are currently outstanding. The
Board of Directors has the authority to issue the preferred stock
in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights,
dividend rate, conversion rights, voting rights, terms of
redemption, redemption price or prices, liquidation preferences
and the number of shares constituting any series or the
designations of such series, without any further vote or action
by the stockholders. The Board of Directors without stockholder
approval can issue preferred stock with voting and conversion
rights which (i) could adversely affect the voting power of the
holders of Common Stock and (ii) may discourage or thwart
proposed takeovers of the Company.
Common Stock Purchase Warrants
As of the date of this Prospectus, the Company has issued
and outstanding Warrants to purchase Common Stock which will
become exercisable to purchase up to 25,000 shares of Common
Stock in increments of 12,500 as of November 1, 1995 and May 1,
1996 at an exercise price of $2.50 per share, exercisable until
April 30, 1997. These Warrants, which are held by Howell
Communications, Inc., contain provisions for changes in the
exercise price in certain circumstances to protect against
dilution.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Key
Corp. Shareholder Services, Inc.
Reports
The Company intends to furnish its shareholders with annual
reports containing audited financial statements and a report
thereon by its independent certified public accounts. The
Company may distribute quarterly reports containing unaudited
financial information for the first three quarters of each fiscal
year and such other communications as it may determine.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have
outstanding 1,225,000 shares of Common Stock. Of these shares,
the 125,000 shares sold in this offering and 300,000 shares
previously issued are freely tradeable without restriction under
the Securities Act of 1933, as amended (the "Act").
Approximately 700,000 shares are "restricted" securities within
the meaning of Rule 144, all of which are eligible for sale
subject to the volume and other limitations of Rule 144.
<PAGE> <PAGE>
PLAN OF DISTRIBUTION
The Company has from time to time received unsolicited
indications of interest to acquire shares of its Common Stock.
Although the Company does not presently have any binding
commitment to sell shares of Common Stock, the Company intends to
use its best efforts to sell the shares of Common Stock at or
above prevailing market prices to persons who contact the Company
or whom the Company otherwise identifies as desiring to purchase
Common Stock. Based upon the indications of interest received,
the Company believes that adequate demand for its Common Stock
exists to sell the Common Stock to be offered hereby.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered
hereby will be passed upon for the Company by Hewitt & Hewitt,
P.C., Dallas, Texas.
EXPERTS
The consolidated financial statements and schedules included
herein and elsewhere in the Registration Statement, so far as
they pertain to each of the three fiscal years ended December 31,
1994 have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, included herein and elsewhere
and upon the authority of said firm as experts in accounting and auditing.
As discussed in note 1(g) to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form SB-2 under the Securities Act of 1933 with respect to the
Common Stock offered by this Prospectus. This Prospectus does
not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further
information about the Company and the Common Stock, reference is
hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. The statements contained in this
Prospectus about the contents of any contract or other document
referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The
Registration Statement and the exhibits and schedules thereto may
be inspected or copies made (upon payment of prescribed fees) at
the Commission's principal office at 450 Fifth Street N.W.,
Washington, D.C. 20549.
PAGE
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Arrow-Magnolia International, Inc.:
We have audited the accompanying consolidated balance sheets of
Arrow-Magnolia International, Inc. and subsidiary as of December
31, 1994 and 1993, and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Arrow-Magnolia International, Inc. and subsidiary as
of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in note 1(g) to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
February 24, 1995, except for the last
paragraph of note 9 which is as of
April 5, 1995
PAGE
<PAGE>
<TABLE>
<CAPTION>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<S> <C> <C> <C>
June 30, Dec. 31, Dec. 31.
Assets 1995 1994 1993
(unaudited)
Current assets:
Cash $ 710,008 $ 856,883 $
517,404
Trade accounts receivable,
less allowance for doubtful
accounts of $314,793 in 1995,
$241,508 in 1994 and
$236,002 in 1993 (note 5) 1,252,944
869,663 724,461
Other receivables 43,189 18,583
32,918
Inventories (note 5) 649,251 610,613
532,114
Deferred income taxes (note 8) 98,643
78,368 80,240
Prepaid expenses 6,953
19,142 23,743
Total current assets 2,760,988 2,453,252
1,910,880
Property and equipment, net
(notes 3, 5, 6 and 7) 373,371 400,415
479,417
Intangible assets, net (note 4) 110,308 122,308
144,324
Note receivable (note 2) 40,000 40,000
40,000
Deferred income taxes (note 8) 19,056 19,056
20,351
Other assets 1,000 1,000
1,000
$ 3,304,723 3,036,031
2,595,972
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term
debt (note 6) $ 108,175 $ 108,175
$ 83,499
Current installments of obligations
under capital lease (note 7) -
20,473
Accounts payable 478,815 294,807
276,743
Accrued liabilities 79,262 129,810
84,699
Income taxes payable 76,202 129,666
376
Total current liabilities 742,454 662,458
465,790
Note payable (note 5) 630,000 690,000
725,000
Long-term debt, excluding current
installments (note 6) 296,765 361,352
444,025
Total liabilities 1,699,219 1,713,810
1,634,815
Stockholders' equity (note 9):
Preferred stock - par value $.10;
authorized 500,000 shares;
none issued -
-
Common stock - par value $.10;
authorized 10,000,000 shares;
1,100,000 shares issued and outstanding 110,000 100,000
100,000
Additional paid-in capital 1,190,000 900,000
900,000
Accumulated earnings (deficit) 335,504 322,221
(38,843)
Total stockholders' equity 1,635,504 1,322,221
961,157
Commitments (note 7)
$3,304,723 $3,036,031
$2,595,972
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
<S> <C> <C> <C> <C> <C>
Six Months
Ended June 30, Years Ended
December 31,
1995 1994 1994 1993
1992
(unaudited)
Net sales $3,948,563 3,340,249 6,686,615
6,262,192 6,661,117
Cost of sales 1,947,948 1,647,241 3,917,320
3,864,063 4,157,347
Gross profit 2,000,615 1,693,008 2,769,295
2,398,129 2,503,770
General and administrative
expenses 1,483,230 1,328,282 2,093,582
1,996,141 2,091,516
Operating income 517,385 364,726 675,713
401,988 412,254
Other income (expenses):
Interest expense (51,735) (49,773) (101,051)
(112,258) (155,988)
Gain (loss) on disposition
of assets (note 2) 2,500 805 1,867
(3,337) (115,209)
Other income 7,810 3,958 9,267
9,875 15,761
Other expenses, net (41,425) (45,010) (89,917)
(105,720) (255,436)
Earnings before
income taxes,
extraordinary item
and cumulative
effect of a change
in accounting
principle 475,960 319,716 585,796
296,268 156,818
Income taxes
Current Income taxes
(note 8) 182,952 131,078 224,732
112,314 49,226
Deferred income tax
benefit (20,275) (22,374) - -
-
Earnings before
extraordinary item
and cumulative
effect of a
change in accounting
principle 313,283 211,012 361,064
183,954 107,592
Extraordinary item -
income tax benefit from
utilization of net operating
loss carryforward (note 8) - -
49,226
Earnings before
cumulative effect of
a change in accounting
principle 313,283 211,012 361,064
183,954 156,818
Cumulative effect of a change
in method of accounting for
income taxes (note 8) - - -
125,528 -
Net earnings $ 313,283 211,012 361,064 309,482
156,818
PAGE
<PAGE>
Earnings per common share:
Earnings before extraordinary
item and cumulative effect
of a change in accounting
principle $ 0.29 0.19 0.33 0.17
0.10
Extraordinary item - -
0.05
Cumulative effect on prior years
(to December 31, 1992) of change
in method of accounting for
income taxes - -
0.11
Net earnings $ 0.29 0.19 0.33
0.28 0.15
Weighted average shares
outstanding 1,100,000 1,100,000 1,100,000
1,097,285 1,092,256
See accompanying notes to consolidated financial statements
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<S> <C> <C> <C> <C> <C>
Six Months
Ended June 30, Years Ended
December 31,
1995 1994 1994 1993
1992
(unaudited)
Cash flows from operating
activities:
Net earnings $313,283 211,012 361,064 309,482
156,818
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and
amortization 42,000 46,014 103,751
100,464 115,837
Loss (gain) on
disposition of property
and equipment (2,500) (805) (1,866) 3,337
(361)
Loss on sale of net assets
of subsidiary - -
115,570
Deferred income taxes (20,275) (22,374) 3,167
(100,591) -
Provision for doubtful
accounts 91,242 65,805 187,871 227,975
207,558
Changes in assets and
liabilities:
Decrease (increase) in
receivables (499,129) (337,810) (318,738)
2,153 (165,836)
Decrease (increase) in
inventories (38,638) (11,938) (78,499)
81,420 (48,953)
Decrease in prepaid
expenses 12,189 22,743 4,601 1,027
2,103
Decrease (increase) in
other assets - (7,773)
20,661 (44,514)
Increase (decrease) in
accounts payable 184,008 85,568 18,064
(137,018) 11,320
Increase (decrease) in
accrued liabilities (50,548) (34,732) 45,111
25,933 (2,329)
Increase in income taxes
payable (53,464) 81,078 129,290 376
- -
Net cash provided
by operating
activities (21,832) 96,788 453,816 535,219
347,213
<PAGE> <PAGE>
Cash flows from investing
activities:
Proceeds from sale of net
assets of subsidiary - -
160,000
Acquisition of property and
equipment (2,956) (18,294) (27,295)
(55,970) (65,393)
Proceeds from sale of property
and equipment 2,500 19,131 26,428
3,010 4,926
Net cash provided by
(used in)investing
activities (456) 837 (867)
(52,960) 99,533
Cash flows from financing
activities:
Proceeds from issuance of note
payable - - 703,838 725,000
Repayments of note
payable (60,000) (25,000) (738,838)
(875,000) (125,000)
Proceeds from issuance of
long-term debt - - 495,000
27,525 632,702
Repayments of long-term
debt (64,587) (74,787) (552,997)
(86,828) (748,369)
Repayments of capital lease
obligation - (3,210) (20,473) (4,174)
(1,353)
Proceeds from issuance of
treasury stock - - -
1,650 2,500
Net cash used in
financing
activities (124,587) (102,997) (113,470)
(211,827) (239,520)
Net increase in cash (146,875) (5,372) 339,479
270,432 207,226
Cash at beginning of year 856,883 517,404 517,404 246,972
39,746
Cash at end of year $710,008 512,032 856,883
517,404 246,972
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
Arrow-Magnolia International, Inc. ("Arrow") and its wholly-owned
subsidiary, Bio/Dyne Chemical Company ("Bio/Dyne") (collectively
"the Company"). Effective November 30, 1992, substantially all
the assets and liabilities of Bio/Dyne were sold (see note 2).
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Nature of the Business
The Company is engaged in the sale and distribution of chemical
products, primarily industrial and institutional cleaning and
maintenance supplies and related products to industrial users,
telephone supply distributors, governmental agencies and school
systems. The Company's customers operate in many different
industries and geographic regions.
No one single customer accounted for more than 10% of net sales
in 1994, 1993 and 1992.
(c) Cash Equivalents and Statements of Cash Flows
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. There
were no cash equivalents at December 31, 1994 or 1993.
Cash paid for interest during 1994, 1993 and 1992 was $101,051,
$117,706 and $159,099, respectively. Cash paid for federal
income taxes during 1994 and 1993 was $65,024 and $75,000,
respectively.
(d) Inventories
Inventories, which consist primarily of merchandise purchased for
resale and raw materials purchased for blending, are stated at
the lower of cost or market. Cost is determined using the
first-in, first-out method.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment under
capital leases is stated at the lesser of the cost of the
equipment or the present value of minimum lease payments.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The cost of maintenance
and repairs is charged to expense as incurred; significant
renewals and betterments are capitalized.
(f) Intangible Assets
Intangible assets are amortized on a straight-line basis over
their estimated useful lives which range from three to forty
years.
The Company assesses the recoverability of goodwill and other
intangible assets acquired by determining whether the
amortization of the asset balance over its remaining life can be
recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is
measured based on projected discounted future operating cash
flows.
(g) Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Statement_109 requires a change from the
deferred method of accounting for income taxes of APB Opinion 11
to the asset and liability method of accounting for income taxes.
Under the asset and liability method of Statement 109, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates that will apply in the years
in which those temporary differences are expected to be recovered
or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and
has reported the cumulative effect of that change in the method
of accounting for income taxes in the 1993 consolidated statement
of earnings.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes are
recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable to the year of the
calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
<PAGE>
(h) Earnings per Share
Earnings per share is computed on the basis of the weighted
average number of common shares outstanding during each year, adjusted for
the ten percent stock dividend declared on April 5, 1995 (Note 9).
(2) Bio/Dyne Sale
On November 30, 1992, the Company sold substantially all of the
assets and liabilities of Bio/Dyne for consideration of $160,000
in cash and a note receivable for $40,000. The note receivable
bears interest at the rate of 7% per annum. Interest on the note
will accrue and be added to the principal balance for seven
years, at which time monthly payments of principal and accrued
interest will commence and be amortized over a two-year period.
The note is secured by a second lien security interest in
substantially all of the assets of the business sold.
The operations of Bio/Dyne are included in the accompanying
consolidated statements of earnings through November 30, 1992.
Included in loss on disposition of assets in 1992 is
approximately $115,500 related to the Bio/Dyne sale. Results of
operations data of Bio/Dyne for the period from January 1, 1992
to November 30, 1992 follows:
Net sales
$ 598,703
Cost of sales
332,074
Gross profit
266,629
General and administrative expenses
228,421
38,208
Other income
91,295
Earnings before income taxes
$ 129,503
PAGE
<PAGE>
<TABLE>
(3) Property and Equipment
Property and equipment consist of the following:
<S> <C> <C> <C>
Useful December 31
lives 1994 1993
Land - $ 95,310 95,310
Buildings and 5 to 40 years 413,092 413,092
improvements
Machinery and 3 to 10 years 277,842 343,610
equipment
Furniture and 5 to 10 years 203,415 202,279
fixtures
989,659
1,054,291
Less accumulated (589,244) (574,874)
depreciation
$400,415
479,417
</TABLE>
<TABLE>
(4) Intangible Assets
Intangible assets consist of the following:
<S> <C> <C> <C>
December 31
Useful lives
1994
1993
Goodwill
40 years
$ 110,500
110,500
Customer lists
5 years
17,500
17,500
Sales force
7 years
82,500
82,500
Other
8 years
10,500
10,500
221,000
221,000
Less accumulated
amortization
(98,692)
(76,676)
$ 122,308
144,324
</TABLE>
(5) Note Payable
The note payable at December 31, 1994 is a revolving
line of credit ($690,000 outstanding at December 31, 1994) with
an asset-based lender due on May 1, 1996. The credit agreement
provides for a commitment from the lender of the lesser of
$1,250,000 or the borrowing base as defined. At December 31,
1994, the unused portion of the commitment was approximately
$290,000. The terms of the credit agreement require the Company
to maintain certain minimum financial criteria. The note
requires monthly payments of interest at the lender's prime rate
(8.5% at December 31, 1994) plus .5% and is collateralized by
certain accounts receivable and inventories. As the line of
credit bears interest at market rates, the carrying amount of
borrowings outstanding at December 31, 1994, approximates fair
value.
As of December 31, 1993, the Company had a line of
credit in the amount of $725,000 with a different lender under
similar terms which was repaid during 1994.
<TABLE>
(6) Long-term Debt
Long-term debt consists of the following:
<S> <C> <C>
December 31
1994 1993
Note payable to a bank,
interest at prime (8.5% at
December 31, 1994) plus .5%,
principal and interest of $8,250
payable monthly, maturing
in August 1999, collateralized
by the Company's
office and warehouse, and guaranteed
by the principal stockholders $455,000
487,679
Note payable to a bank in
monthly installments of $765,
including interest at 7.9%, maturing
in July 1996, and collateralized
by an automobile 14,527 39,845
469,527
527,524
Less current installments 108,175 83,499
$361,352
444,025
</TABLE>
The aggregate maturities of long-term debt subsequent
to December 31, 1994 are as follows:
1995
$ 108,175
1996
5,352
1997
1998
1999
356,000
$ 469,527
<PAGE> <PAGE>
(7) Leases
At December 31, 1993, the Company had an obligation
under a capital lease for an automobile which was payable in
monthly payments of $535. The lease expired in September 1994
and the Company exercised the purchase option contained in the
lease agreement.
Bio/Dyne leased office space and certain equipment
under various operating leases. Rental expense charged to
operations during 1992 under these leases was approximately
$15,000.
(8) Income Taxes
As discussed in note 1(g), effective January 1, 1993,
the Company adopted the provisions of Statement 109 and
recognized net current deferred tax assets of $110,234 and net
noncurrent deferred tax assets of $15,294.
Income tax expense for years ended December 31, 1994,
1993 and 1992 consists of the following:
<TABLE>
<S> <C> <C> <C>
1994
1993
1992
U.S. federal - current
$ 194,315
75,377
U.S. federal - deferred
3,167
24,937
Charge in lieu of income taxes
49,226
State - current
27,250
12,000
$ 224,732
112,314
49,226
</TABLE>
Income tax expense differs from the "expected" tax
expense (computed by applying the 34% U.S. federal corporate rate
to earnings before income taxes, extraordinary item and
cumulative effect of a change in accounting principle) as
follows:
<TABLE>
<S> <C> <C> <C>
1994
1993
1992
Computed "expected" tax expense
$199,171
100,731
53,318
Amortization of goodwill
5,450
5,450
5,450
Adjustment due to graduated
tax rates
(11,750)
State income taxes
17,985
7,920
Other
2,126
(1,787)
2,208
$ 224,732
112,314
49,226
</TABLE>
PAGE
<PAGE>
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and deferred
tax liabilities are presented below:
December 31
1994 1993
Current deferred tax assets -
allowance
for doubtful accounts $78,368 80,240
Noncurrent deferred tax assets -
property
and equipment depreciation $19,056 20,351
Deferred tax assets and liabilities are computed by
applying the effective U.S. federal income tax rate to the gross
amounts of temporary differences and other tax attributes.
Deferred tax assets and liabilities relating to state income
taxes are not material. The Company expects the net deferred tax
assets at December 31, 1994 to be realized as a result of future
taxable income.
(9) Stockholders' Equity
During 1994, the Company's Board of Directors approved
a nonqualified stock option plan (Plan) covering 200,000 shares
of common stock. Participants in the Plan are selected by the
Company's Board of Directors from the executive officers and
other key employees of the Company. The Plan provides that the
option price per share and vesting period for stock options
issued under the Plan are determined by the Company's Board of
Directors.
In December 1994, 200,000 stock options were granted to
certain officers of the Company at an option price of $1.00 per
share, the fair market value of the common stock at the date of
grant. These stock options were fully exercisable at the date of
grant. At December 31, 1994, none of the stock options granted
under the Plan had been exercised.
In January 1995, the Plan was amended to provide for an
increase in the number of shares subject to the Plan to 250,000
shares and an additional 50,000 shares were issued to certain key
employees. These stock options were issued at an option price of
$1.00 per share, the fair market value of the common stock at the
date of grant and vest in annual increments of 20% with the first
20% vesting occurring on the date of issuance.
On April 5, 1995, the Company declared a 10% stock dividend on the
Common Stock. Subsequently, the Plan was amended to increase the number
of shares subject to the Plan to 110% of the original number authorized,
or 275,000 shares, and outstanding options were adjusted to 110% of
their original amount. The exercise prices were not adjusted.
As a result of the 10% stock dividend on the Common Stock, all share and
per share information in the accompanying financial statements has been
retroactively restated to give effect to the dividend.
PAGE
<PAGE>
(10) Fourth Quarter Adjustments
Net earnings in the fourth quarter of 1994 were reduced
by $9,735 for adjustments in depreciation expense, $50,817 for
bonus compensation and $15,661 for adjustments in the provision
for doubtful accounts and increased by $14,561 for adjustments in
income tax expense.
Net earnings in the fourth quarter of 1993 were reduced
by $3,412 for adjustments in depreciation and amortization
expense, $24,704 for bonus compensation and $32,516 for income
and franchise tax expense.
Net earnings in the fourth quarter of 1992 were reduced
by $35,987 for adjustments in depreciation and amortization
expense and $30,830 for inventory writedowns.
PAGE
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary ............................ 5
The Company ................................... 5
Risk Factors .................................. 5
Use of Proceeds................................ 7
Price Range of Common Stock and Dividend Policy 8
Business ...................................... 9
Management's Discussion and Analysis
or Plan of Operation ........................ 12
Management .................................... 15
Principal and Selling Stockholders............. 21
Description of Capital Stock .................. 23
Shares Eligible for Future Sale ............... 24
Plan of Distribution .......................... 25
Legal Matters ................................. 25
Experts ....................................... 25
Additional Information ........................ 25
Index to Financial Statements .................
No dealer, salesman or other person has been authorized to
give any information or to make any representation not contained
in this Prospectus in connection with the offering made by the
Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized
by the Company, any Selling Stockholder or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy the securities offered hereby to any person,
or in any jurisdiction, where such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances imply that the
information contained herein is correct as of any time subsequent
to its date.
PAGE
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses are to be borne by the Company and
are as follows:
Company
Securities and Exchange
Commission Registration Fee........ $170.26
Accounting Fees and Expenses*......
Blue Sky Fees and Expenses*........
Legal Fees and Expenses*...........
Transfer Agent and Registrar Fees
and Expenses*......................
Printing and Engraving Expenses*...
Miscellaneous*.....................
TOTAL*...... $
*To be supplied by amendment
Item 24. Indemnification of Directors and Officers.
The Texas Business Corporation Act empowers the Company to
indemnify its current and former directors, officers, and certain
other persons against certain expenses incurred by them in
connection with any suit to which they were, are or are
threatened to be made a party by reason of their serving in such
positions, so long as they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal
action, they had no reasonable cause to believe their conduct was
unlawful. With respect to suits by or in the right of the
Company, however, the power to indemnify does not extend to
judgments or settlement amounts and, unless the court determines
that indemnification is appropriate, indemnification is not
available for the benefit of such persons who are adjudged to be
liable to the Company. The statute also empowers the Company to
purchase and maintain insurance for such persons with respect to
liability arising out of or in connection with their capacity or
status with the Company.
The statute further specifically provides that the
indemnification authorized thereby shall not be deemed exclusive
of any other rights to which any such officer or director may be
entitled under any bylaws, agreements, vote of stockholders or
disinterested directors or otherwise. Article 10 of the
Company's Articles of Incorporation provides for the
indemnification of directors, officers, and certain other persons
within the limitations of the Texas Business Corporation Act.
Item 26. Recent Sales of Unregistered Securities.
During the last three years the Company has issued a Warrant
to Purchase Common Stock to Howell Communications, Inc. for
investor relations services to be provided and options to acquire
shares of Common Stock to nine key employees, including Messrs.
Shwiff, Kenner and Kenner.
No underwriting commission or broker's or finder's fee was
paid in connection with any of the foregoing transactions. In
each case, the shares were sold without registration under the
Act in reliance on the exemption provided by Securities and
Exchange Commission Regulation D and/or Sections 4(2) and 3(a)(9)
of the Act. Each purchaser represented that he was purchasing
his shares for investment and without a view to distribution. A
restrictive legend was placed on the instruments evidencing these
securities.
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits
3.1 Articles of Incorporation, as amended, of
Arrow-Magnolia International, Inc.(1).
3.2 Bylaws of Magnolia Enterprises, Inc.(2).
*5.1 Opinion and Consent of Hewitt & Hewitt, P.C.
10.19 Arrow-Magnolia International, Inc. Amended and
Restated Non-Qualified Stock Option Plan.(3)
10.20 Credit Loan Agreement dated August 5, 1994 between
Arrow-Magnolia International, Inc. and Texas Commerce Bank
National Association.(3)
10.21 Extension and Modification Agreement dated August
18, 1994 between Arrow-Magnolia International, Inc. and Texas
Commerce Bank National Association. (3)
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Hewitt & Hewitt, P.C. Reference is made to
Item 5.1.
24.1 Power of Attorney. Reference is made to the Signature
Page.
* To be filed by amendment.
(1) Filed as Exhibit 3.1 to Arrow-Magnolia International, Inc.
Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference.
(2) Filed as Exhibit 3.2 to Magnolia Chemical Company, Inc. Form
10-Q for the quarter ended June 30, 1982 and incorporated herein
by reference.
(3) Previously filed as Exhibits 10.19, 10.20 and 10.21
respectively to Arrow-Magnolia International, Inc. Form 10-KSB
for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
(b) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions, are
inapplicable, or the information is presented in the financial
statements or related notes, and therefore have been omitted.
Item 17. Undertakings
The small business issuer undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section
(10)(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change
in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (9f the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) Include any additional or changed material
information ont he plan of distribution.
(2) For determining liability under the Securities Act,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers, and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event a claim for
indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful
defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
PAGE
<PAGE>
SIGNATURES
In accordance with to the requirements of the Securities Act
of 1933, the Company certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on the 26th day of September,
1995.
ARROW-MAGNOLIA INTERNATIONAL, INC.
By:/s/ Morris Shwiff
Morris Shwiff, President
PAGE
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes
and appoints Morris Shwiff, Mark I. Kenner and Christopher M.
Hewitt, and each of them, with full power of substitution and
resubstitution in each of them, our true and lawful
attorneys-in-fact and agents, in any and all capacities, with
full power to act alone, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file each such amendment to this Registration
Statement, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and
Exchange Commission, hereby granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform any and all acts and things requisite and necessary to be
done in and about the premises as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either
of them, may lawfully do or cause to be done by virtue hereof.
In accordance to the requirements of the Securities Act of
1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Morris Shwiff President, Chief September 26,
Morris Shwiff Executive Officer, 1995
and Director
(Principal
Executive Officer)
/s/ Mark I. Kenner Vice President September 26,
Mark I. Kenner 1995
/s/ Fred Kenner Vice President September 26,
Fred Kenner 1995
