UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
                  For the Fiscal Year Ended December 31, 1996

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

                        Commission file number 000-21133

                            SPURLOCK INDUSTRIES, INC.
             (Exact Name of Registrant as Specified in its Charter)
                Virginia                                    84-1018956
       (State or other jurisdiction                       (I.R.S. Employer
    of incorporation or organization)                    Identification No.)

           209 West Main Street                                23890
            Waverly, Virginia                                (Zip Code)
  (Address of Principal Executive Offices)

                                 (804) 834-8980
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None.

           Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value

         Indicate  by check  mark  whether  the  registrant:  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 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 past 90 days.
                                                             Yes  _X_    No ___

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item  405 of  Regulation  S-K is not  contained  in this  form,  and will not be
contained,  to the  best of  registrant's  knowledge,  in  definitive

<PAGE>


proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.                               _X_

         The aggregate  market value of the voting stock of the registrant  held
by  non-affiliates  computed by reference to the average bid and asked prices of
such stock, as of March 12, 1997, was $1,564,462.13.

         The number of shares  outstanding of Common Stock as of March 31, 1997,
was 6,572,066.

Documents Incorporated by Reference:

         The Company's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders  (to be filed) is  incorporated  by reference into Part III of this
Form 10-K.


                                      -2-
<PAGE>


                                TABLE OF CONTENTS


                                     PART I
<TABLE>
<CAPTION>
                                                                                                                    Page

<S>               <C>                                                                                                 <C>
Item 1.           Business.......................................................................................     4

Item 2.           Properties.....................................................................................    10

Item 3.           Legal Proceedings..............................................................................    11

Item 4.           Submission of Matters to a Vote of Security Holders............................................    11


                                                      PART II

Item 5.           Market for Common Equity and Related Stockholder Matters.......................................    11

Item 6.           Selected Financial Data........................................................................    12

Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operation.......................................................................    13

Item 8.           Financial Statements and Supplementary Data....................................................    21

Item 9.           Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure.........................................................    41


                                                     PART III

Item 10.          Directors and Executive Officers of the Registrant.............................................    41

Item 11.          Executive Compensation.........................................................................    41

Item 12.          Security Ownership of Certain Beneficial Owners and Management.................................    41

Item 13.          Certain Relationships and Related Transactions.................................................    41

Item 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................    42

</TABLE>



                                      -3-
<PAGE>




                                     PART I

Item 1.           Business

General

         Spurlock Industries, Inc. ("Spurlock Industries",  the "Company" or the
"Registrant")  is a Virginia  corporation  organized in 1996. The Company is the
successor to Air Resources Corporation ("Air Resources"), a Colorado corporation
organized in 1986.  At a special  meeting of the  shareholders  of Air Resources
held on June 11, 1996, the shareholders of Air Resources  approved the merger of
Air Resources into the Registrant,  in order,  among other things, to change the
domicile of Air Resources from Colorado to Virginia. Such merger was consummated
on July 26, 1996.  References herein to the "Company" or the "Registrant"  shall
include Air Resources as predecessor to Spurlock Industries.

         Through  its  wholly  owned  subsidiary,   Spurlock   Adhesives,   Inc.
("Spurlock Adhesives"), the Company develops, manufactures and markets specialty
thermo-setting  resins  and  formaldehyde  for  the  forest  products,  building
products  and  furniture  industries.  The Company also  produces,  on a limited
basis,  fertilizer  products  for the  agricultural  and lawn and garden  supply
industries.  It operates two manufacturing facilities in the southeastern United
States, one in Waverly, Virginia and the other in Malvern, Arkansas. Products of
Spurlock  Adhesives are sold throughout the east,  southeast and midwest regions
of the United States.

         Spurlock  Industries'  principal  executive  offices are located at 209
West Main Street,  Waverly,  Virginia 23890,  and its telephone  number is (804)
834-8980.

Operating History and Acquisition Strategy

         Development of Gas Technology Businesses. Air Resources formed Landfill
Energy  Systems,  Inc. and ARC  Engineering  Fabrications,  Inc. in 1991 for the
purpose of developing the equipment and  technology  necessary to pursue certain
contracts  relating to landfill gas recovery  that were acquired from Phillip D.
Tracy, a shareholder  and former  director of Air  Resources.  The equipment and
technology to be developed by Air Resources was intended to collect raw gases at
landfill sites and process them into commercially usable natural gas for resale.
Air Resources entered into production agreements with two landfill sites in 1991
and conducted  feasibility tests in 1992 and 1993. After sustaining  substantial
expenses and operating losses associated with the development of this technology
during the period from August 1991  through  1993,  Air  Resources  discontinued
certain of its gas recovery development  operations in 1993 and the remainder in
March, 1994.

         Acquisition  of Spurlock  Adhesives.  On August 5, 1992,  Air Resources
acquired  Spurlock  Adhesives,   a  Virginia  corporation,   as  a  wholly-owned
subsidiary.  Spurlock  Adhesives was founded in 1973 by Harold N.  Spurlock,  as
sole  proprietor,  and was incorporated in the Commonwealth of Virginia in 1989.
The early years of operation  consisted  solely of the production of urea resins
and liquid fertilizer products.  The business evolved primarily around the needs
of the growing composite wood products industry. Mr. Spurlock developed a number
of  innovative  products for the  particleboard  and medium




                                      -4-
<PAGE>

density fiberboard industries,  including the first single component resin. This
new resin replaced an expensive four component system that was being used in the
medium density fiberboard  industry.  Also,  Spurlock Adhesives developed one of
the first lower formaldehyde  resins for the particleboard  industry in response
to concerns  expressed by the environmental  community in the early 1980's.  The
process for producing  this product was one of the first  processes  patented in
this area. See "Patents and  Trademarks"  below.  The Company has maintained its
market leadership in the development of resins with lower levels of formaldehyde
for the particleboard and medium density fiberboard industries.

         Over the years,  Spurlock  Adhesives  has  continued to  diversify  its
customer  and market base as well as upgrade its  manufacturing  facilities.  In
1980,  Spurlock  Adhesives  serviced  less than ten (10)  customers and produced
approximately  seventy (70) million  pounds of resins at its Waverly  plant,  as
compared to  fifty-five  (55)  customers  and 248  million  pounds of resins and
formaldehyde in 1996. In 1987,  Spurlock  Adhesives built a new resin production
plant  adjacent  to its  existing  one in  Waverly,  which  increased  its resin
capacity four hundred  percent  (400%).  In a move to  vertically  integrate the
Waverly facility,  Spurlock  Adhesives built its first  formaldehyde  production
plant in Waverly in 1988.  This plant allowed  Spurlock  Adhesives to internally
supply  approximately  eighty percent (80%) of its formaldehyde  needs for resin
production,  thus enabling it to become less  dependent on outside supply and to
better control its raw material costs. In 1992,  Spurlock  Adhesives  acquired a
resin  and  formaldehyde  production  facility  in  Malvern,  Arkansas  from BTL
Specialty Resins Corp. of Toronto,  Ontario (Canada) ("BTL") at the time that it
became a  wholly  owned  subsidiary  of Air  Resources.  This  acquisition  gave
Spurlock  Adhesives a larger  distribution area, thus allowing it to compete for
business in the midwest region of the United States. In 1993, Spurlock Adhesives
completed a state-of-the-art formaldehyde plant in Waverly, which it leased from
D.B.  Western,  Inc.,  until July 1996,  when Spurlock  Adhesives  purchased the
plant. This plant fulfills all of the current  formaldehyde needs of the Waverly
resin operations, and offers Spurlock Adhesives the flexibility of being able to
produce additional marketable product. Additional information regarding Spurlock
Adhesives'   two   manufacturing   facilities   is  set  forth  under  Item  2.,
"Properties," below.

         Spurlock  Adhesives is presently the sole  operating  asset of Spurlock
Industries.  On the  strength  of  significantly  improved  earnings at Spurlock
Adhesives,  coupled with reduced  costs  associated  with the  discontinued  gas
recovery  operations,  Air Resources in 1995 recorded its first  profitable year
since  the  Company's  inception.  For  additional  information,  see  Item  7.,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations," below.

         Present Acquisition Strategy.  Present management of Spurlock
Industries believes that the Company's future  profitability will be enhanced by
de-emphasizing   the  acquisition  of  unrelated   businesses  and  experimental
technologies  and  instead  concentrating  on the  expansion  of the  businesses
conducted by Spurlock Adhesives. In this regard,  management of the Company will
from time to time  consider  acquisitions  of carefully  selected  complementary
businesses  designed to enhance sales,  profitability,  market coverage or other
aspects of the businesses currently conducted by Spurlock Adhesives.

     In the fourth quarter of 1996, the Company  entered into a contract of sale
with Niagara  Mohawk Power Company for the purchase of certain real property and
facilities near Albany, New York, to construct


                                      -5-
<PAGE>

thereon certain manufacturing  facilities for the production of formaldehyde and
resins.  The  total  estimated  cost of  such  proposed  New  York  facility  is
$8,300,000,  including  environmental  remediation costs estimated by an outside
consultant at approximately $860,000. Management believes that financing for the
project,  adequate  in amount and on  reasonable  terms,  can be obtained by the
Company, via a conventional loan or funding from industrial revenue bonds.

     In fourth  quarter  1996,  an  application  was made by the  Company to the
Department  of  Environmental  Control  of the  State of New  York  for  permits
necessary  to operate the plant.  The Company is unable to predict at this time,
when and if, the necessary permits for the New York project can be obtained.  It
continues to examine alternative sites for the proposed project.

Products and Services

         The  major  products   produced  by  Spurlock   Adhesives   consist  of
formaldehyde  and two types of  thermosetting  resins  generally  classified  as
Urea-Formaldehyde   Resins  ("Urea  Resins")  and   Phenol-Formaldehyde   Resins
("Phenolic  Resins").  Within  these two general  resin  types are  specifically
designed  resins  developed  for the specific  needs of certain  industries  and
individual customers. Spurlock Adhesives also produces fertilizer products for a
limited number of customers.

         Urea Resins.  These  resins are used as the binder  system for interior
grade products such as  particleboard,  medium density  fiberboard,  plywood and
coated papers. These products are then used in furniture,  cabinets, wall panels
and cabinet  components.  Spurlock  Adhesives  also  produces  Urea Resin binder
systems for roof mat that later is processed into asphalt roofing shingles. Urea
Resins are  thermosetting  which means they cure and adhere with the aid of heat
and sometimes  pressure.  They are characterized as having a Type II bond, which
indicates  they are strong and have a moderate  amount of resistance to moisture
and humidity.  The major materials involved in the production of Urea Resins are
formaldehyde, urea, triethanolamine, sodium hydroxide, sodium chloride and other
proprietary  ingredients.  Spurlock Adhesives  currently  manufactures and sells
approximately thirty-six (36) different Urea Resins to the particleboard, medium
density fiberboard,  interior plywood,  treated and coated papers and fiberglass
roof mat/filter  media segments of the forest  products,  building  products and
furniture industries.  Sales of Urea Resins accounted for 73.6%, 67.6% and 77.1%
of net  sales  for the three  years  ended  December  31,  1996,  1995 and 1994,
respectively.

         Phenolic  Resins.  These  resins  are  used as the  binder  system  for
exterior grade  construction  materials such as oriented  strandboard,  exterior
plywood and  hardboard,  as well as the binder for  fiberglass  and mineral wool
insulation.  Further,  these resins are also used in paper impregnating for high
pressure   laminates,   such  as  counter   tops.   Phenolic   Resins  are  also
thermosetting,  but are classified as having a Type I bond, indicating that they
provide  better  resistance to moisture and humidity than Urea Resins.  Phenolic
Resins  typically  are slower  curing and more  expensive.  The major  materials
involved in the  production  of these  resins are  formaldehyde,  phenol,  urea,
sodium  hydroxide,  potassium  hydroxide and sulfuric acid.  Spurlock  Adhesives
presently  manufactures and sells  approximately  eleven (11) different Phenolic
Resins to the oriented strandboard, hardboard, fiberglass insulation and mineral
wool insulation segments of the forest products, building products and furniture
industries.  Sales of Phenolic  Resins  accounted for 5.7%, 9.0% and 9.8% of net
sales for the three years ended December 31, 1996, 1995 and 1994, respectively.

                                      -6-
<PAGE>

         Formaldehyde.  Spurlock  Adhesives  produces  formaldehyde  for its own
internal  consumption,  but also selectively  markets this product to industrial
accounts and other  users.  The major  material  involved in the  production  of
formaldehyde  is methanol.  Sales of formaldehyde  accounted for 19.2%,  22% and
12.9% of net sales for the three years ended  December 31, 1996,  1995 and 1994,
respectively.

         Fertilizer.  Spurlock  Adhesives  produces both liquid  fertilizers and
intermediate  fertilizer  products which are purchased and further  processed by
customers  engaged in the manufacture  and sale of fertilizers for  agricultural
and lawn and gardening  uses.  Spurlock  Adhesives'  production of fertilizer is
similar to the production of Urea Resins produced by Spurlock  Adhesives.  There
are no  significant  barriers  to entry  into  this  business  for  other  resin
producers;  however, it serves to diversify Spurlock Adhesives' product mix in a
manner  that may  reduce  financial  exposure  stemming  from  downturns  in the
business  cycle  of  the  forest  products,   building  products  and  furniture
industries.  Sales of fertilizers accounted for 1.5%, 2.1% and 2.6% of net sales
for the three years ended December 31, 1996, 1995 and 1994, respectively.

         Future Products.  Spurlock Adhesives conducts  experimental research to
develop new and better Urea and Phenolic resins for its existing markets. Future
research  will  seek,  among  other  things,  to reduce  further  the  potential
environmental  impact  of  such  resins.  In  addition,  Spurlock  Adhesives  is
developing  several  resins  for new  markets  in which  it does not  materially
participate,  such as Urea Resins for the fiberglass  roofing mat and fiberglass
filter media industries, and Phenolic Resins for the hardboard and high pressure
laminates industries.

Sales and Marketing

         Spurlock Adhesives sells its resin products to commercial manufacturers
in  the  forest  products,  building  products  and  furniture  industries.  The
customers of Spurlock  Adhesives include small,  medium and large  thermosetting
resin users located  principally in the east,  southeast and midwest  regions of
the United States.

         Spurlock   Adhesives   seeks  to  attract  medium  to  large  users  of
thermosetting  resins by offering a varied  selection of high quality  resins at
competitive  prices,  coupled  with the  willingness  and  ability to tailor its
products  to  the  customer's  individual  needs  and  specifications.  Spurlock
Adhesives  emphasizes  customer  service  and  the  continual   improvement  and
development  of new  resins  to meet  the  changing  needs  of the  marketplace,
including  resins  with lower  levels of  formaldehyde,  phenol and  methanol to
reduce their potential environmental impact.

         Urea Resins are marketed to manufacturers in the particleboard,  medium
density  fiberboard  and  interior  plywood  segments  of the  forest  products,
building products and furniture industries.  In addition,  Spurlock Adhesives is
seeking to expand its presence in the fiberglass roof mat and fiberglass  filter
media segments of these  industries.  Phenolic  Resins are marketed to different
industry segments,  including the fiberglass insulation and oriented strandboard
segments with recent emphasis on development of the hardboard segment.

         Spurlock  Adhesives has a sales and marketing  staff  consisting of two
full-time Sales Managers.  The Sales Managers call on existing customers and
targeted prospective



                                      -7-
<PAGE>


customers in their individual geographic territories. In circumstances where the
company  seeks to qualify new or  existing  products  in a  particular  industry
segment,  the  Sales  Managers  submit  samples  to  prospective  customers  for
evaluation  and  testing.  The plant  managers of the Waverly  facility  and the
Malvern facility service accounts and assist in the development of new business.
Spurlock Adhesives also employs two independent sales agents to service specific
markets and accounts.  In addition,  the Corporate  Technical Director interacts
with customers and prepares  monthly  Quality  Control Reports for customers who
request them.

         Spurlock  Adhesives  also  markets  itself  and  its  products  through
advertising and participation in industry  associations.  Advertising is usually
limited  to the  placement  of special  features  in trade  publications  and to
general listings of resin producers in trade publications,  annual buyers guides
and other individual directories. Employees of Spurlock Adhesives participate in
various   industry   trade   associations   and   conferences,   including   the
Particleboard/Medium  Density Fiberboard Institute, the Technical Association of
Pulp  and  Paper  Industries,   the  Forest  Products   Research  Society,   the
International  Particleboard/Composite  Materials  Symposium,  the International
Woodworkers Fair and the Amino,  Phenolic Wood Adhesive  Association.  H. Norman
Spurlock, Jr., a director and executive officer of the Company,  serves on the
Board of Directors of the aforementioned  Institute and the Amino, Phenolic Wood
Adhesive Association, and is a past Chairman of the Institute's Public Relations
Committee.

Customers

         The principal  customers of Spurlock  Adhesives as of December 31, 1996
were  Willamette  Industries  (Malvern,  Arkansas),   Schenectady  International
(Schenectady, New York), Union Camp (Franklin, Virginia) and International Paper
(Waverly and Stuart, Virginia; Spring Hope and Statesville,  North Carolina; and
Jefferson and Nacogadoches, Texas). Sales to each of these customers represented
at least 12%, but not more than 26%, of Spurlock  Adhesives' total  consolidated
net sales for 1996. The loss of any one of these customers could have a material
adverse effect on the financial condition of Spurlock Adhesives.

Raw Materials and Suppliers

         The  principal  raw  materials  used in the  production  of resins  and
formaldehyde  are  methanol,  urea and phenol.  These  materials  are  generally
available at present,  and Spurlock Adhesives does not rely on a single producer
for any of its raw materials. Methanol, urea and phenol are commodity chemicals.
In order to assure a continuous  supply of these materials,  Spurlock  Adhesives
enters into multi-year  purchase  contracts with certain producers for a minimum
supply of these commodities.  Purchase orders for commodities are placed several
weeks or months in advance of delivery.  Although  prices for these  commodities
may  fluctuate,  Spurlock  Adhesives  seeks to  minimize  the risk of such price
fluctuations by including  provisions in customer agreements that adjust product
sales prices to reflect changes in Spurlock  Adhesives' raw material costs.  The
amount  of any  change  in raw  material  costs  for  purposes  of  these  price
adjustment  provisions is determined by reference to market indices for specific
commodities.  By matching  increases  and  decreases in raw material  costs with
corresponding  increases  and  decreases in the sales  prices for its  products,
Spurlock Adhesives is better able to maintain profit margins.


                                      -8-
<PAGE>

Competition

         The  business of  developing  and  manufacturing  liquid  thermosetting
resins is highly  competitive.  The  principal  products of  Spurlock  Adhesives
compete against similar and different products manufactured and sold by numerous
other  companies,  some of which  are  substantially  larger  and  have  greater
resources  than  Spurlock  Adhesives.  The  principal  competitors  of  Spurlock
Adhesives  are  three  large  well-established  manufacturers:   Georgia-Pacific
Resins, a division of Georgia-Pacific  Corporation;  Borden Chemical, a division
of  Borden,  Inc.;  and Neste  Resins,  a Finnish  Company.  Spurlock  Adhesives
competes on the basis of price, quality, product consistency, service, method of
distribution,  marketing  prowess  and the  ability to tailor  products  to meet
customer needs.

Patents and Trademarks

         Spurlock  Adhesives  is  the  owner  of a  United  States  patent,  no.
4,381,368,  on a process  for the  production  of Urea  Resins.  The  patent was
obtained by Harold N. Spurlock on April 26, 1983,  and was formally  assigned to
Spurlock Adhesives in January, 1996 for no consideration.  The process described
in the  patent  has been  used as the  foundation  for  several  other  products
developed by Spurlock Adhesives.

         Management  of Spurlock  Adhesives  believes  that it has a proprietary
interest  in  certain  processes  for the  production  of  resins  and  that the
competitive  advantage  provided by  maintaining  the  confidentiality  of these
processes  outweighs any benefits which might be derived from  obtaining  patent
protection for the processes.  Consequently,  Spurlock Adhesives has no plans at
the present  time to seek patent  protection  for any such  processes.  Spurlock
Adhesives  is not aware of and has not  received any notice or claim that any of
its manufacturing  processes  infringe the proprietary rights of any third party
in any manner that could  materially  affect its business or that would  prevent
Spurlock Adhesives from using its processes.

Seasonality and Backlog

         Sales volume in the thermosetting resins business is closely related to
overall  levels of  activity  in the  forest  products,  building  products  and
furniture  industries.  Historically,  Spurlock  Adhesives'  business  has  been
generally  slower in the winter  months and more vigorous in the spring and fall
months.  In  addition,  the resins  business  is  cyclical  due to the effect of
fluctuations  in the  economy and overall  levels of building  and  construction
activity.  Periods of recession or high interest rates adversely affect building
and construction activity and therefore sales revenues.

         Spurlock  Adhesives  typically has no significant  backlog as customers
generally place monthly  purchase orders that require delivery as of a specified
date as a condition to placing the order.  Spurlock  Adhesives from time to time
must turn down orders if  necessary  to assure that  existing  orders are timely
delivered.

Employees

         As of December 31, 1996,  Spurlock Adhesives had 66 full time employees
and 1 part time  employee.  Spurlock  Industries  does not employ any personnel.
Spurlock  Adhesives'  relationship  with its  employees  is good.  Approximately
sixteen employees located at the Malvern,  Arkansas plant are covered


                                      -9-
<PAGE>


by a three year collective  bargaining  agreement between Spurlock Adhesives and
the United Steel Workers of America that expires June 30, 1999.

Government Regulation

         The   Company  is  subject   to  various   federal,   state  and  local
environmental laws and regulations which limit the discharge,  storage, handling
and  disposal of a variety of  substances.  The  Company's  operations  are also
governed  by laws and  regulations  relating  to  work-place  safety  and worker
health,  principally the Occupational  Safety and Health  Administration Act and
accompanying  regulations  and  various  state  laws and  regulations.  Spurlock
Adhesives  believes it  presently  complies in all  material  respects  with the
foregoing laws and regulations and does not believe that future  compliance with
such laws and regulations  will have a material  adverse effect on its financial
condition or results of  operations.  See Note 1 to the  Consolidated  Financial
Statements. Expenditures for environmental compliance -- which are considered by
the  Company to be a  customary  and  recurring  cost of doing  business  in its
industry -- averaged  approximately  $250,000 for each of the three fiscal years
ended December 31, 1996. See "Management's  Discussion and Analysis of Financial
Corporation   and  Results  of  Operations  -  Compliance   with   Environmental
Regulations." No capital  expenditures for environmental  control facilities are
anticipated for 1996 other than remediation  costs for the proposed  Albany,  NY
facility  estimated at $860,000.  See "Item 1. Business - Operating  History and
Acquisition Strategy."


Item 2.           Properties

         Air  Resources  conducts its  business  operations  primarily  from two
manufacturing facilities located in Waverly, Virginia and Malvern, Arkansas. The
Company's  headquarters and chief executive offices are located in leased office
space in Waverly, Virginia.  Management of Air Resources believes the properties
are in good condition and suitable for the Company's purposes. The Company's two
manufacturing facilities are encumbered under existing credit arrangements.

         Executive  Offices.  Spurlock  Adhesives is leasing on a month to month
basis office space in the James River Bank building in the Town of Waverly. This
space  consists  of 5 offices and a reception  area and is  approximately  2,000
square feet.

         Waverly Facility.  Spurlock Adhesives owns and operates a facility on a
13 acre industrial  site located about 3 miles northwest of the  intersection of
state highways 40 and 460 near Waverly,  Virginia.  The facility consists of two
resin  plants and two  formaldehyde  plants.  The plants  produce  Urea  Resins,
Phenolic  Resins and  formaldehyde.  In 1996,  the resin plants were operated at
approximately  55% of capacity  and the  formaldehyde  plants  were  operated at
approximately 83% of capacity.

         Malvern  Facility.  The Company owns and  operates a facility on 67
acres of land in  Gillford,  Arkansas,  approximately  five miles  northeast  of
Malvern, Arkansas. The facility consists of a resin plant, a formaldehyde plant,
two  administrative  offices and a research  facility.  The plants  produce Urea
Resins, Phenolic Resins and formaldehyde.  In 1996, the resin plant was operated
at  approximately  65% of capacity  and the  formaldehyde  plant was operated at
approximately  84% of capacity.  The Company's  major  research  activities  are
conducted at the Malvern facility.

                                      -10-
<PAGE>

         Formaldehyde  Plant Lease.  On December 19,  1991,  Spurlock  Adhesives
entered into a Formaldehyde Plant Lease with D.B. Western,  Inc., of North Bend,
Oregon,  whereby D.B.  Western,  Inc.  agreed to  construct a fully  operational
formaldehyde  plant at  Waverly,  Virginia  and lease the  facility  to Spurlock
Adhesives  for ten years at $55,000  per month,  commencing  at such time as the
plant became  mechanically  complete and ready for start up. The lease commenced
in  February,  1993.  The  proposed  plant was to meet the  requirements  of the
Occupational  Safety  and  Health  Act of 1970,  the  National  Fire  Protection
Association,  the National  Electric  Code for Class 1, Division II, the Uniform
Building  Code,  and the rules and  regulations  which have been  adopted by the
Environmental Protection Agency.

          D.B. Western, Inc. guaranteed in the Formaldehyde Plant Lease that the
plant would  produce  formaldehyde  at specified  daily rates based upon certain
conditions.  During  the  fourth  quarter  of  1993,  Spurlock  Adhesives  began
deferring  certain payments on the plant lease due to operational  problems with
the plant.  Spurlock  Adhesives  maintained  that the plant did not  produce the
quantities of formaldehyde  specified in the lease. The amounts deferred through
the fiscal years ended  December 31, 1995 and 1994 were  $510,070 and  $480,000,
respectively.  However,  beginning in August 1994,  Spurlock  Adhesives paid for
plant usage at the rate of $15,000 per week, or  approximately  $5,000 per month
more than the lease rate. The $5,000 per month increase in payments  represented
an informal  settlement  between the parties that served to reduce the amount of
deferred rent until a formal and more  permanent  settlement  could be achieved.
The  increase  in the amount of  deferred  rent  between  December  31, 1994 and
December  31,  1995  reflected  the  booking of certain  costs  associated  with
recatalization of the plant as deferred rent.

         In July, 1996, the Company consummated an agreement with D. B. Western,
Inc., whereby the Company purchased the plant,  terminated the lease and settled
all claims with respect to the facility for $3,675,000.


Item 3.           Legal Proceedings

         There are no material  pending legal  proceedings,  other than ordinary
routine  litigation  incidental to the business,  or any proceedings known to be
contemplated  by  governmental  authorities,  to which  Spurlock  Industries  or
Spurlock Adhesives is a party or of which any of their property is the subject.


Item 4.           Submission of Matters to a Vote of Security Holders

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year covered by this report.

                                     PART II


Item 5.           Market for Registrant's Common Equity and Related Shareholder
                  Matters

         The Registrant sold no equity securities of the Registrant,  which were
not registered  under the Securities Act of 1933, as amended,  during the period
covered by this report.

                                      -11-
<PAGE>

Item 6.           Selected Financial Data

         The information set forth below should be read in conjunction with Item
7, "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto.

         The selected  consolidated  financial  information presented below for,
and as of the end of, each of the years in the five-year  period ended  December
31, 1996,  is derived from the  consolidated  financial  statements  of Spurlock
Industries.  The financial  statements as of December 31, 1996, and for the five
years  ended  December  31,  1996,  have been  audited  by Winter,  Schiefley  &
Associates, P.C., independent auditors.

<TABLE>
<CAPTION>


                                                                               Years Ended December 31,
                                                   --------------------------------------------------------------------------------
                                                     1996             1995 (2)             1994           1993            1992(1)
                                                     ----             ----                 ----           ----            -------
<S>                                                <C>              <C>                <C>            <C>              <C>
Income Statement Data:
Net Sales .....................................    $ 28,643,415     $ 33,243,677       30,512,704     $ 23,475,249     $  9,032,153
Cost of sales .................................      21,129,265       26,092,053       26,269,016       20,268,532        8,031,692

Gross profit ..................................       7,514,150        7,151,624        4,243,688        3,206,717        1,000,461
Selling,  general  and  administrative
  expenses ....................................       4,429,906        3,903,371        3,456,356        3,808,775        1,725,337
                                                   ------------     ------------     ------------     ------------     ------------
Income (Loss) from operations .................       3,084,244        3,248,253          787,332         (602,058)        (724,876)

Other income and expenses .....................        (427,508)
Interest income ...............................          72,204           12,007            2,513           12,849            3,649
Interest expense ..............................        (667,942)        (663,662)        (828,261)        (668,670)        (127,978)
                                                   ------------     ------------     ------------     ------------     ------------
Income (Loss)from continuing
  operations ..................................       2,488,506        2,596,598          (38,416)      (1,685,387)      (1,061,205)
Provision for income taxes ....................       1,021,487          115,600
                                                                                                      ------------     ------------
Net Income (Loss) .............................       1,467,019        2,480,998          (38,416)      (1,685,387)      (1,061,205)
                                                   ============     ============     ============     ============     ============

Net Income (Loss) per common share:
 From continuing operations ...................    $       0.22     $       0.37     ($      0.01)    ($      0.42)    ($      0.30)
                                                   ------------     ------------     ------------     ------------     ------------
</TABLE>

<TABLE>
<CAPTION>

                                                                  Years Ended December 31,
                                                   --------------------------------------------------------------------------------
                                                       1996               1995 (2)        1994             1993             1992(1)
                                                       ----               ----            ----             ----             -------
Balance Sheet Data:

<S>                                                <C>              <C>              <C>              <C>              <C>
Current assets ................................    $  2,288,914     $  3,099,414     $  3,715,917     $   ,748,663     $  1,857,682
Current liabilities ...........................       4,388,860        5,330,308        8,133,204        5,978,068        5,070,012
Total assets ..................................      12,243,751        9,342,968        9,996,870        8,305,184        8,190,056
Long-term debt ................................       3,402,621          983,652        1,354,556        1,779,592          427,433
Shareholders' equity(3) .......................       4,266,127        2,919,108          509,110          547,524        2,082,911

Number of common shareholders .................             242              249              245              240              240

Weighted average  number  of  common shares
   outstanding ................................       6,678,983        6,717,667        4,266,066        3,999,566        3,519,369
Cash dividends declared .......................               0                0                0                0                0
Book value per share (4) ......................    $       0.64     $       0.43     $       0.08     $       0.08     $       0.34
</TABLE>

(1)  The 1992 increases in sales,  assets and equity reflect the  acquisition of
     Spurlock Adhesives on August 5, 1992.


                                      -12-
<PAGE>

(2)  Assumes the conversion of 1,200,000  preferred shares into 2,400,000 common
     shares,  which  conversion  was  subsequently  effected on January 5, 1996.
     Absent the pro forma addition of 2,400,000  common  shares,  the historical
     number of weighted  average  shares  outstanding  for the fiscal year ended
     December 31, 1995 was 4,317,667.
(3)  For the four fiscal  years ended  December 31,  1995,  stockholders  equity
     included  1,200,000  shares of  preferred  stock,  par value $2 per  share,
     totalling $2,400,000.
(4)  Assuming the conversion of 1,200,000 preferred shares into 2,400,000 common
     shares, which conversion was subsequently  effected on January 5, 1996, the
     weighted  average  shares  outstanding  for the five  fiscal  years  ending
     December 31, 1996 were:  6,678,983,  6,717,667,  6,626,066,  6,399,566  and
     4,519,369.



Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations

         The  following  discussion  and  analysis  provides  information  which
management believes is relevant to understanding Spurlock Industries' operations
and financial condition.  This discussion should be read in conjunction with the
financial  statements and accompanying  notes.  The financial  statements of the
Company have been  prepared in conformity  with  generally  accepted  accounting
principles.

Forward-Looking Statements

         The following discussion contains certain  forward-looking  statements,
generally  identified  by phrases such as "the Company  expects" or  "Management
believes" or words of similar effect. The Company wishes to caution readers that
certain  important  factors set forth within such discussion,  among others,  in
some cases have affected,  and in the future could affect,  the Company's actual
results  and could  cause the  Company's  actual  results for 1997 and beyond to
differ  materially from those expressed in any  forward-looking  statements made
herein. For a further discussion of such factors and forward-looking statements,
please see "Forward-Looking and Cautionary Statements" below.

General

         Overview.  The  Company's  operating  results  have  shown  substantial
improvement  in the fiscal years ended  December 31,  1996,  1995 and 1994.  The
Company achieved nearly break-even  results in 1994,  reported record profits of
$2,480,998  in 1995 and  reported  profits  of  $1,435,176  in 1996.  Management
attributes  this  improvement  to the  refocusing  of the  Company  on its  core
resin/adhesives  business and the termination of  non-profitable  gas generation
operations,  the  implementation  of a cost  reduction  program  in early  1994,
increased  control over raw materials prices and improved  product margins.  The
lower net profit in 1996 is due mainly to the  effect of income  taxes,  as loss
carryforwards were substantially utilized in 1995.

         Discontinued  Operations.  In the first  quarter of 1994,  the Board of
Directors  of the Company  decided to  discontinue  its  Colorado  gas  recovery
engineering and consulting business and to close its Denver office. Such actions
were  completed  by the end of the  year.  Operating  results  for 1995 and 1996
reflect only those of the Company's primary subsidiary, Spurlock Adhesives.

         Dependence on Construction and Related Industries.  Demand for Spurlock
Industries' products and the Company's financial performance are closely tied to
the fortunes of the construction,  forest



                                      -13-
<PAGE>


products  and  related  industries.  See "Item 1.  Business  -  Seasonality  and
Backlog."  Accordingly,  the recent  period of  relatively  low  interest  rates
(including  mortgage loan rates) and the stability of the housing,  construction
and related  industries,  have favorably impacted the Company's recent financial
performance.

         Gross  Margins and Commodity  Prices.  Raw  materials  costs  comprised
approximately  57%,  62%  and  68%  of  net  sales  in  1996,  1995,  and  1994,
respectively.  Raw materials  are by far the largest  component of cost of goods
sold.  Therefore,  the  Company's  operating  performance  is sensitive to price
movements in its basic raw materials, particularly methanol and urea. Management
strives to  ameliorate  these  commodity  risks by  maintaining  diverse  supply
relationships and by closely matching  increases and decreases in product prices
to increases and decreases in raw material costs. During the first part of 1996,
the Company was able to pass on increases  or decreases in raw material  prices,
which was the primary  reason for the improved  margins in fiscal 1996.  Margins
were squeezed during the last quarter of that year due to competition and excess
capacity  in  certain  markets.  See  "Item  1.  Business  - Raw  Materials  and
Suppliers."

         Freight Costs. A substantial portion of Spurlock  Industries'  products
are priced on an "as delivered basis".  For 1996, 1995, and 1994,  freight costs
relating to delivery of the Company's  products  comprised  approximately  3.9%,
4.2%, and 4.5%, respectively, of net sales. Accordingly, the Company's operating
performance  is  sensitive  to  movements  in  freight  costs.  In a  June  1994
cost-reduction  move, the Company  discontinued the majority of its own trucking
operations and began  contracting with third parties for most of these services.
As a result,  combined savings of  approximately  $117,000 or 0.4% of sales were
achieved  in the  salary  and  wages  component  of cost of  goods  sold  and in
insurance  expenses  in  1995.  The  further  decrease  of  $276,028  in 1996 is
attributable to changes in customer processes that decreased shipments,  as well
as one customer changing terms to freight collect.

         New Credit Facilities.  In July 1996, in order to reduce interest costs
and increase credit  availability,  the Company  terminated a $3,500,000 line of
credit with its primary working capital lender and obtained a $3,500,000 line of
credit  with a new  lender.  Such new credit  facility  is  secured by  accounts
receivable  and  inventory,   among  other  assets,   and  provides  for  credit
availability  based upon the level of  accounts  receivable  and  inventory.  In
conjunction  with this new line of credit,  the Company  borrowed an  additional
$3,600,000 under a term loan to purchase the leased  formaldehyde  plant,  which
term loan is secured by all assets.

         Purchase of Waverly  Formaldehyde Plant. On December 19, 1991, Spurlock
Adhesives  entered into a Formaldehyde  Plant Lease with D. B. Western,  Inc. of
Northbend,  Oregon,  whereby D. B.  Western,  Inc.  agreed to  construct a fully
operational  formaldehyde  plant at Waverly,  Virginia and lease the facility to
Spurlock  Adhesives for ten (10) years at $55,000 per month,  commencing at such
time as the plant became mechanically  complete and ready for startup. The lease
commenced in February,  1993.  Because of a dispute  relating to the operational
performance  of the plant,  during the fourth quarter of 1993, the Company began
deferring  certain payments on the plant lease. The amounts deferred through the
fiscal  years  ended  December  31,  1995 and 1994 were  $510,070  and  $480,000
respectively.  Beginning in August 1994, the Company paid for plant usage at the
rate of $15,000 per week, or approximately  $5,000 per month more than the lease
rate as part of an informal accommodation of such dispute.


                                      -14-
<PAGE>

         In July 1996,  the Company consummated an agreement with D. B. Western,
Inc. whereby the Company  purchased the plant,  terminated the lease and settled
all claims with respect to the facility for $3,675,000.

         Compliance with Environmental Regulations.  Environmental costs charged
to  operations  aggregated  $202,076,  $277,349 and $261,932 for the years ended
December 31, 1996,  1995 and 1994,  respectively.  As a percentage of net sales,
such  expenditures  totaled .71%,  .83% and .86%,  respectively  over such three
years. In all three years, over 80% of such  expenditures  related to testing at
the Company's  manufacturing  facilities to ensure compliance with environmental
laws and regulations.  Other  expenditures  included obtaining required permits,
purchase  and  maintenance  of safety  equipment,  trash and waste  removal  and
training.  All such expenses are viewed by the Company as  customary,  recurring
costs  of  doing  business  in  its  industry.   No  capital   expenditures  for
environmental  control  facilities are  anticipated for 1997 other than $860,000
for  remediation  in  connection  with its planned  acquisition  of property and
industrial facilities near Albany, NY, as described under "Liquidity and Capital
Resources" below.

         Capacity Utilization. In 1996, the Waverly, Virginia formaldehyde plant
ran at  approximately  83% of capacity as compared to 85% in 1995.  The decrease
was due to  lower  volumes  of  resin  being  produced.  The  Malvern,  Arkansas
formaldehyde  plant ran at approximately 84% in 1996 as compared to 90% in 1995.
The decrease  was due to excess  capacity in that market  area.  In 1996,  resin
capacity  utilization  at the Waverly  facility was 55% compared to 60% in 1995.
This change was due to a customer's order patterns and process changes to better
utilize  the  products.  The  Malvern  facility  maintained  its resin  capacity
utilization  at 65% for 1996 and 1995.  In the  future,  management  intends  to
continue  to adjust the  Company's  production  and  product  mix to meet market
conditions in order to maximize profits.

         New York Facility.  In the fourth quarter of 1996, the Company  entered
a contract of sale with Niagara Mohawk Power Company for the purchase of certain
real property and facilities near Albany, New York, to construct thereon certain
manufacturing  facilities for the  production of  formaldehyde  and resins.  The
total estimated cost of such proposed New York facility is $8,300,000, including
environmental   remediation   costs  estimated  by  an  outside   consultant  at
approximately  $860,000.  Management  believes  that  financing for the project,
adequate in amount and on reasonable terms, can be obtained by the Company,  via
a conventional loan or funding from industrial revenue bonds.

         The Company is unable to predict at this time, when and if, the
necessary  permits  for  the New  York  project  can be  obtained.  It continues
to examine alternative sites for the proposed project.

         Conversion of Convertible Preferred Stock. In January, 1996, the holder
of  1,200,000  convertible  preferred  shares,  Harold  N.  Spurlock,  Chairman,
President and Chief  Executive  Officer of the Company,  converted  these shares
pursuant to their terms into 2,400,000 shares of the Company's common stock. For
the fiscal years ended December 31, 1995 and 1994,  the Company had  outstanding
1,200,000  shares of  convertible  preferred  stock,  $2.00 par value per share,
aggregating  $2,400,000.  In "Results of Operations"  below,  earnings per share
ratios assume the  conversion of all such  preferred  shares except in 1994 when
the effect was anti-dilutive.



                                      -15-
<PAGE>

         Inflation.  Although Spurlock Industries'  operations are influenced by
general  economic  trends,  the Company  does not believe that  inflation  had a
material  impact on its operations  during the three-year  period ended December
31, 1996.

Results of Operations

         Fiscal 1996 Compared to 1995.  Spurlock  Industries'  net sales for the
year ended December 31, 1996 were  $28,643,415,  a decrease of 13.8% compared to
$33,243,677 in 1995. This decrease resulted from lower average selling prices on
all of Spurlock  Adhesives'  resin and  formaldehyde  products due to: (i) lower
prices for raw materials,  and (ii) several customers'  decreased demand for the
Company's  products due to a change to a more efficient  manufacturing  process.
Shipments of resin/adhesive  products - which comprised approximately 67% of all
1996 shipments - declined by 4.3% from 1995. All sales in 1996 were generated by
Spurlock Adhesives.

         Cost of goods sold for 1996 totaled  $21,129,265  or 73.8% of net sales
versus  $26,092,053  or 78.5% in 1995.  The  decrease was mainly in raw material
costs  which  represented  57.1% of net  sales in 1996  versus  62.36%  in 1995.
Management  was  successful  in holding most  categories of other costs of goods
sold to 1995 levels.  Accordingly,  the gross  margin  improved in 1996 to 26.2%
from 21.5% in 1995, on gross profit of $7,514,150 versus $7,151,624 in 1995.

         Selling,  general and  administrative  expenses totalled  $4,429,906 or
15.47%  of net sales in 1996 as  compared  to  $3,903,371  or 11.74% of sales in
1995. The dollar increase in this category in 1996 resulted from salary and wage
increases to middle  management and increased  professional fees associated with
the  merger  that  took  place  July 26,  1996.  The  lower  volume of net sales
significantly contributed to the increase as a percentage of net sales.

         Interest  expense in 1996,  although  increasing as a percentage of net
sales to 2.33%  from  2.00% in 1995,  increased  only .6% in  absolute  terms to
$667,942  from  $663,662  in 1995.  This  increase  resulted  from the term loan
borrowing for the purchase of the leased  formaldehyde  plant and lower interest
rates on the line of credit.

         Pretax  earnings  in  1996 of  $2,488,506  substantially  mirrored  the
$2,596,598 reported in 1995, despite lower sales. This was due to an improvement
in the pretax margin, which was 8.7% in 1996 versus 7.8% in 1995.

         The provision for income taxes totalled $1,021,487 for 1996 as compared
to $115,600 for 1995. The provision for income tax in 1996 consisted of $149,415
in state income tax and $846,091 in federal  income tax, as compared to $104,000
and  $11,400,  respectively,  for  1995.  The  1995  figures  are  net  of  loss
carryforwards  aggregating  $801,532.  Absent such  carryforwards  in 1996,  net
earnings  after taxes for 1996 of  $1,467,019  or $.22 per share of common stock
(on a fully diluted basis) declined from $2,480,998 or $.37 per share in 1995.

         Fiscal 1995 Compared to 1994. For the year ended December 31, 1995, the
Company reported net sales of $33,243,677,  an increase of 8.95% compared to net
sales of $30,512,704 for 1994. All sales related to sales of resin, formaldehyde
and  fertilizer  materials by the  Company's  wholly owed  subsidiary,


                                      -16-
<PAGE>


Spurlock Adhesives. Shipments of resin/adhesive products - which comprised 68.3%
of all shipments in 1995 - declined  18.1% from 1994.  This drop in volume - due
to the  concerted  effort by  management to adjust the product sales mix to take
full advantage of superior margins realizable in the formaldehyde  markets - was
effectively  offset by a 74.8% increase in formaldehyde  shipments owing largely
to sales to a new customer  procured in 1994.  Overall product shipments dropped
approximately  3.3% from 1994.  Accordingly,  the increase in net sales for 1995
resulted from increased  average selling prices for the entire year for Spurlock
Industries' products.

         Cost of goods sold totaled $26,092,053 or 78.49% of net sales, compared
to  $26,269,016  or 86.09% of net sales for 1994. The decrease in costs of goods
sold as a percentage of net sales resulted from the Company's success in holding
both raw  material  costs and other  costs of goods sold  (such as  freight  and
energy  costs) to 1994 levels while  simultaneously  increasing  net sales.  The
Company's  gross  profit  and gross  margin  improved  substantially  in 1995 to
$7,151,624 and 21.51%,  respectively,  from $4,243,688 and 13.91%, respectively,
in 1994. The improved gross margin was primarily the result of improved mark-ups
in selling  prices,  due in large part to the  success of the Company in passing
raw material costs along to its customers.

         Selling,  general and administrative  expenses for 1995 were $3,903,371
or 11.74% of net sales,  compared to  $3,456,356  or 11.33% of net sales for the
same period in 1994. The increase in operating  expenses resulted primarily from
an increase of $536,568 or 35.1% in human  resources  expense,  owing largely to
increases in salaries for key executive  and middle  management  personnel.  The
salaries of such personnel had been frozen for the previous three years.

         Interest expense in 1995 totaled $663,662 or 2.00% of net sales, versus
$828,261 or 2.71% of net sales in 1994.  The  decrease was due to a reduction in
average outstandings of interest accruing debt of approximately $250,000 or 6.8%
from the prior  year,  and  reduced  borrowing  costs  attributable  to the more
attractive  rates offered under the previous  working capital  facility  entered
into in February 1995.

         The provisions for income taxes totaled  $115,600 for 1995,  consisting
of $104,000 in state income tax and $11,600 in federal income tax, the latter of
which largely  resulted from to the  utilization of loss  carry-forwards  in the
amount of  $801,532.  Due to a net loss,  no federal or state  income taxes were
accrued for 1994. Net earnings after taxes for 1995 increased  dramatically over
the prior  year,  totaling  $2,480,998  or $.37 per share of common  stock (on a
fully  diluted  basis)  compared to a loss of  ($38,416)  or ($.01) per share in
1994.

         Liquidity and Capital Resources

         General.  In fiscal 1996,  1995 and 1994, the Company relied heavily on
its institutional working capital lenders and its trade creditors to finance its
working  capital  requirements.  The Company  traditionally  has  operated,  and
continues to operate,  with a negative  working  capital  position,  as Spurlock
Industries  takes advantage of supplier payment terms which exceed those granted
to the  Company's  customers.  Although  the Company  continued to rely on these
funds  sources in 1996 and 1995,  strong  earnings  and cash flow  allowed it to
substantially  reduce its  dependence on accounts  payable and to strengthen its
working capital and cash positions.


                                      -17-
<PAGE>

         Fiscal 1996 Compared to 1995. In 1996,  Spurlock  Industries reported a
cash flow from net  income  and  depreciation  and  amortization  of  $2,225,384
compared to the $3,181,238  reported in 1995.  This cash flow,  supplemented  by
reductions in receivables  and inventory of $366,845 and $54,133,  respectively,
permitted the Company to reduce accounts  payable by $380,584,  fund fixed asset
additions  of  $1,184,369  and  reduce  notes and loans by  $1,351,511.  Working
capital   increased   $130,948  or  approximately   5.9%  to  ($2,099,946)  from
($2,230,894) in 1995.

         As  described  above,  in July  1996  the  Company  entered  into a new
$3,500,000  revolving credit facility with a new lender,  which facility matures
in July 1999. On December 31, 1996, outstanding loans under the facility totaled
$1,420,801, which was the total amount available at such time based on levels of
accounts  receivable  and inventory on which  borrowing  availability  is based.
Borrowings during the entire fiscal year averaged approximately $1,450,000.  The
new credit facility  provides the Company with an important  source of liquidity
in addition to its cash account and cash generated from  operations.  Management
believes that cash generated from  operations,  together with amounts  available
under the Company's  revolving credit  facility,  will be sufficient to meet the
Company's anticipated working capital and liquidity requirements during 1997 and
1998.

         In addition to borrowings  under its  revolving  credit  facility,  the
Company had  outstanding  at year end 1996 long term debt  totaling  $4,431,711,
including current maturities of $1,029,090. Such debt extends through 2004, with
current  maturities  thereof  dropping  to  $996,087  in 1998 and  significantly
thereafter.  In 1995, long term debt totaled  $1,977,242 with current maturities
of  $993,590.  The  increase  in  long  term  debt  is  attributable  to the new
borrowings to purchase the formerly leased  formaldehyde  plant.  The total term
facility is $3,639,000, with $3,436,832 outstanding at year end.

         The 1996 net earnings  strengthened the Company's capital position,  as
its retained  earnings deficit was reduced by $1,467,019 from year end 1995, and
total equity  increased  46.1% to $4,266,127  from  $2,919,108 at year end 1995.
Because the equity  increase  outpaced  the increase in total  liabilities,  the
ratio of total  liabilities to total net worth, a measure of leverage,  improved
to 1.87 at year end 1996 from 2.2 at year end 1995.

         As described in "General - New York  Facility"  above,  the Company has
plans to construct  manufacturing  facilities for the production of formaldehyde
and  resins  in the  State of New  York.  The  estimated  cost of such  proposed
facility would approximate $8,300,000, including environmental remediation costs
estimated  by  an  outside  consultant  at  approximately  $860,000.  Management
believes that  financing  for the project,  adequate in amount and on reasonable
terms,  can be obtained by the Company via a  conventional  loan or funding from
industrial revenue bonds.

         Fiscal 1995  Compared to 1994. In 1995,  the Company  reported a strong
cash flow from net income and depreciation  and  amortization of $3,181,238,  an
improvement  of  $2,659,055  or 509% over the  $522,183  reported in 1994.  This
strong cash flow,  supplemented  by significant  reductions in  receivables  and
inventory  of $546,277  and  $566,152,  respectively,  permitted  the Company to
reduce  accounts  payable by $3,063,008,  fund fixed asset additions of $425,769
and reduce notes and loans by $1,012,309.


                                      -18-
<PAGE>


Working capital  increased  $2,186,393 or approximately 49% to ($2,230,894) from
($4,417,287) in 1994, as the Company  drastically reduced its level of payables,
cut payment  time to trade  creditors  by  approximately  half and began  paying
within standard  thirty (30) day terms.  Despite an increase in cash and trading
securities of $373,767 to $450,751,  current assets actually fell by 16.6%. This
drop was due in large  part to the lofty  levels of  product  sales  prices  and
accordingly  trading  assets at December 31, 1994. In addition,  the Company was
able to quicken collection of its accounts receivable.

         In February 1995 the Company entered into a $3,500,000 revolving credit
facility with a new lender.  On December 31, 1995,  outstanding  loans under the
facility, which has now been replaced,  totaled $1,329,096,  leaving $109,000 in
unused loan availability at such time based on levels of accounts receivable and
inventory on which borrowing availability is based. Borrowings during the entire
fiscal year averaged approximately $1,600,000.

         The 1995 revolving credit facility  contained a number of financial and
restrictive  covenants  limiting,  among other things, the redemption of capital
stock,  the payment of dividends,  the  incurrence  of additional  indebtedness,
certain mergers and  acquisitions,  and the acquisition of fixed assets.  During
1995,  technical  violations of certain such covenants  resulted,  for which the
Company received a waiver from the lender.

         In addition to borrowings under its 1995 revolving credit facility, the
Company had outstanding at year end 1995 "notes payable-other" of $82,447 due in
1996,  which  represented  the  remaining   obligations  under  various  private
placement notes to investors.  Principal  payments of $423,218 were made on such
notes in 1995.  The Company  also had  $1,977,242  in long term debt at year end
1995, including current maturities of $993,590. Approximately half of total long
term debt consisted of notes payable to two former vendors and suppliers.

         Deferred rent increased to $510,070 from $480,000 at year end 1994, and
related to the lease for a formaldehyde plant located in Waverly,  Virginia from
D.B. Western,  which lease was then in dispute. Such dispute was settled and the
plant was  purchased  by the  Company in July 1996.  See  "General - Purchase of
Waverly  Formaldahyde  Plant"  above.  Lease  payments of $15,000 a week - which
approximated  $5,000 per month more than the required  monthly rental of $55,000
-would have served to repay most of such deferred rent by the  expiration of the
lease in February 2003. Such  additional  rental payments paid during 1995 would
have actually  reduced deferred rent from the 1994 level to $360,000 but for the
addition to deferred  rent of  $120,000  relating to an account  payable to D.B.
Western, Inc. for catalyst relating to the operation of the leased facility.

         The  strong  1995  net  earnings  strengthened  the  Company's  capital
position,  as its retained  earnings deficit was reduced by $2,480,998 from year
end 1994, and total equity  increased  473% to $2,919,108  from $509,110 at year
end 1994.  Because  of the  equity  increase  and  substantially  reduced  total
liabilities,  the ratio of total  liabilities  to total net worth,  a measure of
leverage, decreased significantly to 2.2 from 18.6 at year end 1994.

Forward-Looking  And Cautionary Statements

         The Company and its  representatives may from time to time make written
or  oral  forward-looking  statements,  including  statements  contained  in the
Company's filings with the Securities and



                                      -19-
<PAGE>


Exchange Commission in its reports to shareholders. In connection with the "safe
harbor" provisions of the Private Securities  Litigation Reform Act of 1995, the
Company is hereby identifying  important factors that could cause actual results
to differ materially from those contained in any forward-looking  statement made
by or on behalf of the Company.  Any such statement is qualified by reference to
the following cautionary statements.

         The Company's  formaldehyde  and resin  business is closely tied to the
construction and forest products industries, and is influenced by housing starts
and construction  activity  generally.  The Company's  operating  performance is
sensitive to price movements in its basic raw materials,  particularly  methanol
and urea. The Company's operating  performance is also sensitive to movements in
freight costs. The Company's raw materials, products and manufacturing processes
are  subject to  environmental  laws and  regulations  and the costs  associated
therewith. The availability of credit from institutional asset based lenders and
suppliers is very important to the Company.  Developments in any of these areas,
which are more fully described elsewhere in Parts I and II hereof, each of which
is  incorporated  into this  section by  reference,  could  cause the  Company's
results to differ materially from the results that have been or may be projected
by or on behalf of the Company.  The Company cautions that the foregoing list of
important factors is not exclusive. The Company does not undertake to update any
forward-looking  statement that may be made from time to time by or on behalf of
the Company.


                                      -20-
<PAGE>

Item 8.           Financial Statements and Supplementary Data


REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Spurlock Industries, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Spurlock
Industries,  Inc. (formerly Air Resources  Corporation) as of December 31, 1996,
and 1995, and the related consolidated  statements of operations,  stockholders'
equity,  and cash flows for each of the three years in the period ended December
31, 1996.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Spurlock  Industries,  Inc.
(formerly Air Resources  Corporation) as of December 31, 1996, and 1995, and the
results of its operations, and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.



                                            Winter, Scheifley & Associates, P.C.
                                              Certified Public Accountants

Englewood, Colorado
January 17, 1997


                                      -21-
<PAGE>

                            Spurlock Industries, Inc.
                      (Formerly Air Resources Corporation)
                           Consolidated Balance Sheets
                        As of December 31, 1996 and 1995
<TABLE>
<CAPTION>

Assets
                                                              1996                               1995
<S>                                                          <C>                                 <C>
Current Assets:
Cash and cash equivalents                                    $106,702                            $250,751
Trading securities                                              -                                 200,000
Accounts receivable - trade                                 1,446,930                           1,813,775
Other accounts receivable                                       8,718                              62,179
Accounts and notes receivable
         -   officers current portion                          38,595                              40,520
Inventories                                                   541,632                             595,765
Prepaid income taxes                                           72,477                               -
Deferred tax asset                                              -                                  98,300
Prepaid expenses                                               74,490                              38,124
                                                          -----------                          ----------
Total current assets                                        2,288,914                           3,099,414

Property, plant and equipment, net of
accumulated depreciation of $4,313,075 and
$3,559,436                                                  9,444,057                           5,712,885

Other Assets:
Accounts and notes receivable
         -  officers                                          101,044                             118,119
Investments                                                   150,000                             150,000
Other                                                         259,736                             262,550
                                                          -----------                          ----------
                                                              510,780                             530,669
                                                          -----------                          ----------
Total assets                                              $12,243,751                          $9,342,968
                                                          ===========                          ==========
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      -22-
<PAGE>



                           Spurlock Industries, Inc.
                      (Formerly Air Resources Corporation)
                           Consolidated Balance Sheets
                        As of December 31, 1996 and 1995
                                   (Continued)
<TABLE>
<CAPTION>

Liabilities and Stockholders' Equity
                                                            1996                       1995
<S>                                                         <C>                        <C>
Current Liabilities:
Notes payable - line of credit                              $ 1,420,801                $ 1,329,096
Notes payable - other                                                 -                     82,447
Current portion of long-term debt                             1,029,090                    993,590
Accounts payable - trade                                      1,678,442                  2,069,561
Accrued expenses                                                260,527                    249,922
Amounts due stockholders and
 and related parties                                                  -                     95,622
Deferred rent                                                         -                    510,070
                                                            -----------                -----------
Total current liabilities                                     4,388,860                  5,330,308

Long-term debt                                                3,402,621                    983,652
Deferred tax liability                                          143,476                    109,900
Post retirement benefit liability                                42,667                          -

Commitments and contingencies

Stockholders' Equity:
Preferred stock, convertible,
  $2 par value, 5,000,000 shares
  authorized, 1,200,000 shares
  issued and outstanding                                              -                  2,400,000
Common stock, no par value
  500,000,000 shares authorized
  6,572,066, and 4,325,066
  shares issued and outstanding                               4,808,814                  2,528,814
Accumulated deficit                                           (542,687)                (2,009,706)
                                                            -----------                -----------
                                                              4,266,127                  2,919,108
                                                            -----------                -----------
Total liabilities and
  stockholders' equity                                      $12,243,751                $ 9,342,968
                                                            ===========                ===========
</TABLE>

                                      -23-
<PAGE>



                            Spurlock Industries, Inc.
                      (Formerly Air Resources Corporation)
                      Consolidated Statements of Operations
              For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>

                                                           1996                  1995                   1994
<S>                                                      <C>                  <C>                    <C>
Revenues:
Net sales                                                $28,643,415          $33,243,677            $30,512,704
Cost of sales                                             21,129,265           26,092,053             26,269,016
                                                         -----------          -----------            ------------
                                                           7,514,150            7,151,624              4,243,688
Selling, general and
  administrative expenses                                  4,429,906            3,903,371              3,456,356
                                                         -----------          -----------            -----------
                                                           3,084,244            3,248,253                787,332
Other income and (expense):
Other income                                                  72,204               12,007                  2,513
Interest expense                                            (667,942)            (663,662)              (828,261)
                                                         -----------          -----------            -----------
                                                            (595,738)            (651,655)              (825,748)

Net income before income taxes                             2,488,506            2,596,598                (38,416)
Provision for income taxes                                 1,021,487              115,600                 -
                                                         -----------          -----------            -----------
Net income (loss)                                        $ 1,467,019          $ 2,480,998            $   (38,416)
                                                         ===========          ===========            ============

Earnings per share                                           $0.22                 $0.37                  $(0.01)
                                                             =====                 =====                  =======

Weighted average shares outstanding                        6,678,983            6,717,666              4,226,066
                                                           =========            =========              =========
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                      -24-
<PAGE>


                            Spurlock Industries, Inc.
                      (Formerly Air Resources Corporation)
                      Consolidated Statements of Cash Flows
              For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>

                                                                         1996               1995               1994
<S>                                                                      <C>                <C>               <C>
Operating activities:
Net income (loss)                                                        $ 1,467,019        $ 2,480,998       $   (38,416)
Adjustments to reconcile net income
  (loss) to net cash:
Depreciation and amortization                                                758,365            700,240            560,599
Issuance of common stock for services                                              -              5,000                  -
Write off of intangible assets                                                     -                  -             23,372
Abandonment of fixed assets                                                        -                  -              9,958
(Increase) decrease in receivables                                           420,306            546,277          (371,281)
(Increase) decrease in trading securities                                    200,000          (200,000)                  -
(Increase) decrease in inventory                                              54,133            566,152          (320,578)
(Increase) decrease in prepaid expenses                                    (108,843)              6,001              1,695
(Increase) in other assets                                                     2,814           (79,381)           (15,181)
Increase in deferred taxes                                                   131,946             11,600                  -
Increase (decrease) in accounts payable
  and accrued expenses                                                     (380,584)        (2,188,581)            775,959
Increase in post retirement benefit liability                                 42,667

                                                                           ---------          ---------          ---------
Total adjustments                                                          1,120,804          (632,692)            664,543
                                                                           ---------          ---------          ---------
Net cash provided by (used in)
 operating activities                                                      2,587,823          1,848,306            626,127

Investing activities:
Purchase of fixed assets                                                 (1,184,369)          (425,769)          (316,265)
Advances to officers                                                        (11,000)          (136,733)                  -
Repayment of officer advances                                                 30,000
                                                                           ---------          ---------          ---------
Net cash provided by (used in)
 investing activities                                                    (1,165,369)          (425,769)          (316,265)

Financing activities:
Acquisition of common shares                                               (120,000)            (1,000)                  -
Proceeds of new borrowings                                                         -                  -             60,665
Repayment of related party loans                                            (95,622)           (99,728)                  -
Repayment of notes and loans                                             (1,351,511)        (1,012,309)          (318,261)
                                                                           ---------          ---------          ---------

                                      -25-
<PAGE>

Net cash provided by (used in)
 financing activities                                                    (1,567,133)        (1,112,037)          (257,596)

Net increase in cash and cash equivalents                                  (144,679)            310,500             52,266
Beginning cash                                                               250,751             76,984             24,718
                                                                           ---------          ---------          ---------
Ending cash                                                              $   106,072        $   387,484        $    76,984
                                                                         ===========        ===========        ===========

</TABLE>

                                      -26-
<PAGE>



                            Spurlock Industries, Inc.
                      (Formerly Air Resources Corporation)
                      Consolidated Statements of Cash Flows
              For the Years Ended December 31, 1996, 1995 and 1994
                                   (Continued)
<TABLE>
<CAPTION>

                                                                         1996               1995               1994

<S>                                                                      <C>                <C>                <C>
Supplemental cash flow information:

Cash paid for:  Interest                                                 $   667,942        $   605,825        $   391,054
                Income taxes                                             $   658,577        $   104,000        $         -

Non-cash financing and investing activities:
Acquisition of equipment with notes payable                              $ 3,305,168        $    50,818        $         -
Conversion of accounts payables to note                                  $         -        $   839,500        $         -


</TABLE>





The accompanying notes are an integral part of the financial statements.





                                      -27-
<PAGE>



                            Spurlock Industries, Inc.
                      (Formerly Air Resources Corporation)
                 Consolidated Statement of Stockholders' Equity
              For the Years Ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                 Common Shares                    Preferred                      Accumulated
                                                    Amount         Shares          Amount           Deficit

<S>                                 <C>           <C>            <C>             <C>             <C>
Balance December 31, 1993           4,226,066     $ 2,599,814    $ 1,200,000     $ 2,400,000     $(4,452,288)

Net loss for the year                      -               -              -               -          (38,416)
                                    ---------    ------------    -----------    ------------     ------------

Balance December 31, 1994           4,226,066       2,599,814      1,200,000       2,400,000      (4,490,704)

Issuance of common shares for
  services                            100,000           5,000             -               -                -
Share repurchase agreement            (1,000)        (76,000)             -               -                -
Net income for the year                    -               -              -               -         2,480,998
                                    ---------    ------------    -----------    ------------     ------------
 Balance December 31, 1995          4,325,066       2,528,814      1,200,000       2,400,000      (2,009,706)

Conversion of preferred shares      2,400,000       2,400,000     (1,200,000)    (2,400,000)               -
Acquisition and cancellation
  of shares                         (153,000)       (120,000)             -               -                -
Net income for the year                    -               -              -               -         1,467,019
                                    ---------    ------------    -----------    ------------     ------------
 Balance December 31, 1996          6,572,066       4,808,814             -               -         (542,687)
                                  ===========     ===========    ===========     ===========     ============

</TABLE>

The accompanying notes are an integral part of the financial statements.


                                      -28-
<PAGE>


                            Spurlock Industries, Inc.
                      (formerly Air Resources Corporation)
                   Notes to Consolidated Financial Statements


Note 1. Summary of Significant Accounting Policies

A. Organization and Operations

Spurlock  Industries,  Inc. (formerly Air Resources  Corporation) was originally
incorporated  on March 17,  1986 in  Colorado.  On January  27,  1996,  Spurlock
Industries,  Inc. was formed in Virginia.  A merger of the two  corporations was
completed on July 26, 1996.  The merger was accounted for as a  recapitalization
and no adjustments  were made to the carrying  amounts of assets and liabilities
of the combined companies. Shares of the combining companies were exchanged on a
one for one basis.  The Company is engaged in the development,  production,  and
distribution of resins, liquid fertilizers and formaldehyde.

B. Principles of Consolidation

The Company engages in the development,  production, and distribution of resins,
liquid fertilizers and formaldehyde through its wholly owned subsidiary Spurlock
Adhesives,   Inc.  All   inter-company   transactions   have  been   eliminated.
Substantially  all  of  the  Company's  revenues  have  been  derived  from  the
operations of Spurlock Adhesives.

C. Inventories

Inventory is stated at the lower of cost or market using the first in, first out
method.  Finished  goods include raw materials,  direct labor and overhead.  Raw
materials  include  purchase  and  delivery  costs.  Inventory  consists  of the
following at December 31,

                                                    1996              1995

               Raw materials                       $397,511          $403,273
               Work in process                        9,493             8,677
               Finished goods                       134,628           183,815
                                                   --------          --------
                                                   $541,632          $595,765
                                                   ========          ========


D. Property and Equipment

Property and equipment are carried at cost.  Depreciation  is computed using the
straight-line  method over the estimated useful lives of the assets. When assets
are  retired or  otherwise  disposed  of, the cost and the  related  accumulated
depreciation  are removed from the accounts,  and any resulting  gain or loss is
recognized in operations for the period.  The cost of repairs and maintenance is
charged to operations as incurred and  significant  renewals or betterments  are
capitalized.

                                      -29-
<PAGE>

Useful lives for property and equipment are as follows:

               Buildings                                  20  -  30 years
               Machinery and equipment                     5  -  25 years
               Office equipment                                   7 years
               Vehicles                                    4  -   8 years



E. Intangible Assets

The cost of intangible assets are amortized using the straight-line  method over
their estimated useful economic lives.  They are stated at cost less accumulated
amortization.  The Company  reviews for the impairment of long-lived  assets and
certain  identifiable  intangibles  whenever events or changes in  circumstances
indicate that the carrying amount of an asset may not be recoverable.  Under FAS
121, an impairment  loss would be recognized  when  estimated  future cash flows
expected to result  from the use of the asset and its  eventual  disposition  is
less than its carrying amount. No such impairment losses have been identified by
the  Company  for the  1996 and 1995  fiscal  years.  During  1994  $23,372,  of
intangibles considered to be non-recoverable were charged to operations.

F. Revenue Recognition

The  Company  recognizes  revenue  on the sales of its  products  at the time of
shipment.

G. Cash

Cash  and  cash  equivalents,   consist  of  deposits  and  highly  liquid  debt
instruments with original maturities of less than 90 days.

H. Environmental Costs

The  Company's   business   activities   are  monitored  by  state  and  federal
environmental  agencies  and the Company is  required to obtain  permits for the
operation of its facilities.  Environmental  expenditures that relate to current
operations are expensed or capitalized as appropriate.  Liabilities are recorded
when  environmental  assessments and or remedial  efforts are probable,  and the
costs can be  reasonably  estimated.  Generally,  the  timing of these  accruals
coincides with the  completion of a feasibility  study or commitment to a formal
plan of action.  Environmental costs charged to operations  aggregated $202,076,
$277,349 and $261,932 for the years ended December 31, 1996, 1995 and 1994.

I.    Advertising

Advertising expenses are charged to expense upon first showing.  Amounts charged
to expense were $28,101, $27,880 and $648 for the years ended December 31, 1996,
1995 and 1994, respectively.

                                      -30-
<PAGE>

J. Estimates

The preparation of the Company's  financial  statements  requires  management to
make estimates and assumptions that affect the amounts reported in the financial
statements  and  accompanying  notes.  Actual  results  could  differ from these
estimates.

K. Earnings Per Share

Earnings per share for periods  presented has been  computed  using the weighted
average  number of  shares  of  common  stock  outstanding  during  the  periods
presented.  Common stock  equivalents,  as determined  using the treasury  stock
method,  are  excluded  from the  computation  during loss years as their effect
would be anti-dilutive.

L. Concentration of Credit Risk

The  Company's  short-term  financial  instruments  consist  of  cash  and  cash
equivalents,  accounts and loans  receivable,  and payables  and  accruals.  The
carrying amounts of these financial instruments  approximates fair value because
of their short-term  maturities.  Financial instruments that potentially subject
the Company to a  concentration  of credit risk consist  principally of cash and
accounts  receivable,  trade.  During the year the Company did not maintain cash
deposits at financial  institutions  in excess of the $100,000  limit covered by
the Federal  Deposit  Insurance  Corporation.  The  Company  has  several  major
customers,  (see  Note 12) the loss of any one of which  could  have a  material
negative impact upon the Company.  Additionally, the Company maintains a line of
credit  and a  significant  portion  of its  long-term  debt with one  financial
institution.   The  maintenance  of  a  satisfactory   relationship   with  this
institution  is of significant  importance to the Company.  The Company does not
hold or issue  financial  instruments  for trading  purposes nor does it hold or
issue interest rate or leveraged derivative financial instruments

M. Stock-based Compensation

The Company  adopted  Statement  of Financial  Accounting  Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996.  Upon  adoption of FAS 123,  the Company  continued  to measure
compensation expense for its stock-based  employee  compensation plans using the
intrinsic value method  prescribed by APB No. 25, Accounting for Stock Issued to
Employees,  and has provided in Note 11 pro forma  disclosures  of the effect on
net income and earnings per share as if the fair value-based  method  prescribed
by FAS 123 had been applied in measuring compensation expense.

N. Recent Pronouncements

In 1996 Financial Accounting Standards No. 125 (FAS 125) Accounting for Transfer
and Servicing of Financial Assets and Extinguishments of Liabilities was issued.
FAS 125 is  effective  for  transfers  and  servicing  of  financial  assets and
extinguishments  of liabilities  occurring  after December 31, 1996. The Company
will  adopt  FAS 125 in  1997.  Adoption  of FAS 125 is not  expected  to have a
material effect on the Company's  consolidated  financial  position or operating
results.

Note 2. Accounts Receivable

During  January,  1994 the Company  entered  into a factoring  agreement  with a
financial  institution  whereby  the factor  agreed to advance the Company up to
$1,200,000  with recourse by purchasing  accounts  receivable  less than 90 days
old. The  advanced  amount was computed on 80% of  acceptable  receivables.  The
Company


                                      -31-
<PAGE>


agreed to pay the factor a percentage of the face amount of the  receivable  for
the advances as follows:  2% for items  collected  within 30 days;  4% for items
collected  between  31 and 60 days;  and 6% for items  collected  after 61 days.
Factoring fees charged to expense pursuant to this arrangement for 1995 and 1994
amounted to $94,156 and $425,684, respectively.

During  February,  1995 the Company replaced its accounts  receivable  factoring
agreement with a line of credit.  The line of credit is secured by the Company's
accounts  receivable  and  inventory.  Under  the terms of the  credit  line the
Company may borrow up to 85% of accounts receivable up to 90 days old and 50% of
inventory up to a maximum of $3,500,000. The line of credit was replaced in July
1996 with a new line of credit (see Note 6).

Note 3. Investments

The Company's securities that are bought and held principally for the purpose of
selling  them in the near term are  classified  as trading  securities.  Trading
securities are recorded at fair value as a current asset with the change in fair
value during the period included in earnings.

At December 31, 1995 the Company  held debt  securities  bearing  interest at 6%
with a fair value and cost basis of $200,000.  The Company had no sales proceeds
from trading securities during the year ended December 31, 1995.



The  Company  purchased  additional  trading  securities  during  the year ended
December 31, 1996 for cash aggregating $397,500.  The Company had sales proceeds
from trading  securities  during the year ended  December 31, 1996  amounting to
$581,167 and realized a (loss) for this period amounting to $(16,333).

Note 4. Property and Equipment.

Property and equipment consist of the following:

                                                    1996       1995

Land                                         $    69,233   $    69,233
Buildings                                        547,041       543,601
Machinery and equipment                       12,399,116     8,315,648
Construction in progress                         305,913       107,133
Vehicles                                         285,189       132,437
Furniture and fixtures                           150,640       104,269
                                             -----------   -----------
                                              13,757,132     9,272,321
Accumulated depreciation and  amortization     4,313,075     3,559,436
                                             -----------   -----------
                                             $ 9,444,057   $ 5,712,885
                                             ===========   ===========

Depreciation  charged to operations  was $758,365  $700,240 and $560,599 for the
years ended December 31, 1996, 1995 and 1994, respectively.

                                      -32-
<PAGE>

Substantially all of the Company's fixed assets secure debt described in Note 7.

The  Company  owns vacant  land  adjacent  to its  Waverly VA facility  which is
suitable for plant expansion. The cost of the land $150,000 is included in other
investments in the accompanying balance sheet.

Note 5. Accounts and Notes Receivable - Officers

Accounts and notes receivable officers consisted of the following at December
31,

                                                        1996             1995
Notes receivable, with interest at
 9% due in annual payments
 of $38,595 through 1999                                $139,639        $158,639
Less: current portion                                     38,595          40,520
                                                        --------        --------
                                                        $101,044        $118,119
                                                        ========        ========

Note 6. Notes Payable.

Notes  payable - line of credit at December 31, 1995  consisted  of  outstanding
indebtedness pursuant to an accounts receivable financing agreement as described
in Note 2. At December 31, 1995 the outstanding  balance was $1,329,096  bearing
interest at prime plus 2.5% (11% at December 31,  1995) per annum.  The line was
repaid in July 1996 pursuant to a new credit facility with a bank which includes
an accounts  receivable  and inventory  line of credit and  long-term  financing
secured by plant and equipment.  The new credit line is secured by the Company's
accounts receivable and inventory and contains certain financial covenants which
the Company is currently in compliance  with.  At December 31, 1996,  borrowings
outstanding amounted to $1,420,801 at a year end interest rate of 8.25%.

The year end  balance  is equal to the  maximum  amount  of  borrowing  based on
available accounts receivable and inventory.

Notes payable - other at December 31, 1995 consists of following:

Promissory notes, with interest at 12% per annum,  originally due in March, 1993
with a balance due of $82,447 at December 31, 1995, repaid in 1996.

Note 7. Long-term Debt

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

                                              1996          1995

Note payable bank, payable in monthly
 installments of $8,621 plus interest
 at 10%, repaid in July 1996               $     --     $  206,897

                                      -33-
<PAGE>

Note payable bank, payable in monthly
 installments of $8,924 with interest
 at 8%, repaid in June 1996                      --         77,362

Note payable to a bank payable
 $50,542 monthly including interest
 at prime + .5% or LIBOR  rate + 2.75%
(8.25%   at December 31, 1996)
 secured  by plant and equipment
 due July, 2002                             3,436,832      509,138

Note payable to a bank with
 interest at 12% payable $1,832
 monthly  secured by real property
 due in August, 2004                          109,295      117,583

Note payable vendor, payable in monthly
 installments of $23,320 with interest
 at Prime + 1.5% (10% at December 31,
 1995) due March, 1998                        349,780      629,620

Note payable supplier, payable in
 monthly installments of $12,861, with
 interest at 8%, repaid in June 1996             --        379,831

Note payable supplier, payable in
 monthly installments of $14,814, with
 interest at 8.25%, through August 1999       400,504         --

Various notes payable,  payable in
 monthly  installments of $4,634
 with interest from 8% to 10% due
 December 1997 to November 1999
 secured by personal property                 135,300       56,811
                                            ---------    ---------
                                            4,431,711    1,977,242
Less: current portion                       1,029,090      993,590
                                            ---------    ---------
                                           $3,402,621    $ 983,652
                                           ==========    =========

                                      -34-
<PAGE>

Maturities of long-term debt are as follows:

                  December 31, 1997                  $1,029,090
                  December 31, 1998                  $  966,087
                  December 31, 1999                  $  740,822
                  December 31, 2000                  $  619,942
                  December 31, 2001                  $  621,647
                  Thereafter                         $  454,123

Note 8. Related Party Transactions.

Through 1993 certain  directors  and  shareholders  made advances to the Company
bearing  interest at 10% per annum  aggregating  $195,350.  These  advances were
unpaid at December 31, 1994.  During 1995 $99,728 of these  advances were repaid
and the remaining balance was repaid in full in 1996.

During 1994 the Company  purchased raw materials  used at the Malvern,  AR plant
from a company that owned  533,333  shares of the $2 par value  preferred  stock
issued by the  Company to effect  the  purchase  of the  Malvern  facility.  The
purchases are considered to be at arms length and at prices and terms  available
from other suppliers of the material. Purchases aggregated $527,073 for the year
ended December 31, 1994.

During September, 1994 a shareholder of the Company entered into an agreement to
repurchase the 533,333 shares  described above for $250,000 payable in quarterly
payments  through  September,   1995.  During  January,  1996  this  shareholder
converted  these  shares and the  666,667  shares of  preferred  stock  which he
previously owned into common stock (see Note 12).

In July 1996, the Company  entered into an employment  contract with its founder
and former chief  executive  officer to serve as its vice  president for product
development  through August 31, 1999. The contract provides for an annual salary
of $180,000  during the  contract  term.  The  contract  also  provides for post
retirement  benefit  payments  of  $100,000  per  year  for a five  year  period
beginning  August 31,  1999.  The  Company  intends to fund the post  retirement
payments currently by depositing monthly payments of approximately  $12,000 into
an interest bearing account.

The  estimated  payment  assumes an earned  interest  rate of 5% per year on the
deposit  amounts and a discount rate of 8% per year to arrive at the net present
value of the annual  retirement  benefit due at August 31, 1999. The Company has
recorded  $42,667 of expense  for post  retirement  benefits  for the year ended
December  31, 1996 and  estimates  that its net  commitment  for the period from
January  1,  1997  to  August  31,  1999  pursuant  to  this  contract  will  be
approximately $864,000 for both salary and post retirement benefits.

Note 9. Description of Leasing Arrangements

The Company leased rail cars, trucking equipment, and a formaldehyde plant under
operating  leases  expiring in various  years  through  2003.  The lease for the
formaldehyde plant ($660,000 per year) commenced upon successful start up, which
was in  February,  1993.  The Company had an option to purchase the plant at the
expiration  of the initial 10 year lease for the greater of fair market value or
$3,580,000,  or to renew the lease for an additional 10 years. During July 1996,
the plant was purchased for $3,200,000.

During the fourth quarter of 1993 the Company began deferring  certain  payments
on the plant  lease due to  operational  problems  with the plant.  The  Company
maintained  that the  plant  did not  produce  the  quantities  of  formaldehyde
specified  in  the  lease  and  that a  renegotiation  of the  lease  terms  was
appropriate. The amount



                                      -35-
<PAGE>


deferred at December 31, 1995 amounted to $510,070. This amount was converted to
a long-term note payable as described  above in connection  with the purchase of
the plant.

The Company has remaining  operating  leases for trucking and rail car equipment
which have fixed annual payments as follows:  $100,802 in 1997, $34,824 in 1998,
$33,000 in each year thereafter through 2001.

Rent expense was  $395,627,  $761,997 and $931,242 for the years ended  December
31, 1996, 1995 and 1994.

Note 10. Income Taxes

Deferred income taxes arise from temporary differences resulting from income and
expense  items  (principally  accelerated  depreciation)  reported for financial
accounting and tax purposes in different periods.  Deferred taxes are classified
as  current  or  non-current,  depending  on the  classification  of assets  and
liabilities  to  which  they  relate.  Deferred  taxes  arising  from  temporary
differences  that are not related to an asset or  liability  are  classified  as
current  or  non-current  depending  on  the  periods  in  which  the  temporary
differences are expected to reverse.

Deferred tax assets and  liabilities at December 31, 1996 and 1995 resulted from
the following:

                                                  1996               1995
         Deferred Tax assets:
           Operating loss carryforward             $ -                $ 98,300
           Post retirement liability               $ 14,507           $ -
         Deferred tax liabilities:
           Accelerated depreciation                $157,983           $109,900


                                      -36-
<PAGE>

The  provision  for income taxes at December  31, 1996 and 1995  consists of the
following:

                                             1996                   1995

         Current                            $987,910                 $81,600
         Deferred                             26,323                  34,000
                                          ----------                --------
                                          $1,021,487                $115,600

A  reconciliation  of the federal taxes at statutory  rates to the tax provision
for the year ended December 31, 1996 and 1995 is as follows:

                                                  1996                 1995

         Federal statutory rate                   $846,091            $882,843
         State income taxes                        149,415             104,000
         Utilization of loss carryforward          (13,912)           (801,532)
         Surtax exemption                           -                  (11,750
         Book/tax depreciation difference          (48,083)            (34,000)
         Post retirement benefits                   14,507              -
         Other                                      73,469             (23,961)
                                                ----------            --------
         Provision for income taxes             $1,021,487            $115,600

The Company did not record  income tax expense for the year ended  December  31,
1994 due to the loss incurred in that year.  The Company has fully  utilized its
net operating loss carryforward in the current year.

Note 11. Stockholders' Equity

During 1990,  the Board  authorized  5,000,000  shares of preferred  stock.  The
preferred  stock will be callable at the  discretion  of the Company at par ($2)
plus accrued dividends. The stock is convertible into two shares of common stock
after one year.  The conversion  rights will expire after five years.  Dividends
are  payable  at 200% of any  dividends  paid on  common  stock per  annum.  The
preferred  stock has  preference in liquidation to the common shares and has two
votes per share at shareholder meetings.

During  February,  1995 the Company  issued  100,000  shares of common  stock to
certain officers for services valued at $5,000.

During 1995 the Company  adopted a stock  option plan for the benefit of certain
employees,  officers  and  directors.  The number of  restricted  common  shares
reserved under the plan is 500,000. The option price on the grant date shall not
be less than the fair market value on such date  provided  that an owner of more
than 10% of the common  stock  shall not have an option  granted at a price less
than 110% of the fair  market  value on the date of the grant.  During  1995 the
Company  issued  210,000  options  exercisable  at $.50 per share under the plan
which expire 100,000 in 2000 and 110,000 in 2005.  During June 1996, the Company
granted  additional options under the plan for 75,000 shares exercisable at $.55
for a ten year period.

                                      -37-
<PAGE>

Following is a summary of the transactions in the plan:

                                                                   Weighted
                                                   Shares       Average Price
               Balance December 31, 1994             -
               Granted                             210,000           $.50
               Canceled                              -
               Exercised                             -
                                                 ---------
               Balance December 31, 1995           210,000           $.50
               Granted                              75,000           $.55
               Canceled                              -
               Exercised                             -
                                                 ---------
               Balance December 31, 1996           285,000           $.51

               Options available at
                 December 31, 1996                 215,000


At December 31, 1996,  the Company also had the  following  other stock  options
granted in prior years outstanding:

           Description        Shares         Exercise Price      Expiration Date

           Shareholder        225,000          $.75                  01/21/97
           Shareholder        230,000         $1.00                  02/28/97

As of the  date  of the  financial  statements  none  of the  options  had  been
exercised.

The weighted  average fair value at the date of grant for options granted during
1996 was $.25 per option. The fair value of the options at the date of grant was
estimated using the Black-Scholes model with assumptions as follows:


            Market value                         $.51
            Expected life                          10
            Interest rate                        6.96%
            Volatility                          19.56%
            Dividend yield                       0.00%

No stock based  compensation  costs would be recorded by the Company as a result
of the foregoing.

During January,  1996 the holder of the 1,200,000  preferred shares described in
Note 8  converted  these  shares  into  2,400,000  shares  of common  stock.  In
connection with the recapitalization  described in Note 1, the Company agreed to
reacquire  80,000  shares  of  the  Air  Resources  Corp.  common  stock  from a
dissenting  shareholder  for  $120,000 in cash.  Also during  1996,  the Company
acquired 73,000 shares of common stock of Air Resources from a former officer as
described in Note 13.


                                      -38-
<PAGE>

Note 12. Sales to Major Customers and Concentration of Credit Risk

The Company,  whose  customers  produce raw materials  used in the  construction
industry  made sales in excess of 10% of its gross  revenues  for the year ended
December 31, 1996, 1995 and 1994 as follows:

              Customer                         Sales/%             Receivable at
                                                                       12/31
              1996:
              International Paper         $4,537,102     16%          $108,000
              Union Camp                  $3,865,062     13%          $162,000
              Schenectady                 $3,521,857     12%           $57,000
              Willamette                  $7,478,831     26%          $424,000

              1995:
              International Paper         $4,964,000     15%          $124,000
              Union Camp                  $3,900,000     12%          $166,000
              Schenectady                 $5,124,000     15%           $41,000
              Willamette                  $7,454,000     22%          $636,000

              1994:
              International Paper         $5,147,000     17%          $156,000
              Union Camp                  $3,759,000     12%          $175,000
              Norbord                     $2,233,000      7%          $161,000
              Willamette                  $7,198,000     24%          $678,000

Note 13. Commitments and Contingencies

On  September  16,  1996 the Company  contracted  to  purchase  land,  plant and
equipment owned by Niagara Mohawk Power  Corporation  (NMPC) located in the Town
of Bethlehem, New York. The Company intends to use the site to construct a third
processing  plant for the manufacture of adhesive resins and  formaldehyde.  The
contract specifies a purchase price of $775,000 for the premises and $65,000 for
equipment.  The contract also provides that the purchase  price for the premises
will be reduced to $1 should the Company promise to remediate the premises under
the direction of the New York State  Department of  Environmental  Conservation.
The Company has placed a $50,000  purchase  deposit in escrow  which will become
the property of NMPC should the Company not use its best  efforts to  effectuate
closing of the purchase by April 1, 1997. The Company has undertaken discussions
with  the  state  conservation  agency  and  has  prepared  an  estimate  of the
remediation  costs  associated with the project,  which estimate  projects total
costs not in excess of the contract purchase price.

In  connection  with the plant  acquisition  described  above,  the  Company has
entered  into a turnkey  plant  construction  agreement  with DB  Western,  Inc.
whereby the Company will pay an aggregate of $6,568,100 of  construction  costs.
The  Company  paid a deposit  of $66,000  at  October  1, 1996 to  initiate  the
contract.  Construction  will not begin until the Company has completed the NMPC
purchase or has secured another acceptable plant location.

Should the  Company be unable to complete  the  contract,  the deposit  would be
forfeit and any additional  costs incurred by DB Western in connection  with the
project would become due by the Company.

                                      -39-
<PAGE>

The Company purchases substantially all of its three raw material components for
its resin,  formaldehyde,  and fertilizer  operations from four  suppliers.  The
Company purchased $15,158,111,  $19,232,831 and $20,136,843 from these suppliers
during  1996,  1995 and 1994 and had a  balance  due to them of  $1,089,433  and
$1,522,204 at December 31, 1996 and 1995.

During  1993,  the  Company  was made aware of a claim by two  former  directors
requesting that the Company  repurchase  381,000 shares of its common stock from
said directors pursuant to a reorganization  agreement entered into during 1992.
Subsequently,  one of these former directors sold his holdings of 233,000 common
shares. The purchase agreement set the repurchase price at $2.81 per share or an
aggregate of $418,280  after  considering  the above  described  disposition  of
shares by the former director.  The Company settled these claims by paying these
individuals  $84,690 in cash in 1995 and by  repurchasing  73,000  common shares
from one of the  individuals  for  $75,000 in 1996.  The Company had accrued the
potential  maximum  liability of $75,000 at December 31, 1995. In addition,  the
Company  repurchased  and  retired  1,000  shares  of  common  stock  from  this
individual for $1,000.

Note 14. Pension Plan

The Company has a 401(k) retirement plan for the benefit of eligible  employees.
Contributions  are  funded  by the  Company  and  established  by the  Board  of
directors  annually.  Contributions  for  1996,  1995  and 1994  were  $132,476,
$113,114 and $128,376, respectively.


                                      -40-
<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         Spurlock  Industries,  and its predecessor,  Air Resources,  during the
three most  recent  fiscal  years or any  subsequent  interim  period,  have not
dismissed  an  independent   accountant  nor  has  one  resigned  based  on  any
disagreement regarding accounting and financial disclosure.


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

         The  information  required by this item is incorporated by reference to
the  Registrant's  definitive  Proxy  Statement  for its 1997 Annual  Meeting of
Shareholders,  under the  headings  "Security  Ownership  of Certain  Beneficial
Owners and Management"  and  "Management" to be filed within 120 days of the end
of the 1996 fiscal year.


Item 11. Executive Compensation

         The  information  required by this item is incorporated by reference to
the  Registrant's  definitive  Proxy  Statement  for its 1997 Annual  Meeting of
Shareholders,  under the heading "Management" to be filed within 120 days of the
end of the 1996 fiscal year.


Item 12. Security Ownership of Certain Beneficial Owners and Management

         The  information  required by this item is incorporated by reference to
the  Registrant's  definitive  Proxy  Statement  for its 1997 Annual  Meeting of
Shareholders, under the heading "Security Ownership of Certain Beneficial Owners
and Management" to be filed within 120 days of the end of the 1996 fiscal year.


Item 13. Certain Relationships and Related Transactions

         The  information  required by this item is incorporated by reference to
the  Registrant's  definitive  Proxy  Statement  for its 1997 Annual  Meeting of
Shareholders,  under the heading "Management" to be filed within 120 days of the
end of the 1996 fiscal year.


                                      -41-
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

         (a)      (1)      Financial Statements:

                           (i)      Report of Independent Auditors
                           (ii)     Consolidated  Balance Sheets as of December
                                    31, 1996  and  1995
                           (iii)    Consolidated   Statements  of Operations for
                                    the years ended December 31, 1996, 1995 and
                                    1994
                           (iv)     Consolidated Statements of Stockholders'
                                    Equity for the years ended December 31,
                                    1996, 1995 and 1994
                           (v)      Consolidated Statements of Cash Flows for
                                    the years ended December 31, 1996, 1995 and
                                    1994
                           (vi)     Notes to Consolidated Financial Statements

                  (2)      Financial Statement Schedules:  None

                  (3)      Exhibits


Exhibit No.                                         Document
         2            Agreement  and Plan of Merger  dated  February  15,  1996,
                      between Air Resources Corporation and Spurlock Industries,
                      Inc.,  incorporated  by reference to Exhibit 2 to the Form
                      S-4  of the  Registrant  filed  with  the  Securities  and
                      Exchange  Commission  on February 20, 1996,  as amended by
                      Amendment  No.  1 and  No.  2  thereto,  Registration  No.
                      33-01448 (as amended, the "Form S-4").
        3.1           Articles of Incorporation of Spurlock Industries, Inc.,
                      incorporated by reference to Exhibit 3.1 to the Form S-4.
        3.2           Bylaws of Spurlock Industries, Inc., incorporated by
                      reference to Exhibit 3.2 to the Form S-4.
        10.1          Agreement and Plan of Reorganization, dated April 22,
                      1992, between Air Resources Corporation and Spurlock
                      Adhesives, Inc., incorporated by reference to Exhibit 10.1
                      to the Form S-4.
        10.2          Employment and Retirement Benefit Agreement dated August
                      21, 1996 by and between
                      Spurlock Adhesives, Inc. and Harold N. Spurlock, as
                      amended by First Amendment thereto dated February 24, 1997
                      by and between such parties.
        10.3          Air Resources Corporation 1995 Stock Incentive Plan,
                      incorporated by reference to Exhibit 10.3 to the Form S-4.
        10.4          Incentive Stock Option Agreement, dated February 22, 1995,
                      between Air Resources Corporation and Irvine R. Spurlock,
                      incorporated by reference to Exhibit 10.4 to the Form S-4.

                                      -42-
<PAGE>


        10.5          Incentive Stock Option Agreement, dated February 22, 1995,
                      between Air Resources Corporation and H. Norman Spurlock,
                      Jr. , incorporated by reference to Exhibit 10.5 to the
                      Form S-4.
        10.6          Incentive Stock Option Agreement, dated May 15, 1995,
                      between Air Resources Corporation and Warren E. Beam,
                      incorporated by reference to Exhibit 10.6 to the Form S-4.
        10.7          Indemnification Agreement, dated January 30, 1997, between
                      Spurlock Industries, Inc. and Phillip S. Sumpter.
        10.8          Promissory Note made by H. Norman Spurlock, Jr. in favor
                      of Spurlock Adhesives, Inc. as of January 10, 1996,
                      incorporated by reference to Exhibit 10.8 to the Form S-4.
        10.9          Letter  Agreement  dated  September  7, 1993,  between Air
                      Resources Corporation and Lloyd B. Putman, incorporated by
                      reference to Exhibit 10.9 to the Form S-4.
       10.10          Collateral Promissory Note made by Harold N. Spurlock in
                      favor of Spurlock Adhesives, Inc. as of June 30, 1995,
                      incorporated by reference to Exhibit 10.10 to the Form
                      S-4.
       10.11          Indemnification Agreement, dated September 19, 1996,
                      between Spurlock Industries, Inc. and Glen S. Whitwer.
       10.12          Indemnification Agreement, dated January 30, 1997 between
                      Spurlock Industries, Inc. and Raymond G. Tuttle.
       10.13          Loan and Security Agreement, dated July 1, 1996, between
                      Spurlock Adhesives, Inc. and National Canada Finance
                      Corporation, incorporated by reference to Exhibit 10 to
                      the Registrant's Form 10-Q for the quarter ended June 30,
                      1996, filed with the Securities and Exchange Commission on
                      August 15, 1996.
       10.14          Spurlock Industries, Inc. 1995 Stock Incentive Plan,
                      incorporated by reference to Exhibit 4.3 of the
                      Registrant's Registration Statement on Form S-8, File No.
                      333-09659.
       10.15          Form of Spurlock Industries,  Inc., Incentive Stock Option
                      Agreement,  incorporated  by  reference to Exhibit 10.2 to
                      the Registrant's Form 10-Q for the quarter ended September
                      30,  1996,   filed  with  the   Securities   and  Exchange
                      Commission on November 14, 1996.
       10.16          Form of Spurlock Industries, Inc. Non-Qualified Stock
                      Option Agreement, incorporated by reference to Exhibit
                      10.3 to the Registrant's Form 10-Q for the quarter ended
                      September 30, 1996, filed with the Securities and Exchange
                      Commission on November 14, 1996.
         21           Subsidiaries of the Registrant.
        23.1          Consent of Winter, Scheifley & Associates, P.C.
         27           Financial Data Schedule.


                                      -43-
<PAGE>

         (b)      Reports on Form 8-K.

                  None.

         (c)      The exhibits required by Item 601 of Regulation S-K are filed
as exhibits to this Form 10-K.

         (d)      There are no financial statements of the Registrant required
by Regulation S-X which were excluded from the Annual Report to  Shareholders by
Rule 14a-3(b).


                                      -44-
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements of Sections 13 or 15(d) of the Securities
Exchange  Act of 1934,  the  Registrant  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                 SPURLOCK INDUSTRIES, INC.


Date:    March 26, 1997     By:  /s/ Irvine R. Spurlock
                                 ----------------------------------------------
                                 Irvine R. Spurlock
                                 Chairman, President and Chief Executive Officer

         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

                Signature                          Title                                           Date
                ---------                          -----                                           ----


<S>                                       <C>                                                 <C>
 /s/ Irvine R. Spurlock                   Chairman, President, Chief Executive                March 26, 1997
 -------------------------------------
           Irvine R. Spurlock             Officer and Director
                                          (Principal Executive Officer)

 /s/ Phillip S. Sumpter                   Executive Vice President, Chief Financial           March 26, 1997
 -------------------------------------
           Phillip S. Sumpter             Officer and Director
                                          (Principal Financial Officer)

 /s/ Warren E. Beam, Jr.                  Treasurer and Controller                            March 26, 1997
 -------------------------------------
           Warren E. Beam, Jr.            (Principal Accounting Officer)


 /s/ H. Norman Spurlock, Jr.              Director                                            March 26, 1997
 -------------------------------------
         H. Norman Spurlock, Jr.


 /s/ Glen S. Whitwer                      Director                                            March 26, 1997
 -------------------------------------
             Glen S. Whitwer


 /s/ Harold N. Spurlock                   Director                                            March 26, 1997
 -------------------------------------
           Harold N. Spurlock


 /s/ Raymond G. Tuttle                    Director                                            March 26, 1997
 -------------------------------------
            Raymond G. Tuttle

</TABLE>

                                      -45-
<PAGE>



                                                 INDEX TO EXHIBITS

    Exhibit No.                                     Document
    -----------                                     --------
         2            Agreement  and Plan of Merger  dated  February  15,  1996,
                      between Air Resources Corporation and Spurlock Industries,
                      Inc.,  incorporated  by reference to Exhibit 2 to the Form
                      S-4  of the  Registrant  filed  with  the  Securities  and
                      Exchange  Commission  on February 20, 1996,  as amended by
                      Amendment  No.  1 and  No.  2  thereto,  Registration  No.
                      33-01448 (as amended, the "Form S-4").
        3.1           Articles of Incorporation of Spurlock Industries, Inc.,
                      incorporated by reference to Exhibit 3.1 to the Form S-4.
        3.2           Bylaws of Spurlock Industries, Inc., incorporated by
                      reference to Exhibit 3.2 to the Form S-4.
        10.1          Agreement and Plan of Reorganization, dated April 22,
                      1992,  between  Air Resources   Corporation  and  Spurlock
                      Adhesives, Inc., incorporated by reference to Exhibit 10.1
                      to the Form S-4.
        10.2          Employment and Retirement Benefit Agreement dated August
                      21,1996 by and between Spurlock Adhesives, Inc. and Harold
                      N. Spurlock, as amended by First  Amendment  thereto dated
                      February 24, 1997 by and between such parties.
        10.3          Air Resources Corporation 1995 Stock Incentive Plan,
                      incorporated by reference to Exhibit 10.3 to the Form S-4.
        10.4          Incentive Stock Option Agreement, dated February 22, 1995,
                      between Air Resources  Corporation and Irvine R. Spurlock,
                      incorporated by reference to Exhibit 10.4 to the Form S-4.
        10.5          Incentive Stock Option Agreement, dated February 22, 1995,
                      between Air Resources Corporation and H. Norman  Spurlock,
                      Jr., incorporated by reference to Exhibit 10.5 to the Form
                      S-4.
        10.6          Incentive Stock Option Agreement, dated May 15, 1995,
                      between  Air Resources Corporation  and  Warren  E.  Beam,
                      incorporated by reference to Exhibit 10.6 to the Form S-4.
        10.7          Indemnification Agreement, dated January 30, 1997 between
                      Spurlock Industries, Inc. and  Phillip S. Sumpter.
        10.8          Promissory Note made by H. Norman Spurlock, Jr. in favor
                      of Spurlock Adhesives,   Inc.  as  of  January  10,  1996,
                      incorporated by reference to Exhibit 10.8 to the Form S-4.
        10.9          Letter  Agreement  dated  September  7, 1993,  between Air
                      Resources Corporation and Lloyd B. Putman, incorporated by
                      reference to Exhibit 10.9 to the Form S-4.
       10.10          Collateral Promissory Note made by Harold N. Spurlock in
                      favor of Spurlock  Adhesives, Inc.  as of June  30,  1995,
                      incorporated by reference to Exhibit 10.10 to the Form
                      S-4.

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<PAGE>

    Exhibit No.                                     Document
    -----------                                     --------
       10.11          Indemnification Agreement, dated September 19, 1996,
                      between Spurlock Industries, Inc. and Glen S. Whitwer.
       10.12          Indemnification Agreement, dated January 30, 1997, between
                      Spurlock Industries, Inc. and Raymond G. Tuttle.
       10.13          Loan and Security Agreement, dated July 1, 1996, between
                      Spurlock   Adhesives,  Inc. and  National  Canada  Finance
                      Corporation, incorporated by reference to Exhibit 10 to
                      the  Registrant's Form 10-Q for the quarter ended June 30,
                      1996, filed with the Securities and Exchange Commission on
                      August 15, 1996.
       10.14          Spurlock  Industries,  Inc. 1995  Stock Incentive Plan,
                      incorporated by reference to Exhibit 4.3 of the
                      Registrant's Registration Statement on Form S-8, File No.
                      333-09659.
       10.15          Form of Spurlock Industries,  Inc., Incentive Stock Option
                      Agreement,  incorporated  by  reference to Exhibit 10.2 to
                      the Registrant's Form 10-Q for the quarter ended September
                      30,  1996,   filed  with  the   Securities   and  Exchange
                      Commission on November 14, 1996.
       10.16          Form of Spurlock Industries, Inc. Non-Qualified Stock
                      Option Agreement, incorporated by reference to Exhibit
                      10.3 to the  Registrant's  Form 10-Q for the quarter ended
                      September 30, 1996, filed with the Securities and Exchange
                      Commission on November 14, 1996.
         21           Subsidiaries of the Registrant.
        23.1          Consent of Winter, Scheifley & Associates, P.C.
         27           Financial Data Schedule.




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