<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

                   For the Fiscal Year Ended December 28, 2002

                           Commission File No. 0-9478

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

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

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

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

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

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

                                  Common Stock
                                (Title of Class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ X ].

      State issuer's revenues for its most recent fiscal year: $13,246,000

The aggregate market value of voting stock held by nonaffiliates of the
registrant is $49,233 as of February 28, 2003, based on the $0.55 per share
closing price for the Common Stock in the over-the-counter market on such date,
representing 89,515 shares held by nonaffiliates.

Number of shares of Common Stock outstanding as of February 28, 2003:  5,312,468

<PAGE>

                                TABLE OF CONTENTS
                            FORM 10-KSB ANNUAL REPORT
                      FOR THE YEAR ENDED DECEMBER 28, 2002
                           SPECTRUM LABORATORIES, INC.

<TABLE>
<CAPTION>
Item No.                                                                                             Page
--------                                                                                             ----

     <S>                                                                                             <C>
     PART I
     1.   Description of Business  ................................................................   3
     2.   Description of Property  ................................................................   7
     3.   Legal Proceedings  ......................................................................   7
     4.   Submission of Matters to a Vote of Security Holders  ....................................   7

     PART II
     5.   Market for Common Equity and Related Shareholder Matters  ...............................   8
     6.   Management's Discussion and Analysis of Financial Condition and Results of Operations  ..   9
     7.   Financial Statements  ...................................................................  10
     8.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  ...  11

     PART III
     9.   Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
          16(a) of the Exchange Act................................................................  12
     10.  Executive Compensation...................................................................  13
     11.  Security Ownership of Certain Beneficial Owners and Management...........................  14
     12.  Certain Relationships and Related Transactions...........................................  15
     13.  Exhibits and Reports on Form 8-K.........................................................  15
     14.  Control and Procedures...................................................................  17

Certification    Certifications - Chief Financial Officer and Chief Executive Officer..............  19
</TABLE>

                                       2
<PAGE>

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

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL
-------

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

BUSINESS
--------

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

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

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

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

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

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

                                       3
<PAGE>

The Company's MTM devices, loaded with hepatocytes (liver cells) have been used
successfully as liver-assist devices for patients suffering from acute liver
failure. The device provides a life sustaining "bridge" to patients suffering
from fulminant liver failure who are candidates for a liver transplant or until
their own liver regenerates and recovers. By providing MTM's devices and systems
to clinical scientists, the Company believes that its products will be part of
applications and protocols for therapies undergoing the regulatory approval
process controlling such therapies. In December of 2001, Spectrum entered into
specific research, licensing, manufacturing and supply agreements (the
Agreements) with an unrelated company to develop this technology. Per the terms
of the Agreements, Spectrum would be the exclusive manufacturer for any product
developed as a result of this research.

PRODUCTS
--------

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

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

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

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

OPERATING ROOM (OR) DISPOSABLES

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

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

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

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

OPERATING ROOM (OR) DISPOSABLES

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

The products are distributed through a number of channels including National and
Regional Catalog Houses, OEM and Private Label Accounts, Regional OR Specialty
Distributors, Custom Procedure Tray Manufacturers and direct sales to
Institutions and International Distributors. Nearly all Operating Room Equipment
Drapes are sold in sterile ready-to-use format. OR Drapes are sold primarily
through OEM and Private label accounts, through Regional OR Specialty
Distributors and through Regional and National Catalog Houses. Over the past few
years, the importance of OR Specialty Distributor sales has declined while OEM,

                                       4
<PAGE>

Private Label and Catalog House sales have increased. OR Drapes constitute
nearly all the Company's international sales for this product group. Orthopedic
Soft Goods are primarily sold through Regional and National Catalog Houses and
Procedure Tray Manufacturers. Approximately one-third of Orthopedic Soft Goods
sales are in non-sterile, bulk format primarily to Tray Manufacturers.
Essentially no Soft Goods or Esmarch Bandages are sold internationally. Esmarch
Bandages are sold through Catalog Houses, Regional OR Specialty Distributors,
Procedure Tray Manufacturers and Private Label.

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

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

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

OPERATING ROOM (OR) DISPOSABLES

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

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

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

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

TUBULAR MEMBRANES FOR DIALYSIS, FILTRATION AND CELL CULTURE

The Company purchases common raw polymers and a variety of casting solvents from
several approved suppliers. The Company uses these materials to formulate and
manufacture several different kinds of proprietary membranes for specific
separation and purification processes in the Life Sciences field. Additionally,
the Company purchases commercially available membranes for certain applications
from several qualified suppliers. The Company has not experienced difficulty in
obtaining the necessary raw materials and supplies to conduct its business. Many
membranes are assembled into housings that are molded from commonly available
plastic resins by third party molders using molds owned by the Company.
Membranes are often affixed to the housings by means of proprietary potting
resins supplied by two independent suppliers that are covered by an industry

                                       5
<PAGE>

cooperative disaster recovery plan. The plan allows the suppliers to manufacture
the resins in the event of an interruption of supply. Membranes are also
pre-assembled into ready-to-use devices or marketed as pre-packaged finished
products to research laboratories.

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

OPERATING ROOM (OR) DISPOSABLES

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

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

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

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

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

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

In addition to regulations enforced by the FDA and the CFDB, the Company is also
subject to regulations under the Environmental Protection Act, the Occupational
Safety and Health Act, and other present and potential supranational, foreign,
Federal, state and local regulations. Compliance with any of these has not had a
material effect on the capital expenditures, operations or competitive position
of the Company to date. The Company adheres to the strict provisions of its ISO
9001:2000 certification status.

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

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

The Company does not believe that its business would be adversely affected by
the loss of any individual customer or small group of customers. During the 2002
and 2001 fiscal years, two distributors accounted for 10% or more of the
Company's total sales which were approximately 14% in both 2002 and 2001, for
one dealer, and approximately 14% and 13% in 2002 and 2001, respectively, for
another customer.

                                       6
<PAGE>

RESEARCH AND PRODUCT DEVELOPMENT

The Company incurred research and product development expenses of approximately
$754,000 in 2002 and $671,000 in 2001. Research and product development
functions are particularly important for the Company's future growth.

EMPLOYEES
---------

On December 28, 2002, the Company had 123 employees, of which 120 were full-time
employees.

ITEM 2.  DESCRIPTION OF PROPERTY

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

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

                                                           Lease        Monthly
      Location           Principal Usage     Sq. Feet    Term. Date     Rental
----------------------   -----------------   --------    ----------    ---------

Rancho Dominguez, CA     Administration
                         and Manufacturing    55,000        7/05       $ 27,750
Dallas, TX               Manufacturing        20,000       12/03          5,833
Houston, TX              Manufacturing         9,975        8/03          4,539
Breda, The Netherlands   Sales                 1,400       12/03          2,035


ITEM 3.  LEGAL PROCEEDINGS

None.

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

At the Company's fiscal 2002 Annual Meeting of Stockholders held on July 15,
2002 the following individuals constituting all of the members of the Board of
Directors were elected. For each elected director, the results of the voting
were:

<TABLE>
<CAPTION>

                                      Affirmative Votes    Negative Votes    Votes Withheld
                                      -----------------    --------------    --------------
         <S>                               <C>                  <C>               <C>
         Roy T. Eddleman                   4,320,128            0                 0
         Thomas V. Girardi, J.D.           4,320,128            0                 0
         Jay Henis, Ph. D.                 4,320,128            0                 0
         Walter J. Lack, J.D.              4,320,128            0                 0
         Jack Whitescarver, Ph. D.         4,320,128            0                 0
</TABLE>

The stockholders voted to ratify the selection of McGladrey & Pullen, LLP as the
Company's independent accountants for the fiscal year ending 2002, pending Board
of Directors approval of audit quotation. The results of the voting of this
proposal were 4,320,128 affirmative votes, 0 negative votes and no votes were
withheld.

The stockholders also approved merging the 1995 Option Plan and the 2000 Option
Plan into one plan to be referred to as the 2000 Option Plan. In addition,
shareholders increased the number of shares available to grant under the 2000
Option Plan by 100,000 to a total of 600,000. The results of the voting of this
proposal were 4,320,128 affirmative votes, 0 negative votes and no votes were
withheld.

                                       7
<PAGE>

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

                2002                            High                   Low
                ----
                First Quarter                $  3.05                $  1.30
                Second Quarter                  2.50                   1.25
                Third Quarter                   3.00                   1.05
                Fourth Quarter                  1.05                   0.55

                2001
                ----
                First Quarter                $  2.38                $  1.50
                Second Quarter                  3.00                   1.62
                Third Quarter                   3.00                   1.75
                Fourth Quarter                  3.05                   1.50

No dividends have been declared or paid by the Company since inception.
Additionally, the Company's financing agreement with the bank prohibits 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 28, 2002, the number of holders of record of the Company's Common
Stock was 746.

<TABLE>
<CAPTION>
                                   Equity Compensation Plan Information
--------------------------------------------------------------------------------------------------------------
                                                                                      Number of securities
                                                                                      remaining available for
                                                                                      future issuance under
                                Number of securities to be    Weighted-average        equity compensation
                                issued upon exercise of       exercise price of       plans (excluding
                                outstanding options,          outstanding options,    securities reflected in
Plan category                   warrants and rights           warrants and rights     column (a))
--------------------------------------------------------------------------------------------------------------
<S>                                   <C>                           <C>                     <C>
Equity compenensation plans
approved by security holders          482,100                       $1.82                   117,900
--------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders          315,624                       $1.40                      *
--------------------------------------------------------------------------------------------------------------
Total                                 797,724
----------------------------------------------------------
</TABLE>

* Incentive plan with Company's President & COO, includes anti-dilution rights
to maintain 5% stock ownership.

                                       8
<PAGE>

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

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Determining Impairment on Long-lived Assets - The Company recognizes impairment
losses for long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows are not sufficient to recover the
assets' carrying amount. Management believes there has been no impairment of the
value of such assets.

Patents - The Company has acquired patents utilized within the various
manufacturing processes. These patents are amortized over their respective
lives, typically 17 years. Management believes there has been no impairment in
the value of these patents.

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

RESULTS OF OPERATIONS - FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

Consolidated sales of $13,246,000 increased $330,000 (2.6%) over prior year.
From a product group perspective, laboratory products sales increased $298,000
(2.7%) while sales of operating room disposable products increased $32,000
(1.9%). From a geographical perspective, domestic sales increased $371,000
(3.7%), Japanese sales, decreased $168,000 (21.1%), principally related to lower
sales to one major distributor while all other country sales increased $127,000
(5.9%). Sales at the Company's European subsidiary did increase $194,000
(12.0%), partially attributable to the average increase of the Euro of
approximately 5% between 2002 versus 2001. Cost of sales decreased by $150,000
(2.1%) resulting in gross margin percent of 46.9% versus 2001 percentage of
44.4%. Actual production related costs in 2002 of $4,474,000 at the Company's
two primary facilities was limited to a minimal increase of $26,000 (0.6%) over
prior year even though the company continued to incur increases in certain non
controllable expenditures such as utilities which increased $39,000 (12.3%) in
2002. As noted above the Companies European subsidiary did benefit from the
increase in value of the Euro which was also the most positive impact on its
$104,000 increase in gross margin contribution. In addition to the above margin
in 2001 was negatively impacted by the recording of a $141,000 provision to the
obsolete inventory reserve.

Research and development expenses in 2002 were $754,000, an increase of $83,000
(12.4%) over 2001, evidence of the Company's commitment to continue to further
enhance its product offerings.

Selling, general and administrative expenses (SG&A) of $4.2 million were
consistent with prior year. The Company did distribute a significant number of
catalogs during 2002, as historically it issues a new catalog every 2 years, an
industry practice. In addition the Company printed "The ABCs of Filtration and
BioProcessing for the Third Millennium" a 154 page brochure as well as a 16 page
quarterly newsletter "The Bioprocessor" both of which have and will be
distributed to customers. In compliance with the Statement of Position 93-7 -
Reporting on Advertising Costs as issued by the American Institute of Certified
Public Accountants the Company is expensing costs associated with the
aforementioned items as distributed. Thus advertising related expenditures
totaled $318,000 in 2002, an increase over 2001 of $212,000. The Company donated
a painting to a charitable organization during 2002 with a fair market value of
$90,000 and carrying cost of $20,000. A contribution of $90,000 has been
reflected as an expense in SG&A and $70,000 has been reflected as a gain on
charitable donation representing the difference between carrying value and fair
market value. The net income effect was expense of $20,000. In addition
offsetting the marketing and charitable donation within SG&A were goodwill
amortization decreasing $83,000, salaries decreasing $86,000,
travel/entertainment down $23,000 and finally reduced net all other expenditures
of $109,000.

                                       9
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2002, the Company generated approximately $1,838,000 of cash from
operating activities. Earnings from operations, before depreciation and
amortization, were the primary sources of these cash flows. The net increase in
working capital of $66,000 had only a marginal negative impact of cash from
operations as the increase in receivables, inventories and prepaids was
principally offset by similar increases in accounts payable and accrued
expenses. Cash expenditures for equipment and leasehold improvements of
$736,000, patents of $250,000 and payments of long-term debt of $770,000 were
the primary cash outflows. The Company entered into a new credit agreement with
a bank resulting in the Company receiving debt proceeds of $2,000,000 in 2002.
Principally due to the above noted items cash increased $2,082,000 for the year.

The bank credit agreement does restrict the use of the cash proceeds to certain
purposes as defined in the agreement. The credit agreement prohibits the payment
of cash dividends without prior bank approval.

In October 2002 the company did commit $105,000 for a license relating to new
software Spectrum has selected in order to operate its business more
efficiently. The actual software implementation will begin during the second
quarter of 2003 and the Company anticipates the conversion date will be June 30,
2003. The total cost of the software implementation is currently estimated at
$350,000.

The Company's management believes that cash on hand plus cash anticipated to be
generated from operations will be sufficient to meet the Company's cash
requirements for 2003.

ITEM 7.  FINANCIAL STATEMENTS

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

INDEPENDENTS AUDITORS' REPORT                                                F-1

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


                                       10
<PAGE>

                           SPECTRUM LABORATORIES, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 28, 2002


<PAGE>

                                 C O N T E N T S


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

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

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

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



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

We have audited the accompanying consolidated balance sheet of Spectrum
Laboratories, Inc. and subsidiaries as of December 28, 2002 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 28, 2002 and December 29, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spectrum
Laboratories, Inc. and subsidiaries as of December 28, 2002 and the results of
their operations and their cash flows for the years ended December 28, 2002 and
December 29, 2001 are in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective
December 30, 2001, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."




Anaheim, California
February 20, 2003

                                      F-1
<PAGE>

<TABLE>
SPECTRUM LABORATORIES, INC.

CONSOLIDATED BALANCE SHEET
----------------------------------------------------------------------------------------------
<CAPTION>

                                                                                  DECEMBER 28,
                                                                                      2002
                                                                                  ------------
<S>                                                                               <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                     $ 5,109,000
    Accounts receivable, less allowance for doubtful accounts of $119,000           1,806,000
    Inventories                                                                     1,766,000
    Prepaid expenses                                                                  233,000
    Deferred taxes                                                                    528,000
    Tax refund receivable                                                              62,000
                                                                                  ------------

        Total current assets                                                        9,504,000

EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net                                           2,921,000

PATENTS, subject to amortization, net of accumulated amortization of $121,000         629,000

GOODWILL, net                                                                       1,122,000

DEFERRED TAXES                                                                      1,424,000

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

        Total assets                                                              $15,633,000
                                                                                  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Current maturities of long-term debt                                          $   943,000
    Accounts payable                                                                  564,000
    Accrued expenses:
      Compensation                                                                    423,000
      Other                                                                           273,000
                                                                                  ------------

        Total current liabilities                                                   2,203,000
                                                                                  ------------

LONG-TERM DEBT, net of current maturities                                           2,745,000
                                                                                  ------------

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

STOCKHOLDERS' EQUITY:
    Common stock, $.01 par value, 25,000,000 shares authorized;
      5,312,468 shares issued and outstanding                                          53,000
    Preferred stock, par value $.01; 10,000,000 shares authorized;
      none issued and outstanding                                                          --
    Additional paid-in capital                                                      8,479,000
    Retained earnings                                                                 398,000
                                                                                  ------------

        Total stockholders' equity                                                  8,930,000
                                                                                  ------------

        Total liabilities and stockholders' equity                                $15,633,000
                                                                                  ============

See Notes to Consolidated Financial Statements.

                                             F-2
</TABLE>
<PAGE>

SPECTRUM LABORATORIES, INC.

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


                                                        FISCAL YEARS ENDED
                                                   -------------   -------------
                                                       2002            2001
                                                   -------------   -------------

NET SALES                                          $ 13,246,000    $ 12,916,000

COSTS AND EXPENSES
   Cost of sales                                      7,032,000       7,182,000
   Selling, general and administrative,
     (including royalties paid to majority
     stockholder of $325,000 and $321,000 for
     fiscal years 2002 and 2001, respectively)        4,207,000       4,206,000
   Research and development                             754,000         671,000
   Compensation expense related to stock options         21,000          30,000
   Other expense, primarily interest                     56,000          22,000
   Other (income), gain on charitable donation          (70,000)             --
                                                   -------------   -------------

       Total costs and expenses                      12,000,000      12,111,000
                                                   -------------   -------------

       Income before provision for income taxes       1,246,000         805,000

Provision for income taxes                               90,000         207,000
                                                   -------------   -------------

       Net income                                  $  1,156,000    $    598,000
                                                   =============   =============

Earnings per share:
   Basic                                           $       0.22    $       0.11
                                                   =============   =============

   Diluted                                         $       0.22    $       0.11
                                                   =============   =============

Weighted average shares outstanding:
   Basic                                              5,312,468       5,312,338
                                                   =============   =============

   Diluted                                            5,370,098       5,438,514
                                                   =============   =============

See Notes to Consolidated Financial Statements.

                                       F-3
<PAGE>

<TABLE>
SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------
<CAPTION>

                                                   Common stock              Additional      Retained
                                            ----------------------------      paid-in        earnings
                                               Shares          Amount         capital        (deficit)
                                            ------------    ------------    ------------    ------------
<S>                                           <C>           <C>             <C>             <C>
Balance, December 30, 2000                    5,311,968     $    53,000     $ 8,428,000     $(1,356,000)

Net income                                           --              --              --         598,000

Shares issued - exercised stock options             500              --           1,000              --

Compensation expense related
    to stock options                                 --              --          29,000              --
                                            ------------    ------------    ------------    ------------

Balance, December 29, 2001                    5,312,468          53,000       8,458,000        (758,000)

Net income                                           --              --              --       1,156,000

Compensation expense related
    to stock options                                 --              --          21,000              --
                                            ------------    ------------    ------------    ------------

Balance, December 28, 2002                    5,312,468     $    53,000     $ 8,479,000     $   398,000
                                            ============    ============    ============    ============

See Notes to Consolidated Financial Statements.

                                                   F-4
</TABLE>
<PAGE>

<TABLE>
SPECTRUM LABORATORIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------
<CAPTION>

                                                                  FISCAL YEARS ENDED
                                                            -----------------------------
                                                                2002             2001
                                                            ------------     ------------
<S>                                                         <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                              $ 1,156,000      $   598,000
    Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization                             685,000          719,000
      Loss on disposition of equipment                           19,000               --
      Noncash compensation                                       21,000           30,000
      Noncash charitable donation                                20,000               --
      Deferred taxes                                              3,000          189,000
      Change in working capital components:
        (Increase) in accounts receivable                      (117,000)         (90,000)
        (Increase) Decrease in inventories                     (119,000)         376,000
        (Increase) Decrease in prepaid expenses                 (98,000)          23,000
        (Increase) in tax refund receivable                     (62,000)              --
        Increase (Decrease) in accounts payable                 134,000         (102,000)
        Increase (Decrease) in accrued expenses                 196,000         (114,000)
                                                            ------------     ------------

        NET CASH PROVIDED BY OPERATING ACTIVITIES             1,838,000        1,629,000
                                                            ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of equipment and leasehold improvements        (736,000)        (651,000)
    Acquisition of patents                                     (250,000)        (500,000)
                                                            ------------     ------------

        NET CASH (USED IN) INVESTING ACTIVITIES                (986,000)      (1,151,000)
                                                            ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payments of long-term debt                       (770,000)        (822,000)
    Loan Proceeds                                             2,000,000        2,250,000
                                                            ------------     ------------

        NET CASH PROVIDED BY FINANCING ACTIVITIES             1,230,000        1,428,000
                                                            ------------     ------------

        NET INCREASE IN CASH AND CASH EQUIVALENTS             2,082,000        1,906,000

Cash and cash equivalents
    Beginning of year                                         3,027,000        1,121,000
                                                            ------------     ------------

    End of year                                             $ 5,109,000      $ 3,027,000
                                                            ============     ============

See Notes to Consolidated Financial Statements.

                                           F-5
</TABLE>
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

           FISCAL YEAR - The Company's fiscal year ends on the Saturday nearest
           December 31. The years ended December 28, 2002 (fiscal year 2002) and
           December 29, 2001 (fiscal year 2001) both consist of 52 weeks.

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

           USE OF ESTIMATES - The preparation of financial statements requires
           management to make estimates and assumptions that affect the reported
           amounts of assets, liabilities, the value of stock based compensation
           and disclosure of contingent assets and liabilities at the date of
           the financial statements and the reported amounts of revenue and
           expenses during the reporting period. Actual results could differ
           from those estimates.

           The Company's operations are affected by numerous factors including
           market acceptance, changes in technologies and new laws and
           government regulations and policies. The Company cannot predict what
           impact, if any, the occurrence of these or other events might have on
           the Company's operations. Significant estimates and assumptions made
           by management are used for, but not limited to, the allowance for
           doubtful accounts, the reserve for slow moving or obsolete
           inventories, the fair value of long-lived and intangible assets, and
           the realizability of deferred tax assets.

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

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

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

                                      F-6
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

           The Company periodically reviews its long-lived assets including
           patents to determine potential impairment by comparing the carrying
           value of the long-lived assets with the estimated future net
           undiscounted cash flows expected to result from the use of the
           assets, including cash flows from disposition. Long-lived assets
           evaluated for impairment are grouped with other assets to the lowest
           level for which identifiable cash flows are largely independent of
           the cash flows of other groups of assets and liabilities. Should the
           sum of the expected future net cash flows be less than the carrying
           value, the Company would recognize an impairment loss at that date.
           An impairment loss would be measured by comparing the amount by which
           the carrying value exceeds the fair value (estimated discounted
           future cash flows) of the long-lived assets. For the year ended
           December 28, 2002, management has determined that no impairment of
           long-lived assets including patents exists.

           Changes in circumstances, such as the passage of new laws or changes
           in regulations, technological advances or changes to the Company's
           business strategy, could result in the actual useful lives of
           long-lived assets differing from initial estimates. Factors such as
           changes in the planned use of equipment, customer attrition,
           contractual amendments or mandated regulatory requirements could
           result in shortened useful lives. In those cases where the Company
           determines that the useful life of a long-lived asset should be
           revised, the Company will amortize or depreciate the net book value
           in excess of the estimated residual value over its revised remaining
           useful life.

           The Company has acquired patents totaling $750,000 which are being
           amortized over their respective useful lives of approximately twelve
           years. Patent amortization for the fiscal years ended 2002 and 2001
           was approximately $60,000 for each year. Estimated amortization
           expense for the next five years is approximately $60,000 annually,
           all of which relates to these patents.

           GOODWILL - In June 2001, the Financial Accounting Standards Board
           (FASB) issued Statement of Financial Accounting Standards No 142,
           GOODWILL AND OTHER INTANGIBLE ASSETS (SFAS No. 142). SFAS No. 142
           addresses financial accounting and reporting for acquired goodwill
           and other intangibles assets and was effective for the Company
           beginning December 30, 2001. Upon adoption of SFAS 142, management
           has determined there is one reporting unit and evaluated the carrying
           value of goodwill for potential impairment losses and has determined
           no impairment exists. Management completed its annual goodwill
           impairment evaluation as of September 29, 2002, and has concluded
           that no impairment exists. For goodwill, the impairment evaluation
           includes a comparison of the carrying value of the reporting unit
           (including goodwill) to that reporting unit's fair value. If the
           reporting unit's estimated fair value exceeds the reporting unit's
           carrying value, no impairment of goodwill exists. If the fair value
           of the reporting unit does not exceed the unit's carrying value, then
           an additional analysis is performed to allocate the fair value of the
           reporting unit to all of the assets and liabilities of that unit as
           if that unit had been acquired in a business combination and the fair
           value of the unit was the purchase price. If the excess of the fair
           value of the reporting unit over the fair value of the identifiable
           assets and liabilities is less than the carrying value of the unit's
           goodwill, an impairment charge is recorded for the difference.

           Also in accordance with SFAS No. 142, the Company has not recorded
           amortization expense with respect to goodwill during the year ended
           December 28, 2002, while approximately $83,000 of amortization
           expense was recorded during the year ended December 29, 2001.
           Reported net

                                      F-7
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

           income would be increased by approximately $83,000 for the year ended
           December 29, 2001 had goodwill been accounted for in accordance with
           SFAS 142. Basic and diluted earnings per share for the year ended
           December 29, 2001 would have both increased by $.02 per share to $.13
           per share.

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

           EARNINGS PER SHARE - Basic earnings per share is computed by dividing
           the net income attributable to the common stockholders by the
           weighted average number of common shares outstanding during the
           period. There is no adjustment in the net income attributable to
           common stockholders. Diluted earnings per share reflect the potential
           dilution that could occur from common shares issuable through stock
           options (57,630 and 126,176 equivalent shares in the fiscal years
           2002 and 2001, respectively).

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

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

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

           ADVERTISING COSTS - Costs associated with advertising and promoting
           products are expensed as incurred. Advertising and promotion expense
           was approximately $318,000 and $106,000 during fiscal years 2002 and
           2001.

           REMEASUREMENT OF FOREIGN CURRENCIES - Monetary assets and liabilities
           of Spectrum B.V. are remeasured into U.S. dollars at year-end
           exchange rates and nonmonetary assets and stockholders' equity are
           remeasured using historical rates of exchange. Income and expenses
           are remeasured at average rates during the respective years. The
           functional currency of this subsidiary is the U.S. dollar; therefore,
           remeasurement gains or losses are included in income. Remeasurement
           gains included in income for fiscal years 2002 and 2001 were
           approximately $24,000 and $26,000, respectively.

           FAIR VALUE OF FINANCIAL INSTRUMENTS - Management believes that the
           carrying amount of cash and cash equivalents approximates fair value
           because of the short maturity of these financial instruments.
           Long-term debt bears interest at a rate indexed to the prime rate
           and, therefore, management believes the carrying amount of the
           outstanding borrowings at December 28, 2002 approximates fair market
           value.

                                      F-8
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

           ACCOUNTING FOR STOCK-BASED COMPENSATION - In December 2002, the FASB
           issued SFAS No. 148, Accounting for Stock-Based Compensation -
           Transition and Disclosure. This Statement amends SFAS No 123,
           Accounting for Stock-Based Compensation, to provide alternative
           methods of transition for an entity that voluntarily changes to the
           fair value-based method of accounting for stock-based employee
           compensation. This Statement also amends the disclosure requirement
           of SFAS No. 123 to require prominent disclosure in both annual and
           interim financial statements about the effect on reported net income
           (loss) of an entity's accounting policy decisions with respect to
           stock-based employee compensation. The Company adopted this Statement
           in fiscal year 2002.

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

           SFAS No. 123 requires the disclosure of pro forma net income and
           earnings per share had the Company adopted the fair value method.
           Under SFAS No. 123, the fair value of stock-based awards to employees
           is calculated through the use of option-pricing models, even though
           such models were developed to estimate the fair value of freely
           tradable, fully transferable options with vesting restrictions which
           significantly differ from the Company's stock option awards. These
           models also require subjective assumptions, including future stock
           price volatility and expected time to exercise, which greatly affect
           the calculated value. The Company's calculations for the options
           granted in 2002 and 2001 were made using the Black-Scholes
           option-pricing model with the following weighted average assumptions
           in 2002: expected life of ten years; stock volatility of 52%;
           risk-free interest rate 4.9%; and no dividends during the expected
           term. The following weighted average assumptions were utilized in
           2001: expected life of ten years; stock volatility of 35%; risk-free
           interest rate 6.5%; and no dividends during the expected term.

           The calculations are based on a single-option valuation approach and
           forfeitures are recognized as they occur. The following table
           illustrates the effect on net income and earnings per share had
           compensation cost for stock-based compensation been determined based
           on the grant date fair values of awards:

                                      F-9
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

<TABLE>
<CAPTION>
                                                                          2002              2001
                                                                     --------------     ------------
<S>                                                                  <C>                <C>
         Net income:
             As reported                                             $   1,156,000      $   598,000
               Add total stock-based employee compensation
               expense determined under APB opinion 25,
               net of related tax effects                                   17,000           22,000
               (Deduct) total stock-based employee compensation
               expense determined under fair value based for all
               awards, net of related tax benefits                         (84,000)         (75,000)
                                                                     --------------     ------------

              Pro forma                                              $   1,089,000      $   545,000
                                                                     ==============     ============

         Basic earnings per share:
             As reported                                             $        0.22      $     0.11
             Pro forma                                               $        0.21      $     0.10
         Diluted earnings per share:
             As reported                                             $        0.22      $     0.11
             Pro forma                                               $        0.21      $     0.10
</TABLE>

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

           TRADE RECEIVABLES - 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. Trade receivables are carried at original invoice amount
           less an estimate made for doubtful receivables based on a review of
           all outstanding amounts on a monthly basis. Management determines the
           allowance for doubtful accounts by identifying troubled accounts and
           by using historical experience applied to an aging of accounts. Trade
           receivables are written off when deemed uncollectible. Recoveries of
           trade receivables previously written off are recorded when received.
           No interest is charged on past due accounts.

NOTE 2.    INVENTORIES

           Inventories consist of the following at December 28, 2002:

           Raw materials                                       $1,711,000
           Work in process                                        133,000
           Finished goods                                         591,000
                                                               -----------
                                                                2,435,000
           Less reserve for slow moving and obsolete items        669,000
                                                               -----------
                                                               $1,766,000
                                                               ===========

                                      F-10
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 3.    EQUIPMENT AND LEASEHOLD IMPROVEMENTS

           Equipment and leasehold improvements consist of the following at
           December 28, 2002:

           Machinery, equipment and tooling                   $ 5,305,000
           Office furniture and equipment                         850,000
           Artwork, at cost                                       986,000
           Leasehold improvements                               1,104,000
                                                              ------------
                                                                8,245,000
           Less accumulated depreciation and amortization      (5,324,000)
                                                              ------------
                                                              $ 2,921,000
                                                              ============

           Depreciation and amortization expense of equipment and leasehold
           improvements for fiscal years 2002 and 2001 was $625,000 and
           $577,000, respectively.

NOTE 4.    INCOME TAXES

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

                                           2002               2001
                                        ----------         ----------
           Current:
             Federal                    $  53,000          $ (21,000)
             State                         (6,000)            22,000
             Foreign                       40,000             17,000
                                        ----------         ----------
                                           87,000             18,000
                                        ----------         ----------

           Deferred:
             Federal                      (81,000)           169,000
             State                         84,000             20,000
                                        ----------         ----------
                                            3,000            189,000
                                        ----------         ----------
                                        $  90,000          $ 207,000
                                        ==========         ==========


           Pretax income subject to foreign and U.S. income taxes for fiscal
           2002 and 2001 were as follows:

                                               2002            2001
                                           -----------     -----------

           U.S. income taxes               $1,090,000      $  768,000
           Foreign income taxes               156,000          37,000
                                           -----------     -----------
                                           $1,246,000      $  805,000
                                           ===========     ===========

                                      F-11
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 4.    INCOME TAXES (Continued)

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

                                                            2002         2001
                                                         ----------   ----------

           Statutory federal income tax provision        $ 436,000    $ 284,000
           State income taxes, net of federal benefit       62,000       40,000
           Change in valuation allowance                  (180,000)          --
           Nondeductible expenses                            9,000       32,000
           Tax credits used in current year               (169,000)     (57,000)
           Other                                           (68,000)     (92,000)
                                                         ----------   ----------
           Income tax provision                          $  90,000    $ 207,000
                                                         ==========   ==========

           The components of the Company's net deferred income tax assets as of
           December 28, 2002 are as follows:

                                                                         2002
                                                                     -----------

           Operating loss carryforwards                              $2,081,000
           Intangibles, primarily in-process research and development   447,000
           Stock based compensation not currently deductible            183,000
           Reserves not currently deductible                            318,000
           Equipment and leasehold improvements                         106,000
           Tax credits                                                  129,000
           Other                                                        188,000
                                                                     -----------
                                                                      3,452,000
           Valuation allowance                                        1,500,000
                                                                     -----------
           Net deferred tax assets                                   $1,952,000
                                                                     ===========

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

           Current assets                                  $  528,000
           Noncurrent assets                                1,424,000
                                                           -----------
           Net deferred tax assets                         $1,952,000
                                                           ===========

           In assessing the realizability of deferred tax assets, management has
           estimated that it is more likely than not that approximately
           $1,500,000 will not be realized. This valuation allowance represents
           a portion of net operating loss carryforwards attained through a
           prior business acquisition. As further discussed below, tax law
           limits the use of an acquired entity's net operating loss
           carryforwards to subsequent taxable income of the consolidated
           entity. During fiscal years 2002 and 2001, the Company utilized
           approximately $326,000 and $365,000, respectively, of net operating
           losses, to offset currently payable tax liability. Realization of the
           remaining deferred tax assets is dependent upon generating sufficient
           future taxable income. Although realization is not assured,
           management

                                      F-12
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 4.    INCOME TAXES (Continued)

           believes the net deferred taxes will be realized and continue to
           evaluate the realizability of the deferred tax assets by assessing
           the need for and amount of a valuation allowance.

           At December 28, 2002, the Company had approximately $6,215,000 in net
           operating loss carryforwards for federal income tax purposes
           available to offset future taxable income. Certain of these loss
           carryforwards are limited to approximately $298,000 annually. Any
           unused net operating loss is carried forward. As a result of the
           limitation discussed above, it is probable that $4,507,000 of the
           Company's net operating loss will expire without utilization. Loss
           carryforwards for tax purposes expire in amounts and by fiscal year
           as follows: 2004 $1,046,000; 2005 $2,836,000; 2006 $1,820,000; 2007
           $274,000; 2010 $40,000; 2012 $114,000 and 2018 $85,000.

NOTE 5.    LONG-TERM DEBT

           At December 28, 2002, the Company had a credit agreement with a bank,
           which provided for two equipment acquisition loans and a revolving
           credit note. The proceeds of the acquisitions loans are restricted to
           certain purposes, as defined in the credit agreement.

           The first of the acquisition loans has an outstanding balance at
           December 28, 2002 of $1,687,500, bears interest at prime plus .25%
           (4.5% at December 28, 2002) and requires monthly principal
           installments of $62,500 plus interest through March 1, 2005. The
           second loan has an outstanding balance at December 28, 2002 of
           $2,000,000, bears interest at prime plus .25% (4.5% at December 28,
           2002) and requires monthly principal installments of $17,500
           beginning February 1, 2003 through and including March 1, 2005,
           proceeds of which are to be used for specific purposes, as defined in
           the agreement. Effective April 1, 2005, the principal payments on the
           second acquisition loan are $80,000 per month through October 1, 2006
           with a final payment of $25,000 due November 1, 2006.

           The revolving credit note provides the Company with additional
           liquidity and the ability to issue letters of credit aggregating up
           to $300,000 through April 1, 2004. The Company did not draw on the
           revolving credit note and thus there was no outstanding revolving
           credit balance as of December 28, 2002. Interest on any proceeds
           drawn on the revolving credit note bear interest at prime plus .25%
           and is payable on the first of every month. The Company is required
           to have a period of not less than 30 consecutive days during the 12
           month period ending April 1, 2004 during which time there are to be
           no outstanding revolving credit loans. Any outstanding revolving
           credit loans are to be paid April 1, 2004.

           The agreement is secured by substantially all of the assets and is
           personally guaranteed by the majority stockholder. The agreement also
           requires the maintenance of certain financial and non-financial loan
           covenants and restricts payment of dividends. Future maturities of
           long-term debt owed on December 28, 2002 by fiscal year are
           approximately as follows: 2003 $943,000; 2004 $960,000; 2005
           $960,000; 2005 $825,000.

NOTE 6.    STOCK OPTION PLAN

           The Company previously had two option plans referred to as the 1995
           Option Plan and the 2000 Option Plan with 200,000 and 300,000 shares
           of common stock, respectively, reserved for option grants to key
           employees, directors and consultants. In July 2002, the Company's
           Shareholders ("Shareholders") approved merging the 1995 Option Plan
           and the 2000 Plan into one plan to be referred to as the 2000 Option
           Plan (the "2000 Option Plan"). In addition, the Shareholders approved
           increasing the number of shares available to grant under the 2000
           Option Plan by 100,000

                                      F-13
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 6.    STOCK OPTION PLAN (continued)

           to an aggregate total of 600,000. Exercise prices for the stock
           options will not be less than 100% of the fair market value of the
           stock on the date of grant. Options under both plans expire not more
           than ten years from date of grant. Options issued under the former
           1995 stock option plan become exercisable over a four-year period
           (25% per year), of which 500 options were exercised during 2001.
           Options issued under the former and current 2000 Option Plan become
           exercisable over a five-year period (20% per year). On July 15, 2002,
           the Board of Directors approved 225,000 stock option grants to key
           employees.

           In addition, during 1998 the Company granted nonqualified stock
           options to purchase 5% of the outstanding stock to an officer of the
           Company at $1.20 per share. The terms of this grant result in
           variable plan accounting. Accordingly, future compensation expense
           will be measured and recorded based on stock price fluctuations. At
           the date of grant, 60% of these options vested immediately and the
           remaining 40% vest over two to four years. As of 2002, all of these
           options are fully vested. Total compensation expense recorded during
           fiscal years 2002 and 2001 was approximately $21,000 and $29,000,
           respectively.

           A summary of the status of the plans and the nonqualified options and
           changes during fiscal years ended 2002 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                                             Weighted
                                                                             average
                                                               Number        exercise
                                                              of shares       price
                                                              ---------     ---------
<S>                                                            <C>          <C>
           OUTSTANDING, December 30, 2000                      671,699      $   1.82

           Granted (weighted average fair value of $1.29)           25          1.20

           Exercised                                              (500)         3.20

           Forfeited                                           (36,500)         2.08
                                                              ---------     ---------

           OUTSTANDING, December 29, 2001                      634,724          1.81

           Granted (weighted average fair value of $1.05)      225,000          1.53

           Forfeited                                           (62,000)         2.03
                                                              ---------     ---------

           OUTSTANDING, December 28, 2002                      797,724      $   1.71
                                                              =========     =========
</TABLE>

           At December 28, 2002, 117,900 shares were available for future grants
           under the plans.

                                      F-14
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 6.    STOCK OPTION PLAN (continued)

           A further summary of options outstanding at December 28, 2002 is as
           follows:

<TABLE>
<CAPTION>
                      Options Outstanding                                  Options Exercisable
-------------------------------------------------------------------- -------------------------------
                                                       Weighted
                                       Weighted         average                         Weighted
                                        average        remaining                         average
   Exercise             Number         exercise       contractual        Number         exercise
    Prices            of options         price       life in years     of options         price
------------------- ---------------  --------------  --------------- ---------------- --------------
<S>     <C>                <C>              <C>               <C>            <C>             <C>
        $ 1.20             265,624          $ 1.20            6.67           265,624         $ 1.20
          2.13             211,300            2.13            7.37            84,520           2.13
          1.53             225,000            1.53            9.55                 -              -
          2.44              50,000            2.44            0.20            50,000           2.44
          3.20              21,300            3.20            2.96            21,300           3.20
          2.18              10,000            2.18            3.47            10,000           2.18
          1.25               5,000            1.25            5.62             5,000           1.25
          4.37               5,000            4.37            3.10             5,000           4.37
          2.20               3,600            2.20            4.02             3,600           2.20
          7.50                 500            7.50            3.79               500           7.50
          1.88                 400            1.88            4.83               400           1.88
                    ---------------                                  ----------------
                           797,724                                           445,944
                    ===============                                  ================
</TABLE>

NOTE 7.    RELATED-PARTY TRANSACTIONS

           ROYALTY AGREEMENT - The Company is committed under a royalty
           agreement to pay the majority stockholder royalties of 7% of the net
           sales of certain products, as defined, through the life of the
           defined products. During 2002 and 2001, the Company incurred royalty
           expenses of $325,000 and $321,000, respectively, under this
           agreement.

           CONSULTING SERVICES - During 2001 the Company incurred expenses of
           $4,000 for consulting services to a firm which employed a member of
           the Board of Directors. No such expenses were incurred in 2002.

NOTE 8.    COMMITMENTS, RENT EXPENSE AND OTHER AGREEMENTS

           LEASE COMMITMENTS AND RENT EXPENSE - The Company is obligated under
           the terms of various operating lease agreements for manufacturing,
           warehouse and office facilities. Certain of these leases provide for
           rent escalation adjustments. Rent expense was $496,000 and $498,000
           in fiscal years 2002 and 2001, respectively. Minimum future rental
           payments under these operating lease agreements for the years ending
           December 31 are as follows: 2003 $464,000; 2004 $341,000; 2005
           $184,000 (total $989,000).

                                      F-15
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 9.    GEOGRAPHIC INFORMATION

           Net sales by country for fiscal years ended 2002 and 2000 are as
           follows:

                                                          2002          2001
                                                      ------------  ------------

           United States                              $10,348,000   $ 9,977,000
           Japan                                          627,000       795,000
           Other countries, each of which represent
             less than 5% of total net sales            2,271,000     2,144,000
                                                      ------------  ------------

                                                      $13,246,000   $12,916,000
                                                      ===========   ===========

           There were no significant assets held outside the United States at
           December 28, 2002 or December 29, 2001.

NOTE 10.   MAJOR CUSTOMERS

           Net sales for fiscal years 2002 and 2001 include sales to the
           following major customers (each of which accounted for 10% or more of
           the total sales of the Company) together with the receivables due
           from those customers as of December 28, 2002 and December 29, 2001:

<TABLE>
<CAPTION>
                                          2002                                    2001
                         --------------------------------------- ---------------------------------------
                                                   Trade                                   Trade
                                                  Accounts                                Accounts
                             Net Sales           Receivable          Net Sales           Receivable
                         ------------------- ------------------- ------------------- -------------------
<S>                              <C>                  <C>               <C>                   <C>
           Customer A            $1,876,000           $ 401,000         $ 1,849,000           $ 242,000
                         =================== =================== =================== ===================

           Customer B            $1,794,000           $ 222,000         $ 1,677,000           $ 209,000
                         =================== =================== =================== ===================
</TABLE>

NOTE 11.   MINORITY INTEREST

           On October 1, 1996, SLI Acquisition Corp., (SLIAC), a subsidiary of
           the Company, entered into an Asset Purchase Agreement with Cellco,
           Inc., a Delaware corporation, and acquired the operating assets and
           liabilities of Cellco, Inc. in exchange for 10,000 shares of the
           subsidiary's preferred stock valued at $2,000,000 for redemption
           purposes. One of the subsidiary's preferred stockholders sold its
           stock with a carrying value of $245,000 to the Company in 1999. At
           December 28, 2002, there is $1,755,000 in preferred stock of the
           subsidiary outstanding. The preferred stockholders of the subsidiary
           had the right to put their stock to SLIAC at any time through
           September 30, 2001 for an aggregate price of $1,755,000. In the event
           the subsidiary is combined with the Company and the combined company
           completes an underwritten offering, the preferred stockholders have
           the right to exchange such stock for 7% of the newly combined
           company. The preferred shares of SLIAC are nonvoting and have
           preference over common stockholders as to dividends and liquidation.

                                      F-16
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 12.   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                                        2002          2001
                                                     ----------    ---------
           Cash paid for:
           Income taxes                              $ 134,000     $ 20,000
                                                     ==========    =========

           Interest                                  $ 100,000     $ 67,000
                                                     ==========    =========

           Debt incurred for purchase of patents     $      --     $250,000
                                                     ==========    =========

NOTE 13.   PRODUCT GROUP INFORMATION

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

           Revenue by product group is as follows:

                                                      2002            2001
                                                  ------------    ------------

           Laboratory products                    $11,498,000     $11,200,000
           Operating room disposable products       1,748,000       1,716,000
                                                  ------------    ------------

                                                  $13,246,000     $12,916,000
                                                  ============    ============

                                      F-17
<PAGE>

SPECTRUM LABORATORIES, INC.

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


NOTE 14.   VALUATION AND QUALIFYING ACCOUNT INFORMATION

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

<TABLE>
<CAPTION>
                                          Balance at          Provision
                             Fiscal       beginning           charged to       Net recoveries        Balance at
                              year         of year             expense          (charge-offs)       end of year
                            --------- -------------------  -----------------  ------------------ -------------------
<S>                           <C>            <C>                  <C>                <C>                <C>
Doubtful Accounts:            2002           $   135,000          $  22,000           $ (38,000)        $   119,000
                                      ===================  =================  ================== ===================

                              2001           $   186,000          $  38,000           $ (89,000)        $   135,000
                                      ===================  =================  ================== ===================

Slow moving and
 obsolete inventory:          2002           $   783,000          $       -           $(114,000)        $   669,000
                                      ===================  =================  ================== ===================

                              2001           $   642,000          $ 141,000           $       -         $   783,000
                                      ===================  =================  ================== ===================

Deferred Tax Assets           2002           $ 1,680,000          $(180,000)          $       -         $ 1,500,000
                                      ===================  =================  ================== ===================

                              2001           $ 1,680,000          $       -           $       -         $ 1,680,000
                                      ===================  =================  ================== ===================
</TABLE>

                                                           F-18
<PAGE>

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

None

                                       11
<PAGE>

                                    PART III

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

Directors
---------

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

Name                         Age   Director Since   Position
----                         ---   --------------   --------

Roy T. Eddleman              63    July 30, 1982    Chairman, CEO & Director

Walter J. Lack, J.D.         55    January 2, 1999  Secretary & Director

Thomas V. Girardi, J.D.      63    January 2, 1999  Director

Jay Henis, Ph.D.             64    January 2, 1999  Director

Jack Whitescarver, Ph.D.     65    April 1, 1985    Director


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

Roy T. Eddleman              63    July 30, 1982    Chairman & CEO

F. Jesus Martinez            63        ----         President & COO

William R. Martin            47        ----         Vice President Manufacturing

Robert J. Sudol              55        ----         Vice President Sales

Brian A. Watts               55        ----         CFO - Vice President Finance

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

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

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

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

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

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

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.

William Martin joined the Company in April of 2002 as Vice President of
Manufacturing. Mr. Martin has over twenty years of experience and several
patents in the medical devices field. Prior to joining the Company, Mr. Martin
held the position of Director of Operations at Endocare, Inc. and as Product
Development Manager for the Company from 1990 to 1998. Mr. Martin attended the
Hennepin County Technical College and the University of California, Irvine.

                                       12
<PAGE>

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

Brian Watts joined the Company in April 2002 as Chief Financial Officer and Vice
President of Finance. Mr. Watts held similar positions with Frank Schaffer
Publications and Ideal School Supply Corporation. Mr. Watts, a Certified Public
Accountant, began his business career with Coopers & Lybrand and was
subsequently employed by The Marmon Group, rising to the position of Assistant
Treasurer.

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 sponsors no pension, retirement, annuity, savings or similar benefit
plans that it was required to fund in 2002. The Company does sponsor an employee
only contributory 401K Plan. Directors are not compensated for their services on
the Company's Board of Directors.

ITEM 10.  EXECUTIVE COMPENSATION

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

<TABLE>
<CAPTION>
                                 ANNUAL COMPENSATION                  LONG TERM COMPENSATION
                            -----------------------------    ---------------------------------------
                                                              RESTRICTED    STOCK OPTIONS
NAME AND POSITION            YEAR       SALARY     BONUS     STOCK AWARDS         #          LTIP     ALL OTHER(1)
------------------------    -----------------------------    ---------------------------------------  ------------
<S>                          <C>      <C>       <C>                          <C>                         <C>
Roy T. Eddleman              2002     $160,000  $140,000                                                 $324,848
Chief Executive Officer      2001      160,000   100,000                                                  321,490
                             2000      160,000   100,000                                                  331,319

F. Jesus Martinez            2002      145,000    35,000
President                    2001      145,000    36,000                        25(2)
                             2000      145,000

Robert J. Sudol              2002      100,200
Vice President Sales         2001      102,600    10,000
                             2000      101,000                                 20,000

Brian A. Watts               2002      120,000    30,000                     200,000 (3)
Chief Financial Officer
</TABLE>

(1)  Royalties based are at 7% on sales of certain products.
(2)  Represents all stock option grants during fiscal 2001. The exercise price
     of these options is $1.20/share and they expire in May 2011.
(3)  Refer to table on next page regarding option grants.


The following table sets forth information relating to stock options held by the
Company's executive officers as of December 28, 2002:

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                       Number of Securities Underlying  Value of Unexercised In-the-
                                            Unexercised Options                Money Options
                                       -------------------------------  -----------------------------
                Name                      Exercisable/Unexercisable       Exercisable/Unexercisable
-------------------------------------  -------------------------------  -----------------------------

<S>                                           <C>                             <C>
F. Jesus Martinez                               265,624/0                       $329,000/$0
President

Brian A. Watts                                18,333/181,667                  $28,049/$277,951
Chief Financial Officer

William R. Martin                              2,292/22,708                    $3,507/$34,743
Vice President of Manufacturing
</TABLE>

<TABLE>
                                 Option/SAR Grants in 2002
-----------------------------------------------------------------------------------------------
                                     Individual Grants
-----------------------------------------------------------------------------------------------
<CAPTION>
                    Number of Securities       % of Total
                         Underlying           Options/SARs
                        Options/SARs      Granted to Employees
       Name               Granted                in 2002        Exercise Price  Expiration Date
------------------  --------------------  --------------------  --------------  ---------------
<S>                        <C>                    <C>               <C>          <C>
Brian A. Watts             200,000                89%               $1.53        July 15, 2013

William R. Martin           25,000                11%               $1.53        July 15, 2013
-----------------------------------------------------------------------------------------------
</TABLE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock at December 28, 2002 by (i) all persons
known by management to be beneficial owners of more than 5% of its Common Stock,
(ii) all directors and nominees and (iii) all directors and nominees and
officers of the Company as a group:



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

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

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

Jay Henis, Ph.D.                            11,000 (A)               .2
501 Marford Drive
St. Louis, MO 63141

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

Jack Whitescarver, Ph.D.                    11,000 (A)               .2
4301 Massachusetts Ave. NW #6002
Washington, D.C.  20016

F. Jesus Martinez                          265,624 (A)              4.8
18617 Broadwick Street
Rancho Dominguez, CA  90220

All directors and officers as a          5,523,077 (B)             98.4
   group (9 in number)

                                       14
<PAGE>

(1) All amounts are amounts of ownership of common stock of the Company unless
    otherwise indicated
(A) Entire amount is amount of exercisable stock options
(B) Includes 300,624 exercisable stock options


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company had transactions with related parties as follows:

                                                              2002         2001
                                                              ----         ----
         Expenses (income) related to transactions with
           the Company's majority shareholder:
                 Royalties (1)                               $324,848   $321,490
         Expenses for consulting services to a firm which
         employs a member of the Board of Directors                --      4,000

         The majority shareholder has personally guaranteed the Company's bank
         loan up to $2,500,000.

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

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

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

Exhibit No.                     Description

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

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

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

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

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

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

                                       15
<PAGE>

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

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

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

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

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

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

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

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

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

10.8          Second amendment, dated July 1, 2000, to the credit agreement,
              dated December 22, 1998, between the Company and City National
              Bank (incorporated by reference to Exhibit 10.8 filed with
              Registrant's report on Form 10-KSB for fiscal year ended December
              30, 2000, Commission File No. 0-9478)

10.9          The Registrant's Year 2000 Stock Option Plan (incorporated by
              reference to Exhibit 10.9 filed with Registrant's report on Form
              10-KSB for fiscal year ended December 30, 2000, Commission File
              No. 0-9478)

10.10         Third amendment, dated January 8, 2001, to the credit agreement,
              dated December 22, 1998, between the Company and City National
              Bank (incorporated by reference to Exhibit 10.10 filed with
              Registrant's report on Form 10-KSB for fiscal year ended December
              30, 2000, Commission File No. 0-9478)

                                       16
<PAGE>

10.11         Royalty Agreement, dated June 1, 1976, between Roy T. Eddleman and
              Spectrum Medical Industries (incorporated by reference to Exhibit
              10.11 filed with Registrant's report on Form 10-KSB for fiscal
              year ended December 30, 2000, Commission File No. 0-9478)

10.12         Fourth amendment, dated December 14, 2001, to the credit
              agreement, dated December 22, 1998, between the Company and City
              National Bank (incorporated by reference to Exhibit 10.12 filed
              with Registrant's report on Form 10-KSB for fiscal year ended
              December 29, 2001, Commission File No. 0-9478)

10.13         Amended and Restated Credit Agreement, dated December 26, 2002,
              between the Registrant and City National Bank

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

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

99.1          Certification of Chief Executive Officer of Spectrum Laboratories,
              Inc. (incorporated by reference to Exhibit 99.1 filed with
              Registrant's report on Form 10-QSB for the quarterly period ended
              June 29, 2002, Commission File No. 0-9478)

99.2          Certification of Chief Financial Officer of Spectrum Laboratories,
              Inc. (incorporated by reference to Exhibit 99.2 filed with
              Registrant's report on Form 10-QSB for the quarterly period ended
              June 29, 2002, Commission File No. 0-9478)

99.3          Certification of Chief Financial Officer of Spectrum Laboratories,
              Inc. (incorporated by reference to Exhibit 99.3 filed with
              Registrant's report on Form 10-QSB for the quarterly period ended
              September 28, 2002, Commission File No. 0-9478)

99.4          Certification of Chief Executive Officer of Spectrum Laboratories,
              Inc. (incorporated by reference to Exhibit 99.4 filed with
              Registrant's report on Form 10-QSB for the quarterly period ended
              September 28, 2002, Commission File No. 0-9478)

99.5          Certification of Chief Financial Officer of Spectrum Laboratories,
              Inc.

99.6          Certification of Chief Executive Officer of Spectrum Laboratories,
              Inc.

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

No reports on Form 8-K were filed during the quarter ended December 28, 2002 by
the Registrant.

ITEM 14.  CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and its Chief Financial Officer , after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date
within 90 days of the filing date of this annual report on Form 10-KSB (the
"Evaluation Date")), have concluded that as of the Evaluation Date, the
Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company would be made known to
them by others within the Company, particularly during the period in which this
annual report on Form 10-KSB was being prepared.

                                       17
<PAGE>

(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the Company's disclosure controls and procedures subsequent to the Evaluation
Date, nor any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions. As a result no corrective
actions were taken.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 24, 2003.

SPECTRUM LABORATORIES, INC.


By:  /s/  Roy T. Eddleman
     --------------------

Roy T. Eddleman
Chairman, Chief Executive Officer and Director


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

Jay Henis
Director


By:
     ----------------------

Tom Girardi
Director


By:  /s/  Walter Lack
     ----------------

Walter Lack
Director


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

Jack Whitescarver
Director

By:  /s/  F. Jesus Martinez
     ----------------------

F. Jesus Martinez President and Chief Operating Officer

By:  /s/  Brian A. Watts
     -------------------

Brian A. Watts
Chief Financial Officer and Vice President of Finance

                                       18
<PAGE>

CERTIFICATIONS
CHIEF FINANCIAL OFFICER

I, Brian A. Watts Chief Financial Officer certify that:

1.   I have reviewed this annual report on Form 10-KSB of Spectrum Laboratories,
     Inc.;

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

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

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

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared; and
     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report ("Evaluation Date"); and
     c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

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

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and
     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

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

Dated: March 27, 2003

/s/  Brian A. Watts
-------------------
Signature

Brian A. Watts
Chief Financial Officer/Vice President of Finance

                                       19
<PAGE>

CHIEF EXECUTIVE OFFICER

I, Roy T. Eddleman Chief Executive Officer certify that:

1.   I have reviewed this annual report on Form 10-KSB of Spectrum Laboratories,
     Inc.;

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

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

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

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared; and
     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report ("Evaluation Date"); and
     c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

6.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors:

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and
     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

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

Dated: March 27, 2003

/s/  Roy T. Eddleman
--------------------
Signature

Roy T. Eddleman
Chief Executive Officer

                                       20