[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: March 31, 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)
(972) 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 March 31,
1997:
Common Stock, $0.10 par value, 2,373,120 shares
PAGE
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ARROW-MAGNOLIA INTERNATIONAL, INC.
March 31, 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
March 31, 1997 (unaudited) and December 31, 1996.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Consolidated Statements of Earnings for
the Three Months Ended March 31, 1997 and 1996
(unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Consolidated Statements of Cash Flows
for Three Months Ended March 31, 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
March 31,1997 and December 31, 1996
March 31, December 31,
Assets 1997 1996
(unaudited)
<TABLE>
<S> <C> <C>
Current assets:
Cash $ 1,429,137 1,755,000
Short-term investments, at cost 316,051 300,000
Trade accounts receivable, less
allowance for doubtful
accounts of $269,310 in 1997
and $245,521 in 1996 2,002,924 1,585,552
Inventories 859,739 769,977
Deferred income taxes 91,258 83,170
Other assets 75,620 19,801
Total current assets 4,774,729 4,513,500
Property and equipment, net 394,434 352,641
Intangible assets, net 92,374 96,011
Note receivable 40,000 40,000
Deferred income taxes 19,602 19,602
Other assets 2,700 1,000
$5,323,839 $5,022,754
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-
term debt $ 107,483 107,483
Accounts payable 606,184 413,836
Accrued liabilities 114,418 199,806
Income taxes payable 179,986 200,452
Total current liabilities 1,008,071 921,577
Note payable 620,000 650,000
Long-term debt, excluding current
installments 85,241 122,362
Total liabilities 1,713,312 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 2,025,467 1,743,755
Total stockholders' equity 3,610,527 3,328,815
Commitments
$5,323,839 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
Three months ended March 31 1997 and 1996
1997 1996
(unaudited)
<TABLE>
<S> <C> <C>
Net sales $2,771,703 2,481,625
Cost of sales 1,322,528 1,194,512
Gross profit 1,449,175 1,287,113
General and administrative expenses 1,006,868 918,686
Operating income 442,307 368,427
Other income (expenses):
Interest expense (16,820) (23,184)
Other income 17,227 5,287
Other income (expenses) net 407 (17,897)
Earnings before income taxes 442,714 350,530
Income taxes:
Current income tax expense 169,090 134,990
Deferred income tax benefit (8,088) (7,098)
Net earnings $281,712 222,638
Net earnings per common share and
share equivalent .10 .08
Weighted average common shares and
share equivalents outstanding 2,898,806 2,778,606
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
PAGE
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996
1997 1996
<TABLE> (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 281,712 222,638
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 18,637 17,137
Deferred income taxes (8,088) (7,098)
Provision for doubtful accounts 63,313 57,233
(Increase) decrease in operating assets:
Receivables (480,685) (528,726)
Inventories (89,762) (2,659)
Other assets (57,519) 18,245
(Decrease) increase in operating
liabilities:
Accounts payable 192,348 59,693
Accrued liabilities (85,388) (91,593)
Income taxes payable (20,466) (48,722)
Net cash used in operating
activities (185,898) (303,852)
Cash flows from investing activities:
Purchase of short-term investments (16,051) (6,679)
Acquisition of property and equipment (56,793) -
Net cash used in investing
activities (72,844) (6,679)
Cash flows from financing activities:
Repayments of note payable (30,000) (90,000)
Repayments of long-term debt (37,121) (34,414)
Net cash used in financing
activities (67,121) (124,414)
Net decrease in cash (325,863) (434,945)
Cash at beginning of period 1,755,000 761,419
Cash at end of period $1,429,137 326,474
<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
March 31, 1997 and 1996
(I) Basis of Presentation
The March 31, 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. 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 August
8,
1996, June 14, 1996 and November 16, 1996 as well as a
two-for-one
stock split on June 14, 1996.
PAGE
<PAGE>
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 $3,766,658 as of March 31, 1997. The increase in
working capital was primarily attributable to 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 were used to support additional 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.
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 three months ended March 31, 1997
increased
from $2,481,625 to $2,771,703 or 11.7%, from the same quarter of
the previous year. This increase is 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 47.7% of net sales for the quarter ended March 31, 1997 as
compared to 48.1% of net sales for the same period of 1996. This
decrease reflects the continued stability of the Company's
manufacturing operations.
As a result of increased sales, gross profit increased
significantly from $1,287,113 (51.9% of net sales) to $1,449,175
(52.3% of net sales) for the quarter ended March 31, 1997 versus
the three months ended March 31, 1996, an increase of 12.6%.
Selling, general and administrative expenses increased by
9.6%
as the Company incurred additional costs to support its sales
growth.
<PAGE>
As a result of these factors, net earnings before income
taxes
increased to $442,714 from $350,530 for the corresponding
quarters
of 1997 and 1996. Similarly, net earnings increased dramatically
for the comparable three month periods, from $222,638 to $281,712
or 26.5%.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports.
(a) None
PAGE
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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: 5/12/97 By: /s/ Morris Shwiff
Morris Shwiff, President
and Principal Executive
Officer
Date: 5/12/97 By: /s/ Fred Kenner
Fred Kenner, Vice
President,
Secretary and Treasurer;
the
Principal Financial and
Accounting Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-QSB for the quarter ended March 31, 1997 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1429137
<SECURITIES> 316051
<RECEIVABLES> 2272234
<ALLOWANCES> 269310
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<DEPRECIATION> 652763
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<CURRENT-LIABILITIES> 1008071
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0000
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<COMMON> 237312
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<TOTAL-LIABILITY-AND-EQUITY> 5323839
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<CGS> 1322528
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<OTHER-EXPENSES> 1006868
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<INTEREST-EXPENSE> 16820
<INCOME-PRETAX> 442714
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<NET-INCOME> 281712
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
