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, 1999
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 September 30, 1999:
Common Stock, $0.10 par value, 3,262,066 shares
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
September 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements Page
Arrow-Magnolia International, Inc. 3
Condensed Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998.
Arrow-Magnolia International, Inc. 4
Condensed Statements of Income for the Three and
Nine Month Periods Ended September 30, 1999 and 1998
(unaudited).
Arrow-Magnolia International, Inc. 5
Condensed Statements of Cash Flows for the Nine
Month Periods Ended September 30, 1999 and 1998
(unaudited).
Notes to Condensed Financial Statements (unaudited). 6
Item 2. Management's Discussion and Analysis or 7
Plan of Operation.
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K. 8
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
September 30, December 31,
Assets 1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,653,166 $2,386,719
Short-term investments 300,000 300,000
Trade accounts receivable,
less allowance for doubtful
accounts of $383,119 in 1999
and $414,276 in 1998 3,037,136 2,347,320
Inventories 910,196 702,615
Prepaid income taxes 0 70,861
Deferred income taxes 161,307 144,300
Other assets 8,325 27,315
---------- ----------
Total current assets $7,070,130 $5,979,130
Property and equipment, cost 1,847,757 1,702,527
Accumulated depreciation (1,005,809) (898,387)
Intangible assets, net 126,694 131,247
Notes receivable 40,000 40,000
Deferred income taxes 0 27,200
Other assets, at cost 2,700 2,700
-------- ----------
Total assets $8,081,472 $6,984,417
========== ==========
Liabilities and stockholders' equity
------------------------------------
Current liabilities:
Accounts payable $ 574,984 $ 491,447
Accrued liabilities 258,392 215,939
Income taxes payable 27,977 63,295
---------- ----------
Total current liabilities $ 861,353 $ 770,681
Deferred income taxes 7,900 0
Deferred compensation 104,500 104,500
---------- ----------
Total liabilities $ 973,753 $ 875,181
---------- ----------
Stockholders' equity:
Preferred stock - par value $.10;
authorized 500,000
shares; none issued $ 0 $ 0
Common stock - par value $.10;
authorized 10,000,000
shares; issued 3,262,066 shares in
1999 and 2,958,990 shares in 1998 326,206 295,899
Additional paid-in capital 5,607,214 4,546,795
Retained earnings 1,235,767 1,328,010
Less cost of 13,500 shares of
common stock in treasury (61,468) (61,468)
---------- ----------
Total stockholders' equity $7,107,719 $6,109,236
---------- ----------
Total liabilities and
stockholders' equity $8,081,472 $6,984,417
========== ==========
See accompanying notes to condensed financial statements.
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
</TABLE>
<TABLE>
Nine months Three months
ended September 30 ended September 30
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ---
(Unaudited)(Unaudited)(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $10,898,296 $10,879,241 $3,768,493 $3,449,703
Cost of sales 6,159,982 6,059,912 2,188,470 2,014,044
---------- ---------- ---------- ----------
Gross profit $4,738,314 $4,819,329 $1,580,023 $1,435,659
General and admini-
strative expenses 3,299,105 3,166,287 1,132,279 1,057,840
---------- --------- --------- ---------
Income before other
income (expense) $1,439,209 $1,653,042 $ 447,744 $ 377,819
---------- ---------- ---------- ----------
Other income (expense):
Interest expense $ 0 $ (39,900)$ 0 $ (11,353)
Interest income 79,442 0 27,750 0
Other income 4,856 72,636 0 20,082
---------- --------- --------- ---------
Total other income
(expense) 84,298 32,736 27,750 8,729
---------- --------- --------- ---------
Income before income
taxes $1,523,507 $1,685,778 $ 475,494 $ 386,548
Provision for income
taxes:
Current 527,072 576,978 164,837 132,814
Deferred (benefit) 18,093 14,378 4,671 (5,344)
---------- ---------- ---------- ----------
545,165 591,356 169,508 127,470
---------- ---------- ---------- ----------
Net income 978,342 1,094,422 305,986 259,078
========== ========== ========== ==========
Earnings per common share:
Basic $ 0.30 $ 0.34 $ 0.09 $ 0.08
========== ========== ========== ==========
Diluted $ 0.27 $ 0.30 $ 0.08 $ 0.07
========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic 3,244,695 3,251,353 3,247,020 3,254,662
========== ========== ========== ==========
Diluted 3,657,060 3,689,772 3,655,932 3,693,610
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
1999 1998
---- ----
(Unaudited)(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 978,342 $1,094,422
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization 137,234 116,553
Deferred income taxes 18,093 14,378
Provision for doubtful accounts 277,534 0
Compensation expense from issuance
of stock options and warrants 12,787 36,886
Changes in operating assets and
liabilities:
Receivables (967,350) (59,416)
Inventories (207,581) (100,136)
Prepaid income taxes 70,861 0
Other assets 18,990 (953)
Accounts payable 83,537 111,933
Accrued liabilities 42,453 11,946
Income taxes payable (29,820) (30,439)
---------- ----------
Net cash provided by
operating activities 435,080 1,195,174
---------- ----------
Cash flows from investing activities:
Purchase of short-term investments (300,000) (100,000)
Proceeds from maturities of
short-term investments 300,000 100,000
Acquisition of property and equipment (170,489) (148,872)
---------- ----------
Net cash (used) by investing
activities (170,489) (148,872)
---------- ----------
Cash flows from financing activities:
Repayments of note payable (540) 0
Repayments of long-term debt 0 (101,361)
Proceeds from issuance of common stock 2,396 2,579
Acquisitions of treasury stock 0 (11,201)
---------- ----------
Net cash provided(used) by
financing activities 1,856 (109,983)
---------- ----------
Net increase in cash and cash equivalents $266,447 $ 936,319
Cash and cash equivalents:
Beginning of period 2,386,719 1,878,919
---------- ----------
End of period $2,653,166 $2,815,238
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
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 1998 condensed financial statements have been
adjusted to reflect the actual timing of certain transactions as
described in the Company's December 31, 1998, 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
stockholders) 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. On May 27, 1999, the Company declared a 10%
common stock dividend for the shareholders of record as of July 15, 1999.
Both basic and diluted EPS have been restated for all periods presented for
the effects of the common stock dividend.
<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 $5,208,449 as of December 31, 1998, increased to
$6,208,777 as of September 30, 1999. The increase in working capital was
primarily the result of growth in cash as a result of continued profitability
in the quarter and increased trade accounts receivable resulting from
intensive sales force recruitment and resultant sales, partially offset by
increased accounts payable incurred in connection with setting up golf course
market inventory.
The Company's cash flow from operating activities for the nine months
provided $435,080 as funds generated from earnings, management of accounts
payable and reduction of the provision for doubtful accounts exceeded cash
used to fund increased accounts receivable and inventories. A total of
$170,489 was also utilized to acquire property and equipment, primarily
related to the construction of additional warehouse space. The resulting
increase in cash for the quarter was $266,447.
The Company began construction of an additional 30,000 square feet of
warehouse space to its existing facilities in May 1999 and should have more
than adequate funds on hand to complete this addition. 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, 1999 increased to
$10,898,296 from $10,879,241, or less than 1.0%, from the same period of
1998 and to $3,768,493 from $3,449,703, or 9.2%, in the third quarter of
1999 as compared to the corresponding period of 1998. The Company began to
see the benefits during the third quarter of the sales force realignment
conducted during prior quarters. That realignment caused the results for
the first two fiscal quarters to lag behind historical results for the prior
year.
Cost of sales as a percentage of net sales increased modestly to 56.5% of
net sales for the nine months ended September 30, 1999 as compared to 55.7%
of net sales for the same period of 1998. For the third quarters of 1999 and
1998, cost of goods sold was 58.1% and 58.4%, respectively. Cost of goods
sold has increased as a result of increased cost of raw materials and
equipment.
As a result, gross profit fell by 1.7% to $4,738,314 from $4,819,329 for
the nine months ended September 30, 1999 versus the comparable period of
fiscal 1998, but increased by 10.1% to $1,580,023 from $1,435,659 for the
third quarters of 1999 and 1998, respectively. Gross profit improved during
the third quarter as a result of increasing sales.
General and administrative expenses increased by 4.1% and 7.0% for the
comparable nine month and three month periods, respectively. These
increases reflect expenses associated with new sales managers and hiring of
additional sales personnel.
<PAGE>
As a result of these factors, net income fell for the comparable nine
months periods to $978,342 from $1,094,422, or 10.6%, but increased for the
comparable third quarters of 1999 and 1998 to $305,986 from $259,078, or
18.1%.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports.
(a) None
<PAGE>
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 10, 1999 By: /s/ Mark Kenner
------------------------- -------------------------
Mark Kenner, Vice
Chairman and Chief
Executive Officer
Date: November 10, 1999 By: /s/ Fred Kenner
------------------------- -------------------------
Fred Kenner, President
and Chief Financial
Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-QSB for the quarter ended September 30, 1999 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 2653166
<SECURITIES> 300000
<RECEIVABLES> 3420255
<ALLOWANCES> 383119
<INVENTORY> 910196
<CURRENT-ASSETS> 7070130
<PP&E> 1847757
<DEPRECIATION> 1005809
<TOTAL-ASSETS> 8081472
<CURRENT-LIABILITIES> 861353
<BONDS> 0000
0000
0000
<COMMON> 326206
<OTHER-SE> 6781513
<TOTAL-LIABILITY-AND-EQUITY> 8081472
<SALES> 10898296
<TOTAL-REVENUES> 10898296
<CGS> 6159982
<TOTAL-COSTS> 6159982
<OTHER-EXPENSES> 3299105
<LOSS-PROVISION> 0000
<INTEREST-EXPENSE> 0000
<INCOME-PRETAX> 1523507
<INCOME-TAX> 545165
<INCOME-CONTINUING> 978342
<DISCONTINUED> 0000
<EXTRAORDINARY> 0000
<CHANGES> 0000
<NET-INCOME> 978342
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.27
</TABLE>
