CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number 0-4728
Arrow-Magnolia International, Inc.
(Name of Small Business Issuer in its Charter)
Texas 75-0408335
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2646 Rodney Lane, Dallas, Texas 75229
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (972) 247-7111
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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
preceding 12 months (or for such shorter period that the issuer was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes ( x ) No ( )
Check if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment of this Form 10-KSB. ( )
Issuer's revenues for the fiscal year ended December 31, 1999 were:
$14,001,716
The aggregate market value of the registrant's voting stock held by non-
affiliates as of December 31, 1999 was: $3,321,927 (* see note on index
page).
The number of shares outstanding of each class of registrant's common
stock as of December 31, 1999 was: Common Stock, par value $0.10 per share,
3,248,566 shares.
___________________
Documents Incorporated by Reference
Portions of the registrant's definitive proxy statement to be furnished
to stockholders in connection with its Annual Meeting of Stockholders to be
held on May 24, 2000 are incorporated by reference in Part III of this Form
10-KSB.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-KSB
INDEX
Securities and Exchange Commission
Item Number and Description Page
PART I
Item 1. Description of Business.................................. 1
Item 2. Description of Property.................................. 2
Item 3. Legal Procee............................................. 2
Item 4. Submission of Matters to a Vote of Security-Holders...... 3
PART II
Item 5. Market for Common Equity and Related Stockholder Matters. 3
Item 6. Management's Discussion and Analysis or Plan of Operation 4
Item 7. Financial Statements..................................... 5
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure................................. 5
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act........ 6
Item 10. Executive Compensation................................... 6
Item 11. Security Ownership of Certain Beneficial Owners and
Management ... 6
Item 12. Certain Relationships and Related Transactions........... 6
Item 13. Exhibits and Reports on Form 8-K......................... 6
Index To Financial Statements and Schedules......................... F-1
Signatures..........................................................
* The figure indicated on the cover page as to the aggregate market
value of shares of issuer's voting stock held by nonaffiliates, as such figure
relates to shares held by affiliates, represents the issuer's best good faith
estimate for purposes of this annual report on Form 10-KSB and for no other
purpose. The aggregate market value indicated is based upon the last sales
price of the issuer's common stock as reported by the NASDAQ SmallCap Market
as of December 31, 1999. See "Market for Common Equity and Related
Stockholder
Matters."
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
Form 10-KSB Annual Report
For the Fiscal Year Ended
December 31, 1999
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Arrow-Magnolia International, Inc., a Texas corporation (the "Company"
or "Arrow-Magnolia"), was incorporated in the State of Texas in 1937.
The Company's business consists primarily of the manufacture and
distribution of approximately 400 specialty chemical products for use in
cleaning and maintaining equipment and general maintenance and sanitation.
The Company's manufacturing operations blend, to the Company's specifications
and according to the Company's procedures, a variety of chemicals to create
the Company's products. The Company packages products that it blends or
manufacturesand, in addition, purchases products that have been blended or
manufactured and then packaged under the Company's private labels by third
parties. The Company also distributes certain nonchemical products, such as
paper and other janitorial supplies, related to its chemical products. The
Company's products, including its nonchemical products, are marketed
throughout the United States, Canada and other countries to a variety of
consumers. No single customer accounted for as much as 10% of its total net
sales during 1999, 1998 or 1997.
The Company's product line includes aircraft coatings, cleaners,
corrosion preventatives, degreasers and air fresheners; construction chemicals
such as release agents, concrete strippers, safety solvents, custom lubricants
and rust reconverters; and telecommunication formulations such as refinishers,
cable cleaners, graffiti removers and fiber optic lubricants. Sanitation and
maintenance products sold by the Company include soaps, enzymes, deodorants,
germicides, insecticides, disinfectants and miscellaneous janitorial supplies.
Nonchemical products sold by the Company include parts washers, sprayers,
paper products and poly liners. The Company's products are designed and
packaged fforlarge-scale users rather than individual household consumers.
The Company currently manufactures certain of its products in order to
give the Company greater control over its inventory in terms of quality and
availability of goods. Cost savings are also effected through elimination of
outside vendor overhead and profit and through reductions in the cost of
carrying finished goods inventory versus raw materials. Currently the Company
manufactures approximately 60% of its products (measured by 1999 sales
expressedin dollars). The raw materials necessary for manufacture of the
Company's products and the finished products resold by the Company are readily
available from numerous sources and the Company is not dependent on any
particular supplier for these items.
The Company markets its products primarily through its own sales
personnel consisting of ten sales managers and independent contractors (90
persons) and distributors (12 companies). In addition, the Company exhibits
its products at national and international trade shows. The Company attends,
on a regular basis,major trade shows annually. The Company has no material
backlog of orders for its products.
The Company does not incur any material costs in complying with
applicable environmental laws.
1
<PAGE>
Competition
The business of the Company is highly competitive in all of its phases.
However, the industry in which the Company competes is very fragmented and,
although two companies are significantly larger than other companies engaged
in this industry, no single firm or group of firms dominates the industry as a
whole. Further, the total sales volume of the Company's products constitutes
only a very small portion of the total available market.
The principal methods of competition in the business of the Company are
sales personnel, price, quality and delivery capability. The Company competes
with numerous other companies, both domestic and foreign, and with major
chemical companies that have many products that are substantially similar to
those sold by the Company. Due to the substantial similarity in available
products and technology, product differentiation and preference is largely a
function of the sales effort. Management therefore believes that the Company
is able to compete successfully whenever it maintains aggressive sales
personnel.
To the best knowledge of the Company's management, the Company is the
only distributor of several products which are specially formulated to the
Company's specifications for the particular applications of the
telecommunications industry. There is no assurance, however, that other
manufacturers will not enter the market in the future.
Employees
As of December 31, 1999, the Company employed forty-five (45) full-time
employees, including its warehouse personnel and administrative, accounting,
clerical and sales personnel. In addition, the Company retained the services
as independent contractors of ninety (90) sales representatives. None of the
Company's employees are covered by union contracts, and the Company considers
its relationship with its employees to be excellent.
ITEM 2. DESCRIPTION OF PROPERTY.
The principal executive and warehouse facilities of the Company are
located in a steel, glass, brick and concrete building owned by the Company at
2646 Rodney Lane, Dallas, Texas. These facilities occupy approximately 70,000
square feet of floor space, of which 60,000 square feet are devoted to
warehousing and shipping and manufacturing, and 10,000 square feet to
administrative and executive offices.
The Company believes that all of its plant and office facilities are in
good condition and adequately insured.
The Company does not as a regular aspect of its business acquire
interests in real estate for purposes of investment or acquire securities of
or interests in persons engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS.
Other than as described below, the Company is not a party to, nor is any
of its property the subject of, any legal proceedings other than routine
litigation incidental to its business.
On May 21, 1999, the Company and three of its employees were named as
defendants in an action filed by Parkway Research Company in the 189th
Judicial District Court of Harris County, Texas. The plaintiff alleges that
the Company hired the defendant employees and obtained from them confidential
and proprietary information of the plaintiff, encouraged other employees to
leave the employ of plaintiff and made claims concerning the Company's
products that caused confusion regarding the plaintiff's products. The
plaintiff seeks unspecified actual and punitive damages and attorneys' fees.
The Company denies these claims and its insurer is providing a defense.
2
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
ended December 31, 1999, to a vote of the Company's security holders, through
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is included for quotation on the NASDAQ
SmallCap Market tier of the NASDAQ Stock Market under the trading symbol
"ARWM". The following table sets forth the high and low sales prices in the
common stock during the last eight quarters reported in that market as
adjusted for 10% stock dividends which became effective July 15, 1999 and July
14, 1998, respectively:
<TABLE>
<S> <C> <C>
Fiscal 1999 High Low
- - - ----------- ---- ----
Fourth Quarter $4.44 $1.94
Third Quarter 4.00 3.00
Second Quarter 4.21 3.24
First Quarter 4.21 3.41
Fiscal 1998
- - - -----------
Fourth Quarter $4.77 $3.64
Third Quarter 5.78 3.86
Second Quarter 6.41 4.75
First Quarter 5.74 4.55
</TABLE>
The approximate number of record holders of the Company's Common Stock
as of December 31, 1999, was 350.
The Company has paid no cash dividends with respect to its Common Stock
since 1988, when it paid a dividend of $0.05 per share. The Company currently
intends to retain any earnings for use in its business and does not anticipate
paying any cash dividends in the foreseeable future.
3
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following table sets forth for the periods indicated the relative
percentages that certain items included in the consolidated statements of
income bear to net sales and the percentage changes of such items as compared
to the indicated prior period:
<TABLE>
Increase (Decrease)
From Prior Period
Years Ended
Percentage of Net Sales ------------------
Years Ended December 31 1999 1998
------------------------ vs. vs.
1999 1998 1997 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 1.7% 8.0%
Cost of sales 57.2% 56.1% 56.4% 3.7% 7.3%
Gross profit 42.8% 43.9% 43.6% (0.9)% 8.9%
General and administrative
expenses 31.9% 30.5% 28.0% 6.2% 17.6%
Income before other income
(expense) 11.0% 13.4% 15.5% (16.9)% (6.7)%
Income before income taxes 11.8% 13.6% 15.6% (12.4)% (5.2)%
Net income 7.5% 8.8% 10.0% (13.2)% (5.4)%
</TABLE>
Comparison of Annual Results.
Net sales for fiscal year 1999 increased 1.7% to $14,001,716 from
$13,769,007 versus fiscal year 1998 after increasing 8.0% from fiscal 1997 to
fiscal 1998. Cost of sales as a percentage of net sales increased to 57.2% in
fiscal 1999 from 56.1% in fiscal 1998 and 56.4% in fiscal 1997. The increase
in sales from 1998 to 1999 is primarily attributable to the extension of sales
coverage through the addition of sales personnel under an ongoing hiring
program. As a result of increased hiring and training expenses associated with
the addition of these sales personnel, gross profit decreased by 0.9% to
$5,996,902 from $6,050,299 for fiscal 1999 versus fiscal 1998, after
increasing by 8.9% from fiscal 1997 to fiscal 1998.
General and administrative expenses rose to 31.9% of net sales in fiscal
1999 primarily as the result of expenses associated with hiring additional
sales personnel, such as increased travel expense. General and administrative
expenses also increased as a percentage of net sales to 30.5% in fiscal 1998
from 28.0% in fiscal 1997. In addition to hiring additional sales personnel,
during fiscal 1998 the Company increased its reserve for bad debt to 4.0% of
net sales from 2.2% of net sales.
Other income generated $110,766 in income during fiscal 1999 and $31,958
in income during fiscal 1998, primarily as the result of interest earned on
excess cash in excess of interest paid.
As a result of these factors, for the fiscal year ended December 31,
1999, net income fell to $1,048,062 versus $1,207,280 for fiscal 1998 and
$1,275,847 for fiscal 1997.
4
<PAGE>
Liquidity and Capital Resources.
The Company's working capital (total current assets less total current
liabilities), which was $5,208,449 as of December 31, 1998, improved to
$5,484,646 as of December 31, 1999. The Company's current assets increased as
the Company's cash increased due to continuing profitability. Current
liabilities increased due to the addition of equipment, such as sprayers, used
to support sales and the resulting increase in accounts payable.
As shown in the Company's statements of cash flows for 1999, the Company
generated $1,300,216 in cash flow from operations as the Company continued to
capitalize on its profitability, partially offset by increases in receivables
resulting from its sustained growth. The Company utilized $996,736 in
investing activities as it purchased property and equipment, primarily related
to the construction of an additional 30,000 square feet of warehouse space to
its existing facilities at a total cost of $675,000. A total of $20,142 was
provided by financing activities as the result of exercise of outstanding
options to purchase common stock.
At December 31, 1999, the Company had $1,250,000 available under a
revolving line of credit bearing interest at the lender's prime rate (7.75% at
December 31, 1999) and is collateralized by certain accounts receivable and
inventories. At December 31, 1999, there was no outstanding balance under
this note. The credit agreement contains various debt covenants, the most
restrictive of which requires the Company to maintain certain minimum
financial requirements as of December 31, 1999. The Company believes that
its present financing is also otherwise adequate for its capital needs for the
foreseeable future.
ITEM 7. FINANCIAL STATEMENTS.
Included at pages F-1 through F-17 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
KPMG LLP ("KPMG") was previously the principal accountant for Arrow-
Magnolia. During 1998, the Company and KPMG engaged in discussions concerning
fees for performing such work in the future, but were unable to reach
agreement. Effective November 18, 1998, KPMG resigned.
The former accountants' audit reports on financial statements of Arrow-
Magnolia International, Inc. as of December 31, 1997 and for the fiscal year
ended December 31, 1997 did not contain any adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles. In connection with the audit of the fiscal year ended
December 31, 1997, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope procedures which, if not resolved to their satisfaction, would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement.
Philip Vogel & Co., P.C. has been engaged as the principal accountants
to audit the financial statements of the Company. Effective December 9, 1998,
Philip Vogel & Co., P.C. accepted the position. The Company has not
previously consulted with that firm regarding the application of accounting
principles to any specified transaction or the type of audit opinion that
might be rendered on the Company's financial statements or upon any matter
that was a subject of disagreement with its previous accountants.
The resignation of KPMG and the selection of Philip Vogel & Co., P.C.
has been approved by the Audit Committee and the Board of Directors of Arrow-
Magnolia International, Inc.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information relating to the Company's Directors and executive officers
will be set forth under the heading "Election of Directors and Information as
to Directors, Nominees and Executive Officers" in the Company's definitive
proxy statement relating to the Company's Annual Meeting of Stockholders to be
held May 24, 2000, which will be filed with the Securities and Exchange
Commission on or about April 30, 1999, and such information is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information relating to executive compensation will be set forth under
the heading "Executive Compensation" in the Company's definitive proxy
statement relating to the Company's Annual Meeting of Stockholders to be held
May 24, 2000, which will be filed with the Securities and Exchange Commission
on or about April 30, 1999, and such information is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of certain beneficial owners and
management of the Company's Common Stock will be set forth under the heading
"Securities Ownership of Certain Beneficial Owners and Management" in the
Company's definitive proxy statement relating to the Company's Annual Meeting
of Stockholders to be held May 24, 2000, which will be filed with the
Securities and Exchange Commission on or about April 30, 1999, and such
information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to the business relationships and related
transactions with respect to the Company and certain Directors and nominees
for election as Directors is set forth under the heading "Certain
Transactions" in the Company's definitive proxy statement relating to the
Company's Annual Meeting of Stockholders to be held May 24, 2000, which will
be filed with the Securities and Exchange Commission on or about April 30,
1999, and such information is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
No. Exhibit
--- -------
3.1 Articles of Incorporation, as amended, of Arrow-Magnolia
International, Inc. (1).
3.2 Bylaws of Arrow-Magnolia International, Inc.
6
<PAGE>
10.19 Arrow-Magnolia International, Inc. Amended and Restated Non-
Qualified Stock Option Plan (2).
10.20 Credit Loan Agreement dated August 5, 1994 between Arrow-
Magnolia International, Inc. and Chase Bank of Texas (2).
10.21 Extension and Modification Agreement dated August 18, 1994
between Arrow-Magnolia International, Inc. and Chase Bank of
Texas (2).
10.22 1998 Stock Bonus Plan (3).
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
(1) Filed as Exhibit 3.1 to Arrow-Magnolia International, Inc. Form 10-K for
the fiscal year ended December 31, 1988 and incorporated herein by reference.
(2) Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia
International, Inc. Form 10-KSB for the fiscal year ended December 31, 1994
and incorporated herein by reference.
(3) Filed as Exhibit 10.19 to Arrow-Magnolia International, Inc. Form S-8
Registration Statement No. 333-47709 filed on March 10, 1998 and incorporated
herein by reference.
(b) Reports on Form 8-K.
None.
7
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
Index to Financial Statements and Schedule
Page
----
Independent Auditors' Reports F-2
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998 F-4
Statements of Income for the years ended December
31, 1999, 1998 and 1997 F-5
Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998
and 1997 F-6
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Arrow-Magnolia International, Inc.
We have audited the accompanying balance sheets of Arrow-Magnolia
International, Inc. as of December 31, 1999 and 1998, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material supporting includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arrow-Magnolia International,
Inc. as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
PHILIP VOGEL & CO. PC
Certified Public Accountants
Dallas, Texas
February 18, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Arrow-Magnolia International, Inc.
We have audited the accompanying statements of income, stockholders' equity
and cash flows of Arrow-Magnolia International, Inc. for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Arrow-
Magnolia International, Inc. for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
February 6, 1998
F-3
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE> 1999 1998
Assets ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,710,341 $2,386,719
Short-term investments 300,000 300,000
Trade accounts receivable,
less allowance for doubtful
accounts of $438,990 in 1999
and $414,276 in 1998 2,373,686 2,347,320
Inventories 672,068 702,615
Prepaid income taxes 79,961 70,861
Deferred income taxes 184,900 144,300
Other assets 9,247 27,315
---------- ----------
Total current assets $6,330,203 $5,979,130
Property and equipment, net 1,650,918 804,140
Intangible assets, net 125,176 131,247
Notes receivable 40,000 40,000
Deferred income taxes 0 27,200
Other assets, at cost 2,700 2,700
---------- ----------
Total assets $8,148,997 $6,984,417
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $584,549 $491,447
Accrued liabilities 236,510 215,939
Income taxes payable 24,498 63,295
--------- ---------
Total current liabilities $845,557 $770,681
Deferred income taxes 21,500 0
Deferred compensation 104,500 104,500
--------- ---------
Total liabilities $971,557 $875,181
--------- ---------
Commitments and contingencies (see Note I)
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 shares
3,262,066 in 1999 and 2,958,990 shares
in 1998 326,207 295,899
Additional paid-in capital 5,607,214 4,546,795
Retained earnings 1,305,487 1,328,010
Less cost of 13,500 shares of common
stock in treasury (61,468) (61,468)
---------- ----------
Total stockholders' equity $7,177,440 $6,109,236
---------- ----------
Total liabiliities and stockholders'
equity $8,148,997 $6,984,417
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net sales $14,001,716 $13,769,007 $12,748,100
Cost of sales 8,004,814 7,718,708 7,192,907
----------- ----------- ----------
Gross profit $5,996,902 $6,050,299 $5,555,193
General and administrative expenses 4,461,476 4,202,927 3,574,817
----------- ----------- ----------
Income before other income (expense) $1,535,426 $1,847,372 $1,980,376
----------- ----------- ----------
Other income (expense):
Interest expense $0 $(69,278) $(64,989)
Interest income 110,244 87,616 62,946
Other income 522 13,620 4,475
----------- ----------- ----------
Total other income (expense) $110,766 $31,958 $2,432
----------- ----------- ----------
Income before income taxes $1,646,192 $1,879,330 $1,982,808
Provision for income taxes 598,130 672,050 706,961
----------- ----------- ----------
Net income $1,048,062 $1,207,280 $1,275,847
=========== =========== ===========
Earnings per common share:
Basic $0.32 $0.37 $0.40
=========== =========== ===========
Diluted $0.29 $0.33 $0.35
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
Common stock Additional Cost of Total
Shares paid-in Retained treasurystockholders'
Outstanding Amount capital earnings stock equity
----------- ------ ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996 2,373,120 $237,312 $1,347,748 $1,743,755 $0 $3,328,815
10% stock
dividend 237,312 23,731 1,127,232 (1,150,963) 0 0
Exercise of
stock options
and related
tax benefits 6,960 696 13,688 0 0 14,384
Exercise of
stock warrants
and related
tax benefits 64,000 6,400 262,514 0 0 268,914
Expense resulting
from issuance of
stock warrants 0 0 25,000 0 0 25,000
Net income 0 0 0 1,275,847 0 1,275,847
--------- --------- ---------- ---------- ----- --------
Balances at
December 31,
1997 2,681,392 $268,139 $2,776,182 $1,868,639 $0 $4,912,960
10% stock
dividend 268,909 26,891 1,721,018 (1,747,909) 0 0
Exercise of
stock options
and related
tax benefits 4,356 436 10,351 0 0 10,787
Expense resulting
from issuance of
stock warrants 0 0 7,720 0 0 7,720
Shares issued
pursuant to stock
bonus plan 4,333 433 31,524 0 0 31,957
Purchase of
13,500 shares
of common
stock for
treasury (13,500) 0 0 0 (61,468) (61,468)
Net income 0 0 0 1,207,280 0 1,207,280
-------- -------- ----------- ---------- ------ --------
Balances at
December 31,
1998 2,945,490 $295,899 $4,546,795 $1,328,010 $(61,468)$6,109,236
10% stock
dividend 295,185 29,519 1,040,527 (1,070,585) 0 (539)
Exercise of
stock options
and related
tax benefits 4,791 479 7,414 0 0 7,893
Shares issued
pursuant to
stock bonus
plan 3,100 310 12,478 0 0 12,788
Net income 0 0 0 1,048,062 0 1,048,062
--------- -------- ----------- ----------- ------- --------
Balances at
December 31,
1999 3,248,566 $326,207 $5,607,214 $1,305,487 $(61,468)$7,177,440
========= ======== =========== =========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,048,062 $1,207,280 $1,275,847
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 156,029 152,173 143,748
Deferred income taxes 8,100 (23,642) (45,086)
Provision for doubtful
Accounts 381,764 548,547 291,901
Compensation expense
from issuance of stock
options and warrants 0 0 129,500
Changes in operating assets
and liabilities:
Receivables (408,130) (122,515) (1,479,701)
Inventories 30,547 (101,458) (84,585)
Prepaid income taxes (9,100) (70,861) 0
Other assets 18,068 (683) (8,531)
Accounts payable 93,102 (79,979) 125,966
Accrued liabilities 20,571 (385) 55,295
Income taxes payable (38,797) (76,986) (630)
---------- ---------- ---------
Net cash provided by
operating activities $1,300,216 $1,431,491 $403,724
---------- ---------- ---------
Cash flows from investing activities:
Proceeds from sale of
short-term investments $300,000 $300,000 $300,000
Purchase of short-term
investments (300,000) (300,000) (300,000)
Acquisition of property
and equipment (996,736) (211,326) (286,301)
--------- --------- ---------
Net cash provided (used)
by investing activities $(996,736) $(211,326) $(286,301)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of
note payable $0 $0 $12,000
Repayments of note payable 0 (600,000) (57,000)
Repayments of long-term debt 0 (101,361) (133,484)
Proceeds from issuance of
common stock 20,681 50,464 184,980
Cash issued in lieu of
fractional shares (539) 0 0
Purchase of common stock
for treasury 0 (61,468) 0
--------- --------- --------
Net cash provided (used) by
financing activities $20,142 $(712,365) $6,496
--------- --------- --------
Net increase in cash and
cash equivalents $323,622 $507,800 $123,919
Cash and cash equivalents:
Beginning of year 2,386,719 1,878,919 1,755,000
---------- ---------- ----------
End of year $2,710,341 $2,386,719 $1,878,919
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Note A - Summary of significant accounting policies:
Basis of presentation
- - - ---------------------
The financial statements include the accounts of Arrow-Magnolia International,
Inc. (Arrow) and its wholly-owned subsidiary, Bio/Dyne Chemical Company
(Bio/Dyne) (collectively the Company), for periods prior to 1998. All
significant intercompany balances and transactions were eliminated in
consolidation. During 1992, Arrow sold the assets of Bio/Dyne to a group of
unrelated individuals in exchange for a $40,000 note receivable. During 1997,
the corporate entity of Bio/Dyne was terminated. The effects of these
transactions were not material to the financial statements of Arrow.
Nature of the operations
- - - ------------------------
The Company is engaged in the sale and distribution of chemical products,
primarily industrial and institutional cleaning and maintenance supplies and
related products, to industrial users, telephone supply distributors,
governmental agencies and school systems. The Company's customers operate in
many different industries and geographic regions. No single customer accounted
for more than 10% of net sales in 1999, 1998 or 1997.
Use of estimates
- - - ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations of credit risk
- - - -----------------------------
In the ordinary course of business, the Company extends unsecured credit to
its customers with payment terms generally 30 - 90 days. In addition, the
terms of sale generally provide for the limited ability to return the product
under certain conditions. Returns of merchandise have historically not been
significant to the Company. Because of the credit risk involved, management
has provided an allowance for doubtful collections which reflects its opinion
of the amounts which will eventually become uncollectible. In the event of
complete nonperformance by the Company's customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the date of
nonperformance.
At December 31, 1999, the Company had cash balances of approximately $370,000
in banking institutions in excess of federally insured amounts. These
balances are therefore considered outstanding items. The Company also had
approximately $1,200,000 of its funds invested in uninsured money accounts at
December 31, 1999. These funds are managed by outside investment management
firms in short-term instruments with maturities of 120 days or less.
Cash equivalents and statements of cash flows
- - - ---------------------------------------------
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents. Cash equivalents of $988,119 and $989,967 at December 31,
1999 and 1998, respectively, consist of U.S. treasury bills with original
maturities of less than three months.
Cash paid for interest during 1999, 1998 and 1997 was $9,111, $60,167 and
$64,989, respectively. Cash paid for income taxes during 1999, 1998 and 1997
was $637,927, $843,539 and $752,677, respectively.
F-8
<PAGE>
Note A - Summary of significant accounting policies (continued):
Short-term investments
- - - ----------------------
Short-term investments at December 31, 1999 and 1998 represent investments in
bank certificates of deposit.
Inventories
- - - -----------
Inventories, which consist primarily of merchandise purchased for resale and
raw materials purchased for blending, are stated at the lower of cost or
market.
Cost is determined using the first-in, first-out method.
Property and equipment
- - - ----------------------
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The cost
of maintenance and repairs is charged to expense as incurred; significant
renewals and betterment are capitalized.
Goodwill
- - - --------
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted, generally 15 to 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
Income taxes
- - - ------------
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using enacted tax rates that will
apply in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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.
F-9
<PAGE>
Note A - Summary of significant accounting policies (continued):
Earnings per share (continued)
- - - -----------------------------
Effective July 20, 1999, the Company issued a 10% stock dividend on all
outstanding shares. As a result, all share and per share information has been
retroactively restated to give effect to the dividend. Shares used in
calculating basic and diluted income per share are as follows:
<TABLE>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares
outstanding 3,246,602 3,249,928 3,175,039
Dilutive securities:
Common stock options 770,690 774,765 784,549
Warrants to service providers 0 0 56,467
Assumed repurchase of common
shares (355,010) (338,971) (400,048)
--------- --------- ---------
Weighted average common shares
outstanding - diluted basis 3,662,282 3,685,722 3,616,007
========= ========= =========
</TABLE>
Stock option plan
- - - ----------------
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 allows entities to continue to apply the provisions of APB Opinion No. 25
and provide proforma net income and proforma earnings per share disclosures
for employee stock option grants made in 1996 and future years as if the fair-
valued-based method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and provide
the proforma disclosure provisions of SFAS No. 123.
Impairment of long-lived assets and long-lived assets to be disposed of
- - - -----------------------------------------------------------------------
The Company has adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. During the years ended December 31, 1999, 1998 and
1997, the Company's analyses indicated that there was not an impairment of its
long-lived assets.
F-10
<PAGE>
Note A - Summary of significant accounting policies (continued):
Transfers and servicing of financial assets and extinguishment of liabilities
- - - -----------------------------------------------------------------------------
The Company has adopted the provisions of SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Reporting comprehensive income and operating segments
- - - -----------------------------------------------------
The Company has adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. SFAS No. 130 requires that an enterprise
report, by major components and as a single total, the change in its net
assets during the period from nonowner sources. SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas and
major customers. Adoption of these statements has had no impact on the
Company's financial position, results of operations, cash flows, or related
disclosures.
Fair value of financial instruments
- - - -----------------------------------
The Company defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between
willing parties. Financial instruments included in the Company's financial
statements include cash and cash equivalents, short-term investments, trade
accounts receivable, other receivables, note receivable, other assets, trade
accounts payable, notes payable and long-term debt. Unless otherwise
disclosed in the notes to the financial statements, the carrying value of
financial instruments is considered to approximate fair value due to the short
maturity and characteristics of those instruments. The carrying value of
long-term debt approximates fair value as terms approximate those currently
available for similar debt instruments.
Year 2000
- - - ---------
In 1996, the Company developed a plan to deal with the Year 2000 problem and
began converting its computer systems to be Year 2000 compliant. During 1997,
the Company began the conversion of its computer systems. During 1998, the
Company was informed that substantially all its operating programs were Year
2000 compliant. The Year 2000 problem is the result of computer programs
being written using two-digits rather than four to define the applicable year.
The Company has expensed all costs associated with these systems as the costs
were incurred. The costs of conversion were not material to the financial
statements of the Company.
Revenue recognition
- - - -------------------
The Company generally recognizes revenues when its products are shipped to
customers. Appropriate provisions for estimated returns of product and other
allowances have been made in the accompanying financial statements.
F-11
<PAGE>
Note B - Property and equipment:
Property and equipment consist of the following at December 31, 1999 and 1998:
<TABLE> 1999 1998
---------- ----------
<S> <C> <C> <C>
Land $97,209 $97,209
Buildings and improvements 5 to 40 years 1,128,805 428,633
Machinery and equipment 3 to 10 years 1,177,733 912,432
Furniture and fixtures 5 to 10 years 295,516 264,253
---------- ----------
$2,699,263 $1,702,527
Less accumulated depreciation 1,048,345 898,387
---------- ----------
$1,650,918 $804,140
========== ==========
</TABLE>
Depreciation expense charged to operations was $186,651, $150,728 and $135,431
in 1999, 1998 and 1997, respectively.
Note C - Intangible assets:
Intangible assets consist of the following at December 31, 1999 and 1998:
<TABLE>
1999 1998
---------- ----------
<S> <C> <C> <C>
Goodwill 15 to 40 years $160,124 $160,124
Less accumulated amortization 34,948 28,877
---------- ----------
$125,176 $131,247
========== ==========
</TABLE>
Note D - Note payable:
The Company has available at December 31, 1999, a revolving line of credit
with an asset-based lender due on May 1, 2000. The credit agreement provides
for a commitment from the lender at the lesser of $1,250,000 or the borrowing
base as defined. At December 31, 1999 and 1998, there were no outstanding
balances due under this note. The credit agreement contains various debt
covenants, the most restrictive of which requires the Company to maintain
certain minimum financial criteria. At December 31, 1999, the Company
believes it is in compliance with all debt covenant requirements. The note
requires monthly payments of interest at the lender's prime rate (7.75% at
December 31, 1999) and is collateralized by certain accounts receivable and
inventories.
F-12
<PAGE>
Note E - Income taxes:
Income tax expense for the years ended December 31, 1999, 1998 and 1997
consists
of the following:
<TABLE>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
U.S. federal - current $536,398 $641,509 $734,278
U.S. federal - deferred 8,100 (23,642) (45,086)
State - current 53,632 54,183 17,769
---------- ---------- ----------
$598,130 $672,050 $706,961
========== ========== ==========
</TABLE>
Income tax expense for the years ended December 31, 1999, 1998 and 1997
differs from the "expected" tax expense (computed by applying the 34% U.S.
federal corporate rate to income before income taxes) as follows:
<TABLE>
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense $559,705 $638,972 $674,155
Amortization of goodwill 939 703 703
State income taxes, net of federal
Benefit 35,397 35,761 11,728
Other 2,089 (3,386) 20,375
--------- --------- ---------
$598,130 $672,050 $706,961
========= ========= =========
</TABLE>
The tax effects of temporary differences that give rise to significantportions
of the deferred tax assets and deferred tax liabilities at December 31, 1999
and 1998 are presented below:
<TABLE>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $149,300 $140,900
Overhead allocation to inventories under IRC 263a 21,400 3,450
Expense resulting from issuance of stock
options and warrants 35,450 35,450
---------- ----------
Total gross deferred tax assets $206,150 $179,800
Less valuation allowance 0 0
---------- ----------
Net deferred tax assets $206,150 $179,800
---------- ----------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation $(42,200) $(7,600)
Other (550) (700)
---------- ---------
Total gross deferred tax liabilities $(42,750) $(8,300)
---------- ---------
Net deferred tax asset $163,400 $171,500
========== =========
<PAGE> F-13
Note E - Income taxes (continued):
Deferred tax assets and liabilities are computed by applying the effective
U.S. federal income tax rate to the gross amounts of temporary differences and
other tax attributes. Deferred tax assets and liabilities relating to state
income taxes are not material. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. The Company expects the net deferred tax assets at
December 31, 1999, to be realized as a result of future taxable income.
Note F - Stockholders' equity:
Stock equivalents at December 31, 1999, 1998 and 1997, and changes in stock
equivalents for the three-year period ended December 31, 1999, are presented
below:
</TABLE>
<TABLE> Stock options Stock warrants
<S> <C> <C> <C> <C> <C> <C>
Stock options/warrants
exercise price $0.50 $2.00 $4.375 $2.25 $4.13 $4.75
======== ======= ======== ======= ======= =======
Stock options/warrants
issued and
outstanding,
December 31, 1996 542,080 0 0 40,000 0 0
Issuance of
options/warrants 0 50,000 0 0 20,000 0
Exercise of
options/warrants (6,960) 0 0 (44,000) (20,000) 0
10% stock dividend 54,208 5,000 0 4,000 0 0
-------- ------- -------- ------- ------- -------
Stock options issued
and outstanding,
December 31, 1997 589,328 55,000 0 0 0 0
Exercise of options (4,356) 0 0 0 0 0
10% stock dividend 58,497 5,500 0 0 0 0
-------- ------- -------- ------- ------- -------
Stock options issued
and outstanding
December 31, 1998 643,469 60,500 0 0 0 0
Issuance of
options/warrants 0 0 20,000 0 0 10,000
Exercise of
options/warrants (4,791) 0 0 0 0 0
10% stock dividend 63,864 6,050 2,000 0 0 1,000
-------- ------- -------- ------- ------- -------
Stock options issued
and outstanding,
December 31, 1999 702,542 66,550 22,000 0 0 11,000
======== ======= ======== ======= ======= =======
</TABLE>
Stock option plan
The Company has a non-qualified stock option plan (Plan) covering
approximately 828,000 shares of common stock. Participants are selected by
the Company's board of directors from the executive officers and other key
employees of the Company. The Plan provides that the option price per share
and vesting period for stock options issued under the Plan are determined by
the Company's board of directors.
F-14
<PAGE>
Note F - Stockholders' equity (continued):
$.50 stock options
- - - -----------------
In December 1994, 400,000 stock options were granted to certain officers of
the Company at an option price of $.50 per share, the estimated fair market
value of the common stock at the date of grant. These stock options were
fully exercisable at the date of grant.
In January 1995, an additional 100,000 options were granted to certain key
employees. These stock options were issued at an option price of $.50 per
share, the estimated fair value of the common stock at the date of grant, and
vest in annual increments of 20% with the first 20% vesting occurring on the
date of issuance.
Options outstanding were increased by 50,000 in 1995, 54,208 in 1997, 58,497
in 1998, and 63,864 in 1999 due to 10% stock dividends. At December 31,
1999, 24,027 of these options had been exercised; 702,042 options remain
outstanding and all are exercisable.
$2.00 stock options
- - - -------------------
In January 1997, the Company granted 50,000 stock options to an employee of
the Company. These stock options were issued at an option price of $2.00 per
share. The stock options were fully exercisable at the date of grant. During
1997, the Company recognized the aggregate excess of the market price over the
exercise price at date of grant, $104,500, as expense. Options outstanding
were increased by 5,000 in 1997, 5,500 in 1998, and 6,050 in 1999 due to 10%
stock dividends. At December 31, 1999, none of these options have been
exercised; 66,550 options remain outstanding and all are exercisable.
$4.375 stock options
- - - --------------------
In January 1999, the Company granted 20,000 stock options to certain employees
of the Company. These stock options were issued at an option price of $4.375
per share and vest in annual increments of 20% with the first 20% vesting
occurring on the date of issuance. Total stock options outstanding were
increased by 2,000 in 1999, due to a 10% stock dividend. At December 31,
1999, none of these options had been exercised; 22,000 options remain
outstanding and 5,500 are exercisable.
The weighted average exercise price of all outstanding options as of December
31, 1999, was $.79.
Stock warrants
- - - --------------
On May 15, 1995, the Company issued stock warrants to a certain service
provider. The stock warrants were exercisable to purchase up to 50,000 shares
of the Company's common stock at $1.25 per share, the estimated fair market
value of the common stock at the date of grant. The stock warrants were fully
exercisable at the date of the grant. During 1996, all of the warrants were
exercised.
In May 1996, the Company issued stock warrants to an additional service
provider. The stock warrants were exercisable to purchase up to 40,000 shares
of the Company's common stock at $2.25 per share. Total warrants outstanding
were increased to 44,000 in 1997 due to a 10% stock dividend. The Company
recognized the aggregate excess of the estimated fair value over the exercise
price at date of grant of $50,000 as expense over the two year term of the
service agreement, which was the same life as the warrants. The Company
recognized approximately $7,700 and $25,000 as compensation expense during
1998 and 1997, respectively, related to these warrants. During 1997, all of
the warrants were exercised.
In May 1997, the Company issued stock warrants to a service provider. The
stock warrants were exercisable to purchase up to 20,000 shares of the
Company's common stock at $4.125 per share, the estimated fair value at date
of grant. No compensation cost was recognized with respect to these stock
warrants. The stock warrants were fully exercisable at the date of the grant.
During 1997, all of the warrants were exercised.
F-15
<PAGE>
Note F - Stockholders' equity (continued):
In February 1999, the Company issued stock warrants to a service provider.
The stock warrants are exercisable to purchase up to 10,000 shares of the
Company's common stock at $4.75 per share. The stock warrants were increased
to 11,000 in 1999 due to a 10% stock dividend. No compensation cost was
recognized with respect to these stock warrants. At December 31, 1999, none
of these warrants have been exercised; 11,000 remain outstanding and all are
exercisable.
Stock dividends
- - - ---------------
Effective July 1, 1997, July 14, 1998, and July 20, 1999, the Company issued
10% stock dividends on all outstanding common shares.
Note G - Proforma information related to stock options:
The per share weighted-average fair value of stock options granted during 1999
and 1997 was $1.94 and $3.74, respectively, on the date of grant, using the
Black Scholes option-pricing model. There were no stock options granted
during 1998. The following weighted-average assumptions were used in the
pricing model:
<TABLE>
1999 1997
----------- ------------
<S> <C> <C>
Expected dividend yield 0.00% 0.00%
Risk-free interest rate 4.84% 6.70%
Expected life 7 years 7 years
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, has recognized no compensation expense for stock options granted
at exercise prices at least equal to the market value of the Company's common
stock. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the proforma amounts
indicated below:
<TABLE>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported $1,048,062 $1,207,280 $1,275,847
========== ========== ==========
Proforma $1,037,796 $1,207,280 $1,193,347
========== ========== ==========
Basic earnings per common share:
As reported $0.32 $0.37 $0.40
========== ========== ==========
Proforma $0.32 $0.37 $0.38
========== ========== ==========
Diluted earnings per common share:
As reported $0.29 $0.33 $0.35
========== ========== ==========
Proforma $0.28 $0.33 $0.33
========== ========== ==========
</TABLE>
Proforma net income reflects only options granted in 1997 and 1999.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the proforma net income amounts
presented above because compensation cost is reflected over the option's
vesting period, and compensation cost for options granted prior to January 1,
1995, is not considered.
F-16
<PAGE<
Note H - Quarterly financial data (unaudited):
Quarterly net income and earnings per share for 1999, retroactively restated
for the 1999 stock dividend, are as follows:
<TABLE>
Earnings per share
-------------------------
Net income Basic Diluted
----------- --------- ----------
<S> <C> <C> <C>
First quarter $417,080 $0.13 $0.11
Second quarter 255,276 $0.08 $0.07
Third quarter 305,986 $0.09 $0.08
Fourth quarter 69,720 $0.02 $0.02
-----------
$1,048,062
===========
</TABLE>
Note I - Commitments and contingencies:
Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of The Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized.
ARROW-MAGNOLIA INTERNATIONAL, INC.
By: /s/ Mark I. Kenner
----------------------------------
Mark I. Kenner, Vice Chairman and
Chief Executive Officer
Dated: March 30, 2000
In accordance with The Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title
Date
/s/ Morris Shwiff
- - - ------------------- Director and Chairman of the }
Morris Shwiff Board }
}
}
/s/ Mark I. Kenner
- - - ------------------- Director, Vice Chairman and }
Mark I. Kenner Chief Executive Officer } March
(Principal Executive Officer) } 30, 1999
}
/s/ Fred Kenner
- - - ------------------- Director, President and }
Fred Kenner Chief Operating Officer }
(Principal Financial and }
Accounting Officer) }
}
- - - ------------------- Director }
Robert D. DeRosier }
}
- - - ------------------- Director }
Clifton R. Duke }
<PAGE>
INDEX TO EXHIBITS
Number Exhibit Page
3.1 Articles of Incorporation, as amended, of
Arrow-Magnolia International, Inc. (1).
3.2 Bylaws of Arrow-Magnolia International, Inc.
10.19 Arrow-Magnolia International, Inc. Amended and
Restated Non-Qualified Stock
Option Plan (2).
10.20 Credit Loan Agreement dated August 5, 1994 between
Arrow-Magnolia International, Inc. and Chase Bank of Texas (2).
10.21 Extension and Modification Agreement dated August 18, 1994
between Arrow-Magnolia International, Inc. and Chase Bank of Texas (2).
10.22 1998 Stock Bonus Plan (3).
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
(1) Filed as Exhibit 3.1 to Arrow-Magnolia International, Inc. Form 10-K for
the fiscal year ended December 31, 1988 and incorporated herein by reference.
(2) Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia
International, Inc. Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
(3) Filed as Exhibit 10.19 to Arrow-Magnolia International, Inc. Form S-8
Registration Statement No. 333-47709 filed on March 10, 1998 and incorporated
herein by reference.
BYLAWS OF
ARROW-MAGNOLIA INTERNATIONAL, INC.
ARTICLE I
Meeting of the Shareholders
Section 1. Annual Meeting; Election of Directors. The annual meeting
of the holders of the capital stock of the Company shall be held for the
election of directors and for the transaction of such other business as may
properly come before such meeting on such date and at such tiime as may be
designated from time to time by the Board of Directors; provided however that
each such annual meeting must be held within thirteen (13) months after the
previous such annual meeting.
Section 2. Special Meetings. A special meeting of the holders of the
capital stock of the Company may be called by the Chairman of the Board of
Directors or by the president or by a resolution of the Board of Directors at
any time and shall be called by the president or by the Board of Directors
whenever requested in writing so to do by any two directors or by the holders
of record of not less than one-tenth of all the issued and outstanding shares
entitled to vote at such meeting. Business transacted at any special meeting
of shareholders shall be limited to the purposes stated in the notice of such
meeting.
Section 3. Place of Meeting. All meetings of the holders of the
capital stock of the Company shall be held at such place within or without the
State of Texas as may be from time to time designated by the Board of
Directors as provided in the notice of the meeting or in any waivers of notice
thereof; provided, however, that the place of meeting for the election of
directors shall not be changed within ten (10) days next before the day on
which
the election is to be held, and at least ten (10) days before the election is
held a notice of any change in the place of such meeting shall be given to
each
person entitled to vote thereat in person or by letter mailed to the address
shown for him on the books of the Company.
Section 4. Notice of Meetings. Except as otherwise provided by law,
notice of the time and place of holding each annual or special meeting of
shareholders and, in the case of a special meeting, of the purpose for which
such meeting is called, shall be written or printed and shall be sent by mail,
postage prepaid, or shall be given personally to each person entitled to vote
at such meeting not less than ten (10) days nor more than sixty (60) days
before the time fixed for such meeting. Such notice, if mailed, shall be
addressed to each such person at the address shown for him on the books of the
Company. No notice of an adjourned meeting of shareholders need be given
unless
expressly required by statute.
Section 5. Quorum. Except as otherwise specified in the Articles of
Incorporated or provided by law, the holders of record of a majority in number
of the issued and outstanding shares of the capital stock of the Company
entitled to vote at such meeting must be present in person or by proxy at a
meeting to constitute a quorum for the transaction of business. Whether or
not there is a quorum at any meeting of such holders, the holders of a
majority in number of such shares present and entitled to vote thereat may
adjourn the meeting from time to time. At any such adjourned meeting at which
a
quorum is present any business may be transacted which might have been
transacted at the meeting as originally convened.
Section 6. Vote Necessary for Decision. When a quorum is present at
any regular or special meeting of the shareholders, the affirmative vote of a
majority of the issued and outstanding shares of the capital stock of the
Company present at such meeting and entitled to vote thereat shall be the act
of the shareholders and shall decide any question brought before such meeting
unless by express provision of statute or of the Articles of Incorporation a
greater vote is required on a particular question, in which case the vote
required by such express provision shall be necessary to decide the particular
question.
Section 7. Voting. At each meeting of the shareholders of the Company,
each holder of record of shares of capital stock of the Company who was such
holder on the date fixed by the Board of Directors as the record date as
herein provided for determining persons entitled to vote at such meeting shall
be entitled to cast, in person or by proxy, one vote for each such share held
by him on such record date and shall not be entitled to cumulate such votes.
Neither the election of directors nor, except as may otherwise be
provided by law, any other vote of shareholders need be by ballot unless a
qualified voter present so requests. In any vote by ballot, a ballot shall be
signed by the shareholder or proxy voting and shall state the number of shares
voted thereby.
Treasury shares, shares of the capital stock of the Company owned by
another corporation, the majority of the voting stock of which is owned or
controlled by the Company, and shares of the capital stock of the Company held
by the Company in a fiduciary capacity shall not be voted directly or
indirectly at any meeting and shall not be counted in determining the total
number of outstanding shares at any given time.
Shares of the capital stock of the Company standing in the name of
another corporation may be voted by such officer, agent or proxy as the Bylaws
of such corporation may authorize or, in the absence of such authorization, as
the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him so long
as such shares forming a part of an estate are in the possession and form part
of an estate being served by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer
thereof
into his name if authority to do so be contained in an appropriate order of
the
court by which such receiver was appointed. A shareholder whose shares are
pledged shall be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
Neither for the purpose of the election of directors nor for any other
purpose shall it be necessary for a vote to be counted or reported by judges
or inspectors of election.
Section 8. List of Shareholders Entitled to Vote. The officer or agent
having charge of the stock transfer books of the Company shall make, at least
ten (10) days before each meeting of shareholders, a complete list of
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order with the address of and the number of shares
held by each, which list, for a period of ten (10) days prior to such meeting,
shall be kept on file at the registered office of the Company and shall be
subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and left open at the time and place
of the meeting and shall be subject to the inspection of any shareholder
during
the entire time of the meeting.
Section 9. When a Shareholder is Deemed to be "Present". For the
purpose of determining a quorum or the right to vote or to be heard on any
question, a holder of record of securities of any class having voting power
shall be deemed to be "present" at any meeting of the holders of such
securities if he is present in person or is represented by a proxy (i)
appointed
by an instrument in writing subscribed by or on behalf of such holder or by
his
representative thereunto duly authorized and (ii) filed with the secretary of
the meeting.
No proxy shall be valid after eleven (11) months from the date of its
execution unless otherwise provided in the proxy. A proxy shall be revocable
unless the proxy form conspicuously states that the proxy is irrevocable and
the proxy is coupled with an interest.
Section 10. Consent of Shareholders. Any action required to be taken
at a meeting of the shareholders, or any action which may be taken at a
meeting of shareholders, may be taken without a meeting if a consent in
writing,
setting forth the action so taken, shall be signed by the holder or holders of
shares having not less than the minimum number of votes that would be
necessary
to take such action at a meeting at which all of the shareholders entitled to
vote with respect to the subject matter were present and voted, and such
consent
shall have the same force and effect as a unanimous vote of shareholders.
ARTICLE II
Board of Directors
Section 1. General Powers. The business and affairs of the Company
shall, except as otherwise expressly provided by law or by the Articles of
Incorporation, be managed by the Board of Directors, which may exercise all
such powers of the Company and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders.
Section 2. Number, Election and Term of Office. The number of
directors shall be fixed by the Board of Directors and such number may be
increased or decreased from time to time by the Board, but no decrease shall
have the effect of shortening the term of any incumbent director. The
directors shall be elected at each annual meeting of the shareholders.
Directors need not be residents of the State of Texas nor shareholders of the
Company. Each director shall hold office from the date of the annual or
special
meeting of the shareholders at which he was elected until the next annual or
special meeting of such shareholders convened for the election of directors
and
until his successor shall have been duly elected and qualified or until his
death, resignation, disqualification or removal.
Section 3. Meetings. At the conclusion of the annual meeting of
shareholders, the Board of Directors shall meet as soon as practicable to
appoint officers for the ensuing year and to transact such other business as
may properly come before the meeting.
The Board by resolution may provide for the holding of other regular
meetings and may fix the time and place of holding the same.
Special meetings of the Board of Directors shall be held whenever called
by the president or by any two directors.
Section 4. Place of Meetings. The Board shall hold its meetings at
such place or places, within or without the State of Texas, as the Board of
Directors may from time to time determine or as may be designated in the
notice or in waivers of notice thereof signed by all of the directors not in
attendance at such meeting.
Section 5. Notice of Meetings. Except as hereinafter provided, notice
need not be given (i) of the regular meeting of the Board of Directors held
immediately following the annual meeting of shareholders, or (ii) with respect
to an adjourned meeting if the time and place thereof are set at a meeting
duly called and adjourned, or (iii) with respect to any meeting if every
member of the Board of Directors is present. Except as otherwise required by
law, notice of the time, place and purpose of holding each other meeting of
the
Board of Directors shall, at least seven (7) days before the day on which the
meeting is to be held, be mailed to each director, postage prepaid, addressed
to
him at his residence or his place of business or at such other address as he
may
have designated in a written request filed with the secretary of the Company,
or
shall be sent to him at such address by telegram or cablegram at least five
(5) days before the time at which such meeting is to be held. Notice shall be
deemed to have been given when deposited in the mail or filed with the
telegraph or cable office properly addressed.
Section 6. Quorum and Manner of Acting; Consent. At each meeting of
the Board of Directors not less than a majority of the total number of
directors then acting must be present to constitute a quorum for the
transaction
of business, and (except as otherwise provided by law, by the Articles of
Incorporation or by the Bylaws) the act of the majority of the directors so
present at a meeting at which a quorum is present shall constitute the act of
the Board. Whether or not there is a quorum at any meeting, a majority of the
directors who are present may, by resolution fixing the time and place for the
holding of an adjourned meeting, adjourn the meeting and may, by similar
action, successively adjourn and readjourn the meeting until the business to
be transacted thereat shall be done. Any action required to be taken at a
meeting of the Board of Directors, or any action which may be taken at a
meeting of the Board may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by all of the members of the
Board,
and such consent shall have the same force and effect as a unanimous vote at a
meeting. Subject to the provisions of Section 5 of Article II, members of the
Board of Directors may participate in and hold a meeting of the Board by means
of a conference telephone or similar communications equipment by means of
which
all persons participating in the meeting can hear each other, and
participation
in the meeting in this manner shall constitute presence at the meeting, except
where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 7. Resignations. Any Director may resign at any time by giving
written notice thereof to the Chairman of the Board, to the president or to
the Board. Such resignation shall take effect as of its date unless some
other date is specified therein, in which event it shall be effective as of
that
date. The acceptance of such resignation shall not be necessary to make it
effective.
Section 8. Vacancies. Any vacancy in the Board arising at any time,
whether through the failure of the shareholders to elect a full Board or
through any other cause (except an increase in the number of Directors in the
manner provided in Section 2 of Article II by action of the Board), shall be
filled by a vote of a majority of the Directors remaiining in office although
such majority is less than a quorum. Any Director so appointed shall hold
office until the next annual meeting of the shareholders and until his
successor shall have been duly elected and qualified unless sooner displaced.
A directorship to be filled by reason of an increase in the number of
Directors
also may be filled by the Board, and any Director so appointed shall hold
office only until the next election of one or more Directors by the
shareholders
and until his successor shall have been duly elected and qualified; provided
that the Board may not fill more than two (2) such directorships during the
period between any two successive annual meetings of the shareholders. A
directorship to be filled by reason of an increase in the number of Directors
may instead be filled by election at an annual or special meeting of the
shareholders called for that purpose, and any Director so elected shall hold
office until the next annual meeting of the shareholders and until hhis
successor shall have been duly elected and qualified unless sooner displaced.
Section 9. Removal of Directors. Any Director of the Company may be
removed with or without cause in the following manner: Upon the written
request of the holders of not less than one-tenth (1/10) of all classes of
outstanding capital stock of the Company filed with the secretary of the
Company, a special meeting of the shareholders shall be convened upon not less
than thirty (30) days' notice for the election of a successor of every member
of the Board of Directors. Such meeting shall be called, conducted and held
according to the provisions of law, the Articles of Incorporation and the
Bylaws of the Company regulating meetings held for the election of Directors,
and any person otherwise qualified may be a candidate for election as Director
at such meeting notwithstanding his service on the Board at the time of the
convening of such meeting.
Section 10. Compensation. Directors shall not receive any stated
compensation for their services as such, but, subject to such limitations as
the shareholders may adopt from time to time, the Board may by resolution
authorize the payment of fees in a reasonable amount to be paid to the
Directors for attendance at meetings of the Board of Directors, of the
Executive
Committee and of other committees and at adjournments of any such meetings,
and
may determine the amount of such fees. By resolution of the Board, Directors
may also be reimbursed for traveling expenses incurred in attending any such
meeting or adjournment. Nothing herein contained shall be construed to
preclude
any Director from serving the Company in any other capacity or receiving
compensation for such service.
ARTICLE III
Executive and Other Committees
Section 1. Executive Committee, General Powers and Membership. The
Board may designate by resolution or resolutions passed by a majority of the
total number of directors an Executive Committee and one or more other
committees, each committee to consist of one or more directors of the Company.
Except as otherwise expressly provided by law or by the Articles of
Incorporation of the Company or by resolution of the Board, the Executive
Committee shall have and may exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Company, except
that neither the Executive Committee nor any other committee appointed by the
Board shall have the authority of the Board in reference to amending the
Articles of Incorporation, approving a plan of merger or consolidation,
recommending to the shareholders the sale, lease or exchange of all or
substantially all of the property and assets of the Company otherwise than in
the usual and regular course of business, recommending to the shareholders a
voluntary dissolution of the Company or a revocation thereof, amending,
altering or repealing the Bylaws of the Company or adopting new Bylaws for the
Company, filling vacancies in or removing members of the Board or a committee
appointed by the Board, fixing the compensation of any member of a committee
appointed by the Board, or repealing any resolution of the Board which by its
terms provides that it shall not be so amendable or repealable. The Executive
Committee may be authorized by the Board to declare a dividend or to authorize
the issuance of shares of the Company. The Executive Committee may have power
to authorize the seal of the Company to be affixed to all papers which may
require it, and each other committee shall have and may exercise, when the
Board
is not in session, such powers as the Board shall confer. All action by any
committee shall be reported to the Board at its meeting next succeeding such
action and shall, insofar as the rights of third parties shall not be affected
thereby, be subject to revision and alteration by the Board.
Section 2. Organization. Unless otherwise provided by resolution of
the Board, a chairman chosen by each committee from among its members shall
preside at all meetings of such committee and the secretary of the Company
shall act as secretary thereof. In the absence of the secretary, the chairman
of such meeting shall appoint an assistant secretary of the Company or, if
none
is present, some other person to act as secretary of the meeting.
Section 3. Meetings. Each committee shall adopt its own rules
governing the time and place of holding and the method of calling its meetings
and the conduct of its proceedings, and shall meet as provided by such rules
or by resolution of the Board, and it shall also meet at the call of any
member
of the committee. Unless otherwise provided by such rules and by said
resolution, notice of the time and place of each meeting of the committee
shall
be mailed, sent or given to each member of the committee in the manner
provided
in Section 5 of Article II hereof.
Section 4. Quorum and Manner of Acting. A majority of the members of
each committee shall be present in person at each meeting of such committee in
order to constitute a quorum for the transaction of the business thereat. The
act of a majority of the members so present at a meeting at which a quorum is
present shall be the act of such committee. Any action which may be taken by
the Executive Committee, or other committee, at a meeting thereof, may be
taken without a meeting if a consent in writing setting forth the action to be
taken is signed by all members of the Executive Committee, or other committee,
and such consent shall have the same force and effect as a unanimous vote at a
meeting. Members of the Executive Committee or any other committee appointed
by the Board may participate in and hold a meeting of such committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation
in a meeting in the manner herein described shall constitute presence in
person
at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 5. Removal. Any member of any committee may be removed from
such committee, either with or without cause, at any time by resolution
adopted by a majority of the whole Board at any meeting of the Board.
Section 6. Vacancies. Any vacancy in any committee shall be filled by
the Board in the manner prescribed by these Bylaws for the original
appointment of the members of such committee.
ARTICLE IV
Officers
Section 1. Appointment and Term of Office. The officers of the Company
shall consist of the president, a secretary, and a treasurer, and there may be
one or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers, assistants and agents as the
Board may from time to time appoint, none of whom need be either a director or
a shareholder of the Company. Also one of the directors may be chosen
Chairman of the Board. Except to the extent that a contract of employment
between the Company and an officer shall provide for employment for a term in
excess of one year, which contracts are authorized in the discretion of the
Board, each of such officers (except such as may be appointed pursuant to the
provisions of paragraph (h) of Section 2 of this Article IV) shall be chosen
annually by the Board at its regular meeting immediately following the annual
meeting of shareholders and shall hold office until the next annual election
and
until his successor is chosen and qualified, unless such officer has entered
into an employment agreement with the Company that states a different term of
employment in which case such contractual provision shall apply. One person
may hold and perform the duties of any two or more of said offices.
Section 2. Powers and Duties. The powers and duties of the officers
shall be those usually pertaining to their respective offices, subject to the
supervision and direction of the Board. The offices of the Company may be as
follows:
(a) Chairman of the Board. The chairman of the board (if there
be one) shall preside at all meetings of the directors and shall perform such
other duties as shall be assigned him from time to time by the Board.
(b) President. The president shall be the chief executive
officer of the Company and shall have general supervision of the business of
the Company and over its officers, subject, however, to the control of the
Board. The president, when present, shall preside at all meetings of the
shareholders and, in the absence of the chairman of the board (if there be
one),
shall preside at all meetings of the Board. He may execute and deliver, in
the
name and on behalf of the Company, deeds, mortgages, leases, assignments,
bonds,
contracts, or other instruments authorized by the Board unless the execution
and delivery thereof shall be expressly delegated by these Bylaws or by the
Chairman to some other officer or agent of the Company. He shall, unless
otherwise directed by the Board or by any committee thereunto duly authorized,
attend in person or by substitute or by proxy appointed by him and act and
vote
on behalf of the Company at all meetings of the shareholders of any
corporation
in which the Company holds stock.
(c) Vice Presidents. Vice presidents shall perform the duties
assigned to them by the Board or delegated to them by the president and, in
order of seniority, at his request or in his absence, shall perform as well
the duties of the president's office. Each vice president shall have the
power also to execute and deliver, in the name and on behalf of the Company,
deeds, mortgages, leases, assignments, bonds, contracts, or other instruments
authorized by the Board unless the execution and delivery thereof shall be
expressly delegated by these Bylaws or by the Board to some other officer or
agent of the Company.
(d) Secretary. The secretary shall keep the minutes of the
meetings of the Board of Directors, of all committees and of the shareholders
and shall be custodian of all corporate records and of the seal of the
Company. He shall see that all notices are duly given in accordance with
these Bylaws or as required by law.
(e) Assistant Secretaries. The assistant secretaries, in the
order of their seniority, unless otherwise determined by the Board of
Directors, shall, in the absence or disability of the secretary, or at his
request, perform the duties and exercise the powers of the secretary. They
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
(f) Treasurer. The treasurer shall be the principal accounting
officer of the Company and shall have charge of all the corporate funds and
securities and shall keep a record of the property and indebtedness of the
Company. He shall, if required by the Board, give bond for the faithful
discharge of his duties and for the restoration to the Company, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other personal property of whatever kind in his possession
or under his control, in such sum and with such surety or sureties as the
Board may require, but the Company shall pay all premiums and other expenses
in connection with such bond.
(g) Assistant Treasurers. The assistant treasurers, in the
order of their seniority, unless otherwise determined by the Board of
Directors, shall, in the absence or disability of the treasurer or at his
request, perform the duties and exercise the powers of the treasurer. They
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
(h) Other Officers. The Board may appoint such other officers,
agents, or employees as it may deem necessary for the conduct of the business
of the Company. In addition, the Board may authorize the president or some
other officer to appoint such agents or employees as they deem necessary for
the conduct of the business of the Company.
Section 3. Resignations. Any officer may resign at any time by giving
written notice thereof to the president or to the Board. Any such resignation
shall take effect as of its date unless some other date is specified therein,
in which event it shall be effective as of that date. The acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Removal. Any officer may be removed at any time, either
with or without cause, by resolution adopted by a majority of the whole Board
at
any meeting of the Board or by the committee or superior officer by whom he
was appointed to office or upon whom such power of removal has been conferred
by
a resolution adopted by a majority of the whole Board.
Section 5. Vacancies. A vacancy in any office arising at any time from
any cause may be filled by the Board or by the officer or committee authorized
by the Board to appoint to that office.
Section 6. Salaries. The salaries of all officers shall be fixed from
time to time by the Board of Directors or the Executive Committee and no
officer shall be precluded from receiving a salary because he is also a
director of the Company.
ARTICLE V
Shares of Stock and their Transfer; Books
Section 1. Forms and Certificates. Shares of the capital stock of the
Company shall be represented by certificates in such form not inconsistent
with law, with the Articles of Incorporation of the Company or with these
Bylaws as shall be approved by the Board, and shall be signed by the president
or a vice president and the secretary or an assistant secretary and sealed
with
the seal of the Company. Such seal may be a facsimile engraved or printed.
The
signatures of the president or vice president and the secretary or assistant
secretary upon a certificate may be facsimiles engraved or printed if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Company itself or an employee of the Company. In case any
officer who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Company with the same effect as if he were
such officer at the date of its issuance.
Section 2. Transfer of Shares. Shares of stock of the Company shall be
transferred only on the stock books of the Company by the holder of record
thereof in person or by his duly authorized attorney upon surrender of the
certificate therefor and upon compliance with any restriction relating to such
transfer.
In the event any restriction on the transfer of shares or registration
of the transfer of shares shall be agreed to or imposed by the Company, an
executed counterpart of the document pursuant to which such restriction exists
shall be filed with the officer of the Company charged with the maintenance of
the stock books of the Company and shall be kept on file at the Company's
principal place of business. Following such filing, each certificate
evidencing shares to which such restriction applies shall (1) conspicuously
set
forth a full or summary statement of the restriction on the face of the
certificate, or (2) set forth such statement on the back of the certificate
and
conspicuously refer to the same on the face of the certificate, or (3)
conspicuously state on the face or back of the certificate that such
restriction
exists pursuant to a specified document and that the Company will furnish to
the
holder of the certificate, without charge, upon written request to the Company
at its principal place of business or registered office, a copy of the
specified
document.
If one or more holders of the stock of any class shall, by agreement
among themselves, restrict the transfer of any shares held by them through the
granting of preferential rights of purchase or otherwise, then any party to
such agreement may file an executed counterpart of the same with the officer
of the Company charged with the maintenance of the stock books of the Company
or
with any transfer agent or registrar designated by the Company in respect to
the shares of such class. Following the filing of any such counterpart, each
certificate evidencing shares to which such restriction applies which shall
thereafter be issued by the Company shall bear an appropriate notice of such
restriction as described in the preceding paragraph and no share subject to
such restriction shall be transferred until written evidence satisfactory to
the Company of compliance by the transferor with any such restriction shall
have
been filed with the Company.
Section 3. Books and Records. The Company shall maintain at its
principal place of business or at its registered office, under the supervision
of the appropriate officers, correct and complete books and records of
account, minutes of all meetings of the Board of Directors and of the
shareholders, a record of its shareholders giving the names and addresses of
all shareholders and the number and class of shares held by each, and such
other
books and records as may be necessary or convenient to the conduct of the
business or affairs of the Company, or as the Board of Directors shall from
time to time determine.
Section 4. Shareholders of Record. The Company may treat the person in
whose name any share, warrant, right, or option is registered as the owner
thereof for all purposes and shall not be found to recognize any equitable or
other claim to or interest in such share, warrant, right, or option on the
part of any person whether or not the Company shall have notice thereof save
as the contrary may be expressly provided by the laws of the State of Texas.
The shareholders of record entitled to vote at any meeting of shareholders or
entitled to receive payment of any dividend or to any allotment of rights or
to exercise the rights in respect of any change or conversion or exchange of
capital stock shall be determined according to the Company's record of
shareholders, and, if so determined by the Board of Directors in the manner
provided by statute, shall be such shareholders of record at the date (a)
fixed for the closing of the stock transfer books or (b) designated as a
record
date.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board may
direct the issuance of new or duplicate stock certificates in place of lost,
stolen, or destroyed certificates upon being furnished with evidence
satisfactory to it of the loss, theft, or destruction and upon being furnished
with indemnity satisfactory to it. The Board may delegate to any committee
authority to administer the provisions of this section.
Section 6. Closing of Transfer Books and Fixing of Record Date. The
Board shall have power to close the stock transfer books of the Company for a
period not exceeding sixty (60) days preceding the date of any meeting of
shareholders, or the date of the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or for a period not exceeding sixty (60)
days in connection with obtaining the consent of shareholders for any purpose,
or the Board may in its discretion fix a date not more than sixty (60) days
before any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, as a record
date for the determination of the shareholders entitled to notice of and to
vote
at any such meeting and at any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock or to give such consent, and in such casee, such shareholders
and
only such shareholders as shall be shareholders of record on the date so fixed
shall be entitled to notice of and to vote at such meeting and at any
adjournment thereof, or to receive payment of such dividend, or to exercise
such
rights, or to give such consent, as the case may be, notwithstanding any
transfer of stock on the books of the Company after such record date;
provided,
however, that if the stock transfer books shall be closed or a date shall be
fixed as a record date for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least, or such record date shall be no less than, ten (10) days
immediately preceding such meeting.
Section 7. Regulations. The consideration paid for the issuance of
shares shall consist of money paid, labor done or property actually received.
Shares may not be issued until the full amount of the consideration has been
paid. The Board may make such rules and regulations not inconsistent with
law, with the Articles of Incorporation or with these Bylaws as it may deem
expedient concerning the issuance, transfer, and registration of the
certificates of stock. It may appoint one or more transfer agents or
registrars of transfers, or both, and may require all certificates of stock to
bear the signature of either or both.
Section 8. Warrants, Rights, Privileges or Other Options. Subject to
any provision to the contrary which may be made by the Board of Directors at
the time of authorizing their issuance, all warrants, rights, privileges or
other options to purchase any class of securities of the Company issued by the
Company shall be evidenced by a certificate registered, transferred and
otherwise dealt with by the Company in the same manner as shares of the
capital
stock of the Company under the provisions of this Article V of these Bylaws;
provided, however, that no provision of this Section 8 shall be deemed to
confer upon any holder of any such warrant, right, privilege, or other option,
as such holder, any right to attend or vote at any meeting of the shareholders
of the Company or to examine books or records of the Company.
ARTICLE VI
Execution of Instruments
Section 1. Contract, etc. The Board or any committee thereunto duly
authorized may authorize any officer or officers, or agent or agents, to enter
into any contract or to execute and deliver in the name and on behalf of the
Company any contract or other instrument, and such authority may be general or
may be confined to specific instances.
Section 2. Checks, Drafts, etc. All checks, drafts, or other orders
for the payment of money, notes, acceptances, or other evidences of
indebtedness
issued by or in the name of the Company shall be signed by such officer or
officers, agent, or agents, of the Company and in such manner as shall be
determined from time to time by resolution of the Board, but in the absence of
any such determination by the Board, such checks, drafts, or other orders for
the payment of money, notes, acceptances, or other evidences of indebtedness
shall be signed by the treasurer or any assistant treasurer, and countersigned
by the president or any vice president. Unless otherwise provided by
resolution of the Board, endorsements for deposit to the credit of the Company
in any of its duly authorized depositories may be made by hand stamped legend
in the name of the Company or by written endorsement of any officer without
countersignature.
Section 3. Loans. No loans shall be contracted on behalf of the
Company unless authorized by the Board, but, when so authorized, unless a
particular agent or officer is directed to negotiate the same, such loans may
be negotiated up to the amount so authorized by the president or any vice
president or the treasurer; and when a loan is authorized by the Board, such
officers are hereby severally authorized to execute and deliver in the name
and
on behalf of the Company notes or other evidences of indebtedness for the
amount
of such loans and to give security for the payment of any and all loans,
advances and indebtedness, hypothecating, the payment of any and all loans,
advances and indebtedness, hypothecating, pledging or transferring any part or
all of the property of the Company, real or personal, at any time owned by the
Company, without any action or consent as may be expressly required by
statute.
Section 4. Sale or Transfer of Securities Held by the Company. Stock
certificates, bonds, or other securities at any time owned by the Company may
be held on behalf of the Company or sold, transferred or otherwise disposed of
pursuant to authorization by the Board or of any committee thereunto duly
authorized, and when so authorized to be sold, transferred or otherwise
disposed of, may be transferred from the name of the Company by the signature
of the president or any vice president, and the treasurer or any assistant
treasurer, or the secretary or any assistant secretary.
ARTICLE VII
Miscellaneous
Section 1. Offices. The initial registered office of the Company in
the State of Texas is given in the Company's Articles of Incorporation, and
there may be such other office or offices, either within or without the State
of Texas, as the Board may determine from time to time.
Section 2. Fiscal Year. The fiscal year of the Company shall be such
as the Board of Directors establishes by resolution.
Section 3. Seal. The corporate seal of the Company shall be circular
in form, and shall contain the words "Corporate Seal, Texas."
Section 4. Waiver of Notice. The giving of any notice of the time,
place, or purpose of holding any meeting of shareholders or of directors and
any requirement as to publication thereof, whether statutory or otherwise,
shall be waived by the attendance at such meeting by any person entitled to
receive such notice and may be waived by such person by an instrument in
writing
executed and filed with the records of the meeting either before or after the
holding thereof.
Section 5. Dividends. Subject to the provisions of law and the
Articles of Incorporation, dividends upon the capital stock of the Company may
be declared by the Board of Directors at any regular or special meeting
pursuant to law. The Board, in its discretion, may determine the date or
dates
for the declaration or payment of dividends. Dividends may be paid in cash,
in
property or in shares of the capital stock, subject to the provisions of law
and
of the Articles of Incorporation.
Section 6. Surplus, Reserves and Net Assets. The Board may (i) fix,
determine and vary from time to time the amount to be maintained as surplus
and the amount or amounts to be set apart as working capital or for any other
lawful purposes, (ii) set apart out of any of the funds of the Company
available for dividends a reserve or reserves for any proper purposes or
abolish
any such reserve in the manner in which it was created, and (iii) direct and
determine the use and disposition of any net assets in excess of capital or
any
net profits.
Section 7. Annual and Other Statements. The Board of Directors shall
present at each annual meeting and when called for by vote of the shareholders
at any special meeting of the shareholders a full and clear statement of the
business and condition of the Company.
ARTICLE VIII
Amendment of These Bylaws
Section 1. These Bylaws and any amendment, alteration or change
thereof, and any addition thereto, may be amended, altered, changed or
repealed, in whole or in part, by the affirmative vote of a majority of the
whole Board of Directors at any regular or special meeting of the Board if
notice of the proposed change is included in the notice of such meeting,
subject
to repeal or change by the affirmative vote of the holders of a majority in
aggregate number of the issued and outstanding capital stock of the Company
entitled to vote at any regular or special meeting of the shareholders after
due
notice.
ARTICLE IX
Indemnification of Officers, Directors,
Employees and Agents;Insurance
Section 1. Generally. Within the limitations prescribed by the Texas
Business Corporation Act as now in effect or as the same may hereafter be
amended, the Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Company) because he is or was
a director, officer, employee, or agent of the Company or is or was serving at
the request of the Company as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against judgments, penalties (including excise and similar taxes), fines,
settlements, and reasonable expenses (including attorneys' fees) actually
incurred by the person in connection with such action, suit or proceeding, but
only if it is determined in accordance with the procedures prescribed by the
Texas Business Corporation Act as now in effect or as the same may hereafter
be
amended that the person (a) conducted himself in good faith, and (b)
reasonably
believed, in the case of conduct in his official capacity with the Company,
that
his conduct was in the Company's best interest and, in all other cases, that
his
conduct was at least not opposed to the Company's best interest, and (c) in
the case of a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, is not, of itself, determinative that the person did not
conduct
himself in good faith and did not reasonably believe, in the case of conduct
in his official capacity with the Company, that his conduct was in the
Company's
best interest and, in all other cases, that his conduct was at least not
opposed to the Company's best interest, and in the case of any criminal action
or proceeding, that he had no reasonable cause to believe that his conduct was
unlawful. A person shall be deemed to have been found liable in respect of any
claim, issue or matter only after the person shall have been so adjudged by a
court of competent jurisdiction after exhaustion of all appeals therefrom.
Section 2. Limitations on Indemnification. Notwithstanding the
foregoing section of these bylaws, the indemnification available under such
section shall be limited to the reasonable expenses (including attorneys'
fees) actually incurred by the person in connection with the action, suit, or
proceeding if the person is found liable to the Company or is found liable on
the basis that personal benefit was improperly received by the person, and no
person shall be indemnified in respect of any proceeding in which the person
shall have been found liable for willful or intentional misconduct in the
performance of his duty to the Company.
Section 3. Expenses of Successful Defense. To the extent that a
director, officer, employee, or agent of the Company has been successful on
the merits or otherwise in defense of any action, suit, or proceeding referred
to in Sections 1 and 2 of this Article, or in defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 4. Expenses in Advance. Expenses incurred by an officer or
director in defending a civil or criminal action, suit, or proceeding may be
paid by the Company in advance of the final disposition of such action, suit,
or proceeding upon receipt of such written undertakings and affirmations as
may be required by the Texas Business Corporation Act as now in effect or as
the
same may hereafter be amended. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
Section 5. Nonexclusivity; Survival. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any section of the Texas
Business Corporation Act as now in effect or as the same may hereafter be
amended, or under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
Section 6. Notice to Shareholders. To the extent required by the Texas
Business Corporation Act as now in effect or as the same may hereafter be
amended, any indemnification of or advance of expenses to a person in
accordance with this Article shall be reported in writing to the share-
holders of the Company.
Section 7. Insurance. The Company shall have power to purchase and
maintain insurance or other arrangements on behalf of any person who is or was
a director, officer, employee, or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify him against such liability under the
provisions of this Article. If the insurance or other arrangement is with a
person or entity that is not regularly engaged in the business of providing
insurance coverage, the insurance or arrangement may provide for payment of a
liability with respect to which the Company would not have the power to
indemnify the person only if including coverage for the additional liability
has
been approved by the shareholders of the Company. Without limiting the power
of
the Company to procure or maintain any kind of insurance or other arrangement,
the Company may, for the benefit of persons indemnified by the Company, (1)
create a trust fund; (2) establish any form of self-insurance; (3) secure its
indemnity obligation by grant of a security interest or other lien on the
assets
of the Company; or (4) establish a letter of credit, guaranty, or surety
arrangement. The insurance or other arrangement may be procured, maintained,
or
established within the Company or with any insurer or other person deemed
appropriate by the Board of Directors regardless of whether all or part of the
stock or other securities of the insurer or other person are owned in whole or
part by the Company. In the absence of fraud, the judgment of the Board of
Directors as to the terms and conditions of the insurance or other arrangement
and the identity of the insurer or other person participating in an
arrangement
shall be conclusive and the insurance or arrangement shall not be voidable and
shall not subject the directors approving the insurance or arrangement to
liability, on any ground, regardless of whether directors participating in the
approval are beneficiaries of the insurance or arrangement.
Section 8. Definitions. For purposes of this Article, references to
"the Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger (as well as the resulting or surviving
corporation)
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee, or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, shall
stand in the same position under the provisions of this Article with respect
to
the resulting or surviving corporation as he would (if he had served the
resulting or surviving corporation in the same capacity) have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed oona person with respect to an employee benefit plan; and references
to
"serving at the request of the Company" shall include any service as a
director,
officer, employee, or agent of the Company which imposes duties on, or
involves
services by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Article.
18
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
Arrow-Magnolia International, Inc.
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-47709 and 333-01511) on Form S-8 of our report dated February 6,
1998, relating to statements of income, stockholders' equity, and cash flows
of
Arrow-Magnolia International, Inc. for the year ended December 31, 1997, which
report appears in the December 31, 1999 annual report on Form 10-KSB of Arrow-
Magnolia, International, Inc.
KPMG LLP
Dallas, Texas
March 30, 2000
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
Arrow-Magnolia International, Inc.
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-47709 and 333-01511) on Form S-8 of Arrow-Magnolia International,
Inc. of our report dated February 18, 2000, relating to the balance sheets of
Arrow-Magnolia International, Inc. as of December 31, 1999 and 1998 and the
related statements of income, shareholders' equity, and cash flows for the
two-
year period ended December 31, 2000, which report appears in the December 31,
1999 annual report on Form 10-KSB of Arrow-Magnolia, International, Inc.
PHILIP VOGEL & CO., INC.
Dallas, Texas
March 30, 2000
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This schedule contains summary financial information extracted from
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