165,200 Shares
ARROW-MAGNOLIA INTERNATIONAL, INC.
COMMON STOCK
Of the shares offered hereby, 115,200 shares were offered and sold by
the Company and 50,000 shares have been or may be acquired and resold by the
holder of a warrant to purchase Common Stock. The Company, solely through
its Directors and officers, offered shares on a best efforts basis. No
minimum amount of shares to be sold was specified as a condition to
completion of any sales. However, the Company completed sales for a total
of 115,200 shares before terminating its offering.
The warrant holder may offer shares for sale from time to time at prices
prevailing in the public market on the date of sale. Through July 31, 1996,
the warrant holder had sold 19,000 shares. The proceeds to the Company
reflected in this prospectus 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 August 5, 1996, the last price as reported on the NASDAQ SmallCap
Market was $4.50 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.
Price to Public Underwriting Discounts Proceeds to Proceeds to
and Commissions Company(1) Selling
Stockholder
Per Share
Sold Directly $1.75 $ - $1.75 $ -
Per Share Sold
Under Warrant $4.22(2) $ - $1.25 $2.97
Per Share Sold
Under Warrant and
Not Resold $4.50(3) $ - $1.25 $3.25
Total Minimum (4) - $ - $ - $ -
Total Maximum (4) $421,313 $ - $264,100 $157,213
(1) Before deducting expenses estimated at $15,000 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.
(2) Based upon the actual average sale price for 19,000 shares sold by
the warrant holder.
(3) Based upon the last price reported on the NASDAQ SmallCap Market on
August 5, 1996.
(4) No minimum threshold was specified as a condition to completing any
sale of shares. The Company completed sales for 115,200 shares.
See "Risk Factors - Best Efforts Offering; No Minimum."
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.
July 31, 1996
PAGE
<PAGE>
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 copied 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 Section 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 and a one-for-one
stock dividend declared on May 10, 1996.
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 Prospec-
tus.
The Company
The business of Arrow-Magnolia International, Inc. 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 consum-
ers, 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................... 117,600 shares(1)
A Warrant Holder ............. 50,000 shares
Common Stock to be outstanding after
offering...................... 2,365,200 shares
Use of proceeds by the Company...... Working capital and
general corporate pur-
poses
(1) The shares offered by the Company include the shares which may
be acquired by a warrant holder and subsequently resold.
<PAGE> <PAGE>
<TABLE>
Summary Consolidated Financial Data
(in thousands, except per share amounts)
Consolidated
Statement of
Operations Nine Months
Data: Fiscal Year Ended December 31 Ended September 30
1994 1993 1992 1995 1994
<S> <C> <C> <C> <C>
<C> (unaudited)
Net sales... $6,687 $6,262 $6,661 $6,213 $5,058
Net earnings 361 309 157 532 338
Net earnings
per common
share:..... $ 0.17 $ 0.14 $ 0.08 $ 0.24 $ 0.16
Weighted
average
number of
common
shares(2).. 2,200 2,194 2,184 2,200 2,200
</TABLE>
December 31
Balance Sheet Data: 1994 September 30, 1995
Actual As Adjusted
(unaudited) (1)
Working capital $1,791 $2,189 $2,439
Total assets 3,036 3,539 3,788
Long-term debt
less current
installments 1,051 883 883
Stockholders'
equity 1,322 1,854 2,104
(1) Adjusted to give effect to the application of the estimated
net proceeds of the sale of 165,200 shares of Common Stock by
the Company, including 115,200 shares offered by the Company
and assuming a warrant to acquire up to 50,000 shares of
Common Stock is exercised. However, no minimum threshold for
completing any sale has been specified and no assurance can be
given that any particular amount of proceeds will be realized.
See "Risk Factors - Best Efforts Offering; No Minimum." No
adjustment has been made for up to 550,000 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 competi-
tive 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 sporadi-
cally traded at low volumes. Sales of substantial amounts of
Common Stock in the public market after the offering could
significantly 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."
Best Efforts Offering; No Minimum. The shares being offered by the
Company will be sold solely through the efforts of the Company's
Directors and officers on a best efforts basis, and no minimum
number of shares sold has been specified as a condition to
completing any sale. As a result, the Company may complete sales
for only part of the total number of shares offered by the Company,
which may be for any amount of shares up to the total of 200,000.
If one or more investors elects to purchase shares, no assurance
can be given that other subscribers will invest or that the Company
will receive any specific amount of proceeds from this offering.
Further, the Company may elect to discontinue its offering at any
time, whether or not all or any portion of the shares offered
hereby are sold.
Voting Control. Messrs. Shwiff, Kenner and Kenner, the present
Directors and officers of Arrow-Magnolia, currently own beneficial-
ly 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.
Therefore, these individuals will continue to exercise practical
control over the affairs of the Company.
Directors Liability Limited. Under the Company's Articles of Incorpora-
tion, 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 derived 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.
<PAGE>
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.
USE OF PROCEEDS
The net proceeds received by the Company from the issuance and
sale have totaled approximately $250,000. The offering was
conducted on a best efforts basis with no specific minimum
required. The Company reserved the ability to discontinue is
offering at any time. See "Risk Factors - Best Efforts Offering;
No Minimum."
The Company intends to use the entire amount of the net pro-
ceeds 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 permitted
the Company to apply for quotation of the Common Stock on the
NASDAQ SmallCap Market. Upon completion of its offering, the
Company met the listing criteria for inclusion on the NASDAQ
SmallCap Market. Such listing has been 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 "Risk Factors - Possible Volatility of Stock
Price," "Risk Factors - Limited Marketability; Shares Eligible for
Sale" and "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
October 1995 2 1/2 1 3/4 3,040
September 1995 2 15/32 1 3/4 8,760
August 1995 2 1/8 1 3/8 35,152
July 1995 2 1 3/8 10,734
June 1995 1 7/8 1 1/4 11,132
May 1995 2 1 3/16 62,400
April 1995 1 3/4 1 3/4 2,000
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 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 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 janitori-
al 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.
<PAGE>
The Company markets its products primarily through its own
sales persons and independent contractors and manufacturers' repre-
sentatives. 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 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>
<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>
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 con-
solidated statements of earnings bear to net sales and the per-
centage changes of such items as compared to the indicated prior
period:
<TABLE>
Increase (Decrease)
From Prior Period
Nine
Months
Percentage of Net Sales Ended Years Ended
Nine Months Ended 1995 1994 1993
September 30 Years Ended December 31 vs. vs. vs.
1995 1994 1994 1993 1992 1994 1993 1992
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.00% 100.0% 100.0% 100.0% 22.8% 6.8% (6.0)%
Cost of sales 49.3% 48.9% 58.6% 61.7% 62.4% 23.7% 1.4% (7.1)%
Gross profit 50.7% 51.1% 41.4% 38.3% 37.6% 22.0% 15.5% (4.2)%
General and
administra-
tive expenses 36.4% 39.1% 31.3% 31.9% 31.4% 14.5% 4.9% (4.6)%
Operating income 14.3% 12.0% 10.1% 6.4% 6.2% 46.2% 68.1% (2.5)%
Interest expense 1.2% 1.5% 1.5% 1.8% 2.3% (0.5)% (10.0)% (28.0)%
Income before
extraordinary
item 8.6% 6.7% 5.4% 2.9% 1.6% 57.5% 96.3% 71.0%
Extraordinary
item - - - - 0.7% - - -
Earnings before
effect of change
in method of
accounting for
income taxes 8.6% 6.7% 5.4% 2.9% 2.3% 57.5% 96.3% 17.3%
Effect of change
in method - - - 2.0% - - - -
Net earnings 8.6% 6.7% 5.4% 4.9% 2.3% 57.5% 16.7% 97.4%
</TABLE>
<PAGE> <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 percent-
age 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 Compa-
ny, 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 Decem-
ber 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 nine months ended September 30, 1995
increased to $6,213,163 from $5,058,098, or 22.8%, from the same
quarter of the previous year, primarily as a result of the
Company's focused marketing efforts permitted by its continuing
financial strength. For the comparable three month periods then
ended, net sales increased more dramatically from $1,717,849 to
$2,264,600 or 31.8%.
Cost of sales, including salesmen expenses, increased modestly
as a percentage of net sales from $2,474,547 or 48.9% of net sales
for the nine months ended September 30, 1994 to $3,061,761 or 49.3%
of net sales for the same period of 1995. Cost of sales were 49.2%
and 48.2%, respectively, of net sales for the comparable quarters
of 1995 and 1994.
<PAGE>
As a result of increased sales, gross profit improved from
$2,583,551 to $3,151,402 for the nine months ended September 30,
1995 versus the nine months ended September 30, 1994, an increase
of 22.0%. For the comparable quarters, gross profit increased from
$890,543 to $1,150,787 or 29.2%.
General and administrative expenses increased by 14.5% and
20.4% for the comparable nine month and 3 month periods, respec-
tively, as the Company incurred additional costs to support its
sales growth. As a percentage of net sales, general and adminis-
trative costs fell to 36.4% for the first nine months of 1995 from
39.1% for the first nine months of 1994 as sales growth absorbed
more of this overhead. For the three month periods, the comparable
percentages were 34.4% for 1995 and 37.7% for 1994.
Earnings before income taxes improved by approximately 63.7%
for the first nine months and 89.1% for the quarter ended September
30, 1995 as compared to the corresponding periods of 1994 due to
the factors previously described. Net earnings increased dramati-
cally for the comparable nine month periods, from $337,731 to
$532,081, or 57.5%, and for the third quarter of the two years,
from $126,719 to $218,798, or 72.7%.
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 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 in-
creased but less dramatically largely due to the accrual of income
taxes.
The Company's working capital further increased to $2,189,082
as of September 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.
<PAGE>
The Company experienced positive cash flow from operations
during the first nine 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 nine
months.
The Company believes that its present financing will provide
adequate funding for its capital needs for the foreseeable future.
<PAGE> <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.
<PAGE>
Directors are elected annually and serve until their succes-
sors are duly elected and qualified. Officers serve at the discre-
tion of the Board.
Executive Compensation
The following tables summarize 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.
SUMMARY COMPENSATION TABLE
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 $8,745 154,000
Chairman of 1993 $116,600 $ 0 0
the Board 1992 $106,080 $ 0 0
and President
Mark I. Kenner, 1994 $112,580 $8,208 145,200
Director and 1993 $109,445 $ 0 0
Executive 1992 $ 99,320 $ 0 0
Vice President
Fred Kenner, 1994 $106,600 $7,751 140,800
Director and 1993 $103,350 $ 0 0
Vice President, 1992 $ 93,600 $ 0 0
Secretary and
Treasurer
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 and a one-for-one
stock dividend declared on May 10, 1996:
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 154,000 35% $0.50 12/1/2004
Mark I.
Kenner 145,200 33% $0.50 12/1/2004
Fred
Kenner 140,800 32% $0.50 12/1/2004
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 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 and a one-for-one stock dividend declared
on May 10, 1996:
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 0 154,000 - 0 -
Mark I.
Kenner 0 0 145,200 - 0 -
Fred
Kenner 0 0 140,800 - 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.
On May 10, 1996, the Company declared a one-for-one stock
dividend on the Common Stock. The Plan has been amended to double
the number of shares subject to the Plan to 550,000, and each
outstanding option was amended to double the number of shares
subject to such option and halve the exercise price for each option
issued to $0.50.
PAGE
<PAGE>
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. In the absence of a determi-
nation which expressly absolves the Director or officer of
liability to the Company or its shareholders for willful misfea-
sance, 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 indem-
nified 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.
<PAGE>
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 expenses (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 Com-
pany's Common Stock owned at November 7, 1995 by (i) each share-
holder 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.
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 1,001,002(2) 42.5% - 1,001,002(2) 38.4%
2646 Rodney Lane
Dallas, TX 75229
Mark I. Kenner 607,198(3) 25.9% - 607,198(3) 23.4%
2646 Rodney Lane
Dallas, TX 75229
Fred Kenner 370,000(4) 15.9% - 370,000(4) 14.4%
2646 Rodney Lane
Dallas, TX 75229
All Directors 1,980,000(5) 75.0% - 1,980,000(5) 68.5%
and Officers as
a Group
(Three Persons)
Howell 50,000(6) 2.2% 50,000 - -
Communications,
Inc.
(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.
<PAGE>
(2) Includes 154,000 shares which may be acquired upon exercise of
an option at an exercise price of $0.50 per share.
(3) Includes 145,200 shares which may be acquired upon exercise of
an option at an exercise price of $0.50 per share.
(4) Includes 140,800 shares which may be acquired upon exercise of
an option at an exercise price of $0.50 per share.
(5) Includes 440,000 shares which may be acquired upon exercise of
an option at an exercise price of $0.50 per share.
(6) Comprised of 50,000 shares which may be acquired upon exercise
of a warrant which shall vest in increments of 25,000 on
November 1, 1995 and May 1, 1996 at an exercise price of $1.25
per share.
(7) Assumes all shares offered by this prospectus are sold.
PGAE
<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 November 7, 1995, there were 2,200,000 shares of Common
Stock outstanding and held of record by approximately 400 stock-
holders. The holders of Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of
shareholders. 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 provision 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, privi-
leges 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 pre-
ferred 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.
<PAGE>
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 50,000 shares of Common Stock in
increments of 25,000 as of November 1, 1995 and May 1, 1996 at an
exercise price of $1.25 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
Assuming all shares offered by this prospectus are sold, the
Company will have outstanding 2,365,200 shares of Common Stock. Of
these shares, the 165,200 shares sold in this offering and 660,000
shares previously issued are freely tradeable without restriction
under the Securities Act of 1933, as amended (the "Act"). Approxi-
mately 1,540,000 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
Promptly after the registration statement for this offering
became effective, the Company offered shares to be sold by it on a
best efforts basis at the offering price of $1.75. All offers and
sales were conducted solely through the efforts of the Company's
Directors and officers.
The Company did not specify any minimum number of shares which
had to be sold before subscriptions could be accepted. Therefore,
the Company reserved the right to complete transactions with any
subscriber without requiring that any minimum thresholds be
reached, and no assurance was given that any other transaction
would be completed or any particular amount of shares would be sold
or any amount of proceeds would be received. See "Risk Factors -
Best Efforts Offering; No Minimum."
Further, the Company reserved the right to discontinue the
offering at any time due to business results, market changes or
other factors, which could also have resulted in fewer shares being
sold than might otherwise be sold.
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 Commis-
sion, 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>
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
Independent Auditors' Report 29
Arrow-Magnolia International, Inc. and
Subsidiary Condensed Consolidated Balance
Sheets as of September 30, 1995 (unaudited)
and December 31, 1994.
Arrow-Magnolia International, Inc. and 30
Subsidiary Condensed Consolidated Statements
of Earnings for the Three and Nine Months
Ended September 30, 1995 and 1994 (unaudited).
Arrow-Magnolia International, Inc. and 31
Subsidiary Condensed Consolidated Statements
of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 (unaudited).
Notes to Condensed Financial Statements 35
(unaudited).
Note: The attached financial statements have not been adjusted
to reflect a one-for-one stock dividend declared on May
10, 1996.
<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 consoli-
dated 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>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
Sept. 30, Dec. 31, Dec. 31.
Assets 1995 1994 1993
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 725,777 $ 856,883 $ 517,404
Trade accounts receivable,
less allowance for doubtful
accounts of $270,215 in 1995,
$241,508 in 1994 and
$236,002 in 1993 (note 5) 1,512,517 869,663 724,461
Other receivables 43,913 18,583 32,918
Inventories (note 5) 615,059 610,613 532,114
Deferred income taxes (note 8) 80,887 78,368 80,240
Prepaid expenses 12,643 19,142 23,743
Total current assets 2,990,796 2,453,252 1,910,880
Property and equipment, net
(notes 3, 5, 6 and 7) 383,821 400,415 479,417
Intangible assets, net (note 4) 104,308 122,308 144,324
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
$3,538,981 3,036,031 2,595,972
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term
debt (note 6) $ 115,128 $ 108,175 $ 83,499
Current installments of obligations
under capital lease (note 7) - 20,473
Accounts payable 425,584 294,807 276,743
Accrued liabilities 129,894 129,810 84,699
Income taxes payable 131,108 129,666 376
Total current liabilities 801,714 662,458 465,790
Note payable (note 5) 600,000 690,000 725,000
Long-term debt, excluding current
installments (note 6) 282,965 361,352 444,025
Total liabilities 1,684,679 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) 554,302 322,221 (38,843)
Total stockholders' equity 1,854,302 1,322,221 961,157
Commitments (note 7)
$3,538,981 $3,036,031 $2,595,972
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
<TABLE>
Nine Months
Ended Sept. 30, Years Ended December 31,
1995 1994 1994 1993 1992
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $6,213,163 5,058,098 6,686,615 6,262,192 6,661,117
Cost of sales 3,061,761 2,474,547 3,917,320 3,864,063 4,157,347
Gross profit 3,151,402 2,583,551 2,769,295 2,398,129 2,503,770
General and administrative
expenses 2,262,509 1,975,552 2,093,582 1,996,141 2,091,516
Operating income 888,893 607,999 675,713 401,988 412,254
Other income (expenses):
Interest expense (75,682) (76,040) (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 12,489 (26,768) 9,267 9,875 15,761
Other expenses, net (60,693) (102,003) (89,917) (105,720) (255,436)
Earnings before
income taxes,
extraordinary item
and cumulative
effect of a change
in accounting
principle 828,200 505,996 585,796 296,268 156,818
Income taxes
Current Income taxes
(note 8) 298,638 205,854 224,732 112,314 49,226
Deferred income tax
benefit (2,519) (37,589) - - -
Earnings before
extraordinary item
and cumulative
effect of a
change in accounting
principle 532,081 337,731 361,064 183,954 107,592
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 532,081 337,731 361,064 183,954 156,818
Cumulative effect of a change
in method of accounting for
income taxes (note 8) - - - 125,528 -
Net earnings $ 532,081 337,731 361,064 309,482 156,818
PAGE
<PAGE>
Earnings per common share:
Earnings before extraordinary
item and cumulative effect
of a change in accounting
principle $ 0.48 0.31 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 $ 0.48 0.31 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>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
Nine Months
Ended Sept. 30, Years Ended December 31,
1995 1994 1994 1993 1992
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $532,081 337,731 361,064 309,482 156,818
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and
amortization 63,000 70,016 103,751 100,464 115,837
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 (2,519) (37,589) 3,167 (100,591) -
Provision for doubtful
accounts 143,504 110,559 187,871 227,975 207,558
Changes in assets and
liabilities:
Decrease (increase) in
receivables (811,688) (364,295) (318,738) 2,153 (165,836)
Decrease (increase) in
inventories (4,446) (12,192) (78,499) 81,420 (48,953)
Decrease in prepaid
expenses 6,499 22,743 4,601 1,027 2,103
Decrease (increase) in
other assets - (15,603) 20,661 (44,514)
Increase (decrease) in
accounts payable 130,777 63,667 18,064 (137,018) 11,320
Increase (decrease) in
accrued liabilities 84 (43,565) 45,111 25,933 (2,329)
Increase in income taxes
payable 1,442 150,228 129,290 376 -
Net cash provided
by operating
activities 56,234 280,895 453,816 535,219 347,213
<PAGE>
Cash flows from investing
activities:
Proceeds from sale of net
assets of subsidiary - - - 160,000
Acquisition of property and
equipment (28,406) (20,647) (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 (25,906) (1,516) (867) (52,960) 99,533
Cash flows from financing
activities:
Proceeds from issuance of note
payable - 703,838 703,838 725,000
Repayments of note
payable (90,000) (725,000) (738,838) (875,000) (125,000)
Proceeds from issuance of
long-term debt 25,448 495,000 495,000 27,525 632,702
Repayments of long-term
debt (96,882) (524,841) (552,997) (86,828) (748,369)
Repayments of capital lease
obligation - (20,473) (20,473) (4,174) (1,353)
Proceeds from issuance of
treasury stock - - - 1,650 2,500
Net cash used in
financing
activities (161,434) (71,476) (113,470) (211,827) (239,520)
Net increase in cash (131,106) 207,903 339,479 270,432 207,226
Cash at beginning of year 856,883 517,404 517,404 246,972 39,746
Cash at end of year $725,777 725,307 856,883 517,404 246,972
See accompanying notes to consolidated financial statements.
<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 conse-
quences 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 calcula-
tion. Under the deferred method, deferred taxes are not adjusted
for subsequent changes in tax rates.
(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 substan-
tially 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
$1
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