[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, 2000
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 June 30, 2000:
Common Stock, $0.10 par value, 3,248,566 shares
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ARROW-MAGNOLIA INTERNATIONAL, INC.
June 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements Page
Arrow-Magnolia International, Inc. 3
Condensed Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999.
Arrow-Magnolia International, Inc. 4
Condensed Statements of Income for the Six and Three
Month Periods Ended June 30, 2000 and 1999
(unaudited).
Arrow-Magnolia International, Inc. 5
Condensed Statements of Cash Flows for the Six
Month Periods Ended June 30, 2000 and 1999
(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
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ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
June 30, December 31,
2000 1999
----------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $2,227,030 $2,710,341
Short-term investments 300,000 300,000
Trade accounts receivable, less
allowance for doubtful
accounts of $461,280 in 2000 and
$438,990 in 1999 3,252,054 2,373,686
Inventories 968,392 672,068
Prepaid income taxes - 79,961
Deferred income taxes 224,900 184,900
Other assets 7,786 9,247
----------- -----------
Total current assets $6,980,162 $6,330,203
Property and equipment, cost 3,002,335 2,699,263
Accumulated depreciation (1,164,367) (1,048,345)
Intangible assets, net 122,141 125,176
Notes receivable 61,466 40,000
Other assets, at cost 2,700 2,700
----------- -----------
Total assets $9,004,437 $8,148,997
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $723,974 $584,549
Accrued liabilities 230,147 236,510
Income taxes payable 113,483 24,498
----------- -----------
Total current liabilities $1,067,604 $845,557
Deferred income taxes 18,600 21,500
Deferred compensation 104,500 104,500
----------- -----------
Total liabilities $1,190,704 $971,557
----------- -----------
Stockholders' equity:
Preferred stock - par value $.10;
authorized 500,000 shares; none
issued $ - $ -
Common stock - par value $.10; authorized
10,000,000 shares; issued 3,262,066
shares in 2000 and 3,262,066 shares
in 1999 326,207 326,207
Additional paid-in capital 5,607,214 5,607,214
Retained earnings 1,941,780 1,305,487
Less cost of 13,500 shares of common
stock in treasury (61,468) (61,468)
----------- ----------
Total stockholders' equity $7,813,733 $7,177,440
----------- ----------
Total liabilities and
stockholders' equity $9,004,437 $8,148,997
=========== ==========
See accompanying notes to condensed financial statements.
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ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Six months ended Three months ended
June 30, June 30,
---------------------- -----------------------
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited)(unaudite
---------- ---------- ---------- ----------
Net Sales $7,291,682 $7,129,803 $3,775,600 $3,633,757
Cost of sales 4,071,234 3,971,512 2,152,131 2,107,868
---------- ---------- ---------- ----------
Gross Profit $3,220,448 $3,158,291 $1,623,469 $1,525,889
General and
administrative
expenses 2,312,595 2,166,826 1,194,756 1,146,820
---------- ---------- ---------- ---------
Income before other
income (expense $907,853 $911,465 $428,713 $379,069
---------- ---------- ---------- ----------
Other income (expense)
Interest expens $ - $ - $ - $ -
Interest income 85,308 51,692 54,260 26,323
Other income 3,044 4,856 10 -
---------- ---------- ---------- ----------
Total other
income (expense) $ 88,352 $56,548 $54,270 $26,323
---------- ---------- ---------- ----------
Income before income
taxes $996,205 $1,048,013 $482,983 $405,392
---------- ---------- ---------- ----------
Provision for income
taxes:
Current $402,812 $362,235 $184,912 $136,091
Deferred (benefit) (42,900) 13,422 (5,100) 14,025
---------- ---------- ---------- ----------
$359,912 $375,657 $179,812 $150,116
---------- ---------- ---------- ----------
Net income $636,293 $672,356 $303,171 $255,276
========== ========== ========== ==========
Earnings per common
share:
Basic $0.20 $0.21 $0.09 $0.08
========== ========== ========== ==========
Diluted $0.17 $0.18 $0.08 $0.07
========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic 3,248,566 3,244,695 3,248,566 3,247,020
========== ========== ========== ==========
Diluted 3,639,134 3,657,060 3,632,911 3,655,932
========== ========== ========== ==========
See accompanying notes to condensed financial statements.
ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
2000 1999
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $636,293 $672,356
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization 119,057 90,929
Deferred income taxes (42,900) 18,921
Provision for doubtful accounts 22,290 181,458
Compensation expense from issuance
of stock options and warrants - 12,787
Changes in operating assets and
liabilities:
Receivables (900,658) (819,994)
Inventories (296,324) (128,947)
Prepaid income taxes 79,961 66,500
Other assets (21,466) 22,336
Accounts payable 139,425 124,081
Accrued liabilities (6,363) 19,580
Income taxes payable 88,985 (63,295)
---------- -----------
Net cash (used) provided by
operating activities $(181,700) $196,712
---------- -----------
Cash flows from investing activities:
Purchase of short-term investments $(300,000) $(300,000)
Proceeds from maturities of short-
term investments 300,000 300,000
Changes in notes and other
receivables 1,461 -
Acquisition of property and
equipment (303,072) (52,641)
---------- -----------
Net cash (used) by
investing activities $(301,611) $(52,641)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock $ - $ 2,396
---------- ----------
Net cash provided (used) by
financing activities $ - $ 2,396
---------- ----------
Net (decrease) increase in cash and
cash equivalents $(483,311) $146,467
Cash and cash equivalents:
Beginning of period 2,710,341 2,386,719
---------- ----------
End of period 2,227,030 2,533,186
========== ==========
See accompanying notes to condensed financial statements.
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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.
(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.
(3) Acquisition Transaction
On July 7, 2000, the Company entered into an Acquisition
Agreement with BioShield Technologies, Inc. ("BioShield")
pursuant to which BioShield agreed, subject to performance or
satisfaction of certain terms and conditions, to acquire up
to 85% of the Company's outstanding common stock for $5.00 in
value per share, consisting of $4.41 in cash and 0.05221 of a
share of BioShield common stock. In addition, BioShield
agreed, subject to performance or satisfaction of certain
terms and conditions, to purchase all outstanding options and
warrants issued by the Company for the price per share
issuable under such option or warrant of $4.75 less the
exercise price.
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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 $5,484,646 as of December
31, 1999, increased to $5,912,558 as of June 30, 2000. The
increase in working capital was primarily the result of increased
trade accounts receivable attributable to sales force recruitment
and resultant sales, partially offset by an increase in
inventories used to support the sales effort.
The Company's cash flow from operating activities for the six
months used $181,700 as cash used to fund increased accounts
receivable and inventories exceeded cash generated from earnings
and depreciation. A total of $303,611 was also utilized to
acquire property and equipment primarily related to the completion
of the expansion of the Company's operating facility and executive
offices. The resulting decrease in cash for the quarter was
$483,311.
The Company believes that its present financing is adequate
for its capital needs for the foreseeable future.
Material Changes in Results of Operations
Net sales for the six months ended June 30, 2000 increased to
$7,291,682 from $7,129,803, or 2.3%, from the same period of 1999
and to $3,775,600 from $3,633,757, or 3.9%, in the second quarter
of 2000 as compared to the corresponding period of 1999. These
modest increases are primarily attributable to improvements in the
second quarter, including sales related to the recently announced
agreement with Pioneer USA, Inc.
Cost of sales as a percentage of net sales increased modestly
to 55.8% of net sales for the six months ended June 30, 2000 as
compared to 55.7% of net sales for the same period of 1999. For
the second quarters of 2000 and 1999, costs of goods sold were
57.0% and 58.0%, respectively. Cost of goods sold has remained
stable as procurement costs for materials have remained relatively
constant.
As a result, gross profit increased by 2.0% to $3,220,448
from $3,158,291 for the six months ended June 30, 2000 versus the
comparable period of fiscal 1999 and by 6.4% to $1,623,469 from
$1,525,899 for the second quarters of 2000 and 1999, respectively.
General and administrative expenses increased by 6.7% and
4.2% for the comparable six month and three month periods,
respectively. These increases primarily reflect 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 $636,293 from $672,356, or 5.4%,
but increased for the comparable second quarters of 2000 and 1999
to $303,171 from $255,276, or 18.8%.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports.
(a) None.
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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: August 1, 2000 By: /s/ Mark Kenner
----------------------------
Mark Kenner, Vice Chairman
and Chief Executive Officer
Date: August 1, 2000 By: /s/ Fred Kenner
---------------------------
Fred Kenner, President and
Chief Financial Officer
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