SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549
                                       
                                 Form 10-KSB
                                       
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                                                  
     For the Fiscal Year Ended December 31, 1997            
     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)
     
Registrants 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
            
 Indicate by check mark whether the registrant (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 registrant was
 required to file such reports) and (2) has been subject to
 such filing requirements for the past 90 days.  Yes  (X)   
 No (    )
     
 Indicate by check mark if disclosure of delinquent filers
 pursuant to Item 405 of Regulation S-B is not contained
 herein, and will not 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,
 1997 were: $12,748,100
     
 The aggregate market value of the registrants voting
 stock held by non-affiliates as of December 31, 1997 was: 
 $7,514,492 (* see note on index page).
     
 The number of shares outstanding of each class of
 registrant s common stock as of December 31, 1997 was:  Common
 Stock, par value $0.10 per share, 2,681,392 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 28, 1998
are incorporated by reference in Part III of this Form 10-KSB.
     
Transitional Small Business Disclosure Format:    Yes       
            No    X  
                                                                 

                                                               
          PAGE
<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 Proceedings .. .................             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 ......................        6  
   
Item 8.   Changes in and Disagreements With Accountants on
     Accounting and Financial Disclosure ............       6  
                              
                                 PART III

Item 9.   Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange.      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 

                          PART IV AND SIGNATURES

Item 13.  Exhibits and Reports on Form 8-K .............     7 


SIGNATURES .............................................

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES        
F-1
       
*    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, 1997.  See "Market for Common
     Equity and Related Stockholder Matters."    
PAGE
<PAGE>
                     
                    ARROW-MAGNOLIA INTERNATIONAL, INC.
                         Form 10-KSB Annual Report
                         For the Fiscal Year Ended
                             December 31, 1997

                                  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 manufactures and, 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 1997, 1996 or 1995.

     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 for large-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 1997
sales expressed in 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, independent contractors and distributors.  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.    
PAGE
<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 dominate 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, 1997, the Company employed forty-fix (46)
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 eighty-four (84) 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 40,000 square feet of floor
space, of which 33,000 square feet are devoted to warehousing and
shipping and manufacturing, and 7,000 square feet to
administrative and executive offices.  The Company is currently
evaluating whether to build an additional 30,000 square feet of
warehouse space onto its existing facilities.  A deed of trust
has been granted with respect to this property to secure certain
indebtedness of the Company.   
   
     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.       

     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.        


<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, 1997, 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, as adjusted to reflect a two-for-one stock dividend
which became effective on June 14, 1996 and a 10% stock dividend
which became effective on July 15, 1997:    

Fiscal 1997         High      Low
Fourth Quarter      $8.25     $5.25
Third Quarter        5.88      3.81
Second Quarter       4.50      3.68
First Quarter        4.63      3.60

Fiscal 1996
Fourth Quarter      $4.38     $3.06
Third Quarter        4.19      3.15
Second Quarter       4.50      2.27
First Quarter        2.27      1.93
                                                                 

      The approximate number of record holders of the Company's
Common Stock as of December 31, 1997, was 331. 

     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.

<PAGE> <PAGE>
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.

     The following table sets forth for the periods indicated the
relative percentages which 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       1997      1996       
              Years Ended December 31         vs.       vs.      
               1997       1996      1995     1996       1995    
<S>            <C>       <C>       <C>       <C>       <C>   
Net sales      100.0%    100.0%    100.0%    24.0%     22.5%
Cost of sales   56.4%     57.5%     58.2%    21.6%     21.0%
Gross profit    43.6%     42.5%     41.8%    27.3%     24.4%
General and 
administrative
  expenses      28.0%     26.2%     28.3%     32.8%    13.5%
Operating 
 income         15.5%     16.3%     13.5%     18.4%    47.1%
Interest 
 expense        0.5%      0.8%       1.2%    (21.5)%   (14.2)%
Income before 
income taxes    15.6%     16.0%     12.7%    20.2%     54.6%
Net income      10.0%     10.1%      8.1%    22.4%     53.5%

</TABLE>
Comparison of Annual Results.

     Net sales for fiscal year 1997 increased 24.0% from
$10,278,559 to $12,748,100 versus fiscal year 1996 after
increasing 22.5% from fiscal 1995 to fiscal 1996.  Cost of sales
as a percentage of net sales decreased to 56.4% in fiscal 1997
from 57.5% in fiscal 1996 and 58.2% in fiscal 1995.  The increase
in sales from 1996 to 1997 is primarily attributable to the
extension of sales coverage through the addition of sales
personnel under an ongoing hiring program including the
acquisition of Darsan, Inc. and Southwest Supply & Environmental
in May 1997.  As a result of increased sales, which resulted in
better absorption of fixed costs, gross profit increased by 27.3%
from $4,364,634 to $5,555,193 for fiscal 1997 versus fiscal 1996,
after increasing by 24.4% from fiscal 1995 to fiscal 1996.  For
the 1997 fiscal year, the gross profit margin reached a record
43.6% of net sales, as compared to 42.5% from 1996 and 41.8% for
1995.

     General and administrative expenses rose to 28.0% of net
sales in 1997 primarily as the result of hiring additional sales
personnel.  In addition, the Company expensed non-recurring
expenses of $75,000 incurred in modifying its computer systems to
be Year 2000 compliant.  The Company also charged $129,500 in
compensation expense as the result of issuing options and
warrants to a key employee and a service provider.  Such
compensation expenses is based upon the difference between the
exercise price and the granted market price of the common stock
on the date the option is issued.  General and administrative
expenses fell as a percentage of net sales to 26.2% in 1996 from
28.3% in 1995 as sales volume improved at a more rapid pace than
the 13.5% increase in these expenses from year to year.    

     Under Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, the Company reports
compensation expense on the date of grant of an option or warrant
only if the market price of the underlying stock exceeded the
exercise price.  During fiscal 1997, as described above, the
Company charged compensation expense for new options and warrants
so issued.  However, in the event that any of the options or
warrants outstanding as of December 31, 1997 should be exercised
in the future, no further charges to the financial statements
will
be required.  See Note 1(k) to the Consolidated Financial
Statements included herein.
 <PAGE>
     Interest expense fell as a percentage of net sales to 0.5%
in fiscal 1997 from 0.8% in fiscal 1996 and 1.2% in fiscal 1995
due to application of funds generated from continued
profitability to reduce debt and reduction in the interest rate
paid to the prime rate.

     As a result of these factors, for the fiscal year ended
December 31, 1997, net income increased to $1,275,847 from
$1,042,460, or 22.4%, versus the same period in 1996.  These
results compare favorably to net earnings for 1995 of $679,074.


Liquidity and Capital Resources.

     The Company's working capital (total current assets less
total current liabilities), which was $3,338,518 as of December
31, 1996, improved during 1997 to $4,668,614 as of December 31,
1997.  The Company's current assets increased significantly as
the Company's cash, accounts receivable and inventories increased
due to increased sales and profitability.  Current liabilities
also increased, but less than current assets, in response to
increased sales volumes.       

     As shown in the Company's consolidated statements of cash
flows in 1997, the Company generated $403,724 in cash flow from
operations as the Company continued to capitalize on its
profitability, partially offset by increases in receivables and
inventories resulting from its sustained growth.  The Company
utilized $286,301 in investing activities as it purchased
property and equipment.  A total of $6,496 was provided by
financing activities as the Company issued additional Common
Stock, offset by a reduction in its remaining debt.

     Currently the Company is evaluating whether to construct an
additional 30,000 square feet of warehouse space to its existing
facilities.  Based upon its initial review, the Company believes
it has more than adequate funds on hand to complete this addition
if the Company concludes that it is desirable.  In addition, at
December 31, 1997, the Company had $650,000 available under a
revolving line of credit bearing interest at the lender's prime
rate (8.5% at December 31, 1997).  The Company believes that its
present financing is also otherwise adequate for its capital
needs for the foreseeable future.   


Year 2000 Issue

     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. 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 is expending all costs
associated with these systems as the costs are incurred. The
Company does not expect to incur any material costs during the
conversion of its computer system.   

New Accounting Pronouncements   

     In June 1997, the Financial Accounting Standards Board
issued 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 will not impact the Company's
consolidated financial position; results of operations or cash
flows, and any effect will be limited to the form and content of
its disclosures. Both statements are effective for fiscal years
beginning  after December 15, 1997   
<PAGE>

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.       

     None.  


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 is 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 21,
1998, which will be filed with the Securities and Exchange
Commission on or about April 12, 1998, and such information is
incorporated herein by reference.


ITEM 10.  EXECUTIVE COMPENSATION   

     Information relating to executive compensation is 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 21, 1998, which will be
filed with the Securities and Exchange Commission on or about
April 12, 1998, 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 is 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 21, 1998, which will be filed with
the Securities and Exchange Commission on or about April 12,
1998, 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 21, 1998, which will be
filed with the Securities and Exchange Commission on or about
April 12, 1998, and such information is incorporated herein by
reference.

<PAGE>
 
                                  PART IV

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 Magnolia Enterprises, Inc.(2).    

     10.19     Arrow-Magnolia International, Inc. Amended and
               Restated Non-Qualified Stock Option Plan(3).  
                            
     10.20     Credit Loan Agreement dated August 5, 1994
               between Arrow-Magnolia International, Inc. and
               Chase Bank of Texas(3).

     10.21     Extension and Modification Agreement dated
               August 18, 1994 between Arrow-Magnolia
               International, Inc. and Chase Bank of
               Texas(3).

     10.22     1998 Stock Option Plan(4).
     
     23.1      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 Exhibit 3.2 to Magnolia Chemical Company, Inc. Form
     10-Q for the quarter ended June 30, 1982 and incorporated
     herein by reference.  

(3)  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.    

(4)  Filed as Exhibit 10.19 to Arrow-Magnolia International, Inc.
     Form S-8 Registration Statement and incorporated herein by
     reference.


(b)  Reports on Form 8-K.            

     None.
PAGE
<PAGE>
            ARROW-MAGNOLIA  INTERNATIONAL, INC. AND SUBSIDIARY

          Index to Consolidated Financial Statements and Schedule



                                                            Page

Independent Auditors' Report                                F-2 

Financial Statements:

     Consolidated Balance Sheets as of December 31, 
     1997 and 1996                                          F-3

     Consolidated Statements of Income for the years ended
     December 31, 1997, 1996 and 1995                       F-4

     Consolidated Statements of Stockholders' Equity 
     for the year ended December 31, 1997, 1996 and 1995    F-5

     Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995                       F-6

Notes to  Consolidated Financial Statements                 F-7


All other schedules have been omitted as not 
applicable or not required.
PAGE
<PAGE>


                       INDEPENDENT AUDITORS' REPORT




The Stockholders and Board of Directors
Arrow-Magnolia International, Inc.:




We have audited the accompanying consolidated balance sheets of
Arrow-Magnolia International, Inc. and subsidiary as of December
31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated 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 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Arrow-Magnolia International, Inc. and subsidiary as
of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles. 

                                   KPMG Peat Marwick LLP


Dallas, Texas
February 6, 1998

PAGE
<PAGE>
             ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY

                       Consolidated Balance Sheets
                                    
                       December 31, 1997 and 1996
<TABLE>
           Assets                    1997           1996
<S>                                <C>            <C>
Current assets:
Cash and cash equivalents          $1,878,919     1,755,000
Short-term investments                300,000       300,000
Trade accounts receivable, 
  less allowance for doubtful 
  accounts of $346,900 in 1997 
  and $245,521 in 1996 (note 4)      2,773,352     1,585,552
Inventories (note 4)                  601,157       516,572
Deferred income taxes (note 6)         117,946        83,170
Other assets                           26,632        19,801
     Total current assets           5,698,006     4,260,095

Property and equipment, net 
(notes 2 and 5)                       738,916       606,046
Intangible assets, net (note 3)        137,318        96,011
Note receivable                         40,000        40,000
Deferred income taxes (note 6)          29,912        19,602
Other assets, at cost                   2,700         1,000
                                   $6,646,852     5,022,754

Liabilities and Stockholders' Equity
                
Current liabilities:
Current installments of
long-term debt (note 5)               $101,361      107,483
Accounts payable                      571,426      413,836
Accrued liabilities                   216,324      161,029
Income taxes payable                  140,281      239,229
  Total current liabilities         1,029,392      921,577

Note payable (note 4)                 600,000      650,000
Deferred compensation                 104,500            -
Long-term debt,
excluding current
installments (note 5)                              122,362
     Total liabilities             1,733,892     1,693,939       

                                                
Stockholders' equity (notes 7 
and 8):
  Preferred stock - par value 
  $.10, authorized 500,000
  shares; none issued                   -              -  
  Common stock - par value $.10, 
  authorized 10,000,000
  shares; issued and outstanding 
  2,681,392 shares in 1997 and
  2,373,120 shares in 1996          268,139       237,312
Additional paid-in capital         2,776,182    1,347,748
Retained earnings                 1,868,639     1,743,755
     Total stockholders' equity    4,912,960    3,328,815
      
Commitments and contingencies 
(note 10)
                                 $6,646,852     5,022,754
</TABLE>

See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
            ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                    
                    Consolidated Statements of Income
                                    
              Years ended December 31, 1997, 1996 and 1995
<TABLE>
                         1997        1996            1995
<S>                 <C>            <C>            <C>
Net sales           $12,748,100   10,278,559      8,393,829      
Cost of sales         7,192,907    5,913,925       4,885,799
     Gross profit     5,555,193    4,364,634      3,508,030 

General and 
administrative 
expenses             3,574,817     2,692,320      2,371,447 
     Operating 
     income          l,980,376     1,672,314      1,136,583 

Other income
(expenses):
   Interest expense    (64,989)      (82,841)       (96,552)
   Interest income      62,946         42,992         17,150 
Other income             4,475        17,158          9,516 
Other income
(expenses), net         2,432        (22,691)       (69,886)

     Income before 
     income taxes   1,982,808      1,649,623      1,066,697 

Income taxes (note 6)  706,961       607,163        387,623      

    Net income      $1,275,847     1,042,460         679,074 
                                                               
Earnings per common 
share:
   Basic                 $.49           .40            .28 
   
   Diluted               $.42           .36            .24 

See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
            ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                    
             Consolidated Statements of Stockholders' Equity
                                     
              Years ended December 31, 1997, 1996 and 1995

                                                               
   
</TABLE>
<TABLE>
                                                       Total
                   Common stock      Additional        stock-
                                     paid-in   Retained holders'
                    Shares  Amount  capital   earnings equity 
         
<S>                 <C>       <C>       <C>       <C>  <C>
Balance at December
31, 1994            2,000,000 $200,000 800,000  322,221 1,322,221

10% stock dividend    200,000   20,000 280,000 (300,000)        -

                                                                
Issuance of common
stock for cash        115,200   11,520 190,080        -   201,600

                                                               
Net income                  -        -       -  679,074   679,074

Balances at December 
31, 1995 (note 7)  2,315,200  231,520 1,270,080 701,295 2,202,895

                                  
Exercise of stock 
options and
related
tax benefits            7,920      792   3,168        -     3,960 
                          
       
Exercise of stock 
warrants and
related
tax benefits           50,000    5,000  57,500        -    62,500
      
Expense resulting 
from issuance
of stock
warrants (note 7)           -        -  17,000        -    17,000
      
Net income                  -        -       - 1,042,460
1,042,060       
                                                 
Balances at December
31, 1996            2,373,120  237,312 1,347,748 1,743,755
3,328,815
                                                              
10% stock 
dividend              237,312   23,731 1,127,232 (1,150,963)    - 
            
                                         
Exercise of 
stock options and
related
tax benefits            6,960      696  13,688        -    14,384 
             
                                                  
Exercise of 
stock warrants
and
related tax 
benefits               64,000    6,400 262,514        -   268,914 
       
                                                        
     
Expense resulting 
from issue
of stock
warrant (note 7)            -       -    25,000       -    25,000 
                  
                                             
Net income                 -        -      -  1,275,847 1,275,847 
               
                                                
Balances at December
31, 1997         2,681,392 $268,139 2,776,182 1,868,639 4,912,960 

       </TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY

                     Consolidated Statements of Cash Flows

                     Years ended December 31, 1997, 1996 and 1995
<TABLE>
                          1997          1996      l995
<S>                      <C>            <C>       <C>
Cash flows from operating
activities:
Net income          $1,275,847       1,042,460    679,074
Adjustments to 
reconcile net income 
to net cash
provided by operating 
activities:
Depreciation and
amortization          143,748           72,549     74,148 
Gain on disposition 
of property and 
equipment                -                   -     (2,500)
Deferred income taxes  (45,086)         13,469    (18,817)
Provision for doubtful
accounts                 291,901       236,632    193,838
Compensation expense 
from issuance of stock
options and warrants     129,500        17,000         - 
Change in operating 
assets and liabilities:
  Receivables         (1,479,701)    (482,776)    (663,583)
Inventories              (84,585)     165,253      (71,212)
Other assets              (8,531)       4,066       11,458 
Accounts payable         125,966       (7,447)      126,476
Accrued liabilities       55,295      (22,051)       53,270 
Income taxes payable        (630)      64,475        45,088 
Net cash provided by
operating activities     403,724    1,103,630       427,240

            
Cash flows from 
investing activities:
Proceeds from sale 
of short-term
investments              300,000      990,051          - 
Purchase of short-term
investments             (300,000)    (600,000)    (690,051)
Acquisition of 
property and
equipment               (286,301)    (292,726)     (30,905)
Proceeds from sale 
of property
and equipment                 -         -            2,500       

Net cash (used in) 
provided by
investing activities    (286,301)     97,325      (718,456)
Cash flows from 
financing activities:
Proceeds from issuance 
of note
payable                  12,000       34,487       200,000
Repayments of 
note payable             (57,000)   (174,487)     (100,000)
Proceeds from 
issuance of
long-term debt                -         -           25,448 
Repayments of 
long-term debt           (133,484)  (133,834)      (131,296)
Proceeds from 
issuance of
common stock              184,980     66,460        201,600
Net cash provided 
by (used in) financing
activities                  6,496   (207,374)       195,752
                                                      
Net increase (decrease) 
increase in
cash and cash
equivalents              123,919     993,581        (95,464)
Cash and cash 
equivalents at
beginning of year      1,755,000     761,419        856,883
Cash and cash 
equivalents at end of
year                  $1,878,919   1,755,000        761,419

</TABLE>            
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY

       Notes to Consolidated Financial Statements

          December 31, 1997 and 1996


(1)  Summary of Significant Accounting Policies

      (a) Principles of Consolidation and Basis of Presentation

               The consolidated 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). All significant intercompany balances
               and transactions have been eliminated in
               consolidation. 
                    

     (b)  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 1997, 1996
          or 1995.   

     (c)  Use of Estimates   

          The preparation of consolidated financial statements in
          conformity with generally accepted accounting
          principles requires management to make estimates and
          assumptions that affect the reported amounts of assets
          and liabilities and disclosure of contingent assets and
          liabilities at the date of the consolidated financial
          statements and the reported amounts of revenues and
          expenses during the reporting period. Actual results
          could differ from those estimates.   

     (d)  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 $988,378 and
          $988,27 at December 31, 1997 and 1996, respectively,
          consist of U.S. treasury bills with original maturities
          of less than three months. 

          Cash paid for interest during 1997, 1996 and 1995 was
          $64,989, $82,841 and $96,552,   respectively. Cash paid
          for federal income taxes during 1997, 1996 and 1995 was
          $752,677,   $356,310 and $204,000, respectively.   

     (e)  Short-term Investments   

          Short-term investments at December 31, 1997 and 1996
          represent investments in bank  certificates of deposit.

           

                                                      
(Continued) 
PAGE
<PAGE>
                                     

            ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                    
               Notes to Consolidated Financial Statements
                                    
     (f)  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.
   
     (g)  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.   

     (h)  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
          benefited, generally 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.   

     (i)  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 bases. 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.   

     (j)  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. 


                                                      
(Continued)
PAGE
<PAGE>
                                     

             ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY

                Notes to Consolidated Financial Statements



          Shares used in calculating basic and diluted income per
share are as follows: 
<TABLE>
                         1997           1996           1995 
<S>                      <C>            <C>            <C>
Weighted average common
shares outstanding       2,623,999      2,575,672      2,441,162 

Dilutive securities:      
  Common stock options     648,388        603,548       605,000
  Warrants to service
  providers                 46,667         54,333        20,833 
  Assumed repurchase of
  common shares           (284,958)      (307,061)     (282,205)

Weighted average shares
common outstanding- 
diluted basis            3,034,096      2,926,492      2,784,790 

</TABLE>                                                         

  
      
     (k)  Stock Option Plan

          Prior to January I, 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 also
          allows entities to continue to apply the provisions of
          APB Opinion No. 25 and provide proforma net income and
          pro forma earnings per share disclosures for employee
          stock option grants
          made in 1996 and future years as if the
          fair-value-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 pro forma disclosure provisions of SFAS No. 123.

     (l)  Impairment of Long-Lived Assets and Long-Lived Assets
          to Be Disposed Of

          The Company adopted the provisions of SFAS No. 121,
          Accounting for the Impairment of Long-Lived Assets and
          for Long-Lived Assets to Be Disposed Of, on January 1,
          1996. 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

                                                      
(Continued)
PAGE
<PAGE>
                             
           ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY  

           Notes to Consolidated Financial Statements   

          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.
          Adoption of this Statement did not have a material
          impact on the Company's financial position, results of
          operations, or liquidity.   

     (m)  Transfers and Servicing of Financial Assets and
          Extinguishment of Liabilities   

          In June 1996, the Financial Accounting Standards Board
          issued SFAS No. 125, Accounting for Transfers and
          Servicing of Financial Assets and Extinguishment of
          Liabilities. SFAS No. 125 is effective for transfers
          and servicing of financial assets and extinguishment of
          liabilities occurring after December 31, 1996 and is to
          be applied prospectively. 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 borrowing.
          Adoption of this Standard did not have a material
          impact on the Company's financial position, results of
          operations or liquidity.   

     (n)  New Accounting Pronouncements   

          In June 1997, the Financial Accounting Standards Board
          issued 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
          will not impact the Company's consolidated financial
          position; results of operations or cash flows, and any
          effect will be limited to the form and content of its
          disclosures. Both statements are effective for fiscal
          years beginning after December 15, 1997   

     (o)   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, note payable and long-term debt. Unless
          otherwise disclosed in the notes to the consolidated
          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.   

                                                      
(Continued)
<PAGE> <PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY     
     
           Notes to Consolidated Financial Statements

     (p)  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.
          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 is
          expending all costs associated with these systems as
          the costs are incurred. The Company does not expect to
          incur any material costs during the conversion of its
          computer system.   

     (q)  Reclassification   

          Certain items in the 1996 and 1995 consolidated
          financial statements have been reclassified to conform
          with the 1997 presentation.   

(2)  Property and Equipment

     Property and equipment consist of the following at December
     31, 1997 and 1996: 

                    Useful lives        1997      1996
     Land           -                   $95,310    95,310
     Buildings and
     improvements   5 to 40 years       428,633   415,591
     Machinery and
     equipment      3 to 10 years       710,579   546,348 
     Furniture and
     fixtures       5 to 10 years       256,679   211,206
                                      1,491,201  1,268,455 
     Less accumulated
     depreciation                      (752,285)  (662,409)
                                        $738,916   606,046 

     During the fourth quarter, the Company recorded an increase
     to depreciation expense for assets not previously
     depreciated throughout the year. Previously reported
     unaudited first, second and third quarter net income would
     each have been reduced by approximately $18,000 had the
     expense been recorded throughout the year.



                                                
(Continued) 
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
     

           Notes to Consolidated Financial Statements

(3)  Intangible Assets   

     Intangible assets consist of the following at December 31,
     1997 and 1996:              

                    Useful lives        1997         1996        

                                                    
     Goodwill       40 years            $160,124       110,500 
     Customer lists  5 years              17,500        17,500
     Sales force     7 years              82,500        82,500
     Other           8 years              10,500        10,500
                                         270,624       221,000 
     Less accumulated
     amortization                       (133,306)    (124,989)   
                                        $137,318       96,011 
                                                                 

      (4)  Note Payable   

     The note payable at December 31, 1997 is a revolving line of
     credit ($600,000 outstanding at December 31, 1997) with an
     asset-based lender due on May 1, 1999. 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,
     1997, the unused portion of the commitment was $650,000. The
     credit agreement contains various debt covenants, the most
     restrictive of which requires the Company to maintain
     certain minimum financial criteria. At December 31, 1997 the
     Company believes it is in compliance with all debt covenant
     requirements. The note requires monthly payments of interest
     at the lenders prime rate (8.5% at December 31, 1997) and is
     collateralized by certain accounts receivable and
     inventories. As the line of credit bears interest at market
     rates, the carrying amount of borrowing outstanding at
     December 31, 1997 approximates fair value.   

(5)  Long-term Debt

     Long-term debt consists of the following at December 31,
     1997 and 1996:              
                                   1997           1996 

Note payable to a bank, interest at
prime (8.25% at December 31,
1997), principal and interest of
$8,250 payable monthly, maturing
August 1999, collateralized
by the Company's office and
warehouse                          $90,000        215,000        

    
Note payable to a bank in monthly
installments of $707, including
interest at 7.9%, maturing 
September 1998, and collateralized 
by an automobile                     6,361         14,845

Note payable to certain individuals,
principal of $1,000 payable
monthly, maturing May 1998           5,000             -
                                   101,361        229,845        

                                                        
Less current installments          101,361        107,483
                                   $    -         122,362        

                                                  
(Continued)
PAGE
<PAGE>
ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
     

           Notes to Consolidated Financial Statements
(6)  Income Taxes

     Income tax expense (benefit) for the years ended December
     31, 1997, 1996 and 1995 consists of the following:     

                              1997           1996      1995
U.S federal - current         $734,278       557,008   378,754 
U.S. federal - deferred        (45,086)       13,469   (18,817)
State - current                 17,769        36,686    27,686
                              $706,961       607,163   387,623 

Income tax expense for the years ended December 31, 1997, 1996
and 1995 differs from the"expected" tax expense (computed by
applying the 34% U.S. federal corporate rate to income before
income taxes) as follows:        

                              1997           1996      1995
Computed "expected"
tax expense                   $674,155       559,172   362,677
Amortization of goodwill           703         5,253     3,994
State income taxes,
net of federal benefit          11,728        24,213    18,273
Other                           20,375        18,525     2,679
                              $706,961       607,163   387,623   

    
      
     The tax effects of temporary differences that give rise to
     significant portions of the deferred tax assets and deferred
     tax liabilities at December 1, 1997 and 1996 are presented
     below:                                   
     
                                             1997      1996
Deferred tax assets:
Accounts receivable, principally
due to allowance for
doubtful accounts                            $117,946  83,477
Expense resulting from issuance
of stock options and warrants                  33,585       -
Property and equipment,
principally due to differences in
depreciation                                      -    22,557
Total gross deferred tax assets              151,531   106,034
Less valuation allowance                          -         -
Net deferred tax assets                      151,531   106,034

Deferred tax liabilities:
Property and equipment,
principally due to differences in
depreciation                                 (2,291)        -
Other                                        (1,382)   (3,262)
Total gross deferred tax
liabilities                                  (3,673)   (3,262)
Net deferred tax asset                     $147,858    102,772    

                                                  
      
                                                                 
          (Continued) 
PAGE
<PAGE>
      ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY

    Notes to Consolidated Financial Statements

     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 fixture taxable income, and tax
     planning strategies in making this assessment.  The Company
     expects the net deferred tax assets at December 31, 1997 to
     be realized as a result of future taxable income.

(7)   Stockholders' Equity   

     Stock equivalents at December 31, 1997, 1996 and 1995 and
     changes in stock equivalents for the three-year period
     ended December 31, 1997 are presented below:                

    

                            

                    Stock Options       Stock warrants        
Stock option/warrant
exercise price      $0.50     $2.00     $4.125    $1.25     $2.25
Stock options
issued and
outstanding,
December 31, 1994   400,000        -         -         -    -

Issuance of
option/warrant      100,000        -         -    50,000    -
10% stock dividend   50,000        -         -         -    -
 
Stock
options/warrants
issued and
outstanding,
December 31, 1995   550,000        -         -    50,000    -    

                                                         
Exercise of
option/warrant      (7,920)        -         -   (50,000)   -
Issuance of warrant      -         -         -    -        40,000

Stock
options/warrants
issued and
outstanding,
December 31, 1996   542,080        -         -    -        40,000
 
Issuance of
option/warrant           -    50,000    20,000    -         -
Exercise of
option/warrant      (6,960)        -   (20,000)   -      (44,000)
10% stock dividend  54,208    5,000          -    -        4,000

Stock options
issued and
outstanding,
December 31, 1997   589,328   55,000         -    -         -    
 
                                                                 

      (Continued)
PAGE
<PAGE>
                                                               

ARROW-MAGNOLIA INTER  NATIONAL, INC. AND SUBSIDIARY

       Notes to Consolidated Financial Statements
     
     (a)  Stock Option Plan

          The Company has a nonqualified stock option plan (Plan)
          covering 600,000 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.

          In December 1994, 400,000 stock options were granted to
          certain of 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, the Plan was amended to provide for an
          increase in the number of shares subject to the Plan to
          550,000 shares and 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. 
          Total options outstanding under the Plan were increased
          by 50,000 options in 1995 due to a 10% stock dividend.
          At December 31, 1997, 14,880 of the options outstanding
          under the Plan had been exercised.

          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 the fourth quarter, the Company
          recognized the aggregate excess of the market price
          over the exercise price at date of grant as expense, $
          104,500. Had the Company recognized the effect of this
          entry at the time of grant, previously reported
          unaudited net income would have been reduced to
          $177,212. Total options outstanding
          were increased to 55,000 options in 1997 due to a 10%
          stock dividend. At December 31, 1997, no options have
          been exercised.

     (b)  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
          options outstanding were increased to 44,000 options in
          1997 due to a 10% stock dividend. The Company is
          recognizing the aggregate excess of the estimated fair
          value over the exercise price at date of grant of
          $42,000 as expense over the two year term of the
          service agreement, which is the same life as the
          warrants. The Company recognized
          approximately $25,000 and $17,000 as compensation
          expense during 1997 and 1996, respectively, related to
          these warrants. During 1997, all of the warrants were
          exercised
          

                                                      
(Continued)
PAGE
<PAGE>
                             
           ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY

           Notes to Consolidated Financial Statements   


          In May 1997, the Company issued stock warrants to a
          service provider. The stock options 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. The stock options were fully exercisable
          at the date of the grant. During 1997, all of the stock
          options were exercised. 

     On June 14, 1996, the Company declared a 2 for 1 stock split
     effected in the form of a stock dividend. As a result, all
     share and per share information in the accompanying
     consolidated financial statements has been retroactively
     restated to give effect to the split. In addition, effective
     July 1, 1997, the Company issued a 10% stock dividend on all
     outstanding common shares.

(8)  Stock Options

     The per share weighted-average fair value of stock options
     granted during 1997 and 1995 was $3.74 and $.249,
     respectively, on the date of grant using the Black Scholes
     option-pricing model. There were no stock options granted
     during 1996. The following weighted-average assumptions were
     used in the pricing model:                                  

              

                              1997           1995          

          Expected dividend yield       0.0%      0.0%          
          Risk-free interest rate       6.7%      7.82%          
          Expected life            7 years        7 years

     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 pro forma amounts
     indicated below:      

                         1997      1996      1995
     Net income:    
     As reported    $1,275,847     1,042,460 679,074
     Pro forma      $1,193,347     1,042,460 651,684
     
     Basic earnings 
     per common share:
     As reported         $.49           .40       .28
     Pro forma           $.45           .40       .27

     Diluted earnings 
     per common
     share: 
     As reported         $.42           .36       .24  
     Pro forma           $.39           .36       .23            

                                                    
    
                                                             
(Continued)
PAGE
<PAGE>
                             
           
           ARROW-MAGNOLIA INTERNATIONAL, INC AND SUBSIDIARY

           Notes to Consolidated Financial Statements

     Pro forma net income reflects only options granted in 1997
     and 1995. Therefore, the full impact of calculating
     compensation cost for stock options under SFAS No. 123 is
     not reflected in the pro forma net income amounts presented
     above because compensation costs is reflected over the
     option' vesting period and compensation cost for options
     granted prior to January 1, 1995 is not considered

(9)  Quarterly Financial Data (Unaudited)

     Quarterly net income and 1997 earnings per share,
     retroactively restated for the adoption of SFAS No. 128 is
     as follows:                                    

                                             Earnings Per share 
                              Net income        Basic  Diluted   

First quarter                 $159,212       $.06      $.05
Second quarter                 368,842       $.14      $.12
Third quarter                  393,656       $.15      $.13
Fourth quarter                 354,137       $.13      $.12
                            $1,275,847

      (10) Commitments and 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
     consolidated financial position, results of operations or 
     liquidity.   
PAGE
<PAGE>
SIGNATURES       
 
     Pursuant to the requirements of Section 13 or 15(d) of The
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunder duly authorized.                                

                              ARROW-MAGNOLIA INTERNATIONAL, INC. 

                               

                              By: /s/ Morris Shwiff              

                              Morris Shwiff, President
                                             
Dated:  March 31, 1998       

     Pursuant to the requirements of 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, Chairman of the     } 
Morris Shwiff      Board and President            } 
                   (Principal Executive Officer)   }        
                                                  } 
/s/ Mark I. Kenner Director and Executive         } 
Mark I. Kenner     Vice President                 } March        
                                                 }  31, 1998    
/s/ Fred Kenner    Director, Vice President       } 
Fred Kenner        Secretary and Treasurer        } 
                  (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 Magnolia Enterprises, Inc.(2)
  
10.19     Arrow-Magnolia International, Inc.  Amended and
          Restated Non-Qualified Stock Option Plan.(3)  

10.20     Credit Loan Agreement dated August 5,  1994 between
          Arrow-Magnolia International, Inc. and Chase
          Bank of Texas(3)  

10.21     Extension and Modification Agreement dated August 18,
          1994 between Arrow-Magnolia International, Inc. and
          Chase Bank of Texas (3)
                   
10.22     1998 Stock Option Plan(4).
     
23.1      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 Exhibit 3.2 to Magnolia Chemical Company, Inc. From
     10-Q for the quarter ended June 30, 1982 and incorporated
     herein by reference.  

(3)  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. 


(4)  Filed as Exhibit 10.19 to Arrow-Magnolia International, Inc.
     Form S-8 Registration Statement and incorporated herein by
     reference.