SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               ------------------

                                   FORM 10-KSB

(Mark One)

|X|  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934

For the fiscal year ended March 31, 1997 

                                       OR

|_|  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934 

For the transition period from _________ to __________

                       Commission file number 33-96882-LA

                       CARING PRODUCTS INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

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

                Delaware                                 98-0134875
    (State or other jurisdiction of           (IRS Employer Identification No.)
     incorporation or organization)

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

           200 First Avenue West, Suite 200, Seattle, Washington 98119
                    (Address of principal executive offices)

                                 (206) 282-6040
                (Issuer's telephone number, including area code)

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

      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|
<PAGE>

     State issuer's revenues for its most recent fiscal year. $2,287,497

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.): Cdn.
$11,070,567 as of July 4, 1997.


                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

     Not applicable.


                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of July 4, 1997: 4,125,375 shares of Common Stock, $.01 par
value (after giving effect to a one-for-six reverse stock split of the Company's
Common Stock, which was effected on June 16, 1997).

     Transitional Small Business Disclosure Format (check one):

Yes |_| No |X|


                       DOCUMENTS INCORPORATED BY REFERENCE

Part III - Certain exhibits listed           Included in prior filings made    
in response to Item 13(a)                    under the Securities Act of 1933. 


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                                     PART I
                                     ------

Item 1.   Description of Business.

General

          Caring Products International, Inc. and its subsidiaries
(collectively, the "Company") have designed and market a line of proprietary
urinary incontinence products with disposable liners which are sold under the
Rejoice name throughout the United States and Canada. These comfortable,
effective products provide a practical and affordable solution to the special
needs of incontinent adults and children over the age of four. All of the
Company's products incorporate a two-piece incontinence management system and
offer the advantages of breathable, light-weight material, highly absorbent
bladder control protection, ease of changing and fashionable appearance. The
products are manufactured by various independent contractors which produce the
pants and the liner raw material and convert the liner raw material into various
sized liners to fit the Company's specific product requirements. The Company's
finished products are shipped through various third party storage and delivery
companies located in the United States and Canada. All of the Company's sales
efforts are dedicated to expanding distribution of its Rejoice adult and
children's incontinence product line. The Company's marketing efforts are
designed to capitalize upon niche market opportunities in the retail and health
care incontinence product markets.

Corporate History

          The Company, a Delaware corporation, resulted from a series of
corporate reorganizations and related transactions, as follows:

          First West Canada Capital Corporation ("FWCC") was originally
incorporated under the laws of the Province of British Columbia on December 6,
1984. On December 20, 1993, FWCC renounced its original jurisdiction of
incorporation and became a Wyoming corporation. On December 23, 1993, FWCC
merged into FWCC Merger Corp., a wholly-owned subsidiary of FWCC, which was
incorporated in the State of Delaware on December 7, 1993. Prior to the merger,
which effected the reincorporation of FWCC as a Delaware corporation, FWCC was
an inactive corporation. Immediately following the merger, FWCC Merger Corp. was
an inactive corporation.

          On November 4, 1992, Caring Products International, Inc. was
incorporated under the laws of the State of Delaware ("Old Caring Products"). On
December 30, 1993, Old Caring Products merged with and into FWCC Merger Corp.,
and FWCC Merger Corp. became the surviving corporation. In connection with this
merger, the name of the surviving entity was changed to Caring Products
International, Inc. Caring Products Industries, Inc., a British Columbia
corporation, is a wholly-owned subsidiary of Caring Products International, Inc.
and until March 1996 principally engaged in pant production activities. C.P.
International, Inc., a Delaware corporation, is also a wholly-owned subsidiary
of Caring Products International, Inc., and its principal business is the sale
and marketing of the Company's products. The term, the "Company" as used herein,
refers to the surviving entity in the merger, Caring Products 


                                      -3-
<PAGE>


International, Inc. and its wholly-owned subsidiaries, Caring Products
Industries, Inc. and C.P. International, Inc.

Products

          Since the Company's inception in late 1992, the Company has focused
primarily on the design and development of a line of adult and children's
incontinence products that it believes will offer enhanced product absorbency,
convenience, fit and conventional undergarment appearance, coupled with the
benefits of natural fabric, at a price below conventional disposable adult
diapers. Many adult incontinence brand products available today are very similar
in design, appearance and comfort to standard baby diapers. These disposable
diaper products, adult diapers and belted undergarments, are used by either men
or women with moderate to heavier bladder control problems. The competing
incontinence products designed for individuals with lighter bladder control
problems are similar to many feminine hygiene products which can be bulky and do
not prevent side seepage when a person is moving or sitting down. The Company
has designed its products specifically for the needs of the adult incontinence
sufferers living or recuperating at home with light to moderate incontinence.
The Company has not designed products for the incontinence sufferer, usually
bedridden individuals, that require products for heavier bladder control and
protection for bed linen.

          All of the Company's products are designed with a two-piece
incontinence management system, consisting of a reusable/washable cotton pant
and a highly absorbent, thin disposable liner. The reusable/washable cotton pant
looks and wears like conventional underwear but incorporates a proprietary
channel that holds the liner securely in place and provides enhanced protection
against side-seepage when the wearer is moving or sitting down. The Company's
pants are produced in a pull-on style and are offered in a variety of men's,
women's, boys' and girls' sizes.

          The Company currently offers for sale the following Rejoice products
specifically designed for the adult and children's incontinence markets:

          Rejoice. The Company's principal product which is sold under the
Rejoice name is a men's and women's pull-on pant with an 11-inch disposable
liner. Rejoice pants have been designed to look and feel like normal underwear.
Rejoice is targeted for more active people presently using a full-sized
disposable diaper, belted undergarment or guard in a consumer out-patient
setting. Other users of Rejoice include patients within a home health care or
outpatient rehabilitation setting, disabled individuals, especially people using
wheelchairs, individuals with disease-related incontinence and individuals
recovering from a stroke or who have serious arthritis and cannot manage a
disposable diaper or standard pull-on underwear by themselves. The Rejoice
product is available in several discreet, non-bulky pull-on cotton pant sizes
and complementary liners that are easy to change and offer enhanced leg mobility
while providing leak protection to people with disabilities. The product is sold
through retail stores and the health care market.

                                      -4-
<PAGE>


          Rejoice ExtraCare. The Rejoice ExtraCare name is applied to an 18-
inch disposable liner product as well as various styles of men's and women's
pants. This product is sold only through the health care market.

          Rejoice for Children. The Rejoice for Children name is applied to a
line of pant products designed for older children with incontinence due to
disease, birth defects or bed wetting. Each Rejoice for Children pant, in either
boys' or girls' sizes, is designed to accommodate either the Rejoice 11-inch or
the Rejoice ExtraCare 18-inch liner. Historically, parents of these older
children with specialized needs have purchased the smaller-sized adult diapers,
reusable training pant products, disposable bed sheets, plastic underpads for
protection or have used baby diapers to be placed inside a plastic pant. These
products are sold solely through the health care market.

          The Company has developed a toddler toilet training product to be sold
under the name BumberChute. This product was designed for boys and girls aged 19
months to four years, where both the children and parents seek a grown-up style
cotton underwear product that offers an effective method in easing and
expediting the toilet training of toddlers. BumberChute is a standard style
pull-on pant designed to encourage toilet training, for both night-time bed
wetting and daily wear. The Company believes that its BumberChute product has a
strong potential for commercialization but will require the expenditure of
greater resources for marketing and advertising than its Rejoice products
because of the highly competitive nature of the market. In addition, the period
of use per consumer is shorter than that for its Rejoice adult incontinence
products. Accordingly, the Company has dedicated its limited resources to the
marketing and promotion of its Rejoice products and is seeking a licensing or
joint venture partner or partners to assist in bringing its BumberChute product
to the national and international retail markets.

Sales and Marketing

          The Company's marketing efforts for the Rejoice products are focused
both in the retail and health care markets. The Company has developed and is
implementing different marketing strategies for the retail and health care
segments of its business. For the retail side of the Company's operations, the
Company has organized a nationwide network of brokers or manufacturers
representatives which are assisting in securing meetings with buyers and
monitoring store placement and sales activity. With regard to certain health
care markets in the United States, the Company has packaged its basic Rejoice
pant and liner product into a more suitable package for health care market
distribution. This product is called the Rejoice Wellness Care Kit and began
being exclusively distributed in April 1997 by Medline Industries, a health care
supply company headquartered in Mundelein, Illinois. The Company is assisting in
training Medline's sales representatives to sell the Rejoice Wellness Care Kit
to varied health care accounts in the United States. The training will require
approximately four to six months to complete.

          Retail Market

          To gain market share in the growing out-patient consumer market, the
Company is concentrating on establishing distribution relationships with drug
store chains, grocery store 


                                      -5-
<PAGE>


chains which offer pharmacy services, retail chains, independent pharmacy stores
and nationwide drug wholesale or product distributors. In addition, the Company
is seeking distribution relationships with specialty catalog companies or home
delivery service providers.

          The Company is currently selling Rejoice in approximately 6,000
stores, which include several retail, drug and grocery chains, as well as drug
wholesalers and independent pharmacies. Among such stores are SAVON drug stores,
OSCO drug stores, Revco drug stores, K&B drug stores, Bartells drug stores,
Thrifty-Pay Less drug stores, Genovese drug stores and Longs drug stores.

          Health Care Markets

          The primary market for health care sales of incontinent products is to
out-patient facilities of hospitals, rehabilitation facilities, home health care
providers, hospice centers and other out-patient facilities and other facilities
in which the institutions have direct access to the incontinence sufferer. The
Company's marketing strategy for the health care market is to sell its products
through hospital distribution companies, home health care companies,
medical/surgical suppliers and distributors, durable medical equipment ("DME")
suppliers and hospital buying groups.

          In late 1996, the Company signed a distribution agreement with Medline
Industries, an Illinois based health care supply company, for the distribution
of various Rejoice products to hospitals, home healthcare nursing agencies,
DME's and other healthcare accounts. The Company has also developed a specialty
packaged Rejoice product, called the Rejoice Wellness Care Kit, which will be
sold exclusively by Medline to varied healthcare accounts. The Rejoice Wellness
Care Kit was introduced in April 1997. The Company is supporting Medline's sales
efforts through training of their field representatives, direct mail and
brochure development, telemarketing and training customer service support.

          In January 1997, Rejoice was approved for Standardized Stock Ordering
by the United States Veterans Hospitals. This simplified national purchasing
program for preferred product vendors is expected to help facilitate the
Company's sales efforts to the 160 Veterans Hospitals in the United States.

          The Company is targeting health care accounts which serve patients
during recovery and rehabilitation. Rejoice is being positioned as a more
dignified, comfortable product which does not restrict or discourage patient
movement or participation while in physical therapy. The Company is marketing
Rejoice to health care markets through trade show participation, direct mail of
product information to physicians' offices and health care buyers, the marketing
support of the Company's medical advisory board and public relations activities.

          The Company is currently selling Rejoice products other than the
Rejoice Wellness Care Kit to a nominal number of health care accounts, including
Medline.

                                      -6-
<PAGE>


Manufacturing and Fulfillment

          In order to focus more of its resources on sales and maintaining a
streamlined system of operations and product delivery, the Company has been
"outsourcing" certain processes and functions, and it expects to continue to do
so for the foreseeable future. The Company currently subcontracts production of
pants in Canada and Mexico and for conversion of thermally-bonded raw liner
material in the United States.

          Pant Manufacturing. Historically, the Company has manufactured its own
pant requirements in its facilities in the Vancouver, British Columbia
metropolitan area. The Company ceased in-house pant production in March 1996 and
will sell off various pant manufacturing equipment during fiscal 1998. The
Company has been subcontracting production in Vancouver (Le Genereux Clothing
Company, Ltd.) and Mexico (Teycon). The Company has a non-exclusive production
agreement with Le Genereux which will expire in November 1997, and no formal
agreement with Teycon, with whom the arrangement is to submit purchase orders as
needed. The Company's Vancouver subcontractor has produced approximately 200,000
pants per year. The Mexican manufacturer has the capacity to produce 90,000
pants per month which can be expanded to meet any foreseeable monthly demand.
Although the Company has made the strategic decision to subcontract its pant
manufacturing, it is not materially dependent on any single contractor and
believes it could quickly commence pant assembly or full construction with other
manufacturers in Mexico, Puerto Rico, Taiwan or China. The Company's Vancouver
manufacturer has filed a lawsuit against the Company, which the Company believes
is wholly without merit. See "Item 3. Legal Proceedings."

          Liner Manufacturing and Conversion. The raw material for the Company's
liners is manufactured in an air-laid thermal bonding process using SAPs. This
process creates biodegradable cloth-like products made from natural cellulose
fibers that are stronger, softer and more absorbent than conventional wet laid
paper products. In the air-laid process, wood pulp is dried into individual
fibers, transported by air (rather than water as in conventional paper making)
and then deposited uniformly with the assistance of a vacuum. Once the fibers
are laid uniformly, the rest of the paper making process concentrates on
progressively strengthening the material through compaction under heat and
pressure and the application of adhesive binders. The use of an air-laid process
allows multi-layer introduction of SAPs uniformly over the entire liner product.

          The raw material for the Company's liners are manufactured under a
supply agreement with a remaining term of approximately six years with Merfin
Hygienic Products Ltd. ("Merfin"), a public-traded British Columbia firm. Merfin
is a leading producer of air-laid paper. Under the Merfin agreement, the Company
is required to meet certain annual minimum purchase requirements, and until such
minimum is met, is required to purchase all of its requirements from Merfin. The
price at which the Company is entitled to purchase the material from Merfin is
negotiated on an annual basis. The agreement provides that Merfin may not sell
its SAP raw material to any other company that uses a two-piece system
incorporating a liner, thereby making the agreement exclusive for the Company's
purposes. To date, the Company has not met its annual minimum purchase
requirements, and Merfin could, as a result, terminate the agreement. 


                                      -7-
<PAGE>


However, Merfin has continued to accept purchase orders from the Company and has
indicated its willingness to continue to build its own sales revenues through
its relationship with the Company. To date, the Company has not encountered any
difficulties in obtaining its requisite supply of liner raw material from
Merfin, and the Company believes Merfin's capacity to provide raw material
needed for the Company's product liners will be sufficient to meet the Company's
needs for the foreseeable future. In addition to the supply arrangement, which
is of great significance to the Company, it is expected that Merfin's research
and development department will work with the Company in the future on further
product improvements.

          In May 1997, Merfin was acquired by Buckeye Cellulose Corporation, a
United States manufacturer of cellulose products. There has been no indication
that Merfin will terminate or seek to change its relationship with the Company.
The Company has been dependent on its relationship with Merfin. However, the
Company believes that there are alternative sources of the liner raw material
available from a limited number of suppliers. Accordingly, the Company does not
believe that the termination of its arrangement with Merfin as a result of the
recent change of control or otherwise would have a material adverse impact on
the Company's operations or financial results.

          The liner rollstock material produced by Merfin is shipped to an
independent diaper manufacturer in the United States where it is converted into
finished liners according to the Company's specifications. The process of liner
conversion involves slitting the finished rolls of raw material into designated
liner lengths and cover each liner core with a soft cotton coverstock. The
liners are then packaged, boxed and shipped to one of the Company's fulfillment
centers in Harrisburg, Pennsylvania, Sparks, Nevada or Canada. (See 
"--Warehousing and Fulfillment.")

          The Company's liners are converted by two conversion companies in the
United States, both of which have ample capacity to satisfy the Company's liner
conversion needs. There are also several other companies located in the United
States who could perform liner conversion services for the Company. Management
believes that there are several additional diaper and liner production
facilities available should the Company require additional capacity.

          Warehousing and Fulfillment. The Company currently uses fulfillment
services in Harrisburg Pennsylvania, Sparks, Nevada, Vancouver, British Columbia
and Toronto, Ontario. However, the Company believes that there are numerous
options for obtaining warehousing and fulfillment services and that it would not
be difficult to make arrangements for additional or different service providers
if the need were to arise in the future.

Research and Development

          From its inception, the Company has devoted significant time and
energy to research and development activities to develop its current products
and improvements on those products. The Company anticipates that certain of its
research and development activities in the future will be conducted in
conjunction with Merfin's research and development department, although there
currently is no formal research and development contract between the two
entities. Research and development expenditures represented less than 1.4% of
the Company's total expenditures 


                                      -8-
<PAGE>


including cost of goods sold, in Fiscal 1997; and represented 1.7% of the
Company's total expenditures in Fiscal 1996.

Backlog

          The Company generally ships within three to ten days of receipt of a
purchase order depending upon the size of the order. Accordingly, backlog is not
significant for the Company.

Competition

          The disposable incontinence products industry is highly competitive
and consists of several large and medium sized companies as well as numerous
smaller companies. Many of the Company's competitors have financial, marketing
and other resources substantially greater than those of the Company, as well as
a history of operations which the Company currently lacks. Competition in the
industry is generally based on price, performance and comfort. The Company
believes that its ability to compete depends on elements both within and outside
its control, including the success and timing of new product developments by the
Company and its competitors, product performance and price, distribution and
customer service. The Company believes that its products represent an
improvement over plastic-cased diaper products in terms of consumer comfort and
dignity, cost, product discretion and protection against side-seepage. Although
the Company believes it offers products with price and performance
characteristics competitive with other manufacturers' products, there is no
assurance that products can be developed, manufactured or marketed successfully
in the future. In order to be successful, the Company must continue to respond
promptly and effectively to its competitors' innovations. There is no assurance
that the Company will be able to compete successfully in the disposable
incontinence products industry.

          The retail market is dominated by major national brand product
manufacturers, including Kimberly Clark's Depend(R) and Poise(R) brands, Johnson
& Johnson's Serenity(R) brand and Procter & Gamble's Attends(R) brand. In
addition to these companies, which collectively dominate the market, the retail
market for disposable incontinence products is made of up medium size and small
companies, as well as a small, but fast growing, private label segment currently
dominated by ICD/Confab and Inbrand.

          The health care market is dominated by Proctor & Gamble, Scott Health
care (which was recently purchased by Kimberly Clark) and Professional Medical.
Several medium size and numerous smaller firms account for the balance of the
clinical market.

Patents, Trademarks and Proprietary Rights

          The Company has filed three patent applications with the U.S. Patent
and Trademark Office covering two "channel" pant designs (applications were made
for two variations on one design) and has filed additional applications in
certain European markets. In November 1994, a patent was issued by the U.S.
Patent and Trademark Office and thereafter the Company abandoned its then two
pending applications for the variations on the issued patent. The issued patent
expires on July 30, 2012. Management believes that favorable rulings on certain
patent 


                                      -9-
<PAGE>

claims will help protect against new entrants into the combination
two-piece incontinence and training pant markets with similar designs that
specifically guard against side-seepage.

          The Company uses a number of trademarks and logos in connection with
the sale and advertising of its products. The Company believes that its
trademarks and logos are of considerable value to its business and intends to
continue to protect them to the fullest extent possible. The Company takes
reasonable measures to assure that any product bearing a Company trademark
reflects the consistence and quality associated with the Company's products.
Rejoice is a registered trademark of the Company in the United States, Canada,
the United Kingdom and Germany. An application for registration of Rejoice is
pending in several other countries. BumberChute is a registered trademark in
Canada, France, the United Kingdom and Germany. An application for registration
of BumberChute is pending in the United States.

          The Company also relies upon trade secrets, know-how, improvements to
technology, confidentiality agreements and the pursuit of collaborative and
licensing opportunities to develop and maintain its competitive position.
Although the Company protects its proprietary technology in part by
confidentiality agreements with its employees, consultants and certain
contractors, there can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
discovered by its competitors.

Employees

          As of July 1, 1997, the Company employed approximately 15 persons on a
full-time basis. Of these employees, approximately two are employed in
manufacturing, two in operations and marketing, six in sales and five in
administration and finance. In addition, the Company employs approximately 25 to
35 people on a part-time basis. These employees largely perform customer
service, marketing and administrative functions for the Company. The Company
does not have a collective bargaining agreement with any of its employees, and
the Company considers its employees relations to be good.

Item 2.   Description of Properties.

          The Company maintains a marketing office at 200 First Avenue West,
Seattle, Washington. The office, covering approximately 4,800 square feet, is
rented pursuant to a lease that expires in July 2000. The annual base rent is
$72,163 ($6,013.58 per month).

Item 3.   Legal Proceedings.

          In March 1996, Le Genereux Clothing Company, Ltd., one of the
Company's subcontractors for pant manufacturing, filed a Writ of Summons and
Statement of Claim in the Supreme Court of British Columbia alleging breach of
contract to purchase pants pursuant to the Manufacturing Agreement between the
parties. (See "Item 1. Description of Business- Manufacturing and Fulfillment.")
The plaintiff claims it is entitled to liquidated damages in the amount of Cdn.
$913,607.30, plus interest and costs. The Company believes this litigation is a
frivolous nuisance action, wholly without merit, and intends to vigorously
defend itself. The 


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<PAGE>


Company does not believe that this litigation will have a material adverse
impact on its results of operations. Despite the litigation, Le Genereux
continues to assemble pants for the Company, and the Company continues to be
current on its billing obligations to Le Genereux.

          In May 1996, HUB, Inc., a Minnesota corporation, Thomas M. Vertin and
The Harold G. Goodman 1984 Grantor Trust, all of whom were involved in providing
a short-term bridge loan to the Company in 1995, filed a summons and complaint
against the Company in the U.S. District Court for the District of Minnesota,
Case No. 3-96-396. This suit alleges, primarily, breach of contract and seeks an
award of 108,333 additional warrants to purchase the Company's Common Stock as
additional compensation for the provision of the loan. The loan was repaid in
full on its due date and pursuant to its terms. The Company believes this
litigation is without merit. The Company has submitted the plaintiffs' demand to
the Vancouver Stock Exchange, as required, and have received a ruling that the
additional warrants are not authorized as part of the loan agreement. The
Company intends to vigorously defend this action and does not believe this
litigation will have a material adverse impact on its results of operations.

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

          The Company did not submit any matters to a vote of its security
holders during the fourth quarter of the fiscal year ending March 31, 1997.


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<PAGE>


                                     PART II
                                     -------

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

(a)(1)    Market Information

          The Company's Common Stock has traded on the Vancouver Stock Exchange
("VSE") under the symbol "CPI" since January 1994, following its merger with
FWCC Merger Corp. Unless otherwise indicated, all share and per share data give
effect to a one-for-six reverse stock split (the "Reverse Stock Split") of the
Company's Common Stock approved by the Company's Board of Directors and
stockholders, which was effected on June 16, 1997.

          The following table sets forth the high and low closing prices for the
Common Stock on the VSE for the periods indicated. All prices are stated in
Canadian dollars and do not reflect the Reverse Stock Split.

                                                             High           Low
                                                            -----          -----
Fiscal Year Ended March 31, 1995

  First Quarter ..................................          $1.95          $1.15
  Second Quarter .................................           2.20           1.35
  Third Quarter ..................................           1.75           1.30
  Fourth Quarter .................................           1.74           1.30

Fiscal Year Ended March 31, 1996

  First Quarter ..................................          $1.61          $1.56
  Second Quarter .................................           1.65           0.86
  Third Quarter ..................................           1.32           0.85
  Fourth Quarter .................................           0.98           1.25
 
Fiscal Year Ended March 31, 1997

  First Quarter ..................................          $1.25          $0.50
  Second Quarter .................................           0.97           0.65
  Third Quarter ..................................           1.10           0.38
  Fourth Quarter .................................           1.00           0.52


          On July 4, 1997, the closing price of the Common Stock on the
Vancouver Stock Exchange was Cdn. $2.80 after giving effect to the Reverse Stock
Split.

(a)(2)    Recent Sales of Unregistered Securities

          No securities that were not registered under the Securities Act of
1933, as amended (the "Act") have been issued or sold by the Registrant within
the past three years, except as described below. See "Item 1. Description of
Business--Corporate History" for an explanation of the various entities
mentioned in this Item 5. The share information below reflects the Reverse Stock
Split.

                                      -12-
<PAGE>


1.   On January 12, 1994, the Registrant issued 427,500 shares for cash
consideration of Cdn. $5.58 per share to a single offshore investor (Caring
Products Holdings Limited, Hong Kong, which is a 100% subsidiary of Allied
Industries International Limited ("Allied"), a Hong Kong widely-held public
company of which Allied Group Limited, also a Hong Kong public company, held
57.2% and SHK Hong Kong Industries Limited holds 11.5%). In addition, the
investor was issued 427,500 warrants, in which two and one-half warrants
entitled the holder to purchase one additional share of Common Stock (for a
total of 171,000 shares), at an exercise price of Cdn. $9.00. The warrants
expired on November 22, 1995. Because the shares were not issued to a U.S.
person, the transaction was not subject to the Act. However, the transaction was
conducted in a manner consistent with the requirements for a valid exemption
under Section 4(2) of the Act. These securities were privately transferred to a
subsequent holder, Comite de Retraite et des Assurances Collective (MCPED), in
the quarter ended December 31, 1995.

2.   On June 3, 1994, the Registrant issued 15,000 shares of Common Stock to
Susan A. Schreter, the Registrant's President and a Director. The shares were
issued to Ms. Schreter for repayment of debt incurred when Ms. Schreter
transferred 15,000 of her shares to two individuals in settlement of a
technology purchase and relinquishment of royalties agreement. This transaction
was made in reliance upon the exemption provided by Section 4(2) of the Act. As
an officer and director of the Registrant, Ms. Schreter had access to all
information about the Registrant necessary to make an informed investment
decision. In addition, she represented that she was acquiring the securities for
investment and not with a view to distribution, and her certificate bears
appropriate legends restricting transfer.

3.   On April 28, 1995, the Registrant issued an aggregate of 50 units, for
aggregate gross proceeds of $2,500,000. Each unit consisted of one $50,000 12%
convertible secured promissory note and one two-year warrant entitling the
holder to purchase up to 1,167 shares of Common Stock at an exercise price of
$0.30 per share until the first anniversary of issuance and $0.60 per share
thereafter. The units were issued to the following accredited investors:

        Name of Investor                    Number of Units      Amount Invested
        ----------------                    ---------------      ---------------
                                               Purchased               ($)
                                               ---------         ---------------

HUB, Inc. (1)                                     10                 500,000
Harold G.  Goodman 1984 Grantor                                   
     Trust (2)                                     5                 250,000
Thomas M. Vertin                                  10                 500,000
Stirling Unit Trust (3)                           25               1,250,000
                                                             

---------

(1)  The beneficial owners include: Charles E. Underbrink and Douglas E. Heitne.
(2)  The beneficial owners include: H. Greg Goodman and Alan D. Feinsilver.
(3)  No one person holds a greater than 10% beneficial ownership interest in the
     Stirling Unit Trust. The settlor of the Trust is the Blake Settlement.

                                      -13-
<PAGE>


Offers and sales were made in a private offering in reliance upon the exemption
provided by Section 4(2) of the Act. Each investor was furnished with
information concerning the offering and the Registrant and each had the
opportunity to verify the information supplied. Additionally, the Registrant
obtained a representation from each investor of such investor's intent to
acquire the securities for the purpose of investment only, and not with a view
toward the subsequent distribution thereof. The securities bear appropriate
restrictive legends.

          All of the foregoing offers and sales were made to individuals or
entities that had access to information enabling them to evaluate the merits and
risks of the investment by virtue of their relationship to the Registrant or
their economic bargaining power. The share certificates representing all shares
issued in non-public offerings were stamped with a legend restricting transfer
of the Common Stock represented thereby, and the Registrant issued stop transfer
instructions to its transfer agent.

4.   On September 28, 1995, the Company borrowed $2,500,000, on a secured basis,
and issued warrants to purchase 4,731 shares of Common Stock, exercisable at
Cdn. $7.20 until October 1, 1997. The lender, Trimin Enterprises, Inc., is a non
U.S. person, the beneficial owners of which include a widely-held Canadian
public company listed on The Toronto Stock Exchange, the sole beneficial owner
of 10% or more of the outstanding shares of which is James D. Meekison, an
Ontario resident. The Company issued the securities in accordance with
Regulation S.

5.   On October 5, 1995, the Registrant issued an aggregate 1,666,667 Special
Warrants for aggregate gross proceeds of Cdn. $8,775,000 (approximately U.S.
$6,500,000) to a total of 11 investors, all of whom are non-U.S. persons. The
Special Warrants were deemed converted, for no additional consideration, into
1,666,667 shares and warrants to purchase up to 833,333 additional shares as of
February 27, 1996. The Special Warrants were issued to the following non-U.S.
investors:

                                            Number of Special    Amount Invested
           Name of Investor                 Warrants Purchased       (Cdn.$)
           ----------------                 ------------------   ---------------
                                                                 
BPI Capital Management Corp.                      429,500        $2,261,317.50
Comite de retraite et des assurances              150,833           794,137.50
  collectives (MCPED)                                            
Laurentian American Equity Ltd.                   110,000           579,150.00
Laurentian International, Ltd.                     55,833           293,962.50
Robert G. Atkinson                                136,666           719,550.00
James R. Tuer                                      37,500           197,437.50
Royal Canadian Small Cap Fund                     216,667         1,140,750.00
AGF Growth Equity Fund Ltd.                       189,333           996,840.00
Montreal Trust Company of Canada                  283,333         1,491,750.00
Michael Steele                                     28,500           150,052.50
Griffiths McBurney & Partners                      28,500           150,052.50

                                      -14-
<PAGE>


          Total                                 1,666,667        $8,775,000.00
                                                                 
          Offers and sales were made in an off-shore transaction to non-U.S.
Persons in reliance upon Regulation S promulgated under the Act. With the
exception of Messrs. Atkinson, Tuer and Steele, all of whom are individuals and
purchased their Special Warrants beneficially, and with the exception of
Montreal Trust Company of Canada, each of the purchasers is a widely-held
Canadian investment fund which, the Company believes, has purchased on behalf of
specific mutual funds. Montreal Trust Company of Canada is a widely-held,
federally-chartered Canadian trust company which, the Company believes,
purchased on behalf of fully-managed accounts for clients.

          In connection with the offering of the Special Warrants, Brenark
Securities Ltd., which acted as placement agent, was issued a special right (the
"Special Right"), which is exercisable for warrants to purchase 133,333 shares
of Common Stock, at Cdn. $4.86 per share through October 5, 1996 and Cdn. $5.67
per share from October 6, 1996 to October 5, 1997. These warrants were also
issued pursuant to Regulation S.

6.   From time to time during the past three years, the Company has granted
options and issued warrants to officers, directors and employees of the Company.
These grants have been made at exercise prices ranging from U.S. $3.00 to U.S.
$7.50. An aggregate of 629,671 shares of Common Stock have been issued upon
exercise of warrants and no shares of Common Stock have been issued upon
exercise of options. To the extent options or warrants have been issued by the
Company to U.S. persons, they have been issued pursuant to the exemption for
transactions not including a public offering provided in Section 4(2) of the
Act, and the securities have been appropriately legended.

(b) Holders

          The number of record holders of the Company's Common Stock as of March
31, 1997 was 117.

(c) Dividends

          The Company has never paid a dividend on its Common Stock. It is the
present policy of the Company not to pay cash dividends on the Common Stock. Any
payment of cash dividends on the Common Stock in the future will be dependent
upon the Company's financial condition, results of operations, current and
anticipated cash requirements, plans for expansion, as well as other factors
that the Board of Directors deems relevant.


                                      -15-
<PAGE>

Item 6.   Management's Discussion and Analysis or Plan of Operation.

          The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements, including the notes thereto, of the Company contained
elsewhere in this Form 10-KSB.

Overview

          The Company is organized under the laws of the State of Delaware. The
Company's primary business is the marketing of proprietary urinary incontinence
products.

          Since its incorporation in November, 1992 through December 31, 1995,
the Company was engaged in various start-up activities, including product
conceptualization and technology acquisition, recruitment of employees, product
research, development and testing. During this period, the Company has incurred
substantial expenses for research and development, developing production
relationship, organizing product packaging, test promotions and advertising
programs, test marketing, general and administrative costs, office relocation,
"slotting fees" to support new product entry into large chain stores, as well as
costs incurred to capitalize the Company. The Company has had limited revenues
from the sales of its products and may continue to incur losses during the
introduction of its products to healthcare, retail and international markets.

          As discussed below, the fiscal years ended March 31, 1996 and March
31, 1997 were characterized by nominal sales offset by significant expenses
associated with financing, producing and promoting a product to enter the highly
competitive consumer product and healthcare product markets.

Results of Operations

          Comparison of the Fiscal Year Ended March 31, 1996 to the Fiscal Year
Ended March 31, 1997.

          The Company's sales by product line for the fiscal year ended March
31, 1996 ("Fiscal 1996") were as follows:

                    Rejoice pants ..............  $  479,481

                    Rejoice liners .............     635,902

                    Other ......................       3,103
                                                  ----------
                    Total ......................  $1,118,486
                                                  ==========

          The Company's sales by product line for the fiscal year ended March
31, 1997 ("Fiscal 1997") were as follows:


                                      -16-
<PAGE>


                    Rejoice pants ..............  $  889,149

                    Rejoice liners .............   1,390,611

                    Other ......................       7,737
                                                  ----------
                    Total ......................  $2,287,497
                                                  ==========

          For Fiscal 1997, the Company generated revenues of $2,287,497 as
compared to $1,118,486 for Fiscal 1996, an increase of 105%. Sales of the
Company's adult incontinence product, Rejoice, represented most of the Company's
revenues in both years. The increase in sales was a result of the increase in
the number of retail oriented drug stores which sell Rejoice and broader based
promotional activities to support brand introduction and consumer awareness of
the brand. There was no significant change in the Company's pricing to its
wholesale customers from Fiscal 1996 to Fiscal 1997. Total liner sales are
expected to continue to lead pant sales as the average consumer will need to
purchase more liners, which are disposable, than pants, which are reusable.

          Interest income generated during Fiscal 1997 was $163,986 as compared
to $112,671 in Fiscal 1996. The increase was attributable to higher average
deposit balances throughout the year. Cost of goods sold was $1,727,607 and
$1,031,896 in Fiscal 1997 and Fiscal 1996, respectively. The 67% increase in
cost of goods sold reflected product costs associated with the increased amount
of sales. Gross profit on sales increased from $86,590 in Fiscal 1996 to
$559,890 in Fiscal 1997. This improvement reflected better unit cost of goods
sold due to the transfer of virtually all pant product production to
sub-contractors from a significant amount of in-house pant production in
Burnaby, British Columbia during Fiscal 1996. Gross profit margin improved from
8% in Fiscal 1996 to 24% in Fiscal 1997.

          For Fiscal 1997, total operating expenses increased 4% to $3,362,288
of which $2,083,173 was related to selling expenses including advertising
creative costs, consumer physician promotion and education materials, radio
advertising placement, trade show, salaries and travel costs. Sales costs
increased 5% over the prior fiscal year. It is expected that selling expenses
will continue to be the largest component of the Company's operating expenses
and important to the Company's continued increase in distribution for its
products. General and administrative expenses in Fiscal 1997 were $1,198,148 as
compared to $1,126,815 in Fiscal 1996, a 6% increase. Legal and accounting
expenses during both periods were a significant portion of general and
administrative expenses. These expenses relate to various registrations and
filings in the United States and Canada. During Fiscal 1996, the Company also
incurred expenses related to completing a private placement, including a
$250,000 finder's fee and deemed interest of $413,000. Research and development
expenses continued to decline during the two periods from $74,704 in Fiscal 1996
to $8,679 in Fiscal 1997 due to no major new products in development. Research
and development expenses are not expected to be a significant cost to the
Company during Fiscal 1998. Interest expense increased 121% during the two
periods from $92,314 to $204,203 reflecting the higher average balance of debt
held by the Company.

                                      -17-
<PAGE>


          Continued improvement in pant gross profit margins is expected to be
derived from increasing pant production through lower cost sub-contractors in
Mexico versus sub-contractors in Canada. Because the demand for the Company's
pant product is growing, there has been significant interest from large
underwear manufacturers in Asia, South America and Mexico to produce the
Company's pant product. The Company is scheduled to close its factory location
in Burnaby, British Columbia during Fiscal 1998 at which time there is expected
to be a reduction in certain overhead and facility costs related to supporting
pant sub-contracted production in Canada. No material losses associated with the
close of this facility are expected. No similar facility support is required for
sub-contracted pant production in other locations which are currently utilized
by the Company. While no assurances can be provided, the Company expects that
increased demand for both pant and liners will enable the Company to negotiate
volume discounts which might positively affect gross profit margins. In
addition, no assurance can be provided that increased pant production through
lower cost sub-contractors will lead to profitable operations. During Fiscal
1996 and Fiscal 1997, the Company produced all of its liners through
sub-contracted liner converters in the United States.

          Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe inflation has had a material
effect on sales or results of operations in 1997.

          The net loss for Fiscal 1997 was $2,904,886 as compared to a net loss
of $3,959,940 for Fiscal 1996, a decrease in loss of $1,055,054. As a result of
the information detailed above and other operations, the loss per share was $.74
in Fiscal 1997 as compared to $1.84 in Fiscal 1996. On June 16, 1997, the
Company completed a one-for-six reverse stock split of its issued and
outstanding common stock.

          In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"). SFAS 128
requires companies with complex capital structures that have publicly held
common stock or common stock equivalents to present both basic and diluted
earnings per share ("EPS") on the face of the income statement. The presentation
of basic EPS replaces the presentation of primary EPS currently required by
Accounting Principles Board Opinion No. 15 ("APB No. 15"). Basic EPS is
calculated as income available to common stockholders divided by the weighted
average number of common shares outstanding during the period. Diluted EPS
(previously referred to as fully diluted EPS) is calculated using the "if
converted" method for convertible securities and the treasury stock method for
options and warrants as prescribed by APB No. 15. This statement is effective
for financial statements issued for interim and annual periods ending after
December 15, 1997. The Company does not believe the adoption of SFAS 128 in
fiscal year 1998 will have a significant impact on the Company's reported EPS.

Liquidity and Capital Resources

          The Company has historically financed its operations through several
private placements of its equity securities. During Fiscal 1996, the Company
received net proceeds of Cdn $8,108,500 from the sale of 1,666,667 special
warrants. During Fiscal 1996, the Company 


                                      -18-
<PAGE>

supported its operations from various small, production related borrowings and
incurred short-term debt of $2,500,000 in the form of promissory notes, together
with warrants as part of a bridge financing. These notes were subsequently
repaid with the proceeds of a short-term secured promissory note issued by the
Company to a single investor in September 1995. In October 1995, the Company
secured a revolving line of credit in the amount of $2,500,000 from Seattle
First National Bank and repaid the secured promissory note issued in September
1995. The loan bears interest at 6.91% per annum, payable monthly. This note is
secured by a deposit of $2,500,000 and has been extended to September 1997.

          During Fiscal 1997, the Company supported its operations from various
short-term, unsecured borrowings from related parties which total U.S. $571,300
at March 31, 1997. In April 1997, outstanding principal balances payable to
related parties of U.S. $366,300 were repaid using the proceeds received from an
additional line of credit.

          In April 1997, H.J. Forest Products Ltd., a Canadian public company
which trades on the Toronto Stock Exchange, guaranteed a $1.25 million United
States credit facility for the Company to the Toronto Dominion Bank. Borrowings
under the line of credit are due on demand. In July 1997, the credit facility
was increased to $2.5 million. In May 1997, the Company borrowed U.S. $1,250,000
under a note payable to H.J. Forest Products, Ltd. Principal is due May 1998.

          On April 7, 1997, the Company signed a letter of intent with Paulson
Investment Company, Inc. for a firm underwriting to raise equity of
approximately $10 million. Under the agreement, the offering is expected to
consist of one share of common stock and one warrant to purchase one additional
share. The warrants will be exercisable for a period of 5 years at approximately
150% of the initial public offering price of the units, subject to adjustment in
certain events. The Company and its investment banker are currently organizing
the required filing documents. The Company projects that this offering will be
completed in the fall of 1997, however no assurance can be given that the
offering will be completed.

          As of March 31, 1997, the Company's principal sources of liquidity
included cash, including amounts restricted as security for loans, of
$2,813,244, net accounts receivable of $625,085 and inventories of $2,432,583.
The Company's operating activities used cash of $2,982,936 for the 12 month
period ending March 31, 1997. Increases in accounts payable of 609,257 and
increases in accounts receivable of 344,407 reflect the increased operations and
sales of the Company. Increased inventory levels of $623,591 reflect the
Company's need for additional SKU's to satisfy anticipated new customer
requirements. Management anticipates that the levels of both inventories and
accounts receivable will vary commensurate with the Company's sales and, if
sales increase, may negatively impact cash resources.

          The Company anticipates that its ongoing cash obligations will be met
through the sale of the Company's products, the public offering and/or
additional debt. The Company will continue to review its financial and cash
needs according to current and expected business conditions.

                                      -19-
<PAGE>


Forward Looking Statements

          This Form 10-KSB and other reports and statements filed by the Company
from time to time with the Securities and Exchange Commission (collectively, the
"Filings") contain or may contain forward-looking statements and information
that are based upon beliefs of, and information currently available to, the
Company's management, as well as estimates and assumptions made by the Company's
management.

          When used in the Filings, the words "anticipate," "believe,"
"estimate," "expect," "future," "intend," "plan" and similar expressions, as
they relate to the Company or the Company's management, identify forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events and are subject to risks, uncertainties and assumptions
relating to the Company's operations and results of operations, competitive
factors and pricing pressures, shifts in market demand, the performance and
needs of the industries which constitute the customers of the Company, the costs
of product development and other risks and uncertainties, including, in addition
to any uncertainties specifically identified in the text surrounding such
statements, uncertainties with respect to management of growth, increases in
sales, the competitive environment, hiring and retention of employees, pricing,
new product introductions, product productivity, distribution channels,
enforcement of intellectual property rights, possible volatility of stock price
and general industry growth and economic conditions. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended or planned.

Item 7.   Financial Statements.

          The following consolidated financial statements of Caring Products
International, Inc. are included in Item 7:

          Consolidated Balance Sheets at March 31, 1996 and 1997.

          Consolidated Statements of Operations for the Years Ended March 31,
               1995, 1996 and 1997.

          Consolidated Statements of Stockholders' Equity for the Years Ended
               March 31, 1995, 1996 and 1997.

          Consolidated Statements of Cash Flows for the Years Ended March 31,
               1995, 1996 and 1997.

          Notes to Consolidated Financial Statements.


                                      -20-
<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.


                                AND SUBSIDIARIES



                        Consolidated Financial Statements



                             March 31, 1996 and 1997



                   (With Independent Auditors' Report Thereon)

                                       21

<PAGE>


                          INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------





The Board of Directors
Caring Products International, Inc.:


We have audited the accompanying consolidated balance sheet of Caring Products
International, Inc. and subsidiaries as of March 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Caring Products
International, Inc. and subsidiaries as of March 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

Seattle, Washington
June 13, 1997

                                       22

<PAGE>


                          INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------




The Board of Directors
Caring Products International, Inc.:



We have audited the accompanying consolidated balance sheets of Caring Products
International, Inc. and subsidiaries as at March 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period then ended. 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
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Caring Products International, Inc.
and subsidiaries as at March 31, 1996 and the results of their operations and
their cash flows for each of the years in the two-year period then ended in
accordance with generally accepted accounting principles in the United States.



/s/ KPMG Peat Marwick LLP

Chartered Accountants
Vancouver, Canada
June 14, 1996

                                       23

<PAGE>


                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations

                    Years ended March 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>

===============================================================================================
                                                           1995          1996          1997
-----------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>           <C>      
Revenues                                               $   399,264     1,118,486     2,287,497
Cost of sales                                              728,783     1,031,896     1,727,607
                                                       ---------------------------------------

                    Gross profit (loss)                   (329,519)       86,590       559,890
                                                       ---------------------------------------

Operating expenses:
    Selling                                                987,795     1,978,206     2,083,173
    General and administrative                             848,209     1,126,815     1,198,148
    Research and development                               101,360        74,704         8,679
    Amortization and depreciation                           64,647        61,758        72,288
                                                       ---------------------------------------

                    Total operating expenses             2,002,011     3,241,483     3,362,288
                                                       ---------------------------------------

                    Loss from operations                (2,331,530)   (3,154,893)   (2,802,398)
                                                       ---------------------------------------

Other income (expense):
    Interest income                                         62,337       112,671       163,986
    Interest expense                                       (10,991)      (92,314)     (204,203)
    Costs associated with Bridge Financing                      --      (864,735)           --
    Other, net                                            (115,758)       39,331       (62,271)
                                                       ---------------------------------------
                                                           (64,412)     (805,047)     (102,488)
                                                       ---------------------------------------

                    Net loss                           $(2,395,942)   (3,959,940)   (2,904,886)
                                                       =======================================


Net loss per share                                     $      1.29          1.84          0.74
                                                       =======================================

Weighted average common shares and common 
equivalent shares outstanding                            1,863,995     2,154,955     3,948,054
===============================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.

                                       24

<PAGE>



                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             March 31, 1996 and 1997


================================================================================
                                                        1996             1997
--------------------------------------------------------------------------------
                      Assets
                      ------

Current assets:
    Cash                                            $  1,082,419        118,573
    Restricted cash                                    2,701,350      2,694,671
    Accounts receivable, less allowance for
    doubtful accounts of $108,966 in 1996 and
    $91,694 in 1997                                      280,678        625,085
    Inventories                                        1,808,992      2,432,583
    Prepaid expenses                                     122,724         19,041
                                                    ---------------------------

                   Total current assets                5,996,163      5,889,953


Equipment, net                                           196,907        251,503
Intangible assets, net                                   276,084        238,146
Other assets                                                  --          8,935
                                                    ---------------------------

                                                    $  6,469,154      6,388,537
                                                    ===========================

       Liabilities and Stockholders' Equity
       ------------------------------------

Current liabilities:
    Accounts payable                                     351,312      1,029,418
    Accrued liabilities                                   78,970        137,092
    Line of credit                                     2,500,000      2,500,000
    Notes payable to related parties                          --        571,300
    Current portion of lease obligations                  11,550         13,046
    Current portion of long-term debt                     13,206         12,126
                                                    ---------------------------

                Total current liabilities              2,955,038      4,262,982


Lease obligations, less current portion                    5,931         24,868
Long-term debt, less current portion                      16,781          5,485
                                                    ---------------------------
                Total liabilities            
                                                       2,977,750      4,293,335
                                                    ---------------------------

Stockholders' equity:
    Preferred stock, no shares outstanding                    --             --
    Common stock, 3,678,208 and
    4,125,375 shares outstanding at
    March 31, 1996 and 1997, respectively                 36,782         41,254
    Additional paid-in capital                        11,180,899     12,685,111
    Accumulated deficit                               (7,726,277)   (10,631,163)
                                                    ---------------------------

               Total stockholders' equity              3,491,404      2,095,202

Commitments, contingencies and subsequent events
--------------------------------------------------------------------------------
                                                    $  6,469,154      6,388,537
================================================================================
See accompanying notes to consolidated financial statements.

                                       25
<PAGE>


                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                    Years ended March 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>
===========================================================================================================================

                                                                                                                   Total
                                                          Common stock         Additional                          stock-
                                                   ----------------------       paid-in        Accumulated        holders'
                                                    Shares        Amount        capital          deficit           equity
---------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>           <C>             <C>               <C>      
Balance at March 31, 1994                          1,814,037      $18,140       4,043,833       (1,370,395)       2,691,578

Issuance of common stock for cash on exercise
         of warrants                                 145,838        1,458         781,060               --          782,518
Issuance of common stock for settlement
         of debt                                      15,000          150         151,205               --          151,355
Capital contributions by stockholders                     --           --          80,183               --           80,183
Net loss                                                  --           --              --       (2,395,942)      (2,395,942)
                                                   ------------------------------------------------------------------------

Balance at March 31, 1995                          1,974,875       19,748       5,056,281       (3,766,337)       1,309,692

Issuance of common stock for cash on
         exercise of warrants                         36,666          367          21,162               --           21,529
Issuance of common stock and warrants for
         cash on private placement, net of
         $697,986 of issuance costs                1,666,667       16,667       5,690,456               --        5,707,123
Fair value of warrants issued with Bridge
         Financing                                        --           --         413,000               --          413,000
Net loss                                                  --           --              --       (3,959,940)      (3,959,940)
                                                   ------------------------------------------------------------------------

Balance at March 31, 1996                          3,678,208       36,782      11,180,899       (7,726,277)       3,491,404

Issuance of common stock for cash on
         exercise of warrants                        447,167        4,472       1,504,212               --        1,508,684
Net loss                                                  --           --              --       (2,904,886)      (2,904,886)
---------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997                          4,125,375      $41,254      12,685,111      (10,631,163)       2,095,202
===========================================================================================================================

<CAPTION>
                          1995                                     1996                                      1997
                 -----------------------                  ------------------------                  -----------------------
                 Preferred    Common                      Preferred     Common                      Preferred     Common 
                   stock       stock                        stock        stock                        stock        stock
                 ---------  ------------                  ---------   ------------                  ---------   -----------
<S>              <C>          <C>                         <C>           <C>                         <C>          <C>       
Par value            $0.01         $0.01 Par value            $0.01          $0.01  Par value           $0.01         $0.01
Authorized       1,000,000    25,000,000 Authorized       1,000,000     75,000,000  Authorized      1,000,000    75,000,000
Issued                  --     1,974,875 Issued                  --      3,678,208  Issued                 --     4,125,375
Outstanding             --     1,974,875 Outstanding             --      3,678,208  Outstanding            --     4,125,375
</TABLE>

================================================================================

See accompanying notes to consolidated financial statements.
  
                                     26
<PAGE>


                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended March 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>
=====================================================================================================================
                                                                                1995          1996          1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>           <C>      
Cash flows from operating activities:
    Net loss                                                                $(2,395,942)   (3,959,940)   (2,904,886)
    Adjustments to reconcile net loss to net cash used in
    operating activities:
             Amortization and depreciation                                       80,372       107,170       127,821
             Loss on disposal of equipment                                           --        11,819            --
             Deemed interest on Bridge Financing                                     --       413,000            --
             Write-off of deferred financing costs                                   --       162,737            --
             Change in operating assets and liabilities:
                 Increase in accounts receivable                               (136,019)     (114,828)     (344,407)
                 Increase in inventories                                     (1,061,203)     (584,502)     (623,591)
                 Decrease (increase) in prepaid expenses                       (236,978)      117,860       103,683
                 Increase (decrease) in accounts payable                        554,322      (394,703)      609,257
                 Increase (decrease) in accrued liabilities                      97,821       (86,642)       58,122
                 Increase in other assets                                            --            --        (8,935)
                                                                            ---------------------------------------
                      Net cash used in operating activities                  (3,097,627)   (4,328,029)   (2,982,936)
                                                                            ---------------------------------------

Cash flows from investing activities:
    Capital expenditures                                                       (200,494)      (46,264)      (43,555)
    Acquisition of intangible assets                                            (21,066)       (5,688)           --
    Proceeds from disposition of equipment                                           --         4,214            --
    Proceeds on disposition of long-term investment                             765,365            --            --
                                                                            ---------------------------------------
                      Net cash provided by (used in) investing activities       543,805       (47,738)      (43,555)
                                                                            ---------------------------------------

Cash flows from financing activities:
    Proceeds from issuance of common stock and capital 
      contributions                                                             862,701     5,728,652     1,508,684
    Payment of financing costs                                                 (162,737)           --            --
    Decrease (increase) in restricted cash                                           --    (2,701,350)        6,679
    Proceeds from line of credit, secured promissory note and
      Bridge Financing                                                               --     7,500,000            --
    Repayment of secured promissory note and Bridge Financing                        --    (5,000,000)           --
    Proceeds from long-term debt                                                 49,645            --        25,998
    Repayment of long-term debt                                                  (9,061)      (10,597)      (38,374)
    Proceeds from notes payable to related parties                                   --            --       571,300
    Repayment of notes payable to stockholders                                   (6,776)           --            --
    Repayment of lease obligations                                              (12,064)      (10,690)      (11,642)
    Proceeds from short-term loans                                              250,000            --            --
    Repayment of short-term loan                                                     --      (250,000)           --
                                                                            ---------------------------------------
                      Net cash provided by financing activities                 971,708     5,256,015     2,062,645
                                                                            ---------------------------------------

                      Increase (decrease) in cash                            (1,582,114)      880,248      (963,846)

Cash at beginning of year                                                     1,784,285       202,171     1,082,419
                                                                            ---------------------------------------
Cash at end of year                                                         $   202,171     1,082,419       118,573
                                                                            =======================================
Supplemental disclosure of cash flow information - cash paid
during the year for interest                                                $    10,991        92,314       168,401
                                                                            =======================================
Supplemental schedule of noncash investing and financing activities:
         Capital expenditures included in accounts payable at end of year   $        --            --        68,849
         Assets acquired through capital leases                                   7,968            --        32,075
         Issuance of common stock for settlement of debt                        151,355            --            --
=====================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>


                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                             March 31, 1996 and 1997

================================================================================

(1)  Description of Business and Basis of Presentation

     (a)  Description of Business

          Caring Products International, Inc. (CPI) is organized under the laws
          of the State of Delaware. CPI's business is the marketing of
          proprietary urinary incontinence products for adults and children over
          the age of four.

     (b)  Basis of Presentation

          These consolidated financial statements are prepared in accordance
          with generally accepted accounting principles (GAAP) in the U.S. and
          present the financial position, results of operations and changes in
          financial position of CPI and its wholly-owned subsidiaries
          (collectively, the "Company"). All material intercompany balances and
          transactions have been eliminated in consolidation.

(2)  Summary of Significant Accounting Policies

     (a)  Restricted Cash

          Restricted cash includes a short-term certificate of deposit of
          $2,500,000 at March 31, 1996 and 1997 which is held as security
          against the line of credit. In addition, $201,350 and $194,671 of
          short-term Canadian government securities included in restricted cash
          are held as collateral for guarantees made by the Company at March 31,
          1996 and 1997, respectively.

     (b)  Inventories

          Inventories are stated at the lower of cost, as determined by the
          first-in, first-out method, or market (replacement cost for raw
          materials and packaging and net realizable value for finished goods).

     (c)  Equipment

          Equipment is stated at cost. Equipment under capital leases is stated
          at the lower of the fair market value of the assets or the present
          value of minimum lease payments at the inception of the leases.

          Depreciation is calculated using the straight-line method over the
          estimated useful lives of the assets ranging from 2 to 5 years.
          Equipment held under capital leases is amortized using the
          straight-line method over the shorter of the estimated useful lives of
          the assets or the lease terms, ranging from 2 to 5 years.

          Expenditures for maintenance and repairs are charged to expense as
          incurred. Upon sale or retirement, the cost and related accumulated
          depreciation or amortization are removed from the accounts and any
          resulting gain or loss is reflected in other income or expense.

                                                                     (Continued)

                                       28
<PAGE>
 

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

     (d)  Intangible Assets

          Intangible assets, representing technology purchased and costs of
          patents and trademarks, are stated at cost. Amortization is recorded
          using the straight-line method over the assets' estimated useful lives
          which do not exceed 10 years.

     (e)  Revenue Recognition

          The Company recognizes revenue and establishes provisions for
          estimated product returns when its products are shipped to customers.
          Products of the Company held by various third party storage and
          delivery companies are not recognized in revenue, but are included in
          inventory.

     (f)  Marketing and Advertising

          The Company recognizes the production costs of advertising in the
          period the services are provided. Costs related to one-time listing
          allowances (slotting fees) to enter large, retail chains are expensed
          as incurred.

     (g)  Research and Development

          Research and development costs are expensed as incurred.

     (h)  Foreign Currency Translation

          The Company considers the U.S. dollar to be its functional currency.
          The Company has a wholly-owned subsidiary, located in Canada, which is
          a direct and integral extension of the Company. Accordingly,
          transactions by the subsidiary denominated in Canadian dollars are
          re-measured at the exchange rates in effect at the date of the
          transaction. At each balance sheet date, monetary balances denominated
          in currencies other than the U.S. dollar are re-measured using current
          exchange rates.

          Gains and losses resulting from foreign currency transactions are
          included in other, net in the consolidated statements of operations.
          Gains and losses arising from these transactions for each of the years
          ended March 31 include a loss of $115,755 for 1995, a gain of $51,150
          for 1996 and a loss of $44,367 for 1997.

     (i)  Income Taxes

          The Company follows the asset and liability method of accounting for
          income taxes. Under the asset and liability method of accounting for
          income taxes, deferred tax assets and liabilities are recognized based
          on the estimated future tax consequences attributable to differences
          between the financial statement carrying amounts of existing assets
          and liabilities and their respective tax bases. Deferred tax assets
          and liabilities are measured using enacted tax rates in effect for the
          year in which those temporary differences are expected to be recovered
          or settled. The effect on deferred tax assets and liabilities of a
          change in tax rates is recognized in income in the period that
          includes the enactment date.

                                                                     (Continued)

                                       29
<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

     (j)  Net Loss Per Share

          Net loss per share is computed based on the weighted average number of
          shares of common stock and common stock equivalents outstanding during
          the year. Common stock equivalents include all warrants and stock
          options which would have a dilutive effect, applying the treasury
          stock method.

     (k)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
          Of

          The Company adopted the provisions of SFAS No. 121, Accounting for the
          Impairment of Long-Lived Assets and for Long-Lived Assets to Be
          Disposed Of, during 1997. This statement requires that long-lived
          assets and certain identifiable intangibles be reviewed for impairment
          whenever events or changes in circumstances indicate that the carrying
          amount of an asset may not be recoverable. Recoverability of assets to
          be held and used is measured by a comparison of the carrying amount of
          an asset to future net cash flows expected to be generated by the
          asset. If such assets are considered to be impaired, the impairment to
          be recognized is measured by the amount by which the carrying amount
          of the assets exceed the fair value of the assets. Assets to be
          disposed of are reported at the lower of the carrying amount or fair
          value less costs to sell. Adoption of this Statement did not have a
          material impact on the Company's financial position, results of
          operations, or liquidity.

     (l)  Stock-Based Compensation

          The Company adopted the provisions of SFAS No. 123, Accounting for
          Stock-Based Compensation, during 1997. This statement permits a
          company to choose either a new fair-value-based method or the
          Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
          Issued to Employees, intrinsic-value based method of accounting for
          stock-based compensation arrangements. SFAS No. 123 requires pro forma
          disclosures of net income and earnings per share computed as if the
          fair-value-based method had been applied in financial statements of
          companies that continue to account for such arrangements under APB
          Opinion No. 25. The Company has elected to continue to record
          stock-based compensation using the APB Opinion No. 25
          intrinsic-value-based method and, therefore, the adoption of SFAS No.
          123 has not impacted the Company's financial position, results of
          operations, or liquidity.

     (m)  Use of Estimates

          The preparation of consolidated financial statements in conformity
          with generally accepted accounting principles requires management to
          make estimates and assumptions that affect the reported amounts of
          assets and liabilities and disclosure of contingent assets and
          liabilities at the date of the financial statements and the reported
          amounts of revenues and expenses during the reporting period. Actual
          results could differ from those estimates.


     (n)  Reclassifications

          Certain of the 1995 and 1996 balances have been reclassified to
          conform with the 1997 presentation in accordance with U.S. GAAP.

                                                                     (Continued)

                                       30
<PAGE>


                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

     (3)  Liquidity

          The Company has experienced net losses since its inception and has an
          accumulated deficit of $10,631,163 at March 31, 1997. Management is
          presently taking actions to improve operations and obtain additional
          debt and equity financing.

          On April 7, 1997, the Company signed a letter of intent to proceed
          with a public offering. The offering is presently contemplated to
          consist of units which are exercisable for one share of the Company's
          common stock and a five-year warrant to purchase one additional share
          at a price equivalent to 150% of the unit price. There can be no
          assurance that this offering will be successful.

     (4)  Concentration of Risk

          The Company maintains cash equivalents with various financial
          institutions located in the U.S. and Canada. The Company's policy is
          to limit the exposure at any one financial institution and to invest
          solely in highly liquid investments that are readily convertible to
          cash.

          The Company sells its products to various customers located in the
          U.S. and Canada. The Company performs ongoing credit evaluations of
          its customers' financial condition, and generally requires no
          collateral as security against accounts receivable. Total sales to
          Canadian customers represented approximately 25% of total revenues for
          the year ended March 31, 1997.

          Approximately 33% of the Company's revenues were from two customers
          during the year ended March 31, 1997. During each of the years ended
          March 31, 1995 and 1996, one customer accounted for approximately 15%
          of revenues.

          At March 31, 1997, one customer accounted for approximately 84% of the
          net accounts receivable balance, as the result of an initial purchase
          near the Company's year-end.

          The Company currently purchases its products from a limited number of
          suppliers, some of which are located in Canada or Mexico. As there are
          many manufacturers of products similar to the Company's products,
          management believes that other suppliers could provide the Company's
          products on comparable terms. Management does not believe a change in
          suppliers would cause a significant delay in obtaining sufficient
          product quantities or result in a significant loss of sales.

                                                                     (Continued)

                                       31
<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================
(5)  Inventories

     Inventories at March 31 consist of the following:

                                                         1996            1997
                                                      --------------------------

            Finished goods                            $1,489,407       1,848,802
            Raw materials                                223,856         553,466
            Packaging                                     95,729          30,315
                                                      --------------------------
                                                      $1,808,992       2,432,583
                                                      ==========================

(6)  Equipment

     Equipment at March 31 consists of the following:

                                                         1996            1997
                                                      --------------------------

            Computer equipment                        $  101,467         103,592
            Office equipment                              39,559          43,795
            Plant equipment                              128,208         234,251
            Leasehold improvements                         5,670           5,670
            Capital lease:
                  Plant equipment                         36,950          36,950
                  Office equipment                         8,001          40,076
                                                      --------------------------
                                                         319,855         464,334
               Less accumulated depreciation and
               amortization                              122,948         212,831
                                                      --------------------------
                             Net equipment            $  196,907         251,503
                                                      ==========================

(7)  Intangible Assets

     Intangible assets at March 31 consist of the following:


                                                         1996            1997
                                                      --------------------------

            Purchased technology                      $  250,000         250,000
            Patents and trademarks                       127,088         127,088
                                                      --------------------------
                                                         377,088         377,088
               Less accumulated amortization             101,004         138,942
                                                      --------------------------
                             Net intangible assets    $  276,084         238,146
                                                      ==========================

                                                                     (Continued)

                                       32
<PAGE>
 

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================
(8)  Related Parties


     At March 31, 1997, accounts payable included $68,849 in payables to related
     parties.

     During the year ended March 31, 1997, the Company purchased $106,043 in
     plant equipment from and paid approximately $72,000 in consulting fees to
     related parties.

(9)  Line of Credit

     The Company has a $2,500,000 line of credit with a bank expiring August
     1997. Borrowings under the line of credit bear interest at a fixed rate of
     6.91%. The line of credit is secured by a $2,500,000 certificate of
     deposit.

     In April 1997, the Company obtained an additional line of credit with a
     bank in the amount of Cdn. $1,750,000 (U.S. $1,263,812 at March 31, 1997).
     Borrowings under the line of credit are due on demand and bear interest at
     the Canadian prime rate plus .25% (5.0% at March 31, 1997). The line of
     credit is secured by a guarantee from a related party of the Company. The
     guarantor will receive 126,667 warrants, each for one share of the
     Company's common stock. The warrants are exercisable at $1.86 per share
     until April 15, 1999. The value of the warrants will be recorded as debt
     discount and amortized to interest expense over the period that the debt is
     outstanding.

(10) Notes Payable to Related Parties 

     Notes payable to related parties at March 31, 1997 are unsecured and
     consist of the following:

          Note payable, interest at 6.75%; interest and principal
          payable on demand                                            $ 205,000

          Note payable, interest at 10% increasing to 20% if
          principal is not paid at maturity; interest payable on
          demand and principal due February 1997                         200,000

          Note payable, interest at Canadian prime rate plus 2%
          (6.75% at March 31, 1997); interest and principal
          payable on demand                                              100,000

          Note payable, interest at 12%; interest payable on
          demand and principal due March 1997                             37,500

          Notes payable, interest at 12%; interest and principal
          payable on demand                                               28,800
                                                                       ---------

          Total notes payable to related parties                       $ 571,300
                                                                       =========

     In April 1997, outstanding principal balances payable to related parties of
     $366,300 were repaid using the proceeds received from the additional line
     of credit.

     In May 1997, the Company obtained an additional note payable from a related
     party in the amount of $1,250,000. Interest on the note payable is payable
     monthly at the Canadian prime rate plus 3% (7.75% at March 31, 1997).
     Principal is payable in full in May 1998.

                                                                     (Continued)

                                       33
<PAGE>
 

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

(11) Long-Term Debt

     Long-term debt at March 31, 1996 consisted of a loan in the original
     principal amount of Cdn. $70,000 (U.S. $49,645). During 1997, the Company
     refinanced the outstanding balance of the loan. Under the refinancing, the
     loan is payable in equal monthly installments of Cdn. $1,767 (U.S. $1,155
     at March 31, 1997), including interest at the Canadian prime rate plus 1%
     (5.75% at March 31, 1997).

     Scheduled principal maturities of long-term debt at March 31, 1997 are as
     follows for each of the following fiscal year-ends:

                        1998                         $12,126
                        1999                           5,485
                                                     ------- 
                                                     $17,611
                                                     =======

     The loan is secured by the Company's equipment and accounts receivable.

(12) Capital Leases

     The Company leases equipment under capital lease agreements that expire
     through January 2002. Aggregate minimum payments to be made under these
     agreements at March 31, 1997 are as follows for each of the following
     fiscal year-ends:

                1998                                 $14,058
                1999                                   8,076
                2000                                   8,076
                2001                                   8,076
                2002                                   7,598
                                                     ------- 
                                                      45,884

                  Less amounts representing interest 
                  at rates ranging from 9% to 11% 
                  at March 31, 1997                    7,970
                                                     -------
                                                     $37,914
                                                     =======

     At March 31, 1997, a capital lease for plant equipment is secured by a
     letter of credit in the amount of $20,000 which may be reduced by $10,000
     per annum subject to the lessor's prior consent.

                                                                     (Continued)

                                       34
<PAGE>



                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

(13) Operating Leases

     The Company leases office facilities and certain equipment under operating
     lease agreements that expire through November 2000. Aggregate minimum
     rental payments on operating leases as of March 31, 1997 are as follows for
     each of the following fiscal year-ends:

                    1998                           $ 90,530
                    1999                             92,484
                    2000                             92,790
                    2001                             33,557
                                                   --------
                                                   $309,361
                                                   ========

     Total rent expense for operating leases during the years ended March 31,
     1995, 1996 and 1997 amounted to $34,758, $80,657 and $134,176,
     respectively.

(14) Stockholders' Equity

     (a)  Bridge Financing

          In 1995, the Company completed an offering of convertible promissory
          notes (Notes) to raise $2,500,000 (Bridge Financing) to provide
          interim financing pending the completion of a proposed private
          placement (Private Placement).

          The Bridge Financing consisted of fifty Units, each comprised of one
          12% $50,000 Note and one common share purchase warrant to purchase
          1,167 common shares of the Company. If the Private Placement had been
          completed prior to September 28, 1995, the investors in the Bridge
          Financing would have received another common share purchase warrant
          entitling the holders to purchase an additional 2,167 common shares
          per Unit at $0.30 in year one and at $0.60 in year two. Under their
          terms, the Notes matured on the earlier of September 29, 1995 or ten
          days following the completion of the Private Placement or a private
          placement in substitution thereof.

          The warrants were recorded on issuance at their estimated fair value
          of $413,000 with a corresponding reduction in the recorded value of
          the Notes, resulting in deemed interest expense of $413,000 which is
          included in costs associated with Bridge Financing in the consolidated
          statements of operations. In addition, a finder's fee of $250,000 was
          paid in connection with the Bridge Financing and is also included in
          costs associated with Bridge Financing in the consolidated statements
          of operations, upon refinancing. The balance of the costs associated
          with Bridge Financing relates to interest and other costs incurred by
          the Company that are specifically attributable to the Bridge
          Financing.

          All warrants issued in conjunction with the Bridge Financing were
          exercised prior to March 31, 1997.

                                                                     (Continued)
                                       35

<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

          On September 28, 1995, the Company completed a short-term loan with an
          unrelated party consisting of a $2,500,000 secured promissory note and
          warrants to purchase 46,865 common shares of the Company at a price of
          Cdn. $7.20 per share until October 1, 1997. The proceeds of the
          secured promissory note were used to repay the Notes. Subsequently,
          the secured promissory note was repaid in October 1995 by funds from
          the revolving line of credit.

     (b)  Private Placement

          On October 5, 1995, pursuant to a warrant indenture made as of the
          same date, the Company sold 1,666,667 Units at a price of Cdn. $5.265
          (approximately U.S. $3.90) per Unit. Upon exercise or deemed exercise
          by the holders, each Unit was exchanged for one common share of the
          Company and one-half of one Share Purchase Warrant without additional
          consideration. Each whole Share Purchase Warrant entitles the holder
          to acquire one common share of the Company at a price of Cdn. $4.86 at
          any time until October 5, 1996, or at anytime thereafter until October
          5, 1997 at the price of Cdn. $5.67. As consideration for services
          rendered, the transaction agent was paid $562,500 in addition to
          133,333 whole Share Purchase Warrants which have the same terms as the
          warrants discussed above.

     (c)  Warrants

          At March 31, 1997, the Company had warrants outstanding to purchase
          common shares as follows:

             Warrants issued in conjunction with the Private
                  Placement whereby one warrant entitles the
                  holder to purchase one share at Cdn. $5.67
                  until October 5, 1997                                  542,833
             
             Warrants issued pursuant to the second short-term
                  loan whereby one warrant entitles the holder
                  to purchase one share at Cdn. $7.20 until
                  October 1, 1997                                         46,865
                                                                         -------
                       Total warrants outstanding at March 31, 1997      589,698
                                                                         =======
          
     (d)  Reverse Stock Split

          In June 1997, the Company completed a one for six reverse stock split
          of its issued and outstanding common stock. These consolidated
          financial statements have been restated to reflect the reverse stock
          split.

                                                                     (Continued)

                                       36
<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

(15) Employee Benefit Plans

     (a)  Retirement Plan

          In March 1997, the Company established a 401(k) savings and retirement
          plan covering all full time employees who are at least 21 years of age
          and have at least three months of service. Under the plan, employees
          may defer up to 15% of their pretax salary, but not more than the
          statutory limits. The Company did not match employee contributions to
          the plan for the year ended March 31, 1997.

     (b)  Stock Option Plans

          As of March 31, 1997, the Company had two stock option plans which are
          described below. The Company applies APB Opinion No. 25 and related
          interpretations in accounting for its plans. Accordingly, no
          compensation cost has been recognized for its stock option awards. Had
          compensation cost for the Company's stock option awards been
          determined consistent with SFAS No. 123, the Company's net loss would
          have been increased to the pro forma amounts indicated below:

                                                  1996             1997
                                               ---------------------------
                    Net loss:                 
                        As reported            $3,959,940        2,904,886
                        Pro forma               4,489,512        3,228,949
                                              
                    Net loss per share:       
                        As reported            $     1.84             0.74
                        Pro forma                    2.08             0.82
                                          
          The fair value of option grants is estimated using the Black-Scholes
          option pricing model with the following weighted average assumptions
          used for grants in fiscal years 1996 and 1997: expected volatility of
          55%; risk free interest rate of 6.50%; expected lives of four years;
          and a zero percent dividend yield.

          A summary of the plans is as follows:

          o    1993 Incentive Program: Under the 1993 Incentive Program, as
               amended and restated, 348,668 shares of common stock plus 10% of
               any increase in the number of shares of common stock issued and
               outstanding from the date of the program agreement to the date
               the program was formally adopted by the Company's Board of
               Directors are available for grant to eligible employees and
               consultants of the Company. The aggregate fair market value of
               stock which becomes exercisable by an individual grantee pursuant
               to the plan is limited to $100,000 in any calendar year.

                                                                     (Continued)

                                       37
<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

               Stock options under the 1993 Incentive Program vest immediately
               for individuals on the Board of Directors of the Company, after
               two years of service for all employees, and after two years of
               affiliation with the Company for consultants. All stock options
               have a maximum term of five years from the date of grant. Stock
               options are granted at an exercise price equal to the ten-day
               trading average of the Company's common stock as determined by
               the Company's Board of Directors and approved by the Vancouver
               Stock Exchange.

               In November 1996, the Company's Board of Directors resolved that
               no additional stock options would be granted under the 1993
               Incentive Program. At March 31, 1997, 358,933 stock options
               remain outstanding under the 1993 Incentive Program.

          o    1996 Incentive Program: Under the 1996 Incentive Program, 833,333
               shares of common stock plus any shares forfeited under the 1996
               and 1993 Incentive Programs, shares purchased by the Company on
               the open market and shares surrendered to the Company in payment
               of the exercise price of stock options issued under the 1996 and
               1993 Incentive Programs are available for grant to eligible
               employees and consultants of the Company. No award may be granted
               which will result in the awards outstanding under the plan to be
               more than 25% of the total number of shares the Company has
               outstanding.

               Stock options under the 1996 Incentive Program vest immediately
               for individuals on the Board of Directors of the Company, after
               two years of service for all employees, and after two years of
               affiliation with the Company for consultants. All stock options
               have a maximum term of five years from the date of grant. Stock
               options are granted at an exercise price equal to the ten-day
               trading average of the Company's common stock as determined by
               the Company's Board of Directors and approved by the Vancouver
               Stock Exchange.

               At March 31, 1997, 212,000 stock options are outstanding and
               262,400 are available for future grant under the 1996 Incentive
               Program.

                                                                     (Continued)

                                       38
<PAGE>

                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

               A summary of the Company's stock option plans as of March 31 and
               changes during the year ended on those dates is presented below:

<TABLE>
<CAPTION>
                                                          1995                  1996                1997
                                                   -------------------  --------------------  --------------------
                                                             Weighted-             Weighted-             Weighted-
                                                              average               average               average
                                                             exercise              exercise              exercise      
                 Stock options                      Shares     price      Shares     price     Shares      price
               ------------------------------      ---------------------------------------------------------------
<S>                                                <C>         <C>       <C>         <C>       <C>         <C>  
               Balances at beginning of year       129,817     $7.50     114,000     $7.50     344,266     $4.92

               Granted                                  --        --     410,266      4.92     280,333      3.00
               Canceled                                 --        --    (114,000)     7.50          --        --
               Forfeited                           (15,817)     7.50     (66,000)     4.92     (53,667)     4.62
                                                   -------               -------               -------          

               Outstanding at end of year          114,000      7.50     344,266      4.92     570,932      4.02
                                                   =======               =======               =======          

               Options exercisable at year-end     107,333      7.50     267,600      4.92     476,267      4.20

               Weighted-average fair value of
               options granted during the year                                       $2.16                 $1.26
</TABLE>

               In March 1996, the Company modified the exercise price on 114,000
               stock options granted in February 1994 from $7.50 to $4.92

               The following is a summary of stock options outstanding at March
               31, 1997:

                                             Options outstanding
                                -----------------------------------------------
                                              Weighted-average        Number 
                                   Number        remaining          of options
               Exercise prices  outstanding   contractual life      exercisable
               ---------------  -----------------------------------------------
                   $ 4.92         299,766           3.50             296,767
                     3.00         271,166           4.69             179,500

               In April 1997, the Company granted 15,833 stock options at an
               exercise price of $3.00 and 4,167 stock options at an exercise
               price of $6.00. The options are exercisable on various dates
               between April 1997 and June 1999.

(16) Income Taxes

     The Company had net deferred tax assets, primarily consisting of net
     operating loss carryforwards, of approximately $2,482,000 and $3,468,000
     for the years ended March 31, 1996 and 1997, respectively. Total U.S.
     Federal net operating loss carryforwards of approximately $6,300,000 at
     March 31, 1997 expire in the years 2009 to 2012. Total Canadian operating
     loss carryforwards of approximately $3,900,000 expire in the years 2009 to
     2012.

                                                                     (Continued)

                                       39
<PAGE>
 
                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

================================================================================

     The Company has not recorded an income tax benefit in 1995, 1996 and 1997
     due to the recording of a valuation allowance as an offset to the net
     deferred tax assets. A valuation allowance is provided due to uncertainties
     relating to the realization of the deferred tax assets.

     The utilization of net operating loss carryforwards may be limited due to
     ownership changes that have occurred as a result of the sale of common
     stock.

(17) Fair Value of Financial Instruments

     The Company's financial instruments include cash, receivables, accounts
     payable and short- and long-term borrowings. The fair value of these
     financial instruments approximates their carrying amounts based on current
     market indicators, such as prevailing interest rates.

(18) Litigation

     The Company is subject to various claims and contingencies related to
     lawsuits, taxes and other matters arising in the normal course of business.
     Management believes the ultimate liability, if any, arising from such
     claims or contingencies is not likely to have a material adverse effect on
     the Company's results of operations or financial condition.

(19) Geographic Information

     The Company operates in one industry: the marketing of proprietary urinary
     incontinence products for adults and children over the age of four. A
     summary of the Company's operations by geographic area follows:

                                                   Year ended March 31
                                             -----------------------------
                                                1996                1997
                                             -----------------------------

             Revenues:
                U.S                          $  914,311          1,916,263
                Canada                          204,175            371,234
                                             -----------------------------

                       Total revenues        $1,118,486          2,287,497
                                             =============================

                                                   Year ended March 31
                                             -----------------------------
                                                1996                1997
                                             -----------------------------
             Net loss:
                U.S                          $2,954,312          2,082,450
                Canada                        1,005,628            822,436
                                             -----------------------------
                       Total net losses      $3,959,940          2,904,886
                                             =============================

                                                                     (Continued)

                                       40
<PAGE>


                       CARING PRODUCTS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

 
                                                        March 31
                                             -----------------------------
                                                1996                1997
                                             -----------------------------

             Assets:
                U.S                          $3,015,807          4,939,873
                Canada                        3,453,347          1,448,664
                                             -----------------------------

                       Total assets          $6,469,154          6,388,537
                                             =============================

                                                         March 31
                                             -----------------------------
                                                1996                1997
                                             -----------------------------


       Net assets of Canadian subsidiary     $4,245,524          1,340,171
                                             =============================

                                       41

<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.

     The following table sets forth information concerning the directors and
executive officers of the Company as of July 4, 1997:

          Name                        Age                      Position
---------------------------           ---             --------------------------
William H.W. Atkinson(1)(2)            54             Chairman of the Board and 
                                                      Chief Executive Officer
                                    
Susan A. Schreter(1)                   36             President, Director
                                    
Anthony A. Cetrone (1)(3)              68             Director
                                    
Michael M. Fleming (2)(3)              48             Director
                                    
Paul Stanton (2)                       59             Vice Chairman of the Board
                                 
----------

(1)  Member of the Executive Committee.
(2)  Member of the Audit Committee.
(3)  Member of the Compensation Committee.

     The Company's by-laws provide that the size of the Board of Directors shall
initially be fixed by the Incorporator, and thereafter may be changed by
resolution of the Board. The Company's Board of Directors currently is fixed at
eight members, and there are three vacancies. Members of the Board serve until
the next annual meeting of stockholders and until their successors are elected
and qualified. Meetings of the Board are held when and as deemed necessary or
appropriate, but the Board has two regularly scheduled meetings per year.
Officers are appointed by and serve at the discretion of the Board. There are no
family relationships among any of the Company's officers and directors.

     William H.W. Atkinson co-founded the Company in November 1992 and has been
Chairman of the Board since inception. He became the Company's Chief Executive
Officer in May 1994. Since January 1994, Mr. Atkinson also has served as the
Chairman of the Board of Caring Products Industries, Inc., Burnaby, British
Columbia, a subsidiary of the Company that engages in health care product
manufacturing and distribution. From September 1987 through April 1994, Mr.
Atkinson was Vice-Chairman and a Trustee of Mercer International, Vancouver,
British

                                       42
<PAGE>


Columbia, a NASDAQ-traded company with interests in the financial services,
natural resources and pulp and paper businesses in Europe.

     Susan A. Schreter co-founded the Company in November 1992 and has served as
President since inception. From July 1985 to December 1992, she was founder and
President of Beta International Inc., New York, New York, a firm providing
consulting services to growing companies, private business investors and buy-out
funds in the areas of acquisition due diligence, cash flow planning, strategic
business planning and capital investment.

     Anthony A. Cetrone, a director of the Company since September 1993, has
been President and Chief Executive Officer of Micron Medical Products ("Micron
Medical"), Fitchburg, Massachusetts, a medical products company, since April
1988. Micron Medical has been a subsidiary of Arrhythmia Research Technology,
Inc., Austin, Texas, a company that manufactures cardiological medical products
("Arrhythmia Research") since November 1992. Since June 1990, he has also served
as Chairman of the Board of Micron Medical. From January 1993 to February 1995,
Mr. Cetrone also served as the President, Chief Executive Officer and a director
of Arrhythmia Research from November 1992 to March 1995, and has served as
Chairman of the Board of Arrhythmia Research since October 1996.

     Michael M. Fleming has been affiliated with the law firm of Ryan, Swanson &
Cleveland, Seattle, Washington, since November 1992, where he has specialized in
real estate, dispute resolution, securities and environmental matters. He was
associated with the firm on an "of counsel" basis from November 1992 until
January 1996, at which time, he became a partner of the firm. Since July 1988,
Mr. Fleming has also served as the President and owner of Kidcentre, Inc., a
company in the business of providing child care services in Seattle, Washington.
Since April 1985, he has also been the President and owner of Fleming Investment
Co., Seattle, Washington, an investment company. In 1997, he was elected to the
Board of Directors of Urban Juice & Soda Co., a public company trading on the
Vancouver Stock Exchange and based in Vancouver, British Columbia. Mr. Fleming
was elected to the Company's Board of Directors in November 1992.

     Paul Stanton was elected to the Board of Directors in September 1996 and is
currently serving as Vice Chairman of the Board. He also has served as a
consultant to the Company since June 1996. Mr. Stanton has been employed by Paul
Stanton & Associates, which provides strategic analysis and consulting services
to product manufacturers and retail drug chains since June 1996. From February
1986 through June 1996, he was Vice President of General Merchandise and Drug
Store Merchandising of Pathmark, an east coast supermarket chain.

     In addition, it is contemplated that Dr. Herbert Sohn will be elected to
the Board of Directors of the Company in August 1997. Dr. Sohn currently serves
as Chief of Urology and Chief of the Combined Residency Program at the Louis A.
Weiss Memorial Hospital in Chicago. He is also a clinical associate professor of
surgery at the Abraham Lincoln School of Medicine at the University of Illinois.
A graduate of the Chicago Medical School, Dr. Sohn completed residencies in
urology and surgery at the University Hospitals of Cleveland. He also received a
Juris Doctorate degree from the John Marshall Law School.

                                       43

<PAGE>


Committees of the Board of Directors

     The Company's Board of Directors has established three committees:
Executive Committee, Compensation Committee and Audit Committee. The Board
appoints the members of the various committees and those members serve at the
discretion of the Board.

     The Executive Committee has been delegated the authority to exercise all
powers and authority of the Board of Directors in the management of the business
and affairs of the Company, including the right to authorize: (i) the purchase
of stock; (ii) adopt an agreement of merger or consolidation; (iii) recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Company's properties or assets; (iv) recommend to the stockholders a dissolution
of the Company or a revocation of dissolution; (v) amend the by-laws; or (vi)
authorize the declaration of a dividend. The Executive Committee meets at such
times as it deems appropriate.

     The Compensation Committee has been established to review and make
recommendations to the Board regarding the compensation to be paid by the
Company and its subsidiaries to their executive officers, key employees and
consultants, including, without limitation, the grant of incentive awards under
the Company's incentive program. See "Item 10. Executive Compensation- Stock
Option Plans." The Compensation Committee consists solely of independent
directors and meets at such times as it deems appropriate.

     The Audit Committee has been established to review and monitor the general
policies and practices of the Company and its subsidiaries with regard to
accounting, financial reporting, internal auditing and financial controls and to
serve as a channel of communication between the Board of Directors and the
Company's independent certified accountants. At least a majority of the Audit
Committee consists of independent directors. The Audit Committee meets at least
two times per year and at such other times as it deems appropriate.

Item 10.  Executive Compensation.

     Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company for the
three fiscal years ended March 31, 1995, 1996 and 1997 of the Company's Chief
Executive Officer and President (the "Named Executive Officers").


                                       44
<PAGE>


                           Summary Compensation Table*

                                                        Long-Term Compensation
                                                        ----------------------
              Annual Compensation                       Awards         Payouts  
              -------------------                       ------         -------  
                                                                                
Name and                                                              All Other 
Principal                         Salary     Bonus   Options/SARs   Compensation
Position              Year          ($)       ($)        (#)             ($)    
---------             ----       --------      --       ------         -------  
                                                                      
William H.W.          1997       $125,000      $0       54,333           $0
Atkinson              1996         96,000       0       44,300            0
  Chief               1995         96,000       0       29,333            0
  Executive                                                           
  Officer and                                                         
  Chairman                                                            
Susan A.                                                               
  Schreter            1997       $125,000      $0       54,333           $0
  President           1996         96,000       0       44,300            0
  and Chief           1995         96,000       0       29,333            0
  Operating                                                        
  Officer

*    Columns that were not relevant to the compensation paid to the Named
Executive Officers in the Summary Compensation Table were omitted.

     No employee of the Company receives any additional compensation for his or
her services as a director. Non-management directors receive no salary for their
services as such, but receive a fee of $2,000 for each meeting attended, and may
participate in the 1996 Incentive Program described below. The Board of
Directors has also authorized payment of reasonable travel or other
out-of-pocket expenses incurred by non-management directors in attending
meetings of the Board of Directors and committees thereof.

     The Company has no retirement, pension or profit sharing program for the
benefit of its directors, officers or other employees, but the Board of
Directors may recommend one or more such programs for adoption in the future.

     Employment Agreements. In December 1993, the Company entered into
three-year employment agreements with Mr. Atkinson and Ms. Schreter, the
Company's Chief Executive Officer and President, respectively. Both agreements
were subsequently amended as of March 1996. Each agreement may be terminated for
"cause" (as defined in the agreements) and under other circumstances set forth
in the agreements. Under the terms of the agreements, Mr. Atkinson and Ms.
Schreter are both entitled to receive an annual base salary of $125,000, or such
higher salary as may be approved by the Board of Directors from time to time.
Each year during the term of their agreements, Mr. Atkinson and Ms. Schreter are
entitled to receive stock options in an amount equal 


                                       45
<PAGE>


to at least 20% of the aggregate number of options offered under the Company's
option and incentive plans to all officers, key executives, directors,
professional or administrative employees or consultants or advisors, any of its
subsidiaries or any of its agents (as defined in the respective plans), or to
receive a cash payment to compensate for the shortfall in the event this
provision is not complied with. Mr. Atkinson and Ms. Schreter also are entitled
to participate in any bonus or profit sharing plan that may be adopted from time
to time by the Company, and to specified additional bonus payments and option
grants upon termination under certain specified circumstances. Upon a change in
control, as defined in the agreements, Mr. Atkinson and Ms. Schreter will be
entitled to receive, in addition to the other compensation and benefits due to
them, his or her then-effective base salary for a period of three years from the
date of termination, plus all benefits, other than the bonus and stock options
(or the value thereof), to which they would have been entitled had they
continued their employment. In addition, the agreements provide that Mr.
Atkinson and Ms. Schreter are entitled to receive all rights, privileges and
fringe benefits afforded to other senior executives of the Company and to
payment or reimbursement for reasonable expenses incurred in the performance of
his or her respective services under the agreement. The agreements also contain
confidentiality provisions.

     Option Grants. The following table shows, for the fiscal year ended March
31, 1997, certain information regarding options granted to the Named Executive
Officers.

                        Option Grants in Last Fiscal Year
                               (Individual Grants)

                         Number of
                        Securities    Percent to Total
                        Underlying   Options Granted to   Exercise   
                          Options       Employees in     Base Price   Expiration
      Name              Granted (#)    Fiscal Year (1)    ($/Share)      Date   
---------------------   -----------    ---------------    ---------      ----   
                                                                      
William H.W. Atkinson    54,333(2)          19.4%            $.50      11/13/01
Susan A. Schreter        54,333(2)          19.4%            $.50      11/13/01
                                                                        
                                                                    
----------

(1)  Based on options to purchase 280,333 shares of Common Stock granted to
     employees, including executive officers, in fiscal 1997.
(2)  The terms of such options are consistent with those of options granted to
     other employees under the Company's Stock Option Plans. The options vested
     immediately because of length of service. The Stock Option Plans contain
     provisions permitting the Board of Directors to, among other things,
     accelerate vesting of options in the event of a change in control of the
     Company.

     Fiscal Year-End Options/Option Values Table. The following table sets forth
information regarding exercises of stock options during the fiscal year ended
March 31, 1997 by the Named 


                                       46
<PAGE>


Executive Officers and the year-end value of exercised and unexercised options
by such Named Executive Officers.

       Aggregated Option/SAR Exercises in Fiscal Year Ended March 31, 1997
                      and Fiscal Year-End Option/SAR Values

                                                                     Value of   
                                                   Number of        Unexercised 
                                                  Unexercised      In-the-Money 
                                                   Options at       Options at  
                                                Fiscal Year End    Fiscal Year  
                         Shares       Value           (#)             End ($)   
                      Acquired on    Realized    Exercisable/      Exercisable/ 
      Name            Exercise (#)     ($)       Unexercisable     Unexercisable
-----------------     ------------   --------    -------------     -------------
                                                               
William H.W. Atkinson      0            $0      127,966(1)/0(2)     $0(1)/$0(2)
Susan A. Schreter          0             0      127,966(1)/0(2)     $0(1)/$0(2)
                                              
                                   
---------
(1)  Exercisable options.
(2)  Unexercisable options.


Stock Option Plans

     The Company's 1993 Incentive Program (the "1993 Stock Option Plan") was
adopted by the Board of Directors and approved by the Company's stockholders in
November 1993. The Company's 1996 Incentive Program (the "1996 Stock Option
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in November 1996. Pursuant to the terms of the 1996 Stock Option
Plan, no further awards will be made under the 1993 Stock Option Plan. The 1993
Stock Option Plan and the 1996 Stock Option Plan are sometimes collectively
referred to in this Form 10-KSB as the "Stock Option Plans." The Stock Option
Plans were adopted to provide a means by which selected officers, employees,
directors and consultants to the Company could be given an opportunity to
purchase stock in the Company. The purpose of the Stock Option Plans is to
promote the growth of the Company by enabling the Company to attract and retain
the best available persons for positions of substantial responsibility and to
provide certain key employees with additional incentives to contribute to the
success of the Company.

     Under the 1993 Stock Option Plan, 348,668 shares of Common Stock were
initially reserved for issuance. The 1993 Stock Option Plan further provides for
an increase of 10% of any increase in the number of shares issued and
outstanding over the number of shares outstanding on December 20, 1993, the date
the 1993 Stock Option Plan was adopted. As of March 31, 1997, a total of 358,933
options were outstanding under the 1993 Stock Option Plan. No further awards
will be made under the 1993 Stock Option Plan.

                                       47
<PAGE>


     Under the 1996 Stock Option Plan, the aggregate number of shares of Common
Stock that may be issued or transferred is 833,333; plus (i) any shares of
Common Stock which are forfeited under the 1993 Stock Option Plan or the 1996
Stock Option Plan after the Board's adoption of the 1996 Stock Option Plan; plus
(ii) the number of shares of Common Stock repurchased by the Company in the open
market and otherwise with an aggregate price no greater than the cash proceeds
received by the Company from the sale of shares under the 1993 Stock Option Plan
or the 1996 Stock Option Plan; plus (iii) any shares of Common Stock surrendered
to the Company in payment of the exercise price of options issued under the 1993
Stock Option Plan or the 1996 Stock Option Plan; provided, that the aggregate
number of shares available for grants at any given time will be reduced by the
aggregate of all shares previously issued or transferred pursuant to the Stock
Option Plans plus the aggregate of all shares which may become subject to
issuance or transfer under then-outstanding and then-currently exercisable
grants under the Stock Option Plans; and provided, further, that no award may be
issued that would bring the total of all outstanding awards under the 1996 Stock
Option Plan to more than 25% of the total number of the shares of Common Stock
at the time outstanding. The maximum number of shares for which options may be
granted under the 1996 Stock Option Plan to any person during any calendar year
is 166,667. As of March 31, 1997, a total of 212,000 options were outstanding
under the 1996 Stock Option Plan.

     The Stock Option Plans provide for the grant of incentive stock options,
non-qualified stock options, stock appreciation rights in tandem with stock
options or freestanding, restricted stock grants and restored grants
(collectively, "Grants") as approved by the Board of Directors or a committee
thereof (the "Committee"). Incentive stock options granted under the Stock
Option Plans are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Non-qualified stock options granted under the Stock Option Plans are
intended not to qualify as incentive stock options under the Code.

     Eligible participants under the Stock Option Plans include executive,
professional or administrative employees, directors, executive officers,
consultants or advisors of the Company and its direct or indirect subsidiaries,
all of whom are collectively referred to as "Grantees." Incentive stock options
may be granted under the Stock Option Plans only to selected employees
(including officers) of the Company and its affiliates. All Grantees may be
awarded Grants other than incentive stock options.

     The maximum term of incentive stock options under the Stock Option Plans is
10 years, except that in certain cases, as discussed below, the maximum term is
five years. The exercise price of incentive stock options under the Stock Option
Plans may not be less than the fair market value of the Common Stock subject to
the option on the date of the option grant and, in some cases, as discussed
below, may not be less than 110% of such fair market value. The exercise price
of non-qualified options under the Stock Option Plans is determined by the
Board.

     No incentive stock option may be granted under the Stock Option Plans to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. For incentive stock 


                                       48
<PAGE>


options granted under the Stock Option Plans, the aggregate fair market value,
determined at the time of grant, of the shares of Common Stock with respect to
which such options are exercisable for the first time by any Grantee during any
calendar year (under all such plans of the Company and its affiliates) may not
exceed $100,000.

     Grants under the 1993 Stock Option Plan terminate within such period
determined by the Board up to 90 days after the grantee ceases to be employed by
the Company or any affiliate of the Company, unless (i) the termination of
employment is due to such person's permanent and total disability (as defined in
the Code), in which case the Grant may be exercised at any time within twelve
months of such termination; (ii) the grantee dies while employed by the Company
or any affiliate of the Company, in which case the Grant may be exercised (to
the extent the option was exercisable at the time of the grantee's death) within
such period determined by the Board between six and twelve months of the
grantee's death by the person or persons to whom the rights to such option
passed by will or by the laws of descent and distribution; or (iii) the Grant by
its terms specifically provides otherwise. Grants under the 1996 Stock Option
Plan may be exercised only while the Grantee is in the employment or consultancy
of the Company, except that the Board or Committee may provide for partial or
complete exceptions to this requirement. The Stock Option Plans terminate on the
tenth anniversary of their respective effective dates unless terminated earlier
by the Board or extended by the Board.

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

     The following table sets forth certain information, as of July 4, 1997 with
respect to the beneficial ownership of the Company's Common Stock by (i) each
stockholder known by the Company to be the beneficial owner of more than five%
of the Company's Common Stock, (ii) each director, (iii) the Named Executive
Officers and (iv) all executive officers and directors as a group.

                                       49
<PAGE>


                                                          Number of      Percent
          Name and Address of Beneficial Owner            Shares (1)      Owned
          ------------------------------------            ----------      -----

CDS & Co.(2) ..........................................   2,708,793       65.66%

P.O. Box 1038 Station A
25 Esplanade
Toronto, Ontario M5W 1G5

CEDE & Co.(3) .........................................     604,605       14.66%

P.O. Box 20
Bowling Green Station
New York, New York 10274

Susan A. Schreter(4)(5) ...............................     283,546        6.67%

200 First Avenue West, Suite 200
Seattle, Washington 98119

William H.W. Atkinson(6)(7) ...........................     279,566        6.57%

5850 Byrne Road, Unit 8
Burnaby, British Columbia
Canada V5J 3J3

Anthony A. Cetrone(8) .................................      38,044           *

Michael M. Fleming(9) .................................      38,044           *

Paul Stanton(10) ......................................      29,167           *

All Executive Officers and Directors
as a group (5 persons)(11) ............................     668,366        14.9%

----------
*    Less than 1%.

(1)  Beneficial ownership of directors, officers and 5% or more stockholders
includes both outstanding Common Stock and shares issuable upon exercise of
warrants or options that are currently exercisable or will become exercisable
within 60 days of July 4, 1997. Except as indicated in the footnotes to this
table and pursuant to applicable community property laws, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2)  The Company does not know the beneficial holders of these shares.
(3)  The Company does not know the beneficial holders of these shares.
(4)  Of these shares, 46,672 are held in trust by Montreal Trust Company of
Canada, subject to the direction or determination of the Quebec Securities
Commission. The escrowed shares will be released on September 30, 1997.
(5)  Includes 127,966 shares issuable upon exercise of outstanding options.
(6)  Of these shares, 45,482 are held in trust by Montreal Trust Company of
Canada, subject to the direction or determination of the Quebec Securities
Commission. The escrowed shares will be released on September 30, 1997.
(7)  Includes 127,966 shares issuable upon exercise of currently exercisable
stock options.
(8)  Includes 37,665 shares issuable upon exercise of currently exercisable
stock options.
(9)  Includes 37,665 shares issuable upon exercise of currently exercisable
stock options.
(10) Includes 29,167 shares issuable upon exercise of currently exercisable
stock options.
(11) Includes 360,429 shares issuable upon exercise of currently exercisable
stock options.

     The Company's authorized capital consists of 75,000,000 shares of Common
Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock, par
value $0.01 per share.

Common Stock

     As of July 4, 1997, the Company had outstanding 4,125,375 shares of Common
Stock (after giving effect to the Reverse Stock Split). Each share of Common
Stock is entitled to one vote at all meetings of stockholders. Stockholders are
not permitted to cumulate votes in the election of directors. All shares of
Common Stock are equal to each other with respect to liquidation rights and
dividend rights. There are no preemptive rights to purchase any additional
shares of Common 


                                       50
<PAGE>


Stock. In the event of liquidation, dissolution or winding up of the Company,
holders of the Common Stock will be entitled to receive on a pro rata basis all
assets of the Company remaining after satisfaction of all liabilities and
preferences of the outstanding Preferred Stock, if any. The outstanding shares
of Common Stock and, assuming issuance in accordance with the terms of the
applicable instrument, the shares of Common Stock issuable in this offering are
or will be, as the case may be, duly and validly issued, fully paid and
nonassessable.

Preferred Stock

     Shares of Preferred Stock may be issued from time to time in one or more
series with such designations, voting powers, if any, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations and restrictions thereof, as are determined by resolution of the
Board of Directors. The issuance of such shares of Preferred Stock, while
providing desired flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, holders of such Preferred Stock may have other rights,
including economic rights senior to the Common Stock, and, as a result, the
issuance thereof could have a material adverse effect on the value of the Common
Stock.

Warrants

     In connection with the Private Financing (see "Item 6. Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital
Resources"), the Company issued 1,666,667 Special Warrants, which were
exercisable, for no additional consideration, into units of Common Stock and
warrants (the "Unit Warrants"). The Special Warrants were exercisable into an
aggregate of up to 1,666,667 shares of Common Stock and were deemed exercised as
of February 27, 1996. The underlying Unit Warrants were exercisable at an
exercise price of Cdn. $4.86 until October 5, 1996 and are exercisable at an
exercise price of Cdn. $5.67 until October 5, 1997. As of March 31, 1997, Unit
Warrants remain outstanding to purchase 542,833 shares of Common Stock.

     In connection with the Private Placement, the Company issued a special
right (the "Special Right") to the placement agent as partial consideration for
its services. Upon the deemed exercise of the Special Right, the agent received
warrants to purchase up to 133,333 shares of Common Stock on the same terms as
the Unit Warrants described above.

Escrowed Shares

         As of March 31, 1997, an aggregate of 92,154 shares of Common Stock
owned by Mr. Atkinson (45,482) and Ms. Schreter (46,672) are held in escrow by
Montreal Trust Company of Canada, subject to direction or determination of the
Quebec Securities Commission. The escrowed shares of Common Stock will be
released on September 30, 1997.

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<PAGE>


Item 12.  Certain Relationships and Related Transactions.

     Paul Stanton, the Vice Chairman of the Board of Directors of the Company,
has provided consulting services to the Company since June 1996. Pursuant to an
oral arrangement with the Company, Mr. Stanton received consulting fees of
$72,000 in Fiscal 1997 and currently receives a consulting fee of $6,000 per
month.

     During Fiscal 1997, the Company purchased plant equipment in the aggregate
amount of $106,043 from Schreter & Associates, a company controlled by Robert E.
Schreter, the father of Susan A. Schreter, the Company's President.

Item 13.  Exhibits, List and Reports on Form 8-K.

(a)       Exhibits:

3.1(1)    Restated Certificate of Incorporation
3.1.1(2)  Certificate of Amendment of Certificate of Incorporation
3.2(1)    By-laws, as currently in effect
4.1(1)    Specimen Common Stock Certificate
4.2(2)    Form of Warrants to Purchase Shares of the Registrant, including
          registration rights
4.3(2)    Agreement, dated October , 1994 between Project 93 Management, Ltd.
          and the Registrant pertaining to registration rights of certain of the
          Selling Stockholders(3)
10.1(5)   Restated and Amended Employment Agreement between the Registrant and
          William H.W. Atkinson dated as of March 13, 1996
10.2(5)   Restated and Amended Employment Agreement between Susan A. Schreter
          and the Registrant dated as of March 13, 1996
10.3(1)   Supply Agreement between the Registrant and Merfin Hygienic Products,
          dated August 30, 1993
10.4(1)   Assignment by Prakash Banga to the Registrant, dated January 5, 1994
10.5(1)   1993 Incentive Program and accompanying form of Stock Option
          Agreement(6)
10.6(1)   Lease Agreement between the Registrant and First Avenue West Building
          L.L.C., dated May 15, 1995 for the premises located at 200 First
          Avenue West, Seattle, Washington
10.7(7)   Lease Agreement between the Registrant and Holly Enterprises Ltd. for
          the premises located at 5850 Byrne Road, Burnaby, British Columbia,
          dated August 18, 1994
10.8(1)   Form of short-term Promissory Note between the Registrant and certain
          private placement investors, dated April 28, 1995(8)
10.9(2)   Manufacturing Agreement between the Registrant and LeGenereux Clothing
          Co., Ltd., dated November 3, 1994
10.10(2)  Share Purchase Warrant Indenture dated October 5, 1995 between the
          Registrant and Montreal Trust Company of Canada
10.11(2)  Revolving Line of Credit Agreement and Promissory Note dated October
          5, 1995 between the Registrant and Seattle-First National Bank
10.12     1996 Incentive Program (6)
21.1      List of Subsidiaries

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<PAGE>


23.2(4)   Consent of Grover T. Wickersham, P.C. (contained in their opinion; see
          Exhibit 5.1 to Amendment No. 2 to the Form SB-2 Registration
          Statement, filed with the Commission on May 10, 1996)

27.1      Financial Data Schedule

----------
(1)  Filed as an exhibit to the originally filed Registration Statement on Form
     SB-2, File No. 33-96882-LA (the "SB-2 Registration Statement"), filed with
     the Commission on September 12, 1995.
(2)  Filed as an exhibit to Amendment No. 1 to the Form SB-2 Registration
     Statement, filed with the Commission on March 20, 1996.
(3)  A schedule of the specific investors who received these Warrants is
     attached as an appendix to this exhibit.
(4)  Filed as an exhibit to Amendment No. 2 to the Form SB-2 Registration
     Statement, filed with the Commission on May 10, 1996.
(5)  Filed as an exhibit to Amendment No. 3 to the Form SB-2 Registration
     Statement, filed with the Commission on November 12, 1996.
(6)  Managerial contract or compensatory plan or arrangement in which the
     Company's directors and officers participate.
(7)  Filed as an exhibit to the original filing of the Form SB-2 Registration
     Statement, but no longer operative.

(b)  Reports on Form 8-K:

     No reports on Form 8-K were filed during the last quarter of the fiscal
year ended March 31, 1997.


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<PAGE>
                                   SIGNATURES

     In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Burnaby, British Columbia, Canada, on July 15, 1997.

                                             CARING PRODUCTS INTERNATIONAL, INC.


                                             By: /s/ William H.W. Atkinson
                                                 -------------------------
                                                 William H.W. Atkinson
                                                 Chairman of the Board and
                                                 Chief Executive Officer

     In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:

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

/s/William H.W. Atkinson      Chairman of the Board                July 15, 1997
---------------------------   and Chief Executive Officer       
William H.W. Atkinson         (Principal Executive Officer and  
                              Principal Financial and Accounting
                              Officer)                          
                              


                             
/s/ Susan A. Schreter         President and Director               July 15, 1997
---------------------------  
Susan A. Schreter            
                             
/s/ Anthony A. Cetrone        Director                             July 15, 1997
---------------------------  
Anthony A. Cetrone           
                             
/s/ Michael M. Fleming        Director                             July 15, 1997
---------------------------  
Michael M. Fleming           
                             
/s/ Paul Stanton              Director                             July 15, 1997
---------------------------  
Paul Stanton                 


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