<PAGE>

                   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 (Fee Required)

                  For the Fiscal Year Ended December 31, 1996

                          Commission File No. 0-9478

                         Spectrum Laboratories, Inc.
              (Name of small business issuer in its charter)

     California                                   95-3557359
-------------------                          --------------------
(State or other Jurisdiction of                (I.R.S. Employer
Incorporation or Organization)                 Identification No.)

     23022 La Cadena Drive                              
     Laguna Hills, California                         92653 
     (Address of principal executive offices)      (Zip Code)

      Issuer's telephone number, including area code:  (714) 581-3880

   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:  $8,698,794

The aggregate market value of voting stock held by nonaffiliates of the 
registrant is $304,344 as of December 31, 1996, based on the $.34 per share 
closing price for the Common Stock in the over-the-counter market on such 
date, representing 895,132 shares held by nonaffiliates.

Number of shares of Common Stock outstanding as of December 31, 1996:  
12,834,394

This report includes a total of 36 consecutive numbered pages; the exhibit 
index of documents incorporated by reference is on page 34.

                                      1
<PAGE>

                              TABLE OF CONTENTS

                          FORM 10-KSB ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                         SPECTRUM LABORATORIES, INC.

Item No.                                                             Page
--------                                                             ----

     Part I
     1.     Description of Business...................................-3-
     2.     Description of Property...................................-8-
     3.     Legal Proceedings.........................................-9-
     4.     Submission of Matters to a Vote of Security Holders.......-9-

     Part II
     5.     Market for Common Equity and Related Shareholder Matters..-9-
     6.     Management's Discussion and Analysis of Financial 
            Condition and Results of Operation........................-9-
     7.     Financial Statements.....................................-12-
     8.     Changes in and Disagreements with Accountants on 
            Accounting and Financial Disclosure......................-30-

Part III
     9.     Directors, Executive Officers, Promoters and Control
            Persons; Compliance with Section 16(a) of the 
            Exchange Act.............................................-30-
     10.    Executive Compensation...................................-31-
     11.    Security Ownership of Certain Beneficial Owners
            and Management...........................................-32-
     12.    Certain Relationships and Related Transactions...........-33-
     13.    Exhibits and Reports on Form 8-K.........................-34-

                                      2

<PAGE>

This Annual Report Form 10-KSB contains certain forward-looking statements, 
the realization of which may be impacted by certain important factors which 
are discussed in "Additional Factors That May Affect Future Results," under 
Item 7, "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") was incorporated in California 
on June 5, 1980 under the name Immutron, Inc., as a successor to a joint 
venture organized in October 1978 by Nuclear Medical Systems, Inc., and Life 
Studies, Incorporated.  On November 23, 1982, the Company changed its name 
to Spectrum Laboratories, Inc.


HOLLOW FIBER MEMBRANE DEVICES

Hollow fiber membrane products fall into three different categories:  
laboratory products, OEM and private label products and process products.

Laboratory products, comprising approximately 25% of sales volume in fiscal 
1995 and 1996 of hollow fiber membrane products, are small compact membrane 
devices and are utilized in general laboratory filtration.  These are 
generally sold through distributors.

OEM and private label products are special versions of the laboratory 
products sold under private label or to manufacturers of medical devices or 
water treatment systems.  Application areas 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.  
These products comprise approximately 30% of sales volume in fiscal 1995 and 
1996, and are sold direct to third party manufacturers for resale to the end 
users.

Process products are tangential flow membrane devices that allow components 
that are retained by the membrane to be concentrated.  Hollow fiber membrane 
process products are sold direct to pharmaceutical and diagnostic 
manufacturers in the U.S.  Overseas sales are both direct and through 
distributors depending on the region.  Process products account for 
approximately 45% of hollow fiber membrane device sales in fiscal 1995 and 
1996.


CELL EXPANSION

On October 1, 1996, the Company through its wholly-owned subsidiary Spectrum 
Laboratories, Inc. Acquisition Corp. purchased certain assets of Cellco, 
Inc., a Delaware Corporation located in Germantown, Maryland.  Cellco 
provides artificial capillary systems to academic, pharmaceutical, 
laboratory and clinical research markets involved in the expansion and 
maintenance of human and animal cells.

                                      3

<PAGE>


MICROBIOLOGICAL SAMPLING AND TRANSPORT PRODUCTS  (See note 12 in Financial 
Statements-Subsequent Events)

The sampling and transport products include swabs sold under the trade names 
"Calgiswab", "Rayswab" and "Dacroswab" and transport products sold under the 
name "Transette".  All swab and Transette products are used primarily by 
physicians for sample collection of disease organisms for diagnostic 
purposes and sell for under $1 each.

The Calgiswab is the leading calcium alginate-tipped swab in the United 
States.  Other Swab products are marketed with wood, plastic, aluminum or 
stainless steel shafts and cotton, dacron or rayon tips, depending upon use 
or user preference.

Transettes are sterile sample collection and transport systems consisting of 
a swab and a plastic pouch
containing growth media to protect the sample during shipment.  Transettes 
are available with any of the swabs marketed by the Company and also in 
disease-specific form wherein the growth media is designed specifically to 
support the type of organism being tested.  A disease-specific Transette is 
available for gonorrhea testing.


MEDICAL DISPOSABLE DEVICES

Hydro-Med Products, Inc. ("Hydro-Med") is a wholly-owned subsidiary of the 
Company.  Hydro-Med is primarily a manufacturer of medical disposable 
devices such as sterile surgical drapes for orthopedic and arthroscopic 
surgical procedures, sterile camera covers, rubber elastic bandages (sterile 
and nonsterile), esmark 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
-----------------------------------


HOLLOW FIBER MEMBRANE DEVICES

The Company has over 225 active customers, comprised of pharmaceutical and 
diagnostic manufacturers, medical device manufacturers, laboratories, 
laboratory distributors and research institutions for its Microgon products.  
Approximately 20% of its sales are from non U.S. customers.  


CELL EXPANSION

Cellco has over 300 active customers comprised of academic, research, 
pharmaceutical, laboratory, and clinical research companies and institutes.  
Domestic sales are made with a direct sales force and foreign sales are made 
through direct sales and laboratory products distributors.


MICROBIOLOGICAL SAMPLING AND TRANSPORT PRODUCTS

The Company's microbiological sampling and transport product lines have 
approximately 275 active customers, of which approximately 30 are domestic 
and foreign distributors, including Baxter Scientific Products, Fisher 
Scientific, VWR Scientific and Curtin Matheson Scientific.  Direct sales are 
also made to physician's offices and research and government laboratories.

                                      4

<PAGE>

The Company relies primarily upon unaffiliated distributors, advertising in 
the distributor catalogs, and direct mailings through product postcards and 
flyers to market its products.  The Company's swab and Transette product 
lines are prominently displayed in the Baxter Scientific Products 
advertising literature.


MEDICAL DISPOSABLE DEVICES

Hydro-Med has over 600 active customers, the most active of which are 450 
hospitals and 100 hospital supply dealers.  Export and O.E.M. accounts are 
currently confined to a select few products, mostly for orthopedics.  Hydro-
Med does not employ its own sales force but uses commissioned manufacturers' 
representatives to call on end users such as hospitals and doctors, as well 
as stocking distributors capable of supplying product delivery on a local 
level.


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


HOLLOW FIBER MEMBRANE DEVICES

The Company purchases common raw membrane polymers and casting solvents from 
a variety of sources.  Membranes are assembled into housings that are molded 
from commonly available plastic resins by third party plastic molders, using 
tooling owned by the Company.  Membranes are affixed to the housings by 
means of proprietary potting resins supplied by two different suppliers who 
are covered by an industry cooperative disaster recovery plan which allows 
manufacturers to manufacture the resins in the event of an interruption of 
supply.


CELL EXPANSION

Cellco purchases hollow fiber membrane devices from Spectrum Laboratories or 
other commercially available hollow fiber membrane devices.  Cellco is 
dependent on a limited number of suppliers for hollow follow membrane 
devices but has not experienced any difficulty in obtaining necessary 
supplies.


MICROBIOLOGICAL SAMPLING AND TRANSPORT PRODUCTS

The principal raw materials used by the Company in its microbiological 
products include calcium alginate and several widely available substances 
such as plastic, cotton, rayon, dacron and aluminum.  There are sources of 
calcium alginate located in France and in the United States, and the Company 
feels it could supply its need from these sources.  The Company orders large 
quantities of certain raw materials to obtain competitive pricing or to meet 
its vendors' minimum order requirements.  The Company is not dependent upon 
any one or a limited number of sources for any other raw materials and has 
not experienced any difficulty in obtaining necessary supplies.


MEDICAL DISPOSABLE DEVICES

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

                                      5

<PAGE>

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


HOLLOW FIBER MEMBRANE DEVICES

The Company holds patents for hollow fiber syringe tip filters and 
trademarks for, DynaFibre, DynaGard, KrosFlo, MediaKap, MiniKap and 
MiniKros.  Fundamental technology is kept as trade secrets.  Employees and 
vendors are covered by suitable non-disclosure agreements.


CELL EXPANSION 

Cellco is the assignee of the trademark right to Cellmax.  Cellco is the 
assignee of eight patents, including one for "Serum free production of 
packaged viral vector."


MICROBIOLOGICAL SAMPLING AND TRANSPORT PRODUCTS

The Company is the assignee of the trademark right to Calgiswab.


MEDICAL DISPOSABLE DEVICES

Hydro-Med is the assignee of two U.S. patents.  The patents are for 
"Apparatus for Forming a Rolled Tubular Fabric Article" and "Surgical 
Extremity Drape".  Hydro-Med is also the assignee of trademark rights to Dry 
Docks and Strap-Stroll.

A finding of invalidity or unenforceability of certain of the Company's 
patents, may 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.  The Company has been audited by the 
FDA and all items noted during their audit have been addressed or released.  
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 those of other 
companies in the business. 


HOLLOW FIBER MEMBRANE DEVICES

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 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.

                                      6

<PAGE>


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 years ending December 31, 1995 and December 31, 1996, no customer 
accounted for more 10% or more of the Company's total net combined sales. 


SEASONAL ASPECTS
----------------

The Company's business is not subject to significant seasonal fluctuations 
in sales.


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


HOLLOW FIBER MEMBRANE DEVICES

The Company's hollow fiber membrane devices compete with Gelman Sciences, 
Millipore, and Nalge in the laboratory products area.  OEM and private label 
products are long-term supply contracts where competition for continuing 
business is limited.  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 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.  In the 
process area, Millipore and Amicon division of W.R. Grace are the major 
competitors.  It is estimated that market share is less than 5% in every 
market served. 


MICROBIOLOGICAL SAMPLING AND TRANSPORT PRODUCTS

The Company competes with two major companies, Johnson & Johnson and Becton 
Dickinson, in the sale of its swab products other than Calgiswab, which 
competes only with a product marketed by Hardwood Products and Purfybr.

The primary competitive factors affecting the sale of microbiological 
products are price and quality, and the Company believes that the price and 
quality of its microbiological products compare favorably with products sold 
by other companies having greater resources than the Company.


CELL EXPANSION

The  company has several competitors for hollow fiber membrane devices 
including Cellex Bioscience, Unisyn Technologies and Integra Bioscience. 


MEDICAL DISPOSABLE DEVICES

Hydro-Med has several competitors for its sterile video camera drape, the 
largest of whom is considered to be the Xomed Company, a division of 
Bristol-Meyers.  Sterile extremity drapes for surgical procedures are 
produced by several manufacturers.  Companies such as Johnson & Johnson and 
Baxter Travenol, who 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), dominate that market.

                                      7

<PAGE>

Hydro-Med 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 ACEJ bandages, Johnson & 
Johnson, producers of Dyna-FlexJ and Kendall, producers of TensorJ, all of 
which have greater resources than the Company.


RESEARCH AND DEVELOPMENT

The Company incurred research and development expenses of $411,095 in 1996 
and $186,078 in 1995.  Research and development are particularly important 
for the Company's hollow fiber membrane devices.


EMPLOYEES

On December 31, 1996, the Company had 66 employees, of which 45 were 
production workers, 16 were manufacturing support and administrative 
personnel and 5 were marketing and customer service representatives.  The 
company believes it has good relations with its employees.


Item 2.  Description of Property

The Company's executive offices are located at 23022 La Cadena Dr., Laguna 
Hills, California.  The building is rented by Spectrum Medical Industries, 
Inc., an affiliate of the Company, controlled by Roy T. Eddleman with a 
portion sublet to the Company.  The space is used by the Company for storage 
and general, administration and executive offices.  The Company pays a 
monthly rent of $3,174 based upon square footage used by the Company.  The 
Company's sub lease expires on December 31, 1997.

The Company has production and warehouse space in Dallas and locations it 
occupies in Los Angeles and Orange Counties, California.  The following 
table summarizes the terms of the leases of other properties leased by the 
Company.

<TABLE>
<caption

Lessor & Location     Lessee & Usage       Sq. Feet     Begin     End     Term Mths.      Rental
-----------------     --------------       --------     -----     ---     ----------      ------
<S>                   <C>                  <C>         <C>      <C>          <C>         <C>

Gick Family           Microgon, Inc.          8,830    12/1/94  12/31/97     12          $4,840(1)
Partnership           Light Manufacturing
23152 Verdugo Dr.     R&D and Offices
Laguna Hills, CA     

Herschel Brown        Spectrum Laboratories,  20,000   1/1/95   12/31/97     36          $4,823(2)
2930 Ladybird Lane    Inc.
Dallas, Texas     

Andrew Barrett        Cellco, Inc.             2,217   1/1/96   12/31/97     12          $4,393
12321 Middlebrook  
Germantown, MD     


</TABLE>
                            
(1)   Increases to $5,324 for 1997.
(2)   Increases to $5,083 for 1997.

                                      8

<PAGE>

Item 3.  Legal Proceedings

There is no material pending legal proceedings to which the Company is a 
party or of which any of its property is the subject.  The Company knows of 
no legal proceedings contemplated by any governmental authority or agency.


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.

The 1996 and 1995 bid and ask quotations are the over-the-counter market 
quotations obtained from a market maker as of the last day of each quarter 
during the respective year.  The quotations  shown represent inter-dealer 
prices without adjustment for retail markups, markdowns or commissions and 
do not necessarily reflect actual transactions.

          1996                    Bid           Asked
          ----                    ---           -----
          March 31                3/8            2
          June 30                 3/8            5/8
          September 30            3/8            9/16
          December 30             5/16           7/16

          1995                    Bid           Asked
          ----                    ---           -----
          March 31                3/8            1/2
          June 30                 3/8            5/8
          September 30            3/8            9/16
          December 29             5/16           7/16

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 31, 1996, the approximate number of holders of record of the 
Company's Common Stock was 380.
 

Item 6.  Management's Discussion and Analysis of Financial Condition and 
Results of Operation.

The following discussions relate to the Company, its wholly owned 
subsidiaries, SLI Acquisition Corporation ("SLI AC"), and Hydro-Med Products 
("Hydro-Med") and Microgon, Inc. ("Microgon") and its partially owned 
subsidiary, Spectrum Europe B.V. ("Spectrum B.V.").  During 1995, the 
Company acquired Microgon, Inc. under a transaction accounted for as a step 
acquisition.  The Company has consolidated the financial position and 
operations of Spectrum B.V. for all periods presented.  On March 31, 1997 
the Company sold its Microbiological sampling and transport products 
business for $800,000.00 plus the value of inventory.  See Note 1 of Notes 
to the Consolidated Financial Statements. 

                                      9

<PAGE>

NET SALES
---------

Net sales for 1996 were $8,698,794 compared to net sales of $6,478,299 for 
1995, an increase of 34.3%.  Substantially all of the increase in sales is 
attributable to an increase in sales of hollow fiber membrane devices as a 
result of the acquisition of Microgon in August 1995.  Additionally, the 
Company experienced a minor sales increase of $271,277 due to the purchase 
of Cellco by the company's wholly-owned subsidiary SLI AC.

 
EXPORT SALES AND MAJOR CUSTOMERS
--------------------------------

Foreign sales to customers in foreign countries, primarily Europe, amounted 
to $1,826,127 and $1,963,007 in 1996 and 1995, respectively.  This increase 
was caused by continued penetration of Spectrum B.V. into the European 
markets.  Major customers change from year to year depending upon the level 
of purchasers.  In 1996 and 1995, no one customer accounted for 10% or more 
of combined sales.


COST OF SALES
-------------

Gross margins were 39.9% for 1996 and 31.9% for 1995.  The gross margin 
increased in 1996 primarily because of increased sales of hollow fiber 
membrane devices that yield higher gross margins. 


SELLING EXPENSES
----------------

Selling expenses increased to $1,127,080 in 1996 from $952,577 in 1995, an 
increase of 18.2%.  Selling expenses increased due to higher selling costs 
of hollow fiber membrane products and Cellco products, and the publishing of 
"Spectrum Updates" for use as a marketing tool.


GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------

Combined general and administrative expenses increased to approximately 
$615,207 to 17% of net sales in 1996 from 14% of net sales in 1995.  The 
increase in general and administrative expenses relates to the acquisitions 
in 1995 and 1996 of Microgon and Cellco, respectively, and some 
implementation costs for a new management information system.


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

Research and development costs increased to $411,095 in 1996 from $186,078 
in 1995.  Research and development for 1996 was 121% of net sales.  The 
increase in research and development expenses was due primarily to an 
increase in costs of research materials and salaries of researchers to 
develop and test potential new hollow fiber membrane products.  In-process 
research and development costs were a portion of the purchase price of the 
acquisition of Cellco by SLIAC.  The $1,700,000 was allocated to in-process 
research and development costs based upon an independent appraisal.


OTHER INCOME, EXPENSE
---------------------
 
Other expense increased approximately $165,000 in 1996 as compared to 1995.  
The increase relates to interest incurred on borrowings to finance the 
Microgon acquisition.

                                      10

<PAGE>

NET INCOME, LOSS
----------------

In 1996, the Company incurred a loss of $1,693,191 as compared to net losses 
of $269,352 in 1995.  The 1996 loss results primarily from the one time 
write off of $1,700,000 in process research and development costs related to 
the Cellco acquisition.


PROVISION FOR INCOME TAXES
--------------------------

The provision for income taxes in 1995 and 1996 relates primarily to minimum 
state taxes and taxes on earnings of the Company's foreign subsidiary.


LIQUIDITY
---------

At December 31, 1996, the Company had cash and cash equivalents of $591,854.  
Total working capital was $1,144,054.  During 1996, $1,397,317 cash was 
provided by operating activities, net of the effect of acquisition, and 
approximately $242,000 was expended for property acquisitions. 

Historically, the Company has relied on cash flows from operations and 
financing from outside sources and/or affiliates to fund its activities and 
expects to do so in the future.  At December 31, 1996, the Company had 
outstanding borrowings from a bank for $1,942,857, Microgon acquisition 
related borrowings of $219,076 and Cellco borrowings of $180,803.  At 
December 31, 1996, the Company was not in compliance with certain financial 
covenants relating to the $1,942,857 loan from the bank.  On February 28, 
1997, the Company refinanced its notes payable with a $3,600,000 term loan 
requiring 60 monthly installments of $60,000 starting April 1, 1997 bearing 
interest at 9.14%.  The term loan is collateralized by substantially all of 
the assets of the Company and is guaranteed by the majority shareholder.  

The Company believes that cash flow from operations will be sufficient for 
the Company to meet its obligations through December 1997. 

                                      11

<PAGE>

INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Shareholders of
  Spectrum Laboratories, Inc.:


We have audited the accompanying consolidated balance sheet of Spectrum 
Laboratories, Inc. and subsidiaries (the Company) as of December 31, 1996 
and the related consolidated statements of operations, shareholders' equity 
and cash flows for the years ended December 31, 1995 and 1996.  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 audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in 
all material respects, the consolidated financial position of Spectrum 
Laboratories, Inc. and subsidiaries at December 31, 1996 and the results of 
their consolidated operations and their consolidated cash flows for the 
years ended December 31, 1995 and 1996 in conformity with generally accepted 
accounting principles.


DELOITTE & TOUCHE LLP

March 14, 1997
Costa Mesa, California

                                      12

<PAGE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
----------------------------------------------------------------------------

ASSETS     
     
CURRENT ASSETS:     
Cash and cash equivalents                                $     591,854  
Receivables - trade, net of allowance for doubtful      
  accounts of $52,921                                        1,182,687  
Due from affiliates (Note 8)                                   331,764  
Inventories, net (Note 3)                                    1,431,102  
Prepaid expenses and other current assets                      105,498  
                                                         --------------
    Total current assets                                     3,642,905  
     
PROPERTY AND EQUIPMENT, net (Note 4)                         1,152,834  
     
OTHER ASSETS:     
Deferred income taxes (Note 6)                                 377,185  
Intangible and other assets (Note 2)                           179,877  
Goodwill (Notes 1 and 2)                                     3,056,323  
                                                         --------------
    Total other assets                                       3,613,385  
                                                         --------------
                                                         $   8,409,124  
                                                         ==============


See accompanying notes to consolidated financial statements.

                                      13

<PAGE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996 (Continued)

----------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY     
     
CURRENT LIABILITIES:     
Accounts payable                                         $     843,895  
Accrued compensation                                           239,140  
Accrued other                                                  322,503  
Income taxes payable                                            71,291  
Due to affiliates (Note 8)                                     264,999  
Current portion of long-term debt (Notes 2 and 7)              757,023  
                                                         --------------
    Total current liabilities                                2,498,851  
     
LONG-TERM LIABILITIES:     
Long-term debt (Notes 2 and 7)                               1,652,377  
Long-term debt - affiliates (Notes 2 and 7)                  1,238,836  
Other long-term liabilities                                    162,107  
                                                         --------------
    Total long-term liabilities                              3,053,320  
     
MINORITY INTEREST (Note 1)                                   2,046,989  
     
SHAREHOLDERS' EQUITY (Note 5):     
Common stock, par value $.01; 25,000,000 shares authorized;      
  12,834,394 shares issued and outstanding                     128,344  
Additional paid-in capital                                   5,237,848  
Accumulated deficit                                         (4,518,310) 
Unrealized loss on foreign currency translation                (37,918) 
                                                         --------------
    Total shareholders' equity                                 809,964  
                                                         --------------
                                                         $   8,409,124  
                                                         ==============

See accompnaying notes to consolidated financial statements.

                                      14

<PAGE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------------------------------------

                                                   1996             1995
          
NET SALES (Notes 8 and 10)                    $  8,698,794     $  6,478,299  
          
COSTS AND EXPENSES (Note 8):          
Cost of sales                                    5,229,422        4,406,556  
Selling                                          1,127,080          952,577  
General and administrative                       1,517,860          902,653  
Research and development                           411,095          186,078  
In-process research and development costs 
   (Note 2)                                      1,700,000       
Other expense, primarily interest                  287,677          121,853  
                                              -------------    -------------
    Total costs and expenses                    10,273,134        6,569,717  
                                              -------------    -------------
LOSS BEFORE MINORITY INTEREST IN INCOME          
   OF SUBSIDIARY AND PROVISION FOR INCOME 
   TAXES                                        (1,574,340)         (91,418) 
          
MINORITY INTEREST IN INCOME OF          
  SUBSIDIARY (Note 1)                              (56,512)        (139,848) 
                                              -------------    -------------
LOSS BEFORE PROVISION FOR INCOME TAXES          (1,630,852)        (231,266) 
          
PROVISION FOR INCOME TAXES (Note 6)                 62,339           38,086  
                                              -------------    -------------
NET LOSS                                      $ (1,693,191)    $   (269,352) 
                                              =============    =============
NET LOSS PER COMMON SHARE                     $      (0.13)    $      (0.05) 
                                              =============    =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING      12,834,394         5,014,328  
                                              =============    =============

See accompnaying notes to consolidated financial statements.

                                      15

<PAGE>

<TABLE>
SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------------------------------------


<CAPTION>
                                                             Unrealized                 
                                                  Unrealized   loss on               
                                       Additional  gains on    foreign                
                     Common stock        paid-in  investment  currency    Accumulated       
                  Shares      Amount     capital  securities translation    deficit       Total  

<S>               <C>       <C>        <C>         <C>        <C>        <C>           <C>
BALANCE,                                                   
  January 1, 1995 2,200,000  $ 22,000  $4,712,000  $  5,774   $     -    $(2,555,767)  $ 2,184,007  
                                                  
Net loss                                                                    (269,352)     (269,352) 
                                                  
Issuance of                                                  
  common stock                                                  
  in connection                                                  
  with acquisition                                                  
  of subsidiary                                                  
  (Note 2)       10,634,394   106,344     525,848                                          632,192  
                                                  
Unrealized                                                  
  investment                                                  
  gains, net of                                                  
  tax                                                 7,146                                  7,146  
                                                  
Foreign currency                                                  
  translation loss                                             (33,076)                    (33,076)
                 ----------  --------  ----------  ---------  ---------  ------------  ------------
BALANCE,                                                 
  December 31,                                                  
  1995           12,834,394   128,344   5,237,848    12,920    (33,076)   (2,825,119)    2,520,917  
                                                  
Net loss                                                                  (1,693,191)   (1,693,191) 
                                                  
Unrealized                                                  
  investment                                                  
  losses, net of                                                  
  tax                                               (12,920)                               (12,920) 
                                                  
Foreign currency                                                  
  translation loss                                              (4,842)                     (4,842) 
                 ----------  --------  ----------  ---------  ---------  ------------  ------------

BALANCE,                                                  
  December 31,                                                  
  1996           12,834,394  $128,344  $5,237,848  $   -      $(37,918)  $(4,518,310)  $    809,964  
                 ==========  ========  ==========  =========  =========  ============  ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                                  16



<PAGE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------------------------------------

                                                   1996             1995
          
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss                                      $ (1,693,191)    $   (269,352) 
Adjustments to reconcile net loss to net 
  cash provided by operating activities, 
  net of effects of the acquisition:                                
  Depreciation and amortization                    399,896          244,264  
  Gain on sale of securities                                          4,805  
  Minority interest in income of subsidiary         56,512          139,848  
  Deferred income taxes                              1,750       
  In-process research and development costs      1,700,000       
  Change in assets and liabilities, net of 
  effect of acquisition:                                
    (Increase) decrease in receivable - 
     trade, net                                    (24,940)         639,815  
    Decrease (increase) in due from affiliates     310,821         (530,585) 
    Decrease in inventories, net                   341,325           43,130  
    (Increase) decrease in prepaid expenses and 
     other current assets                          (38,195)          84,769  
    (Increase) decrease in other assets            (19,401)           1,667  
    Increase in accounts payable and accrued and 
     other liabilities                             325,468          278,443  
    Increase in income taxes payable                33,205           38,086  
    Increase (decrease) in due to affiliates        21,829         (509,969) 
    Other                                          (17,762)         (33,076) 
                                              -------------    -------------
      Net cash provided by operating 
       activities                                1,397,317          131,845  
                                
CASH FLOWS FROM INVESTING ACTIVITIES:                                
Acquisition of property and equipment             (242,406)        (376,731) 
Increase (decrease) in investments                  63,180          (26,113) 
Cash paid for acquisition, net of cash 
 acquired (Note 2)                                               (3,708,353) 
                                              -------------    -------------
      Net cash used in investing activities       (179,226)      (4,111,197) 
          
CASH FLOWS FROM FINANCING ACTIVITIES:          
Principal payments on long-term debt              (908,709)        (302,640) 
Proceeds relating to advances from affiliates 
  and issuances of long-term debt                  200,000        3,705,502  
                                              -------------    -------------
      Net cash (used in) provided by 
      financing activities                        (708,709)       3,402,862  
                                              -------------    -------------

See accompanying notes to consolidated financial statements.


                                      17

<PAGE>

SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

                                                   1996             1995
          
NET INCREASE (DECREASE) IN CASH AND          
  CASH EQUIVALENTS                            $    509,382     $   (576,490) 
                                
CASH AND CASH EQUIVALENTS, beginning of year        82,472          658,962  
                                              -------------    -------------
CASH AND CASH EQUIVALENTS, end of year        $    591,854     $     82,472  
                                              =============    =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -           
  Cash paid for:          
  Income taxes                                $      4,415     $     18,871  
                                              =============    =============
  Interest                                    $    274,455     $    242,242  
                                              =============    =============



SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company recorded unrealized (losses) gains of $(12,920) and $7,146 on 
its investment portfolio for the years ended December 31, 1996 and 1995, 
respectively.

The Company recorded SMI's minority interest in the income of Spectrum B.V. 
of $56,512 and $139,848 for the years ended December 31, 1996 and 1995, 
respectively.

During 1996, SLIAC acquired substantially all the net assets of Cellco, Inc.  
In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired                           $     773,407  
Intangibles                                                   211,698  
In-process research and development costs                   1,700,000  
Preferred stock issued in exchange for assets (Note 2)     (2,000,000) 
                                                        --------------
Liabilities assumed                                     $     685,105  
                                                        ==============


During 1995, the Company acquired all the capital stock of Microgon, Inc.  
In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired                           $   4,450,662  
Cash paid for capital stock                                 3,764,089  
                                                        --------------
Liabilities assumed                                     $     686,573  
                                                        ==============

In conjunction with the acquisition of Microgon (Note 2), $686,573 of notes 
payable and common stock valued at $632,192 were assumed and/or issued to 
the previous and current shareholders of SMI and Microgon. 

See accompanying notes to consolidated financial statements.

                                      18

<PAGE>

SPECTRUM LABORATORIES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS AND BASIS OF PRESENTATION - Spectrum Laboratories, Inc. 
(Spectrum or the Company), its wholly-owned subsidiaries, SLI Acquisition 
Corporation (SLIAC) (Note 2) and Hydro-Med Products, Inc. (Hydro-Med), and 
its partially-owned subsidiary, Spectrum Europe B.V. (Spectrum B.V.), are 
engaged in a single business segment:  the development, manufacture and sale 
of medical products.  Spectrum's product lines consist of microbiological 
sampling and transport systems.  SLIAC's product lines consist of systems 
and products for use in cell culture and cellular therapeutics.  Hydro-Med's 
product lines consist of surgical drapes, rubber elastic bandages, sterile 
camera covers and a tamper-resistant container system for use in harvesting 
bone and tissue for human transplantation.  Microgon, Inc. (Microgon) was 
purchased in 1995 (Note 2) and merged into the Company.  Microgon's product 
lines consist of disposable cellulose nitrate and cellulose acetate hollow 
fiber microfiltration modules.  All products are for sale primarily to the 
pharmaceutical, biotechnology and medical industries.  The Company operates 
primarily in the United States with sales in the European market through 
Spectrum B.V.  Spectrum is 79% owned by Spectrum Medical Industries, Inc. 
(SMI), an affiliated entity through common ownership.

PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial 
statements include the accounts of Spectrum, its wholly-owned subsidiaries 
SLIAC and Hydro-Med, and its partially-owned subsidiary, Spectrum B.V.  
Spectrum and SMI hold approximately 40% and 60% of the equity interest, 
respectively, of Spectrum B.V.  For financial reporting purposes, the 
assets, liabilities, results of operations and cash flows of Spectrum B.V. 
are included in Spectrum's consolidated financial statements as Spectrum 
exercises significant financial and operational control over Spectrum B.V. 
through common ownership interest.  SMI's interest in Spectrum B.V. and the 
preferred stock of SLIAC (Note 2) are reflected as a minority interest in 
the accompanying consolidated financial statements.  All intercompany 
balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES - The preparation of the combined 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 revenues 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 - Cash and cash equivalents are comprised of 
demand deposit accounts with original maturities of 90 days or less.

                                      19

<PAGE>

SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

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

INVESTMENTS - The Company accounts for its investments under the provisions 
of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting 
for Certain Investments in Debt and Equity Securities.  Any unrealized gains 
or losses related to available for sale securities is recorded as a 
component of shareholders' equity, net of tax.

PROPERTY AND EQUIPMENT - Furniture, equipment and leasehold improvements are 
stated 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.

GOODWILL - Goodwill represents the excess of the purchase price over the 
fair value of net assets acquired from the Cellco Incorporated (Cellco) 
(Note 2) acquisition during 1996 and Microgon acquisition during 1995.  
Goodwill is being amortized on a straight-line basis over a 15- and 20-year 
period for Cellco and Microgon, respectively.  The Company measures the 
recoverability of goodwill annually by comparing undiscounted expected 
future cash flows from the related operations to the carrying value of 
goodwill.  Accumulated amortization of goodwill amounted to $226,403 at 
December 31, 1996.

INTANGIBLE ASSETS - On January 1, 1996, the Company adopted SFAS No. 121, 
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets 
to Be Disposed Of.  SFAS No. 121 requires impairment losses to be recognized 
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.  The Company measures the recoverability of 
intangibles annually by comparing undiscounted expected future cash flows 
from the related operations to the carrying value of intangibles.  
Accumulated amortization of intangibles amounted to $459,549 at December 31, 
1996.

INCOME TAXES - The Company accounts for income taxes under the provision of 
SFAS No. 109, Accounting for Income Taxes.  This statement requires the 
recognition of deferred tax assets and liabilities for the future 
consequences of events that have been recognized in the Company's financial 
statements or tax returns.  Measurement of the deferred items is based on 
enacted tax laws.  In the event the future consequences of differences 
between financial reporting bases and tax bases of the Company's assets and 
liabilities result in a deferred tax asset, SFAS No. 109 requires an 
evaluation of the probability of being able to realize the future benefits 
indicated by such asset.  A valuation allowance related to a deferred tax 
asset is recorded when it is more likely than not that some portion or all 
of the deferred tax asset will not be realized.

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

                                      20

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

NET LOSS PER COMMON SHARE - Net loss per common share is computed using the 
weighted average number of shares of common shares outstanding divided by 
the net loss.  Assumed exercise of outstanding options and the assumed 
conversion of debt to affiliates into common stock have been excluded due to 
their anti-dilutive nature.

TRANSLATION OF FOREIGN CURRENCIES - Assets and liabilities of Spectrum B.V. 
are translated into U.S. dollars at year-end rates of exchange, and income 
and expenses are translated at average rates during the respective years.  
The functional currency of this subsidiary is the guilder; therefore, 
translation gains or losses are recorded as a separate component of 
shareholders' equity.

FAIR VALUE OF FINANCIAL INSTRUMENTS - Management believes that the carrying 
amount of cash and cash equivalents, accounts receivable, accounts 
receivable due from affiliates, accounts payable and accrued expenses 
approximates fair value because of the short maturity of these financial 
instruments.  A portion of long-term debt bears interest at a rate indexed 
to the prime rate, and the remaining long-term debt and notes payable to 
affiliated parties bears interest at a rate comparable to prime at 
December 31, 1996; therefore, management believes the carrying amount of the 
outstanding borrowings at December 31, 1996 approximates fair market value.  

STOCK OPTIONS - In October 1995, the Financial Accounting Standards Board 
issued SFAS No. 123, Accounting for Stock-Based Compensation, which requires 
adoption of the disclosure provisions no later than years beginning after 
December 15, 1995 and adoption of the recognition and measurement provisions 
for nonemployee transactions no later than after December 15, 1995.  The new 
standard defines a fair value method of accounting for stock options and 
other equity instruments.  Under the fair value method, compensation cost is 
measured at the grant date based on the fair value of the award and is 
recognized over the service period, which is usually the vesting period.  

Pursuant to the new accounting standard, companies are encouraged, but are 
not required, to adopt the fair value method of accounting for employee 
stock-based transactions.  Companies are also permitted to continue to 
account for such transactions under Accounting Principles Board (APB) 
Opinion No. 25, Accounting for Stock Issued to Employees, but are required 
to disclose in a note to the financial statements pro forma net income and 
earnings per share as if the Company had applied the new method of 
accounting.  The Company has determined that it will not change to the fair 
value method and will continue to use APB Opinion No. 25 for measurement and 
recognition of employee stock-based transactions (Note 5).  

RECLASSIFICATIONS - Certain 1995 balances have been reclassified to conform 
with the 1996 presentation.  

                                      21

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

2.  ACQUISITIONS

On August 1, 1995, Spectrum acquired all of the outstanding common stock of 
Microgon in exchange for 10,634,394 shares of Spectrum common stock.  The 
acquisition, which was accounted for as a step acquisition as of August 1, 
1995, was valued at $5,082,854.  The purchase price was paid through the 
issuance of subordinated notes payable of $686,473, issuance of common stock 
to a Microgon shareholder with a carryover basis of $632,192, and a cash 
payment of $3,764,089.  The notes payable were due in January 1997, bore 
interest at 9% annually and were guaranteed by the majority shareholder in 
SMI.  Such notes were paid in 1997.  The acquisition was financed through 
borrowings by the Company of $2,500,000 (Note 7) from a bank and $1,105,000 
from two significant shareholders of SMI (Note 7).

On October 1, 1996, SLIAC entered into an Asset Purchase Agreement with 
Cellco, a Delaware corporation, and acquired the operating assets and 
liabilities of Cellco in exchange for 10,000 shares of SLIAC preferred stock 
valued at $2,000,000. The acquisition was recorded as a purchase for 
accounting purposes and the purchase price of $2,085,000 was allocated to 
assets acquired of $773,407, liabilities assumed of $685,105, intangible 
assets of $211,698, and purchased research and development costs of 
$1,700,000.  The preferred shareholders of SLIAC have the right to put their 
stock to SLI at any time from October 1, 2000 to September 30, 2001 for a 
price of $2,000,000.  In the event the Company is combined with SMI and the 
combined company completes an underwritten offering, the preferred 
shareholders have the right to exchange such stock for 7% of the newly 
combined company.  The right of exchange will be increased to 10% of the 
newly combined company in the event SLIAC concludes certain contract 
negotiations within 120 days of the public offering.  The preferred shares 
are non-voting and have preference over common shareholders as to dividends 
and liquidation.

The following unaudited consolidated pro forma results of operations for the 
years ended December 31, 1996 and 1995 assume the acquisition Cellco and 
Microgon occurred at the beginning of the respective years.  These unaudited 
consolidated pro forma results have been prepared for comparative purposes 
only and do not purport to be indicative of the results which would have 
occurred had the acquisition been made as of that date or of results which 
may occur in the future.  

                                                     1996           1995
          
Net revenues                                    $  9,571,992   $  9,059,828  
                                                =============  =============
Net loss                                        $ (2,610,540)  $ (3,545,524) 
                                                =============  =============
Net loss per common share                       $      (0.20)  $      (0.28) 
                                                =============  =============
Weighted average number of common shares 
  used in per share computation                   12,834,394     12,834,394  
                                                =============  =============

                                      22

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

3.  INVENTORIES

Inventories consist of the following at December 31, 1996:

     Raw materials                                      $     525,934  
     Work in progress                                          72,507  
     Finished goods                                         1,035,897  
                                                        --------------
                                                            1,634,338  
     Less reserve for obsolescence                           (203,236) 
                                                        --------------
                                                        $   1,431,102  
                                                        ==============


4.  PROPERTY AND EQUIPMENT

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

     Equipment                                          $   4,051,044  
     Furniture                                                642,615  
     Leasehold improvements                                   764,441  
                                                        --------------
                                                            5,458,100  
     Less accumulated depreciation and amortization        (4,305,266) 
                                                        --------------
                                                        $   1,152,834  
                                                        ==============

5.  STOCK OPTION PLAN

The Company has a Stock Option Plan (the Plan) providing for options to 
purchase up to 2,000,000 shares of its common stock.  The Plan provides for 
the granting of options to qualified employees and consultants of the 
Company at prices which are not less than 85% of the fair market value of 
the shares as of the date of grant.  The options become exercisable as 
specified in the Plan, expire not more than ten years from the date of 
grant, and become exercisable ratably over a four-year period (25% per 
year).  No options have been exercised to date.

                                      23

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

Option activity under the Plan is as follows:

                                                             Weighted  
                                                             average  
                                         Number of           exercise  
                                          shares               price  
               
OUTSTANDING, January 1, 1995                -                 $ -   
  Granted (weighted average fair 
     value of $.24)                      639,000              $.32  
                                         ------- 
OUTSTANDING, December 31, 1995           639,000               .32  
  Granted (weighted average fair 
     value of $.23)                      282,000               .30  
                                         -------
OUTSTANDING, December 31, 1996           921,000               .32  
                                         =======

At December 31, 1996, 1,461,338 shares were available for future grants 
under the Plan.

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 values.  
The Company's calculations were made using the Black-Scholes option-pricing 
model with the following weighted average assumptions: expected life, 48 
months following complete vesting; stock volatility, 108%; risk-free 
interest rate, 6%; and no dividends during the expected term.  The Company's 
calculations are based on a single option valuation approach, and 
forfeitures are recognized as they occur.  If the computed fair values of 
the 1996 and 1995 awards had been amortized to expense over the vesting 
period of the awards, pro forma net loss would have been $1,697,007 ($.13 
per share) in 1996 and would  have no effect on net loss and loss per share 
in 1995.  However, the impact of outstanding non-vested stock options 
granted prior to 1995 has been excluded from the pro forma calculation; 
accordingly, the 1996 and 1995 pro forma adjustments are not indicative of 
future period pro forma adjustments, when the calculation will apply to all 
applicable stock options.

                                      24

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

6.  INCOME TAXES

The Company's current income tax provision consists of the following:

                                                      1996        1995
          
     Federal                                        $     -     $     - 
     State                                            40,795       7,200  
     Foreign                                          21,544      30,886  
                                                    ---------   ---------
                                                    $ 62,339    $ 38,086  
                                                    =========   =========

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

                                                      1996          1995
          
     Statutory federal income tax benefit         $ (570,798)     $(80,943) 
     Goodwill amortization                            54,784        23,116  
     Non-deductible meals and entertainment            2,324         6,824  
     State income taxes, net                          26,337         4,680  
     Increase in valuation allowance                 565,907        53,573  
     Effect of foreign taxes                         (16,215)       30,836  
                                                  -----------     ---------
     Income tax provision                         $   62,339      $ 38,086  
                                                  ===========     =========

The components of the Company's net deferred income tax asset as of 
December 31, 1996 are as follows:

     Deferred state taxes                                         $   (5,759) 
     Depreciation                                                    (31,475) 
     Research and development expenses                               752,185  
     Reserves not currently deductible                               166,503  
     Operating loss carryforwards                                  3,618,481  
     Other                                                            74,979  
                                                                  -----------
                                                                   4,574,914  
     Valuation allowance                                          (4,197,729) 
                                                                  -----------
     Net deferred tax asset                                       $  377,185  
                                                                  ===========


                                      25

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

The Company's valuation allowance of $4,197,729 at December 31, 1996 results 
from the uncertainty of the Company's ability to utilize net operating loss 
and tax credit carryforwards to reduce future taxes.  The valuation 
allowance increased $1,162,193 during 1996.

At December 31, 1996, the Company had net operating loss carryforwards for 
federal income tax purposes of $9,693,261 ($8,100,000 available to offset 
income of Microgon only), which expire at various dates from 1998 through 
2009.  The utilization of Microgon's $8,100,000 federal net operating loss 
is limited to approximately $230,000 of Microgon income annually.  Any 
unused net operating loss is carried forward.  As a result of the 
limitation, it is possible that more than $5,000,000 of the Microgon loss 
may expire without utilization.  The Company has an approximate $3,500,000 
state net operating loss carryforward, which expires at various dates 
beginning in 1998.


7.  LONG-TERM DEBT

Long-term debt to unaffiliated entities consists of the following at 
December 31, 1996:

  Note payable to bank, collateralized by substantially 
    all of the assets of the Company, guaranteed by the 
    majority shareholder, due in monthly principal 
    installments of $29,762 through November 29, 2000, 
    plus a final installment equal to the entire unpaid 
    principal balance and accrued interest on the 
    termination date.  Interest is payable monthly at a
    bank's prime rate (9% at December 31, 1996), plus 
    .75% per annum.                                            $1,942,857  
     
  9% subordinated acquisition notes payable, including 
    accrued interest, guaranteed by the majority 
    shareholder, principal and accrued interest due 
    on January 1, 1997                                            219,076  

  Noninterest-bearing notes payable due on various 
    dates through January 1, 1998                                  81,749  
     
  Obligation under sales-leaseback transaction                     99,054  
                                                               -----------
                                                                2,342,736  
  Less current portion                                           (690,359) 
                                                               -----------
                                                               $1,652,377  
                                                               ===========

                                      26

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

Aggregate maturities of long-term debt as of December 31, 1996 are as 
follows:

     1997                                            $     690,359  
     1998                                                  423,807  
     1999                                                  357,144  
     2000                                                  871,426  
                                                     --------------
                                                     $   2,342,736  
                                                     ==============


The note payable to the bank includes certain financial covenants, restricts 
the Company from purchasing property and making loans to affiliates in 
excess of specified amounts, and prohibits the payment of dividends without 
prior approval of the bank.  The Company was not in compliance with various 
covenants at December 31, 1996.  On February 28, 1997, the Company 
refinanced its notes payable with a $3,600,000 term loan requiring 60 
monthly installments of $60,000 starting April 1, 1997, bearing interest at 
9.14%.  The term loan is collateralized by substantially all of the assets 
of the Company and is guaranteed by the majority shareholder.  Due to the 
refinancing of notes payable subsequent to December 31, 1996, management has 
classified the current portion of notes payable under the terms of the 
original agreement.

On April 1, 1995, the Company sold certain items of its laboratory equipment 
for $159,912.  Concurrently, the Company leased the equipment back for a 
period of 48 months at a monthly rental of $4,311.  The Company has the 
option to repurchase the equipment at the end of the lease for consideration 
equal to the greater of 10% of the sale price or the fair market value of 
the equipment at that time, as determined by an independent appraiser.  As a 
result, the transaction has been recorded as a financing transaction rather 
than as a sale, and the equipment and related accounts continue to be 
recognized in the accompanying financial statements.  

The future lease payments under the related lease agreement are as follows:  

     Year ending December 31:     
       1997                                              $  51,732  
       1998                                                 51,732  
       1999                                                 12,933  
                                                         ----------
                                                           116,397  
     Less amount representing interest                     (17,343) 
                                                         ----------
                                                         $  99,054  
                                                         ==========

The implicit interest rate under the related lease agreement is 14%.  


                                      27

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

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

  Convertible notes payable to shareholders, payable 
    in five equal annual installments aggregating 
    $200,000 plus interest, beginning January 1, 2001,      
    with a final installment of $105,000 plus interest, 
    due on January 1, 2006; interest accrues at the rate
    of 8.75% per annum.  The notes may be converted to 
    shares of common stock at a conversion price of $.31 
    per share and contain antidilution provisions.             $  1,105,500  
     
  Promissory note to shareholder, payable in 24 monthly 
    installments aggregating $8,333 plus interest, 
    beginning May 1, 1997, with a final payment of $8,333      
    plus interest, due on April 30, 1999; interest accrues 
    at the rate of 10% per annum.                                   200,000  
                                                               -------------
                                                                  1,305,500  
  Less current portion                                              (66,664) 
                                                               -------------
                                                               $  1,238,836  
                                                               =============

Interest expense to affiliates amounted to $119,495 and $41,446 in 1996 and 
1995, respectively.


8.  AFFILIATED-ENTITIES TRANSACTIONS

The Company had additional transactions with affiliates as follows:

                                                       1996        1995
          
  Rent paid to a company partially owned by a 
    member of the Board of Directors                $   36,000  $   36,000  
          
  Legal fees to a firm which employs a member 
    of the Board of Directors                           27,080      70,027  
          
  Purchases from a company controlled by the 
    majority shareholder                               103,173     687,539  
          
  Sales to a company controlled by the majority 
    shareholder                                         23,685     189,687  
             
  Consulting fees paid to a company controlled 
    by the majority shareholder                                     91,133  


                                      28

<PAGE>


SPECTRUM LABORATORIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (Continued)
----------------------------------------------------------------------------

Companies controlled by and affiliated with the majority shareholder share 
various facilities and services, including office space, manufacturing, 
administrative and marketing staff assistance, and data processing 
capabilities.  The expenses and revenues associated with staff assistance, 
services and data processing capabilities are allocated to the respective 
companies based on time devoted to each company.  Overhead costs for shared 
manufacturing and assembly facilities are allocated based on space utilized.  
In connection with the shared services and facilities, the Company had 
amounts due from affiliates of $331,764 and amounts due to affiliates of 
$264,999 at December 31, 1996.


9.  COMMITMENTS

The Company rents manufacturing and office facilities under lease agreements 
requiring payments of $197,112 in 1997.  Rent expense under operating leases 
was $218,939 and $195,343 in 1996 and 1995, respectively, of which $36,000 
was paid to an affiliated entity in 1996 and 1995.  


10.  FOREIGN SALES

Sales to customers in foreign countries, primarily Europe, amounted to 
$1,826,127 and $1,963,007 in 1996 and 1995, respectively.


11.  PROPOSED MERGER

The Company is currently investigating the possibility of a merger with SMI.  
No definitive agreement has been reached as of March 14, 1997.


12.  SUBSEQUENT EVENT

On January 29, 1997, the Company signed a letter of intent to sell the 
sample collection product line of Hydro-Med for $800,000 plus the value of 
inventory, approximately $169,000.  Such sale closed on March 31, 1997.  


                                      29


<PAGE>
Item 8.  Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure

None


                                   Part III

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

Directors
---------

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

Name                         Age       Director Since       Position
----                         ---       --------------       --------
Roy T. Eddleman               57       July 30, 1982        Chairman, CEO 
                                                            & Director

John J. Driscoll              48       July 30, 1982        Director,
                                                            Secretary

Jack Whitescarver             59       April 1, 1985        Director

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

Roy T. Eddleman               57       July 30, 1982        Chairman & CEO

F. Jesus Martinez             57           ----             President

Bruce R. Peasland             51           ---              Chief Financial 
                                                            Officer


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 five years.  
He owns interests ranging from a minority investment to control in 
approximately 10 privately held companies, the majority of which are engaged 
in the manufacture and sale of products.

John J. Driscoll has been employed as an attorney in private practice for 
over six years.

Jack Whitescarver is the Deputy Director for the Office of AIDS Research at 
the National Institutes of Health in Bethesda, Maryland and has been there 
more than 5 years.

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.  Mr. Martinez holds graduate and 
undergraduate degrees in Engineering Sciences and Medical Physiology from 
Emory University and has over 28 years of extensive experience in membrane 
filtration devices for the medical, laboratory and industrial markets.

                                      30

<PAGE>


Bruce R. Peasland, the chief financial officer, has been employed by the 
Company since May 1996.  Prior to such date, Mr. Peasland was the Executive 
Vice President and Chief Financial  Officer for Intervest Industries from 
1989.

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 1996.  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 officer to whom 
it paid in excess of $100,000 including cash and issuance of securities:

<TABLE>
<CAPTION>

                            Annual Compensation      Restricted Long Term Compensation
                            -------------------      ----------------------------------
Name and Position       Year    Salary     Bonus     Stock     SAR's     LTIP    All
                                                     Awards                      Other
--------------------   -----  ---------  ---------  ------------------------------------
<S>                     <C>    <C>       <C>        <C>
Roy Eddleman            1996   $160,000  $75,000 
Chief Executive Officer 1995   $160,000  $82,000                         
                        1994          0  $60,000                         
                                        
F. Jesus Martinez       1996   $145,000  $55,000                         
President               1995    $84,180  $88,753(1)  240,000               
                        1994   $120,000  $20,000                         

</TABLE>

(1)    A payment of $88,753 was made in connection with the sale of Microgon 
to the Company. 


                                      31

<PAGE>

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 31, 1996 by (i) all 
persons known by management to be beneficial owners of more than 5% of its 
Common Stock, (ii) all nominees for directors and (iii) all officers and 
nominees for directors of the Company as a group:


<TABLE>
<CAPTION>
                                Amount and Nature of Beneficial Ownership (A)               
Name                        Directly Owned      Percent    Indirectly Owned with    Percent
                             with Sole Power    of Class   Shared Power of Voting   of Class(1)
                             of Voting and                  and/or Disposition
                              Disposition
                              -----------      ---------   ---------------------   ------------
<S>                           <C>              <C>             <C>                   <C>
Roy T. Eddleman (B)
32022 La Cadena Drive
Laguna Hills, California           901,907         7.0%          11,037,338           85.9%

Spectrum Medical Industries, Inc.
23022 La Cadena Drive
Laguna Hills, California        10,135,431        78.9%                   -              -

Thomas Gerardi
1126 Wilshire Boulevard
Los Angeles, CA  90017             901,907         7.0%                   -              -

Jack Whitescarver (C)                  -             -                    -              -

John J. Driscoll (C)                   -             -                    -              -

All directors and officers as a 
group (5 in number)                901,907         7.0%                   -              -

</TABLE>

                    

(1)     12,834,394 shares outstanding as of December 31, 1996.

(A)     Unless otherwise noted, all shares listed are owned of record.

(B)     Mr. Eddleman is the principal shareholder, executive officer and 
director of Spectrum Medical Industries, Inc.  As such, he may be deemed to 
control investment power of the 10,135,431 shares of the Company's Common 
Stock owned by Spectrum Medical Industries.  Such shares are included in the 
indirect beneficial holdings of Mr. Eddleman set forth in the above table.

(C)     In 1991 Messrs. Whitescarver and Driscoll each received options to 
purchase 8,333 shares of the Company's Common Stock at an exercise price of 
$0.60 per share.  No options have been exercised to date.  In 1995, Mr. 
Driscoll was granted 50,000 options at an exercise price of $.32 per share.


The following table sets forth options granted to named executive officers:

<TABLE>
<CAPTION>

Name            No. of Securities    Percent of   Exercise  Expiration Potential Realizable Value at
                   Underlying      Total Options   Price       Date       Assumed Annual Rates of 
                    Options                                               Stock Price Appreciation
--------------  ------------------ -------------- --------- ----------- ----------------------------
<s.                 <C>               <C>           <C>      <C>                <C>
Roy T. Eddleman,
    CEO               --                --           --          --                   --
F. Jesus Martinez,
   President        240,000            30.7%         .32      12/31/00           at  5% $103,200
                                                                                 at 10% $127,200
</TABLE>


                                      32

<PAGE>


Item 12.  Certain Relationships and Related Transactions

In 1996 and 1995, the Company has had transactions with related parties as 
follows:

                                   Years ended December 31,   
                                                      1996        1995
     Rent paid to a company owned by the
       Board of Directors (the "Chairman")           $36,000     $36,000
     Fees for legal service paid to a law
       firm which employs a member of the 
       Board of Directors                            $27,080     $70,027
     Purchases from companies controlled
       by and affiliated with the Chairman          $103,173    $687,539
     Sales to companies controlled and
       affiliated with the Chairman                  $23,685    $189,687
     Consulting fees paid to companies
       controlled by and affiliated with 
       the Chairman                                        0     $91,133
          


                                      33

<PAGE>


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 file 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

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

10.1         Agreement for Sale of Assets dated as of August 1, 1982 
             between Registrant and Glenco Scientific, Inc. (incorporated by 
             reference to Exhibit 10.7 filed with Registrant's report on 
             form 10-K for the fiscal year ended December 31, 1982, 
             Commission File No. 0-9478)

10.2         Agreement for Sale of Assets dated as of August 1, 1982 between 
             Registrant and Spectrum Medical, Inc. (incorporated by 
             reference to Exhibit 10.8 filed with Registrant's Report on 
             Form 10-K for the fiscal year ended December 31, 1982, 
             commission File No. 0-9478)

10.3         Agreement for Sale of Assets Dated as of July 1, 1983 between 
             the Registrant and all the shareholders of Innometrics, Inc. 
             (incorporated by reference to Exhibit 10.8 filed with 
             Registrant's Report on Form 10-K for the fiscal year ended 
             December 31, 1983, Commission File No. 0-9478)

10.4         Agreement and Plan of Reorganization dated March 31, 1983 
             between the Registrant and all the shareholder of Innometrics, 
             Inc. (incorporated by reference to Exhibit 10.8 filed with 
             Registrant's Report on Form 10-K for the fiscal year ended 
             December 31, 1983, Commission File No. 0-9478)


                                      34

<PAGE>

10.5         Sublease dated September 15, 1982, between Registrant and 
             Glenco Scientific, Inc. for facilities at 15413 Vantage Parkway 
             East, Houston, Texas (incorporated by reference to Exhibit 
             filed with Registrant's  Report on Form 10-K for the fiscal 
             year ended December 31, 1983, Commission File No. 0-9478)

10.6         Registrants Stock Compensation Plan (incorporated by reference 
             to Exhibit 10.11 filed with Registrant's Report on Form 10-K 
             for the fiscal year ended December 31, 1983, Commission File 
             No. 0-9478)

10.7         Registrant's 1982 Stock Option Plan (incorporated by reference 
             to Exhibit 10.12 filed with Registrant's Report on Form 10-K 
             for the fiscal year ended December 31, 1983 Commission File No. 
             0-9478)

10.8         Purchase Agreement dated as of July 21, 1983 between Registrant 
             and Biotic Technologies, Inc. (incorporated by reference to 
             Exhibit 10.13 filed with Registrants Report on Form 10-K for 
             the fiscal year ended December 31, 1983, Commission File No. 0-
             9478)

10.9         Closing Agreement dated as of October 26, 1983 between 
             Registrant, Arden A. Kelton and Environmental Diagnostics, Inc. 
            (incorporated by reference to Exhibit 10.14 with Registrant's 
             Report on Form 10-K for the fiscal year ended December 31, 
             1983, Commission File No. 0-9478)

10.10        Evaluation and Option Agreement dated August 17, 1984 between 
             Registrant and Instrumentation Laboratories, Inc. (incorporated 
             by reference to Exhibit 10.10 filed with Registrant's Report on 
             Form 10-K for the fiscal year ended December 31, 1984, 
             Commission File No. 0-9478)

10.11        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

10.12        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. 

10.13        City National Bank loan agreement dated as of February 28, 
             1997, between registrant, Spectrum Medical Industries, Inc., 
             and City National Bank (incorporated by reference to Exhibit 
             10.13 filed with registrant's report on Form 10-KSB for fiscal 
             year ended December 31, 1996, Commission File No. 0-9478).

10.14        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).
     
(b)  During the quarter ended December 31, 1996, the Company filed a current 
report in Form 8K dated November 1, 1996 reporting under Item 2 information 
about the acquisition of Cellco, Inc. and under Item 7 as the financial 
statement of Cellco, Inc., and Item 7(b)  the pro forma consolidated 
statement of operations to be filed at a future date.


                                      35

<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.

Spectrum Laboratories, Inc.




By: /s/ Bruce R. Peasland                
    ----------------------------
Bruce R. Peasland
Chief Financial Officer
Date:





By: /s/ Roy T. Eddleman                     
    ----------------------------
Roy T. Eddleman, President
Chief Executive Officer and Director
Date:





By: /s/ John J. Driscoll                       
    -----------------------------
John J. Driscoll, Secretary and Director
Date:


                                      36