[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: June 30, 1999
Commission File Number: 0-4728
ARROW-MAGNOLIA INTERNATIONAL
(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 June 30, 1999:
Common Stock, $0.10 par value, 2,966,881 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
June 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements Page
Arrow-Magnolia International, Inc. and Subsidiary 2
Condensed Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Statements of Income for the Three and
Six Month Periods Ended June 30, 1999 and 1998
(unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Statements of Cash Flows for the Six
Month Periods Ended June 30, 1999 and 1998
(unaudited).
Notes to Condensed Financial Statements (unaudited). 5
Item 2. Management's Discussion and Analysis or 6
Plan of Operation.
PART II. OTHER INFORMATION.
Item 4. Submission of Matters to a Vote of Security
Holders. 7
Item 6. Exhibits and Reports on Form 8-K. 7
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<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
June 30, December 31,
Assets 1999 1998
------- -------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,533,186 $2,386,719
Short-term investments 300,000 300,000
Trade accounts receivable,
less allowance for doubtful
accounts of $396,856 in 1999
and $414,276 in 1998 2,985,856 2,347,320
Inventories 831,562 702,615
Prepaid income taxes 4,361 70,861
Deferred income taxes 139,677 144,300
Other assets 4,979 27,315
---------- ----------
Total current assets $6,799,621 $5,979,130
Property and equipment, net 768,887 804,140
Intangible assets, net 128,212 131,247
Notes receivable 40,000 40,000
Deferred income taxes 18,400 27,200
Other assets, at cost 2,700 2,700
-------- ----------
Total assets $7,757,820 $6,984,417
========== ==========
Liabilities and stockholders' equity
------------------------------------
Current liabilities:
Accounts payable $ 615,528 $ 491,447
Accrued liabilities 236,058 215,939
Income taxes payable 0 63,295
---------- ----------
Total current liabilities $ 851,586 $ 770,681
Deferred compensation 104,500 104,500
---------- ----------
Total liabilities $ 956,086 $ 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 2,966,881 shares in
1999 and 2,958,990 shares in 1998 296,688 295,899
Additional paid-in capital 4,566,687 4,546,795
Retained earnings 924,887 1,328,010
Stock dividend to be issued 1,074,940 0
Less cost of 13,500 shares of
common stock in treasury (61,468) (61,468)
---------- ----------
Total stockholders' equity $6,801,734 $6,109,236
---------- ----------
Total liabilities and
stockholders' equity $7,757,820 $6,984,417
========== ==========
See accompanying notes to condensed financial statements.
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<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX AND THREE MONTH PERIODS
ENDED JUNE 30, 1999 AND 1998
</TABLE>
<TABLE>
Six months Three months
ended June 30 ended June 30
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ---
(Unaudited)(Unaudited)(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $7,129,803 $7,429,538 $3,633,757 $3,799,339
Cost of sales 3,971,512 4,045,868 2,107,868 2,068,108
---------- ---------- ---------- ----------
Gross profit $3,158,291 $3,383,670 $1,525,899 $1,731,231
General and admini-
strative expenses 2,166,826 2,108,477 1,146,820 1,103,557
---------- --------- --------- ---------
Income before other
income (expense) $ 991,465 $1,275,223 $ 379,069 $ 627,674
---------- ---------- ---------- ----------
Other income (expense):
Interest expense $ 0 $ (28,547) $ 0 $ (14,024)
Interest income 51,692 0 26,323 0
Other income 4,856 52,554 0 35,203
---------- --------- --------- ---------
Total other income
(expense) 56,548 24,007 26,323 21,179
---------- --------- --------- ---------
Income before income
taxes $1,048,013 $1,299,230 $ 405,392 $ 648,853
Provision for income
taxes:
Current 362,235 444,165 136,091 272,912
Deferred (benefit) 13,422 19,721 14,025 (42,887)
---------- ---------- ---------- ----------
375,657 463,886 150,116 230,025
---------- ---------- ---------- ----------
Net income 672,356 835,344 255,276 418,828
========== ========== ========== ==========
Earnings per common share:
Basic $ 0.21 $ 0.26 $ 0.08 $ 0.13
========== ========== ========== ==========
Diluted $ 0.18 $ 0.23 $ 0.07 $ 0.11
========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic 3,244,695 3,249,698 3,247,020 3,251,451
========== ========== ========== ==========
Diluted 3,657,060 3,697,845 3,655,932 3,691,671
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC, AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
1999 1998
---- ----
(Unaudited)(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 672,356 $ 835,344
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization 90,929 71,035
Deferred income taxes 18,921 19,721
Provision for doubtful accounts 181,458 244,796
Compensation expense from issuance
of stock options and warrants 12,787 36,886
Changes in operating assets and
liabilities:
Receivables (819,994) (788,760)
Inventories (128,947) (79,699)
Prepaid income taxes 66,500 0
Other assets 22,336 6,708
Accounts payable 124,081 119,659
Accrued liabilities 19,580 (24,923)
Income taxes payable (63,295) 10,302
---------- ----------
Net cash provided by
operating activities 196,712 451,069
---------- ----------
Cash flows from investing activities:
Purchase of short-term investments (300,000) (200,000)
Proceeds from maturities of
short-term investments 300,000 200,000
Acquisition of property and equipment (52,641) (84,440)
---------- ----------
Net cash (used) by investing
activities (52,641) (84,440)
---------- ----------
Cash flows from financing activities:
Repayments of note payable 0 0
Repayments of long-term debt 0 (69,240)
Proceeds from issuance of common stock 2,396 2,579
---------- ----------
Net cash provided(used) by
financing activities 2,396 (66,661)
---------- ----------
Net increase in cash and cash equivalents $146,467 $ 299,968
Cash and cash equivalents:
Beginning of period 2,386,719 1,878,919
---------- ----------
End of period $2,553,186 $2,178,887
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
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.
Both basic and diluted EPS have been restated for all periods
presented for the effects of the common stock dividend discussed
in Note 3.
(3) Stock dividend to be issued
---------------------------
On May 27, 1999, the Company declared a 10% common stock
dividend for the shareholders of record as of July 15, 1999. The
declaration for the post-balance sheet issuance of common stock
Under the stock dividend has been deducted from retained earnings
and reflected in the Company's unaudited June 30, 1999, condensed
balance sheet as a separate component of stockholders' equity.
On July 15, 1999, $29,654 and $1,045,286 was transferred from the
stock dividend to be issued account to common stock and
additional paid-in capitol, respectively.
<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 $5,208,449 as of December
31, 1998, increased to $5,948,035 as of June 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 and inventory 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
quarter provided $196,712 as funds generated from earnings and
management of accounts payable exceeded cash used to fund
increased accounts receivable and inventories. Funds were also
utilized to acquire property and equipment. The resulting
increase in cash for the quarter was $146,467.
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 six months ended June 30, 1999 decreased
to $7,129,803 from $7,429,538, or 4.0%, from the same period of
1998 and to $3,633,757 from $3,799,339, or 4.4%, in the second
quarter of 1999 as compared to the corresponding period of 1998.
These modest decreases are primarily attributable to sales force
realignment.
Cost of sales as a percentage of net sales increased
modestly to 55.7% of net sales for the six months ended June 30,
1999 as compared to 54.5% of net sales for the same period of
1998. For the second quarters of 1999 and 1998, cost of goods
sold was 58.0% and 54.5%, 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 6.7% to $3,158,291 from
$3,383,670 for the six months ended June 30, 1999 versus the
comparable period of fiscal 1998 and by 11.9% to $1,525,899 from
$1,731,231 for the second quarters of 1999 and 1998,
respectively.
General and administrative expenses increased by 2.8% and
3.9% for the comparable three month and six month periods,
respectively. This increase reflects expenses associated with
new sales managers and hiring of additional sales personnel.
As a result of these factors, net income fell for the
comparable six months periods to $672,356 from $835,344, or
19.5%, and for the comparable second quarters of 1999 and 1998 to
$255,276 from $418,828, or 39.0%.
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of shareholders of Arrow-Magnolia
International, Inc. was held on May 21, 1998, at which time the
shareholders were asked to vote upon election of Directors and
approval of the declaration of a 10% stock dividend.
All nominees identified in the Company's proxy materials
were elected. The votes in such election were tabulated as
follows:
Nominees For Against
Morris Shwiff 1,673,524 0
Mark Kenner 1,673,524 0
Fred Kenner 1,672,992 532
Robert D. DeRosier 1,673,524 0
Clifton R. Duke 1,673,524 0
The votes to approve the dividend were tabulated as follows:
For Against Abstain Broker's Non Vote
1,672,460 1,064 0 0
Therefore, as contemplated, a 10% stock dividend was
distributed on July 26, 1999 to shareholders of record as of July
15, 1999.
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: August 16, 1999 By: /s/ Mark Kenner
------------------------- -------------------------
Mark Kenner, Vice
Chairman and Chief
Executive Officer
Date: August 16, 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 June 30, 1999 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 2533186
<SECURITIES> 300000
<RECEIVABLES> 3382712
<ALLOWANCES> 396856
<INVENTORY> 831562
<CURRENT-ASSETS> 6799621
<PP&E> 1729909
<DEPRECIATION> 961022
<TOTAL-ASSETS> 7757820
<CURRENT-LIABILITIES> 851586
<BONDS> 0000
0000
0000
<COMMON> 296688
<OTHER-SE> 6505046
<TOTAL-LIABILITY-AND-EQUITY> 7757820
<SALES> 7129803
<TOTAL-REVENUES> 7129803
<CGS> 3971512
<TOTAL-COSTS> 3971512
<OTHER-EXPENSES> 2166826
<LOSS-PROVISION> 0000
<INTEREST-EXPENSE> 0000
<INCOME-PRETAX> 1048013
<INCOME-TAX> 375657
<INCOME-CONTINUING> 672356
<DISCONTINUED> 0000
<EXTRAORDINARY> 0000
<CHANGES> 0000
<NET-INCOME> 672356
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.18
</TABLE>
