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, 1997
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, 1997:
Common Stock, $0.10 par value, 2,373,120 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
June 30, 1997
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, 1997 (unaudited) and December 31, 1996.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Consolidated Statements of Earnings for
the Three and Six Months Ended June 30, 1997 and
1996 (unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997 and 1996
(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 4. Submission of Matters to a Vote of Security
Holders 7
Item 6. Exhibits and Reports on Form 8-K 7
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
June 30, and December 31, 1996
June 30, December 31,
Assets 1997 1996
(unaudited)
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Current assets:
Cash $ 1,218,428 1,755,000
Short-term investments, at cost 300,000 300,000
Trade accounts receivable, less
allowance for doubtful
accounts of $310,916 in 1997
and $245,521 in 1996 2,577,335 1,585,552
Inventories 874,531 769,977
Deferred income taxes 105,404 83,170
Other assets 79,650 19,801
Total current assets 5,155,348 4,513,500
Property and equipment, net 421,823 352,641
Intangible assets, net 122,582 96,011
Note receivable 40,000 40,000
Deferred income taxes 19,602 19,602
Other assets 2,700 1,000
$5,762,055 $5,022,754
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-
term debt $ 118,484 107,483
Accounts payable 708,626 413,836
Accrued liabilities 157,628 199,806
Income taxes payable 126,827 200,452
Total current liabilities 1,111,565 921,577
Note payable 600,000 650,000
Long-term debt, excluding current
installments 53,121 122,362
Total liabilities 1,764,686 1,693,939
Stockholders' equity:
Preferred stock - par value
$.10; authorized 500,000
shares; none issued - -
Common stock - par value
$.10; authorized 10,000,000
shares; 2,373,120 shares
issued and outstanding in 1997
and 2,315,200 shares issued
and outstanding in 1996 237,312 237,312
Additional paid-in capital 1,347,748 1,347,748
Accumulated earnings 2,412,309 1,743,755
Total stockholders' equity 3,997,369 3,328,815
Commitments
$5,726,055 5,022,754
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
Six and Three months ended June 30, 1997 and 1996
Six months Three months
ended June 30 ended June 30
1997 1996 1997 1996
(unaudited)(unaudited) (unaudited) (unaudited)
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Net sales $6,085,891 5,143,968 3,314,188 2,662,343
Cost of sales 2,907,193 2,463,230 1,584,665 1,268,718
Gross profit 3,178,698 2,680,738 1,729,523 1,393,625
General and admini-
strative expenses 2,129,551 1,858,368 1,122,683 939,682
Operating income 1,049,147 822,370 606,840 453,943
Other income (expenses):
Interest expense (33,673) (44,197) (16,853) (21,013)
Other income 35,167 28,904 17,940 23,617
Other income
(expenses) net 1,494 (15,293) 1,087 2,604
Earnings before
income taxes 1,050,641 807,077 607,927 456,547
Income taxes:
Current 404,321 319,703 235,231 184,713
Deferred income
tax benefit (22,234) (25,238) (14,146) (18,140)
Net earnings $ 668,554 512,612 386,842 289,974
Earnings per common
share:
Net earnings $ .23 .18 .13 .10
Weighted average
shares outstanding 2,900,045 2,798,321 2,901,328 2,828,718
</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
Six months ended June 30, 1997 and 1996
1997 1996
(unaudited) (unaudited)
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Cash flows from operating activities:
Net earnings $ 668,554 512,612
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 37,274 35,274
Deferred income taxes (22,234) (25,238)
Provision for doubtful accounts 65,395 118,679
(Increase) decrease in operating assets:
Receivables (1,065,540) (637,134)
Inventories (104,554) (67,546)
Other assets (95,394) 18,548
(Decrease) increase in operating
liabilities:
Accounts payable 294,790 109,858
Accrued liabilities (42,178) (60,560)
Income taxes payable (73,625) (65,356)
Net cash used in operating
activities (329,150) (60,863)
Cash flows from investing activities:
Purchase of short-term investments - 374,602
Acquisition of property and equipment (99,182) (34,603)
Net cash used in investing
activities (99,182) 339,999
Cash flows from financing activities:
Repayments of note payable (50,000) (90,000)
Proceeds from common stock issuance - 31,250
Repayments of long-term debt (58,240) (68,828)
Net cash used in financing
activities (108,240) (127,578)
Net decrease in cash (536,572) 151,558
Cash at beginning of period 1,755,000 761,419
Cash at end of period $1,218,428 912,977
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 1997 and 1996
(1) Basis of Presentation
The June 30, 1997 and 1996 condensed consolidated financial
statements include the accounts of Arrow-Magnolia
International, Inc., its Chemco Chemical Company Division, and
its Darsan and Southwest Supply & Environmental Division and
its wholly-owned subsidiary, Bio/Dyne Chemical Company, an
inactive corporation (collectively the Company). 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, 1996.
(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
14, 1996.
On June 1, 1997, the Company issued 20,000 common stock
options with an exercise price of $4.25 per share. Effective
July 15, 1997, the Company issued a 10% stock dividend on all
outstanding common stock.
The weighted average shares outstanding and earnings per
common share amounts for the three months and six months ended
June 30, 1996 have been restated to correct a mathematical
error in the calculation of the weighted average number of
shares. The effect of the restatement was to decrease
earnings per common share by $0.03 for the three months and
six months ended June 30, 1996, respectively.
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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 $3,591,923 as of December 31, 1996,
increased to $4,043,783 as of June 30, 1997. 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 sales.
The Company experienced negative cash flow from operations as
earnings were used to fund growth, primarily to fund increased
accounts receivable and inventory. The Company's accounts payable
also grew as the Company conserved cash and extended payment to
certain vendors. Funds were also utilized to purchase short-term
investments, upgrade property and equipment and reduce debt.
The Company continues to evaluate 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 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, 1997 increased
from $5,143,968 to $6,085,891, or 18.3%, from the same period of
the previous year and to $3,314,188 from $2,662,343, or 24.5%, from
the second quarter of 1996 to the corresponding quarter of 1997.
These increases are attributable to the Company's focused marketing
efforts permitted by its continuing financial strength. In
addition, second quarter earnings were positively affected by the
successful acquisition of Darsan, Inc. and Southwest Supply &
Environmental on May 5, 1997.
Cost of sales, including salesmen expenses, as a percentage of
net sales remained stable at 47.8% of net sales for the six months
ended June 30, 1997 as compared to 47.9% of net sales for the same
period of 1996. For the second quarters of 1997 and 1996, cost of
sales were 47.8% and 47.7% of net sales, respectively. The Company
has been able to maintain its margins while expanding sales
dramatically.
Gross profit therefore increased significantly from $2,680,738
(52.1% of net sales) to $3,178,698 (52.2% of net sales) for the six
months ended June 30, 1997 versus the six months ended June 30,
1996, an increase of 18.6%. The increase realized during the
second quarter of the two years was even greater, an increase from
$1,393,625 to $1,729,523, or 24.1%.
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Selling, general and administrative expenses increased by
14.6% and 19.5% for the comparable six month and three month
periods, respectively, as the Company incurred additional costs to
support its sales growth. During the second quarter, these
expenses were impacted by the acquisition described above.
As a result of these factors, net earnings before income taxes
increased to $1,050,641 from $807,077 for the corresponding six
month periods of 1997 and 1996 and to $607,927 from $456,547 for
the second quarters of those years. Similarly, net earnings
increased dramatically for the comparable six month periods, from
$512,612 to $668,556, or 30.4% and, for the second quarter of the
two years, from $289,974 to $386,842, or 33.4%.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders.
The annual meeting of shareholders of Arrow-Magnolia
International, Inc. was held on June 27, 1997, at which time the
shareholders were asked to vote upon election of Directors and
approval of the declaration of a 10% stock dividend.
All nominees identified in the Company's proxy materials were
elected. The votes in such election were tabulated as follows:
Nominees For Votes Withheld
Morris Shwiff 1,574,411 220
Mark Kenner 1,574,411 220
Fred Kenner 1,574,411 220
Robert D. DeRosier 1,574,411 220
Clifton R. Duke 1,574,411 220
The votes to approve the dividend were tabulated as follows:
For Against Abstain
1,574,411 220 0
Therefore, as contemplated, a 10% stock dividend was distributed on
August 1, 1997 to shareholders of record as of July 15, 1997.
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 7, 1997 By: /s/ Morris Shwiff
Morris Shwiff, President
and Principal Executive Officer
Date: August 7, 1997 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 June 30, 1997 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
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