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: June 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 June 30, 1996:
Common Stock, $0.10 par value, 2,340,200 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
June 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
June 30, 1996 (unaudited) and December 31, 1995.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Consolidated Statements of Earnings for
the Three and Six Months Ended June 30, 1996 and
1995 (unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 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
<TABLE>
June 30 December 31
Assets 1996 1995
(unaudited)
<S> <C> <C>
Current Assets:
Cash $ 912,977 761,419
Short-term investments, at cost 315,449 690,051
Trade accounts receivable, less allowance for doubtful
accounts of $344,043 in 1996 and $269,813 in 1995 1,797,551 1,339,408
Other receivables 65,631 5,319
Inventories 749,371 681,825
Deferred income taxes 116,668 91,430
Prepaid expenses - 18,548
Total current assets 3,957,647 3,588,000
Property and equipment, net 377,923 371,320
Intangible assets, net 103,286 110,560
Note receivable 40,000 40,000
Deferred income taxes 24,811 24,811
Other assets 1,000 1,000
$4,504,667 4,135,691
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 108,248 112,835
Accounts payable 531,141 421,283
Accrued liabilities 122,520 183,080
Income taxes payable 109,398 173,754
Total current liabilities 871,307 891,952
Note payable 700,000 790,000
Long-term debt, excluding current installments 186,603 250,844
Total liabilities 1,757,910 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; 2,340,200 and 2,315,200 shares issued and outstanding
at June 30, 1996 and December 31, 1995, respectively 234,020 115,760
Additional paid-in capital 1,298,830 1,385,840
Accumulated earnings 1,213,907 701,295
Total stockholders' equity 2,746,757 2,202,895
Commitments
$4,504,667 4,135,691
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
Six and Three Months Ended June 30, 1996 and 1995
Six months
ended June 30
Three months
ended June 30
1996
1995
1996
1995
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Net sales
$ 5,143,968
3,948,563
2,662,343
1,978,745
Cost of sales
2,463,230
1,947,948
1,268,718
1,037,264
Gross profit
2,680,738
2,000,615
1,393,625
941,481
General and administra-
tive expenses
1,858,368
1,483,230
939,682
731,876
Operating income
822,370
517,385
453,943
209,605
Other income (expenses):
Interest expense
(44,197)
(51,735)
(21,013)
(25,843)
Gain on disposition of assets
-
2,500
-
2,500
Other income
28,904
7,810
23,617
4,391
Other income (expenses), net
(15,293)
(41,425)
2,604
(18,952)
Earnings before income
taxes
807,077
475,960
456,547
190,653
Income taxes:
Current
319,703
182,952
184,713
76,211
Deferred income tax benefit
(25,238)
(20,275)
(18,140)
(10,576)
Net earnings
$ 512,612
313,283
289,974
125,018
Earnings per common share:
Primary
Net earnings
$ .21
.13
.13
.05
Weighted average shares
outstanding
2,412,831
2,440,291
2,319,367
2,440,291
Fully Diluted:
Net earnings
Weighted average shares
outstanding
$ .20
2,572,283
.13
2,440,291
.11
2,574,367
.05
2,440,291
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995
<TABLE>
1996
1995
<S> <C>
<C>
Cash flows from operating activities:
Net earnings
$ 512,612
313,283
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization
35,274
42,000
Gain on disposition of property and equipment
-
(2,500)
Deferred income taxes
(25,238)
(20,275)
Provision for doubtful accounts
118,679
91,242
Changes in assets and liabilities:
Increase in receivables
(637,134)
(499,129)
Increase in inventories
(67,546)
(38,638)
Decrease in prepaid expenses
18,548
12,189
Increase in accounts payable
109,858
184,008
Decrease in accrued liabilities
(60,560)
(50,548)
Decrease in income taxes payable
(65,356)
(53,464)
Net cash used in operating activities
(60,863)
(21,832)
Cash flows from investing activities:
Proceeds from sale of short-term investments
Proceeds from sale of property and equipment
Acquisition of property and equipment
374,602
-
(34,603)
-
2,500
(2,956)
Net cash provided by (used in)
investing activities
339,999
(456)
Cash flows from financing activities:
Repayments of note payable
Proceeds from common stock issuance
(90,000)
31,250
(60,000)
-
Repayments of long-term debt
(68,828)
(64,587)
Net cash used in financing activities
(127,578)
(124,587)
Net increase (decrease) in cash
151,558
(146,875)
Cash at beginning of period
761,419
856,883
Cash at end of period
$912,977
710,008
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 1996 and 199
(1) Basis of Presentation
The June 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 June 14, 1996 and a two-for-
one stock split on June 15, 1996.
PAGE
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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
$3,086,340 as of June 30, 1996. The Company's current ratio increased to 4.5
from 4.0. The increase in working capital was primarily the result of 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
The Company experienced negative cash flow from operations as earnings were
used to fund additional growth, primarily to fund increased accounts receivable.
Funds were also utilized to reduce debt, but cash was generated from the sale of
short-term investments resulting in a net increase in cash for the first six
months.
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 additon 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 six months ended June 30, 1996 increased from $3,948,563
to $5,143,968, or 30.3%, from the same period of the previous year and to
$2,662,343 from $1,688,073, or 57.7%, from the second 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, including salesmen expenses, as a percentage of net sales
decreased to 47.9% of net sales for the six months ended June 30, 1996 as
compared to 49.3% of net sales for the same period of 1995. For the second
quarters of 1996 and 1995, cost of sales were 47.7% and 52.4% of net sales,
respectively. These improvements have been implemented through increased
volume in sales combined with relatively static sales expense.
Gross profit therefore increased significantly from $2,000,615 (50.7% of net
sales) to $2,680,738 (52.1% of net sales) for the six months ended June 30,
1996 versus the six months ended June 30, 1995, an increase of 34.0%. The
increase realized during the second quarter of the two years was even
greater, an increase from $941,481 to $1,393,625, or 48.0%.
Selling, general and administrative expenses increased by 25.3% and 28.4%
for the comparable six month and three month periods, respectively, as the
Company incurred additional costs to support its sales growth.
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As a result of these factors, net earnings before income taxes increased to
$807,077 from $475,960 for the corresponding six month periods of 1996 and
1995 and to $456,547 from $190,653 for the second quarters of those years.
Similarly, net earnings increased dramatically for the comparable six month
periods, from $313,283 to $512,612, or 63.6% and, for the second quarter of
the two years, from $125,018 to $289,974, or 131.9%.
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: August 13, 1996 By: /s/ Morris Shwiff
Morris Shwiff, President
and Principal Executive Officer
Date: August 13, 1996 By: /s/ Fred Kenner
Fred Kenner, Vice President,
Secretary and Treasurer; the
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-QSB for the quarter ended June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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<ALLOWANCES> 344043
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<DEPRECIATION> 632409
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0000
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</TABLE>
