SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number 0-4728
ARROW-MAGNOLIA INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
Texas 75-0408335
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2646 Rodney Lane, Dallas, Texas 75229
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (214) 247-7111
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Check if no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incor-
porated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
/ /
Issuer's revenues for the fiscal year ended December 31, 1995
were: $8,393,829
The aggregate market value of issuer's voting stock held by non-
affiliates as of December 31, 1995 was $2,059,125 (*See note on
index page.)
The number of shares outstanding of each class of the issuer's
common stock as of December 31, 1995, was:
Common Stock, par value $0.10 per share, 1,157,600 shares
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format: Yes No X
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-KSB/A
INDEX
Securities and Exchange Commission
Item Number and Description Page
PART I
Item 1. Description of Business ................. 1
Item 2. Description of Property ................. 3
Item 3. Legal Proceedings ....................... 3
Item 4. Submission of Matters to a Vote of
Security-Holders ........................ 3
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters ..................... 4
Item 6. Management's Discussion and Analysis or
Plan of Operation ....................... 5
Item 7. Financial Statements .................... 7
Item 8. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure .............................. 7
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act ........ 8
Item 10. Executive Compensation .................. 10
Item 11. Security Ownership of Certain Beneficial
Owners and Management ................... 12
Item 12. Certain Relationships and Related
Transactions ............................ 12
PAGE
<PAGE>
PART IV AND SIGNATURES
Item 13. Exhibits and Reports on Form 8-K ........
SIGNATURES ........................................
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULES ......................................... F-1
* The figure indicated on the cover page as to the aggregate
market value of shares of issuer's voting stock held by
nonaffiliates, as such figure relates to shares held by
affiliates, represents the issuer's best good faith estimate
for purposes of this annual report on Form 10-KSB/A and for
no other purpose. The aggregate market value indicated is
based upon the average of the last bid and asked prices of
the issuer's common stock, as reported by the NASDAQ OTC
Bulletin Board as of December 31, 1995. However, the
issuer's stock is thinly traded, and such prices may not be
representative of the prices that might result with a more
widely traded security. See "Market for Common Equity and
Related Stockholder Matters."
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
Form 10-KSB/A Annual Report
For the Fiscal Year Ended
December 31, 1995
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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 mainte-
nance 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 prod-
ucts, 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 40% of the Company's
sales during 1995. No single customer accounted for as much as
10% of its total net sales during 1995 or 1994.
The products sold by the Company include aircraft coatings,
cleaners, corrosion preventatives, degreasers, and air freshen-
ers; 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 pack-
aged for large-scale users rather than individual household
consumers.
<PAGE>
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 1995
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, approxi-
mately 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 consti-
tutes 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 capabil-
ity. 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>
Employees
As of December 31, 1995, the Company employed approximately
one hundred (100) 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.
ITEM 2. DESCRIPTION OF PROPERTY.
The principal executive and warehouse facilities of the
Company are located in a steel, glass, brick and concrete build-
ing 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 7,000 square feet to
administrative and executive offices. The Company is currently
evaluating whether to build an additional 30,000 square feet of
warehouse space onto its existing facilities. 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 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.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property
the subject of, any legal proceedings other than routine litiga-
tion incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted during the fourth quarter of the
fiscal year ended December 31, 1995, to a vote of the Company's
security holders, through solicitation of proxies or otherwise.
PAGE
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MAT-
TERS.
The Company's common stock is traded in the over-the-counter
market, but such trading occurs sporadically and in relatively
small volumes.
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:
1995 Quarter Ended High Low Volume
December 1995 5 4 4,020
November 1995 4 3 1/2 320
October 1995 4 15/16 3 1/2 4,380
September 1995 4 15/16 3 1/2 1,520
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 December 31, 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>
ITEM 6. 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:
<TABLE>
Increase (Decrease)
From Prior Period
Years Ended
Percentage of Net Sales 1995 1994
Years Ended December 31 vs. vs.
1995 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 25.5% 6.8%
Cost of sales 58.2% 58.6% 61.7% 24.7% 1.4%
Gross profit 41.8% 41.4% 38.3% 26.7% 15.5%
General and
administra-
tive expenses 28.3% 31.3% 31.9% 13.3% 4.9%
Operating income 13.5% 10.1% 6.4% 68.2% 68.1%
Interest expense 1.2% 1.5% 1.8% (4.5)% (10.0)%
Earnings before
effect of change
in method of
accounting for
income taxes 8.1% 5.4% 2.9% 88.1% 96.3%
Effect of change
in method - - 2.0% - -
Net earnings 8.1% 5.4% 4.9% 88.1% 16.7%
</TABLE>
<PAGE> <PAGE>
Comparison of Annual Results
Net sales for fiscal year 1995 increased by 25.5% from
$6,686,615 to $8,393,829 versus fiscal year 1994 after increasing
6.8% from fiscal 1993 to fiscal 1994. Cost of sales as a per-
centage of net sales improved from 61.7% to 58.6% to 58.2% from
1993 through 1994 and 1995. The increase in sales from 1994 to
1995 is primarily attributable to the extension of sales coverage
through the addition of sales personnel under an ongoing hiring
program. As a result of increased sales combined with cost con-
trol, gross profit increased by 26.7% from $2,769,295 to
$3,508,030 for fiscal 1995 versus fiscal 1994, after increasing
by 15.5% from fiscal 1993 to fiscal 1994. For the fiscal year,
the gross profit margin reached a record 41.8% of net sales, as
compared to 41.4% for 1994 and 38.3% for 1993.
General and administrative expenses fell as a percentage of
net sales from 31.3% in 1994 to 28.3% in 1995 as sales volume
improved at a more rapid pace than the modest 13.3% increase in
these expenses from year to year. These expenses remained rela-
tively constant as a percentage of net sales from 1993 to 1994.
Interest expense fell as a percentage of net sales from 1.8%
to 1.5% to 1.2% from 1993 through 1995 due to application of
funds generated from continued profitability to reduce debt and
reduction in the interest rate paid to the prime rate.
As a result of these factors, for the fiscal year ended
December 31, 1995, net income increased to $679,074 from
$361,064, or 88.1%, versus the same period in 1994. These
results compare favorably to net earnings for 1993 of $309,482.
Liquidity and Capital Resources
The Company's working capital (total current assets less
total current liabilities), which was $1,790,794 as of December
31, 1994, improved during 1995 to $2,696,048 as of December 31,
1995. The Company's current assets increased significantly as
the Company's cash and short-term investments, accounts receiv-
able and inventory increased due to increased sales and profit-
ability. Current liabilities also increased, but less dramati-
cally, in response to increased sales volumes.
As shown in the Company's consolidated statements of cash
flows, the Company generated $427,240 in cash flow from opera-
tions as the Company continued to capitalize on its profitabili-
ty, partially offset by increases in receivables and inventories
resulting from its sustained growth. A total of $718,456 was
used in investing activities as the Company began investing its
excess available funds in short-term investments to improve the
return on its capital.
<PAGE>
In addition, the Company realized funds from its financing
activities, including $201,600 received from the successful
completion of the public sale of 57,600 shares of its Common
Stock in December 1995.
Currently the Company is evaluating whether to construct an
additional 30,000 square feet of warehouse space to its existing
facilities. Based upon its initial review, the Company believes
it has more than adequate funds on hand to complete this addition
if the Company concludes that it is desirable. The Company be-
lieves that its present financing is also otherwise adequate for
its capital needs for the foreseeable future.
ITEM 7. FINANCIAL STATEMENTS.
Included at pages F-1 through F-13 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AC-
COUNTING AND FINANCIAL DISCLOSURE.
None.
PAGE
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The Directors and executive officers of the Company as of
February 29, 1996, 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 respec-
tive 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 Direc-
tors and President of the Company since December 1985. For more
than five years prior to December 1985, Mr. Shwiff was a Direc-
tor, 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.
<PAGE>
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 succes-
sors are duly elected and qualified. Officers serve at the
discretion of the Board.
Based solely upon a review of Forms 3, 4, and 5 furnished to
the Company and upon written representations received by the
Company, the following persons were all Directors, officers or
beneficial owners of more than 10 percent of the Company's Common
Stock as of December 31, 1995:
Morris Shwiff
Mark I. Kenner
Fred Kenner
Based thereon, each of such persons filed one report under
Section 16(a) of the Exchange Act of 1994 reporting transactions
in December 1994 seven days after it was due and one report for
June 1995 on a timely basis.
PAGE
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following tables summarize the monetary and non-monetary
compensation paid by the Company during the three fiscal years
ended December 31, 1995 to the Company's chief executive officer
and to the Company's other executive officers.
SUMMARY COMPENSATION TABLE
<TABLE> Long Term
Compensation
Awards
Number
Name and Annual of Shares
Principal Compensation Subject to
Position Year Salary Bonus Options Granted
<S> <C> <C> <C> <C>
Morris Shwiff, 1995 $130,000 $17,940 0
Chairman of 1994 $119,000 $ 8,745 77,000
the Board 1993 $116,600 $ 0 0
and President
Mark I. Kenner, 1995 $123,500 $16,887 0
Director and 1994 $112,580 $ 8,208 72,600
Executive 1993 $109,445 $ 0 0
Vice President
Fred Kenner, 1995 $117,000 $15,990 0
Director and 1994 $106,600 $ 7,751 70,400
Vice President, 1993 $103,350 $ 0 0
Secretary and
Treasurer
</TABLE>
PAGE
<PAGE>
Option Exercises and Fiscal Year End Option Values
The following table reflects option exercises during the
fiscal year ended December 31, 1995, the number of shares under-
lying 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>
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(1)
on Value Unexer- Unexer-
Name Exercise Realized Exercisable cisable Exercisable cisable
<S> <C> <C> <C> <C> <C> <C>
Morris
Shwiff 0 0 77,000 - $332,063 -
Mark I.
Kenner 0 0 72,600 - $313,088 -
Fred
Kenner 0 0 70,400 - $303,600 -
</TABLE>
(1) For purpose of calculating this value, the Company has utilized the
average of the last bid and asked prices of the Company's common stock
as of December 31, 1995 as reported by the NASDAQ OTC Bulletin Board.
PAGE
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information regarding the
Company's Common Stock owned at December 31, 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 Direc-
tors and executive officers and (iii) all officers and Directors
as a group. So far as is known to the Company, 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.
Name and
Address of
Beneficial Number of Shares Percent
Owner Beneficially Owned of Class
Morris Shwiff 500,501(1) 40.5%
2646 Rodney Lane
Dallas, TX 75229
Mark I. Kenner 303,599(2) 24.7%
2646 Rodney Lane
Dallas, TX 75229
Fred Kenner 185,900(3) 15.1%
2646 Rodney Lane
Dallas, TX 75229
All Directors 990,000(4) 71.9%
and Officers as
a Group
(Three Persons)
(1) Includes 77,000 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
(2) Includes 72,600 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
(3) Includes 70,400 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
(4) Includes 220,000 shares which may be acquired upon exercise
of an option at an exercise price of $1.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PAGE
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
No. Exhibit
3.1 Articles of Incorporation, as amended, of Arrow-
Magnolia International, Inc.(1).
3.2 Bylaws of Magnolia Enterprises, Inc.(2).
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 Associa-
tion(3).
(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. From
10-Q for the quarter ended June 30, 1982 and incorporated
herein by reference.
(3) Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia
International, Inc. Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference.
(b) Reports on Form 8-K.
None.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedule
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995
and 1994 F-3
Consolidated Statements of Earnings for the years
ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule for the years ended
December 31, 1995, 1994 and 1993:
Schedule II - Valuation and Qualifying Accounts F-13
All other schedules have been omitted as not applicable or not
required.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Arrow-Magnolia International, Inc.:
We have audited the accompanying consolidated financial
statements of Arrow-Magnolia International, Inc. and subsidiary
as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we have also
audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
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."
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1996
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
Assets 1995 1994
<S> <C> <C>
Current assets:
Cash $761,419 856,883
Short-term investments, at cost 690,051 -
Trade accounts receivable, less
allowance for doubtful
accounts of $269,813 in 1995 and
$241,508 in 1994 (note 4) 1,339,408 869,663
Other receivables 5,319 18,583
Inventories (note 4) 681,825 610,613
Deferred income taxes (note 6) 91,430 78,368
Prepaid expenses 18,548 19,142
Total current assets 3,588,000 2,453,252
Property and equipment, net
(notes 2 and 5) 371,320 400,415
Intangible assets, net (note 3) 110,560 122,308
Note receivable 40,000 40,000
Deferred income taxes (note 6) 24,811 19,056
Other assets 1,000 1.000
$ 4,135,691 3,036,031
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term
debt (note 5) $112,835 108,175
Accounts payable 421,283 294,807
Accrued liabilities 183,080 129,810
Income taxes payable 174,754 129,666
Total current liabilities 891,952 662,458
Note payable (note 4) 790,000 690,000
Long-term debt, excluding current
installments (note 5) 250,844 361,352
Total liabilities 1,932,796 1,713,810
Stockholders' equity (note 7):
Preferred stock - par value $.10;
authorized 500,000 shares; none issued
Common stock - par value $.10;
authorized 10,000,000 shares; issued
and outstanding 1,157,600 shares in
1995 and 1,000,000 shares in 1994 115,760 100,000
Additional paid-in capital 1,385,840 900,000
Accumulated earnings 701,295 322,221
Total stockholders' equity 2,202,895 1,322,221
$ 4,135,691 3,036,031
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Net sales $8,393,829 6,686,615 6,262,192
Cost of sales 4,885,799 3,917,320 3,864,063
Gross profit 3,508,030 2,769,295 2,398,129
General and administrative
expenses 2,371,447 2,093,582 1,996,141
Operating income 1,136,583 675,713 401,988
Other income (expenses):
Interest expense (96,552) (101,051) (112,258)
Gain (loss) on disposition
of assets 2,500 1,867 (3,337)
Other income 24,166 9,267 9,875
Other expenses, net (69,886) (89,917) (105,720)
Earnings before income
taxes and cumulative
effect of a change in
accounting principle 1,066,697 585,796 296,268
Income taxes (note 6) 387,623 224,732 112,314
Earnings before cumulative
effect of a change in
accounting principle 679,074 361,064 183,954
Cumulative effect of a change
in method of accounting for
income taxes (note 6) - - 125,528
Net earnings $ 679,074 361,064 309,482
Earnings per common share
(note 7):
Earnings before cumulative
effect of a change in
accounting principle $ .61 .33 .17
Cumulative effect on
prior years (to December
31, 1992) of change in
method of accounting for
income taxes - - .11
Net earnings $ .61 .33 .28
Weighted average shares
outstanding 1,109,589 1,099,989 1,097,285
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
Total
Additional Accumulated Stock-
Common paid-in earnings holders'
stock capital (deficit) equity
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $100,000 900,000 (38,843) 961,157
Net earnings - - 361,064 361,064
Balances at December 31, 1994 100,000 900,000 322,221 1,322,221
10% stock dividend 10,000 290,000(300,000) -
Issuance of 57,600 shares at
$3.50 per share 5,760 195,840 - 201,600
Net earnings - - 679,074 679,074
Balances at December 31, 1995 $115,760 1,385,840 701,295 2,202,895
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 679,074 361,064 309,482
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 74,148 103,751 100,464
Loss (gain) on disposition of
property and equipment (2,500) (1,866) 3,337
Deferred income taxes (18,817) 3,167 (100,591)
Provision for doubtful accounts 193,838 187,871 227,975
Changes in assets and liabilities:
Decrease (increase) in
receivables (650,319)(318,738) 2,153
Decrease (increase) in
inventories (71,212) (78,499) 81,420
Decrease (increase) in
prepaid expenses (1,806) 4,601 1,027
Decrease in other assets - - 20,661
Increase (decrease) in
accounts payable 126,476 18,064 (137,018)
Increase in accrued
liabilities 53,270 45,111 25,933
Increase in income taxes payable 45,088 129,290 376
Net cash provided by (used in)
operating activities 427,240 453,816 535,219
Cash flows from investing activities:
Purchase of short-term investments (690,051) - -
Acquisition of property and equipment (30,905) (27,295) (55,970)
Proceeds from sale of property and
equipment 2,500 26,428 3,010
Net cash used in investing
activities (718,456) (867) (52,960)
Cash flows from financing activities:
Proceeds from issuance of note
payable 200,000 703,838 725,000
Repayments of note payable (100,000)(738,838) (875,000)
Proceeds from issuance of long-term
debt 25,448 495,000 27,525
Repayments of long-term debt (131,296)(552,997) (86,828)
Repayments of capital lease obligation - (20,473) (4,174)
Proceeds from issuance of treasury stock - - 1,650
Proceeds from issuance of common stock 201,600 - -
Net cash provided by (used in)
financing activities 195,752 (113,470) (211,827)
Net increase (decrease) increase in
cash (95,464) 339,479 270,432
Cash at beginning of year 856,883 517,404 246,972
Cash at end of year $ 761,419 856,883 517,404
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(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"). All significant intercompany balances and transactions
have been eliminated in consolidation.
(b) Nature of the Operations and Use of Estimates
The Company is engaged in the sale and distribution of chemical
products, primarily industrial and institutional cleaning and mainte-
nance 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 geograph-
ic regions. No single customer accounted for more than 10% of net
sales in 1995, 1994 and 1993.
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(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, 1995 or 1994.
Cash paid for interest during 1995, 1994 and 1993 was $96,552, 101,051
and $117,706, respectively. Cash paid for federal income taxes during
1995 and 1994 was $204,000 and $65,024, respectively.
(d) Short-term Investments
Short-term investments, all of which are held to maturity at December
31, 1995, represent investments in bank certificates of deposit and
U.S. Government Treasury Bills. The investments are recorded at
amortized cost, which approximates market value.
(e) 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.
<PAGE>
(f) Property and Equipment
Property and equipment are stated at cost. 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.
(g) 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 intangi-
ble assets 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.
(h) 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 attribut-
able 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 differenc-
es 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.
(i) Earnings per Share
Earnings per share is computed on the basis of the weighted average
number of common shares outstanding during each year as adjusted, on a
retroactive basis, for the stock dividend discussed in note 7.
<PAGE>
(2) Property and Equipment
Property and equipment consist of the following:
<TABLE>
December 31
Useful lives 1995 1994
<S> <C> <C> <C>
Land - $ 95,310 95,310
Buildings and improvements 5 to 40 years 415,591 413,092
Machinery and equipment 3 to 10 years 276,719 277,842
Furniture and fixtures 5 to 10 years 210,389 203,415
998,009 989,659
Less accumulated depreciation (626,689) (589,244)
$ 371,320 400,415
(3) Intangible Assets
Intangible assets consist of the following:
December 31
Useful lives 1995 1994
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 (110,440) (98,692)
$110,560 122,308
</TABLE>
(4) Note Payable
The note payable at December 31, 1995 is a revolving line of credit
($790,000 outstanding at December 31, 1995) with an asset-based lender
due on May 1, 1997. 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, 1995, the unused portion of the commitment
was $291,332. 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, 1995) and is collateralized by certain accounts receiv-
able and inventories. As the line of credit bears interest at market
rates, the carrying amount of borrowings outstanding at December 31,
1995 approximates fair value.
PAGE
<PAGE>
(5) Long-term Debt
Long-term debt consists of the following:
December 31
1995 1994
Note payable to a bank, interest at prime
(8.5% at December 31, 1995), 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 $335,000 455,000
Note payable to a bank in monthly installments
of $765, including interest at 7.9%, maturing
in July 1996, and collateralized by an automobile 5,352 14,527
Note payable to a bank in monthly installments of
$707, including interest at 7.9%, maturing
September 1998, and collateralized by an
automobile 23,327 -
363,679 469,527
Less current installments 112,835 108,175
$250,844 361,352
The aggregate maturities of notes payable and long-term debt subse-
quent to December 31, 1995 are as follows:
1996 $112,835
1997 897,483
1998 105,361
1999 38,000
(6) Income Taxes
Income tax expense (benefit) for the years ended December 31, 1995,
1994 and 1993 consists of the following:
1995 1994 1993
U.S. federal - current $378,754 194,315 75,377
U.S. federal - deferred (18,817) 3,167 24,937
State - current 27,686 27,250 12,000
$387,623 224,732 112,314
PAGE
<PAGE>
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:
1995 1994 1993
Computed "expected" tax expense $362,677 199,171 100,731
Amortization of goodwill 3,994 5,450 5,450
State income taxes 18,273 17,985 7,920
Other 2,679 2,126 (1,787)
$387,623 224,732 112,314
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
1995 1994
Current deferred tax assets -
allowance for doubtful accounts $91,430 78,368
Noncurrent deferred tax assets -
property and equipment depreciation $24,811 19,056
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, 1995 to be
realized as a result of future taxable income.
(7) Stockholders' Equity
During 1994, the Company's Board of Directors approved a nonqualified
stock option plan (Plan) covering 220,000 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, 220,000 stock options were granted to certain
officers of the Company at an option price of $1.00 per share, the
estimated fair market value of the common stock at the date of grant.
These stock options were fully exercisable at the date of grant.
In January 1995, the Plan was amended to provide for an increase in
the number of shares subject to the Plan to 275,000 shares and an
additional 55,000 options were granted to certain key employees.
These stock options were issued at an option price of $1.00 per share,
the estimated 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. At December 31, 1995, 11,000
options were exercisable.
PAGE
<PAGE>
At December 31, 1995 and 1994, none of the stock options granted under
the Plan had been exercised.
On April 5, 1995, the Company declared a ten percent stock dividend on
its common stock. As a result, all share and per share information in
the accompanying financial statements has been retroactively restated
to give effect to the dividend.
On May 15, 1995, the Company issued stock warrants to a certain
service provider. The stock warrants are exercisable to purchase up
to 25,000 shares of the Company's common stock at $2.50 per share.
The stock warrants were fully exercisable at the date of the grant.
The stock warrants expire one year from the date of the issuance. At
December 31, 1995, none of the warrants had been exercised
In November 1995, the Company issued 57,600 shares of common stock in
a private placement at a price of $3.50 per share.
(8) Fourth Quarter Adjustments
Net earnings in the fourth quarter of 1995 were reduced by $11,148 for
adjustments in depreciation and amortization expense, $33,000 for
bonus compensation and $13,813 for adjustments in income tax expense.
Net earnings in the fourth quarter of 1994 were reduced by $9,735 for
adjustments in depreciation and amortization 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.
<PAGE>
<PAGE>
Schedule II
ARROW-MAGNOLIA INTERNATIONAL, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
<TABLE>
Balance Additions Balance
at Charged at
beginning to end
of costs and of
Description year expenses Other Deductions(1) year
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995:
Allowance for doubtful
accounts $241,508 193,838 - 165,533 269,813
Year ended December 31,
1994:
Allowance for doubtful
accounts $236,002 187,871 - (182,365) 241,508
Year ended December 31,
1993:
Allowance for doubtful
accounts $219,053 227,975 - (211,026) 236,002
</TABLE>
(1) Charge-off of uncollectible accounts.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of The
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunder duly
authorized.
ARROW-MAGNOLIA INTERNATIONAL, INC.
By /s/ Morris Shwiff
Morris Shwiff, President
Dated: March 5, 1996
Pursuant to the requirements of The Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Morris Shwiff Director, Chairman of the }
Morris Shwiff Board and President }
(Principal Executive Officer) }
}
/s/ Mark I. Kenner Director and Executive }
Mark I. Kenner Vice President } March
} 5, 1996
}
/s/ Fred Kenner Director, Vice President, }
Fred Kenner Secretary and Treasurer }
(Principal Financial and }
Accounting Officer) }
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Number Exhibit Page
3.1 Articles of Incorporation, as amended, of (1)
Arrow-Magnolia International, Inc.
3.2 Bylaws of Magnolia Enterprises, Inc. (2)
10.19 Arrow-Magnolia International, Inc. (3)
Amended and Restated Non-Qualified
Stock Option Plan.
10.20 Credit Loan Agreement dated August 5, (3)
1994 between Arrow-Magnolia International,
Inc. and Texas Commerce Bank National
Association.
10.21 Extension and Modification Agreement (3)
dated August 18, 1994 between Arrow-Magnolia
International, Inc. and Texas Commerce
Bank National Association.
(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. From 10-Q
for the quarter ended June 30, 1982 and incorporated herein by
reference.
(3) Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia
International, Inc. Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference.
