CONFORMED COPY
                                                                  
                      
                   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, 1998 
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 5 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,
1998 were: $13,769,007

       The aggregate market value of the registrant's voting
stock held by non-affiliates as of December 31, 1998 was: 
$5,529,120 (* see note on index page).

       The number of shares outstanding of each class of
registrant's common stock as of December 31, 1998 was:  Common
Stock, par value $0.10 per share, 2,945,490 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 27, 1999 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 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 .............    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, 1998.  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, 1998

                                  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 1998, 1997 or 1996. 

       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 1998
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 (9 persons), 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.    

<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, 1998, the Company employed thirty-five
(35) 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 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 building an
additional 30,000 square feet of warehouse space onto its
existing facilities.  

       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.        


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, 1998, to a vote of the Company's
security holders, through solicitation of proxies or otherwise. 

<PAGE>

                         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 14, 1998 and July 15, 1997,
respectively:


<TABLE>
<S>                                <C>            <C>
Fiscal 1998                        High           Low
-------------                      ----           ----
Fourth Quarter                     $5.25          $4.00
Third Quarter                       6.36           4.25
Second Quarter                      7.05           5.23
First Quarter                       6.31           5.00

Fiscal 1997
-----------
Fourth Quarter                     $7.50          $4.77
Third Quarter                       5.34           3.15
Second Quarer                       3.72           3.05
First Quarter                       3.82           2.98
                                                    
</TABLE>                    
                                                                  
      
     The approximate number of record holders of the Company's
Common Stock as of December 31, 1998, 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.

<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       1998      1997 
                    Years Ended December 31       vs.       vs.   
                    ------------------------      1997      1996
                    1998      1997      1996      ----      ----- 
                    ----      ----      ----      

<S>                 <C>       <C>       <C>       <C>       <C>  
Net sales           100.0%    100.0%    100.0%     8.0%     24.0% 
Cost of sales        56.1%     56.4%     57.5%     7.3%     21.6%
Gross profit         43.9%     43.6%     42.5%     8.9%     27.3%
General and 
 administrative 
 expenses            30.5%     28.0%     26.2%    17.6%     32.8%
Income before other       
 income (expense)    13.4%     15.5%     16.3     (6.7)%    18.4%
Income before income
  taxes              13.6%     15.6%     16.0%    (5.2)%    20.2%
Net income            8.8%     10.0%     10.1%    (5.4)%    22.4%

</TABLE>

Comparison of Annual Results.
-----------------------------
       Net sales for fiscal year 1998 increased 8.0% to
$13,769,007 from $12,748,100 versus fiscal year 1997 after
increasing 24.0% from fiscal 1996 to fiscal 1997.  Cost of sales
as a percentage of net sales decreased to 56.1% in fiscal 1998
from 56.4% in fiscal 1997 and 57.5% in fiscal 1996.  The increase
in sales from 1997 to 1998 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 sales, which resulted in better absorption of fixed
costs, gross profit increased by 8.9% from $5,555,193 to
$6,050,299 for fiscal 1998 versus fiscal 1997, after increasing
by 27.3% from fiscal 1996 to fiscal 1997.  For the 1998 fiscal
year, the gross profit margin reached a record 43.9% net sales,
as compared to 43.6% from 1997 and 42.5% for 1996.

       General and administrative expenses rose to 30.5% of net
sales in fiscal 1998 primarily as the result of expenses
associated with hiring additional sales personnel, such as
increased travel expense, and increased bad debt expense.  Bad
debt increased from 2.2% of net sales in 1997 to 4.0% of net
sales in 1998.  General and administrative expenses also
increased as a percentage of net sales to 28.0% in fiscal 1997
from 26.2% in fiscal 1996.  In addition to hiring additional
sales personnel, during fiscal 1997 the Company expensed
non-recurring expenses of $75,000 incurred in modifying its
computer systems to be Year 2000 compliant and charged $129,500
in compensation expense as the result of issuing options and
warrants to a key employee and a service provider. 
Such compensation expense is based upon the difference between
the exercise price and the granted market price of the common
stock on the date the option was issued, and no additional
charges will be accrued as a result of such options.
 
       Other income generated $31,958 in income during fiscal
1998, primarily as the result of interest earned on excess cash
in excess of interest paid.

<PAGE>
       As a result of these factors, for the fiscal year ended
December 31, 1998, net income was $1,207,280 versus $1,275,847
for fiscal 1997.  These results compare favorably to net earnings
for 1996 of $1,042,460.


Liquidity and Capital Resources.
-------------------------------

       The Company's working capital (total current assets less
total current liabilities), which was $4,668,614 as of December
31, 1997, improved during 1998 to $5,208,449 as of December 31,
1998.  The Company's current assets increased as the Company's
cash increased due to continuing profitability.  Current
liabilities decreased as cash was utilized to reduce debt and
accounts payable.

       As shown in the Company's statements of cash flows in
1998, the Company generated $1,431,491 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 $211,326 in investing activities as it purchased
property and equipment.  A total of $712,365 was used in
financing activities as the Company paid off its remaining debt
and purchased shares of its common stock.

       Currently the Company is constructing an additional 30,000
square feet of warehouse space to its existing facilities at a
total cost of $675,000.  Based upon its initial review, the
Company believes it has more than adequate funds on hand to
complete this addition.  In addition, at December 31, 1998, 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, 1998) and is collateralized by certain accounts receivable
and inventories.  At December 31, 1998, 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 criteria.  The
Company believes it was in compliance with all debt covenant
requirements as of December 31, 1998.   The Company believes that
its present financing is also otherwise adequate for its capital
needs for the foreseeable future.   


Year 2000 Issue
---------------

       The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the
applicable year.  Any computer programs that have date-sensitive
software may recognize a date using 00 as the year 1900 rather
than the Year 2000.  This could result in a system failure or
miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business
activities.  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 Company is expending
all costs associated with these systems as the costs are
incurred. The Company does not expect its costs of conversion of
its computer system to exceed $75,000.  In addition, the Company
is currently conducting a review of all HVAC, test equipment and
similar systems and acting on them accordingly.  To date, the
Company has not identified any of such systems which it believes
would fail and significantly disrupt the Company's operations. 
In any event, the Company does not expect future costs
to address such Year 2000 matters to exceed $10,000.

       The Company anticipates being fully Year 2000 compliance
in all of its information systems by June 1999.  Although the
Company is committed to a successful and timely Year 2000
conversion and funds are dedicated and available for this
project, no assurance can be given that it will be fully and
timely implemented.  Failure of the Company's equipment or
software to operate properly with regard to the Year 2000 and
thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material
adverse effect on the Company's business, operating results and
financial condition.  Furthermore, the purchasing patterns of
customers or potential customers may be affected by Year 2000
issues if their systems malfunction or they expend
significant resources to correct their current systems for Year
2000 compliance.  These expenditure may result in
reduced funds to purchase products and services such as those
offered by the Company, which could have a material adverse
effect on the Company's business, operating results and financial
condition.  The Company believes the least controllable and
therefore most probable exposure specifically related to its
business would be the failure of a supplier to timely provide
goods or services required by the Company.  The Company has
obtained assurances of Year 2000 compliance from most of its
suppliers and intends to continue canvassing critical suppliers
concerning the compliance of their systems.  In addition, the
Company has in many instances sought to identify and qualify
alternate suppliers, where feasible.  However, if notwithstanding
these measures the Company does not receive required goods or
services as  a result of the failure of one or more suppliers,
such failure could have a material adverse effect upon the
Company's business, operating results and financial condition.

<PAGE>
ITEM 7.   FINANCIAL STATEMENTS.            

       Included at pages F-1 through F-19 hereof.    


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.       

       KPMG LLP ("KPMG") were previously the principal
accountants 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 years ended December 31,
1997 and 1996 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 audits of the fiscal years ended December 31, 1997 and
1996, 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 27, 1999, 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 27, 1999, 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 27, 1999, 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 27, 1999, 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 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 Bonus Plan(4).
       
     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 Decembe 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 No. 333-47709 filed on March
     10, 1998 and incorporated herein by reference.



(b)  Reports on Form 8-K.            

       Issuer filed two Current Reports on Form 8-K during the
quarter ended December 31, 1998:

     1.   Current Report on Form 8-K reporting events as of
November 18, 1998 under Item 4, "Changes in Registrant's
Certifying Accountants."

     2.   Current Report on Form 8-K reporting events as of
December 9, 1998 under Item 4, "Changes in Registrant's
Certifying Accountants."

PAGE
<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, 1998 and 1997        F-4

     Statements of Income for the years ended December 
     31, 1998, 1997 and 1996                                F-5

     Statements of Stockholders' Equity for the years 
     ended December 31, 1998, 1997 and 1996                 F-6

     Statements of Cash Flows for the years ended 
     December 31, 1998, 1997 and 1996                       F-7

Notes to Financial Statements                               F-8


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 balance sheet of Arrow-Magnolia
International, Inc. as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flows for the
year 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
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 financial
position of Arrow-Magnolia International, Inc. as of December 31,
1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted
accounting principles. 



                                   PHILIP VOGEL & CO. PC




                                   Certified Public Accountants


Dallas, Texas

March 8, 1999
PAGE
<PAGE>








                       Independent Auditors' Report


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



We have audited the accompanying balance sheet of Arrow-Magnolia
International, Inc. as of December 31, 1997, and the related
statements of income, stockholders' equity and cash flows for the
years ended December 31, 1997 and 1996.  These financial
statements are the responsibility of the Company's management. 
Our responsibility is to express an opinion on the financial
statements based on these audits.

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and
perform the audits 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 financial statements referred to above
present fairly, in all material respects, the financial
position of Arrow-Magnolia International, Inc. as of December 31,
1997, and the results of its operations and its cash flows for
the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.




                                   KPMG LLP



Dallas, Texas
February 6, 1998
PAGE
<PAGE>
                    ARROW-MAGNOLIA INTERNATIONAL, INC. 
                             BALANCE SHEETS
                       DECEMBER 31, 1998 AND 1997

<TABLE>

           Assets                       1998           1997
          -------                       -----          -----
<S>                                     <C>            <C>
Current assets:
  Cash and cash equivalents             $2,386,719     1,878,919  
  Short-term investments                   300,000       300,000
  Trade accounts receivable, less 
    allowance for doubtful
    accounts of $414,276 in 1998 
    and $346,900 in 1997                 2,347,320     2,773,352
  Inventories                              702,615       601,157
  Prepaid income taxes                      70,861             0
  Deferred income taxes                    144,300       117,946
  Other assets                              27,315        26,632
                                        ----------     ---------

     Total current assets               $5,979,130    $5,698,006
                                                                  
Property and equipment, net                804,140       738,916
Intangible assets, net                     131,247       137,318
Notes receivable                            40,000        40,000
Deferred income taxes                       27,200        29,912
Other assets, at cost                        2,700         2,700
                                         ---------     ---------  
    
     Total assets                       $6,984,417     $6,646,852
                                        ==========     ==========

       Liabilities and stockholders' equity
          
Current liabilities:
  Current installments of long-term 
    debt                                $        0     $  101,361
  Accounts payable                         491,447        571,426
  Accrued liabilities                      215,939        216,324
  Income taxes payable                      63,295        140,281
                                        ----------     ----------
     Total current liabilities          $  770,681     $1,029,392 
                                                                
Note payable                                     0        600,000
Deferred compensation                      104,500        104,500
                                        ----------     ----------
     Total liabilities                  $  875,181     $1,733,892
                                        ----------     ---------- 
              
Commitments and contingencies (see Note J)


Stockholders' equity:
  Preferred stock - par value $.10, 
  authorized 500,000 shares; none 
  issued                                $        0     $        0
Common stock - par value $.10, 
  authorized 10,000,000 shares;
  issued 2,958,990 shares in 1998 
  and 2,681,392 shares in 1997             295,899        268,139
Additional paid-in capital               4,546,795      2,776,182
Retained earnings                        1,328,010      1,868,639
Less cost of 13,500 shares of common 
  stock in treasury                        (61,468)             0
                                        -----------    ---------- 
     Total stockholders' equity         $6,109,236     $4,912,960
                                        ----------     ----------
     Total liabilities and stockholders' 
     equity                             $6,984,417     $6,646,852
                                        ==========     ==========

</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
                   ARROW-MAGNOLIA INTERNATIONAL, INC.
                          STATEMENTS OF INCOME
                                    
          FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
                                  
                    1998           1997           1996
                    -----------    -----------    -----------
<S>                 <C>            <C>            <C>  
Net sales           $13,769,007    $12,748,100    $10,278,559 

Cost of sales         7,718,708      7,192,907      5,913,925 
                    -----------    -----------    -----------     
                               
     Gross profit   $ 6,050,299      5,555,193      4,364,634 

General and admini-
strative expenses     4,202,927      3,574,817      2,692,320 
                    -----------    -----------    -----------     
                                                           
Income before other 
income (expense)    $ 1,847,372    $ l,980,376    $ 1,672,314
                     ----------    -----------    -----------     
                                        
Other income (expense):
  Interest expense  $   (69,278)   $   (64,989)   $   (82,841)
  Interest income        87,616         62,946         42,992 
  Other income           13,620          4,475         17,158 
                    -----------    -----------    -----------     
                                                
     Total other income 
     (expense)      $    31,958     $     2,432    $   (22,691)

Income before income 
 taxes              $ 1,879,330    $ 1,982,808    $ 1,649,623
                                                                  
Provision for income 
 taxes                  672,050        706,961        607,163 
                    -----------    -----------    -----------     

Net income          $ 1,207,280    $ 1,275,847    $ 1,042,460
                    ===========    ===========    ===========     
              
Earnings per common 
share:
   Basic            $      0.41    $      0.44    $      0.37
                    ============   ===========    ===========     
   Diluted          $      0.36    $      0.39    $      0.33
                    ===========    ===========    ===========     
         
</TABLE>
The accompanying notes are an integral part of these statements
PAGE
<PAGE>
                   ARROW-MAGNOLIA INTERNATIONAL, INC. 
                                    
                   STATEMENTS OF STOCKHOLDERS' EQUITY
          FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
                                                          Total
          Common stock       Additional          Cost of  stock
          Shares             paid-in    Retained treasury holders
          Outstanding Amount  capital    earnings stock  equity
          ---------- ------  --------   --------- ------ --------
        
<S>       <C>       <C>       <C>       <C>       <C>  <C>
Balance at 
December 
31, 1995  2,315,200 $231,520  $1,270,080  $701,295  $0 $2,202,895
                                                        
Exercise of 
stock options 
and related 
tax 
benefits      7,920      792       3,168         0   0      3,960 

Exercise of 
stock warrants 
and related 
tax 
benefits     50,000    5,000      57,500         0   0     62,500 
    
Expense 
resulting 
from issuance
of stock 
warrants          0        0      17,000         0   0     17,000 
                                                              
Net income        0        0           0 1,042,460   0  1,042,460
               ----      ---  ---------- --------- ----  -------- 
     
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 
warrant           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 
warrant           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
     =========  =======  =========  =========  ======== =========
</TABLE>
 The accompanying notes are an integral part of these statements
PAGE
<PAGE>
               ARROW-MAGNOLIA INTERNATIONAL, INC. 

                    STATEMENTS OF CASH FLOWS
          FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
                         1998           1997           l996
                         ----------     ----------     ----------
<S>                      <C>            <C>            <C>  
Cash flows from 
operating 
activities:
  Net income             $1,207,280     $1,275,847     $1,042,460 
                                                         
Adjustments to 
reconcile net income 
to net cash
provided by operating 
activities:
  Depreciation and 
   amortization             152,173        143,748         72,549 
  Deferred income taxes     (23,642)       (45,086)        13,469 
  Provision for 
   doubtful accounts        548,547        291,901        236,632 
  Compensation expense from 
   issuance of stock 
   options and warrants           0        129,500         17,000 
 
Changes in operating assets 
and liabilities:
   Receivables             (122,515)    (1,479,701)     (482,776) 
   Inventories             (101,458)       (84,585)      165,253 
   Prepaid income taxes     (70,861)             0             0  
   Other assets                (683)        (8,531)        4,066 
   Accounts payable         (79,979)        125,966       (7,447) 
   Accrued liabilities         (385)         55,295      (22,051)
   Income taxes payable     (76,986)          (630)        64,475
                         ----------     ----------     ----------
     Net cash provided 
     by operating 
     activities          $1,431,491     $  403,724     $1,103,630
                         ----------     ----------     ----------

Cash flows from investing 
activities:
  Proceeds from sale of 
   short-term investments $ 300,000     $  300,000     $  990,051
  Purchase of short-term 
   investments             (300,000)      (300,000)     (600,000)
  Acquisition of property 
   and equipment           (211,326)      (286,301)     (292,726)
                         ----------     ----------     ----------
     
     Net cash provided 
     (used) by investing 
     activities          $ (211,326)    $ (286,301)    $   97,325
                         -----------    -----------    ----------

Cash flows from financing 
activities:
  Proceeds from issuance 
   of note payable       $        0     $   12,000     $   34,487
  Repayments of note 
   payable                 (600,000)       (57,000)     (174,487)
  Repayments of long-term 
   debt                    (101,361)      (133,484)     (133,834)
  Proceeds from issuance 
   of common stock           50,464        184,980         66,460 
  Purchase of common stock 
   for treasury             (61,468)             0              0
                         -----------    ----------     ----------
     
     Net cash provided 
     (used) by financing 
     activities          $ (712,365)    $    6,496     $(207,374)
                         -----------    ----------     ----------

Net increase in cash and 
 cash equivalents        $  507,800     $  123,919     $  993,581
Cash and cash equivalents:

     Beginning of year    1,878,919      1,755,000        761,419
                         ----------     ----------     ----------
     End of year         $2,386,719     $1,878,919     $1,755,000
                         ==========     ==========     ==========

</TABLE>
The accompanying notes are an integral part of these statements.
PAGE
<PAGE>
                    ARROW-MAGNOLIA INTERNATIONAL, INC.

                       NOTES TO FINANCIAL STATEMENTS


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 $160,000 cash and 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 1998, 1997 or 1996.   

Use of estimates   
----------------

The preparation of 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.  

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, 1998 the Company had cash balances of
approximately $295,000 in banking institutions in excess
of federally insured amounts.  These balances are before
considering outstanding items. The Company also had
approximately $1,000,000 of its funds invested in uninsured money
market accounts at December 31, 1998.  These funds are managed by
outside investment management firms and are invested in
short-term instruments with maturities of 120 days or less.
<PAGE>
<PAGE>
Note A - Summary of significant accounting policies (continued):

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 $989,967 and $988,378 at December 31, 1998 and
1997, respectively, consist of U.S. treasury bills with original
maturities of less than three months. 

Cash paid for interest during 1998, 1997 and 1996 was $60,167,
$64,989, and $82,841, respectively. Cash paid
for income taxes during 1998, 1997 and 1996 was $843,539,
$752,677,  and $356,310, respectively.   

Short-term investments   
----------------------

Short-term investments at December 31, 1998 and 1997 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.   

<PAGE>
<PAGE>
Note A - Summary of significant accounting policies (continued):


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.   Effective July 14, 1998, 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>

                         1998           1997           1996 
                         ---------      ---------      ---------
<S>                      <C>            <C>            <C>  

Weighted average common 
 shares outstanding      2,954,286      2,886,399      2,833,239
     
Dilutive securities:          
 Common stock options      704,332        713,227        663,903
 Warrants to service 
   providers                     0         51,333         59,766
 Assumed repurchase of            
   common shares          (297,301)      (355,559)      (367,613)
                         ---------      ---------      ----------
Weighted average shares 
 common outstanding- 
 diluted basis           3,361,317      3,295,400      3,189,295
                         =========      =========      =========
</TABLE>

PAGE
<PAGE>
Note A - Summary of significant accounting policies (continued):

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 also
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-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 proforma disclosure provisions of SFAS No. 123.


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 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.   


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

<PAGE>
<PAGE>
Note A - Summary of significant accounting policies (continued):

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
lnformation. 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, as any effects are limited to the form and content
of its disclosures. Both statements are effective for
fiscal years beginning  after December 15, 1997   


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 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.   
     

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.

Reclassification
-----------------

Certain items in the 1997 and 1996 financial statements have been
reclassified to conform with the 1998 presentation.   

<PAGE>
<PAGE>
Note B - Property and equipment:

Property and equipment consist of the following at December 31,
1998 and 1997: 
                                                                 

<TABLE>
                                        1998           1997
                                        ------------   ---------- 
     <S>                 <C>            <C>            <C>
     Land                               $   97,209     $   95,310
     Buildings and 
       improvements      5 to 40 years     428,633        428,633
     Machinery and 
       equipment         3 to 10 years     912,432        710,579
     Furniture and 
       fixtures          5 to 10 years     264,253        256,679
                                        -----------    ----------
                                        $1,702,527     $1,491,201
     Less accumulated 
      depreciation                         898,387        752,285
                                        ----------     ----------
                                        $  804,140     $  738,916

</TABLE>

Depreciation expense charged to operations was $150,728, $135,431
and $35,720 in 1998, 1997 and 1996, respectively.

Note C - Intangible assets:

Intangible assets consist of the following at December 31, 1998
and 1997:       

<TABLE>
                                        1998           1997
                                         -----         -----      
     <S>            <C>                 <C>            <C>  
     Goodwill       15 to 40 years      $160,124       $160,124
     Customer lists      5 years               0         17,500
     Sales force         7 years               0         82,500
     Other               8 years               0         10,500
                                        --------       --------
                                        $160,124       $270,624
     Less accumulated 
     amortization                         28,877        133,306
                                        --------       --------
                                        $131,247       $137,318
                                        ========       ========

</TABLE>

Note D - Note payable:   

The note payable at December 31, 1998 is a revolving line of
credit ($600,000 outstanding at December 31, 1997) 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,
1998, there was no outstanding balance 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, 1998 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, 1998) 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 approximated fair value.   
<PAGE>
<PAGE>
Note E - Long-term debt:

Long-term debt consists of the following at December 31, 1998 and
1997:              

                                   1998                1997
                                   ------              ------- 

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.                         $     0              90,000

Note payable to a bank in monthly 
installments of $707, including
interest at 7.9%, maturing September 
1998, and collateralized by an
automobile                               0               6,361    
          
Note payable to certain individuals, 
principal of $1,000 payable
monthly, maturing May 1998.              0               5,000
                                                                  
                                   -------             -------
                                                       101,361
Less current portion.                    0             101,361
                                   -------             -------
                                   $     0          $        0
                                   =======             =======    
 
Note F - Income taxes: 

Income tax expense for the years ended December 31, 1998, 1997
and 1996 consists of the following:           

                              1998      1997      1996
                              --------  --------  --------

U.S federal - current         $641,509  $734,278  $557,008
U.S. federal - deferred        (23,642)  (45,086)   13,469
State - current                 54,183    17,769    36,686
                              --------  --------  --------        
                              $672,050  $706,961  $607,163
                              ========  ========  ========
                                                                  
       
Income tax expense for the years ended December 31, 1998, 1997
and 1996 differs from the"expected" tax expense (computed by
applying the 34% U.S. federal corporate rate to income before
income taxes) as follows:          

                                                                  
                              1998      1997      1996
                              -----     ----      -----
Computed "expected" tax 
expense                       $638,972  $674,155  $559,172
Amortization of goodwill           703       703     5,253
State income taxes, net of 
 federal benefit                35,761    11,728    24,213
Other                           (3,386)   20,375    18,525
                              --------  --------  --------        
                              $672,050  $706,961  $607,163
                              ========  ========  ========
<PAGE>
<PAGE>
Note F - Income taxes (continued):

The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at December 1, 1998 and 1997 are presented below: 
                                
                                        1998      1997
                                        --------  --------

Deferred tax assets:
   Accounts receivable, principally 
   due to allowance for
     doubtful accounts                  $140,900  $117,946
   Overhead allocation to inventories 
     under IRC 263a                        3,450         0 
    Expense resulting from issuance of 
      stock options and warrants          35,450    33,585
                                        --------  -------- 
                                                                  
Total gross deferred tax assets         $179,800  $151,531 
Less valuation allowance                       0         0
                                        --------  -------- 
                                                                 
Net deferred tax assets                 $179,800  $151,531 
                                        --------  --------
     
Deferred tax liabilities:
  Property and equipment, principally 
   due to differences in depreciation   $ (7,600) $ (2,291)
  Other                                     (700)   (1,382)
                                        --------  ----------
Total gross deferred tax liabilities    $ (8,300) $ (3,673)
                                        --------  ----------
Net deferred tax asset                  $171,500  $147,858 
                                        ========  ========
                                                                  
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, 1998, to be realized as a
result of future taxable income.
<PAGE>
<PAGE>
Note G - Stockholders' equity: 

Stock equivalents at December 31, 1998, 1997 and 1996 and changes
in stock equivalents for the three-year period
ended December 31, 1998 are presented below:                      
                        

                    Stock Options                 Stock Warrants  
                    -----------------   -------------------------
Stock options/
warrants exercise 
price               $0.50     $2.00     $4.13     $1.25     $2.25
                    =======   =======   =======   =======   =====
                                                         
Stock options/
warrants issued
and outstanding, 
December 31, 1995   550,000        0         0    50,000    0 

Exercise of options/
warrants             (7,920)       0         0   (50,000)   0     
                                                             
Issuance of 
warrants                 0         0         0         0   40,000
                    -------   -------   -------   -------   ---
                                                                  
Stock options/
warrants issued 
and outstanding, 
December 31, 1996  542,080         0         0         0   40,000

Issuance of options/
warrants                 0    50,000    20,000         0        0 
                                                                
Exercise of options/
warrants            (6,960)        0   (20,000)        0 (44,000)
10% stock dividend  54,208     5,000         0         0    4,000
                    ------    ------    ------    ------    ----
                                                         
Stock options issued 
and outstanding,
December 31, 1997  589,328    55,000         0         0        0 
    
Exercise of options (4,356)        0         0         0        0
10% stock dividend  58,497     5,500         0         0        0 
                    -------   ------    ------    ------    ---
                                                                  
Stock options issued 
and outstanding,
December 31, 1998  643,469    60,500         0         0        0
                    =======   ======    ======    ======    ===== 
                                                               
Stock option plan
-----------------

The Company has a non-qualified stock option plan (Plan) covering
660,000 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, 440,000 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 110,000 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.

<PAGE>  <PAGE>
Note G - Stockholders' equity (continued):

In January 1997, the Company granted 55,000 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.  At
December 31, 1998, none of these options have been exercised.

In August 1998, the Plan was amended to provide for an increase
in the number of shares subject to the Plan to 660,000 to take
account of previous stock splits and dividends.  At December 31,
1998, 19,236 of these options outstanding under the Plan had been
exercised and 621,255 of the remaining options were exercisable.

The weighted average exercise price of all outstanding options as
of December 31, 1998, was $0.63.


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 is recognizing 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 is the same life as
the warrants. The Company recognized approximately $7,700,
$25,000 and $17,000 as compensation expense during 1998, 1997 and
1996, 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. The stock warrants
were fully exercisable at the date of the grant. During 1997, all
of the stock warrants were exercised. 


Stock dividends
---------------

On June 14, 1996, the Company declared a 2 for 1 stock split
effected in the form of a stock dividend. In addition,
effective July 1, 1997, and July 14, 1998, the Company issued 10%
stock dividends on all outstanding common shares.

<PAGE>
<PAGE>
Note H - Stock options:

The per share weighted-average fair value of stock options
granted during 1997 was $3.74 on the date of grant,
using the Black Scholes option-pricing model. There were no stock
options granted during 1998 or 1996. The
following weighted-average assumptions were used in the pricing
model:                                             

                                        1997
                                        ------          

           Expected dividend yield       0.00%          
           Risk-free interest rate       6.70%          
           Expected life                 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
proforma amounts indicated below:          

                    1998           1997           1996
                    ----------     ----------     ---------
                       
Net income:
  As reported       $1,207,280     $1,275,847     $1,042,460
                    ==========     ==========     ==========
  Proforma          $1,207,280     $1,193,347     $1,042,460
                    ==========     ==========     ==========      
                                                  
Basic earnings per 
common share:
  As reported       $     0.41     $     0.44     $     0.37
                    ==========     ==========     ==========      
                                               
  Proforma          $     0.41     $     0.41     $     0.37
                    ==========     ==========     ==========

Diluted earnings 
per common share:      
  As reported       $     0.36     $     0.39     $     0.33
                    ==========     ==========     ==========

  Proforma          $     0.36     $     0.36     $     0.33
                    ==========     ==========     ==========
                                                      
<PAGE>                        <PAGE>
Note H - Stock options (continued):

Proforma net income reflects only options granted in 1997. 
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.


Note I - Quarterly financial data (unaudited):

Quarterly net income and earnings per share for 1998,
retroactively restated for the 1998 stock dividend, are as
follows:                                    

                                        Earnings Per share      
                                        -----------------------
                     Net income           Basic          Diluted  
                    ----------          -------        --------
First quarter       $  416,516          $0.14          $0.12      
Second quarter         418,828          $0.14          $0.12      
Third quarter          259,078          $0.09          $0.08
Fourth quarter         112,858          $0.04          $0.03
                    ----------
                    $1,207,280
                    ==========                                    
                                                                  
Note J - 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.   

Commitments
-----------

During March 1998, the Company approved a bid of $675,000 for
additions to its operating facilities.  The construction is
expected to begin in April 1999.  The Company anticipates funding
the project through current operations and does not intend to
incur debt financing for this project.
PAGE
<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 31, 1999       

     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) }    31,
                                                       }    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 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.

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 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 10.22 to Arrow-Magnolia International, Inc.
     Form S-8 Registration Statement No. 333-47709 filed on March
     10, 1998 and incorporated herein by reference.