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

                                   FORM 10-KSB

    [X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997

    [ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
                      For the transition period from ______ to_______

                             LARK TECHNOLOGIES, INC.
        (Exact name of small business issuer as specified in its charter)

            DELAWARE                                           73-1461841
    (State or other jurisdiction of                         (IRS Employer
    incorporation or organization)                        Identification No.)

        9545 KATY FREEWAY, SUITE 465                         (713) 464-7488
        HOUSTON, TX  77024                           (Issuer's telephone number)
        (Address of principal executive offices)

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

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

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

Revenues for the fiscal year ending December 31, 1997 were $4,469,722.

The aggregate market value of the voting stock held by non-affiliates is
$4,366,031, based on a closing price of $1.56 on March 30, 1998.

                APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ]  No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS

As of March 30, 1998, there were 3,324,046 shares of Common Stock, par value
$0.001 per share, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business Disclosure Format (Check one):   Yes [ ]   No [X]
<PAGE>
                             LARK TECHNOLOGIES, INC.

                              INDEX TO FORM 10-KSB
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.

Part I                                                                      PAGE

    Item 1.    Description of Business......................................   1

    Item 2.    Description of Property......................................   5

    Item 3.    Legal Proceedings............................................   5

    Item 4.    Submission of Matters to a Vote of Security Holders..........   5


Part II

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

    Item 6.    Management's Discussion and Analysis.........................   6

    Item 7.    Financial Statements.........................................   8

                      Balance Sheet.........................................  10

                      Statements of Operations..............................  11

                      Statements of Cash Flows..............................  13

                      Notes to Financial Statements.........................  15

    Item 8.    Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure..........................  25

Part III

    Item 9.    Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act............  25

    Item 10.   Executive Compensation.......................................  28

    Item 11.   Security Ownership of Certain Beneficial Owners and Management 28

    Item 12.   Certain Relationships and Related Transactions...............  31

    Item 13.   Exhibits and Reports on Form 8-K.............................  32

Signatures..................................................................  34

                                       i
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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

        COMPANY HISTORY. Lark Sequencing Technologies, Inc. ("Sequencing") was
incorporated as a Delaware corporation in May 1990. Sequencing's corporate
predecessor was organized in 1989 for the purposes of (i) marketing standard
gene sequencing technologies used by scientists at Baylor College of Medicine in
Houston, Texas and (ii) marketing software developed at Baylor College of
Medicine and used for sequencing.

        In June of 1992, Sequencing acquired the assets of a Texas limited
partnership that was engaged in basic research into potential medical uses of
the bio-active proteins present in the venom of poisonous snakes. These assets
were placed by Sequencing in a wholly-owned subsidiary, Summa Biologica Inc., a
Texas corporation ("Summa"). The operations of Summa were not profitable and
were not deemed sufficiently promising to management of Sequencing to continue
expenditures in this respect. In December of 1993, Sequencing sold substantially
all the assets of Summa.

        Lark Technologies, Inc. ("Lark" or the "Company") was incorporated under
the laws of the State of Delaware on November 16, 1994 for the purpose of
merging with Sequencing. Prior to the merger, Lark had no business operations or
significant capital and had no intention of engaging in any active business
until it merged with Sequencing. Prior to the merger, the sole shareholder of
Lark was SuperCorp Inc. ("SuperCorp"), an Oklahoma company. Upon approval of the
merger, SuperCorp spun off Lark by transferring its stock in Lark to its
shareholders.

        The Company is a successor in interest to Sequencing through a merger
effected in September 1995. As a result of the merger, the shareholders of
Sequencing own 90% of the capital stock of Lark, and the shareholders of
SuperCorp own 10% of the capital stock of Lark.

        BUSINESS OF LARK. Lark believes it is a leader in providing contract DNA
sequencing and research services to the pharmaceutical, biotechnology and agbio
industries. Lark's services are used worldwide by research organizations and
drug development institutions. Lark's service portfolio consists of various DNA
sequencing and molecular biology services as follows:

   o    AUTOMATED DNA SEQUENCING SERVICES. Lark applies automated sequencing
        techniques to generate high throughput DNA sequence and fast turnaround
        screening information, including genome sequencing projects.

   o    GENETIC STABILITY TESTING SERVICES. Lark's genetic stability testing
        services are used to characterize Master Cell Banks, Manufacturers
        Working Cell Banks and Post Production Cell Samples from bacterial,
        yeast and cell cultures. Genetic stability testing is used to analyze a
        production strains stability and demonstrate that the expression system
        has not undergone any mutations or rearrangements that would affect the
        integrity of the product. This service assists companies producing
        genetically manufactured products to optimize production yields,
        determine product purity, and support regulatory submissions. This
        service was introduced in late 1996.

   o    MANUAL DNA SEQUENCING SERVICES. Lark uses manual isotopic sequencing
        techniques for projects that require greater than 99.9% accuracy. These
        techniques are useful for DNA sequence information that is used for
        patent applications, FDA submissions or the identification of genetic
        mutations.

   o    LIBRARY SCREENING SERVICES. During the gene discovery process,
        customers may find only a portion of a gene of interest. As a service,
        Lark will use a customer's gene fragment to probe a genetic library to
        identify a full length gene. Identification of full length genes is
        necessary for determining a gene's function, developing novel drugs, and
        securing patent rights.

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   o    DIFFERENTIAL DISPLAY SERVICE. Lark uses differential display techniques
        for analyzing differences in gene expression caused by the introduction
        of various drug compounds, viruses or stimulatory factors. Differential
        display can be useful in identifying novel genes and gene functions.
        Analysis of differential gene expression can also be useful in assessing
        the impact of small molecules or other compounds on cellular function,
        discovery of novel drug targets, and analyzing disease status. By
        understanding how and when a gene is expressed or repressed, targeted
        interventions can be developed to maximize results and minimize harmful
        side effects. This service is used to discover novel genes as well as
        characterize pharmaceutical effects.

        Lark has also undertaken a senescence gene discovery program for its own
account. In 1995, the Company obtained exclusive rights to senescence gene
technology developed at Baylor College of Medicine ("Baylor"), subject to third
party royalty rights and development obligations. Senescence is the final stage
of cellular aging when a cell ceases to divide but remains viable. The genes
which control this process regulate cell immortality. The major disease target
for this gene technology is cancer. Animal studies have demonstrated the ability
of this technology to reduce tumor growth at statistically significant levels.
Lark is actively pursuing the discovery of these novel genes and intends to
exploit the diagnostic and therapeutic applications of the technology by forging
appropriate corporate relationships.

        BUSINESS STRATEGY. The Company is a rapidly growing service provider to
the biotechnology, pharmaceutical and agbio industries. The Company intends to
focus its expansion efforts on the maintenance and expansion of long term
relationships with corporate clients in these industries, as well as
establishing new corporate relationships. The Company will seek to identify
trends that impact its clients and develop new products and services to meet the
changing needs of its clients.

        Lark intends to use its fundamental capabilities and skills in DNA
sequencing, molecular biology and gene function analysis to drive the two major
components of the Company: (1) the fee for service business and (2) the gene
discovery program. Lark's founding business, DNA sequencing and molecular
biology services, provides current revenue. The Company expects that its skills
and capabilities in this area will permit it to continue to grow this business.
The same skills and capabilities will also be used and expanded to discover the
genes associated with cellular senescence. Management believes that this gene
discovery and technology development program may provide significant value to
the Company in addition to the on-going service business.

        The field of genomics is becoming increasingly important. The Company
intends to use its skills and capabilities in the fields of molecular biology
and DNA sequencing to reposition itself to take advantage of the growth in the
genomics marketplace. The Company believes that its efforts in its senescence
gene discovery program will add to its credibility in the genomics arena.

        Lark intends to continue to consider the development of new services to
support the needs of the marketplace and its gene discovery program. The Company
will evaluate prospective new services and products as opportunities arise.

        MARKET OVERVIEW AND COMPETITION.

        SERVICE BUSINESS. The Company was established to provide contract
research services to biotechnology researchers. With the advent of the Human
Genome Project (an initiative to map and sequence the human genome) and
revolutionary advances in the field of molecular biology, the Company has
developed quality services to capitalize upon these market opportunities. Today,
the Company's services are used worldwide by commercial, government and academic
institutions. The Company has earned a reputation as a leading provider of high
quality DNA sequencing. This reputation has allowed the Company to obtain key
contracts with major pharmaceutical and biotechnology companies throughout the
world. The Company is a fee for service contractor and typically takes no
ownership position in the intellectual property rights of the services it
performs under contract.

        Several factors influence the current competitive business conditions
faced by the Company. First, the total amount of DNA sequencing is increasing
due to the Human Genome Project and related genome sequencing initiatives, and
competitive pressures in the pharmaceutical industry. Major pharmaceutical
companies have made

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<PAGE>
significant financial commitments to gene therapy approaches. These approaches
are maturing and may require demonstration of genetic stability before or during
clinical trials. For example, there are currently over 60 biotech products in
the marketplace and over 260 in clinical trials, and 2,000 in preclinical
development, all of which potentially require FDA submission sequencing in
support of a demonstration of genetic stability.

        Additionally, companies in both the pharmaceutical and biotechnology
sectors are facing increasing competitive pressures to reduce fixed
expenditures. Pharmaceutical companies are increasingly outsourcing routine
procedures to maximize the innovative aspects of their internal efforts. The
biotechnology sector has accepted the virtual company model which supports
further outsourcing of routine development efforts.

        The Company has many attributes which have enabled it to compete in this
complex environment. The Company is recognized as a quality leader among
contract molecular biology service providers and has operated under the
direction of industry professionals for more than six years. The Company's
technical team follows standard operating procedures which help to produce
consistent, high quality results. Because services are performed in compliance
with Good Laboratory Practices (GLPs) as specified by the Food and Drug
Administration (FDA), Lark can undertake projects that support applications to
the FDA. Finally, the Company provides a breadth of molecular biology services
with flexible protocols to meet project specific objectives.

        The Company faces several types of competition. The first is individual
researchers capable of performing the work themselves rather than contracting it
out. A similar type of competition is that of the core lab, either in an
academic setting or within a large company, that can provide services at a much
reduced rate due to subsidies of its overhead expenses. These first types of
competition are difficult to overcome due to the perception of significantly
lower costs. There are several smaller companies which offer DNA sequencing
and/or related molecular biology services, that have not yet demonstrated the
longevity, breadth of services or marketing ability that the Company has.
Finally, there are several recent entrants in the genomics sequencing market.
These companies typically take an ownership position in the sequence information
they generate, whereas Lark takes no ownership position in any sequence data
generated for its clients.

        The Company markets its services through advertisements in biological
and pharmaceutical journals, presentations to potential clients, attendance at
trade shows and scientific conferences, and client referrals. The Company's
sales staff in the United States and in its European branch office is
compensated with base salaries and commissions based on performance. The Company
also has distributors based in Northern Europe and the Pacific Rim, and is
actively exploring other distributor arrangements.

        SENESCENCE GENE DISCOVERY PROGRAM. Most normal cells in the human body
are unable to proliferate (divide and reproduce themselves) forever. The
phenomenon by which cells stop proliferating is called cell senescence. Cell
senescence is a normal physiological process involving cell senescence genes
that eventually signal the cells to stop dividing. In contrast to normal cells,
cancer cells divide indefinitely, possibly due to changes that have occurred to
the cell senescence genes.

        The study of cell senescence has historically been tied to the
biological study of aging. Studies over the past thirty years have shown that
the onset of cell senescence is directly related to the age of the animal in
that cells taken from older animals tend to undergo fewer divisions than cells
taken from younger animals. Because of the correspondence of cell senescence
with aging of the body as a whole, cell senescence has become an accepted model
for studying aging at the cellular level. The terms "cell aging" and "cell
senescence" thus are generally used interchangeably to describe the limited
proliferative capacity of normal cells.

        Based upon discoveries made at Baylor College of Medicine, four genetic
pathways have been identified that control the senescence process and may be
involved in suppressing cancer tumors. A defect in one of these four genes may
therefore underlie many types of cancer. Studies performed at Baylor indicate
that the presence of senescence genes may override the tumorigenic effects
associated with mutations in tumor suppresser genes such as p53 or Rb. Initial
animal studies using a fragment containing the first senescence gene demonstrate
the ability of that gene to reduce colon or lung cancer tumor growth at
statistically significant levels. The Company is collaborating with Dr. Olivia
Pereira-Smith at Baylor College of Medicine to clone and sequence the four genes
responsible for regulating these pathways and is in the process of sequencing
the first gene.

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<PAGE>
        The senescence gene technology could represent a revolutionary method
for diagnosis and treatment of cancer. Studies performed to date indicate that a
defect in one of the four senescence genes is responsible for cellular
immortalization (cancer). Unlike the early stages of tumorigenesis, this central
immortalization event is common to all tumor types independent of the tissue or
cell of origin. Based on the identification of only four senescence gene
pathways, it is postulated that each senescence gene, or a defect therein, may
be implicated in 25% of all cancerous tumors for any given tumor type.

        Lark plans to continue its research into the diagnostic and therapeutic
applications of the senescence gene technology by identifying appropriate
corporate partners or commercial licensees. Any revenues or fees arising from
this research and development program are subject to a royalty payment as
described in Note 9 to the financial statements. The Company considers this to
be a highly speculative project. Although the Company would benefit from the
success of this project, this project is not essential to the success of the
Company.

        RAW MATERIALS. The principal suppliers of raw materials for the
Company's services and R&D efforts are laboratory supply companies. The Company
believes that there are sufficient alternate suppliers available such that raw
materials will be available in sufficient quantities and at reasonable cost for
the foreseeable future.

        CUSTOMERS. The Company provides services to researchers at a large
number of institutions. However, revenues from one major customer accounted for
42% of total revenues during 1996. During 1997, approximately 21% of the
Company's revenue was with a different single customer.

        PATENTS AND PROPRIETARY TECHNOLOGY. The Company actively seeks patent
protection in the U.S. and in significant foreign countries for inventions and
technologies for which it deems such protection commercially advisable. In
connection with its senescence gene discovery program, the Company currently has
licensed rights to three (3) U.S. patent applications pending and their foreign
counterparts. The Company believes that this patent protection is important to
its senescence technology, but not essential to the overall success of the
Company. The Company can make no assurances that these applications will be
approved, that similar patents have not been or will not be issued, or that any
patent issued to the Company will not be circumvented or infringed. In
connection with its senescence gene discovery program, the Company is subject to
certain performance and royalty arrangements as described in Note 9 of the
financial statements.

        The Company relies on trade secrets and technical know-how in order to
maintain its competitive advantage and scientific expertise. It is the practice
of the Company to enter into confidentiality agreements with employees,
consultants, members of its scientific advisory board, and any third party to
whom it discloses confidential information. There can be no assurance that such
confidential information will not be disclosed or that similar trade secrets or
expertise will not be independently developed, or that access to such
information could not be gained inadvertently.

        The Company is, by nature of its work, privy to certain confidential
information of its customers. In order to attract and maintain clients the
Company enters into confidentiality agreements with its customers as both deem
appropriate. There can be no assurance that such confidential information will
not be disclosed or that similar trade secrets or expertise will not be
independently developed, or that access to such information could not be gained
inadvertently.

        GOVERNMENTAL APPROVAL. The Company is not dependent upon governmental
approval of its current services. However, many of its clients will submit
applications for new drugs or devices to the FDA. A significant portion of the
projects undertaken by the Company are in support of such applications and thus
are subject to compliance with standards established by the FDA and its foreign
counterparts. The Company employs personnel and utilizes procedures which it
deems necessary to comply with these regulatory standards. Although the Company
and its services are not themselves subject to FDA approval, the Company
complies with these regulatory standards in order to undertake this type of
project for its clients.

        By virtue of its work in support of its client's submissions to the FDA
and other regulatory bodies, the Company is subject to inspections by the FDA
and other federal, state and local agencies regarding specific FDA

                                       4
<PAGE>
submission projects it has worked on. Regulatory affairs audit teams from its
pharmaceutical and biotech clients frequently inspect the Company's facilities
and procedures to ascertain whether the Company is in sufficient compliance with
applicable regulations. The Company has not had a significant negative finding
as a result of such inspections. If significant violations were discovered
during a client or governmental inspection, the Company might be restricted from
undertaking additional submission projects until the violations were remedied.

        GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LAWS. The Company is subject
to regulations concerning laboratory and occupational safety practices, the use
and handling of hazardous chemicals and radioisotopes, and environmental
protection. The Company believes that it is in general compliance with such
applicable federal, state and local regulations and does not estimate the costs
to be material.

        EMPLOYEES. As of December 31, 1997, the Company had 35 total employees
and 33 full time employees. The Company believes that its employee relations are
good, but can make no assurances that it will continue to be able to attract and
retain qualified employees. The Company also has engaged the services of
consultants when appropriate. In connection with licensing the rights to the
senescence technology, the company maintains a sponsored research agreement and
a consulting agreement with a principal investigator at Baylor College of
Medicine as described in the notes to the Financial Statements.

        FORWARD-LOOKING INFORMATION. This Annual Report contains various
forward-looking statements and information that are based on management's belief
as well as assumptions made by and information currently available to
management. When used in this document, the works "anticipate," "estimate",
"project", "expect" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that expectations will prove to have been correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
projected or expected.

ITEM 2.  DESCRIPTION OF PROPERTY

        The Company leases 11,000 square feet of office and laboratory space for
its corporate headquarters in Houston, Texas pursuant to a lease which expires
on September 30, 1999. The Company also leases office space for its European
branch office. The European branch office, originally located in Hove, England,
was moved to Saffron Walden, England in March, 1996 pursuant to a lease which
expires on March 31, 1999. Future amounts due under the terms of these leases
are detailed in Note 9 - "Commitments and Contingencies - Leases" of the
financial statements. The Company carries commercial insurance which it deems
sufficient to cover loss of lab equipment or occupancy privileges.

ITEM 3.  LEGAL PROCEEDINGS

        The Company is involved in litigation arising in the ordinary course of
business which, in the opinion of management, will not have a material adverse
effect on the Company's financial position or results of operations.

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

        There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1997.

                                       5
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                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Common Stock of the Company has been eligible to be quoted on the
Nasdaq Bulletin Board system under the symbol LDNA since the fourth quarter of
1995. As reported by America On Line, the high and low bids were $2.63 and
$1.00, respectively for the year 1997. These bids reflect the price paid by the
buyer, and do not include the commission withheld by the broker(s).

        As of December 31, 1997, there were approximately 2,057 holders of
record of the Common Stock.

        The Company has never paid dividends on its Common Stock, and does not
anticipate paying any cash dividends in the foreseeable future.

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

        The following discussion and analysis should be read in conjunction with
the Financial Statements and the accompanying Notes herein, and is qualified
entirely by the foregoing and by other more detailed financial information
appearing elsewhere.

        OVERVIEW. The Company's revenues are derived through provision of DNA
sequencing and related molecular biology services to researchers in the
pharmaceutical, biotechnology, agritechnology and related industries. Quarterly
fluctuations in revenues arise primarily from variations in contract status with
one large customer. In addition, the majority of other customer projects are
individual orders for specific projects ranging in value from $6,000 to
$140,000. Engagement for successive work is highly dependent upon the customer's
satisfaction with the services provided to date. The Company is unable to
predict for more than a few months in advance the number and size of future
projects in any given period. Thus, timing could have a significant impact on
financial results in any given period. The combined impact of the large contract
from a single customer and the unpredictable project fluctuations from other
customers can result in very large fluctuations in financial performance from
quarter to quarter.

        The Company believes that its expansion efforts discussed in Part I will
compensate for some of these sales fluctuations. In addition, the Company has
initiated several steps to mitigate the effects of these fluctuations where
possible. In late 1996 the sales and marketing activities for the
quick-turnaround automated DNA sequencing service business were increased to
expand its large, varied customer base. Pricing for services was adjusted for
large projects to reflect timing of project completions. In late 1997 the
Company introduced a new service, Quantitative PCR, to further expand and
diversify revenues.

RESULTS OF OPERATIONS

        GROSS REVENUES. Gross revenues increased 7% from $4,192,406 to
$4,469,722 for the years ended December 31, 1996 and 1997, respectively. The
improved revenues for 1997 were the result of increases in Lark's automated DNA
sequencing services and the new genetic stability testing services. During 1996
revenues in the first, second, and third quarters included revenues generated by
operations for large contracts for a single customer. The revenues generated by
this single customer were replaced in 1997 by revenues from a number of new and
existing customers. Revenues from the manual DNA sequencing services and library
screening services declined from the previous year. The differential display
service, new in 1996, produced modest revenues in 1997. Automated DNA sequencing
services for Lark's quick-turnaround customers increased 248% in 1997 compared
to 1996.

        COSTS OF SERVICES. Costs of services consist primarily of labor and
laboratory supplies. Costs of services increased 2% from $1,850,533 to
$1,896,679 for the years ended December 31, 1996 and 1997, respectively.
Increases in personnel and supply usage for the automated sequencing group as a
result of the increase in services rendered comprised the increase in operating
costs. This increase was partially offset by reductions in the cost of personnel
and supplies for the manual DNA sequencing service business. Costs of services
as a percentage of revenue were 44% and 42% for the years ended December 31,
1996 and 1997, respectively.

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<PAGE>
        SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of salaries and related costs,
depreciation, amortization, legal and professional costs, rent, travel, and
advertising. Sales, general and administrative expenses increased 4% from
$1,985,193 to $2,070,838 for the years ended December 31, 1996 and 1997,
respectively. Sales, general and administrative expenses as a percentage of
revenue were 47% and 46% for the years ended December 31, 1996 and 1997,
respectively. The increases in these expenses were incurred to support the
growth of the Company. These growth related costs consist primarily of increased
personnel costs in the United States and Europe and commissions on contracts.

        RESEARCH AND DEVELOPMENT. Research and development costs were $180,742
and $234,607 for the years ended December 31, 1996 and 1997, respectively.
Research and development costs as a percentage of revenue were 4% and 5% for the
years ended December 31, 1996 and 1997, respectively. The expenses in 1996 and
1997 were related to the development of new services and the gene senescence
project described in Item 1 "Description of Business" above. In 1997 research
and development expenses increased as a result of increased spending on Lark's
new product development programs including Quantitative PCR.

        VARIABILITY OF FUTURE OPERATING RESULTS. The Company experienced a
significant revenue increase in 1996 due in large part to services performed for
a single customer. This customer provided no substantial contract work for Lark
in 1997. Completion of large contracts for a single customer without replacement
could have a material adverse impact on the Company.

        LIQUIDITY AND CAPITAL RESOURCES. Operating cash flow was ($722) and
$235,155 for the years ended December 31, 1996 and 1997, respectively. The
improvement in operating cash flow was the result of better working capital
utilization. In July, 1996, the Company's liquidity was increased by the receipt
of $1,000,852 in proceeds from the Company's Rights Offering.

        During 1997, the Company invested $285,891 in laboratory equipment in
order to support the current and expected increase in revenues.

        The Company's bank debt, totaling approximately $204,273 at December 31,
1997, was to mature March 30, 1998. On March 13, 1998, the Company refinanced
its line of credit and with another bank and extended the maturity of the new
line through May 31, 1999. As a result of this refinancing, the Company now has
a revolving line of credit of $600,000 and an advised dicretionary line of
credit for equipment financing of $300,000. See Note 7 of the Notes to the
Financial Statements for additional discussion of the renewed debt. Management
anticipates that additional capital expenditures necessary to support the
Company's operating growth can be funded through a combination of existing or
proposed credit facilities and future operating results.

        At December 31, 1996, the Company had subordinated redeemable debentures
payable of $45,000 that matured on March 31, 1997. During 1997, all of these
debentures were repaid.

        The Company has committed to certain minimum expenditures related to its
senescence research and development efforts as outlined in Note 9 to the
Financial Statements "Patent License Agreement" and "Sponsored Research Contract
and Consulting Agreement". Lark will need additional capital in order to expand
its research and development efforts beyond the levels required by these
agreements.

        MATERIAL COMMITMENTS.  The Company currently has no outstanding material
 commitments.

        YEAR 2000. The Company has determined that it will need to modify or
replace significant portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and beyond. The Company
also has initiated discussions with its significant suppliers, large customers
and financial institutions to ensure that those parties have appropriate plans
to remediate Year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are venerable should those organizations fail to
remediate properly their computer systems.

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<PAGE>


ITEM 7.  FINANCIAL STATEMENTS


                            LARK TECHNOLOGIES, INC.

                         Index to Financial Statements
                     Years ended December 31, 1997 and 1996


                                    Contents
                                                                            Page
                                                                            ----

Report of Independent Auditors.......................................          9

Financial Statements

     Balance Sheet as of December 31, 1997...........................         10

     Statements of Operations for
          Years Ended December 31, 1996 and 1997.....................         11

     Statements of Stockholders' Equity
          Years Ended December 31, 1996 and 1997.....................         12

     Statements of Cash Flows for
          Years Ended December 31, 1996 and 1997.....................         13

Notes to Financial Statements........................................         15

                                       8
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

Lark Technologies, Inc.
Board of Directors and Stockholders

We have audited the accompanying balance sheet of Lark Technologies, Inc. (the
"Company") as of December 31, 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

        In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lark Technologies,
Inc. at December 31, 1997, and the results of its operations and cash flows for
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Houston, Texas
February 19, 1998,
except for note 7 as to
which the date is March 13, 1998

                                       9
<PAGE>
                             LARK TECHNOLOGIES, INC.
                                  BALANCE SHEET
                                DECEMBER 31, 1997

ASSETS
Current assets:
        Cash and cash equivalents .............................     $   626,003
        Accounts receivable ...................................         977,901
        Due from related parties ..............................          56,894
        Work-in-process .......................................          24,007
        Prepaid expenses ......................................          58,515
                                                                    ------------
Total current assets ..........................................       1,743,320

Property and equipment, net ...................................         600,205
Other assets, net .............................................          16,751
                                                                    ------------
Total assets ..................................................     $ 2,360,276
                                                                    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
        Notes payable .........................................     $   204,273
        Capital lease obligation, current portion .............          46,008
        Accounts payable ......................................         219,894
        Accrued expenses ......................................         243,460
        Customer deposits .....................................         255,353
        Deposits from related parties .........................          91,305
                                                                    ------------
Total current liabilities .....................................       1,060,293

Capital lease obligation, less current portion ................          26,655
                                                                    ------------
Total liabilities .............................................       1,086,948


STOCKHOLDERS' EQUITY
        Preferred stock, $0.001 par value:
             Authorized shares - 2,000,000
             None issued and outstanding
        Common stock, $0.001 par value:
             Authorized shares - 8,000,000
             Issued and outstanding shares - 3,324,046 ........           3,324
        Additional paid-in capital ............................       2,450,754
        Amounts due from stockholders .........................         (15,045)
        Accumulated deficit ...................................      (1,165,705)
                                                                    ------------
Total stockholders' equity ....................................       1,273,328
                                                                    ------------
Total liabilities and stockholders' equity ....................     $ 2,360,276
                                                                    ============

                            SEE ACCOMPANYING NOTES.

                                       10
<PAGE>
                             LARK TECHNOLOGIES, INC.
                            STATEMENTS OF OPERATIONS



                                                      Years ended December 31,
                                                     --------------------------
                                                          1996           1997
                                                     --------------------------
Revenue:
        Laboratory Services ......................   $ 4,192,406    $ 4,469,722

Costs and expenses:
        Costs of services ........................     1,850,533      1,896,679
        Sales, general and administrative ........     1,985,193      2,070,838
        Research and development .................       180,742        234,607
                                                     -----------    -----------
Total costs and expenses .........................     4,016,468      4,202,124
                                                     -----------    -----------
Operating income .................................       175,938        267,598

Other income and (expense):
        Interest expense .........................       (38,249)       (24,783)
        Interest income ..........................        24,242         27,522
                                                     -----------    -----------
Total other income (expense) .....................       (14,007)         2,739
                                                     -----------    -----------
Income before income taxes .......................       161,931        270,337

Provision for income taxes .......................          --           27,771
                                                     -----------    -----------
Net income .......................................   $   161,931    $   242,566
                                                     ===========    ===========


Basic and diluted earnings per common share ......   $      0.06    $      0.07
                                                     ===========    ===========

                            SEE ACCOMPANYING NOTES.

                                       11
<PAGE>
                             Lark Technologies, Inc.
                       Statements of Stockholders' Equity
<TABLE>
<CAPTION>
                                                      Common Stock
                                                 ----------------------     Additional    Amounts
                                                   Shares       At Par        Paid-in     due from       Accumulated
                                                 Outstanding     Value        Capital   Stockholders       Deficit          Total
                                                 -----------------------------------------------------------------------------------
<S>                                                <C>          <C>        <C>           <C>            <C>              <C>
Balance at December 31, 1995                       2,118,361    $2,118     $1,418,626    $ (15,000)     $ (1,570,202)    $ (164,458)

    Common stock issued                            1,157,739     1,158        999,694           --                --      1,000,852

    Common stock issued for
          notes due from stockholders                 50,300        50         49,995      (50,045)               --             --
                                                                                                                  --
    Less: amounts received from stockholders              --        --             --       20,000                --         20,000

    Net income                                            --        --             --           --           161,931        161,931


                                                 ----------------------  -----------------------------------------------------------
Balance at December 31, 1996                       3,326,400     3,326      2,468,315      (45,045)       (1,408,271)     1,018,325

    Common stock issued                                  500        --            374           --                --            374
    Less:  Common stock repurchased                   (2,854)       (2)        (4,621)          --                --         (4,623)
    Less:  Amount received from stockholders              --        --             --       30,000                --         30,000
    Less:  Cost of rights offering                        --        --        (13,314)          --                --        (13,314)

    Net income                                            --        --             --           --           242,566        242,566

                                                 ----------------------  -----------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                       3,324,046    $3,324     $2,450,754    $ (15,045)      $(1,165,705)    $1,273,328
                                                 ======================  ===========================================================
</TABLE>
                            SEE ACCOMPANYING NOTES.

                                       12
<PAGE>
                             LARK TECHNOLOGIES, INC.
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                            Years ended December 31,
                                                            ------------------------
                                                                 1996         1997
                                                            ------------------------
<S>                                                         <C>            <C>
OPERATING ACTIVITIES
Net income ..............................................   $   161,931    $ 242,566
Adjustments to reconcile net income
   to net cash provided by (used in) operating activities
        Depreciation and amortization ...................       187,418      187,190
        Changes in operating assets and liabilities:
             Accounts receivable ........................      (379,696)    (173,542)
             Work-in-process ............................         1,935       63,208
             Prepaid expenses ...........................       (23,370)     (12,511)
             Other assets ...............................        32,072       (8,129)
             Due from related parties ...................        24,366      (68,775)
             Accounts payable ...........................        36,690      (93,832)
             Accrued expenses ...........................       (52,885)      56,357
             Deposits ...................................        10,817       42,623
                                                            -----------    ---------
Net cash provided by (used in) operating activities .....          (722)     235,155

INVESTING ACTIVITIES
Purchases of property and equipment .....................      (304,722)    (285,891)
                                                            -----------    ---------
Net cash used in investing activities ...................      (304,722)    (285,891)

FINANCING ACTIVITIES
Proceeds from issuance of notes payable .................       189,135         --
Principal payments on notes payable .....................      (246,292)     (38,259)
Proceeds from issuance of common stock ..................     1,000,852          374
Costs to repurchase and retire common stock .............          --         (4,623)
Proceeds from note receivable from stockholder ..........        20,000       30,000
Repayment of debentures payable .........................          --        (45,000)
                                                            -----------    ---------
Net cash provided by (used in) financing activities .....       963,695      (57,508)
                                                            -----------    ---------
Net increase (decrease) in cash and cash equivalents ....       658,251     (108,244)
Cash and cash equivalents at beginning of year ..........        75,996      734,247
                                                            -----------    ---------
Cash and cash equivalents at end of year ................   $   734,247    $ 626,003
                                                            ===========    =========
</TABLE>
                            SEE ACCOMPANYING NOTES.

                                       13
<PAGE>
<TABLE>
<CAPTION>
                                                                Years ended  December 31,
                                                                -------------------------
                                                                    1996         1997
                                                                -------------------------
<S>                                                                <C>         <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
        Interest .............................................     $37,349     $27,598
        Income taxes .........................................        --       $12,010
Noncash investing activities:
        Capital lease to acquire property and equipment ......        --       $72,663

Noncash financing activities:
        Issuance of common stock for note due from stockholder     $50,045        --
</TABLE>
                            SEE ACCOMPANYING NOTES.

                                       14
<PAGE>
                             LARK TECHNOLOGIES, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.  ORGANIZATION

        Lark Technologies, Inc., a Delaware corporation (the "Company" or
"Lark"), was formed on November 16, 1994, as a wholly-owned subsidiary of
SuperCorp Inc. ("SuperCorp"), for the purpose of merging with Lark Sequencing
Technologies, Inc., a Delaware corporation ("Sequencing"), as outlined in a
merger agreement ("Merger Agreement") entered into by SuperCorp and Sequencing
on October 28, 1994. The Merger Agreement was approved by SuperCorp on September
5, 1995, and by the stockholders of Sequencing on September 12, 1995. As a
consequence of the merger, all of the shares of common and preferred stock of
Sequencing were exchanged for 1,800,000 shares of Common Stock of the Company
with a par value of $0.001 per share, and the 200,000 shares of Common Stock of
the Company held by SuperCorp were distributed to the shareholders of SuperCorp.
The Company has succeeded to all of the business previously undertaken by
Sequencing. Lark provides specialized laboratory services for DNA sequencing to
biotechnology researchers.

2.  ACCOUNTING POLICIES

BASIS OF PRESENTATION

        For financial reporting purposes, the merger of the Company and
Sequencing has been accounted for as a recapitalization of Sequencing, and the
historical financial statements of Sequencing prior to the merger became the
financial statements of the Company. The financial statements of Sequencing have
been retroactively restated to give effect to the merger transaction as if it
had occurred on January 1, 1994.

REVENUE RECOGNITION

        The Company recognizes revenue and related profit upon the completion of
laboratory service projects. For laboratory service projects under government
indefinite delivery contracts, revenue and related profit is recognized as
projects are completed. Costs incurred on partially completed projects are
recorded as work-in-process.

CASH AND CASH EQUIVALENTS

        The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.

                                       15
<PAGE>
PROPERTY AND EQUIPMENT

        Property and equipment are recorded at cost. Depreciation and
amortization expense is recorded over the estimated useful lives of the assets.
The straight-line method is used by the Company in providing depreciation and
amortization for financial reporting purposes. The cost of repairs and
maintenance is expensed as incurred. The estimated useful lives of assets are as
follows:

Laboratory equipment                         5 years
Furniture and fixtures                       5 years
Computer equipment                           30 months to 5 years
Leasehold improvements                       3 years

OTHER ASSETS

        Other assets consist of the costs of patents and license rights in
connection with the patent license agreement discussed in Note 9. The costs of
patents and license agreements are amortized on a straight-line basis over the
life of the related license agreement (two years) or the life of the patents.

STOCK OPTIONS

        The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options. The proforma disclosures required by
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which
established a fair value based method of accounting for stock-based compensation
are set forth in Note 9.

EARNINGS PER SHARE

        In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and where necessary, restated to
conform to the Statement 128 requirements.

USE OF ESTIMATES

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

RESEARCH & DEVELOPMENT

        Costs incurred in connection with research and development activities
are expensed as incurred. These consist of direct and indirect costs associated
with specific research and development projects.

                                       16
<PAGE>
ADVERTISING COSTS

        The Company expenses all advertising costs as incurred. Total
advertising expense for the years ended December 31, 1996 and 1997 was
approximately $112,000 and $122,000 respectively.

INCOME TAX

        The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statements and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.

RECENTLY ISSUED ACCOUNTING STANDARDS

        In 1997, the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, and Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. These statements, which are effective for periods beginning
after December 15, 1997, expand and modify disclosures and, accordingly, will
have no impact on the Company's reported financial position, results of
operations, or cash flows.

3.  CONCENTRATION OF RISK

        The Company provides laboratory services primarily to major researchers
in the United States and Europe. The Company generally requires a deposit of
approximately 50% of total anticipated billings prior to commencing work on
laboratory service projects. The Company performs ongoing credit evaluations of
its customers and generally does not require additional collateral on its
laboratory services. One customer represents approximately 35% of accounts
receivable total at December 31, 1997.

        The Company primarily invests its excess cash in deposits with local
banks and, at times, these deposits may exceed federally insured limits. The
Company selects depository institutions based upon management's review of the
financial stability of the institutions.

4.   ACCOUNTS RECEIVABLE

        The Company has no allowance for doubtful accounts at December 31, 1997
as management believes all accounts receivable are collectible.

5.  PROPERTY AND EQUIPMENT

        Property and equipment consisted of the following at December 31, 1997:

                                       17
<PAGE>
Laboratory equipment                                              $1,087,225
Furniture and fixtures                                                63,465
Computer equipment                                                   275,246
Leasehold improvements                                                62,612
                                                              ---------------
                                                                   1,488,548
Less accumulated depreciation and amortization                      (888,343)
                                                              ===============
Property and equipment, net                                         $600,205
                                                              ===============

6.  ACCRUED EXPENSES

        Accrued expenses consisted of the following at December 31, 1997:

Accrued bonuses and commissions                                      $54,262
Accrued payments under sponsored research agreement                   76,195
Accrued audit and tax preparation fees                                33,750
Accrued property taxes payable                                        16,564
Other (individually less than 5% of current liabilities)              62,689
                                                              ===============
                                                                    $243,460
                                                              ===============

7.  DEBENTURES AND NOTES PAYABLE

        At December 31, 1997, the Company had one note payable to a bank with
interest at the bank's prime (9.50% at December 31, 1997) plus 1% which was
collateralized by accounts receivable, property, and equipment. The note was due
on demand and if no demand was made, the note was payable in monthly
installments of $3,799 excluding interest. Any unpaid principal on the note was
due at maturity on January 30, 1998. The Company paid the note in full on
January 26, 1998. The amount outstanding under this note was $5,267 at December
31, 1997.

        At December 31, 1997, the Company had a revolving line of credit with a
bank. The terms of the line of credit provided for maximum borrowings of
$200,000. Borrowings were to bear interest at the bank's prime rate (9.5% at
December 31, 1997) plus 2% and the line of credit expires March 30, 1998. The
line of credit was secured by qualified accounts receivable of the Company. At
December 31, 1997, the Company had $199,000 outstanding under this line of
credit. On March 13, 1998, the Company refinanced its revolving line of credit
with another bank and extended the maturity to May 31, 1999. Under the terms of
this new revolving line, the Company may borrow up to $600,000 at the bank's
prime rate (8.5% at December 31, 1997) plus 1%. The borrowing base for this line
of credit is equal to 85% of certain accounts receivable that are no more than
90 days old. On March 13, 1998, the company had a borrowing base of $387,873
against which $199,000 was outstanding. Under the terms of the revolving line of
credit agreement, the Company is required to maintain certain financial ratios
and a specific level of net worth.

        On March 13, 1998, the company arranged an advised discretionary credit
line for the financing of equipment with the same bank used for the new
revolving credit line. Under the terms of this discretionary credit, the company
may borrow up to $300,000 secured by the equipment purchased with the proceeds
of the borrowings. This discretionary credit line provides for borrowings of up
to 75% of the

                                       18
<PAGE>
purchase price of equipment at the bank's prime plus 1.5%. This credit line
provides for repayment terms up to 36 months and matures on May 31, 1999.

        At December 31, 1996, the Company had subordinated redeemable debentures
payable of $45,000 that matured on March 31, 1997, with interest at 8% per year,
payable quarterly. During 1997, the Company repaid all of these debentures.

8.  FEDERAL INCOME TAX

        At December 31, 1997, the Company had net operating loss carryforwards
of $1,256,000 for income tax purposes that expire in 2000 through 2010. These
net operating loss carryforwards may be limited as a result of ownership changes
resulting from issuance of common stock. The Company had income tax of $27,771
relating to state income taxes in the current year.

        Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation
allowance has been recorded against the Company's net deferred tax assets
because of the Company's cumulative loss position.

        Significant components of the Company's deferred tax liability and
assets are as follows at December 31, 1997:

Deferred tax assets:
Accumulated depreciation                                     $ 7,314
Net operating loss                                           427,085
Net deferred tax assets                                      434,399
Valuation allowance                                         (434,399)
                                                      ---------------
Deferred taxes                                         $     -
                                                      ===============


        The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense is:

                                        1996                     1997
                                 ------------------       -------------------
                                  Amount    Percent        Amount    Percent
                                 ------     -------       -------    --------
Tax at U.S. statutory rates .... $55,056         34%      $82,472         34%
State income taxes .............  -               0%       27,771         11%
Change in valuation allowance .. (50,199)       (31%)     (37,386)       (15%)
Other ..........................  (4,857)        (3%)     (45,086)       (19%)
                                 ------     -------       -------    --------
                                     $ -          0%      $27,771         11%
                                 ======     =======       =======    ========


9.  COMMITMENTS AND CONTINGENCIES

                                       19
<PAGE>
STOCK OPTION PLAN

        The Company has an incentive stock option plan (the "Plan") for
directors, certain key employees, and others as determined by the directors. The
Company has reserved 90,968 shares of common stock for issuance under the stock
option plan. The price at which shares may be purchased under the option plan
shall not be less than the greater of (a) 100% of the fair market value of the
shares on the date the option is granted or (b) the aggregate par value of such
shares on the date the option is granted. Common stock options granted are
generally exercisable at a rate of 25% on the date of grant with the remaining
75% exercisable at a rate of 1/36th per month thereafter.

        The Company applies APB 25 in accounting for the Plan. Because the
exercise price of the options was equal to the market value of the stock at the
date of grant, no compensation cost has been recognized for its fixed stock
option plan. Pro forma information regarding net income and net income per
common share is required by FASB Statement No. 123 as if the Company had
accounted for its incentive stock options under the fair value method of that
statement. The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing ("Black-Scholes") model for the 1997 and
1996 options granted with the following weighted average assumptions: (I)
risk-free interest rates ranging from 5.65% to 6.51% (ii) a dividend yield of 0%
for both years, (iii) volatility factors of the expected market price of the
company's common stock of 105% and 114%, respectively, and (iv) a weighted
average expected life of three years.

        The Black-Scholes model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employees stock options.

        For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation for the Company's stock-based compensation plan been determined
based on the fair value at the grant dates for awards under the Plan consistent
with the method of FASB Statement No. 123, the Company's net income and net
income per common share would have been adjusted to the pro forma amounts
indicated below:

                                           YEAR ENDED DECEMBER 31,
                                ------------------------------------------------
                                        1996                      1997
                                ------------------------------------------------
                                   AS                        AS
                                REPORTED    PRO FORMA     REPORTED     PRO FORMA
                                ------------------------------------------------
Net income                      $161,931    $136,896      $242,566     $189,762

Basic and diluted net income
  per common share                 $0.06       $0.05         $0.07        $0.06

                                       20
<PAGE>
        During 1996 and 1997, the Company issued incentive stock options under
the Plan, which had exercise prices equal to the fair market value of the common
stock at the date of grant. A summary of the Company's stock options activity
and related information follows:
<TABLE>
<CAPTION>
                                               YEAR ENDED DECEMBER 31,
                               ----------------------------------------------------
                                         1996                       1997
                               -------------------------    -----------------------
                                             WEIGHTED                   WEIGHTED
                                             AVERAGE                     AVERAGE
                               OPTIONS    EXERCISE PRICE    OPTIONS  EXERCISE PRICE
                               -------------------------    -----------------------
<S>                            <C>           <C>             <C>         <C>
Outstanding-
   beginning of year .......   29,927        $ 0.32          39,463      $ 0.98
    Granted ................   32,200        $ 1.39         226,800      $ 1.95
    Exercised ..............   21,964        $ 0.61             500      $ 0.75
    Forfeited ..............      700        $ 0.75             800      $ 1.25
                               ------                       -------

Outstanding - end of .......   39,463        $ 0.98         264,963      $ 1.81
   year

Options exercisable at
   year-end ................   26,914                        94,591

Weighted average fair
    value of options
    granted during the
    year ...................   $ 0.99                       $  1.64
</TABLE>
        The following summarizes information related to stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
                               Options outstanding                Options exercisable
                      --------------------------------------   --------------------------
                                                 Weighted
                                  Weighted        average                     Weighted
    Range of                       average       remaining                    average
    Exercise                      exercise      contractual                   exercise
     Prices           Options       price          life         Options        price
------------------    --------    ----------    ------------   ----------   -------------
                    (in thousands, except per share amounts)
<S>                    <C>        <C>           <C>            <C>          <C>
$0.15 - $0.75          26,663     $0.42         6.9 yrs.       26,664       $0.42
$1.55 - $2.45         238,300     $1.97         9.9 yrs        67,927       $1.65
                      --------                                 ----------
                      264,963     $1.81         9.6 yrs.       94,591       $1.30
                      ========                                 ==========
</TABLE>
At December 31, 1997, there are 40,521 options available for future grants under
the Plan.

LEASES

                                       21
<PAGE>
        The Company leases certain real estate for its corporate office and
branch office in the United Kingdom, as well as certain equipment under
noncancelable lease agreements which expire at various dates. Total rent expense
for all operating leases for the years ended December 31, 1996 and 1997 was
$276,519 and $288,445, respectively.

        Future minimum payments under these operating leases are as follows:

Year ending December 31,

        1998                                  $280,580
        1999                                   157,310
                                        ---------------
                                              $437,890
                                        ===============

        During October, 1997, the Company acquired a piece of lab equipment
subject to a capital lease. The equipment acquired was recorded at the Company's
cost basis of $86,693. Under the terms of the capital lease, the Company is
obligated to make a total of 24 payments of $3,515 each and, subject to certain
conditions, may purchase the equipment at the end of the lease for a nominal
amount. On December 31, 1997, the Company was in the process of setting up and
adjusting the machine and had not begun regular operations for that service.
Since the machine had not been placed into regular commercial service by
December 31, 1997, no depreciation was taken on the machine during 1997. The net
present value of all lease payments due under this lease is $72,663. At December
31, 1997, the present value of lease payments due to be paid in 1998 and 1999
were $46,008 and $26,655 respectively.

SALES COMMITMENTS

               During August, 1997, the Company entered into a contract with one
customer to perform DNA sequencing services totaling approximately $2,300,000.
As of December 31, 1997, approximately $1,350,000 remains on this contract.

PATENT LICENSE AGREEMENT

        Effective June 15, 1995, the Company entered into an exclusive patent
sub-license agreement with another biotech company. The agreement grants to the
Company an exclusive license to certain "Licensed Patent Rights" of this third
party and requires the Company to perform research and development efforts as
defined in the agreement. The Company is required to pay the third party a
royalty of 25% to 50% of all consideration the Company receives as a result of
sales of licensed products and licensed processes or a sub-license or assignment
of the Company's rights under the agreement. If the Company does not meet the
research and development milestones as defined in the agreement, or is unable to
successfully commercialize the results of the research and development efforts,
the agreement will terminate. Otherwise, the agreement will terminate upon the
dissolution of the Company or the expiration of the "Licensed Patent Rights".
The agreement may also be terminated by the Company with 60 days written notice
to the third party.

                                       22
<PAGE>
SPONSORED RESEARCH CONTRACT AND CONSULTING AGREEMENT

        The Company entered into a sponsored research contract on August 1,
1995, whereby the Company is required to fund certain research and development
efforts being performed by Baylor College of Medicine ("Baylor"). The research
and development is being performed pursuant to the Patent License Agreement
described in this Note. The agreement expired on July 31, 1997 and requires the
Company to pay Baylor a total of $53,739 annually in monthly installments over
the term of the contract. The agreement may be extended for an additional term
by mutual written consent and is currently in the process of renewal.

        The Company entered into a related consulting agreement with the
Principal Investigator at Baylor. This agreement expired on August 1, 1997 and
requires the Company to pay the researcher a total of $24,000 in monthly
installments over the term of the contract. The agreement may be extended for an
additional term by mutual written consent and is in the process of renewal.

OTHER COMMITMENTS

        In September 1995, the Company entered into a two-year employment
agreement with the new President and CEO of the Company providing for a base
salary and bonus arrangement. The President and CEO entered into a Restricted
Stock Purchase Agreement whereby the President and CEO has purchased 101,452
shares of restricted Common Stock at $.1479 per share, subject to the right of
the Company to repurchase a declining portion of such shares should the
President and CEO terminate his employment with the Company prior to the
expiration of 48 months. In connection with the purchase of the restricted
Common stock, the Company received a note from the President and CEO in the
amount of $15,000. The note is secured by the restricted stock, is due October
24, 1999, bears simple interest at a variable rate equal to the minimum variable
rate permissible to avoid imputed interest and is reflected as a reduction of
stockholders' equity until paid.

LITIGATION AND CLAIMS

        The Company is involved in litigation arising in the ordinary course of
business, which in the opinion of management, will not have a material adverse
effect on the Company's financial position or results of operations.

10.  401(K) PLAN

               Effective January 1992, the Company adopted an employee 401(k)
retirement plan. Qualified employees may contribute up to 15% of their gross pay
to the plan. Employee contributions are limited to amounts established by law.
The Company may make matching contributions to the plan as determined by the
Board of Directors subject to the limitations under the Internal Revenue Code.
The Company made contributions to the plan of $11,870 for the 1996 year and
$9,917 for 1997.

11.  RELATED PARTY TRANSACTIONS

        The Company has appointed TaKaRa Shuzo Co. Ltd. (TaKaRa), a major
stockholder of the Company, as the Company's exclusive representative in Japan,
South Korea, Taiwan, Oceania and Singapore for a ten-year period commencing June
25, 1990. The Company has the right to terminate TaKaRa's exclusivity. The
Company has also agreed to use its best efforts to purchase reagents and

                                       23
<PAGE>
biologics it uses in the performance of services from TaKaRa or PanVera
Corporation, TaKaRa's distributor.

        TaKaRa has purchased laboratory services, at rates normally charged to
third-parties, from the Company totaling approximately $3,775 and $11,902 in
1996 and 1997, respectively. The Company has also provided laboratory services,
at rates normally charged to third-parties, to affiliates of stockholders of the
Company totaling approximately $29,118 and $66,720 in 1996 and 1997,
respectively.

        The Company purchased approximately $108,161 and $ 117,205 of laboratory
supplies and other services from affiliates of stockholders of the Company in
1996 and 1997, respectively.

        TaKaRa periodically advances the Company funds to be applied against
future laboratory services purchased by TaKaRa. At December 31, 1997, the
unearned balance of TaKaRa deposits was $85,565.

        The due from related parties at December 31, 1997 is comprised primarily
of amounts due from affiliates of stockholders of the Company for laboratory
services rendered to those affiliates.

12.  MAJOR CUSTOMERS

        During 1996, 42% of the Company's revenue was with a single customer and
those sales were to a division of the customer located in the United Kingdom
During 1997, approximately 21% of the Company's revenue was with a different
single customer located in the United States.

13.  SEGMENT INFORMATION

        The proportion of the Company's sales to customers in foreign countries
is as follows:

                                            1996       1997
                                            ----       ----
European Community                           49%        12%


Sales to foreign companies are denominated in U.S. dollars.

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

        The Company has determined, based on available market information and
appropriate valuation methodologies, that the value of its financial instruments
approximates carrying value. The carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to the
short-term maturity of the instruments. The carrying amounts of debt
approximates fair value because the interest rates under the credit agreement
are variable, based on current market. The carrying amount of the capital lease
obligation approximates fair value based on rates currently available to the
Company.

15.  EARNINGS PER SHARE

        The following table sets forth the weighted average shares outstanding
for the computation of basic and diluted earnings per share:

                                       24
<PAGE>
                                           For the year ending December 31,
                                              -------------------------
                                                    1996        1997
                                              -------------------------
Weighted average common shares outstanding       2,679,710   3,325,773
Dilutive securities - employee stock options        44,773      21,269
                                              -------------------------
Weighted average common shares outstanding
   assuming full dilution                        2,724,483   3,347,042
                                              =========================

        Options to purchase 210,000 shares of common stock at $2.00 per share
were outstanding during 1997 but were not included in the computation of diluted
earnngs per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
antidilutive.

                                       25
<PAGE>
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

        None.

                                    PART III

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

        DIRECTORS AND EXECUTIVE OFFICERS

        Set forth below are the names, ages, and terms of office of each of the
directors and executive officers of the Company and a description of the
business experience of each.

Office Held

PERSON                               OFFICE                      SINCE

Stephen J. Banks, 57                 Director,                   1989(1)
                                     Chairman of the Board       1989(2)

Vincent P. Kazmer, 48                Director,                   1995(1)
                                     President, CEO              1995(2)

George M. Britton, 51                Director                    1989(1)

David A. Lawson, 50                  Director                    1989(1)

Frank Vazquez, 57                    Director,                   1991(1)
                                     Vice-Chairman               1989(2)

James M. Chubb, 50                   Director                    1997(1)

Douglas B. Wheeler, 52               Vice President, Finance
                                     Secretary and Treasurer     1996(2)

Bethany Pimentel, 34                 Vice President of Sales
                                      and Business Development   1995(2)

Raymond A. Vonder Haar, Ph.D., 51    Scientific Director         1993(2)


(1) The directors shall be elected at the annual meeting of stockholders, and
each director elected shall hold office until his successor shall be elected and
shall qualify.

(2) The officers shall be elected annually by the Board of Directors at its
first regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently possible. Each officer shall hold office until his
successor shall have been chosen and shall have qualified.

        STEPHEN J. BANKS is the president of BCM Technologies, Inc., the
technology transfer subsidiary of Baylor College of Medicine. Mr. Banks has been
with BCM Technologies, Inc., since 1988. Prior to 1988 he was a vice

                                       26
<PAGE>
president of The Hillman Company, an investment holding company located in
Pennsylvania. Mr. Banks holds an MBA from Harvard University and a BS degree
from the Massachusetts Institute of Technology.

        VINCENT P. KAZMER has served as President and CEO and Director since
September, 1995. Prior to joining Lark, Mr. Kazmer was the President and CEO of
Copernicus Gene Systems, Inc., a private gene therapy company where he was a
founder. From 1989 to 1994 he served as Senior Vice President of United States
Biochemical Corporation with responsibilities for business development,
marketing and sales. While at US Biochemical, Mr. Kazmer served as Vice
President of Ribozyme Pharmaceuticals Inc., a biotechnology company, with
responsibilities for its founding and initial financing. During the period 1978
to 1988, Mr. Kazmer served in several finance and planning positions at The
BFGoodrich Company including CFO for a specialty chemicals division. Mr. Kazmer
also served as a nuclear submarine officer and qualified nuclear engineer in the
US Navy. He received his B.S. in computer and information science from Ohio
State University and MBA from Stanford University.

        GEORGE M. BRITTON is a director of Britton Capital Services, a
closely-held investment and financial consulting firm. Since 1989 approximately
80 percent of his activities have been related to real estate acquisitions,
syndications, development, leasing and management, primarily in commercial
properties in the Houston, Texas area, and approximately 20 percent of his
activities have been related to assisting start up and early-stage companies in
their business plans and in contacting venture capitalists. Mr. Britton holds an
MBA degree from the University of Texas and a BA degree from Vanderbilt
University.

        DAVID A. LAWSON is an independent real estate investor and consultant in
Houston, Texas. In this capacity, Mr. Lawson has been actively involved in the
acquisition, syndication and ownership and management of income-producing real
estate in Houston and elsewhere. He is president of three Texas corporations,
Diva Corporation, Twelve Oaks Tower I, Inc., and OFD Redevelopment, Inc., each
of which is the general partner and manage of a limited partnership that owns a
redevelopment real estate project in Houston, Texas. He has been active in this
respect since 1983 with respect to Diva Corporation, since 1991 with respect to
OFD Redevelopment, Inc., and since 1992 with respect to Twelve Oaks Tower I,
Inc. Diva and Twelve Oaks manage medical office buildings in the Texas Medical
Center, and OFD manages a shopping center. Mr. Lawson holds a BS degree from
Trinity University.

        FRANK VAZQUEZ was the president and director of Lark from its inception
until April, 1991, when he resigned to become a general management and business
development consultant with Chojnacki & Associates in Houston, Texas with
emphasis upon technology-based business opportunities in the fields of
biotechnology, environmental and energy industries, and medical-related
industries. Since April 1991 Mr. Vazquez has continued to serve as a director of
Lark and as the vice chairman of its board of directors. Mr. Vazquez was
previously employed by Trinity Computing, Inc. and had for several years been
actively engaged in a consulting business. Mr. Vazquez holds a BS degree from
Columbia University.

        JAMES M. CHUBB, PH.D., has nearly twenty years experience in the
biopharmaceutical industry. He served as President and Director of Aronex
Pharmaceuticals, Inc. from 1995 through 1997. From 1990 to 1995, Dr. Chubb was
President and Chief Executive Officer of Triplex Pharmaceutical Company. From
1978 to 1990, he held a number of positions with increasing responsibility at
Glaxo, Inc., a major pharmaceutical company. At Glaxo, Dr. Chubb headed the
anti-infective, respiratory, dermatological, cardiovascular, and
gastrointestinal development groups. He held the position of Adjunct Professor
at the University of North Carolina College of Pharmacy from 1986 to 1990.

        DOUGLAS B. WHEELER joined Lark in November, 1996 as Vice President,
Finance. Prior to joining Lark, Mr. Wheeler served as Chief Financial Officer
and Director for Minga Oilfield Group NV from 1983 until 1995. From 1980 until
joining Minga, Mr. Wheeler held financial management positions in Baker
International and Enserch Corporation where he assisted in several startup
operations and assisted in numerous acquisitions. He received a BBA degree in
Accounting from Texas Tech University in 1969 and is a CPA.

        BETHANY J. PIMENTEL has served as the Vice President of Sales and
Business Development since February, 1995. Ms. Pimentel was recruited from
Sennes Drug Innovations, Inc., a privately held biopharmaceutical company, where
she had been the Director of Business Development since 1993. From September
1990 until

                                       27
<PAGE>
February 1993, she was first a market research analyst and then the Director of
Business Development for BCM Technologies, Inc., where she oversaw the startup
activities of Sennes Drug Innovations, Inc., GeneMedicine, Inc., and Meretek
Diagnostics, Inc. From May 1985 to September 1990 she was employed as a research
technician at Baylor College of Medicine in the Department of Immunology and
Microbiology. She received a B.A. degree in Biopsychology from the University of
Colorado, Boulder in 1985 and an M.B.A. in finance from the University of
Houston in 1990.

        RAYMOND A. VONDER HAAR, PH.D., has served as Scientific Director since
1993. Previously, Dr. Vonder Haar was a research scientist at Transgene, S.A.,
in Strasbourg, France. From 1990 to 1992 he was Director of Molecular Biology
Services at Ambion, Inc., in Austin, Texas. From 1979 to 1990 Dr. Vonder Haar
held a faculty position at Texas A&M University in the department of Medical
Biochemistry where he worked on genetic and metabolic control mechanisms in
mammalian systems. For two years he was Director of the DNA Sequencing Synthesis
Core Laboratory at Texas A&M. Dr. Vonder Haar received his A.B. in Zoology from
the University of Missouri and his Ph.D. in Molecular Biology from Purdue
University.

        SIGNIFICANT EMPLOYEES

        Set forth below are the names, ages, and dates of service of each of the
significant employees of the Company and a description of the business
experience of each.

                                                              POSITION HELD
PERSON                             OFFICE                        SINCE

David Alan Wall, Ph.D., 35         Senior Scientist,
Laboratory Director(1)             1994

J. D. Kittle, Jr., Ph.D., 39       Director, New Products(1)     1996

Heidi B. Nelson, PhD., 34          Senior Scientist(1)           1997

(1) This person is not a corporate officer or a corporate director of Lark but,
rather is a significant employee whose position carries a title.

        DAVID A. WALL, PH.D., has served as Laboratory Director for molecular
biology services and manual DNA sequencing since October, 1994. Previously, Dr.
Wall was Associate Director of GenTest Laboratories in New Orleans, Louisiana,
in charge of the Paternity Testing Laboratories. He was also Director of
Research and Genetic Testing at ImmGen, Inc., College Station, Texas. Dr. Wall
received his B.S. in animal science and his Ph.D. in genetics from Texas A&M
University in College Station, Texas.

        JOSEPH D. KITTLE, JR., PH.D., has served as Director of New Products
since January, 1996. Prior to joining Lark, Dr. Kittle served GeneMedicine,
Inc., The Woodlands, Texas, as Senior Scientist, Expression Systems. Prior to
GeneMedicine, Inc., he was a research scientist at Battelle Memorial Institute.
Dr. Kittle holds a Ph.D. in Chemistry from Harvard University and a B.S. in
Chemistry from Ohio University.

        HEIDI NELSON, PH.D., recently began working for Lark as a Senior
Scientist supporting the Company's New Products Division. Prior to joining Lark
she worked as a Scientist at Zonagen Pharmaceuticals, Inc. in the Molecular
Biology Division. Between 1985 and 1986 Dr. Nelson worked as a technician in an
immunology lab at Tufts University. Dr. Nelson graduated with a B.S. in Biology
and Russian from Duke University in May of 1985 and obtained her Ph.D. in
Cellular and Molecular Biology from the University of Wisconsin-Madison in 1993.

                                       28
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                 Annual Compensation                  Long Term Compensation
                                        --------------------------------------------------------------------------------------
                                                                                      Awards              Payouts
                                                                              -----------------------------------
                                                                              Restricted    Securities
          Name and                                            Other annual      stock       Underlying     LTIP    All other
         principal                       Salary     Bonus     compensation     award(s)    Options/SARs  Payouts  compensation
          position              Year       ($)       ($)           ($)           ($)           (#)         ($)        ($)
------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>      <C>         <C>                                       <C>
Vincent P. Kazmer(1), (2)
President & CEO                 1997     132,000     4,090                                     95,000
------------------------------------------------------------------------------------------------------------------------------
 Douglas B. Wheeler
Vice President, Finance         1997      75,000     7,415                                     21,500
------------------------------------------------------------------------------------------------------------------------------
Bethany J. Pimentel
Vice President                  1997      84,182    34,749                                     47,500
------------------------------------------------------------------------------------------------------------------------------
Raymond Vonder Haar
Vice President, Science         1997      75,729     2,255                                     45,000
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Kazmer was elected President, CEO and a director in September, 1995.
Significant terms of his employment contract are detailed in Note 9 - "Other
Commitments" to the Financial Statements.

(2) As of December 31, 1997, Mr. Kazmer held 141,452 shares of restricted common
stock valued at $220,665 based on a closing price of $1.56 on March 30, 1998.
These shares vest over a period of four years at a rate of 25,363 per year. It
is not anticipated that dividends will be paid for these shares.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

                       Number of    Percent of total
                       Securities     options/SARs
                       Underlying      granted to    Exercise or
                      Options/SARs    employees in    base price     Expiration
        Name             granted      fiscal year     ($/Share)         date
-----------------------------------------------------------------------------
Bethany J. Pimentel      2,500         1.00%          $1.55           4/22/07
-----------------------------------------------------------------------------
Raymond Vonder Haar      5,000         2.00%          $1.55           4/22/07
-----------------------------------------------------------------------------
Douglas B. Wheeler       1,500         1.00%          $2.45           4/22/07
-----------------------------------------------------------------------------
Vincent P. Kazmer       95,000         44.00%         $2.00           9/16/07
-----------------------------------------------------------------------------
Douglas B. Wheeler      20,000         9.00%          $2.00           9/16/07
-----------------------------------------------------------------------------
Bethany J. Pimentel     45,000         21.00%         $2.00           9/16/07
-----------------------------------------------------------------------------
Raymond Vonder Haar     40,000         18.00%         $2.00           9/16/07
-----------------------------------------------------------------------------

                                       29
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

None

LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR:

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table describes Security Ownership of Beneficial Owners of more
than 5% of the Common Stock of the Company:
<TABLE>
<CAPTION>
                    Name and address                      Amount and nature     Percent of
Title of Class      of beneficial owner                   of beneficial owner    class
------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>
Common              Carter Interests, Ltd.                    207,569             6.2
                    5757 Memorial Drive
                    Houston, Texas  77007

Common              TaKaRa Shuzo Co., Ltd.                     222,902            6.7
                    Biotechnology Research Laboratories
                    SETA 3-4-1 Otsu
                    Shiga, 520-21, Japan

Common              Baylor College of Medicine                 257,540(1)         7.7
                    One Baylor Plaza
                    Houston, Texas  77030
</TABLE>
(1) Mr. Banks is deemed to be the beneficial owner of 50,726 shares of the
Company's Common Stock. Mr. Banks is the President of BCM Technologies, Inc.
which is a subsidiary of Baylor College of Medicine.

                                       30
<PAGE>
The following table describes the Security Ownership of Directors, CEO, and
Directors and Executive Officers as a Group:
<TABLE>
<CAPTION>
                    Name and address                      Amount and nature     Percent of
Title of Class      of beneficial owner                   of beneficial owner    class
------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>
Common              Baylor College of Medicine                257,540(1)          7.7
                    One Baylor Plaza
                    Houston, Texas  77030

Common              Stephen J. Banks                           50,726(1)          1.5
                    BCM Technologies, Inc.
                    1709 Dryden, Suite 901
                    Houston, Texas  77030

Common              George Britton                             85,596             2.6
                    3272 Westheimer, Suite 3
                    Houston, Texas  77098

Common              Vincent P. Kazmer                         141,452             4.3
                    2161 Benjamin Circle
                    Hudson, Ohio  44236

Common              David Lawson                              241,078(3)          7.25
                    2039 Dryden
                    Houston, Texas  77030

Common              Bethany Pimental                            6,456              *
                    9545 Katy Freeway, Suite 465
                    Houston, Texas 77024

Common              Directors and Executive Officers          525,308(2)         15.8
                    as a Group
                    9545 Katy Freeway, Suite 465
                    Houston, Texas  77024
</TABLE>
(1) Mr. Banks is deemed to be the beneficial owner of 50,726 shares of the
Company's Common Stock. Mr. Banks is the President of BCM Technologies, Inc.
which is a subsidiary of Baylor College of Medicine.

(2) The Directors and Executive Officers as a group total 8 persons.

(3) This includes 95,517 shares held by D. C. Lawson trust and 95,517 held by S.
R. Lawson trust.

*     Indicates less that 1% ownership.

                                       31
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        As described in Note 11 to the Financial Statements, the Company
purchases laboratory reagents from an affiliate at rates normally charged to a
third party.

                                       32
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the quarter ending December 31, 1997.

INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<S>       <C>
        * 2.1    The Agreement of Merger of November 18, 1994, between Lark Technologies,
                 Inc. and Lark Sequencing Technologies, Inc. providing for the merger of Lark
                 Sequencing Technologies, Inc. into the Company.

         *3.1    Bylaws of Lark Technologies, Inc., as amended.

         *3.2    The Certificate of Incorporation of Lark Technologies, Inc., as amended.

         *10.1   1990 Stock Option Plan adopted by the Company.

         *10.2   Agreement between Lark Sequencing Technologies, Inc. and MedProbe, A.S.

         *10.3   Agreement of 12-28-94 between Lark Sequencing Technologies, Inc. and
                 SmithKline Beecham PLC.

         *10.4   Patent License Agreement between Sennes Drug Innovations, Inc. and Lark
                 Sequencing Technologies, Inc.

         **10.5  Form of Warrant Agreement entered into by and between the Company and each
                 of George Britton, David Lawson, Peter Boatright, Homer Peterson, and Larry
                 Peterson.

         **10.6  Lease Agreement and Extensions and Modification of Lease Agreement by and
                 between Lark Sequencing Technologies, Inc. and Lacy Petroleum, Inc.

         ***10.7 Employment Agreement entered into by and between the Company and Vincent
                 Kazmer.

         ***10.8 Restricted Stock Purchase Agreement entered into by and between
                 the Company and Vincent Kazmer.

         ***10.9 Promissory Note entered into by and between the Company and Vincent Kazmer.

        ***10.10 Lease Agreement between Lark Technologies, Inc. and Oakley Commercial (UK).

        ***10.11 Sponsored Research Contract entered by and between the Company
                 and Baylor College of Medicine.

        ***10.12 Consulting Agreement entered into by and between the Company and Olivia
                 Pereira-Smith.

        ****23.1 Consent of independent auditors.
</TABLE>
* Incorporated by reference from the Company's Registration Statement on Form
S-4 dated August 14, 1995, Commission File No. 33-90424. The exhibit numbering
system used in Form S-4 differed from that used in this Form 10-QSB (8a, 2d, 2c,
6b, 6c, 6d-1, and 6f, respectively).

** Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended June 30, 1995.

*** Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended September 30, 1995.

**** Filed herewith.

                                       33
<PAGE>
                         CONSENT OF INDEPENDENT AUDITORS

        We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 333-08847) pertaining to the Lark Sequencing
Technologies, Inc. 1990 Stock Option Plan and (Form S-8 No. 333-35675)
pertaining to the Lark Technologies, Inc. 1997 Nonqualified Stock Option Plan
for Non-Employee Directors of our report dated February 19, 1998, except as to
Note 7 as to which the date is March 13, 1998, with respect to the financial
statements of Lark Technologies, Inc. included in the Annual Report (Form
10-KSB) for the year ended December 31, 1997.

                                                   ERNST & YOUNG LLP

Houston, Texas
March 26, 1998

                                       34
<PAGE>
                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   Lark Technologies, Inc.
                                          (Registrant)

Date     MARCH 30, 1998            /s/ STEPHEN J. BANKS
                                       Stephen J. Banks, Director
                                       Chairman of the Board

Date     MARCH 30, 1998            /s/ VINCENT P. KAZMER
                                       Vincent P. Kazmer, Director
                                       President and Chief Executive Officer

Date     MARCH 30, 1998            /s/ GEORGE M. BRITTON
                                       George M. Britton, Director

Date     MARCH 30, 1998            /s/ DAVID LAWSON
                                       David Lawson, Director

Date     MARCH 30, 1998            /s/ DOUGLAS B. WHEELER
                                       Douglas B. Wheeler
                                       Vice President, Finance

                                       35