FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 1996
Commission File Number: 0-4728
ARROW-MAGNOLIA INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its
charter)
Texas
(State or other jurisdiction of incorporation or
organization)
75-0408335
(I.R.S. Employer Identification No.)
2646 Rodney Lane, Dallas, Texas 75229
(Address of principal executive offices)
(214) 247-7111
(Issuer's telephone number, including area code)
Check whether the issuer (1) has 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
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
X
Yes No
Number of common shares outstanding as of September 30,
1996:
Common Stock, $0.10 par value, 2,365,200 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
September 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements Page
Arrow-Magnolia International, Inc. and Subsidiary 2
Condensed Consolidated Balance Sheets as of
September 30, 1996 (unaudited) and December 31, 1995.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Consolidated Statements of Earnings for
the Three and Nine Months Ended September 30, 1996
and 1995 (unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and
1995 (unaudited).
Notes to Condensed Consolidated Financial 5
Statements (unaudited).
Item 2. Management's Discussion and Analysis or 6
Plan of Operation.
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 7
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
September 30, 1996 December 31, 1995
(unaudited)
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Assets
Current assets:
Cash $ 822,810 761,419
Short-term investments, at cost $908,835 690,051
Trade accounts receivable, less
allowance for doubtful
accounts of $301,000 in 1996 and
$269,813 in 1995 1,639,999 1,339,408
Other receivables 66,134 5,319
Inventories 777,908 681,825
Deferred Income taxes 102,081 91,430
Prepaid expenses 14,000 18,548
Total current assets 4,331,766 3,588,000
Property and equipment, net 362,770 371,320
Intangible assets, net 99,649 110,560
Note receivable 40,000 40,000
Deterred income taxes 24,811 24,811
Other assets 1,000 1,000
$ 4,859,996 4,135,691
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term
debt $ 107,483 112,835
Accounts payable 536,468 421,283
Accrued liabilities 159,604 183,080
Income taxes payable 153,915 174,754
Total current liabilities 957,469 891,952
Note payable 670,000 790,000
Long-term debt, excluding current
installments 154,483 250,844
Total liabilities 1,781,952 1,932,796
Stockholders' equity:
Preferred stock - par value $.10;
authorized 500,000 shares; none
issued; Common stock - par value
$.10; authorized 10,000,000
shares; 2,365,200 and 2,315,200
shares issued and outstanding
at September 30, 1996 and
December 31, 1995, respectively 236,520 115,760
Additional paid-in capital 1,327,580 1,385,840
Accumulated earnings 1,513,944 701,295
Total stockholders' equity 3,078,044 2,202,895
Commitments $ 4,859,996 4,135,691
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
Nine and three months ended September 30, 1996 and 1995
Nine months Three months
ended September 30 ended September 30
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1996 1995 1996 1995
(unaudited) (unaudited)(unaudited)(unaudited)
Net sales $ 7,722,930 6,213,163 2,578,962 2,264,600
Cost of sales 3,712,226 3,061,761 1,248,996 1,113,813
Gross profit 4,010,704 3,151,402 1,329,966 1,150,787
General and
administrative
expenses 2,727,700 2,262,509 869,332 779,279
Operating income 1,283,005 888,893 460,634 371,508
Other income (expenses):
Interest expense (64,193) (75,682) (19,996) (23,947)
Gain on disposition of
assets - 2,500 - -
Other income (expense) 39,280 12,489 10,376 4,679
Other expenses, net (24,913) (60,693) (9,620) (19,268)
Earnings before income
taxes 1,258,092 828,200 451,014 352,240
Income taxes:
Current 456,093 298,638 136,390 115,686
Deferred tax expense
(benefit) (10,651) (2,519) 14,587 17,756
Net earnings $ 812,649 532,081 300,037 218,798
Earnings per common share:
Net earnings $ .29 .19 .11 .08
Weighted average shares
outstanding 2,809,157 2,772,406 2,844,247 2,740,537
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995
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1996 1995
Cash flows from operating activities:
Net earnings $ 812,649 532,081
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 53,911 63,000
Gain on disposition of property and
equipment - (2,500)
Deferred income taxes (10,651) (2,519)
Provision for doubtful accounts 178,102 143,504
Changes in assets and liabilities:
Increase in receivables (539,508) (811,688)
Increase in inventories (96,083) (4,446)
Decrease in prepaid expenses 4,548 6,499
Increase in accounts payable 115,185 130,777
(Decrease) increase in accrued
liabilities (23,476) 84
(Decrease) increase in income taxes
payable (20,839) 1,442
Net cash provided by operating activities 473,838 56,234
Cash flows from investing activities:
Acquisition of short-term investments (218,784) -
Acquisition of property and equipment (34,450) (28,406)
Proceeds from sale of property and equipment - 2,500
Net cash used in investing activities (253,234) (25,906)
Cash flows from financing activities:
Repayments of note payable (120,000) (90,000)
Proceeds from common stock issuance 62,500 -
Proceeds from long-term debt - 25,448
Repayments of long-term debt (101,713) (96,882)
Net cash used in financing activities (159,213) (161,434)
Net increase (decrease) in cash 61,391 (131,106)
Cash at beginning of period 761,419 856,883
Cash at end of period $ 822,810 725,777
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
September 30, 1996 and 1995
(1) Basis of Presentation
The September 30, 1996 condensed consolidated financial
statements include
the accounts of Arrow-Magnolia International, Inc., and its
Chemco Chemical
Company Division, and its wholly-owned subsidiary, Bio/Dyne
Chemical Company,
an inactive corporation. All significant intercompany balances
and
transactions have been eliminated. The quarterly financial
information
included herein is unaudited; however, such information reflects
all
adjustments (consisting solely of normal recurring adjustments)
which are, in
the opinion of management, necessary for a fair statement of
results for the
interim period. For further information, refer to the financial
statements
and notes thereto included in the Company's annual report on Form
10-KSB as
of and for the year ended December 31, 1995.
(2) Net Earnings per Common Share and Share Equivalent
Net earnings per common share and share equivalent is based on
the weighted
average number of common shares and share equivalents outstanding
during the
period. Earnings per common share and share equivalent has been
adjusted to
reflect shares issued under exercise of stock options on August
8, 1996 and
June 14, 1996, as well as a two-for-one stock split on September
15, 1996.
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Item 2. Management's Discussion and Analysis or Plan of
Operation.
Material Changes in Financial Condition.
The Company's working capital (total current assets less
total
current liabilities), which was $2,696,048 as of December 31,
1995,
increased to $3,374,297 as of September 30, 1996. The Company's
current ratio increased to 4.5 from 4.0. The increase in working
capital was primarily the result of increased short-term
investments resulting from the accretion of cash, growth in trade
accounts receivable as a result of improved sales in the quarter
and increased inventory to support additional sales, partially
offset by increased accounts payable incurred in connection with
increased sales.
The Company experienced positive cash flow from operations
as
earnings outstripped funds applied to support additional growth,
primarily to fund increased accounts receivable. Funds were also
utilized to increase short-term investments and to reduce debt.
Currently, the Company is evaluating whether to construct an
additional 30,000 square feet of warehouse space to its existing
facilities and should have more than adequate funds on hand to
complete this addition if the Company concludes that it is
desirable. The Company believes that its present financing is
also
otherwise adequate for its capital needs for the foreseeable
future.
Material Changes in Results of Operations
Net sales for the nine months ended September 30, 1996
increased from $6,213,163 to $7,722,930 or 24.3%, from the same
period of the previous year and to $2,578,962 from $2,264,600 or
13.9%, from the third quarter of 1995 to the corresponding
quarter
of 1996. These increases are attributable to the Company's
focused
marketing efforts permitted by its continuing financial strength.
Cost of sales as a percentage of net sales decreased
modestly
to 48.1% of net sales for the nine months ended September 30,
1996
as compared to 49.3% of net sales for the same period of 1995.
For
the third quarters of 1996 and 1995, cost of sales were 48.4% and
49.2% of net sales, respectively. These decreases reflect the
Company's continuing efforts to control costs even as revenues
grow.
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As a result of increased sales, gross profit increased
significantly from $3,151,402 (50.7% of net sales) to $4,010,704
(51.9% of net sales) for the nine months ended September 30, 1996
versus the nine months ended September 30, 1995, an increase of
27.3%. The increase realized during the third quarter of the two
years was from $1,150,787 to $1,329,966, or 15.6%.
Selling, general and administrative expenses increased by
20.6% and 11.6% for the comparable nine month and three month
periods, respectively, as the Company incurred additional costs
to
support its sales growth.
As a result of these factors, net earnings before income
taxes
increased to $1,258,092 from $828,200 for the corresponding nine
month periods of 1996 and 1995 and to $451,014 from $352,240 for
the third quarters of those years. Similarly, net earnings
increased dramatically for the comparable nine month periods,
from
$532,081 to $812,649, or 52.8% and, for the third quarter of the
two years, from $218,798 to $300,037, or 37.1%.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports.
(a) None
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SIGNATURE
Pursuant to the requirement of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ARROW-MAGNOLIA INTERNATIONAL,
INC.
Date: October 31, 1996 By: /s/ Morris Shwiff
Morris Shwiff, President
and Principal Executive
Officer
Date: October 31, 1996 By: /s/ Fred Kenner
Fred Kenner, Vice
President,
Secretary and Treasurer;
the
Principal Financial and
Accounting Officer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-QSB for the quarter ended September 30, 1996 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
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<PERIOD-END> SEP-30-1996
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</TABLE>
