[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: September 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 September 30, 2000:
Common Stock, $0.10 par value, 3,248,566 shares
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
September 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements Page
Arrow-Magnolia International, Inc. 3
Condensed Balance Sheets as of September 30, 2000
(unaudited) and December 31, 1999.
Arrow-Magnolia International, Inc. 4
Condensed Statements of Income for the Nine and Three
Month Periods Ended September 30, 2000 and 1999
(unaudited).
Arrow-Magnolia International, Inc. 5
Condensed Statements of Cash Flows for the Nine
Month Periods Ended September 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 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K. 8
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
2000 1999
----------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $2,365,063 $2,710,341
Short-term investments 300,000 300,000
Trade accounts receivable, less
allowance for doubtful
accounts of $538,425 in 2000 and
$438,990 in 1999 3,198,998 2,373,686
Inventories 1,252,259 672,068
Prepaid income taxes - 79,961
Deferred income taxes 278,100 184,900
Other assets 15,069 9,247
----------- -----------
Total current assets $7,409,489 $6,330,203
Property and equipment, cost 3,102,488 2,699,263
Accumulated depreciation (1,222,867) (1,048,345)
Intangible assets, net 120,623 125,176
Notes receivable 61,466 40,000
Other assets, at cost 1,850 2,700
----------- -----------
Total assets $9,473,049 $8,148,997
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 750,062 $ 584,549
Accrued liabilities 225,595 236,510
Income taxes payable 214,963 24,498
----------- -----------
Total current liabilities $1,190,620 $ 845,557
Deferred income taxes 12,000 21,500
Deferred compensation 104,500 104,500
----------- -----------
Total liabilities $1,307,120 $ 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 2,293,976 1,305,487
Less cost of 13,500 shares of common
stock in treasury (61,468) (61,468)
----------- ----------
Total stockholders' equity $8,165,929 $7,177,440
----------- ----------
Total liabilities and
stockholders' equity $9,473,049 $8,148,997
=========== ==========
See accompanying notes to condensed financial statements.
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Nine months ended Three months ended
September 30, September 30,
------------------------ ----------------------
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudite)
----------- ----------- ---------- ----------
Net Sales $11,165,438 $10,898,296 $3,873,756 $3,768,493
Cost of sales 6,133,706 6,159,982 2,062,472 2,188,470
----------- ----------- ---------- ----------
Gross Profit $ 5,031,732 $ 4,738,314 $1,811,284 $1,580,023
General and
administrative
expenses 3,625,738 3,299,105 1,313,143 1,132,279
----------- ---------- ---------- ----------
Income before other
income (expense $ 1,405,994 $ 1,439,209 $ 498,141 $ 447,744
----------- ----------- ---------- ----------
Other income (expense)
Interest expens $ - $ - $ - $ -
Interest income 117,467 79,442 32,159 27,750
Other income 5,619 4,856 2,575 -
----------- ----------- ---------- ----------
Total other
income (expense) $ 123,086 $ 84,298 $ 34,734 $ 27,750
----------- ----------- ---------- ----------
Income before income
taxes $ 1,529,080 $ 1,523,507 $ 532,875 $ 475,494
----------- ----------- ---------- ----------
Provision for income
taxes:
Current $ 643,291 $ 527,072 $ 240,479 $ 164,837
Deferred (benefit) (102,700) 18,093 (59,800) 4,671
----------- ----------- ---------- ----------
$ 540,591 $ 545,165 $ 180,679 $ 169,508
----------- ----------- ---------- ----------
Net income $ 988,489 $ 978,342 $ 352,196 $ 305,986
=========== =========== ========== ==========
Earnings per common
share:
Basic $ 0.30 $ 0.30 $ 0.11 $ 0.09
=========== =========== ========== ==========
Diluted $ 0.27 $ 0.27 $ 0.10 $ 0.08
=========== =========== ========== ==========
Weighted average common
shares outstanding:
Basic 3,248,566 3,244,695 3,248,566 3,247,020
=========== =========== ========== ==========
Diluted 3,652,725 3,657,060 3,675,911 3,655,932
=========== =========== ========== ==========
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, 2000 AND 1999
2000 1999
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 988,489 $ 978,342
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Depreciation and amortization 179,075 137,234
Deferred income taxes (102,700) 18,093
Provision for doubtful accounts 99,435 277,534
Compensation expense from issuance
of stock options and warrants - 12,787
Changes in operating assets and
liabilities:
Receivables (924,747) (967,350)
Inventories (580,191) (207,581)
Prepaid income taxes 79,961 70,861
Other assets (23,604) 18,990
Accounts payable 165,513 83,537
Accrued liabilities (10,915) 42,453
Income taxes payable 190,465 (29,820)
---------- -----------
Net cash (used) provided by
operating activities $ 60,781 $ 435,080
---------- -----------
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 (2,834) -
Acquisition of property and
equipment (403,225) (170,489)
---------- -----------
Net cash (used) by
investing activities $ (406,059) $ (170,489)
---------- -----------
Cash flows from financing activities:
Dividends on fractional shares - (540)
Proceeds from issuance of common
stock $ - $ 2,396
---------- ----------
Net cash provided (used) by
financing activities $ - $ 1,856
---------- ----------
Net (decrease) increase in cash and
cash equivalents $ (345,278) $266,447
Cash and cash equivalents:
Beginning of period 2,710,341 2,386,719
---------- ----------
End of period 2,365,063 2,653,166
========== ==========
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.
(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.
As of September 30, 2000, no transactions have occurred under this agreement.
<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 $5,484,646 as of December 31, 1999, increased to
$6,218,869 as of September 30, 2000. The increase in working capital was
primarily the result of an increase in trade accounts receivable attributable
to sales force recruitment and resultant sales and an increase in inventories
used to support the sales effort.
The Company's cash flow from operating activities for the nine months
provided $60,781 as cash generated primarily from earnings and depreciation
exceeded cash primarily used to fund increased accounts receivable and
inventories. A total of $406,059 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 period was $345,059.
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 nine months ended September 30, 2000 increased to
$11,165,438 from $10,898,296, or 2.5%, from the same period of 1999 and to
$3,873,756 from $3,768,493, or 2.8%, in the third quarter of 2000 as compared
to the corresponding period of 1999. These modest increases are primarily
attributable to improvements commencing in the second quarter, including
sales related to agreement with Pioneer USA, Inc. announced in March 2000,
and the impact beginning in the third quarter of the Company's new
telemarketing division.
Cost of sales as a percentage of net sales improved to 54.9% of net
sales for the nine months ended September 30, 2000 as compared to 56.5% of
net sales for the same period of 1999. For the third quarters of 2000 and
1999, costs of goods sold were 53.2% and 58.1%, respectively. Cost of goods
sold fell during the third quarter as the result of specific purchasing
initiatives and taking advantage of discounting opportunities in purchasing
raw materials.
As a result, gross profit increased by 6.2% to $5,031,732 from
$4,738,314 for the nine months ended September 30, 2000 versus the comparable
period of fiscal 1999 and by 14.6% to $1,811,284 from $1,580,023 for the
third quarters of 2000 and 1999, respectively.
General and administrative expenses increased by 9.9% and 15.9% for the
comparable nine month and three month periods, respectively. These increases
primarily reflect expenses associated with additional personnel in
telemarketing and sales.
As a result of these factors, net income increased for the comparable
nine months periods to $988,489 from $978,342, or 1.0%, and increased for the
comparable third quarters of 2000 and 1999 to $352,196 from $305,986, or
15.1%.
Part II. OTHER INFORMATION
Item 5. Other Information.
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.
On November 8, 2000, the parties agreed not to pursue the transactions
contemplated by the Acquisition Agreement and terminated the Acquisition
Agreement by mutual consent in accordance with its terms.
<PAGE>
Item 6. Exhibits and Reports.
(a) None.
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 14, 2000 By: /s/ Mark Kenner
----------------------------
Mark Kenner, Vice Chairman
and Chief Executive Officer
Date: November 14, 2000 By: /s/ Fred Kenner
---------------------------
Fred Kenner, President and
Chief Financial Officer
<PAGE>
