[CONFORMED COPY]
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, 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 September 30, 1997:
Common Stock, $0.10 par value, 2,617,349 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
September 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
September 30, 1997 (unaudited) and December 31, 1996.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Consolidated Statements of Earnings for
the Three and Nine Months Ended September 30, 1997
and 1996 (unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 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, 1997 and December 31, 1996
September 30, December 31,
Assets 1997 1996
(unaudited)
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Current assets:
Cash $1,429,271 1,755,000
Short-term investments, at cost 300,000 300,000
Trade accounts receivable, less
allowance for doubtful
accounts of $368,313 in 1997 and
$245,521 in 1996 2,840,08 1,585,552
Inventories 913,663 769,977
Deferred income taxes 124,918 83,170
Other assets 88,486 19,801
Total current assets 5,696,422 4,513,500
Property and equipment, net 415,523 352,641
Intangible assets, net 138,836 96,011
Note receivable 40,000 40,000
Deferred income taxes 19,602 19,602
Other assets 2,700 1,000
$6,313,083 $5,022,754
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term
debt $ 115,483 107,483
Accounts payable 725,774 413,836
Accrued liabilities 209,025 199,806
Income taxes payable 229,296 200,452
Total current liabilities 1,279,578 921,577
Note payable 600,000 650,000
Long-term debt, excluding current
installments 21,000 122,362
Total liabilities 1,900,578 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;
2,617,349 shares issued and
outstanding in 1997 and 2,315,200
shares issued and outstanding in
1996 261,739 237,312
Additional paid-in capital 2,477,764 1,347,748
Accumulated earnings 1,673,002 1,743,755
Total stockholders' equity 4,412,505 3,328,815
Commitments $6,313,083 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
Nine and Three months ended September 30, 1997 and 1996
Nine months Three months
ended September 30 ended
September 30
1997 1996 1997 1996
(unaudited)(unaudited) (unaudited) (unaudited)
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Net sales $9,667,064 7,722,930 3,581,173 2,578,962
Cost of sales 4,683,563 3,712,226 1,776,370 1,248,996
Gross profit 4,983,501 4,010,704 1,804,803 1,329,966
Selling, general and
administrative expenses 3,288,184 2,727,700 1,158,633 869,332
Operating income 1,695,317 1,283,004 646,170 460,634
Other income (expenses):
Interest expense (49,743) (64,193) (16,070) (19,996)
Other income 51,989 39,280 16,822 10,376
Other income (expenses), net 2,246 (24,913) 752 (9,620)
Earnings before
income taxes 1,697,563 1,258,091 646,922 451,014
Income taxes:
Current 659,102 456,093 254,781 136,390
Deferred income tax (benefit)
expense (41,749) (10,651) (19,515) 14,587
Net earnings $1,080,210 812,649 411,656 300,037
Earnings per common share:
Net earnings $ .34 .27 .13 .10
Weighted average shares
outstanding 3,160,771 3,062,923 3,162,481 3,099,214
</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, 1997 and 1996
1997 1996
(unaudited) (unaudited)
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Cash flows from operating activities:
Net earnings $1,080,210 812,649
Adjustments to reconcile net earnings
to net cash used in operating
activities:
Depreciation and amortization 51,800 53,911
Deferred income taxes (41,748) (10,651)
Provision for doubtful accounts 122,792 178,102
(Increase) decrease in operating
assets:
Receivables (1,377,324) (539,508)
Inventories (143,686) (96,083)
Intangibles and other assets (120,010) 4,548
(Decrease) increase in operating
liabilities:
Accounts payable 311,938 115,185
Accrued liabilities 9,219 (23,476)
Income taxes payable 28,844 (20,839)
Net cash (used in) provided by
operating activities (77,965) 473,838
Cash flows from investing activities:
Purchase of short-term investments - (218,784)
Acquisition of property and equipment (107,882) (34,450)
Net cash used in investing
activities (107,882) (253,234)
Cash flows from financing activities:
Repayments of note payable (50,000) (120,000)
Proceeds from common stock issuance 3,480 62,500
Repayments of long-term debt (93,362) (101,713)
Net cash used in financing
activities (139,882) (159,213)
Net (decrease) in cash (325,729) 61,391
Cash at beginning of period 1,755,000 761,419
Cash at end of period $1,429,271 822,810
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 49,743 64,193
Income taxes $ 629,806 430,847
</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
September 30, 1997 and 1996
(1) Basis of Presentation
The September 30, 1997 and 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 (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 as
well as 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.
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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
$4,416,844 as of September 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 funds
used to support additional growth, primarily to fund increased accounts
receivable, outpaced earnings for the nine month period. Funds were also
utilized to acquire property and equipment 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, 1997 increased from
$7,722,930 to $9,667,064, or 25.2%, from the same period of the previous year
and to $3,587,173 from $2,578,962, or 38.9%, from the third quarter of 1996
to the corresponding quarter of 1997. These increases are attributable to
growth generated internally from the Company's focused marketing efforts
permitted by its continuing financial strength and the impact of the
acquisition of Darsan, Inc. and Southwest Supply Environmental
("Darsan/Southwest") in May 1997.
Cost of sales as a percentage of net sales remained steady at 48.4% of
net sales for the nine months ended September 30, 1997 as compared to 48.1%
of net sales for the same period of 1996. For the third quarters of 1997 and
1996, cost of sales increased to 49.6% from 48.4% of net sales. Cost of
sales increased modestly during the third quarter as the Company's
operations remained stable.
As a result of increased sales, gross profit increased from $4,010,704
(51.9% of net sales) to $4,983,501 (51.6% of net sales) for the nine months
ended September 30, 1997 versus the nine months ended September 30, 1996, an
increase of 24.3%. The increase realized during the third quarter of the
two years was from $1,329,966 to $1,804,803 , or 35.7%.
Selling, general and administrative expenses increased by 20.5% and
33.3% for the comparable nine month and three month periods, respectively.
These increases reflect costs associated with adding the sales force of
Darsan/Southwest and extending the Company's existing sales force coverage.
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As a result of these factors, net earnings before income taxes
increased to $1,697,563 from $1,258,092 for the corresponding nine month
periods of 1997 and 1996 and to $646,922 from $451,014 for the third
quarters of those years. Similarly, net earnings increased
dramatically for the comparable nine month periods, from $812,649 to
$1,080,210, or 32.9% and, for the third quarter of the two years, from
$300,037 to $411,656, or 37.2%.
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: November 13, 1997 By: /s/ Morris Shwiff
Morris Shwiff, President
and Principal Executive
Officer
Date: November 13, 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 September 30, 1997 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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</TABLE>
