SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                FORM 10-KSB
               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1996 
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) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
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 in response to Item 405
of Regulation S-B is contained in this form, 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 to this Form 10-KSB.
                                          
                                    /    /                        
     Issuer's revenues for the fiscal year ended December 31, 1996
were: $10,278,559.  

The aggregate market value of issuer's voting stock held by non-
affiliates as of December 31, 1996 was $4,035,825 (*See note on
index page.)    

The number of shares outstanding of each class of the issuer's
common stock as of December 31, 1996, was:       
Common Stock, par value $0.10 per share, 2,373,120 shares      

Documents Incorporated by Reference: None.  

Transitional Small Business Disclosure Format:  Yes       No  X
<PAGE>  <PAGE>
                    ARROW-MAGNOLIA INTERNATIONAL, INC.
                       ANNUAL REPORT ON FORM 10-KSB

                                   INDEX

Securities and Exchange Commission 
Item Number and Description                            Page

                                  PART I

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

Item 5.   Market for Common Equity and Related           
          Stockholder Matters .....................    4    
Item 6.   Management's Discussion and Analysis or            
          Plan of Operation .......................    5    
Item 7.   Financial Statements ....................    7      
Item 8.   Changes in and Disagreements With            
          Accountants on Accounting and Financial           
          Disclosure ..............................    7          
                      
                    PART III  

Item 9.   Directors, Executive Officers, Promoters           
          and Control Persons; Compliance with            
          Section 16(a) of the Exchange Act ........   8         
Item 10.  Executive Compensation ..................    9  
Item 11.  Security Ownership of Certain Beneficial           
          Owners and Management ...................    11  
Item 12.  Certain Relationships and Related            
          Transactions ............................    11 

                       PART IV AND SIGNATURES  

Item 13.  Exhibits and Reports on Form 8-K ........    12      

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND 
SCHEDULES .........................................    F-1       

*    The figure indicated on the cover page as to the aggregate
     market value of shares of issuer's voting stock held by
     nonaffiliates, as such figure relates to shares held by 
     affiliates, represents the issuer's best good faith estimate 
     for purposes of this annual report on Form 10-KSB and for no
     other purpose.  The aggregate market value indicated is based
     upon the last sales price of the issuer's common stock as
     reported by the NASDAQ SmallCap Market as of December 31,
     1996.  See "Market for Common Equity and Related Stockholder
     Matters."
<PAGE>    <PAGE>
                     
                    ARROW-MAGNOLIA INTERNATIONAL, INC.
                         Form 10-KSB Annual Report
                         For the Fiscal Year Ended
                             December 31, 1996

                                  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 mainte-
nance 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
labels by third parties. The Company also distributes certain
nonchemical products, such as paper and other janitorial supplies,
related to its chemical products. The Company's products, including
its nonchemical products, are marketed throughout the United
States, Canada and other countries to a variety of consumers,
including customers in the aircraft industry, the construction
industry and the telecommunications industry, which collectively
accounted for approximately 40% of the Company's sales during 1995. 
No single customer accounted for as much as 10% of its total net
sales during 1996 or 1995.

     The products sold by the Company include 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.  Other sanitation and
maintenance products sold by the Company include soaps, deodorants,
germicides, insecticides, disinfectants and miscellaneous
janitorial supplies.  Nonchemical products sold by the Company
include mops, brooms, paper products and poly liners.  The
Company's products are designed and packaged for large-scale users
rather than individual household consumers. 

     The Company currently manufactures certain of its products in
order to give the Company greater control over its inventory in
terms of quality and availability of goods. Cost savings are also
effected through elimination of outside vendor overhead and profit
and through reductions in the cost of carrying finished goods
inventory versus raw materials. Currently the Company manufactures
approximately 60% of its products (measured by 1996 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.
<PAGE>
     The Company markets its products primarily through its own
sales persons and independent contractors and manufacturers'
representatives. In addition, the Company exhibits its products at
trade shows. The Company attends, on a regular basis, approxi-
mately six trade shows annually.  The Company has no material
backlog of orders for its products.   
     
     The Company does not incur any material costs in complying
with applicable environmental laws.    

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 capabil-
ity. 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, 1996, the Company employed approximately
one-hundred fifteen (115) full-time employees, including its
warehouse personnel and administrative, accounting, clerical and
sales personnel. None of the Company's employees are covered by
union contracts, and the Company considers its relationship with
its employees to be excellent.   
PAGE
<PAGE>
ITEM 2.   DESCRIPTION OF PROPERTY.       

     The principal executive and warehouse facilities of the
Company are located in a steel, glass, brick and concrete build-
ing owned by the Company at 2646 Rodney Lane, Dallas, Texas. These
facilities occupy approximately 40,000 square feet of floor space,
of which 33,000 square feet are devoted to warehousing and shipping
and manufacturing, and 7,000 square feet to administrative and
executive offices.  The Company is currently evaluating whether to
build an additional 30,000 square feet of warehouse space onto its
existing facilities.  A deed of trust has been granted with respect
to this property to secure certain indebtedness of the Company.   
   

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

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

ITEM 3.   LEGAL PROCEEDINGS.       

     The Company is not a party to, nor is any of its property the
subject of, any legal proceedings other than routine litigation
incidental to its business.        

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, 1996, to a vote of the Company's
security holders, through solicitation of proxies or otherwise. 
PAGE
<PAGE>
                               PART II   

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 
          MATTERS.       

     The Company's common stock is traded in the over-the-counter
market, but such trading occurs sporadically and in relatively
small volumes.         

     From April 1995 to April 1996, the Company's common stock was
included for quotation on the NASDAQ OTC Bulletin Board and since
April 1996, the common stock has traded 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 and volume of trading in the common stock for each month
since such inclusion, as adjusted to reflect a two-for-one stock
dividend which became effective on June 14, 1996:    

Quarter Ended                 High           Low

December 31, 1996             4 7/8          3 3/8
September 30, 1996            4 1/4          3 1/2
June 30, 1996                 5              2 1/2
March 31, 1996                2 1/2          2 1/8

December 31, 1995             2 1/2          1 3/4            
September 30, 1995            2 15/32        1 5/8
June 30, 1995                 2              1 3/16



     The approximate number of record holders of the Company's
Common Stock as of December 31, 1996, was 700.       

     The Company has paid no cash dividends with respect to its
Common Stock since 1988, when it paid a dividend of $0.05 per
share.  The Company currently intends to retain any earnings for
use in its business and does not anticipate paying any cash
dividends in the foreseeable future.
<PAGE> <PAGE>
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

     The following table sets forth for the periods indicated the
relative percentages which certain items included in the
consolidated statements of earnings 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       1996      1995  
                   Years Ended December 31        vs.       vs.   
                   1996       1995      1994      1995      1994
<S>                 <C>       <C>       <C>       <C>       <C>  
Net sales          100.0%    100.0%    100.0%     22.5%     25.5% 
 
Cost of sales       57.5%     58.2%     58.6%     21.0%     24.7% 
    
Gross profit        42.5%     41.8%     41.4%     24.4%     26.7% 
  
General and
 administra-
 tive expenses      26.2%     28.3%     31.3%     13.5%     13.3% 
    
Operating income    16.3%     13.5%     10.1%     47.1%     68.2% 
   
Interest expense     0.8%      1.2%      1.5%    (14.2)%    (4.5)% 
 
Earnings before
 income taxes       16.0%     12.7%      8.8%     54.6%     88.1% 
   
Net earnings        10.1%      8.1%      5.4%     53.5%     88.1% 

</TABLE>
<PAGE>   <PAGE>
Comparison of Annual Results.

     Net sales for fiscal year 1996 increased by 22.5% from
$8,393,829 to $10,278,559 versus fiscal year 1995 after increasing
25.5% from fiscal 1994 to fiscal 1995.  Cost of sales as a per-
centage of net sales improved from 58.6% to 58.2% to 57.5% from
1994 through 1995 and 1996.  The increase in sales from 1995 to
1996 is primarily attributable to the extension of sales coverage
through the addition of sales personnel under an ongoing hiring
program.  As a result of increased sales combined with cost con-
trol, gross profit increased by 24.4% from $3,508,030 to $4,364,634
for fiscal 1996 versus fiscal 1995, after increasing by 26.7% from
fiscal 1994 to fiscal 1995.  For the fiscal year, the gross profit
margin reached a record 42.5% of net sales, as compared to 41.8%
for 1995 and 41.4% for 1994.

     General and administrative expenses continued to fall as a
percentage of net sales from 31.3% in 1994 to 28.3% in 1995 and
26.2% in 1996 as sales volume improved at a more rapid pace than
the modest 13% increase in these expenses from year to year.  

     Interest expense fell as a percentage of net sales from 1.5%
to 1.2% to 0.8% from 1994 through 1996 due to application of funds
generated from continued profitability to reduce debt and reduction
in the interest rate paid to the prime rate.

     As a result of these factors, for the fiscal year ended
December 31, 1996, net income increased to $1,042,460 from
$679,074, or 53.5%, versus the same period in 1995.  These results
compare favorably to net earnings for 1994 of $361,064.

Liquidity and Capital Resources.

     The Company's working capital (total current assets less total
current liabilities), which was $2,696,048 as of December 31, 1995,
improved during 1996 to $3,591,923 as of December 31, 1996.  The
Company's current assets increased significantly as the Company's
cash and short-term investments, accounts receivable and
inventories increased due to increased sales and profitability. 
Current liabilities also increased, but less dramatically, in
response to increased sales volumes.       

     As shown in the Company's consolidated statements of cash
flows, the Company generated $850,225 in cash flow from opera-
tions as the Company continued to capitalize on its profitabili-
ty, partially offset by increases in receivables and inventories
resulting from its sustained growth.  The Company realized $350,730
from investing activities as it liquidated certain short-term
investments.  A total of $207,374 was used in financing activities
as the Company paid down its remaining debt.
<PAGE>
     Currently the Company is evaluating whether to construct an
additional 30,000 square feet of warehouse space to its existing
facilities.  Based upon its initial review, the Company believes it
has more than adequate funds on hand to complete this addition if
the Company concludes that it is desirable.  In addition, at
December 31, 1996, the Company had $600,000 available under a
revolving line of credit bearing interest at the lender's prime
rate (8.25% at December 31, 1996).  The Company believes that its
present financing is also otherwise adequate for its capital needs
for the foreseeable future.   

Accounting Standards

     In June of 1996, the Financial Accounting Standards Board
(FASB) issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", which
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. 
Management of the Company does not believe SFAS 125 will have a
material impact on the Company's financial statement.  The adoption
of SFAS 125 will be reflected in the Company's 1997 consolidated
financial statements.


ITEM 7.   FINANCIAL STATEMENTS.            

     Included at pages F-1 through F-15 hereof.    


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

     None.
<PAGE>  <PAGE>
                              PART III  

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL    
          PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE  
          ACT.     

     The Directors and executive officers of the Company as of
December 31, 1996, their ages and positions are as follows:  

Name                Age       Position With Registrant  

Morris Shwiff       75        Chairman of the Board and           
                              President  

Mark I. Kenner      65        Director and Executive Vice         
                              President  

Fred Kenner         44        Director and Vice President,        
                              Secretary and Treasurer        

     Messrs. Shwiff, Mark Kenner and Fred Kenner were elected as
Directors of the Company on June 29, 1988 and will hold their
positions until their successors are elected.       

     Each of the above named officers was elected to his respec-
tive offices with the Company by the Board of Directors of the
Company on June 29, 1988, and serve as officers of the Company at
the discretion of the Board of Directors. Mr. Mark I. Kenner is the
father of Mr. Fred Kenner.  No other family relationship exists
between any of the executive officers or Directors of the Company. 
     
     The principal occupation and employment during the past five
years of the Directors and each of the executive officers of the
Company are as follows:       

     Morris Shwiff has served as Chairman of the Board of Direc-
tors and President of the Company since December 1985. For more
than five years prior to December 1985, Mr. Shwiff was a Direc-
tor, President and principal stockholder of Arrow Chemical
Corporation, which corporation was acquired by the Company in
December 1985.         

     Mark I. Kenner has served as Director and Executive Vice
President of the Company since December 1985. For more than five
years prior to December 1985, Mr. Kenner was a Director, Vice
President and stockholder of Arrow Chemical Corporation.     

     Fred Kenner has served as Director and Vice President,
Secretary and Treasurer of the Company since December 1985. For
more than five years prior to December 1985, Mr. Kenner was a
Director, Secretary, Treasurer and stockholder of Arrow Chemical
Corporation.        
<PAGE>
     Directors are elected annually and serve until their succes-
sors are duly elected and qualified.  Officers serve at the
discretion of the Board.         

     Based solely upon a review of Forms 3, 4, and 5 furnished to
the Company and upon written representations received by the
Company, the following persons were all Directors, officers or
beneficial owners of more than 10 percent of the Company's Common
Stock as of December 31, 1996:            

     Morris Shwiff           
     Mark I. Kenner           
     Fred Kenner  

Based thereon, Mr. Shwiff filed one report under Section 16(a) of
the Exchange Act of 1994 reporting transactions in December 1996
fifteen days after it was due.
PAGE
<PAGE>
ITEM 10.  EXECUTIVE COMPENSATION   

     The following tables summarize the monetary and non-monetary
compensation paid by the Company during the three fiscal years
ended December 31, 1996 to the Company's chief executive officer
and to the Company's other executive officers.                    
     
<TABLE>                                             
                    SUMMARY COMPENSATION TABLE
                                                                 
                                                  Long Term       
                                                  Compensation    
                                                  Awards          
                                                  Number  
Name and                      Annual              of Shares  
Principal                     Compensation        Subject to 
Position            Year      Salary    Bonus     Options Granted 
<S>                  <C>       <C>       <C>       <C>           
Morris Shwiff,      1996      $140,400  $32,500    0
Chairman of         1995      $130,000  $17,940    0        
the Board           1994      $119,900  $ 8,745   154,000
and President  

Mark I. Kenner,     1996      $133,900  $30,875    0              
Director and        1995      $123,500  $16,887    0 
Executive           1994      $112,580  $ 8,208   145,200
Vice President  

Fred Kenner,        1996      $127,400  $29,250    0             
Director and        1995      $117,000  $15,990    0
Vice President,     1994      $106,600  $ 7,751   140,800         
Secretary and 
Treasurer   

</TABLE>
PAGE
<PAGE>
Option Exercises and Fiscal Year End Option Values       

     The following table reflects option exercises during the
fiscal year ended December 31, 1996, the number of shares under-
lying both exercisable and unexercisable options as of the fiscal
year end and the value of unexercised "in the money" options as of
the fiscal year end, after giving effect to a two-for-one stock
dividend declared on June 14, 1996:          
<TABLE>
          
                                  Number of Shares
          Number                  Underlying
         of Shares                Unexercised Options      In the Money Options
         Acquired                 at Fiscal Year End     at Fiscal Year End(1)
          on           Value                     Unexer-               Unexer-
Name      Exercise     Realized     Exercisable  cisable  Exercisable  cisable
<S>       <C>              <C>         <C>          <C>      <C>        <C>             <C>
Morris 
Shwiff    0                0          154,000        -        $616,000     - 


Mark I. 
Kenner    0                0          145,200        -        $580,080      - 


Fred 
Kenner    0                0          140,800         -        $563,200     - 


(1)     For purpose of calculating this value, the Company has utilized the 
        average of the last sales price of the Company's common stock as of 
        December 31, 1996 as reported on the NASDAQ SmallCap Market.

</TABLE>
PAGE
<PAGE>
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND     
          MANAGEMENT.       

     The following table sets forth information regarding the
Company's Common Stock owned at December 31, 1996 by (i) each
shareholder known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the Company's Direc-
tors and executive officers and (iii) all officers and Directors as
a group.  So far as is known to the Company, the persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject
to community property laws, where applicable, and the information
contained in the footnotes to the table.

                                                                  
Name and           
Address of         
Beneficial               Number of Shares         Percent 
Owner                    Beneficially Owned       of Class  

Morris Shwiff            937,272(1)               37.1% 
2646 Rodney Lane 
Dallas, TX 75229  

Mark I. Kenner           607,198(2)               24.1% 
2646 Rodney Lane 
Dallas, TX 75229  

Fred Kenner              371,800(3)               14.8% 
2646 Rodney Lane 
Dallas, TX 75229  

All Directors           1,916,270(4)              68.1% 
and Officers as  
a Group  
(Three Persons)             
             

(1)  Includes 154,000 shares which may be acquired upon exercise 
     of an option at an exercise price of $0.50 per share.  

(2)  Includes 145,200 shares which may be acquired upon exercise 
     of an option at an exercise price of $0.50 per share.  

(3)  Includes 140,800 shares which may be acquired upon exercise 
     of an option at an exercise price of $0.50 per share.  

(4)  Includes 440,000 shares which may be acquired upon exercise 
     of an option at an exercise price of $0.50 per share.  


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.         
  
     None.
<PAGE> <PAGE>
                                   PART IV  

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

(a)  Exhibits.            

     No.                           Exhibit             

     3.1       Articles of Incorporation, as amended, of Arrow-   
               Magnolia International, Inc.(1).            

     3.2       Bylaws of Magnolia Enterprises, Inc.(2).           

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

     10.21     Extension and Modification Agreement dated August  
               18, 1994 between Arrow-Magnolia International, Inc.
               and Texas Commerce Bank National Association(3).   
               
     23.1      Consent of Independent Auditors.                   
               
           

(1)  Filed as Exhibit 3.1 to Arrow-Magnolia International, Inc.   
     Form 10-K for the fiscal year ended December 31, 1988 and    
     incorporated herein by reference.  

(2)  Filed as Exhibit 3.2 to Magnolia Chemical Company, Inc. From 
     10-Q for the quarter ended June 30, 1982 and incorporated   
     herein by reference.  

(3)  Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia   
     International, Inc. Form 10-KSB for the fiscal year ended
     December 31, 1994 and incorporated herein by reference.      
       


     (b)  Reports on Form 8-K.            

          None. 
PAGE
<PAGE>
                                
        ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                
     Index to Consolidated Financial Statements and Schedule
                                


                                                             Page

Independent Auditors' Report                                  F-2

Financial Statements:

 Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3

 Consolidated Statements of Earnings for the years ended
   December 31, 1996, 1995 and 1994                           F-4

  Consolidated Statements of Stockholders' Equity for  the  years
ended
   December 31, 1996, 1995 and 1994                           F-5

 Consolidated Statements of Cash Flows for the years ended
   December 31, 1996, 1995 and 1994                           F-6

 Notes to Consolidated Financial Statements                   F-7


Financial Statement Schedule for the years ended
 December 31, 1996, 1995 and 1994:

   Schedule II  Valuation and Qualifying Accounts           F-15


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

PAGE
<PAGE>




                  INDEPENDENT AUDITORS' REPORT


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


We   have   audited   the  accompanying  consolidated   financial
statements  of Arrow-Magnolia International, Inc. and  subsidiary
as  listed  in  the accompanying index.  In connection  with  our
audits  of  the consolidated financial statements, we  also  have
audited  the  financial  statement  schedule  as  listed  in  the
accompanying index.  These consolidated financial statements  and
financial  statement  schedule  are  the  responsibility  of  the
Company's  management.   Our  responsibility  is  to  express  an
opinion  on these consolidated financial statements and financial
statement schedule based on our audits.

We  conducted  our  audits in accordance with generally  accepted
auditing  standards.  Those standards require that  we  plan  and
perform  the  audit to obtain reasonable assurance about  whether
the  financial statements are free of material misstatement.   An
audit  includes  examining, on a test basis, evidence  supporting
the  amounts  and  disclosures in the financial  statements.   An
audit also includes assessing the accounting principles used  and
significant  estimates made by management, as well as  evaluating
the  overall  financial statement presentation.  We believe  that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above  present  fairly, in all material respects,  the  financial
position of Arrow-Magnolia International, Inc. and subsidiary  as
of  December  31,  1996  and  1995,  and  the  results  of  their
operations  and  their cash flows for each of the  years  in  the
three-year  period  ended December 31, 1996, in  conformity  with
generally accepted accounting principles.  Also, in our  opinion,
the  related  financial statement schedule,  when  considered  in
relation to the basic consolidated financial statements taken  as
a   whole,  presents  fairly,  in  all  material  respects,   the
information set forth therein.


                               KPMG Peat Marwick LLP


Dallas, Texas
February 11, 1997
PAGE
<PAGE>
        ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                   Consolidated Balance Sheets
                   December 31, 1996 and 1995

<TABLE>
                    Assets                       1996       1995
<S>                                             <C>       <C>
Current assets:                                           
 Cash and cash equivalents                    $1,755,000   761,419
 Short-term investments                          300,000   690,051
 Trade accounts receivable, less allowance for            
  doubtful accounts of $245,521 in 1996 and    1,585,552  1,339,408
  $269,813 in 1995 (note 4)
 Inventories (note 4)                            769,977    681,825
 Deferred income taxes (note 6)                   83,170     91,430
 Other assets                                     19,801     23,867
        Total current assets                   4,513,500  3,588,000
Property and equipment, net (notes 2 and 5)      352,641    371,320
Intangible assets, net (note 3)                   96,011    110,560
Note receivable                                   40,000     40,000
Deferred income taxes (note 6)                    19,602     24,811
Other assets                                       1,000      1,000
                                              $5,022,754  4,135,691
     Liabilities and Stockholders' Equity                 
Current liabilities:                                      
 Current installments of long-term debt        107,483    $112,835
  note 5)                                           
 Accounts payable                               413,836     421,283
 Accrued liabilities                            199,806     183,080
 Income taxes payable                           200,452     174,754
        Total current liabilities               921,577     891,952
                                                          
Note payable (note 4)                           650,000     790,000
Long-term debt, excluding current installments            
 (note 5)                                       122,362     250,844
        Total liabilities                     1,693,939   1,932,796
Stockholders' equity (note 7):                            
  Preferred stock - par value $.10; 
   authorized 500,000
   shares; none issued                             -         -
  Common  stock  - par value $.10;  
   authorized 10,000,000
   shares;  issued and outstanding  
   2,373,120 shares in 1996 and                 237,312    115,760
   2,315,200 shares in 1995
 Additional paid-in capital                    1,347,748  1,385,840
 Retained earnings                             1,743,755    701,295
        Total stockholders' equity             3,328,815  2,202,895
                                              $5,022,754  4,135,691
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
        ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                
               Consolidated Statements of Earnings
                                
          Years ended December 31, 1996, 1995 and 1994
                                
<TABLE>                                
                                        1996      1995      1994
<S>                           <C>           <C>        <C>
Net sales                     $10,278,559  8,393,829  6,686,615
Cost of sales                   5,913,925  4,885,799  3,917,320
        Gross profit            4,364,634  3,508,030  2,769,295
                                                          
General and administrative 
expenses                        2,692,320  2,371,447  2,093,582
        Operating income        1,672,314  1,136,583    675,713
                                     
                                                          
Other income (expenses):                                  
 Interest expense                 (82,841)  (96,552)  (101,051)
 Gain on disposition of assets           -    2,500      1,867
 Interest income                   42,992    17,150      9,267
 Other income                      17,158    7,016           -
         Other expenses, net      (22,691)  (69,886)  (89,917)
                                                          
        Earnings before income 
        taxes                   1,649,623  1,066,697  585,796
                                                          
Income taxes (note 6)             607,163   387,623   224,732
        Net earnings           $1,042,460   679,074   361,064
                                      
                                                        
Earnings per common share (note 7):                       
 Net earnings                    $    .37       .25       .16
                                                          
 Weighted average shares 
 outstanding                    2,836,404   2,671,289  2,200,000
                                      
                                                          
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
        ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                
         Consolidated Statements of Stockholders' Equity
                                
          Years ended December 31, 1996, 1995 and 1994

<TABLE>
                                               Retained
                                               earnings   Total  
                    Common stock   Additional (accumula   stock
                                   paid-in       ted      holders
                      Shares   Amount  capital  deficit)   equity
<S>                   <C>        <C>     <C>     <C>       <C>    
                                                      
Balances  at December                                      
31, 1993 (note 7)    2,000,000 $200,000 800,000 (38,843)  961,157
                                                           
Net earnings                 -      -        -  361,064   361,064
Balance  at  
December 31, 1994    2,000,000 200,000  800,000 322,221 1,322,221
                                                           
10% stock dividend     200,000  20,000  280,000 (300,000)      -
                                                           
Issuance of common     115,200  11,520  190,080       -   201,600
stock for cash
                                                           
Net earnings                 -       -        -  679,074  679,074
Balances  at December                                      
31, 1995            2,315,200 231,520 1,270,080 701,295 2,202,895
  (note 7)            
                                                           
Exercise of stock        7,920     792     3,168    -       3,960
options
                                                           
Exercise of stock       50,000   5,000    57,500    -      62,500
warrants
                                                           
Expense resulting                                      
from issuance                -        -   17,000    -      17,000
of  stock warrants
(note 7)
                                                           
Net earnings                 -       -      - 1,042,460 1,037,460
                      
Balances  at 
December         2,373,120 $237,312 1,347,748 1,743,755 3,323,815
31, 1996 


See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
        ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                
              Consolidated Statements of Cash Flows
                                
          Years ended December 31, 1996, 1995 and 1994

<TABLE>

                                          1996      1995     1994
<S>                                     <C>         <C>      <C>
Cash flows from operating activities:                       
 Net earnings                          $1,042,460 679,074 361,064
  Adjustments to reconcile net  
  earnings to net cash provided by 
  operating activities:                        
    Depreciation and amortization        72,549    74,148 103,752
    Gain on disposition of property and      -     (2,500) (1,867)
     equipment
    Deferred income taxes                13,469   (18,817)  3,167
    Provision for doubtful accounts      236,632  193,838 187,871
    Compensation expense from issuance    17,000       -       -
     of stock warrants
    (Increase)  decrease  in  operating                    
     assets:
     Receivables                       (482,776) (663,583) (333,073)
     Inventories                        (88,152)  (71,212)  (78,499)
     Other assets                         4,066     11,458   18,936
    (Decrease) increase in operating                    
     liabilities:
     Accounts payable                    (7,447)   126,476  18,064
     Accrued liabilities                 16,726     53,270  45,111
     Income taxes payable                25,698     45,088 129,290
         Net cash provided by 
          operating activities           850,225    427,240 453,816

Cash flows from investing activities:                       
   Proceeds from sale of short-term     990,051        -        -
    investments
   Purchase of short-term investments   (600,000) (690,051)  -
  Acquisition of property and equipment  (39,321)  (30,905)(27,295)
  Proceeds from sale of property and 
   equipment                                  -      2,500  26,428
       Net cash provided by (used in)    350,730  (718,456)   (867) 
       investing activities             
                                                            
Cash flows from financing activities:                       
 Proceeds from issuance of note payable   34,487   200,000  703,838
 Repayments of note payable             (174,487) (100,000)(738,838)
 Proceeds from issuance of long-term         -      25,448  495,000
  debt
 Repayments of long-term debt           (133,834) (131,296)(552,997)
 Repayments of capital lease obligation      -        -     (20,473)
 Proceeds from issuance of common stock   66,460   201,600       -  
         Net cash provided by (used in)                    
          financing activities           (207,374) 195,752  (113,470)
                                                            
Net increase (decrease) 
 increase in cash                         993,581  (95,464)  339,479
 and cash equivalents
Cash and cash equivalents at 
 beginning of year                         761,419   856,883  517,404
Cash and cash equivalents at 
 end of year                            $1,755,000   761,419  856,883
                                         
                                         

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
        ARROW-MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                
           Notes to Consolidated Financial Statements
                                
                December 31, 1996, 1995 and 1994


(1)     Summary of Significant Accounting Policies

   (a)        Principles   of   Consolidation   and   Basis    of
       Presentation
   
      The   consolidated   financial   statements   include   the
       accounts  of  Arrow-Magnolia International,  Inc.  (Arrow)
       and   its   wholly-owned  subsidiary,  Bio/Dyne   Chemical
       Company   (Bio/Dyne)  (collectively  the  Company).    All
       significant  intercompany balances and  transactions  have
       been eliminated in consolidation.
   
   (b)     Nature of the Operations and Use of Estimates
   
      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 1996, 1995 or 1994.
   
      The  preparation  of consolidated financial  statements  in
       conformity  with generally accepted accounting  principles
       requires  management  to  make estimates  and  assumptions
       that   affect   the  reported  amounts   of   assets   and
       liabilities  and  disclosure  of  contingent  assets   and
       liabilities  at  the  date of the  consolidated  financial
       statements  and  the  reported  amounts  of  revenues  and
       expenses  during  the  reporting period.   Actual  results
       could differ from those estimates.
   
   (c)     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.  There were no cash equivalents  at  December
       31,  1995.  Cash equivalents at December 31, 1996  consist
       of  U.S.  treasury bills with original maturities of  less
       than three months.
   
      Cash  paid  for  interest during 1996, 1995  and  1994  was
       $82,841  $96,552  and $101,051, respectively.   Cash  paid
       for  federal income taxes during 1996, 1995 and  1994  was
       $356,310, $204,000 and $65,024, respectively.
  <PAGE> 
   (d)Short-term Investments
   
      Short-term  investments,  all of which  are  classified  as
       held  to maturity at December 31, 1996 and 1995, represent
       investments  in  bank  certificates of  deposit  and  U.S.
       Government  Treasury Bills.  The investments are  recorded
       at amortized cost, which approximates market value.
   
   (e)     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.
   
   (f)     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   betterments   are
       capitalized.
   
   (g)     Goodwill
   
      Goodwill,  which  represents the excess of  purchase  price
       over fair value of net assets acquired, is amortized on  a
       straight-line  basis  over  the  expected  periods  to  be
       benefited,  generally 40 years.  The Company assesses  the
       recoverability  of  this intangible asset  by  determining
       whether the amortization of the goodwill balance over  its
       remaining  life  can  be  recovered  through  undiscounted
       future  operating  cash flows of the  acquired  operation.
       The  amount  of goodwill impairment, if any,  is  measured
       based  on projected discounted future operating cash flows
       using  a  discount  rate reflecting the Company's  average
       cost  of  funds.  The assessment of the recoverability  of
       goodwill  will  be impacted if estimated future  operating
       cash flows are not achieved.
   
   (h)     Income Taxes
   
      Deferred  tax  assets  and liabilities are  recognized  for
       the  future  tax consequences attributable to  differences
       between  the  financial  statement  carrying  amounts   of
       existing  assets and liabilities and their respective  tax
       bases.   Deferred tax assets and liabilities are  measured
       using  enacted tax rates that will apply in the  years  in
       which  those  temporary differences  are  expected  to  be
       recovered  or settled.  The effect on deferred tax  assets
       and liabilities of a change in tax rates is recognized  in
       income in the period that includes the enactment date.
   <PAGE>
   (i)     Earnings per Share
   
      Earnings  per  share  is  computed based  on  the  weighted
       average  number of common shares outstanding  during  each
       year  (as  adjusted on a retroactive basis for  the  stock
       dividend  and  stock split discussed in  note  7  and  the
       dilutive effect of common stock equivalents in 1995)  plus
       the  dilutive  effect of outstanding common stock  options
       and  warrants  considered common stock  equivalents.   The
       difference between primary and fully diluted earnings  per
       share is not material.
   
   (j)Stock Option Plan
   
      Prior  to  January 1, 1996, the Company accounted  for  its
       stock  option  plan in accordance with the  provisions  of
       Accounting  Principles  Board  (APB)  Opinion  No.   25,
       Accounting  for  Stock  Issued to Employees,  and  related
       interpretations.  As such, compensation expense  would  be
       recorded  on the date of grant only if the current  market
       price  of  the  underlying  stock  exceeded  the  exercise
       price.   On January 1, 1996, the Company adopted SFAS  No.
       123,   Accounting  for  Stock-Based  Compensation.   which
       permits  entities to recognize as expense over the vesting
       period  the  fair value of all stock-based awards  on  the
       date  of  grant.  Alternatively, SFAS No. 123 also  allows
       entities  to  continue  to apply  the  provisions  of  APB
       Opinion  No. 25 and provide pro forma net income  and  pro
       forma  earnings  per share disclosures for employee  stock
       option  grants  made in 1996 and future years  as  if  the
       fair-value-based method defined in SFAS No. 123  had  been
       applied.   The  Company has elected to continue  to  apply
       the  provisions of APB Opinion No. 25 and provide the  pro
       forma disclosure provisions of SFAS No. 123.
   
   (k)Impairment  of Long-Lived Assets and Long-Lived  Assets  to
       Be Disposed Of
   
      The  Company  adopted  the  provisions  of  SFAS  No.  121,
       Accounting  for  the Impairment of Long-Lived  Assets  and
       for  Long-Lived Assets to Be Disposed Of,  on  January  1,
       1996.  This Statement requires that long-lived assets  and
       certain   identifiable   intangibles   be   reviewed   for
       impairment  whenever  events or changes  in  circumstances
       indicate that the carrying amount of an asset may  not  be
       recoverable.   Recoverability of assets  to  be  held  and
       used  is  measured by a comparison of the carrying  amount
       of  an  asset  to  future net cash flows  expected  to  be
       generated by the asset.  If such assets are considered  to
       be  impaired, the impairment to be recognized is  measured
       by  the  amount by which the carrying amount of the assets
       exceed  the  fair  value  of the  assets.   Assets  to  be
       disposed  of  are  reported at the lower of  the  carrying
       amount  or  fair  value less costs to sell.   Adoption  of
       this  Statement  did  not have a material  impact  on  the
       Company's  financial position, results of  operations,  or
       liquidity.
   <PAGE>
   (l)Fair Value of Financial Instruments
   
      The   Company  defines  the  fair  value  of  a   financial
       instrument as the amount at which the instrument could  be
       exchanged   in  a  current  transaction  between   willing
       parties.   Financial instruments included in the Company's
       financial  statements include cash and  cash  equivalents,
       short-term  investments, trade accounts receivable,  other
       receivables,  note receivable, other assets, note  payable
       and  long-term  debt.  Unless otherwise disclosed  in  the
       notes  to the 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.
   
(2)Property and Equipment

   Property  and equipment consist of the following  at  December
   31, 1996 and 1995:

                                Useful       1996      1995
                                 lives
                                                     
     Land                           -    $  95,310    95,310
     Buildings and         5 to 40 years   415,591   415,591
     improvements             
     Machinery and 
     equipment             3 to 10 years   292,943   276,719
     Furniture and fixtures 5 to 10 years  211,206   210,389
                                         1,015,050   998,009
       
     Less accumulated                     
     depreciation                         (662,409)  (626,689)
                                          $352,641    371,320
                                

(3)     Intangible Assets

   Intangible  assets consist of the following  at  December  31,
   1996 and 1995:
<PAGE>
                                Useful       1996      1995
                                 lives
                                                     
     Goodwill                 40 years    $110,500   110,500
     Customer lists            5 years      17,500    17,500
     Sales force               7 years      82,500    82,500
     Other                     8 years      10,500    10,500
                                           221,000   221,000
     Less accumulated                     (124,989) (110,440)
     amortization                       
                                          $ 96,011   110,560
                                           

(4)Note Payable

   The  note payable at December 31, 1996 is a revolving line  of
   credit  ($650,000 outstanding at December 31,  1996)  with  an
   asset-based  lender due on May 1, 1998.  The credit  agreement
   provides  for  a commitment from the lender of the  lesser  of
   $1,250,000 or the borrowing base as defined.  At December  31,
   1996, the unused portion of the commitment was $600,000.   The
   terms  of the credit agreement require the Company to maintain
   certain   minimum  financial  criteria.   The  note   requires
   monthly  payments  of  interest at  the  lender's  prime  rate
   (8.25%  at December 31, 1996) and is collateralized by certain
   accounts  receivable and inventories.  As the line  of  credit
   bears  interest  at  market  rates,  the  carrying  amount  of
   borrowings outstanding at December 31, 1996 approximates  fair
   value.

(5)Long-term Debt

   Long-term debt consists of the following at December 31,  1996
   and 1995:

                                               1996    1995
   Note  payable to a bank,   interest  at          
     prime (8.25% at December  31,  1996),  
     principal and interest of $8,250  payable 
     monthly, maturing in August 1999,
     collateralized by the Company's office
     and warehouse                            $215,0000   335,000
   Note payable to a bank in monthly          
     installments of $765, including interest 
     at 7.9%, maturing in July 1996, and 
     collateralized by an automobile                 -      5,352
   Note  payable  to  a  bank  in  monthly          
     installments of $707, including interest 
     at 7.9%, maturing September 1998,
     and collateralized by an automobile         14,845   23,327
                                                229,845  363,679
     Less current installments                  107,483  112,835
                                             $  122,362  250,844

   The  aggregate  maturities  of long-term  debt  subsequent  to
   December 31, 1996 are as follows:

          1997                               $107,483
          1998                                105,362
          1999                                 17,000

<PAGE>
(6)Income Taxes

   Income tax expense (benefit) for the years ended December  31,
   1996, 1995 and 1994 consists of the following:

                                        1996     1995     1994
                                                        
      U.S. federal - current           $557,008  378,754 194,315
      U.S. federal - deferred            13,469  (18,817)  3,167
      State - current                    36,686   27,686  27,250
                                       $607,163  387,623 224,732


   Income  tax  expense  for the years ended December  31,  1996,
   1995   and  1994  differs  from  the  "expected"  tax  expense
   (computed by applying the 34% U.S. federal corporate  rate  to
   earnings before income taxes) as follows:

                                        1996     1995     1994
                                                        
      Computed "expected" tax expense  $559,172  362,677 199,171
      Amortization of goodwill            5,253    3,994   5,450
      State   income  taxes,  net   of   24,213   18,273  17,985
      federal benefit
      Other                              18,525    2,679   2,126
                                       $607,163  387,623 224,732

   The  tax  effects of temporary differences that give  rise  to
   significant  portions of the deferred tax assets and  deferred
   tax  liabilities at December 31, 1996 and 1995  are  presented
   below:

                                                  1996   1995
                                                        
      Current deferred tax assets:                      
       Allowance for doubtful accounts        $83,477   91,737
       Other                                     (307)    (307)
                                              $81,170   91,430
                                                 
      Noncurrent deferred tax assets:                   
       Property and equipment depreciation     22,557   24,811
       Other                                   (2,955)       -
                                              $19,602   24,811

   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.  The Company expects the net deferred
   tax assets at December 31, 1996 to be realized as a result  of
   future taxable income.

<PAGE>
(7)Stockholders' Equity

   On  June 14, 1996, the Company declared a 2 for 1 stock  split
   effected  in  the form of a stock dividend.  As a result,  all
   share   and   per   share  information  in  the   accompanying
   consolidated   financial  statements  has  been  retroactively
   restated to give effect to the split.

   During  1994,  the  Company's Board of  Directors  approved  a
   nonqualified stock option plan (Plan) covering 440,000  shares
   of  common  stock.  Participants in the Plan are  selected  by
   the  Company's Board of Directors from the executive  officers
   and  other  key  employees of the Company.  The Plan  provides
   that  the option price per share and vesting period for  stock
   options  issued under the Plan are determined by the Company's
   Board of Directors.

   In  December  1994,  440,000 stock  options  were  granted  to
   certain  officers of the Company at an option  price  of  $.50
   per  share,  the  estimated fair market value  of  the  common
   stock  at  the date of grant.  These stock options were  fully
   exercisable at the date of grant.

   In  January  1995,  the Plan was amended  to  provide  for  an
   increase  in  the  number of shares subject  to  the  Plan  to
   550,000  shares and an additional 110,000 options were granted
   to  certain key employees.  These stock options were issued at
   an  option  price of $.50 per share, the estimated fair  value
   of  the  common stock at the date of grant, and vest in annual
   increments of 20% with the first 20% vesting occurring on  the
   date  of issuance.  At December 31, 1996, 7,920 of the options
   outstanding  under the Plan had been exercised and  36,000  of
   the 110,000 options were exercisable.

   On  May  15,  1995,  the Company issued stock  warrants  to  a
   certain   service   provider.    The   stock   warrants   were
   exercisable  to purchase up to 50,000 shares of the  Company's
   common  stock  at $1.25 per share, the estimated  fair  market
   value  of  the common stock at the date of grant.   The  stock
   warrants  were  fully exercisable at the date  of  the  grant.
   During 1996, all of the warrants were exercised.

   In   May  1996,  the  Company  issued  stock  warrants  to  an
   additional   service   provider.   The  stock   warrants   are
   exercisable  to purchase up to 40,000 shares of the  Company's
   common  stock at $2.25 per share.  The Company is  recognizing
   the  aggregate  excess of the market price over  the  exercise
   price  at date of grant as expense over the two year  term  of
   the  warrants.   The stock warrants were fully exercisable  at
   the  date of the grant in 10,000 share increments.  The  stock
   warrants  expire two years from the date of issuance with  new
   warrants  subject to issuance for any warrants  not  exercised
   prior  to the expiration date.  At December 31, 1996, none  of
   the warrants had been exercised.

<PAGE>
(8)Stock Options

   The  per  share  weighted-average fair value of stock  options
   granted  during 1995 was $.249 on the date of grant using  the
   Black   Scholes   option-pricing  model  with  the   following
   weighted-average assumptions:  expected dividend  yield  0.0%,
   risk-free  interest rate of 7.82%, and an expected life  of  7
   years.  There were no stock options granted during 1996.

   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 would have been reduced to  the  pro
   forma amounts indicated below:

                                          1996      1995
                                                  
      Net income:                                 
       As reported                    $1,042,460    679,074
       Pro forma                      $1,036,982    668,118
                

   Pro  forma  net income reflects only options granted  in  1996
   and   1995.    Therefore,  the  full  impact  of   calculating
   compensation cost for stock options under SFAS No. 123 is  not
   reflected in the pro forma net income amounts presented  above
   because  compensation  costs is reflected  over  the  options
   vesting  period  and  compensation cost  for  options  granted
   prior to January 1, 1995 is not considered.
PAGE
<PAGE>
                                                      Schedule II

        ARROW MAGNOLIA INTERNATIONAL, INC. AND SUBSIDIARY
                                
         Consolidated Valuation and Qualifying Accounts
                                
       Three years ended December 31, 1996, 1995 and 1994

<TABLE>
                          Balance  Charged              Balance
                            at        to                  at
                          beginni   costs    Deduction  end of
                            ng       and       s (1)    period
                            of     expenses
                          period       
<S>                       <C>        <C>       <C>       <C>
Year ended December  31,                                
1994 -
  Allowance for doubtful  $236,002   187,871   182,365    241,508
receivables              
                                                        
Year ended December  31,                                
1995 -
  Allowance for doubtful  $241,508  193,838   165,533    269,813
receivables              
                                                        
Year ended December  31,                                
1996 -
  Allowance for doubtful  $269,813  236,632   260,924    245,521
receivables             


(1) Charge-off of uncollectable accounts, less recoveries.

 </TABLE
PAGE
<PAGE>
                              SIGNATURES       

     Pursuant to the requirements of Section 13 or 15(d) of The
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunder duly authorized.                                

                              ARROW-MAGNOLIA INTERNATIONAL, INC.  
                               

                              By   /s/ Morris Shwiff              
                                 Morris Shwiff, President
                                             
Dated:  March 26, 1997       

     Pursuant to the requirements of The Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.  

Signature                Title                         Date       


/s/ Morris Shwiff   Director, Chairman of the     } 
Morris Shwiff       Board and President           }               
                    (Principal Executive Officer) }               
                                                  } 
/s/ Mark I. Kenner  Director and Executive        } 
Mark I. Kenner      Vice President                }    March      
                                                  }    26, 1997   
/s/ Fred Kenner     Director, Vice President,     } 
Fred Kenner         Secretary and Treasurer       }               
                    (Principal Financial and      }               
                    Accounting Officer)           }     
PAGE
<PAGE>
                                 INDEX TO EXHIBITS   

Number                   Exhibit                            Page  

3.1       Articles of Incorporation, as amended, of         (1)   
          Arrow-Magnolia International, Inc.  

3.2       Bylaws of Magnolia Enterprises, Inc.              (2)
  
10.19     Arrow-Magnolia International, Inc.                (3)   
          Amended and Restated Non-Qualified            
          Stock Option Plan.  

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

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

23.1      Consent of Independent Auditors.
           

(1)  Filed as Exhibit 3.1 to Arrow-Magnolia International, Inc.
     Form 10-K for the fiscal year ended December 31, 1988 and
     incorporated herein by reference.  

(2)  Filed as Exhibit 3.2 to Magnolia Chemical Company, Inc. From
     10-Q for the quarter ended June 30, 1982 and incorporated
     herein by reference.  

(3)  Filed as Exhibits 10.19, 10.20 and 10.21 to Arrow-Magnolia
     International, Inc. Form 10-K for the fiscal year ended
     December  31, 1994 and incorporated herein by reference.
<PAGE> 

</TABLE>