U.S. 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 30, 2000

                           Commission File No. 0-9478

                           SPECTRUM LABORATORIES, INC.
                 (Name of small business issuer in its charter)

Delaware                                                        95-4718363
--------                                                        ----------
(State or other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

18617 Broadwick Street
Rancho Dominguez, California                                       90220
(Address of principal executive offices)                         (Zip Code)

         Issuer's telephone number, including area code: (310) 885-4600

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                                  Common Stock
                                (Title of Class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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 [ X ].

      State issuer's revenues for its most recent fiscal year: $13,440,000

The aggregate market value of voting stock held by nonaffiliates of the
registrant is $179,030 as of February 28, 2001, based on the $2.00 per share
closing price for the Common Stock in the over-the-counter market on such date,
representing 89,515 shares held by nonaffiliates.

Number of shares of Common Stock outstanding as of February 28, 2001:  5,311,968

<PAGE>


                                TABLE OF CONTENTS
                            FORM 10-KSB ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 30, 2000
                           SPECTRUM LABORATORIES, INC.

Item No.                                                                    Page
--------                                                                    ----
PART I
   1.    DESCRIPTION OF BUSINESS                                              3
   2.    DESCRIPTION OF PROPERTY                                              7
   3.    LEGAL PROCEEDINGS                                                    7
   4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                  7
PART II
   5.    MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS             7
   6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATION                                           8
   7.    FINANCIAL STATEMENTS                                                 9
   8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE                                           9
PART III
   9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT                  10
   10.   EXECUTIVE COMPENSATION                                               11
   11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT       12
   12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                       13
   13.   EXHIBITS AND REPORTS ON FORM 8-K                                     13

                                       2
<PAGE>


THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS THE REALIZATION OF WHICH MAY
BE IMPACTED BY CERTAIN FACTORS INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN
ITEM 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL
-------

Spectrum Laboratories, Inc. (the Company or Spectrum) was incorporated in
California on June 5, 1980 under the name Immutron, Inc. On November 23, 1982,
the Company changed its name to Spectrum Laboratories, Inc. In September 1998,
Spectrum Medical Industries, Inc. (SMI) was merged into the Company and the
Company was reincorporated in Delaware. Spectrum Chromatography, Inc. and
Spectrum Europe B.V., formerly subsidiaries of SMI, are now wholly-owned
subsidiaries of the Company.

BUSINESS
--------

The Company is a leader in the development and commercialization of proprietary
tubular membranes and membrane devices for existing and emerging life sciences
applications. These products are used by life science research laboratories for
emerging applications for molecular/biological separations, fluid purification
and cell expansion/bioreactors. The Company's platform technology allows it to
create membranes and devices to meet a wide range of performance criteria and to
integrate the devices into systems for life sciences applications. The Company's
fundamental strengths are based on the control of material, membrane
characteristics, surface modification, device properties, biological utility and
cell maintenance know-how.

The Company's proprietary products are used for research by OEM manufacturers
and for Process Separations of pharmaceutical compounds. Most laboratory
products are sold through laboratory distributors. OEM and private label
products are sold primarily to manufacturers. They include re-sale versions of
the Company's laboratory products as well as specially designed membrane
products. Process or scale-up separation products are sold to pharmaceutical and
diagnostic manufacturers for process development and manufacturing. The Process
Separation products also include the necessary systems for operating the
separation application. Both OEM and Process products are sold directly by the
Company. The Company's products and trademarks, Spectra/Por, Cellmax and KrosFlo
are well-known and used throughout the world for purification of proteins, cells
expansion, encapsulation and diagnostic particles separation. Company personnel
work closely with existing and potential customers to develop new Mass Transfer
Membranes (MTM) products, applications and devices for the research markets.

In addition, the Company has entered into strategic partnerships, licensing
agreements and collaborative arrangements with leading corporations and research
scientists. Some of these ventures include:

The Company is marketing Cellmax Implants for rapid drug screening. This
technology was developed at the National Cancer Institute and Rhode Island
Hospital. This fast-track drug screening and testing method greatly reduces the
use of animals in new drug discovery, drug efficacy screening and drug dosing.

The Company markets, sells and develops MTM perfusion systems for human cell
expansion. The perfusion systems are sold under the trade name CELLMAX(R) and
have been successfully used to expand and maintain mammalian cells including
human cell lines.

The Company has a joint venture with Stanford Research International and Edison
Power Research Institute (EPRI). This venture, Facilichem, Inc., was established
to commercialize new membrane systems for major industrial separations while
greatly reducing current costs. The systems will be marketed for waste stream
separators for environmental markets, chiral molecule separations for
pharmaceutical use and for food and beverage separation. This technology
provides the means to add or remove trace substances which contribute to and/or
improve flavor and taste.

                                       3
<PAGE>

Facilichem, Inc. was awarded a two-million dollar grant in November 1998 by the
Advanced Technology Program (ATP) of the National Institute of Standards and
Technology to commercialize its proprietary separation systems. Spectrum is the
exclusive supplier of membranes to Facilichem, Inc.

In January, 2001, the Company acquired the patents and related technology for
Supported Polymeric Liquid Membrane (SPLM) from Pharmacia Corporation. This
replaced the exclusive license that had been acquired in 1999 from Monsanto Co.,
a subsidiary of Pharmacia. The Company is developing and plans to market
laboratory and industrial products using this technology for the preferential
extraction of organic compounds from dilute aqueous solutions and removal and
mitigation of environmental pollutants from potable water.

The Company's MTM devices, loaded with hepatocytes (liver cells) have been used
successfully as liver-assist devices for patients suffering from acute liver
failure. The device provides a life sustaining "bridge" to patients suffering
from fulminant liver failure who are candidates for a liver transplant or until
their own liver regenerates and recovers. By providing MTM's devices and systems
to clinical scientists, the Company believes that its products will be part of
applications and protocols for therapies undergoing the regulatory approval
process controlling such therapies. The Company's objective is to develop a
strategic partnership for this technology.

PRODUCTS
--------

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

The Company manufactures and markets many types of porous membranes used to
concentrate, separate and purify dissolved or suspended molecules. The Company
is a major manufacturer of hollow fiber membrane products whose applications
include: point-of-use water filtration; gas filtration for semiconductor
blow-off guns, plasma gas cauterizing devices, insufflator kits for endoscopic
surgery; drug filtration for surgical eyewash solutions and pain management
parenterals.

The Company is a market leader in supplying dialysis membranes for protein
concentration to the research laboratory market. The purification and separation
of components in fluid streams is a key element in biomedical research,
molecular biology and clinical diagnostics.

On October 1, 1996, a subsidiary of the Company, SLI Acquisition Corp.,
purchased certain assets of Cellco, Inc., providing artificial capillary systems
to academic, pharmaceutical, laboratory and clinical research markets involved
in the expansion and maintenance of human and animal cells. These are closed
systems that minimize the possible contamination encountered with other culture
devices.

OPERATING ROOM (OR) DISPOSABLES

Disposable OR products consist of sterile surgical drapes for orthopedic and
arthroscopic surgical procedures, sterile camera covers, rubber elastic bandages
(sterile and non-sterile), Esmarch Elastic Bandages, and a tamper-resistant
container system for use in harvesting bone and tissue for human transplantation
and other surgical specialty products.

MARKETS AND METHODS OF DISTRIBUTION
-----------------------------------

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

The Company has customers worldwide for its hollow fiber membrane and dialysis
products. The customers include pharmaceutical and diagnostic manufacturers,
medical device manufacturers, laboratories, laboratory distributors and research
institutions. Spectrum's cell culture and process filtration products are also
sold to customers worldwide, which are comprised of academic, research,
pharmaceutical, laboratory, clinical research companies and institutes. Domestic
and foreign sales are made through direct sales and distributors.

                                       4
<PAGE>

OPERATING ROOM (OR) DISPOSABLES

The three major product groups are: Operating Room Equipment Drapes, Orthopedic
Soft Goods and Esmarch Bandages.

The products are distributed through a number of channels including important
National and Regional Catalog Houses, OEM and Private Label Accounts, Regional
OR Specialty Distributors, Custom Procedure Tray Manufacturers and Direct Sales
to Institutions and International Distributors. Nearly all Operating Room
Equipment Drapes are sold in sterile ready-to-use format. OR Drapes are sold
primarily through OEM and Private label accounts, through Regional OR Specialty
Distributors and through Regional and National Catalog Houses. Over the past few
years, the importance of OR Specialty Distributor sales has declined while OEM,
Private Label and Catalog House sales have increased. OR Drapes constitute
nearly all international sales and approximately half of direct sales.
Orthopedic Soft Goods are primarily sold through Regional and National Catalog
Houses and Procedure Tray Manufacturers. Approximately one-third of Orthopedic
Soft Goods sales are in non-sterile, bulk format primarily to Tray
Manufacturers. Essentially no Soft Goods and Esmarch Bandages are sold
internationally. Esmarch Bandages are sold through Catalog Houses, Regional OR
Specialty Distributors, Procedure Tray Manufacturers and Private Label. The
Company does not employ its own sales force but uses stocking distributors
capable of supplying product delivery on a local level.

COMPETITIVE FACTORS
-------------------

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

The Company's ability to sell its products is subject to competitive factors
that include price, quality, timely delivery and competition from companies with
greater resources. The Company's membrane and membrane devices compete with AG
Technologies, Pall Corporation, Sartorius GMBH, and Millipore Corporation in the
laboratory products area. Laboratory products are price and performance
competitive with other products for media sterilization. OEM and private label
products offer high surface area in compact housings in comparison with
competing products. Process products are offered as disposables, single use in
competition with traditional tangential flow devices which are cleaned and
re-used. Tangential flow products are attractive to users who have critical
applications where single use will ensure optimum performance and/or simplify
the validation of the process for FDA approval.

OPERATING ROOM (OR) DISPOSABLES

There are distinctly different competitors among its medical disposable product
lines. Significant consolidation has taken place recently in the OR Equipment
Drape business. The major competitors offering a full line of OR Equipment
Drapes include Microtek Medical, Medical Technique Instruments, MTI, Zeiss and
Advance Medical Designs. Each manufacturer has niches in either a specific type
of equipment drape or specific accounts with the exception of Microtek which,
with over 50% of the market share, is the market leader with a strong presence
in all niches. The Company has been most effective in competing with its Video
Camera Drape line particularly on the basis of quality and price. Orthopedic
Soft Goods are similarly consolidating but remains very fragmented. Major
competitors include Alba, Balfour, Kimberly Clark and DeRoyal Industries among
others. Esmarch Elastic Bandage is produced by a small number of non-medical
rubber producers who then sell bulk non-sterile product to medical device firms
for packaging and sterilization. As a result, there are numerous competitors
distributing Esmarch Bandages but the range of offerings is relatively limited
with competition being primarily driven by price.

Companies such as Allegiance Healthcare and Baxter Healthcare Corporation
dominate the market with products that include surgical extremity drapes as part
of an integrated "procedure pack," both custom and standard, for specific types
of procedures, (e.g., orthopedic surgery or arthroscopic or cardiovascular
surgical cases).

The Company manufactures a rubber elastic bandage that does not require the need
for metal clips. Currently, the market is dominated by such competitors as
Becton Dickinson, producers of ACE(R) bandages, Johnson & Johnson, producers of
Dyna-Flex(R) and Kendall, producers of Tensor(R), all of which have greater
resources than the Company.

                                       5
<PAGE>

RAW MATERIALS AND SUPPLIES
--------------------------

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

The Company purchases common raw polymers and a variety of casting solvents from
several approved suppliers. The Company uses these materials to formulate and
manufacture several different kinds of proprietary membranes for specific
separation and purification processes in the Life Sciences field. Additionally,
the Company purchases commercially available membranes for certain applications
from several qualified suppliers. The Company has not experienced difficulty in
obtaining the necessary raw materials and supplies to conduct its business. Many
membranes are assembled into housings that are molded from commonly available
plastic resins by third party molders using molds owned by the Company.
Membranes are often affixed to the housings by means of proprietary potting
resins supplied by two independent suppliers that are covered by an industry
cooperative disaster recovery plan. The plan allows the suppliers to manufacture
the resins in the event of an interruption of supply. Membranes are also
pre-assembled into ready-to-use devices or marketed as pre-packaged finished
products to research laboratories.

Spectrum is dependent on a limited number of suppliers for hollow fiber membrane
products but has not experienced any difficulty in obtaining necessary supplies.

OPERATING ROOM (OR) DISPOSABLES

The principal raw materials used in producing sterile surgical drapes and
elastic bandages are yarn, synthetic latex and plastic film. There are several
suppliers in the United States for yarn. The Company is dependent on a limited
number of suppliers for plastic film but has not experienced any difficulty in
obtaining necessary supplies, and none are presently anticipated.

PATENTS AND TRADEMARKS
----------------------

The Company holds a number of trademark registrations for its products, some of
which are closely identified with the Company, such as the Spectra/Por
trademark. The Company also owns or licenses numerous issued patents and pending
patents that expire at various dates through the year 2019. Some of the
Company's patents or patent estates include: hollow fiber syringe tip filter,
rapid drug screening, membrane surface modification chemistries, liquid phase
separation membranes, apparatus for forming a rolled tubular fabric article,
surgical extremity drape and a video camera drape. The Company acquired the
rights to the Cellmax trademark and all related patents, including a patent for
serum-free production of packaged viral vector. Fundamental core technology is
kept as trade secrets. Employees and vendors are covered by non-disclosure
agreements.

A finding of invalidity or unenforceability of certain of the Company's patents
could have a materially adverse effect on the Company's business.

GOVERNMENT REGULATIONS
----------------------

The Food and Drug Administration (the "FDA") and the California Food and Drug
Bureau ("CFDB") regulate the manufacture and quality control procedures of
certain of the Company's products. Compliance with FDA and CFDB regulations is a
significant expense but the Company believes that such expenses are costs of
doing business in the industry and that the Company's expenses are similar to
those of other companies in the business.

In addition to regulations enforced by the FDA and the CFDB, the Company is also
subject to regulations under the Environmental Protection Act, the Occupational
Safety and Health Act, and other present and potential supranational, foreign,
Federal, state and local regulations. Compliance with any of these has not had a
material effect on the capital expenditures, operations or competitive position
of the Company to date. The Company adheres to the strict provisions of its ISO
9001 certification status.

                                       6
<PAGE>

The Company cannot predict whether future changes in government regulations
might increase its cost of conducting business or affect the time required to
develop and introduce new products.

DEPENDENCE UPON FEW CUSTOMERS
-----------------------------

The Company does not believe that its business would be adversely affected by
the loss of any individual customer or small group of customers. During the 2000
and 1999 fiscal years, two distributors accounted for 10% or more of the
Company's total sales which were approximately 14% and 15% in 2000 and 1999,
respectively for one dealer, and were approximately 12% in 2000 and 11% in 1999
for another. The Company's sales to dealers are proprietary branded products
which would be resourced from other dealers or directly from the Company if a
specific dealer or dealers fail to supply the Company's products.


RESEARCH AND PRODUCT DEVELOPMENT
--------------------------------

The Company incurred research and product development expenses of approximately
$677,000 in 2000 and $662,000 in 1999. Research and product development
functions are particularly important for the Company's future growth.

EMPLOYEES
---------

On December 30, 2000, the Company had 120 employees, of which 115 were full-time
employees.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company's executive offices are located at 18617 Broadwick Street, Rancho
Dominguez, California. All facilities used by the Company are leased, in good
condition and are adequate for the Company's present operating requirements.
Production and administrative facilities are located in California and Texas.
The Company has a sales and distribution facility in The Netherlands.

Information regarding the Company's major facilities is as follows:

<TABLE>
<CAPTION>
                                                                          Lease        Monthly
      Location                  Principal Usage         Sq. Feet       Term. Date       Rental
------------------              ---------------        ----------      ----------    -------------
<S>                             <C>                      <C>              <C>         <C>
Rancho Dominguez, CA            Administration
                                and Manufacturing        55,000           7/05        $ 27,750
Dallas, TX                      Manufacturing            20,000          12/03           5,833
Houston, TX                     Manufacturing             9,975           8/03           4,090
Breda, The Netherlands          Sales                     1,400          12/02           2,035

</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's Common Stock is currently traded on the over-the-counter market
with trading prices quoted in the Over the Counter (OTC) Bulletin Board.

                                       7
<PAGE>

The following table sets forth the high and low market prices for the last two
years. The quotations shown represent inter-dealer prices without adjustment for
retail markups, markdowns or commissions and do not necessarily reflect actual
transactions.

                2000                              High                  Low
                ----
                First Quarter                   $ 1 3/4               $ 1 1/4
                Second Quarter                    2 1/8                 1 1/4
                Third Quarter                     1 7/8                 1 1/2
                Fourth Quarter                    1 3/4                 1 1/2

                1999
                ----
                First Quarter                   $  1/16               $   1/16
                Second Quarter                      1/8                   1/16
                Third Quarter                     2                     1
                Fourth Quarter                    3 1/8                 1 1/16

No dividends have been declared or paid by the Company since inception.
Additionally, the Company's financing agreements with the bank prohibit the
payment of dividends without the bank's approval. The Company intends to employ
all available funds for development of its business and, accordingly, does not
intend to pay cash dividends in the foreseeable future.

As of December 30, 2000, the number of holders of record of the Company's Common
Stock was 753.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following discussion relates to the Company and its majority-owned
subsidiaries, SLI Acquisition Corp. (SLIAC), Spectrum Europe B.V. (Spectrum
B.V.) and Spectrum Chromatography, Inc. (Chromatography).


RESULTS OF OPERATIONS - FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999

Selling, general and administrative expenses decreased in fiscal year 2000 by
approximately 14% from the prior year. The primary reasons for the decrease were
lower rent and relocation expenses of approximately $163,000 related to the
relocation, in the second half of 1999, of two of the Company's California
facilities to a new California facility, lower product catalog and brochure
costs of approximately $75,000, and a write-down, in 1999, of an investment of
$100,000. Product catalog and brochure costs may be higher in fiscal 2001 as
compared to fiscal 2000. The relocation of the Company's other California
facility to the new facility took place in early 2001.

There were income tax benefits for 2000 and 1999 primarily as a result of the
re-valuation of the estimated required valuation allowance on deferred tax
assets as discussed below.

Based on management's estimate of the probability of realization of deferred tax
assets, previous valuation allowances of $700,000 and $787,000 were reversed in
fiscal 2000 and fiscal 1999, respectively. The Company's tax rate in future
years is expected to be approximately 40% of income before income taxes.

In assessing the realizability of deferred tax assets, management has estimated
that it is more likely than not that approximately $1,500,000 will not be
realized. This valuation allowance represents a portion of net operating loss
carryforwards attained through a prior business acquisition. Tax law limits the
use of an acquired entity's net operating loss carryforwards to subsequent
taxable income of the consolidated entity. Management will continue to evaluate
the realizability of the deferred tax assets by assessing the need for and
amount of a valuation allowance.

                                       8
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2000, the Company generated approximately $2,263,000 of cash from
operating activities. Net income before non-cash expenses of depreciation and
amortization was the primary source of these cash flows. Cash outlays primarily
for debt reduction of approximately $823,000 and for equipment and leasehold
improvements of approximately $1,003,000 resulted in a net increase in cash for
the year of approximately $571,000. A significant portion of the capital
expenditures was related to the relocation of the Company's California
facilities into one California facility.

The Company has a credit agreement with a bank that prohibits payment of cash
dividends without prior bank approval. The Company does not intend to pay cash
dividends in fiscal 2001. In January, 2001, the credit agreement was amended to
provide up to $900,000 of additional borrowings for certain purposes as defined
in the amendment.

The Company's management believes that cash on hand, cash expected to be
generated from operations and, to any extent necessary, usage of the
availability of additional borrowings will be sufficient to meet cash
requirements for fiscal 2001.

In October 1996, a subsidiary of the Company, SLIAC, acquired certain assets and
liabilities of Cellco, Inc. in exchange for 10,000 shares of SLIAC's preferred
stock valued at $2,000,000 for redemption purposes. At December 30, 2000, there
is $1,755,000 of the preferred stock still outstanding. Beginning October 1,
2000, and continuing until September 30, 2001, the holders of the preferred
stock have the right to put their stock to SLIAC for an aggregate price of
$1,755,000. In the event SLIAC is combined with the Company and the combined
company completes an underwritten offering, the preferred stockholders have the
right to exchange such stock for 7% of the newly combined company. Management
anticipates that this subsidiary will be liquidated prior to December 31, 2001,
if the put is exercised and the subsidiary does not perform under the put. The
put obligation is that of the subsidiary and not the Company.

ITEM 7.  FINANCIAL STATEMENTS

The financial statements in response to this Item are submitted in a separate
section of this Report. The Index to the financial statements is as follows:

INDEPENDENTS AUDITORS' REPORT                                                F-1

FINANCIAL STATEMENTS
    Consolidated balance sheet                                               F-2
    Consolidated statements of income                                        F-3
    Consolidated statements of stockholders' equity                          F-4
    Consolidated statements of cash flows                                    F-5
    Notes to consolidated financial statements                               F-6


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

None

                                       9
<PAGE>

                                    PART III

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

Directors
---------

Named below are directors serving until an Annual Meeting of Shareholders and
until their respective successors are elected and qualified.

<TABLE>
<CAPTION>

Name                                Age      Director Since       Position
----                                ---      --------------       --------
<S>                                 <C>      <C>                  <C>
Roy T. Eddleman                     61       July 30, 1982        Chairman,  CEO & Director

Walter J. Lack, J.D.                53       January 2, 1999      Secretary & Director

Thomas V. Girardi, J.D.             61       January 2, 1999      Director

Jay Henis, Ph.D.                    62       January 2, 1999      Director

Jack Whitescarver, Ph.D.            63       April 1, 1985        Director


Executive Officers of The Company
---------------------------------

Roy T. Eddleman                     61       July 30, 1982        Chairman & CEO

F. Jesus Martinez                   61             ----           President & COO

Malcolm Morrison, Ph.D.             58             ----           Vice President Operations

Robert J. Sudol                     53             ----           Vice President Sales

Larry D. Womack                     61             ----           Vice President Finance & CFO

</TABLE>

Business Experience of Directors and Executive Officers
-------------------------------------------------------

Roy T. Eddleman was elected Chairman of the Board and Chief Executive Officer of
the Company on July 30, 1982. Mr. Eddleman has been engaged primarily as a
private investor and entrepreneur for more than twenty years.

Walter Lack has been employed as an attorney in private practice for over twenty
years. He is also a Director of HCCH Holdings, Inc., Microvision, Inc. and
Supergen, Inc.

Thomas Girardi has been employed as an attorney in private practice for over
twenty years.

Jay Henis is a practicing scientist and for ten years has been President and CEO
of Henis Technologies, Inc. He is also President and CEO of Orex
Pharmaceuticals.

Jack Whitescarver is the Acting Director for the Office of AIDS Research at the
National Institutes of Health in Bethesda, Maryland and has been there more than
twelve years.

                                       10
<PAGE>

F. Jesus Martinez has been Chief Operating Officer and President of the Company
since September, 1995. Mr. Martinez held the position of Vice President of R&D
and Operations from August 1989 to September 1995. He has held senior management
positions at Baxter Healthcare Corporation, National Medical Care, Minntech
Corporation and is inventor or co-inventor of over twenty patents in medical
devices.

Malcolm Morrison has been employed by the Company since January 1985. Prior to
becoming Vice President Operations in October, 1998, he was Director of Quality
Assurance and Regulatory Affairs. From 1985 to September 1998, he was Manager of
Quality Assurance and Regulatory Affairs.

Robert Sudol joined the Company in June 1998 as Vice President/General Manager
for Hospital Products. He became Vice President Sales in October 1999.
Previously he was President of Cyberdent, Inc. for one and one half years and
Vice President of American CareSource for two and one-half years.

Larry Womack joined the Company as Controller in June 1997 and became Vice
President Finance and Chief Financial Officer in February, 1999. He was formerly
employed, for four years, by Unique Stamping & Coating, Inc. and was Vice
President Finance.

There are no family relationships between any of the Company's directors and
officers. There are no arrangements or understandings between any director and
any other person pursuant to which any person was elected or nominated as a
director.

The Company had no pension, retirement, annuity, savings or similar benefit
plans in 2000. Directors are not compensated for their services on the Company's
Board of Directors.

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth the annual compensation paid and accrued by the
Company during its last three fiscal years to executive officers who were paid
in excess of $100,000 including cash and issuance of securities:

<TABLE>
<CAPTION>
                                                                         LONG TERM
                                 ANNUAL COMPENSATION                    COMPENSATION
                                 -------------------                    ------------
                                                                                  STOCK
                                                               RESTRICTED        OPTIONS
NAME AND POSITION            YEAR       SALARY     BONUS      STOCK AWARDS          #         LTIP     ALL OTHER(1)
-----------------          ------------------------------    ---------------------------------------   ------------
<S>                          <C>      <C>       <C>          <C>                 <C>          <C>        <C>
Roy T. Eddleman              2000     $160,000  $100,000                                                 $331,319
Chief Executive Officer      1999      160,000   125,000                                                  335,337
                             1998      160,000                                                            560,951

F. Jesus Martinez            2000      145,000
President                    1999      145,000
                             1998      145,000                                   265,599
</TABLE>

(1)      Consulting fees for services rendered in connection with product design
         and royalties of 7% on sales of certain products, as follows:

                  Year              Consulting               Royalties
                  ----              ----------               ---------
                  2000              $       -                $ 331,319
                  1999                      -                  335,337
                  1998                 211,500                 349,451

The following table sets forth information relating to stock options held by the
Company's executive officers as of December 30, 2000:

                                       11
<PAGE>

<TABLE>
<CAPTION>
                            Number of Securities Underlying          Value of Unexercised
                                Unexercised Options                  In-the-Money Options

Name                             Exercisable/Unexercisable         Exercisable/Unexercisable
----------------------      -------------------------------        ----------------------------
<S>                                 <C>                               <C>
F. Jesus Martinez                   244,207/21,392                    $303,000/$26,000
President

</TABLE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock at December 30, 2000 by (i) all persons
known by management to be beneficial owners of more than 5% of its Common Stock,
(ii) all directors and nominees and (iii) all directors and nominees and
officers of the Company as a group:

                                           Amount and Nature           Percent
Name and Address                      of Beneficial Ownership (1)     of Class
-------------------------------     -------------------------------   ---------

Roy T. Eddleman                               4,320,128                 81.3
18617 Broadwick Street
Rancho Dominguez, CA 90220

Thomas V. Girardi, J.D.                         800,002                 15.1
1126 Wilshire Blvd.
Los Angeles, CA  90017

Jay Henis, Ph.D.                                  7,550 (A)               .1
501 Marford Drive
St. Louis, MO  63141

Walter J. Lack, J.D.                            102,323                  1.9
10100 Santa Monica Blvd.
Los Angeles, CA  90067

Jack Whitescarver, Ph.D.                          7,550 (A)               .1
4301 Massachusetts Ave. NW #6002
Washington, D.C.  20016

F. Jesus Martinez                               246,420 (A)              4.4
18617 Broadwick Street
Rancho Dominguez, CA  90220

All directors and officers as a               5,503,605 (B)             98.4
   group (9 in number)


(1)      All amounts are amounts of ownership of common stock of the Company
         unless otherwise indicated

(A)      Entire amount is amount of exercisable stock options

(B)      Includes 265,120 exercisable stock options

                                       12
<PAGE>

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company had transactions with related parties as follows:
<TABLE>
<CAPTION>
                                                                        2000         1999
                                                                        ----         ----
        <S>                                                          <C>          <C>
        Expenses (income) related to transactions with the
          Company's majority shareholder:
                Royalties (1)                                        $331,319     $335,337
                Rental of facilities owned by the shareholder (2)                  218,968
                Interest income on advances (3)                                     (2,713)
        Expenses for consulting services to a firm which
           employs a member of the Board of Directors                  15,000        7,500

</TABLE>

         The majority shareholder has personally guaranteed the Company's bank
loan up to $2,000,000.

(1)      7% fee on sales of certain products by the Company

(2)      These leases terminated on December 31, 1999

(3)      4% interest charges on outstanding balance


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
------------

Exhibit No.                         Description

3.1               Articles of Incorporation of Registrant (incorporated by
                  reference to Exhibit 4.1 filed with Registrant's Registration
                  Statement on Form S-2, Registration No. 2-68999)

3.2               Amendment to Article I of the Articles of Incorporation of
                  Registrant (incorporated by reference to Exhibit 3.2 filed
                  with Registrant's Report on Form 10-K for the fiscal year
                  ended December 31, 1982, Commission File No. 0-9478)

3.3               Bylaws of Registrant (incorporated by reference to Exhibit 4.2
                  filed with Registrant's Registration Statement on Form S-2,
                  Registration No. 2-68999)

3.4               Amendment to Article III, section 2 of Registrant's Bylaws
                  (incorporated by reference to Exhibit 3.3 filed with
                  Registrant's Report on Form 10-K for the fiscal year ended May
                  31, 1982, Commission File No. 0-9478)

3.5               Amendment to Article IV, Section 6 and Section 7 of the
                  Registrant's Bylaws (incorporated by reference to Exhibit 3.4
                  filed with Registrant's Report on Form 10-K for the fiscal
                  year ended May 31, 1982, Commission File No. 0-9478)

3.6               Articles of Amendment to Registrant's Articles of
                  Incorporation increasing authorized stock to 25,000,000 shares
                  (incorporated by reference to Registrant's Schedule 14C-2
                  Information Statement, Exhibit A, filed with the Commission on
                  October 19, 1996, Commission File No. 0-9478)

                                       13
<PAGE>

3.7               Certificate of Ownership of Microgon into Spectrum
                  Laboratories (incorporated by reference to Exhibit 2B to the
                  Registrant's Form 8-K/A on October 15, 1996, Commission File
                  No. 0-9478)

3.8               Reorganization Agreement, dated September 30, 1998, between
                  Spectrum Laboratories, Inc., and Spectrum Medical Industries,
                  Inc. (incorporated by reference to Exhibit 2 to the
                  Registrant's Form 8-K/A filed November 18, 1998, Commission
                  File No. 0-9478)

10.1              Amendment to Investment and Loan Agreement dated August 1,
                  1995 among the Company, Microgon and certain preferred
                  shareholders of Microgon (incorporated by reference to Exhibit
                  2A to the Registrant's Form 8K/A filed on October 15, 1995,
                  Commission File No. 0-9478)

10.2              Stock Option Plan adopted October 11, 1996 (incorporated by
                  reference to Exhibit B to Registrant's filing of Schedule
                  14-2, filed with the Commission on October 9, 1996)

10.3              Registrant's purchase agreement of Cellco, Inc. (incorporated
                  by reference to Exhibit 10.14 with Registrant's Form 8-K dated
                  November 1, 1996, Commission File No. 0-9478)

10.4              Credit agreement, dated as of December 22, 1998, between
                  Registrant and City National Bank (incorporated by reference
                  to Exhibit 10.18 filed with Registrant's report on Form 10-KSB
                  for fiscal year ended January 2, 1999, Commission File No.
                  0-9478)

10.5              Incentive Agreement dated August 10, 1998, between Spectrum
                  Medical Industries, Inc., the Registrant and F. Jesus Martinez
                  and Roy T. Eddleman (incorporated by reference to Exhibit
                  10.19 filed with Registrant's report on Form 10-KSB for fiscal
                  year ended January 2, 1999, Commission File No. 0-9478)

10.6              Sublease agreement dated January 19, 1999 between Millipore
                  Corporation and Spectrum Laboratories, Inc. (incorporated by
                  reference to Exhibit 10.20 filed with Registrant's report on
                  Form 10-KSB for fiscal year ended January 1, 2000, Commission
                  File No. 0-9478)

10.7              First amendment, dated July 14, 1999, to the credit agreement,
                  dated December 22, 1998, between the Company and City National
                  Bank (incorporated by reference to Exhibit 10.21 filed with
                  Registrant's report on Form 10-KSB for fiscal year ended
                  January 1, 2000, Commission File No. 0-9478)

10.8              Second amendment, dated July 1, 2000, to the credit agreement,
                  dated December 22, 1998, between the Company and City National
                  Bank

10.9              The Registrant's Year 2000 Stock Option Plan

10.10             Third amendment, dated January 8, 2001, to the credit
                  agreement, dated December 22, 1998, between the Company and
                  City National Bank

10.11             Royalty Agreement, dated June 1, 1976, between Roy T. Eddleman
                  and Spectrum Medical Industries

16                Letter on change in certifying accountant (incorporated by
                  reference to Exhibit 16 filed with Registrant's report on Form
                  10-KSB for fiscal year ended January 2, 1999, Commission File
                  No. 0-9478)

                                       14
<PAGE>

21                Subsidiaries of the Registrant (incorporated by reference to
                  Exhibit 21 filed with Registrant's report on Form 10-KSB for
                  fiscal year ended January 2, 1999, Commission File No. 0-9478)


(b) Reports on 8-K
------------------

No reports on Form 8-K were filed during the quarter ended December 30, 2000 by
the Registrant.

                                       15
<PAGE>


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 30, 2001.

SPECTRUM LABORATORIES, INC.


By: /s/ Roy T. Eddleman
    ----------------------
Roy T. Eddleman
Chairman and Chief Executive Officer



By: /s/ Jay Henis
    ----------------------
Jay Henis
Director



By: /s/ Jack Whitescarver
    ----------------------
Jack Whitescarver
Director



By: /s/ F. Jesus Martinez
    ----------------------
F. Jesus Martinez
President and Chief Operating Officer



By: /s/ Larry D. Womack
    ----------------------
Larry D. Womack
Vice President Finance and
Chief Financial Officer



                                       16
<PAGE>










                           SPECTRUM LABORATORIES, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 2000



<PAGE>











                                 C O N T E N T S


                                                                           Page
--------------------------------------------------------------------------------

INDEPENDENT AUDITOR'S REPORT                                                F-1
--------------------------------------------------------------------------------

FINANCIAL STATEMENTS
  Consolidated balance sheet                                                F-2
  Consolidated statements of income                                         F-3
  Consolidated statements of stockholders' equity                           F-4
  Consolidated statements of cash flows                                     F-5
  Notes to consolidated financial statements                                F-6
--------------------------------------------------------------------------------



<PAGE>



                          INDEPENDENT AUDITOR'S REPORT



To the Board of Directors
Spectrum Laboratories, Inc.
Rancho Dominguez Hills, California

We have audited the accompanying consolidated balance sheet of Spectrum
Laboratories, Inc. and subsidiaries as of December 30, 2000 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 30, 2000 and January 1, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spectrum
Laboratories, Inc. and subsidiaries as of December 30, 2000 and the results of
their operations and their cash flows for the years ended December 30, 2000 and
January 1, 2000 in conformity with generally accepted accounting principles.


/s/ McGladrey & Pullen, LLP



Anaheim, California
March 19, 2001


                                      F-1


<PAGE>
<TABLE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------------------

<CAPTION>

                                                                               DECEMBER 30,
ASSETS                                                                             2000
                                                                               -------------
<S>                                                                            <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                  $  1,121,000
    Accounts receivable, less allowance for doubtful accounts of $186,000         1,599,000
    Inventories                                                                   2,023,000
    Prepaid expenses                                                                158,000
    Deferred taxes                                                                  386,000
                                                                               -------------
        Total current assets                                                      5,287,000

EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net                                         2,774,000

GOODWILL, net of accumulated amortization of $793,000                             1,204,000

DEFERRED TAXES                                                                    1,758,000

OTHER ASSETS                                                                         33,000
                                                                               -------------

        Total assets                                                           $ 11,056,000
                                                                               =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current maturities of long-term debt                                       $    822,000
    Accounts payable                                                                532,000
    Accrued expenses and other current liabilities:
      Compensation                                                                  355,000
      Other                                                                         259,000
                                                                               -------------
        Total current liabilities                                                 1,968,000
                                                                               -------------

LONG-TERM DEBT, net of current maturities                                           208,000
                                                                               -------------

COMMITMENTS

MINORITY INTEREST                                                                 1,755,000
                                                                               -------------

STOCKHOLDERS' EQUITY:
    Common stock, $.01 par value, 25,000,000 shares authorized;
      5,311,968 shares issued and outstanding                                        53,000
    Preferred stock, par value $.01; 10,000,000 shares authorized;
      none issued and outstanding                                                         -
    Additional paid-in capital                                                    8,428,000
    Accumulated deficit                                                          (1,356,000)
                                                                               -------------
        Total stockholders' equity                                                7,125,000
                                                                               -------------

        Total liabilities and stockholders' equity                             $ 11,056,000
                                                                               =============
</TABLE>

See notes to consolidated financial statements.

                                      F-2


<PAGE>
<TABLE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF INCOME
----------------------------------------------------------------------------------------------

<CAPTION>
                                                                     FISCAL YEARS ENDED
                                                              --------------------------------
                                                                  2000                1999
                                                              -------------      -------------
<S>                                                           <C>                <C>
NET SALES                                                     $ 13,440,000       $ 13,083,000
                                                              -------------      -------------

COSTS AND EXPENSES
    Cost of sales                                                6,910,000          6,381,000
    Selling, general and administrative                          4,079,000          4,756,000
    Research and development                                       677,000            662,000
    Compensation expense related to stock options                   81,000             86,000
    Other expense, primarily interest                               94,000            185,000
                                                              -------------      -------------

        Total costs and expenses                                11,841,000         12,070,000
                                                              -------------      -------------

        Income before provision for income tax (benefit)         1,599,000          1,013,000

Income tax (benefit)                                              (173,000)          (235,000)
                                                              -------------      -------------

        Net income                                            $  1,772,000       $  1,248,000
                                                              =============      =============

Basic and diluted earnings per share                          $       0.33       $       0.23
                                                              =============      =============

Weighted average shares outstanding:
    Basic                                                        5,311,968          5,311,968
                                                              =============      =============

    Diluted                                                      5,422,842          5,391,843
                                                              =============      =============
</TABLE>

See notes to consolidated financial statements.

                                      F-3


<PAGE>
<TABLE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------

<CAPTION>

                                               Common stock               Additional
                                       -----------------------------       paid-in        Accumulated
                                          Shares           Amount          capital          deficit
                                       ------------     ------------     ------------     ------------
<S>                                      <C>            <C>              <C>              <C>
Balance, January 2, 1999                 5,311,968      $    53,000      $ 8,016,000      $(4,376,000)

Net income                                       -                -                -        1,248,000

Minority interest contributed
    to additional paid-in capital                -                -          245,000                -

Compensation expense related
    to stock options                             -                -           86,000                -
                                       ------------     ------------     ------------     ------------

Balance, January 1, 2000                 5,311,968           53,000        8,347,000       (3,128,000)

Net income                                       -                -                -        1,772,000

Compensation expense related
    to stock options                             -                -           81,000                -
                                       ------------     ------------     ------------     ------------

Balance, December 30, 2000               5,311,968      $    53,000      $ 8,428,000      $(1,356,000)
                                       ============     ============     ============     ============
</TABLE>

See notes to consolidated financial statements.

                                      F-4


<PAGE>
<TABLE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------

<CAPTION>
                                                                        FISCAL YEARS ENDED
                                                                  ------------------------------
                                                                      2000              1999
                                                                  ------------      ------------
<S>                                                               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                    $ 1,772,000       $ 1,248,000
    Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization                                   627,000           914,000
      Noncash compensation                                             81,000            86,000
      Deferred taxes                                                 (219,000)         (325,000)
      Change in working capital components:
        (Increase) decrease in accounts receivable                    (91,000)           11,000
        (Increase) decrease in inventories                            366,000          (693,000)
        (Increase) decrease in prepaid expenses                       129,000          (164,000)
        Increase (decrease) in accounts payable                      (279,000)           44,000
        (Decrease) in accrued expenses                               (123,000)          (42,000)
                                                                  ------------      ------------

        NET CASH PROVIDED BY OPERATING ACTIVITIES                   2,263,000         1,079,000
                                                                  ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of equipment and leasehold improvements            (1,003,000)         (557,000)
    (Increase) decrease in other assets                                34,000           (13,000)
                                                                  ------------      ------------

        NET CASH (USED IN) INVESTING ACTIVITIES                      (969,000)         (570,000)
                                                                  ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payments of long-term debt                             (823,000)         (814,000)
    Decrease in restricted cash                                       100,000                 -
                                                                  ------------      ------------

        NET CASH (USED IN) FINANCING ACTIVITIES                      (723,000)         (814,000)
                                                                  ------------      ------------

        NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          571,000          (305,000)

Cash and cash equivalents
    Beginning of year                                                 550,000           855,000
                                                                  ------------      ------------

    End of year                                                   $ 1,121,000       $   550,000
                                                                  ============      ============
</TABLE>

See notes to consolidated financial statements.

                                      F-5


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           NATURE OF OPERATIONS AND BASIS OF PRESENTATION - The consolidated
           financial statements include the accounts of Spectrum Laboratories,
           Inc. (Spectrum) and its subsidiaries (collectively, the Company), SLI
           Acquisition Corp. (SLIAC), Spectrum Europe B.V. (Spectrum B.V.) and
           Spectrum Chromatography (Chromatography). The Company develops and
           sells proprietary tubular membranes and membrane devices for existing
           and emerging life science applications used primarily by research
           laboratories. The Company is also engaged in the manufacture and sale
           of medical laboratory equipment and supplies and disposable products.
           Certain of the Company's products are regulated by the United States
           Food and Drug Administration and the California Food and Drug Bureau.
           All products are for sale primarily to the pharmaceutical,
           biotechnology and medical industries.

           FISCAL YEAR - The Company's fiscal year ends on the Saturday nearest
           December 31. The years ended December 30, 2000 (fiscal year 2000) and
           January 1, 2000 (fiscal year 1999) both consist of approximately 52
           weeks.

           PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
           statements include the accounts of Spectrum and its wholly owned
           subsidiaries and majority-owned subsidiary, SLIAC. All intercompany
           balances and transactions have been eliminated in consolidation.

           USE OF ESTIMATES - The preparation of the 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 financial statements and the
           reported amounts of revenue and expenses during the reporting years.
           Actual results could differ from those estimates.

           CREDIT RISK - The Company sells its products nationally and
           internationally, primarily through distributors, to medical equipment
           and medical supply companies. The Company performs ongoing credit
           evaluations of its customers and generally does not require
           collateral. The Company maintains reserves for potential credit
           losses.

           CASH AND CASH EQUIVALENTS - The Company classifies all highly liquid
           investments with original maturities of 90 days or less at the time
           of purchase as cash and cash equivalents. The Company, periodically
           throughout the year, has amounts on deposit that exceed insured
           limits.

           INVENTORIES - Inventories are stated at the lower of cost (using the
           first-in first-out method) or market value.

           EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold
           improvements are recorded at cost, net of accumulated depreciation
           and amortization. Depreciation of equipment is provided using the
           straight-line method over the estimated useful lives (generally five
           years) of the respective assets. Leasehold improvements are amortized
           on a straight-line basis over the lesser of the lease term or the
           estimated useful life of the asset. Amortization of leasehold
           improvements is included with depreciation expense. No depreciation
           is being provided for the artwork, which is carried at its historical
           cost.

                                      F-6


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

           GOODWILL - Goodwill represents the excess of the purchase price over
           the fair value of net assets acquired resulting from a prior
           acquisition and is amortized on a straight-line basis over 20 years.
           The Company evaluates the recoverability of goodwill annually by
           comparing undiscounted expected future cash flows from the related
           operations to the carrying value of goodwill.

           DETERMINING IMPAIRMENT ON LONG-LIVED ASSETS - The Company recognizes
           impairment losses for long-lived assets used in operations when
           indicators of impairment are present and the undiscounted cash flows
           are not sufficient to recover the assets' carrying amount. Management
           believes there was no impairment of the value of such assets for the
           fiscal years 2000 or 1999.

           INCOME TAXES - Deferred taxes are provided on a liability method
           whereby deferred tax assets are recognized for deductible temporary
           differences and tax credit carryforwards and deferred tax liabilities
           are recognized for taxable temporary differences. Temporary
           differences are the differences between the reported amounts of
           assets and liabilities and their tax bases. Deferred tax assets are
           reduced by a valuation allowance when, in the opinion of management,
           it is more likely than not that some portion or all of the deferred
           tax assets will not be realized. Deferred tax assets and liabilities
           are adjusted for the effects of changes in tax laws and rates on the
           date of enactment.

           EARNINGS PER SHARE - Basic earnings per share is computed by dividing
           the net income attributable to the common stockholders by the
           weighted average number of common shares outstanding during the
           period. There is no adjustment in the net income attributable to
           common stockholders. Diluted earnings per share reflects the
           potential dilution that could occur from common shares issuable
           through stock options (110,874 and 79,875 shares in the fiscal years
           2000 and 1999, respectively). During 2000 and 1999, 389,600 and
           96,300 options, respectively, were excluded from diluted common
           shares as they were antidilutive.

           REVENUE RECOGNITION - The Company records revenue at the time the
           related products are shipped.

           PRODUCT RETURNS AND WARRANTIES - The Company records a provision for
           estimated product returns and warranties at the time the revenue is
           recognized.

           RESEARCH AND DEVELOPMENT - The Company expenses research and
           development costs as incurred.

           ADVERTISING COSTS - Costs associated with advertising and promoting
           products are expensed as incurred. Advertising and promotion expense
           was approximately $8,000 and $55,000 during fiscal years 2000 and
           1999.

           REMEASUREMENT OF FOREIGN CURRENCIES - Monetary assets and liabilities
           of Spectrum B.V. are remeasured into U.S. dollars at year-end
           exchange rates and nonmonetary assets and stockholders' equity are
           remeasured using historical rates of exchange. Income and expenses
           are remeasured at average rates during the respective years. The
           functional currency of this subsidiary is the U.S. dollar; therefore,
           remeasurement gains or losses are included in income. Remeasurement
           (losses) included in income for fiscal years 2000 and 1999 were
           approximately ($71,000) and ($31,000), respectively.

                                      F-7


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

           FAIR VALUE OF FINANCIAL INSTRUMENTS - Management believes that the
           carrying amount of cash and cash equivalents, accounts receivable,
           accounts payable and accrued expenses approximates fair value because
           of the short maturity of these financial instruments. Long-term debt
           bears interest at a rate indexed to the prime rate and, therefore,
           management believes the carrying amount of the outstanding borrowings
           at December 30, 2000 and January 1, 2000 approximates fair market
           value.

           ACCOUNTING FOR STOCK-BASED COMPENSATION - The Company accounts for
           stock-based employee compensation under the requirements of
           Accounting Principles Board (APB) Opinion No. 25, which does not
           require compensation to be recorded if the consideration to be
           received is at least equal to fair value at the measurement date.
           Nonemployee stock-based transactions are accounted for under the
           requirements of the Financial Accounting Standards Board's (FASB)
           Statement of Financial Accounting Standards (SFAS) No. 123,
           ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires compensation
           to be recorded based on the fair value of the securities issued or
           the services received, whichever is more reliably measurable.

           SEGMENT INFORMATION - In accordance with FASB Statement No. 131,
           DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,
           the Company has determined the products are all classified into two
           product groups as further discussed in Note 13. The Company has
           further analyzed the type and class of its customers, and the product
           distribution methods, and has determined that the Company has one
           reportable segment.


NOTE 2.    INVENTORIES

           Inventories consist of the following at December 30, 2000:

           Raw materials                                           $ 1,120,000
           Work in process                                              36,000
           Finished goods                                              867,000
                                                                   ------------
                                                                   $ 2,023,000
                                                                   ============

NOTE 3.    EQUIPMENT AND LEASEHOLD IMPROVEMENTS

           Equipment and leasehold improvements consist of the following at
           December 30, 2000:

           Machinery, equipment and tooling                        $ 5,392,000
           Office furniture and equipment                            1,706,000
           Artwork, at cost                                            974,000
           Leasehold improvements                                    1,205,000
                                                                   ------------
                                                                     9,277,000
           Less accumulated depreciation and amortization           (6,503,000)
                                                                   ------------

                                                                   $ 2,774,000
                                                                   ============

           Depreciation and amortization expense of equipment and leasehold
           improvements for fiscal years 2000 and 1999 was $445,000 and
           $472,000, respectively.

                                      F-8


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4.    INCOME TAXES

           The Company's provision for income taxes (benefit) consists of the
           following:

                                                           2000        1999
                                                       -----------  -----------
           Current:
           Federal                                     $        -   $   25,000
           State                                           54,000       51,000
           Foreign                                         (8,000)      14,000
                                                       -----------  -----------

                                                           46,000       90,000
                                                       -----------  -----------

           Deferred:
           Federal                                       (229,000)    (325,000)
           State                                           10,000            -
                                                       -----------  -----------

                                                         (219,000)    (325,000)
                                                       -----------  -----------

                                                       $ (173,000)  $ (235,000)
                                                       ===========  ===========

           The reported provision for income taxes differs from the amount
           computed by applying the statutory federal income tax rate of 35% to
           the consolidated income before provision for income taxes as follows:

           Statutory federal income tax provision      $  560,000   $  355,000
           Nondeductible amortization of intangibles       33,000      108,000
           State income taxes, net of federal benefit       5,000       61,000
           Change in valuation allowance                 (700,000)    (787,000)
           Nondeductible expenses                           8,000       48,000
           Other                                          (79,000)     (20,000)
                                                       -----------  -----------

           Income tax provision                        $ (173,000)  $ (235,000)
                                                       ===========  ===========

           The components of the Company's net deferred income tax assets as of
           December 30, 2000 are as follows:

           Operating loss carryforwards                             $ 2,293,000
           Intangibles                                                  556,000
           Reserves not currently deductible                            317,000
           Equipment and leasehold improvements                         115,000
           Tax credits                                                  173,000
           Other                                                        190,000
                                                                    ------------
                                                                      3,644,000
           Valuation allowance                                        1,500,000
                                                                    ------------

           Net deferred tax assets                                  $ 2,144,000
                                                                    ============

                                      F-9


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4.    INCOME TAXES (Continued)

           The net deferred tax assets have been classified on the accompanying
           consolidated balance sheet as follows:

           Current assets                                    $   386,000
           Noncurrent assets                                   1,758,000
                                                             ------------

           Net deferred tax assets                           $ 2,144,000
                                                             ============

            In assessing the realizability of deferred tax assets, management
            has estimated that it is more likely than not that approximately
            $1,500,000 will not be realized. This valuation allowance represents
            a portion of net operating loss carryforwards attained through a
            prior business acquisition. As further discussed below, tax law
            limits the use of an acquired entity's net operating loss
            carryforwards to subsequent taxable income of the consolidated
            entity. Management will continue to evaluate the realizability of
            the deferred tax assets by assessing the need for and amount of a
            valuation allowance.

            At December 30, 2000, the Company had approximately $6.1 million in
            net operating loss carryforwards for federal income tax purposes
            available to offset future taxable income. Certain of these loss
            carryforwards are limited to approximately $298,000 annually. Any
            unused net operating loss is carried forward. As a result of the
            limitation discussed above, it is probable that $4,500,000 of the
            Company's net operating loss will expire without utilization. Loss
            carryforwards for tax purposes expire in amounts and by fiscal year
            as follows: 2004 $988,000; 2005 $1,319,000; 2011 $20,000; 2012
            $347,000; 2013 $776,000; 2014 to 2021 $299,000 per year; 2022
            $275,000.


NOTE 5.    LONG-TERM DEBT

            At December 30, 2000, the Company had a credit agreement with a bank
            which provided for two term loans. One of these loans has an
            outstanding balance at December 30, 2000 of $900,000, bears interest
            subject to the bank's yield maintenance agreement (9.14% at December
            30, 2000) and requires monthly principal installments of $60,000
            plus interest through March 1, 2002, when all principal and interest
            is due. The other loan has an outstanding balance at December 30,
            2000 of $130,000, bears interest at prime plus .25% (9.75% at
            December 30, 2000) and requires monthly principal installments of
            $8,530 plus interest through April 1, 2002, when all principal and
            interest are due. The agreement is secured by substantially all of
            the assets and is personally guaranteed by the majority stockholder.
            The agreement also requires the maintenance of certain financial and
            nonfinancial loan covenants and restricts payment of dividends.
            Future maturities of long-term debt owed on December 30, 2000 by
            fiscal year are as follows: 2001 $822,000 and 2002 $208,000.

                                      F-10


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 5.    LONG-TERM DEBT (Continued)

           On January 8, 2001, the credit agreement was amended to provide up to
           $900,000 of additional borrowings for certain purposes as defined in
           the amendment. These borrowings may take place from the date of the
           amendment up to December 1, 2001. From the date of any borrowings and
           up to March 1, 2002, monthly interest payments, at a rate of prime
           plus .25%, are required for principal amounts outstanding.
           Outstanding amounts at March 1, 2002 are to be paid, including
           interest, in forty-eight (48) equal and successive monthly
           installments, beginning April 1, 2002. The interest rate, beginning
           March 1, 2002, will be, at the Company's option, a fixed rate equal
           to the treasury rate plus 3.25% or a fluctuating rate equal to the
           prime rate plus .25%.


NOTE 6.    STOCK OPTION PLAN

            During the year ended December 30, 2000, the Company adopted a new
            2000 stock option plan reserving 300,000 shares of common stock for
            option grants to its key employees, directors and consultants.
            Exercise prices for the stock options will not be less than 100% of
            the fair market value of the stock on the date of grant. During the
            year, the Company granted 298,200 options under this plan. The
            Company also has a 1995 stock option plan that provides for issuance
            of options to purchase up to 200,000 shares of its common stock.
            Options under both plans expire not more than ten years from date of
            grant. Options under the 2000 plan become exercisable over a
            five-year period (20% per year) and options under the 1995 plan
            become exercisable over a four-year period (25% per year). No
            options under either plan have been exercised to date. In addition,
            during 1998 the Company granted nonqualified stock options to
            purchase 5% of the outstanding stock to an officer of the Company at
            $1.20 per share. The terms of this grant result in variable plan
            accounting. Accordingly, future compensation expense will be
            measured and recorded based on stock price fluctuations. At the date
            of grant, 60% of these options vested immediately and the remaining
            40% vest over two to four years. Total compensation expense recorded
            during fiscal years ended December 30, 2000 and January 1, 2000 was
            approximately $81,000 and $86,000, respectively.

            A summary of the status of the plans and the nonqualified options
            and changes during fiscal years ended 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                                          average
                                                                              Number     exercise
                                                                            of shares      price
                                                                           -----------  ------------

            <S>                                                               <C>       <C>
            OUTSTANDING, January 2, 1999                                      385,249   $      1.60

            Forfeited                                                          (5,500)         1.97
                                                                           -----------  ------------

            OUTSTANDING, January 1, 2000                                      379,749          1.59

            Granted at fair value (weighted average fair value of $1.29)      298,200          2.13

            Forfeited                                                          (6,250)         2.25
                                                                           -----------  ------------

            OUTSTANDING, December 30, 2000                                    671,699   $      1.82
                                                                           ===========  ============
</TABLE>

                                      F-11


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 6.    STOCK OPTION PLAN (Continued)

           At December 30, 2000, 143,900 shares were available for future grants
           under the plans.

           A further summary of options outstanding at December 30, 2000 is as
           follows:
<TABLE>
<CAPTION>

   Options Outstanding                                                            Options Exercisable
---------------------------------------------------------------------------  -------------------------------
                                                               Weighted
                                              Weighted         average                          Weighted
                                               average        remaining                         average
       Range of                Number         exercise       contractual         Number         exercise
     exercise prices         of options         price       life in years      of options        price
-------------------------- ---------------  --------------  ---------------  --------------- ---------------
        <S>                       <C>              <C>               <C>           <C>              <C>
        $ 7.50                        500          $ 7.50            5.75              500          $ 7.50
          4.37                      5,000            4.37            5.00            5,000            4.37
          3.20                     24,500            3.20            5.00           24,500            3.20
          2.50                        500            2.50            7.25              500            2.50
          2.44                     50,000            2.44            2.20           25,000            2.44
          2.18 to 2.20             13,900            2.19            6.64           13,900            2.19
          2.13                    294,300            2.13            9.33                -            2.13
          1.87 to 1.88                900            1.87            5.94              700            1.87
          1.25                     16,500            1.25            7.75           16,500            1.25
          1.20                    265,599            1.20            7.40          244,207            1.20
                           ---------------                                   --------------

                                  671,699                                          330,807
                           ===============                                   ==============
</TABLE>

           SFAS No. 123 requires the disclosure of pro forma net income and
           earnings per share had the Company adopted the fair value method as
           of the beginning of fiscal year 1995. Under SFAS No. 123, the fair
           value of stock-based awards to employees is calculated through the
           use of option-pricing models, even though such models were developed
           to estimate the fair value of freely tradable, fully transferable
           options with vesting restrictions which significantly differ from the
           Company's stock option awards. These models also require subjective
           assumptions, including future stock price volatility and expected
           time to exercise, which greatly affect the calculated value. The
           Company's calculations for the options granted in 2000 were made
           using the Black-Scholes option-pricing model with the following
           weighted average assumptions: expected life of ten years; stock
           volatility of 35% in 2000; risk-free interest rate 6.51%; and no
           dividends during the expected term.

           The calculations are based on a single-option valuation approach and
           forfeitures are recognized as they occur. If the computed fair value
           of awards had been amortized to expense over the vesting period of
           the awards, pro forma net income of the Company would have been
           approximately 1,738,000 ($.33 per basic and $.32 per diluted share)
           and $1,225,000 ($0.23 per basic and diluted share) in fiscal years
           2000 and 1999, respectively.

                                      F-12


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 7.    RELATED-PARTY TRANSACTIONS

           ROYALTY AGREEMENT - The Company is committed under a royalty
           agreement to pay the majority stockholder royalties of 7% of the net
           sales of certain products, as defined, through the life of the
           defined products. During 2000 and 1999, the Company incurred royalty
           expenses of $331,000 and $335,000, respectively, under this
           agreement.

           LEASES - The Company had leased office, manufacturing and warehouse
           facilities from the majority stockholder under operating lease
           agreements. Rent expense under these leases was $219,000 in 1999. The
           leases were effectively terminated during the fiscal year ended 1999.

           CONSULTING SERVICES - During 2000 and 1999, the Company incurred
           expenses of $15,000 and $7,500, respectively, for consulting services
           to a firm which employed a member of the Board of Directors.


NOTE 8.    COMMITMENTS, RENT EXPENSE AND SUBSEQUENT EVENT

           LEASE COMMITMENTS AND RENT EXPENSE - The Company is obligated under
           the terms of various operating lease agreements for manufacturing,
           warehouse and office facilities. Certain of these leases provide for
           rent escalation adjustments. Rent expense, including amounts paid to
           the majority stockholder in 1999, was $625,000 and $759,000 in fiscal
           years 2000 and 1999, respectively. Minimum future rental payments
           under these operating lease agreements for the years ending December
           31 are as follows: 2001 $500,000; 2002 $490,000; 2003 $449,000; 2004
           $352,000; and 2005 $191,000 (total $1,982,000).

           CONTRACT RESEARCH AND DEVELOPMENT - The Company has agreed to work on
           a specific research and development project with an unrelated
           company. The Company anticipates that it will incur $100,000 to
           $200,000 during fiscal year 2001 in connection with this project.

           ACQUISITION OF CERTAIN PATENT RIGHTS AND TECHNOLOGY - In January
           2001, the Company entered into an agreement for the acquisition of
           certain patent rights and technology from an unrelated company. The
           cost to acquire these rights and technology is $750,000, of which
           $500,000 was paid in February 2001. The remaining amount of $250,000
           is payable no later than January 2002.


NOTE 9.    GEOGRAPHIC INFORMATION

           Net sales by country for fiscal years ended 2000 and 1999 are as
           follows:
<TABLE>
<CAPTION>
                                                                       2000           1999
                                                                   -------------  -------------
           <S>                                                     <C>            <C>
           United States                                           $ 10,360,000   $ 10,214,000
           Japan                                                        917,000        753,000
           Other countries, each of which represent less than 5%
             of total net sales                                       2,163,000      2,116,000
                                                                   -------------  -------------

                                                                   $ 13,440,000   $ 13,083,000
                                                                   =============  =============
</TABLE>

                                      F-13


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 9.    GEOGRAPHIC INFORMATION (Continued)

           There were no significant assets held outside the United States at
           December 30, 2000 or January 1, 2000.


NOTE 10.   MAJOR CUSTOMERS

           Net sales for fiscal years 2000 and 1999 includes sales to the
           following major customers (each of which accounted for 10% or more of
           the total sales of the Company) together with the receivables due
           from those customers as of December 30, 2000 and January 1, 2000:

<TABLE>
<CAPTION>
                               2000                                   1999
               --------------------------------------  --------------------------------------
                                         TRADE                                   Trade
                                       ACCOUNTS                                Accounts
                   NET SALES          RECEIVABLE           Net Sales          Receivable
               ------------------  ------------------  ------------------  ------------------

<S>            <C>                 <C>                 <C>                 <C>
Customer A     $       1,889,000   $         316,000   $       1,980,000   $         286,000
               ==================  ==================  ==================  ==================

Customer B     $       1,361,000   $         164,000   $       1,402,000   $         220,000
               ==================  ==================  ==================  ==================
</TABLE>


NOTE 11.   MINORITY INTEREST

           On October 1, 1996, SLI Acquisition Corp., a subsidiary of the
           Company, entered into an Asset Purchase Agreement with Cellco, Inc.,
           a Delaware corporation, and acquired the operating assets and
           liabilities of Cellco, Inc. in exchange for 10,000 shares of the
           subsidiary's preferred stock valued at $2,000,000 for redemption
           purposes. One of the subsidiary's preferred stockholders contributed
           its stock with a carrying value of $245,000 to the Company in 1999.
           At December 30, 2000, there is $1,755,000 in preferred stock of the
           subsidiary outstanding. The preferred stockholders of the subsidiary
           have the right to put their stock to SLIAC at any time through
           September 30, 2001 for an aggregate price of $1,755,000. In the event
           the subsidiary is combined with the Company and the combined company
           completes an underwritten offering, the preferred stockholders have
           the right to exchange such stock for 7% of the newly combined
           company. The preferred shares are nonvoting and have preference over
           common stockholders as to dividends and liquidation. Management
           anticipates that this subsidiary will be liquidated prior to December
           31, 2001, if the put is exercised and the subsidiary does not perform
           under the put. The put obligation is that of the subsidiary and not
           the Company.

                                      F-14


<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 12.   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                                          2000          1999
                                                       ----------   -----------
Cash paid for:
 Income taxes                                          $ 179,000    $   85,000
                                                       ==========   ===========

 Interest                                              $ 135,000    $  222,000
                                                       ==========   ===========

 Increase in deferred taxes offset against acquired
 goodwill                                              $       -    $1,225,000
                                                       ==========   ===========

NOTE 13.   PRODUCT GROUP INFORMATION

           The Company's product groups are based on specific product
           characteristics and are grouped into laboratory products and
           operating room disposable products. Laboratory products consist
           primarily of (1) membranes used to concentrate, separate and purify
           dissolved or suspended molecules that are sold primarily to
           laboratories and (2) hollow fiber membrane devices that allow
           components retained by a membrane to be concentrated, including
           filters utilized for micro and ultrafiltration separations that are
           sold to biotech and pharmaceutical companies. Operating room
           disposable products consist of sterile plastic surgical drapes and
           cloth bandages that are sold primarily to hospitals.

           Revenue by product group is as follows:

                                                        2000            1999
                                                    -------------  -------------

           Laboratory products                      $ 11,638,000   $ 11,331,000
           Operating room disposable products          1,802,000      1,752,000
                                                    -------------  -------------

                                                    $ 13,440,000   $ 13,083,000
                                                    =============  =============

NOTE 14.   VALUATION AND QUALIFYING ACCOUNT INFORMATION

           Following is information regarding the Company's allowance for
           doubtful accounts:

                     Balance at       Provision
                      beginning       charged to    Net recoveries    Balance at
                       of year         expense      (charge-offs)    end of year
                       -------         -------      -------------    -----------

        Fiscal year:
           2000       $143,000        $ 52,000        $ (9,000)        $186,000
                      =========       =========       =========        =========

           1999       $125,000        $ 15,000        $  3,000         $143,000
                      =========       =========       =========        =========

                                      F-15