CONFORMED COPY

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  Form 10-KSB

                      ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2003
Commission File Number 0-4728

                      Arrow-Magnolia International, Inc.
                (Name of Small Business Issuer in its Charter)

			Texas				               75-0408335
     (State or other jurisdiction 		          (I.R.S. Employer
  of incorporation or organization)	               Identification No.)

		2646 Rodney Lane, Dallas, Texas 		    	75229
	 (Address of principal executive offices)	           (Zip Code)

Issuer's  telephone number, including area code:  (972) 247-7111
Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share

	Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.  Yes  ( x )    No (    )

	Check if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment of this Form 10-KSB.   (    )

	Issuer's revenues for the fiscal year ended December 31, 2003 were:
$12,147,316.

	The aggregate market value of the registrant's voting stock held by non-
affiliates as of December 31, 2003 was:  $2,764,479 (* see note on index
page).

	The number of shares outstanding of each class of registrant's common
stock as of December 31, 2003 was:  Common Stock, par value $0.10 per share,
3,401,449 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 June 3, 2004 are incorporated by reference in Part III of this Form
10-KSB.

	Transitional Small Business Disclosure Format:  	Yes      No    X
                                                                ---       ---
 <PAGE>


	                 ARROW-MAGNOLIA INTERNATIONAL, INC.
	                   ANNUAL REPORT ON FORM 10-KSB
	                           INDEX

Securities and Exchange Commission
Item Number and Description              					Page

	                           PART I

Item 1.   Description of Business..................................  1
Item 2.   Description of Property..................................  2
Item 3.   Legal Proceedings........................................  2
Item 4.   Submission of Matters to a Vote of Security-Holders......  2

	                           PART II

Item 5.   Market for Common Equity and Related Stockholder Matters.  3
Item 6.   Management's Discussion and Analysis or Plan of Operation  4
Item 7.   Financial Statements.....................................  5
Item 8.   Changes in and Disagreements With Accountants on Accounting
	    and Financial Disclosure.................................  5
Item 8A.  Controls and Procedures..................................  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
Item 14.  Principal Accountant Fees and Services...................  8


Index To Financial Statements and Schedules.........................  F-1

Signatures..........................................................
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


       *	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 the last trading day of the year, December 31, 2003.  See "Market for
Common Equity and Related Stockholder Matters."

<PAGE>


                      ARROW-MAGNOLIA INTERNATIONAL, INC.
	                    Form 10-KSB Annual Report
	                    For the Fiscal Year Ended
	                      December 31, 2003

	                             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's 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 2003, 2002 or 2001.

	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.
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 2003 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 consisting of ten sales managers and independent contractors (80
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.

	During 2000, the Company learned that the soil and groundwater
underlying its facility in Dallas, Texas had been impacted historically,
prior to 1985 when present management assumed control of the Company, with
chemicals regulated under the environmental laws.    The extent of the
contamination is not yet known.  The Company entered the Voluntary Cleanup
Program offered by Texas Commission on Environmental Quality("TCEQ") during
2001. The terms of the program required the Company to conduct more
extensive environmental studies into the contamination and to report the
findings to the TCEQ in June 2002. The Company submitted a draft assessment
report in 2002 and is currently in the process of completing its assessment
report and proposed response action plan, which it anticipates submitting in
April 2004. Once the report and plan are submitted and reviewed by the TCEQ,
the Company believes it should be able to more accurately estimate the
potential costs of environmental compliance. The Company accrued an expense
reserve of $250,000 during fiscal 2000 in anticipation of potential costs
related to the environmental contamination.  Such amount will be reviewed
as more information becomes available to the Company and may be adjusted
as conditions warrant.  The Company incurred costs of $53,168 and $117,900,
respectively, with respect to investigation of the potential
environmental contamination for the years ended December 31, 2003 and 2002,
which amounts were charged against the previously established reserve.

<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, 2003, the Company employed fifty-six (56) 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 one hundred (100) sales representatives.  None of
the Company's employees are covered by union contracts, and the Company
considers its relationship with its employees to be excellent.

ITEM 2.   DESCRIPTION OF PROPERTY.

	The principal executive and warehouse facilities of the Company are
located in a steel, glass, brick and concrete building owned by the Company at
2646 Rodney Lane, Dallas, Texas. These facilities occupy approximately 70,000
square feet of floor space, of which 60,000 square feet are devoted to
warehousing and shipping and manufacturing and 10,000 square feet to
administrative and executive offices.

	The Company believes that all of its plant and office facilities are in
good condition and adequately insured.

	The Company does not as a regular aspect of its business acquire
interests in real estate for purposes of investment or acquire securities of
or interests in persons engaged in real estate activities.

ITEM 3.   LEGAL PROCEEDINGS.

	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, 2003, to a vote of the Company's security holders, through
solicitation of proxies or otherwise.

                                         2
<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:


<TABLE>
<S>                              <C>              <C>

Fiscal 2003                     High             Low
-----------                     ----             ----
  Fourth Quarter                $1.67            $1.02
  Third Quarter                  2.09             1.39
  Second Quarter                 2.17             1.76
  First Quarter                  2.08             1.71

Fiscal 2002
-----------                     ----             ----
  Fourth Quarter                $2.20            $1.50
  Third Quarter                  2.17             1.90
  Second Quarter                 2.17             1.95
  First Quarter                  2.25             1.90

</TABLE>


     The approximate number of record holders of the Company's Common Stock
as of December 31, 2003, 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.

     The following table reflects information concerning security holder
approval of the Company's equity compensation plan currently in place:

	     Number of securities     Weighted average     Number of securities
           issuable upon exercise   exercise price of    remaining available
           of outstanding options,  outstanding options, for future issuance
           warrants and rights      warrants and rights  under equity
	                                                   compensation plans
                                                         (excluding securities
                                                         reflected on column
                                                         (a))
                     (a)                    (b)
Equity
compensation
plans approved
by security
holders	        673,117                $1.02            100,000

Equity
compensation
plans not
approved by
security holders	    0                      0                    0

Total			  673,117                $1.02            100,000

A description of the material features of the Company's Non-Qualified Stock
Option Plan, under which such options were issued, is set forth in Note G of
the Company's financial statements included in this report.


                                          3
<PAGE>



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

	The following table sets forth for the periods indicated the relative
percentages that certain items included in the consolidated statements of
income bear to net sales and the percentage changes of such items as compared
to the indicated prior period:

<TABLE>


                                                           Increase (Decrease)
                                                           From Prior Period
                                                           Years Ended
                             Percentage of Net Sales       ------------------
                             Years Ended December 31       2003      2002
                             ------------------------       vs.       vs.
                             2003     2002     2001        2002      2001
                             ----     ----     ----        ----      ----

<S>                          <C>        <C>      <C>       <C>        <C>
Net sales                    100.0%   100.0%   100.0%    (10.1)%     (0.5)%
Cost of sales                 59.7%    58.4%    56.0%     (8.0)%      3.7 %
Gross profit                  40.3%    41.6%    44.0%    (13.0)%     (5.8)%
General and administrative
  expenses                    44.7%    40.1%    40.6%      0.2%      (1.6)%
Income before other income
  (expense)                    0.03%    1.5%     3.4%   (370.1)%    (56.8)%
Income before income taxes     4.4%     1.8%     4.0%   (314.8)%    (54.7)%
Net income                    (3.4)%    1.0%     2.4%   (396.9)%    (57.6)%

</TABLE>

Comparison of Annual Results.

	Net sales for fiscal year 2003 decreased 10.1% to $12,147,316 from
$13,505,993 versus fiscal year 2002 after decreasing 0.5% from fiscal
2001 to fiscal 2002.  The decrease in sales from 2002 to 2003 is the result
of general sluggishness in the economy and reductions in purchases from a
major customer as the result of an ownership change.  Cost of sales as a
percentage of net sales increased to 59.7% in fiscal 2003 from 58.4% in
fiscal 2002 and 56.0% in fiscal 2001 as the result of oil related raw
material cost increases.  As a result of lower revenue and higher costs,
gross profit decreased by 13.0% to $4,895,018 from $5,619,297 for fiscal
2003 versus fiscal 2002, after decreasing by 5.8% from fiscal 2001 to fiscal
2002.

	General and administrative expenses increased by $10,398 and rose
to 44.7% of net sales in fiscal 2003, or 0.2% from year to year.  As
previously disclosed, during the second quarter of fiscal 2003 the Company
took a $542,500 write-off to bad debts for accounts receivable that were
considered of doubtful collectibility.  This increase was partially offset
by decreases in salaries and wages, travel, property taxes and group insurance
from 2002 to 2003.  Such expenses also increased to 40.1% of net sales in
fiscal 2002 from 40.6%% in fiscal 2001, or 1.6% from year to year.
The decrease from 2001 to 2002 is attributable to litigation settled in the
second quarter of 2001 with the Company contributing $125,000 to the
resolution.

	Other income generated $4,134 in income in fiscal 2003, $49,080 in
income in fiscal 2002 and $87,673 in income during fiscal 2001, primarily
as the result of interest earned on excess cash in excess of interest paid.
The amounts earned during 2003 and 2002 were adversely affected by falling
interest rates.

	As a result of these factors, for the fiscal year ended December 31,
2003, net income fell to a loss of $411,509 versus a profit of $138,571 for
fiscal 2002 and a profit of $326,747 for fiscal 2001.

                                      4
<PAGE>

Liquidity and Capital Resources.

	The Company's working capital (total current assets less total current
liabilities), which was $5,611,407 as of December 31, 2002, decreased to
$5,061,010 as of December 31, 2003.  The Company's current assets decreased as
the Company's accounts receivable declined due to lower revenues and the
write-down during the second quarter of 2003.  The Company's cash increased by
$704,007 due to a greater emphasis on collection activities and income tax
refunds from 2002 tax filings.  Current liabilities increased due to the
accrual of an amount to settle a sales tax audit dispute.

	As shown in the Company's statements of cash flows for 2003, the Company
generated $1,248,898 in cash flow from operations.  The Company utilized
$544,891 in investing activities as it purchased property and equipment,
primarily related to sprayers placed into service with customers to be used
with the Company's products, and acquired and implemented a new computer and
operating system installed during the fourth quarter of 2002. The Company
invested an additional $100,000 in short-term investments.

	During 2000, the Company learned that the soil and groundwater
underlying its facility in Dallas, Texas had been impacted historically,
prior to 1985 when present management assumed control of the Company, with
chemicals regulated under the environmental laws.  The Company entered the
Voluntary Cleanup Program offered by the Texas Commission on Environmental
Quality ("TCEQ") during 2001. The terms of the program required the Company to
conduct more extensive environmental studies into the contamination and to
report the findings to the TCEQ in June 2002. The Company submitted a draft
assessment report in 2002 and is currently in the process of completing its
assessment report and proposed response action plan, which it anticipates
submitting in April 2004. Once the report and plan are submitted and reviewed
by the TCEQ, the Company believes it should be able to more accurately estimate
the potential costs of environmental compliance. The Company accrued an expense
reserve of $250,000 during fiscal 2000 in anticipation of potential costs
related to the environmental contamination.  Such amount will be reviewed from
time to time as more information becomes available to the Company and may be
adjusted as conditions warrant.  The Company incurred costs of $53,168 and
$117,900, respectively, with respect to investigation of the potential
environmental contamination for the years ended December 31, 2003 and 2002,
which amounts were charged against the previously established reserve.

	At December 31, 2003, the Company had $1,250,000 available under a
revolving line of credit bearing interest at the lender's prime rate and
collateralized by certain accounts receivable and inventories.  At
December 31, 2003, 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, 2003.   The Company believes that its present financing is
adequate for its capital needs for the foreseeable future.

Off-Balance Sheet Arrangements

	The Company has no off-balance sheet arrangements as defined in Item
303(c) of Regulation S-B.

ITEM 7.   FINANCIAL STATEMENTS.

	Included at pages F-1 through F-18 hereof.

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

	None.

                                    5
<PAGE>
Item 8A.   Controls and Procedures

	The Company's Chief Executive Officer and Chief Financial Officer have
conducted an evaluation of the effectiveness of disclosure controls and
procedures within 90 days of the date of this report pursuant to Exchange Act
Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in
this annual report has been made known to them in a timely fashion. There
have been no significant changes in internal controls, or in factors that
could significantly affect internal controls, subsequent to the date the
Chief Executive Officer and Chief Financial Officer completed their
evaluation.

                                  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 June 3, 2004, which will be filed with the Securities and Exchange
Commission on or about April 29, 2004, 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
June 3, 2004, which will be filed with the Securities and Exchange Commission
on or about April 29, 2004, 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 June 3, 2004, which will be filed with the
Securities and Exchange Commission on or about April 29, 2004, 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 June 3, 2004, which will
be filed with the Securities and Exchange Commission on or about April 29,
2004, and such information is incorporated herein by reference.

                                       6
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits.

	No.                         		Exhibit
      ---                                 -------
      3.1         Restated Articles of Incorporation of Arrow-Magnolia
                  International, Inc.

      3.2         Bylaws of Arrow-Magnolia International, Inc.

      10.19       Arrow-Magnolia International, Inc. Amended and Restated
                  Non-Qualified Stock Option Plan (2).

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

      10.24       Executive Employment Agreement dated March 1, 1999 between
                  Arrow-Magnolia International, Inc. and Mark Kenner (1).

      10.25       Executive Employment Agreement dated March 1, 1999 between
                  Arrow-Magnolia International, Inc. and Fred Kenner (1).

      10.26       Eighth Amendment to Credit Agreement dated May 31, 2003
                  between Arrow-Magnolia International, Inc. and JPMorgan
                  Chase Bank

	23.1        Consent of Independent Auditors.





(1)   Filed as Exhibits 10.24 and 10.25 to Arrow-Magnolia International,
      Inc. Form 10-KSB/A for the fiscal year ended December 31, 1999 filed on
      May 1, 2000 and incorporated herein by reference.

(2)   Filed as Exhibit 10.19 to Arrow-Magnolia International, Inc. Form 10-KSB
      for the fiscal year ended December 31, 2000 filed on April 2, 2001 and
      incorporated herein by reference.


(b)  Reports on Form 8-K.

	Form 8-K filed February 27, 2004 reporting events as of February 23, 2004
under Item 5, Other Events.


                                        7
<PAGE>

Item 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES


	The following table sets forth the amounts of fees billed to the Company
for the audit of the Company's annual financial statements and the review of
its quarterly information for each of the two preceding years and the amounts
of fees billed to the Company for other services provided by Philip Vogel &
Co. PC the Company's principal accountant in each of those fiscal years:

                            2003 Fiscal Year       2002 Fiscal Year
                            ----------------       ----------------
  Audit and Review Fees          $43,200                $42,600
  Audit Related Fees (1)             400                      0
  Tax Fees (2)                     4,300                  7,200
  All Other Fees                       0                      0
  --------------
     (1)	Such fees were paid for assistance with a due diligence review.

     (2)	Such fees were paid for preparation of the Company's federal
            income tax filings and franchise tax filings for the State of
            Texas relating to the immediately preceding years.

The engagement of Philip Vogel & Co. PC to audit the Company's annual
financial statements for 2003 and to review of quarterly information for 2004
and provide tax services during 2004 was approved by the Audit Committee as
work was commenced on the 2003 audit.  The Audit Committee intends to review
such engagement before commencement of the audit in future periods. All of the
non-audit services shown as billed in the table were approved by the Audit
Committee prior to the completion of the audit for the previous fiscal year.


                                        8
<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, 2003 and 2002	            F-3

	Statements of Income for the years ended December
      31, 2003, 2002 and 2001	                                    F-4

	Statements of Stockholders' Equity for the years
      ended December 31, 2003, 2002 and 2001                      F-5

	Statements of Cash Flows for the years ended
       December 31, 2003, 2002 and 2001                           F-6

      Notes to Financial Statements                               F-7

                                         F-1
<PAGE>






	                     INDEPENDENT AUDITORS' REPORT





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


We have audited the accompanying balance sheets of Arrow-Magnolia
International, Inc. (a Texas corporation) as of December 31, 2003 and 2002,
and the related statements of operations, stockholders' equity and cash flows
for the three years then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  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 financial statements referred to above present fairly, in
all material respects, the financial position of Arrow-Magnolia International,
Inc. as of December 31, 2003 and 2002, and the results of its operations and
its cash flows for the three years then ended, in conformity with accounting
principles generally accepted in the United States of America.



                                           PHILIP VOGEL & CO. PC




                                            Certified Public Accountants

Dallas, Texas
February 18, 2004
                                          F-2

<PAGE>

	                   ARROW-MAGNOLIA INTERNATIONAL, INC.
                                  BALANCE SHEETS
	                      DECEMBER 31, 2003 AND 2002

<TABLE>                               2003                2002
        Assets                        ----                ----
<S>                                   <C>                 <C>
Current assets:
  Cash and cash equivalents          $2,471,288         $1,867,281
  Short-term investments                300,000            200,000
  Trade accounts receivable,
    less allowance for doubtful
    accounts of $413,105 in 2003
    and $447,108 in 2002              1,766,411          2,871,484
  Inventories                           856,725            796,014
  Prepaid income taxes                  271,385            322,932
  Deferred income taxes                 180,300            246,900
  Other assets                          210,282            168,587
                                     ----------         ----------
    Total current assets             $6,056,391         $6,473,198

Property and equipment, net           3,035,601          3,005,524
Intangible assets, net                  113,035            113,035
Other assets, at cost                       850                850
                                     ----------         ----------
    Total assets                     $9,205,877         $9,592,607
                                     ==========         ==========
       Liabilities and stockholders' equity

Current liabilities:
  Accounts payable                     $619,368           $532,528
  Accrued liabilities                   124,895            156,695
  Income taxes payable                  251,118            172,568
                                      ---------          ---------
    Total current liabilities          $995,381           $861,791

Environmental remediation liability      78,932            132,100
Deferred income taxes                    40,800            161,300
Deferred compensation                   104,500            104,500
                                      ---------          ---------
    Total liabilities                $1,219,613         $1,259,691
                                      ---------          ---------
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;
   3,414,991 shares issued in 2003
   and 3,262,066 shares issued
   in 2002                              341,499            326,207
  Additional paid-in capital          5,668,154          5,618,589
  Retained earnings                   2,038,079          2,449,588
  Less cost of 13,500 shares of
   Common stock in treasury             (61,468)           (61,468)
                                     ----------         ----------
   Total stockholders' equity        $7,986,264         $8,332,916
                                     ----------         ----------
   Total liabiliities and stockholders'
     equity                          $9,205,877         $9,592,607
                                     ==========         ==========
</TABLE>

The accompanying notes are an integral part of these statements.

                                        F-3
<PAGE>







	                    ARROW-MAGNOLIA INTERNATIONAL, INC.
	                        STATEMENTS OF INCOME
	             FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<TABLE>

                                       2003            2002            2001
                                    -----------    -----------     ----------
  <S>                                   <C>            <C>             <C>
Net sales                           $12,147,316    $13,505,983    $13,574,847
Cost of sales                         7,252,298      7,886,686      7,604,982
                                    -----------    -----------     ----------
  Gross profit                       $4,895,018     $5,619,297     $5,969,865

General and administrative expenses   4,555,848      4,861,861      5,037,655
Bad debt expense                        874,613        559,202        348,136
Settlement of lawsuit                         0              0        125,000
                                    -----------    -----------     ----------

Income before other income (expense)  $(535,443)       198,234       $459,074
                                    -----------    -----------     ----------
Other income (expense):
  Interest expense                      $(8,900)       $(2,651)        $(183)
  Interest income                        12,534         27,516         87,856
  Other income                              500         24,215              0
                                    -----------    -----------     ----------
  Total other income (expense)           $4,134        $49,080        $87,673
                                    -----------    -----------     ----------

Income before income taxes            $(531,309)      $247,314       $546,747

Provision for income taxes             (119,800)       108,743        220,000
                                    -----------    -----------     ----------
Net income                            $(411,509)      $138,571       $326,747
                                    ===========    ===========    ===========



Earnings per common share:

  Basic                                  $(0.12)         $0.04          $0.10
                                    ===========    ===========    ===========

  Diluted                                   N/A          $0.04          $0.09
                                    ===========    ===========    ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                        F-4
<PAGE>

                         ARROW-MAGNOLIA INTERNATIONAL, INC.
                         STATEMENTS OF STOCKHOLDERS' EQUITY
	          FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
<TABLE>
	       Common stock
             -------------------  Additional           Cost of     Total
                 Shares            paid-in   Retained treasury stockholders'
             Outstanding  Amount   capital   earnings   stock      equity
             -----------  ------   -------   --------   -------  -----------
   <S>          <C>        <C>        <C>        <C>       <C>       <C>

Balances at
December 31,
2000         3,248,566 $326,207   $5,607,214  $1,984,270 $(61,468)$7,856,223

Issuance of
stock warrants
for professional
services             0        0       11,375           0        0     11,375

Net income -
reatated             0        0            0     326,747        0    326,747
              -------- --------  -----------  ----------   ------   --------
Balances at
December 31,
2001         3,248,566 $326,207   $5,618,589  $2,311,017 $(61,468)$8,194,345
             --------- --------  -----------  ----------   ------   --------

Net income           0        0            0     138,571        0    138,571
             --------- --------  ----------- -----------  -------   --------
Balances at
December 31,
2002         3,248,566 $326,207   $5,618,589  $2,449,588 $(61,468)$8,332,916

Shares acquired
by exercise
of options     152,925   15,292       49,565                          64,857

Net income           0        0            0    (411,509)       0   (411,509)
             --------- --------  ----------- -----------  -------   --------
Balances at
December 31,
2002         3,401,491 $341,499   $5,668,154  $2,038,079 $(61,468)$7,986,264
             ========= ========  =========== ===========  =======  =========

</TABLE>

The accompanying notes are an integral part of these statements.

                                         F-5

<PAGE>

                         ARROW-MAGNOLIA INTERNATIONAL, INC.
                             STATEMENTS OF CASH FLOWS
	          FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<TABLE>

                                   2003            2002            2001
                                ----------      ----------      ----------
<S>                                <C>             <C>              <C>
Cash flows from operating activities:
  Net income                     (411,509)        $138,571        $326,747

  Adjustments to reconcile
  net income to net cash
  provided by operating
  activities:
    Depreciation and
      amortization                 514,814         392,080         399,855
    Deferred income taxes          (53,900)        211,764        (245,400)
    Provision for doubtful
      accounts                     (34,003)        559,484         348,136
    Tax benefit of
      exercised options             64,857               0          11,375

  Changes in operating assets
  and liabilities:
    Receivables                  1,139,076        (674,086)       (324,002)
    Inventories                    (60,711)         51,043        (175,185)
    Prepaid income taxes            51,547        (125,936)       (164,511)
    Other assets                   (41,695)        (13,364)        (80,876)
    Accounts payable                86,840          (4,535)       (178,694)
    Accrued liabilities             (6,418)       (295,800)        360,342
                                ----------      ----------       ---------
      Net cash provided by
      operating activities      $1,248,898        $239,221        $277,787
                                ----------      ----------       ---------

Cash flows from investing activities:
    Proceeds from sale of
      short-term investments    $(100,000)              0         $100,000
    Acquisition of property
      and equipment              (544,891)       (695,439)        (563,948)
                                ---------        ---------       ---------
      Net cash used by
      investing activities      $(644,891)      $(695,439)       $(463,948)
                                ---------        ---------       ---------
Net increase (decrease) in
cash and cash equivalents        $604,007       $(456,218)       $(186,161)

Cash and cash equivalents:
Beginning of year               1,867,281       2,323,499        2,509,660
                               ----------      ----------       ----------
End of year                    $2,471,288      $1,867,281       $2,323,499
                               ==========      ==========       ==========

</TABLE>

The accompanying notes are an integral part of these statements.

                                        F-6

<PAGE>

Note A - Summary of significant accounting policies:

	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 2003, 2002 or 2001.

	Use of estimates

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

	Concentrations of credit risk

In the ordinary course of business, the Company extends unsecured credit to
its customers with payment terms generally  30 - 90 days.  In addition, the
terms of sale generally provide for the limited ability to return the product
under certain conditions.  Returns of merchandise have historically not been
significant to the Company.  Because of the credit risk involved, management
has provided an allowance for doubtful collections which reflects its opinion
of the amounts which will eventually become uncollectible.  In the event of
complete nonperformance by the Company's customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the date of
nonperformance.

At December 31, 2003, the Company had cash balances of approximately $100,000
in banking institutions in excess of federally insured amounts.  These
balances are before considering outstanding items.  The Company also had
approximately $2,350,000 of its funds invested in uninsured money market
accounts at December 31, 2003.  These funds are managed by outside investment
management firms and are invested in short-term instruments with maturities
of 120 days or less.

	Cash equivalents and statements of cash flows

For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.  Cash was paid for interest during 2003, 2002 and 2001 was
$8,901, $2,651 and $183, respectively.  Cash paid for income taxes during 2003,
2002 and 2001 was $45,000, $92,000 and $353,611, respectively.

	Accounts receivable and credit policies

Accounts receivable are uncollateralized customer obligations due under
normal trade terms generally requiring payment within 60 days from the
invoice date.  Unpaid accounts receivable with invoice dates over 60 days
old generally incur finance charges of 1.5% per month.  Special terms are
provided to some customers that permit a longer payment term and, therefore,
do not incur finance charges until a later date.

Accounts receivable are stated at the amount billed to the customer plus
any accrued and unpaid finance charges.  Customer account balances with
invoices dated over 120 days are considered delinquent.  Finance charges
continue to accrue on delinquent accounts until the account is written off.
Accounts are written off on a customer-by-customer basis, but generally not
for at least one year.  Accounts receivable aged 90 days or more were
$991,365 and $1,909,596, at December 31, 2003 and 2002, respectively.

Payments of accounts receivable are allocated to the specific invoice
identified on the customer's remittance advice or, if unspecified, are
applied to invoices using the Company's best estimate of the intended
invoices.
                                F-7
<PAGE>


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

The carrying amount of accounts receivable is reduced by a valuation
allowance that reflects management's best estimate of the amount that will
not be collected.  Management individually reviews all accounts receivable
balances that exceed 120 days from the invoice date and, based on an
assessment of current creditworthiness, estimates the portion, if any, of
the balance that will not be collected.  Additionally, management applies
a weighted average of write-offs to the aggregate remaining accounts
receivable to estimate a general allowance covering those amounts.  The
weighted average gives greater weight to the most recent years and is
adjusted for management's estimate of changes in future economic conditions
that might give rise to results that differ from past experience.

Short-term investments and financial instruments

In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities, short-term investments to be held to maturity at December
31, 2003 and 2002, consisting of bank certificates of deposit due within one
year, are carried at cost, which approximates market value.

The Company has also adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 138, Accounting for Derivative Instruments
and Hedging Activities, and the related implementation guidance.  Currently
the Company does not engage in hedging activities and has no derivative
instruments as defined in the statement.  Therefore, adoption of this
statement has had no effect on the financial statements of the Company.

	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.  The
costs of blending products are added to the raw material cost of merchandise
available for sale using an internally developed overhead factor.

	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

The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets effective
for periods beginning January 1, 2002, and thereafter.  SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, Intangible Assets.  Specifically,
the statement addresses how intangible assets that are acquired should be
accounted for in financial statements upon their acquisition, as well as
how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. The
statement changes the accounting for goodwill from an amortization approach
to an impairment approach.  Goodwill will no longer be amortized over its
estimated useful life, but will be tested for impairment upon the occurrence
of certain circumstances.  An impairment loss will be recognized if the
carrying amount of a reporting unit exceeds its fair value.  In applying
the provisions of SFAS No. 142, management performed a valuation of the
underlying company for which goodwill was originally recorded.  As of
December 31, 2003, the Company reported goodwill from acquired businesses
of $113,035; management does not believe this amount to be impaired. Prior
amortization of goodwill for the year ended December 31, 2001 was $6,000.

                                F-8
<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 follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share to account for and report
basic and diluted earnings per share (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.  Since the Company incurred a loss from continuing operations for the
year ended December 31, 2003, no computation of dilutive EPS has been
performed since the result would be antidilutive.  The treasury stock
method, as prescribed by SFAS 128, is used to calculate the effects of
stock options outstanding on diluted earnings per share.

Shares used in calculating basic and diluted earnings per share are as
follows:

<TABLE>
                                    2003            2002            2001
                                  ---------       ---------       ---------
<S>                                  <C>             <C>            <C>
Weighted average common shares
   outstanding                    3,333,617       3,248,566       3,248,566

Dilutive securities:
   Common stock options                 N/A         909,092         824,092
   Assumed repurchase of common
      shares                            N/A        (465,630)       (460,538)
                                  ---------       ---------       ---------
Weighted average common shares
   outstanding - diluted basis          N/A       3,692,028       3,612,120
                                  =========       =========       =========
</TABLE>

Stock based compensation

Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations.  As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price.  On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize, as expense over
the vesting period, the fair value of all stock-based awards on the date of
grant.  Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide proforma net income and proforma
earnings per share disclosures for employee stock option grants made in 1996
and future years as if the fair-valued-based method defined in SFAS No. 123
had been applied.  The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the proforma disclosure
provisions of SFAS No. 123.

                                   F-9

<PAGE>

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

In addition, the Company has adopted the provisions of Financial Accounting
Standards Board Interpretation (FIN) 44, Accounting for Certain Transactions
Involving Stock Compensation, which became effective July 1, 2000.  FIN 44
clarifies the application of APB 25 for certain issues.  Among other issues,
this interpretation clarifies the definition of an employee for purposes of
applying APB 25, the criteria for qualification of a plan as compensatory,
the consequences of modifications to the terms of a plan, and the treatment
of stock compensation issued to service providers who are not employees.
The issuance of this interpretation does not change the current accounting
policies of the Company, and has had no affect on the accompanying financial
statements.

Impairment of long-lived assets and long-lived assets to be disposed of

The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets effective for periods beginning January 1, 2002, and
thereafter.  SFAS 144 replaces SFAS 121, and, among other matters, addresses
financial accounting and reporting for the impairment or disposal of long-
lived assets.  SFAS 144 retains the basic provisions of SFAS 121, but broadens
its scope and establishes a single model for long-lived assets to be disposed
of by sale.  Management does not believe adoption of the Statement had any
effect on the financial statements of the Company.  During the years ended
December 31, 2003, 2002 and 2001, the Company's analysis indicated that there
was not an impairment of its long-lived assets.

Transfers and servicing of financial assets and extinguishment of liabilities

The Company follows the provisions of SFAS No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities, and
SFAS No. 140 (by the same title and which replaces SFAS 125 for transactions
occurring after March 31, 2001).  These statements provide 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 these statements has had no effect on the financial
statements of the Company.

Reporting comprehensive income and operating segments

The Company follows the provisions of SFAS No. 130, Reporting Comprehensive
Income and SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information, that requires an enterprise to report, by major
components and as a single total, the change in its net assets during the
period from nonowner sources.  SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major
customers.  Adoption of these statements has had no impact on the Company's
financial position, results of operations, cash flows, or related disclosures.

Fair value of financial instruments

The Company defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties.  Financial instruments included in the Company's financial
statements include cash and cash equivalents, short-term investments, trade
accounts receivable, other receivables, note receivable, other assets, trade
accounts payable, notes payable and long-term debt.  Unless otherwise
disclosed in the notes to the financial statements, the carrying value of
financial instruments is considered to approximate fair value due to the short
maturity and characteristics of those instruments.  The carrying value of
long-term debt approximates fair value as terms approximate those currently
available for similar debt instruments.

                                    F-10
<PAGE>

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

Revenue recognition

The Company follows the provisions of SEC Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial Statements, and recognizes revenues
when its products are shipped to customers (terms are FOB shipping point),
at which time evidence of a completed transaction and customer acceptance
exists.  Appropriate provisions for estimated returns of product and other
allowances have been made in the accompanying financial statements.  Amounts
billed to customers for shipping and handling are classified as revenues,
while shipping and handling costs are included in cost of sales.


Note B - Inventories:

Inventories consisted of the following at December 31, 2003 and 2002:

                                              2003             2002
                                           ---------       ---------
Raw materials purchased for blending        $238,335        $288,860
Merchandise available for sale               618,390         507,154
                                           ---------       ---------
                                            $856,725        $796,014
                                           =========       =========

Note C - Property and equipment:

Property and equipment consisted of the following at December 31, 2003 and
2002:

<TABLE>                                            2003              2002
                                               ----------         ----------
      <S>                     <C>                  <C>                <C>
Land                                              $97,209            $97,209
Buildings and improvements   5 to 40 years      1,402,036          1,401,194
Machinery and equipment      3 to 10 years      2,902,620          2,835,876
Furniture and fixtures       5 to 10 years        344,409            495,577
Computers                    5 years              375,849            223,017
                                               ----------         ----------
                                               $5,122,123          5,052,873
Less accumulated depreciation                   2,086,522          2,047,349
                                               ----------         ----------
                                               $3,035,601          3,005,524
                                               ==========         ==========
</TABLE>

Depreciation expense charged to operations was $514,814, $392,080 and $393,784
in 2003, 2002 and 2001, respectively.

                                  F-11
<PAGE>

Note D - Intangible assets:

Intangible assets consisted of the following at December 31, 2003 and 2002:

<TABLE>
                                                   2003              2002
                                               ----------         ----------
  <S>                                              <C>                <C>
Goodwill                                         $113,035           $113,035
                                               ==========         ==========
</TABLE>

Note E - Credit agreement:

The Company has available at December 31, 2003, a revolving line of credit
with a bank due on May 31, 2005.  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, 2003 and 2002, there were no outstanding balances
due under this agreement.  The credit agreement contains various debt
covenants, the most restrictive of which requires the Company to maintain
certain minimum financial criteria.  At December 31, 2003, 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 and is
collateralized by certain accounts receivable and inventories.


Note F - Income taxes:

Income tax expense for the years ended December 31, 2003, 2002 and 2001,
consisted of the following:

<TABLE>

                                     2003            2002            2001
                                  ----------      ----------      ----------
   <S>                               <C>             <C>              <C>
U.S. federal - current              $(82,800)       (120,900)       $189,100
U.S. federal - deferred              (53,800)        215,043           4,600
State - current                       16,800          14,600          26,300
                                  ----------      ----------      ----------
                                   $(119,800)       $108,743        $220,000
                                  ==========      ==========      ==========
</TABLE>

Income tax expense for the years ended December 31, 2003, 2002 and 2001,
differs from the "expected" tax expense (computed by applying the 34% U.S.
federal corporate rate to income before income taxes) as follows:

<TABLE>
                                    2003             2002            2001
                                  ---------       ----------       ----------
  <S>                                <C>              <C>             <C>
Computed "expected" tax expense   $(180,600)         $84,087         $185,894
Amortization of goodwill                  0                0              939
State income taxes, net of federal
   benefit                           11,100            9,636           17,358
Nondeductible and other items        49,700           15,020           15,809
                                  ---------        ---------        ---------
                                  $(119,800)        $108,743         $220,000
                                  =========        =========        =========
</TABLE>

                                      F-12
<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
31, 2003 and 2002, are presented below:

<TABLE>

                                                     2003            2002
                                                  ----------      ----------
  <S>                                                 <C>             <C>
Deferred tax assets:
  Accounts receivable, principally due to
    allowance for doubtful accounts                 $104,500        $151,936
  Overhead allocation to inventories under IRC 263a   39,100          36,200
  Accrual of environmental remediation liability      26,800          44,900
  Expense resulting from issuance of stock
    options and warrants                              39,300          39,300
  Expenses resulting from sales tax audit                  0          58,764
  Net operating losses                               195,900               0
                                                  ----------      ----------
Total gross deferred tax assets                     $441,600        $331,100
Less valuation allowance                                   0               0
                                                  ----------      ----------
Net deferred tax assets                             $441,600        $331,100
                                                  ----------      ----------
Deferred tax liabilities:
  Property and equipment, principally due to
    differences in depreciation                    $(301,400)       (244,900)
  Other                                                 (700)           (600)
                                                  ----------       ---------
Total gross deferred tax liabilities               $(302,100)       (245,500)
                                                  ----------       ---------
Net deferred tax asset                              $139,500         $85,600
                                                  ==========       =========
</TABLE>

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, 2003, to be realized as a result of
future taxable income.

At December 31, 2003, the Company had net operating loss carryforwards of
approximately $573,000, which are available to reduce future taxable income
and the related income tax liability through the year 2023.

                                   F-13
<PAGE>

Note G - Stockholders' equity:

Stock equivalents at December 31, 2003, 2002 and 2001, and changes in stock
equivalents for the three-year period ended December 31, 2003, are presented
below:


<TABLE>
                                   Stock options           Stock warrants
                                  -------------------    -------------------
                                             Weighted               Weighted
                                              Average                Average
                                  Number of  Exercise    Number of  Exercise
                                    Shares     Price       Shares     Price
                                  =========  ========    =========  ========
 <S>                                 <C>        <C>         <C>        <C>

Options and warrants
  outstanding, December 31, 2000    833,092      0.84       11,000      4.75

                         Granted     55,000      2.02       10,000      2.20
                                  ---------               --------
Options and warrants
  outstanding, December 31, 2001    888,092      0.92       21,000      3.54

                        Forfeited   (10,000)     2.13            0
                                  ---------               --------
Options and warrants
  outstanding, December 31, 2002    878,092      0.90       21,000      3.54

                        Exercised  (204,975)     0.50            0
                                  ---------               --------
Options and warrants
  outstanding, December 31, 2003    673,117      1.02       21,000      3.54
                                  =========               ========
</TABLE>


The weighted average exercise price of all exercisable options at December 31,
2003, 2002 and 2001, was $0.97, $0.83 and $0.77, respectively.  The weighted
average exercise price of all outstanding options at December 31, 2003, 2002
and 2001 was $1.02, $0.90 and $0.92, respectively.

Stock option plan

The Company has a non-qualified stock option plan (Plan) covering
approximately 1,007,000 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.  The Plan provides that
the contractual lives of the options are ten (10) years unless otherwise
stipulated by the Company's board of directors

$.50 stock options

In December 1994, 400,000 stock options were granted to certain officers of
the Company at an option price of $.50 per share, the estimated fair market
value of the common stock at the date of grant.  These stock options were
fully exercisable at the date of grant.

In January 1995, an additional 100,000 options were granted to certain key
employees.  These stock options were issued at an option price of $.50 per
share, the estimated fair value of the common stock at the date of grant,
and vest in annual increments of 20% with the first 20% vesting occurring
on the date of issuance.

Options outstanding were increased by 50,000 in 1995, 54,208 in 1997, 58,497
in 1998, and 63,864 in 1999 due to 10% stock dividends.   At December 31,
2003, 204,975 of these options had been exercised and 497,567 remain
outstanding.

                                    F-14
<PAGE>

Note G - Stockholders' equity (continued):

At December 31, 2003, 2002 and 2001, all of these options were fully vested
and exercisable.  The remaining weighted- average contractual life of these
options was 8 months at December 31, 2003.

$2.00 stock options

In January 1997, the Company granted 50,000 stock options to an employee
of the Company.  These stock options were issued at an option price of $2.00
per share.  The stock options were fully exercisable at the date of grant.
During 1997, the Company recognized the aggregate excess of the market
price over the exercise price at date of grant, $104,500, as expense.
Options outstanding were increased by 5,000 in 1997, 5,500 in 1998, and
6,050 in 1999 due to 10% stock dividends.  At December 31, 2003, none of
these options have been exercised and 66,550 remain outstanding.  At December
31, 2003, 2002 and 2001, all of these options were fully vested and
exercisable.  The remaining average contractual life of these options was
3 years at December 31, 2003.

During January 2001, the Company granted 45,000 stock options to certain
key employees of the Company.  These stock options vest in annual increments
of 20% with the first 20% vesting occurring on the date of issuance.  At
December 31, 2003 and 2002, none of these options have been exercised; 45,000
remain outstanding and 27,000 and 18,000, respectively, were exercisable.  The
remaining average contractual life of these options was 7 years at December 31,
2003.

$2.875 stock options

In January 2000, the Company granted 42,000 stock options to certain
employees of the Company.  These stock options were issued at an option
price of $2.875 per share and vest in annual increments of 20% with the
first 20% vesting occurring on the date of issuance.  At December 31, 2003,
none of these options had been exercised and 42,000 remain outstanding.
As of December 31, 2003, 2002 and 2001; 33,600, 25,200 and 25,200 of these
options were exercisable. The remaining average contractual life of these
options was 6 years.

$2.125 stock options

In March 2001, the Company granted 10,000 stock options to an employee of
the Company.  These stock options were issued at an option price of $2.125
per share and vest in annual increments of 20% with the first 20% vesting
occurring on the date of issuance.  At December 31, 2002, all of these
options had been forfeited due to termination of the employee.

$4.375 stock options

In January 1999, the Company granted 20,000 stock options to certain
employees of the Company.  These stock options were issued at an option
price of $4.375 per share and vest in annual increments of 20% with the
first 20% vesting occurring on the date of issuance.  Total stock options
outstanding were increased by 2,000 in 1999, due to a 10% stock dividend.
At December 31, 2003, none of these options had been exercised and 22,000
remain outstanding.  At December 31, 2003, 2002 and 2001; 22,000, 22,000 and
16,500, respectively, were exercisable.  The remaining average
contractual life of these options was 5 years at December 31, 2003.

Stock warrants

In February 1999, the Company issued stock warrants to a service provider.
The stock warrants are exercisable to purchase up to 10,000 shares of the
Company's common stock at $4.75 per share.  The stock warrants were
increased to 11,000 in 1999 due to a 10% stock dividend.  These warrants
were valued at $0.62 per share using the Black Scholes option-pricing model.
Assumptions included an expected dividend yield of 0.0%, a risk-free
interest rate of 4.81%, an expected life of 2 years and an expected
volatility of 46.04%.  At December 31, 2003, 2002 and 2001, none of these
warrants had been exercised; 11,000 remain outstanding and all are
exercisable.  The remaining average contractual life of these warrants
was 5 years at December 31, 2003.

                                     F-15
<PAGE>

Note G - Stockholders' equity (continued):

In July 2001, the Company issued stock warrants to a service provider.
The stock warrants are exercisable to purchase up to 10,000 shares of the
Company's common stock at $2.20 per share.  These warrants were valued at
$1.14 per share using the Black Scholes option-pricing model.  Assumptions
included an expected dividend yield of 0.0%, a risk-free interest rate of
3.53%, an expected life of 5 years and an expected volatility of 56.24%.
At December 31, 2003, none of these warrants have been exercised; 10,000
remain outstanding and all are exercisable.  The remaining average
contractual life of these warrants was 7 years at December 31, 2003.

Note H - Proforma information related to stock options:

The per share weighted-average fair value of stock options granted during
2003, 2002 and 2001 was $0.00, $0.00 and $1.27, respectively, on the date
of grant, using the Black Scholes option-pricing model.  The following
weighted-average assumptions were used in the pricing model:
<TABLE>
                                    2003          2002           2001
                                 ----------     ----------    ----------
  <S>                                <C>           <C>           <C>
Expected dividend yield             N/A            N/A           0.00%
Risk-free interest rate             N/A            N/A           5.34%
Expected life                       N/A            N/A          7 years
Expected volatility                 N/A            N/A          56.24%

</TABLE>

The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, has recognized no compensation expense for stock options
granted at exercise prices at least equal to the market value of the
Company's common stock.  Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income and earnings per share would have been
reduced to the proforma amounts indicated below:

<TABLE>

                                      2003           2002             2001
                                  -----------     -----------     -----------
  <S>                                <C>              <C>             <C>
Net income:
   As reported                      $(411,509)       $138,571        $326,747
                                   ==========      ==========      ==========
   Proforma                         $(431,705)       $113,243        $292,230
                                   ==========      ==========      ==========
Basic earnings per common share:
   As reported                         $(0.12)          $0.04           $0.10
                                   ==========      ==========      ==========
   Proforma                            $(0.13)          $0.03           $0.09
                                   ==========      ==========      ==========
Diluted earnings per common share:
   As reported                            N/A           $0.04           $0.09
                                   ==========      ==========      ==========
   Proforma                               N/A           $0.03           $0.08
                                   ==========      ==========      ==========
</TABLE>

Proforma net income reflects only options granted since 1999.  Therefore,
the full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the proforma net income amounts presented
above because compensation cost is reflected over the option's vesting period,
and compensation cost for options granted prior to January 1, 1995, is not
considered.

                                         F-16
<PAGE>

Note I - Quarterly financial data (unaudited):

Quarterly net income (loss) and earnings (loss) per share for 2003 are as
follows:

<TABLE>
                                                       Earnings per share
                                                    -------------------------
                                Net income            Basic          Diluted
                               -----------           ---------      ----------
  <S>                              <C>                <C>               <C>
First quarter                     $169,814            $0.05             $0.05
Second quarter                    (332,837)          $(0.10)              N/A
Third quarter                       27,973            $0.01             $0.01
Fourth quarter                    (276,459)          $(0.08)              N/A
                               -----------
                                 $(411,509)
                               ===========
</TABLE>

Note J - Commitments and contingencies:

Legal actions

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.

During the year ended December 31, 2001, the Company reached a final
settlement with respect to a lawsuit brought against it.  The cost to the
Company was $125,000, which was paid and charged to operations during the
year ended December 31, 2001.

Environmental remediation

As a result of an environmental site investigation conducted by an outside
engineering firm during 2000, the Company discovered that certain regulated
chemicals exist in the soils and ground water underneath its facilities.
It appears that this contamination was the result of activities that took
place prior to 1985, when current management assumed control of the Company.

On March 2, 2001, the Company notified the Texas Natural Resource
Conservation Commission (TNRCC) of the results of this investigation and
that it intended to apply for the Voluntary Cleanup Program.  In July 2001, the
TNRCC accepted the Company's application into the Voluntary Cleanup Program.
The terms of the program required the Company to conduct more extensive
environmental studies into the contamination and to report the findings to the
TCEQ in June 2002. The Company submitted a draft assessment report in 2002 and
is currently in the process of completing its assessment report and proposed
response action plan, which it anticipates submitting in April 2004. Once the
report and plan are submitted and reviewed by the TCEQ, the Company believes it
should be able to more accurately estimate the potential costs of environmental
compliance.

During the year ended December 31, 2000, $250,000 was accrued and charged to
operations for the costs for continuing investigation and potential
remediation.  Of this amount, $78,392 remains as of December 31, 2003, which
constitutes management's estimate of potential future costs.  It is at least
reasonably possible that this estimate of future costs will change and the
change could be material.

The Company incurred costs of $53,168 and $117,900, respectively, with respect
to investigation of the potential environmental contamination for the years
ended December 31, 2003 and 2002, which amounts were charged against the
previously established reserve.



                                     F-17
<PAGE>

Note J - Commitments and contingencies (continued):


Examinations by tax authorities

During 2002, the Company underwent an examination by the State of Texas for
unpaid sales tax for the years 1998 through 2001. The initial assessment
approximated $300,000; however based on its analysis of the issues and
initial negotiations, management believed the maximum exposure to the company
to be approximately $172,000. During 2003 an agreement was reached providing
for the payment of this assessment of approximately $251,000, including
penalties and interest. Payment was made in full in January 2004.

Commitments

The Company is obligated under operating leases for equipment through
August 2008.  Minimum annual rentals under such arrangements are as follows:

<TABLE>
                   Year ending
                   December 31,                        Amount
                   ------------                      --------
                      <S>                               <C>
                      2004                            $27,455
                      2005                             17,484
                      2006                             10,876
                      2007                              6,156
                      2008                              2,566
                                                      -------
                      Total                           $64,537
                                                      =======
</TABLE>


Note K - Changes in the allowance for doubtful accounts:

Changes in the allowance for doubtful accounts are:


<TABLE>

                                2003        2002         2001
                             --------     --------     --------
    <S>                        <C>          <C>          <C>
   Beginning balance         $447,108     $482,484     $497,245
   Provision for
    realization losses        874,613      559,202      348,136
   Net write-offs            (908,616)    (594,578)    (362,897)
                             --------     --------     --------
   Ending balance            $413,105     $447,108     $482,484
                             ========     ========     ========
</TABLE>

                               F-18
<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, Chairman and
						    Chief Executive Officer


Dated:  March 30, 2004

	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/ Mark I. Kenner
-------------------        Director, Chairman and	         }
Mark I. Kenner      	   Chief Executive Officer		   }	  March 30,
			         (Principal Executive Officer)	   }    2004
								               }
/s/ Fred Kenner                                                }
-------------------         Director, President and            }
Fred Kenner         	    Chief Operating Officer		   }
				    (Principal Financial and      	   }
				    Accounting Officer)          	   }
								               }
/s/ Fred Bennett								   }
-------------------         Director                           }
Fred Bennett                                                   }
                                                               }
                                                               }
/s/ Jeff Levitt                                                }
-------------------         Director                           }
Jeff Levitt                                                    }



                       CERTIFICATIONS PURSUANT TO
                             SECTION 302 OF
                     THE SARBANES-OXLEY ACT OF 2002

I, Mark Kenner, certify that:

1. I have reviewed this annual report on Form 10-KSB of Arrow-Magnolia
International, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered
by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 30, 2004

                                        /s/ Mark Kenner
                                        --------------------------------

                                        Mark Kenner, Chief Executive Officer


I, Fred Kenner, certify that:

1. I have reviewed this annual report on Form 10-KSB of Arrow-Magnolia
International, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 30, 2004

                                     /s/ Fred Kenner
                                     --------------------------------
                                     Fred Kenner, Chief Financial Officer


<PAGE>

                                    INDEX TO EXHIBITS


Number     Exhibit                            				Page

3.1   Restated Articles of Incorporation of
      Arrow-Magnolia International, Inc.

3.2  	Bylaws of Arrow-Magnolia International, Inc.

10.19 Arrow-Magnolia International, Inc.  Amended and
      Restated Non-Qualified Stock Option Plan (2).

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

10.24 Executive Employment Agreement dated March 1, 1999 between
      Arrow-Magnolia International, Inc. and Mark Kenner (1).

10.25 Executive Employment Agreement dated March 1, 1999 between
      Arrow-Magnolia International, Inc. and Fred Kenner (1).

10.26 Eighth Amendment to Credit Agreement dated May 31, 2003
      between Arrow-Magnolia International, Inc. and JPMorgan
      Chase Bank

23.1  Consent of Independent Auditors.


(1)  Filed as Exhibits  10.24 and 10.25 to Arrow-Magnolia International,
     Inc. Form 10-KSB/A for the fiscal year ended December 31, 1999 filed on
     May 1, 2000 and incorporated herein by reference.

(2)  Filed as Exhibit 10.19 to Arrow-Magnolia International, Inc. Form 10-KSB
     for the fiscal year ended December 31, 2000 filed on April 2, 2001 and
     incorporated herein by reference.