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, 1998
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
1934during 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,
1998:
Common Stock, $0.10 par value, 2,685,748 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
March 31, 1998
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, 1998 (unaudited) and December 31, 1997.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1998 and
1997 (unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and
1997 (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 (Unaudited)
March 31, 1998 and December 31, 1997
<TABLE>
March 31, December 31,
Assets 1998 1997
(unaudited)
<S> <C> <C>
Current assets:
Cash $2,093,122 1,878,919
Short-term investments, at cost 300,000 300,000
Trade accounts receivable, less
allowance for doubtful
accounts of $162,759 in 1998 and
$346,900 in 1997 3,176,530 2,773,352
Inventories 629,986 601,157
Deferred income taxes 55,338 117,946
Other assets 2,370 26,632
Total current assets 6,257,346 5,698,006
Property and equipment, net 711,206 738,916
Intangible assets, net 135,800 137,318
Note receivable 40,000 40,000
Deferred income taxes 29,912 29,912
Other assets 2,700 2,700
$7,176,964 6,646,852
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of
long-term debt $ 66,241 101,361
Accounts payable 747,246 571,426
Accrued liabilities 86,168 216,324
Income taxes payable 224,826 140,281
Total current liabilities 1,124,481 1,029,392
Note payable 600,000 600,000
Deferred compensation 104,500 104,500
Long-term debt, excluding current
installments - -
Total liabilities 1,828,981 1,733,892
Stockholders' equity:
Preferred stock - par value $.10;
authorized 500,000 shares;
none issued - -
Common stock - par value $.10;
authorized 10,000,000 shares;
2,685,748 shares issued and
outstanding in 1998 and
2,681,392 shares issued and
outstanding in 1997 268,575 268,139
Additional paid-in capital 2,794,253 2,776,182
Accumulated earnings 2,285,155 1,868,639
Total stockholders' equity 5,347,983 4,912,960
Commitments
$7,176,964 6,646,852
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 1998 and 1997
<TABLE>
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
Net sales 3,630,199 2,771,703
Cost of sales 1,977,760 1,521,789
Gross profit 1,652,439 1,249,914
Selling, general and
administrative expenses 1,004,890 930,107
Operating income 647,549 319,807
Other income (expenses):
Interest expense (14,523) (16,820)
Other income 17,351 17,227
Other income (expenses),
net 2,828 407
Income before income taxes 650,377 320,214
Income taxes:
Current 171,253 169,090
Deferred income tax expense
(benefit) 62,608 (8,088)
Net income 416,516 159,212
Earnings per common share:
Basic .16 .06
Diluted .14 .05
</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 (Unaudited)
Three Months ended March 31, 1998 and 1997
1998 1997
(unaudited) (unaudited)
<TABLE>
<S> <C> <C>
Cash flows from operating
activities:
Net income $416,516 159,212
Adjustments to reconcile net
earnings to net cash
used in operating activities:
Depreciation and amortization 35,518 36,637
Deferred income taxes 62,608 (8,088)
Provision for doubtful accounts 82,931 63,313
Compensation expense from
issuance of stock options
and warrants 7,720 104,500
(Increase) decrease in
operating assets:
Receivables (486,109) (480,685)
Inventories (28,829) (89,762)
Other assets 24,262 (57,519)
Increase (decrease) in
operating liabilities:
Accounts payable 175,820 192,348
Accrued liabilities (130,156) (85,388)
Income taxes payable 93,154 (20,466)
Net cash provided by
(used in) operating
activities 253,435 (185,898)
Cash flows from investing activities:
Purchase of short-term
investments - (16,051)
Acquisition of property and
equipment (6,290) (56,793)
Net cash used in investing
activities (6,290) (72,844)
Cash flows from financing activities:
Repayments of note payable (35,120) (30,000)
Repayments of long-term debt - (101,713)
Proceeds from common stock
issuance 2,178 (37,121)
Net cash used in
financing activities (32,942) (67,121)
Net increase (decrease) in cash 214,203 (325,863)
Cash at beginning of period 1,878,919 1,755,000
Cash at end of period $2,093,122 1,429,137
</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
(Unaudited)
March 31, 1998 and 1997
(1) Basis of Presentation
The March 31, 1998 and 1997 condensed consolidated financial
statements (unaudited) 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. Certain items in the 1997
condensed consolidated financial statements have been adjusted
to reflect the actual timing of certain transactions as
described in the Company's December 31, 1997 annual report on
Form 10-KSB.
(2) Earnings Per Share
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share,
during 1997 and retroactively restated all per share amounts.
SFAS No. 128 reporting requirements replace primary and fully-
diluted earnings per share (EPS) with basic and diluted EPS.
Basic EPS is calculated by dividing net income (available to
common shareholders) by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted
into common stock.
(3) Newly Adopted Accounting Pronouncements
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting
the components of comprehensive income and requires that all
items that are required to be recognized under accounting
standards as components of comprehensive income be included in
a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive
income includes net income as well as certain items that are
reported directly within a separate component of shareholders'
equity and bypass net income. The adoption of Statement 130
did not have a material impact on the Company's financial
condition or results of operations.
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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 $4,668,614 as of December
31, 1997, increased to $5,132,865 as of March 31, 1998. The
increase in working capital was primarily the result of growth in
cash and trade accounts receivable as a result of improved sales
in the quarter, partially offset by increased accounts payable
incurred in connection with increased sales and income taxes
payable resulting from improved profitability.
The Company's cash flow from operations for the quarter
provided $253,435 as funds generated from earnings and management
of accounts payable exceeded cash used to support additional
growth, primarily to fund increased accounts receivable, and to
reduce accrued liabilities. Funds were also utilized to acquire
property and equipment and to reduce debt. The resulting
increase in cash for the quarter was $214,203.
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 quarter ended March 31, 1998 increased
from $2,771,703 to $3,630,198, or 31.0%, from the same period of
the previous year. This increase is primarily attributable to the
extension of sales coverage through the addition of sales
personnel under an ongoing hiring program which included the
acquisition of Darsan, Inc. and Southwest Supply & Environmental
in May 1997.
Cost of sales as a percentage of net sales remained steady
at 54.5% of net sales for the quarter ended March 31, 1998 as
compared to 54.9% of net sales for the same period of 1997. As a
result, gross profit increased by 32.2% from $1,249,914 to
$1,652,439 for the quarter ended March 31, 1998 versus the
comparable quarter of fiscal 1997. The first quarter of 1997
also included a nonrecurring charge of $100,000 as the result of
issuing options to a key employee.
Selling, general and administrative expenses increased by
8.0% for the comparable quarters. This increase reflects costs
associated with adding the sales force of Darsan/Southwest and
extending the Company's existing sales force coverage.
As a result of these factors, net earnings before income
taxes increased to $650,377 from $320,214 for the corresponding
quarters of 1998 and 1997. Similarly, net earnings increased
dramatically for the comparable quarters, from $159,212 to
$416,516 or 161.6%.
PAGE
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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: May 8, 1998 By: /s/ Morris Shwiff
Morris Shwiff, President
and Principal Executive
Officer
Date: May 8, 1998 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 March 31, 1998 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2093122
<SECURITIES> 300000
<RECEIVABLES> 3339289
<ALLOWANCES> 162759
<INVENTORY> 55338
<CURRENT-ASSETS> 6257346
<PP&E> 1491940
<DEPRECIATION> 780734
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<CURRENT-LIABILITIES> 1124481
<BONDS> 600000
00
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<COMMON> 268575
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<SALES> 3630199
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<CGS> 1977760
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<OTHER-EXPENSES> 1004890
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<INTEREST-EXPENSE> 14523
<INCOME-PRETAX> 650377
<INCOME-TAX> 171253
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<DISCONTINUED> 0000
<EXTRAORDINARY> 0000
<CHANGES> 0000
<NET-INCOME> 416516
<EPS-PRIMARY> .16
<EPS-DILUTED> .14
</TABLE>
