SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number 0-4728
ARROW-MAGNOLIA INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
Texas 75-0408335
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2646 Rodney Lane, Dallas, Texas 75229
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (972) 247-7111
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
Check whether the issuer (1) 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
issuer was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes (X) No ( )
Check if no disclosure of delinquent filers in response to Item 405
of Regulation S-B is contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB.
/ /
Issuer's revenues for the fiscal year ended December 31, 1996
were: $10,278,559.
The aggregate market value of issuer's voting stock held by non-
affiliates as of December 31, 1996 was $4,035,825 (*See note on
index page.)
The number of shares outstanding of each class of the issuer's
common stock as of December 31, 1996, was:
Common Stock, par value $0.10 per share, 2,373,120 shares
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format: Yes No X
<PAGE> <PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-KSB
INDEX
Securities and Exchange Commission
Item Number and Description Page
PART I
Item 1. Description of Business ................. 1
Item 2. Description of Property ................. 3
Item 3. Legal Proceedings ....................... 3
Item 4. Submission of Matters to a Vote of
Security-Holders ........................ 3
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters ..................... 4
Item 6. Management's Discussion and Analysis or
Plan of Operation ....................... 5
Item 7. Financial Statements .................... 7
Item 8. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosure .............................. 7
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act ........ 8
Item 10. Executive Compensation .................. 9
Item 11. Security Ownership of Certain Beneficial
Owners and Management ................... 11
Item 12. Certain Relationships and Related
Transactions ............................ 11
PART IV AND SIGNATURES
Item 13. Exhibits and Reports on Form 8-K ........ 12
SIGNATURES ........................................
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULES ......................................... F-1
* The figure indicated on the cover page as to the aggregate
market value of shares of issuer's voting stock held by
nonaffiliates, as such figure relates to shares held by
affiliates, represents the issuer's best good faith estimate
for purposes of this annual report on Form 10-KSB and for no
other purpose. The aggregate market value indicated is based
upon the last sales price of the issuer's common stock as
reported by the NASDAQ SmallCap Market as of December 31,
1996. See "Market for Common Equity and Related Stockholder
Matters."
<PAGE> <PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
Form 10-KSB Annual Report
For the Fiscal Year Ended
December 31, 1996
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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 40% of the Company's sales during 1995.
No single customer accounted for as much as 10% of its total net
sales during 1996 or 1995.
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
janitorial 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 1996 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'
representatives. In addition, the Company exhibits its products at
trade shows. The Company attends, on a regular basis, approxi-
mately six trade shows annually. 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 small 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.
Employees
As of December 31, 1996, the Company employed approximately
one-hundred fifteen (115) 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.
PAGE
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
The principal executive and warehouse facilities of the
Company are located in a steel, glass, brick and concrete build-
ing 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 7,000 square feet to administrative and
executive offices. The Company is currently evaluating whether to
build an additional 30,000 square feet of warehouse space onto its
existing facilities. 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 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted during the fourth quarter of the
fiscal year ended December 31, 1996, to a vote of the Company's
security holders, through solicitation of proxies or otherwise.
PAGE
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded in the over-the-counter
market, but such trading occurs sporadically and in relatively
small volumes.
From April 1995 to April 1996, the Company's common stock was
included for quotation on the NASDAQ OTC Bulletin Board and since
April 1996, the common stock has traded on the NASDAQ SmallCap
Market tier of the NASDAQ Stock Market 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, as adjusted to reflect a two-for-one stock
dividend which became effective on June 14, 1996:
Quarter Ended High Low
December 31, 1996 4 7/8 3 3/8
September 30, 1996 4 1/4 3 1/2
June 30, 1996 5 2 1/2
March 31, 1996 2 1/2 2 1/8
December 31, 1995 2 1/2 1 3/4
September 30, 1995 2 15/32 1 5/8
June 30, 1995 2 1 3/16
The approximate number of record holders of the Company's
Common Stock as of December 31, 1996, was 700.
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>
ITEM 6. 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
consolidated statements of earnings bear to net sales and the
percentage changes of such items as compared to the indicated prior
period:
<TABLE>
Increase (Decrease)
From Prior Period
Years Ended
Percentage of Net Sales 1996 1995
Years Ended December 31 vs. vs.
1996 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 22.5% 25.5%
Cost of sales 57.5% 58.2% 58.6% 21.0% 24.7%
Gross profit 42.5% 41.8% 41.4% 24.4% 26.7%
General and
administra-
tive expenses 26.2% 28.3% 31.3% 13.5% 13.3%
Operating income 16.3% 13.5% 10.1% 47.1% 68.2%
Interest expense 0.8% 1.2% 1.5% (14.2)% (4.5)%
Earnings before
income taxes 16.0% 12.7% 8.8% 54.6% 88.1%
Net earnings 10.1% 8.1% 5.4% 53.5% 88.1%
</TABLE>
<PAGE> <PAGE>
Comparison of Annual Results.
Net sales for fiscal year 1996 increased by 22.5% from
$8,393,829 to $10,278,559 versus fiscal year 1995 after increasing
25.5% from fiscal 1994 to fiscal 1995. Cost of sales as a per-
centage of net sales improved from 58.6% to 58.2% to 57.5% from
1994 through 1995 and 1996. The increase in sales from 1995 to
1996 is primarily attributable to the extension of sales coverage
through the addition of sales personnel under an ongoing hiring
program. As a result of increased sales combined with cost con-
trol, gross profit increased by 24.4% from $3,508,030 to $4,364,634
for fiscal 1996 versus fiscal 1995, after increasing by 26.7% from
fiscal 1994 to fiscal 1995. For the fiscal year, the gross profit
margin reached a record 42.5% of net sales, as compared to 41.8%
for 1995 and 41.4% for 1994.
General and administrative expenses continued to fall as a
percentage of net sales from 31.3% in 1994 to 28.3% in 1995 and
26.2% in 1996 as sales volume improved at a more rapid pace than
the modest 13% increase in these expenses from year to year.
Interest expense fell as a percentage of net sales from 1.5%
to 1.2% to 0.8% from 1994 through 1996 due to application of funds
generated from continued profitability to reduce debt and reduction
in the interest rate paid to the prime rate.
As a result of these factors, for the fiscal year ended
December 31, 1996, net income increased to $1,042,460 from
$679,074, or 53.5%, versus the same period in 1995. These results
compare favorably to net earnings for 1994 of $361,064.
Liquidity and Capital Resources.
The Company's working capital (total current assets less total
current liabilities), which was $2,696,048 as of December 31, 1995,
improved during 1996 to $3,591,923 as of December 31, 1996. The
Company's current assets increased significantly as the Company's
cash and short-term investments, accounts receivable and
inventories increased due to increased sales and profitability.
Current liabilities also increased, but less dramatically, in
response to increased sales volumes.
As shown in the Company's consolidated statements of cash
flows, the Company generated $850,225 in cash flow from opera-
tions as the Company continued to capitalize on its profitabili-
ty, partially offset by increases in receivables and inventories
resulting from its sustained growth. The Company realized $350,730
from investing activities as it liquidated certain short-term
investments. A total of $207,374 was used in financing activities
as the Company paid down its remaining debt.
<PAGE>
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 addition if
the Company concludes that it is desirable. In addition, at
December 31, 1996, the Company had $600,000 available under a
revolving line of credit bearing interest at the lender's prime
rate (8.25% at December 31, 1996). The Company believes that its
present financing is also otherwise adequate for its capital needs
for the foreseeable future.
Accounting Standards
In June of 1996, the Financial Accounting Standards Board
(FASB) issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", which
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities.
Management of the Company does not believe SFAS 125 will have a
material impact on the Company's financial statement. The adoption
of SFAS 125 will be reflected in the Company's 1997 consolidated
financial statements.
ITEM 7. FINANCIAL STATEMENTS.
Included at pages F-1 through F-15 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<PAGE> <PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The Directors and executive officers of the Company as of
December 31, 1996, their ages and positions are as follows:
Name Age Position With Registrant
Morris Shwiff 75 Chairman of the Board and
President
Mark I. Kenner 65 Director and Executive Vice
President
Fred Kenner 44 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 respec-
tive 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 Direc-
tors and President of the Company since December 1985. For more
than five years prior to December 1985, Mr. Shwiff was a Direc-
tor, 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
discretion of the Board.
Based solely upon a review of Forms 3, 4, and 5 furnished to
the Company and upon written representations received by the
Company, the following persons were all Directors, officers or
beneficial owners of more than 10 percent of the Company's Common
Stock as of December 31, 1996:
Morris Shwiff
Mark I. Kenner
Fred Kenner
Based thereon, Mr. Shwiff filed one report under Section 16(a) of
the Exchange Act of 1994 reporting transactions in December 1996
fifteen days after it was due.
PAGE
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following tables summarize the monetary and non-monetary
compensation paid by the Company during the three fiscal years
ended December 31, 1996 to the Company's chief executive officer
and to the Company's other executive officers.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
Number
Name and Annual of Shares
Principal Compensation Subject to
Position Year Salary Bonus Options Granted
<S> <C> <C> <C> <C>
Morris Shwiff, 1996 $140,400 $32,500 0
Chairman of 1995 $130,000 $17,940 0
the Board 1994 $119,900 $ 8,745 154,000
and President
Mark I. Kenner, 1996 $133,900 $30,875 0
Director and 1995 $123,500 $16,887 0
Executive 1994 $112,580 $ 8,208 145,200
Vice President
Fred Kenner, 1996 $127,400 $29,250 0
Director and 1995 $117,000 $15,990 0
Vice President, 1994 $106,600 $ 7,751 140,800
Secretary and
Treasurer
</TABLE>
PAGE
<PAGE>
Option Exercises and Fiscal Year End Option Values
The following table reflects option exercises during the
fiscal year ended December 31, 1996, 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 two-for-one stock
dividend declared on June 14, 1996:
<TABLE>
Number of Shares
Number Underlying
of Shares Unexercised Options In the Money Options
Acquired at Fiscal Year End at Fiscal Year End(1)
on Value Unexer- Unexer-
Name Exercise Realized Exercisable cisable Exercisable cisable
<S> <C> <C> <C> <C> <C> <C> <C>
Morris
Shwiff 0 0 154,000 - $616,000 -
Mark I.
Kenner 0 0 145,200 - $580,080 -
Fred
Kenner 0 0 140,800 - $563,200 -
(1) For purpose of calculating this value, the Company has utilized the
average of the last sales price of the Company's common stock as of
December 31, 1996 as reported on the NASDAQ SmallCap Market.
</TABLE>
PAGE
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information regarding the
Company's Common Stock owned at December 31, 1996 by (i) each
shareholder known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's Direc-
tors and executive officers and (iii) all officers and Directors as
a group. So far as is known to the Company, 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.
Name and
Address of
Beneficial Number of Shares Percent
Owner Beneficially Owned of Class
Morris Shwiff 937,272(1) 37.1%
2646 Rodney Lane
Dallas, TX 75229
Mark I. Kenner 607,198(2) 24.1%
2646 Rodney Lane
Dallas, TX 75229
Fred Kenner 371,800(3) 14.8%
2646 Rodney Lane
Dallas, TX 75229
All Directors 1,916,270(4) 68.1%
and Officers as
a Group
(Three Persons)
(1) Includes 154,000 shares which may be acquired upon exercise
of an option at an exercise price of $0.50 per share.
(2) Includes 145,200 shares which may be acquired upon exercise
of an option at an exercise price of $0.50 per share.
(3) Includes 140,800 shares which may be acquired upon exercise
of an option at an exercise price of $0.50 per share.
(4) Includes 440,000 shares which may be acquired upon exercise
of an option at an exercise price of $0.50 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
<PAGE> <PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
No. Exhibit
3.1 Articles of Incorporation, as amended, of Arrow-
Magnolia International, Inc.(1).
3.2 Bylaws of Magnolia Enterprises, Inc.(2).
10.19 Arrow-Magnolia International, Inc. Amended and
Restated Non-Qualified Stock Option Plan(3).
10.20 Credit Loan Agreement dated August 5, 1994 between
Arrow-Magnolia International, Inc. and Texas
Commerce Bank National Association(3).
10.21 Extension and Modification Agreement dated August
18, 1994 between Arrow-Magnolia International, Inc.
and Texas Commerce Bank National Association(3).
23.1 Consent of Independent Auditors.
(1) Filed as Exhibit 3.1 to Arrow-Magnolia International, Inc.
Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference.
(2) Filed as Exhibit 3.2 to Magnolia Chemical Company, Inc. From
10-Q for the quarter ended June 30, 1982 and incorporated
herein by reference.
(3) Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia
International, Inc. Form 10-KSB for the fiscal year ended
December 31, 1994 and incorporated herein by reference.
(b) Reports on Form 8-K.
None.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedule
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Earnings for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity for the years
ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule for the years ended
December 31, 1996, 1995 and 1994:
Schedule II Valuation and Qualifying Accounts F-15
All other schedules have been omitted as not applicable or not
required.
PAGE
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Arrow-Magnolia International, Inc.:
We have audited the accompanying consolidated financial
statements of Arrow-Magnolia International, Inc. and subsidiary
as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have
audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 11, 1997
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
Assets 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,755,000 761,419
Short-term investments 300,000 690,051
Trade accounts receivable, less allowance for
doubtful accounts of $245,521 in 1996 and 1,585,552 1,339,408
$269,813 in 1995 (note 4)
Inventories (note 4) 769,977 681,825
Deferred income taxes (note 6) 83,170 91,430
Other assets 19,801 23,867
Total current assets 4,513,500 3,588,000
Property and equipment, net (notes 2 and 5) 352,641 371,320
Intangible assets, net (note 3) 96,011 110,560
Note receivable 40,000 40,000
Deferred income taxes (note 6) 19,602 24,811
Other assets 1,000 1,000
$5,022,754 4,135,691
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 107,483 $112,835
note 5)
Accounts payable 413,836 421,283
Accrued liabilities 199,806 183,080
Income taxes payable 200,452 174,754
Total current liabilities 921,577 891,952
Note payable (note 4) 650,000 790,000
Long-term debt, excluding current installments
(note 5) 122,362 250,844
Total liabilities 1,693,939 1,932,796
Stockholders' equity (note 7):
Preferred stock - par value $.10;
authorized 500,000
shares; none issued - -
Common stock - par value $.10;
authorized 10,000,000
shares; issued and outstanding
2,373,120 shares in 1996 and 237,312 115,760
2,315,200 shares in 1995
Additional paid-in capital 1,347,748 1,385,840
Retained earnings 1,743,755 701,295
Total stockholders' equity 3,328,815 2,202,895
$5,022,754 4,135,691
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Net sales $10,278,559 8,393,829 6,686,615
Cost of sales 5,913,925 4,885,799 3,917,320
Gross profit 4,364,634 3,508,030 2,769,295
General and administrative
expenses 2,692,320 2,371,447 2,093,582
Operating income 1,672,314 1,136,583 675,713
Other income (expenses):
Interest expense (82,841) (96,552) (101,051)
Gain on disposition of assets - 2,500 1,867
Interest income 42,992 17,150 9,267
Other income 17,158 7,016 -
Other expenses, net (22,691) (69,886) (89,917)
Earnings before income
taxes 1,649,623 1,066,697 585,796
Income taxes (note 6) 607,163 387,623 224,732
Net earnings $1,042,460 679,074 361,064
Earnings per common share (note 7):
Net earnings $ .37 .25 .16
Weighted average shares
outstanding 2,836,404 2,671,289 2,200,000
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
Retained
earnings Total
Common stock Additional (accumula stock
paid-in ted holders
Shares Amount capital deficit) equity
<S> <C> <C> <C> <C> <C>
Balances at December
31, 1993 (note 7) 2,000,000 $200,000 800,000 (38,843) 961,157
Net earnings - - - 361,064 361,064
Balance at
December 31, 1994 2,000,000 200,000 800,000 322,221 1,322,221
10% stock dividend 200,000 20,000 280,000 (300,000) -
Issuance of common 115,200 11,520 190,080 - 201,600
stock for cash
Net earnings - - - 679,074 679,074
Balances at December
31, 1995 2,315,200 231,520 1,270,080 701,295 2,202,895
(note 7)
Exercise of stock 7,920 792 3,168 - 3,960
options
Exercise of stock 50,000 5,000 57,500 - 62,500
warrants
Expense resulting
from issuance - - 17,000 - 17,000
of stock warrants
(note 7)
Net earnings - - - 1,042,460 1,037,460
Balances at
December 2,373,120 $237,312 1,347,748 1,743,755 3,323,815
31, 1996
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $1,042,460 679,074 361,064
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 72,549 74,148 103,752
Gain on disposition of property and - (2,500) (1,867)
equipment
Deferred income taxes 13,469 (18,817) 3,167
Provision for doubtful accounts 236,632 193,838 187,871
Compensation expense from issuance 17,000 - -
of stock warrants
(Increase) decrease in operating
assets:
Receivables (482,776) (663,583) (333,073)
Inventories (88,152) (71,212) (78,499)
Other assets 4,066 11,458 18,936
(Decrease) increase in operating
liabilities:
Accounts payable (7,447) 126,476 18,064
Accrued liabilities 16,726 53,270 45,111
Income taxes payable 25,698 45,088 129,290
Net cash provided by
operating activities 850,225 427,240 453,816
Cash flows from investing activities:
Proceeds from sale of short-term 990,051 - -
investments
Purchase of short-term investments (600,000) (690,051) -
Acquisition of property and equipment (39,321) (30,905)(27,295)
Proceeds from sale of property and
equipment - 2,500 26,428
Net cash provided by (used in) 350,730 (718,456) (867)
investing activities
Cash flows from financing activities:
Proceeds from issuance of note payable 34,487 200,000 703,838
Repayments of note payable (174,487) (100,000)(738,838)
Proceeds from issuance of long-term - 25,448 495,000
debt
Repayments of long-term debt (133,834) (131,296)(552,997)
Repayments of capital lease obligation - - (20,473)
Proceeds from issuance of common stock 66,460 201,600 -
Net cash provided by (used in)
financing activities (207,374) 195,752 (113,470)
Net increase (decrease)
increase in cash 993,581 (95,464) 339,479
and cash equivalents
Cash and cash equivalents at
beginning of year 761,419 856,883 517,404
Cash and cash equivalents at
end of year $1,755,000 761,419 856,883
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(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). All
significant intercompany balances and transactions have
been eliminated in consolidation.
(b) Nature of the Operations and Use of Estimates
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 single customer accounted for
more than 10% of net sales in 1996, 1995 or 1994.
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
(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, 1995. Cash equivalents at December 31, 1996 consist
of U.S. treasury bills with original maturities of less
than three months.
Cash paid for interest during 1996, 1995 and 1994 was
$82,841 $96,552 and $101,051, respectively. Cash paid
for federal income taxes during 1996, 1995 and 1994 was
$356,310, $204,000 and $65,024, respectively.
<PAGE>
(d)Short-term Investments
Short-term investments, all of which are classified as
held to maturity at December 31, 1996 and 1995, represent
investments in bank certificates of deposit and U.S.
Government Treasury Bills. The investments are recorded
at amortized cost, which approximates market value.
(e) 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.
(f) Property and Equipment
Property and equipment are stated at cost. 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.
(g) Goodwill
Goodwill, which represents the excess of purchase price
over fair value of net assets acquired, is amortized on a
straight-line basis over the expected periods to be
benefited, generally 40 years. The Company assesses the
recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured
based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average
cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating
cash flows are not achieved.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for
the future tax consequences 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. 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.
<PAGE>
(i) Earnings per Share
Earnings per share is computed based on the weighted
average number of common shares outstanding during each
year (as adjusted on a retroactive basis for the stock
dividend and stock split discussed in note 7 and the
dilutive effect of common stock equivalents in 1995) plus
the dilutive effect of outstanding common stock options
and warrants considered common stock equivalents. The
difference between primary and fully diluted earnings per
share is not material.
(j)Stock Option Plan
Prior to January 1, 1996, the Company accounted for its
stock option plan in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation. which
permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock
option grants made in 1996 and future years as if the
fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
(k)Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of
The Company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, on January 1,
1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of
this Statement did not have a material impact on the
Company's financial position, results of operations, or
liquidity.
<PAGE>
(l)Fair Value of Financial Instruments
The Company defines the fair value of a financial
instrument as the amount at which the instrument could be
exchanged in a current transaction between willing
parties. Financial instruments included in the Company's
financial statements include cash and cash equivalents,
short-term investments, trade accounts receivable, other
receivables, note receivable, other assets, note payable
and long-term debt. Unless otherwise disclosed in the
notes to the financial statements, the carrying value of
financial instruments is considered to approximate fair
value due to the short maturity and characteristics of
those instruments. The carrying value of long-term debt
approximates fair value as terms approximate those
currently available for similar debt instruments.
(2)Property and Equipment
Property and equipment consist of the following at December
31, 1996 and 1995:
Useful 1996 1995
lives
Land - $ 95,310 95,310
Buildings and 5 to 40 years 415,591 415,591
improvements
Machinery and
equipment 3 to 10 years 292,943 276,719
Furniture and fixtures 5 to 10 years 211,206 210,389
1,015,050 998,009
Less accumulated
depreciation (662,409) (626,689)
$352,641 371,320
(3) Intangible Assets
Intangible assets consist of the following at December 31,
1996 and 1995:
<PAGE>
Useful 1996 1995
lives
Goodwill 40 years $110,500 110,500
Customer lists 5 years 17,500 17,500
Sales force 7 years 82,500 82,500
Other 8 years 10,500 10,500
221,000 221,000
Less accumulated (124,989) (110,440)
amortization
$ 96,011 110,560
(4)Note Payable
The note payable at December 31, 1996 is a revolving line of
credit ($650,000 outstanding at December 31, 1996) with an
asset-based lender due on May 1, 1998. The credit agreement
provides for a commitment from the lender of the lesser of
$1,250,000 or the borrowing base as defined. At December 31,
1996, the unused portion of the commitment was $600,000. The
terms of the credit agreement require the Company to maintain
certain minimum financial criteria. The note requires
monthly payments of interest at the lender's prime rate
(8.25% at December 31, 1996) and is collateralized by certain
accounts receivable and inventories. As the line of credit
bears interest at market rates, the carrying amount of
borrowings outstanding at December 31, 1996 approximates fair
value.
(5)Long-term Debt
Long-term debt consists of the following at December 31, 1996
and 1995:
1996 1995
Note payable to a bank, interest at
prime (8.25% at December 31, 1996),
principal and interest of $8,250 payable
monthly, maturing in August 1999,
collateralized by the Company's office
and warehouse $215,0000 335,000
Note payable to a bank in monthly
installments of $765, including interest
at 7.9%, maturing in July 1996, and
collateralized by an automobile - 5,352
Note payable to a bank in monthly
installments of $707, including interest
at 7.9%, maturing September 1998,
and collateralized by an automobile 14,845 23,327
229,845 363,679
Less current installments 107,483 112,835
$ 122,362 250,844
The aggregate maturities of long-term debt subsequent to
December 31, 1996 are as follows:
1997 $107,483
1998 105,362
1999 17,000
<PAGE>
(6)Income Taxes
Income tax expense (benefit) for the years ended December 31,
1996, 1995 and 1994 consists of the following:
1996 1995 1994
U.S. federal - current $557,008 378,754 194,315
U.S. federal - deferred 13,469 (18,817) 3,167
State - current 36,686 27,686 27,250
$607,163 387,623 224,732
Income tax expense for the years ended December 31, 1996,
1995 and 1994 differs from the "expected" tax expense
(computed by applying the 34% U.S. federal corporate rate to
earnings before income taxes) as follows:
1996 1995 1994
Computed "expected" tax expense $559,172 362,677 199,171
Amortization of goodwill 5,253 3,994 5,450
State income taxes, net of 24,213 18,273 17,985
federal benefit
Other 18,525 2,679 2,126
$607,163 387,623 224,732
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1996 and 1995 are presented
below:
1996 1995
Current deferred tax assets:
Allowance for doubtful accounts $83,477 91,737
Other (307) (307)
$81,170 91,430
Noncurrent deferred tax assets:
Property and equipment depreciation 22,557 24,811
Other (2,955) -
$19,602 24,811
Deferred tax assets and liabilities are computed by applying
the effective U.S. federal income tax rate to the gross
amounts of temporary differences and other tax attributes.
Deferred tax assets and liabilities relating to state income
taxes are not material. The Company expects the net deferred
tax assets at December 31, 1996 to be realized as a result of
future taxable income.
<PAGE>
(7)Stockholders' Equity
On June 14, 1996, the Company declared a 2 for 1 stock split
effected in the form of a stock dividend. As a result, all
share and per share information in the accompanying
consolidated financial statements has been retroactively
restated to give effect to the split.
During 1994, the Company's Board of Directors approved a
nonqualified stock option plan (Plan) covering 440,000 shares
of 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.
In December 1994, 440,000 stock options were granted to
certain officers of the Company at an option price of $.50
per share, the estimated fair market value of the common
stock at the date of grant. These stock options were fully
exercisable at the date of grant.
In January 1995, the Plan was amended to provide for an
increase in the number of shares subject to the Plan to
550,000 shares and an additional 110,000 options were granted
to certain key employees. These stock options were issued at
an option price of $.50 per share, the estimated fair value
of the common stock at the date of grant, and vest in annual
increments of 20% with the first 20% vesting occurring on the
date of issuance. At December 31, 1996, 7,920 of the options
outstanding under the Plan had been exercised and 36,000 of
the 110,000 options were exercisable.
On May 15, 1995, the Company issued stock warrants to a
certain service provider. The stock warrants were
exercisable to purchase up to 50,000 shares of the Company's
common stock at $1.25 per share, the estimated fair market
value of the common stock at the date of grant. The stock
warrants were fully exercisable at the date of the grant.
During 1996, all of the warrants were exercised.
In May 1996, the Company issued stock warrants to an
additional service provider. The stock warrants are
exercisable to purchase up to 40,000 shares of the Company's
common stock at $2.25 per share. The Company is recognizing
the aggregate excess of the market price over the exercise
price at date of grant as expense over the two year term of
the warrants. The stock warrants were fully exercisable at
the date of the grant in 10,000 share increments. The stock
warrants expire two years from the date of issuance with new
warrants subject to issuance for any warrants not exercised
prior to the expiration date. At December 31, 1996, none of
the warrants had been exercised.
<PAGE>
(8)Stock Options
The per share weighted-average fair value of stock options
granted during 1995 was $.249 on the date of grant using the
Black Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield 0.0%,
risk-free interest rate of 7.82%, and an expected life of 7
years. There were no stock options granted during 1996.
The Company applies APB Opinion No. 25 in accounting for its
Plan and, accordingly, has recognized no compensation expense
for stock options granted at exercise prices at least equal
to the market value of the Company's common stock. Had the
Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro
forma amounts indicated below:
1996 1995
Net income:
As reported $1,042,460 679,074
Pro forma $1,036,982 668,118
Pro forma net income reflects only options granted in 1996
and 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net income amounts presented above
because compensation costs is reflected over the options
vesting period and compensation cost for options granted
prior to January 1, 1995 is not considered.
PAGE
<PAGE>
Schedule II
ARROW MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Valuation and Qualifying Accounts
Three years ended December 31, 1996, 1995 and 1994
<TABLE>
Balance Charged Balance
at to at
beginni costs Deduction end of
ng and s (1) period
of expenses
period
<S> <C> <C> <C> <C>
Year ended December 31,
1994 -
Allowance for doubtful $236,002 187,871 182,365 241,508
receivables
Year ended December 31,
1995 -
Allowance for doubtful $241,508 193,838 165,533 269,813
receivables
Year ended December 31,
1996 -
Allowance for doubtful $269,813 236,632 260,924 245,521
receivables
(1) Charge-off of uncollectable accounts, less recoveries.
</TABLE
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of The
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
ARROW-MAGNOLIA INTERNATIONAL, INC.
By /s/ Morris Shwiff
Morris Shwiff, President
Dated: March 26, 1997
Pursuant to the requirements of The Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Morris Shwiff Director, Chairman of the }
Morris Shwiff Board and President }
(Principal Executive Officer) }
}
/s/ Mark I. Kenner Director and Executive }
Mark I. Kenner Vice President } March
} 26, 1997
/s/ Fred Kenner Director, Vice President, }
Fred Kenner Secretary and Treasurer }
(Principal Financial and }
Accounting Officer) }
PAGE
<PAGE>
INDEX TO EXHIBITS
Number Exhibit Page
3.1 Articles of Incorporation, as amended, of (1)
Arrow-Magnolia International, Inc.
3.2 Bylaws of Magnolia Enterprises, Inc. (2)
10.19 Arrow-Magnolia International, Inc. (3)
Amended and Restated Non-Qualified
Stock Option Plan.
10.20 Credit Loan Agreement dated August 5, (3)
1994 between Arrow-Magnolia International,
Inc. and Texas Commerce Bank National
Association.
10.21 Extension and Modification Agreement (3)
dated August 18, 1994 between Arrow-Magnolia
International, Inc. and Texas Commerce
Bank National Association.
23.1 Consent of Independent Auditors.
(1) Filed as Exhibit 3.1 to Arrow-Magnolia International, Inc.
Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference.
(2) Filed as Exhibit 3.2 to Magnolia Chemical Company, Inc. From
10-Q for the quarter ended June 30, 1982 and incorporated
herein by reference.
(3) Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia
International, Inc. Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference.
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from registrant's
Form 10-KSB for the fiscal year ended December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1755000
<SECURITIES> 300000
<RECEIVABLES> 1831073
<ALLOWANCES> 245521
<INVENTORY> 769977
<CURRENT-ASSETS> 4513500
<PP&E> 1015050
<DEPRECIATION> 662409
<TOTAL-ASSETS> 5022754
<CURRENT-LIABILITIES> 921577
<BONDS> 772362
0000
0000
<COMMON> 237312
<OTHER-SE> 3091503
<TOTAL-LIABILITY-AND-EQUITY> 5022754
<SALES> 10278559
<TOTAL-REVENUES> 10278559
<CGS> 5913925
<TOTAL-COSTS> 5913925
<OTHER-EXPENSES> 2692320
<LOSS-PROVISION> 0000
<INTEREST-EXPENSE> 82841
<INCOME-PRETAX> 1649623
<INCOME-TAX> 607163
<INCOME-CONTINUING> 1042460
<DISCONTINUED> 0000
<EXTRAORDINARY> 0000
<CHANGES> 0000
<NET-INCOME> 1042460
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Arrow-Magnolia International, Inc.
We consent to incorporation by reference in the registration
statement No. 333-01511 on Form S-8 of Arrow-Magnolia
International, Inc. and subsidiaries of our report dated February
11, 1997, relating to the consolidated balance sheets of
Arrow-Magnolia International, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows and
related schedule for each of the years in the three-year period
ended December 31, 1996, which report appears in the December 31,
1996 annual report on Form 10-KSB of Arrow-Magnolia
International, Inc. and subsidiaries.
KPMG Peat Marwick LLP
Dallas, Texas
March 24, 1997
