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, 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 March 31, 1999:
Common Stock, $0.10 par value, 2,962,090 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
March 31, 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 March 31, 1999
(unaudited) and December 31, 1998.
Arrow-Magnolia International, Inc. and Subsidiary 3
Condensed Statements of Income for the Three Months
Ended March 31, 1999 and 1998 (unaudited).
Arrow-Magnolia International, Inc. and Subsidiary 4
Condensed Statements of Cash Flows for the Three
Months Ended March 31, 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 6. Exhibits and Reports on Form 8-K 7
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
March 31, December 31,
Assets 1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,714,777 $2,386,719
Short-term investments 300,000 300,000
Trade accounts receivable, less
allowance for doubtful accounts
of $419,872 in 1999 and $414,276
in 1998 2,783,944 2,347,320
Inventories 810,362 702,615
Prepaid income taxes 0 70,861
Deferred income taxes 146,203 144,300
Other assets 12,910 27,315
---------- ----------
Total current assets $6,768,196 $5,979,130
Property and equipment, net 788,054 804,140
Intangible assets, net 129,729 131,247
Notes receivable 40,000 40,000
Deferred income taxes 25,900 27,200
Other assets, at cost 2,700 2,700
---------- ----------
Total assets $7,754,579 $6,984,417
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 672,369 $ 491,447
Accrued liabilities 290,459 215,939
Income taxes payable 148,148 63,295
---------- -----------
Total current liabilities $1,110,976 $ 770,681
Deferred compensation 104,500 104,500
---------- -----------
Total liabilities $1,215,476 $ 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 2,962,090 shares in 1999
and 2,958,990 shares in 1998 296,209 295,899
Additional paid-in capital 4,559,272 4,546,795
Retained earnings 1,745,090 1,328,010
Less cost of 13,500 shares of
common stock in treasury (61,468) (61,468)
---------- ----------
Total stockholders' equity $6,539,103 $6,109,236
---------- ----------
Total liabilities and
stockholders' equity $7,754,579 $6,984,417
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
1999 1998
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $3,496,046 3,630,199
Cost of sales 1,863,644 1,977,760
Gross profit $1,632,402 1,652,439
General and administrative
expenses 1,020,006 1,004,890
---------- ----------
Income before other income
(expense) $ 612,396 $ 647,549
---------- ----------
Other income (expense):
Interest expense $ 0 $ (14,523)
Interest income 25,369 17,351
Other income 4,856 0
---------- ----------
Total other income (expense) $ 30,225 $ 2,828
Income before income taxes $ 642,621 $ 650,377
Provision for income taxes:
Current $ 226,144 $ 171,253
Deferred (benefit) (603) $ 62,608
---------- ----------
$ 225,541 $ 233,861
---------- ----------
Net income $ 417,080 $ 416,516
========== ==========
Earnings per common share:
Basic $ 0.14 $ 0.14
========== ==========
Diluted $ 0.12 $ 0.12
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC, AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
1999 1998
---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 417,080 $ 416,516
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization 44,805 35,518
Deferred income taxes (603) 62,608
Provision for doubtful accounts 88,982 82,931
Compensation expense from issuance
of stock options and warrants 12,787 7,720
Changes in operating assets and
liabilities:
Receivables (525,606) (486,109)
Inventories (107,747) (28,829)
Prepaid income taxes 70,861 24,262
Other assets 14,405 0
Accounts payable 180,922 175,820
Accrued liabilities 74,520 (130,156)
Income taxes payable 84,853 93,154
---------- ----------
Net cash provided by operating
activities $ 355,259 $ 253,435
---------- ----------
Cash flows from investing activities:
Acquisition of property and
equipment $ (27,201) $ (6,290)
---------- ----------
Net cash (used) by investing
activities $ (27,201) $ (6,290)
---------- ----------
Cash flows from financing activities:
Repayments of note payable $ 0 $ (35,120)
Proceeds from common stock
issuance 0 2,178
---------- ----------
Net cash (used) by
financing activities $ 0 $ (32,942)
---------- ----------
Net increase in cash and cash
equivalents $ 328,058 $ 214,203
Cash and cash equivalents:
Beginning of period 2,386,719 1,878,919
---------- ----------
End of period $2,714,777 $2,093,122
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
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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.
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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 $5,208,449 as of December
31, 1998, increased to $5,657,220 as of March 31, 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 additional
trade shows, partially offset by increased accounts payable
incurred in connection with setting up the golf course market
inventory.
The Company's cash flow from operations for the quarter
provided $355,259 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 $328,058.
The Company will begin 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 quarter ended March 31, 1999 decreased
from $3,630,198 to $3,496,046, or 3.7%, from the same period of
the previous year. This decrease is primarily attributable to a
reorganization of the Company's sales force.
Cost of sales as a percentage of net sales decreased to
53.3% of net sales for the quarter ended March 31, 1999 as
compared to 54.5% of net sales for the same period of 1998 as a
result of an increased emphasis focused on higher profit margin
products and continued success at additional trade shows. As a
result of the decrease in net sales and slight margin
improvement, gross profit decreased by 1.2% from $1,652,439 to
$1,632,402 for the quarter ended March 31, 1999 versus the
comparable quarter of fiscal 1998.
Selling, general and administrative expenses increased by
1.5% for the comparable quarters as the Company implemented
measures to increase the Company's sales force and its
sales managers' team.
As a result of these factors, net earnings before income
taxes decreased to $642,621 from $650,377 for the corresponding
quarters of 1999 and 1998. Net earnings increased nominally
for the comparable quarters, from $416,516 to $417,080.
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 15, 1999 By: /s/ Mark Kenner
------------------- ---------------------------
Mark Kenner, Vice Chairman
and Chief Executive
Officer
Date: May 15, 1999 By: /s/ Fred Kenner
------------------- ----------------------------
Fred Kenner, President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule conains summary financial information extracted from
registrant's Form 10-QSB for the quarter ended March 31, 1999 and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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<CGS> 1863644
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</TABLE>
