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

                                   Form 10-K/A
                                (Amendment No. 2)

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 1995
                         Commission File Number 0-11997

                          Carrington Laboratories, Inc.
           (Exact name of Registrant as specified in its charter)

                Texas                                75-1435663
       (State of Incorporation)                (IRS Employer ID No.)

                   2001 Walnut Hill Lane, Irving, Texas 75038
                    (Address of principal executive offices)

   Registrant's telephone number, including area code:  (972) 518-1300

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

   Title of each class       Name of exchange on which registered
         None

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

                           Common Stock ($.01 par value)
                                 (Title of class)
                          Preferred Share Purchase Rights
                                 (Title of class)

        Indicate by check mark whether the Registrant (1) has filed all
   reports required to be filed by Section 13 or 15(d) of the Securities
   Exchange Act of 1934 during the preceding 12 months (or for such
   shorter period that the Registrant was required to file such reports),
   and (2) has been subject to such filing requirements for the past 90
   days.  Yes [X]      No [ ]  

        Indicate by check mark if disclosure of delinquent filers pursuant
   to Item 405 of Regulation S-K is not contained herein, and will not be
   contained, to the best of the Registrant's knowledge, in definitive
   proxy or information statements incorporated by reference in Part III
   of this Form 10-K or any amendment to this Form 10-K.  [ ]
<PAGE>
        The aggregate market value of the voting stock held by non-
   affiliates of the Registrant on March 15, 1996, was $231,721,284. 
   (This figure was computed on the basis of the closing price of such
   stock on the NASDAQ National Market on March 15, 1996 using the
   aggregate number of shares held on that date by, or in nominee name
   for, shareholders who are not officers, directors or record holders of
   10% or more of the Registrant's outstanding voting stock.  The
   characterization of such officers, directors and 10% shareholders as
   affiliates is for purposes of this computation only and should not be
   construed as an admission for any other purpose that any of such
   persons are, in fact, affiliates of the Registrant.)

        Indicate the number of shares outstanding of each of the
   Registrant's classes of Common Stock, as of the latest practicable
   date:   8,657,421 shares of Common Stock, par value $.01 per share,
   were outstanding on March  15, 1996.
<PAGE>   

                       DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's proxy statement for its annual
   meeting of shareholders to be held on May 23, 1996 are incorporated by
   reference into Part III hereof, to the extent indicated herein.

   
                                      PART I

   ITEM 1.  BUSINESS.

                                     General

        Carrington Laboratories, Inc. ("Carrington" or the "Company") is a
   research-based pharmaceutical and medical device company engaged in the
   development, manufacturing and marketing of carbohydrate-based
   therapeutics for the treatment of major illnesses and the dressing and
   management of wounds.  The Company is comprised of three business
   divisions.  See Note 15 to the financial statements of this annual
   report for financial information about these business divisions.  The
   Company sells, using a network of distributors, nonprescription
   products through its Wound and Skin Care Division, veterinary medical
   devices and pharmaceutical through its Veterinary Medical Division and
   consumer products through its consumer products subsidiary, Caraloe,
   Inc.  The Company's research and product portfolio are based primarily
   on complex carbohydrate technology derived from the Aloe vera plant.

        The Company was incorporated in Texas in 1973, as Ava Cosmetics,
   Inc.  In 1986, the Company sold the direct sales business it was then
   operating and changed its name to Carrington Laboratories, Inc.

                           Wound and Skin Care Division

        Carrington's Wound and Skin Care Division markets a comprehensive
   line of wound management products to hospitals, alternative care
   facilities and the home health care market.  The Company's products are
   designed to maintain a moist wound environment which aids the healing
   process and to maintain the integrity of contiguous healthy skin. 
   Carrington products are used in a wide range of acute and chronic wound
   and skin conditions and for incontinence and ostomy care.

        The Company is committing significant resources to its wound and
   skin care business.  Primary marketing emphasis is directed toward
   hospitals, managed care organizations, alternate care facilities and
   home health care providers, with wound and skin care products being
   promoted primarily to physicians and specialty nurses, e.g.
   enterostomal therapists.  Opportunities in the alternate care and home
   health care markets are also addressed through a telemarketing sales
   team and a National Accounts Department.

        The Company's hospital field sales force currently employs 43
   sales representatives, each assigned to a specific geographic area in
   the United States, five regional sales managers, a representative in
   Puerto Rico and a managing director of  the Wound and Skin Care
   Division.  The Company also uses an independent sales company employing
   four sales representatives to sell its products on a commission basis
   and an independent sales representative in Canada.  In addition to this
<PAGE>
   field sales force, the Wound and Skin Care Division employs seven
   telemarketers who focus on alternative care facilities and the home
   health care market, and three persons in its National Accounts
   Department.

        The Company's products are primarily sold through a network of
   distributors.  Two of the Company's largest distributors in the
   hospital market for the last several years have been Baxter Healthcare
   Corporation ("Baxter") and Owens & Minor.  During fiscal 1993, 1994 and
   1995, sales of wound and skin care products to Baxter represented 10%,
   11% and 10%, respectively, of the Company's total net sales.  Sales to
   Owens & Minor represented 8%, 7%, and 14%, respectively, of total net
   sales over the same period.

                                 Consumer Health

        Caraloe, Inc., a separate subsidiary of the Company, markets or
   licenses consumer products and bulk ingredients utilizing the Company's
   patented complex carbohydrate technology.  Attention has been focused
   on three goals, the first of which is to sell Caraloe's Aloe
   Nutritional  brand products through the health food store market.  The
   second goal has been to develop private label aloe products for
   entrepreneurs seeking a high quality line of aloe products.  The third
   goal has been to become a supplier of bulk AVMP(TM) (Aloe vera
   mucilaginous polysaccharide) to commercial companies incorporating aloe
   vera mucilaginous polysaccharides into their established product lines. 
   In May 1994, an agreement was signed with Mannatech, Inc., formerly
   Emprise International, Inc., to supply it bulk Manapol(R).  In February
   1996, an agreement was signed with Mannatech granting it an exclusive
   license in the United States for Manapol(R).  During fiscal 1994 and
   1995, sales of Manapol(R) to Mannatech represented 4% and 10%,
   respectively, of the Company's total net sales.

                            Veterinary Medical Division

        The Carrington Veterinary Medical Division ("CVMD") markets
   Acemannan Immunostimulant, a vaccine adjuvant, and several wound and
   skin care products to the veterinary market.  Acemannan Immunostimulant
   was conditionally approved by the United States Department of
   Agriculture ("USDA") in November 1991, for use as an aid in the
   treatment of canine and feline fibrosarcoma, a form of soft tissue
   cancer that affects dogs and cats.  A conditional approval means that
   efficacy and potency tests are required, and the product's label must
   specify that these studies are in progress.  The "conditional" aspect
   of the approval will be removed upon completion of additional potency
   testing which is in the final stages of development.  The Company
   expects to complete these tests in 1996.  There can be no assurance
   that these tests will result in he removal of the conditional
   restriction on the USDA s approval of Acemannan Immunostimulant.

        In September 1990, the Company granted Solvay Animal Health, Inc.
   ("Solvay") an exclusive, worldwide license to use and sell a bulk
   pharmaceutical mannan adjuvant for poultry disease.  In January 1992,
   Solvay received approval from the USDA to market the bulk
   pharmaceutical mannan as an adjuvant to a vaccine for Marek's disease,
   a virus infection that kills chickens or renders them unfit for human
   consumption.  Solvay sells the product under the trademark ACM I.
<PAGE>
        In March 1996, the Company signed an agreement with Farnam
   Companies, Inc., a leading veterinary marketing company, to promote and
   sell the CarraVet(TM) product line, including Acemannan Immunostimulant.


                              Research and Development


                                     General

       In 1984, the Company isolated and identified a polymeric compound
   with a molecular weight between one and two million Daltons from the
   Aloe vera plant.  This compound has been given the generic name
   "acemannan" by the United States Adopted Names Council.  The Company
   intends to seek approval of the Food and Drug Administration (the
   "FDA") and other regulatory agencies to sell products based on complex
   carbohydrates in the United States and in foreign countries:  (i) to
   treat inflammatory bowel diseases, including ulcerative colitis, a
   widespread, chronic, inflammatory disease of the colon; (ii) to treat
   various forms of cancer; (iii) for use as an adjuvant to various
   vaccines; and (iv) to treat non-healing and other wounds.  For a more
   comprehensive listing of the type, indication and status of products
   currently under development by the Company, see "Research and
   Development--Summary" below.  The regulatory approval process, both
   domestically and internationally, can be protracted and expensive, and
   there is no assurance that the Company will obtain approval to sell its
   products for any treatment or use (see "Governmental Regulation"
   below).

       The Company is marketing or developing several products which in
   the past were given the general name of acemannan, suggesting the
   products were identical.  This is not correct because there are ten
   products in development or being marketed that are derived from 3 basic
   extracts of the Aloe vera plant.  The basic freeze-dried aloe vera
   extract is reconstituted to produce Manapol(R) and AVMP(TM) for both food
   grade and cosmetic grade products.  Further refinement produces Bulk
   Pharmaceutical Mannans that are used to produce hydrogels; the
   Carrington(TM) Patch, an oral care product; Carra Sorb(TM) M, a freeze-dried
   wound dressing; adjuvants, ACM I marketed by Solvay, and CARN 500 which
   is being developed as an adjuvant for various vaccines; and Aliminase(TM) 
   (formerly CARN 1000) capsules which are being developed for ulcerative
   colitis.  Finally, Bulk Injectable Mannans are marketed as Acemannan
   Immunostimulant (CARN 700), and a product has been developed for the
   treatment of cancer, Alovex(TM) (formerly CARN 750).

        The Company expended approximately $5,397,000, $5,334,000, and
   $5,370,000 on research and development in fiscal, 1993, 1994, and 1995,
   respectively.  The Company estimates that in fiscal 1996 it will spend
   more on research and development than in 1995.  Currently, the
   Company's research staff  comprises 13 full-time employees as compared
   to 21 full-time employees at the end of 1994.
<PAGE>
                              Preclinical Research

        The Company identified the characteristics of its complex
   carbohydrates by a series of studies in the Company's laboratories and
   in several contract laboratories.  Based on toxicology tests sponsored
   by the Company on different animal species with dosages up to 40 times
   the proposed intravenous human dosage, in vitro and in vivo tests for
   mutagenicity, dermal sensitization tests, results of a Phase I safety
   study of an oral product in humans and a Phase I safety study of an
   intravenously administered preparation in humans, no clinically
   significant toxicity of the Company's products has been noted.  Further
   safety studies may be required by the FDA prior to the approval of any
   applications of complex carbohydrates.

       Other preclinical studies conducted in the Company's laboratories
   and in outside laboratories have shown that certain of the Company's
   complex carbohydrates stimulate macrophage and other white blood cells
   to produce lymphokines, including interleukin-1 and tumor necrosis
   factor alpha, that regulate other cells.  Interleukin-1 stimulates
   fibroblasts, which are essential to wound healing.  Tumor necrosis
   factor alpha acts against tumors in the body.  In addition, laboratory
   experiments conducted by the Company have shown that some complex
   carbohydrates have both pro- and anti-inflammatory actions.

        The Company believes that its products' pharmacological actions
   and lack of toxicity make them excellent candidates for further
   development as therapeutic agents for the treatments and uses for which
   the Company intends to seek regulatory approvals (see "Research and
   Development -- General" above).  There is no assurance, however, that
   the Company will be successful in its efforts.

        The Company operates a research and development laboratory at the
   Texas A&M University Research Park to expand preclinical research in
   various wound healing applications and mechanisms of action.  Pursuant
   to this arrangement, the Company has access to leading authorities in
   immunology, as well as facilities and equipment to engage in
   experimentation and analysis at the basic research level.

                                  Animal Studies

        The Company has pursued a strategy of developing products for
   certain animal indications, clinical testing of which may have
   application to studies for treatment of human diseases.  Animal
   clinical testing necessary to obtain eventual approval of a product for
   treatment of human diseases may also provide data sufficient to obtain
   approval for the related veterinary indication.  This approach enables
   the Company to obtain revenues from its research efforts at an earlier
   date and also expands data available from actual use of the product in
   animals.  The Company's clinical research efforts to date have focused
   on the indications described below.

        Vaccine Adjuvants.  An adjuvant is a substance that enhances the
   antibody response to an antigen.  The ability to generate a vigorous
   immune response to an antigen is critical to the effectiveness of a
   vaccine.  The Company's studies indicate that acetylated mannans, when
   used as a vaccine adjuvant, produce marked stimulation of the immune
   system.
<PAGE>
        In 1990, the Company received approval from the USDA to sell an
   adjuvant to licensed manufacturers for use in combination with animal
   vaccines.  This use as a vaccine adjuvant for certain poultry diseases
   was licensed to Solvay pursuant to an agreement between Solvay and the
   Company entered into in September 1990.  In January 1992, Solvay
   received approval from the USDA to market an adjuvant to its vaccine
   for Marek's disease (see "Veterinary Medical Division" above).

        The Company has conducted or sponsored studies of CARN 500
   adjuvants with other vaccines for animals.  Based on these studies, the
   Company, either directly or through third party licensees, intends to
   pursue development of adjuvants for other animal vaccines.  In 1993,
   initiation of a program was begun to develop adjuvants for mammalian
   vaccines and for vaccines for marine animals under licenses with one
   European company.  There can be no assurance however, that such
   development will be successful or that the Company will be able to
   develop, or to enter into any licensing agreements for the development
   of, any additional adjuvants.

        Evaluation of Anti-Tumor Activity.  Acetylated mannans (CARN 750)
   are immunomodulating agents that increase circulating levels of
   interleukin-1 and tumor necrosis factor alpha.  A series of studies
   conducted at Texas A&M University in 1988 and 1989 on mice with highly
   malignant tumors indicated that a single intraperitoneal dose caused
   significant tumor reduction in a statistically significant percentage
   of mice.  This effect in many instances was dramatic, with complete
   regression of the tumor and with continuing immunity.  Recovered
   animals were resistant to syngeneic tumor reimplantation for up to six
   months after initial tumor regression.

        In 1991, the USDA granted the Company conditional approval to
   market an injectable form of a complex carbohydrate as an aid in the
   treatment of canine and feline fibrosarcoma, a form of soft tissue
   cancer, under the name Acemannan Immunostimulant.  The Company believes
   that the USDA's remaining requirements to remove the conditional
   restriction can be completed in 1996 (see "Veterinary Medical Division"
   above).  Of course, there can be no assurance as to whether or when the
   USDA will remove the conditional restriction on its approval of this
   product.

                                   Human Studies
      
        Evaluation of Aliminase(R)(formerly CARN 1000) in the Treatment of
   Inflammatory Bowel Diseases.  In October 1991, the Company filed an
   investigational new drug ("IND") application requesting approval to
   conduct human clinical trials on the efficacy of Aliminase(R) in the
   treatment of ulcerative colitis.  In November 1991, the Company
   received notice that the FDA was withholding approval of the study,
   pending submission of additional information.  Additional studies
   requested by the FDA were completed, and the results were submitted in
<PAGE>
   October 1992.  In December 1992, the Company received authorization
   from the FDA to commence human clinical trials under the IND
   application.  In early 1993, the Company began a pilot safety and
   efficacy study with oral Aliminase(R) in the treatment of ulcerative
   colitis patients who are experiencing an acute flare-up of the disease. 
   This study was conducted by treating 54 patients with 400 or 800
   milligram doses twice daily for two or four weeks.  After four weeks,
   the disease activity index and the signs and symptoms of the disease
   were significantly improved, and the safety of the oral product
   continued to be confirmed.  A large controlled trial of Aliminase(R) in
   patients with ulcerative colitis began in September 1995.  A total of
   288 patients will be enrolled in four groups comparing a placebo with
   three doses of Aliminase(R) (150, 300 and 600 mg dosage levels,
   administered twice daily for six weeks).  Results are expected in 1996.

        Evaluation of Alovex(TM) (formerly CARN 750) in the Treatment of
   Solid Tumors in Humans.  The Company believes that this intravenous
   product may be broadly useful in cancer therapy, with potential
   application in the treatment of major solid tumors, including melanoma,
   breast carcinoma, prostate carcinoma, colon carcinoma, hypernephroma
   and soft tissue sarcoma.  The Company initiated a Phase I human
   clinical trial of injectable Alovex(TM) in certain solid tumor
   indications.  The trial began in the United States in late 1995.  As a
   result of the success of Acemannan Immunostimulant in dogs and cats,
   the Company has reason to believe that injectable Alovex(TM) may play a
   significant role in the treatment of cancer in humans.

        Evaluation of Carrington  Patch in the Treatment of Aphthous
   Ulcers. Carrington's efforts to broaden the claims for wound care
   products containing Carrasyn(R) Hydrogel were expanded to include an
   application within the oral health care field.  Two studies were
   conducted at Baylor College of Dentistry to examine the efficacy and
   safety of two formulations of Carrasyn(R) Hydrogel wound dressing in the
   treatment of oral aphthous ulcers (canker sores).  The first study
   involved Carrasyn(R) Hydrogel wound dressing modified for intraoral use
   versus a leading product.  The second trial involved the modified oral
   formulation of Carrasyn(R) Hydrogel that had been freeze-dried.  This
   product, Carrington(TM) Patch, reduced the pain of these ulcers.  A 510(k)
   was submitted to the FDA for permission to market the freeze-dried
   formulation for the management of oral aphthous ulcers.  This was
   granted by the FDA, and the product will be marketed as Carrington(TM) 
   Patch for the reduction of pain due to aphthous ulcers.

        Evaluation of Carrasyn  in Wound Healing.  In 1993, a study was
   conducted at M.D. Anderson Cancer Center to determine if Carrasyn(R) 
   Hydrogel was of benefit in treating radiation-induced skin reactions of
   mice.  These studies clearly showed that, when compared to controls,
   Carrasyn(R) Hydrogel could significantly reduce radiation-induced
   inflammation and tissue damage in animals.  As a result of this work, a
   small clinical trial was performed in 1994, studying the radiation-
   sparing effects of Carrasyn(R) Hydrogel wound dressing in four oncology
   patients.  Further trials will continue in 1996.  Four new indications
   (post-surgical incisions, sunburn, diabetic ulcers and radiation
   dermatitis) for Carrasyn(R) were added in 1995. 
<PAGE>
        Evaluation of Carrasyn  Freeze-Dried Gel (Carra Sorb(TM) M) in Wound
   Healing.  Following the submission of a 510(k) for a preservative-free
   freeze-dried gel for wound care, the FDA allowed Carrington to market
   this product, and it was launched in early 1996.

        Summary.  The following table outlines the status of the products
   and potential indications of the Company's complex carbohydrates
   developed, planned or under development.  There is no assurance of
   successful development, completion or regulatory approval of any
   product not yet on the market.

    PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED, PLANNED OR UNDER
   DEVELOPMENT PRODUCT OR POTENTIAL INDICATION POTENTIAL MARKET APPLICATIONS 
   STATUS

   Topical
       Dressings              Pressure and Vascular Ulcers         Marketed
       Cleansers                       Wounds                      Marketed
       Antifungal                     Candida                      Marketed

   Oral
     Human
       Anti-inflammatory         Ulcerative Colitis                Phase III
                                                                Clinical Trial

   Injectable
     Human
       Anticancer          Melanoma, Breast, Prostate, Colon,       Phase I

                           Hypernephroma, and Soft Tissue       Clinical Trial
                              Sarcoma

     Veterinary
       Anticancer                Fibrosarcoma                   
   Marketed

   Dental
       Pain reduction             Aphthous Ulcers                Marketed

   Vaccine Adjuvant
     Veterinary
       Poultry Vaccines           Marek's Disease                  Marketed
       Livestock                  Cattle, Sheep                    
   Clinical Trials
       Marine (water treatment)   Trout, Shrimp               Clinical Trials
<PAGE>
   
                                Licensing Strategy

      The Company expects that prescription pharmaceutical products
   containing certain defined mannans will require a substantial degree of
   development effort and expense.  Before governmental approval to market
   any such product is obtained, the Company may license these mannans for
   certain indications to other pharmaceutical companies in the United
   States or foreign countries and require such licensees to undertake the
   steps necessary to obtain marketing approval for specific indications
   or in a particular country.

      Similarly, the Company intends to license third parties to market
   products containing defined mannans for certain human indications when
   it lacks the expertise or financial resources to market effectively. 
   If the Company is unable to enter into such agreements, it may
   undertake to market the products itself for such indications.  The
   Company's ability to market these mannans for specific indications will
   depend largely on its financial condition at the time and the results
   of related clinical trials.  There is no assurance that the Company
   will be able to enter into any license agreements with third parties or
   that, if such license agreements are concluded, they will contribute to
   the Company's overall profits.

      In November 1995, the Company signed a licensing agreement with a
   supplier of calcium alginates and other wound care products.  Under the
   agreement, the Company has exclusive marketing rights to advanced
   calcium alginates products for North and South America and the People s
   Republic of China.  The Company will continue to seek opportunities to
   license products from third parties that will enhance its product
   portfolio.
     
                           Raw Materials and Processing

      The principal raw material used by the Company in its operations is
   the leaf of the plant Aloe barbadensis Miller, popularly known as aloe
   vera.  Through a patented process, the Company produces bulk
   pharmaceutical and injectable mannans and freeze-dried aloe vera
   extract from the central portion of the aloe vera leaf known as the
   gel.  Bulk pharmaceutical mannan, in the form of a hydrogel, is used as
   an ingredient in certain of the Company's wound and skin care products. 
   Through additional processing, bulk mannans may be produced in oral and
   injectable dosage forms.

      In May 1990, the Company purchased a 405-acre farm in the Guanacaste
   province of northwest Costa Rica which currently has approximately 125
   acres planted with aloe vera. The Company plans to plant additional
   acreage as demand for aloe vera leaves increases.  The Company believes
   that the Costa Rica farm will be capable of providing substantially all
   of the aloe vera leaves required to meet the Company's presently
   anticipated needs (see "Properties--Costa Rica Facility" below).

                              Manufacturing

      Prior to the second quarter of 1995, the Company produced
   substantially all its wound and skin care products in a leased facility
   in Dallas, Texas.  During the first quarter of 1994, the Company
   completed an evaluation of the production requirements that would be
   needed to meet all federal regulatory requirements as a fully
<PAGE>
   integrated pharmaceutical manufacturer, as well as the production
   capacity that would be required to meet continued growth in the
   Company's wound and skin care business.  It was decided to move its
   wound and skin care manufacturing operation from its present location
   to an unused portion of the Company's headquarters facility in Irving,
   Texas, and expand the facility through higher capacity equipment.  The
   moving, upgrading and expansion of the manufacturing operation began in
   the fourth quarter of 1994, and the project was completed and
   production began during the third quarter of 1995.  At the same
   location, the Company has upgraded its capabilities to produce
   injectable grade pharmaceutical products.  The Company believes that
   the new plant's capacity will provide sufficient capacity for the
   present line of products, and accommodate new products and sales
   growth.  Final packaging of certain of the Company's wound care
   products is completed by outside vendors.  The Company's calcium
   alginates, films and freeze-dried products are being provided by third
   parties.

      All of the Company's bulk pharmaceutical mannans, bulk injectable
   mannans and freeze-dried aloe vera extracts are produced in its aloe
   vera processing plant in Costa Rica.  This facility has the ability to
   supply the bulk aloe vera raw materials requirements of the Company's
   current product lines for the foreseeable future.  During the first
   quarter of 1994, the Company initiated a project in Costa Rica to
   upgrade the production plant to meet regulatory requirements for the
   production of bulk pharmaceutical oral and injectable mannans as
   required for IND's.  This project was completed in the fourth quarter
   of 1994.  Finished oral and injectable dosage forms will be produced by
   outside vendors until in-house production becomes economically
   justified.

      The production capacity of the Costa Rica plant is larger than the
   Company's current usage level.  Management believes, however, that the
   cost of the Costa Rica facility will eventually be recovered through
   operations.  The larger production capacity will be required to conduct
   large scale clinical trials with bulk pharmaceutical and injectable
   mannans.

                                   Competition

      Research and Development.  The biopharmaceutical field is expected
   to continue to undergo rapid and significant technological change. 
   Potential competitors in the United States are numerous and include
   pharmaceutical, chemical and biotechnology companies.  Many of these
   companies have substantially greater capital resources, research and
   development staffs, facilities and expertise (including in research and
   development, manufacturing, testing, obtaining regulatory approvals and
   marketing) than the Company.  This competition can be expected to
   become more intense as commercial applications for biotechnology and
   pharmaceutical products increase.  Some of these companies may be
   better able than the Company to develop, refine, manufacture and market
   products which have application to the same indications as bulk
   pharmaceutical mannans and bulk injectable mannans.  The Company
   understands that certain of these competitors are in the process of
   conducting human clinical trials of, or have filed applications with
   government agencies for approval to market, certain products that will
   compete with the Company's products.
<PAGE>
      Wound and Skin Care Division, Caraloe, Inc., and CVMD.  The Company
   competes against many companies that sell products which are
   competitive with the Company's products, with many of its competitors
   using very aggressive marketing efforts.  Many of the Company's
   competitors are substantially larger than the Company in terms of sales
   and distribution networks and have substantially greater financial and
   other resources.  The Company's ability to compete against these
   companies will depend in part on the continued expansion of the
   marketing network for its products.  The Company believes that the
   principal competitive factors in the marketing of its products is their
   quality, and that they are naturally based and competitively priced.

                             Governmental Regulation

      The production and marketing of the Company's products, and the
   Company's research and development activities, are subject to
   regulation for safety, efficacy and quality by numerous governmental
   authorities in the United States and other countries.  In the United
   States, drugs for human use are subject to rigorous FDA regulation. 
   The Federal Food, Drug and Cosmetic Act, as amended, the regulations
   promulgated thereunder, and other federal and state statutes and
   regulations govern, among other things, the testing, manufacture,
   safety, effectiveness, labeling, storage, record keeping, approval,
   advertising and promotion of the Company's products.  For marketing
   outside the United States, the Company is subject to foreign regulatory
   requirements governing human clinical trials and marketing approval for
   drugs and devices.  The requirements governing the conduct of clinical
   trials, product licensing, pricing and reimbursement may vary widely
   from country to country.

      Food and Drug Administration.  The contents, labeling and
   advertising of many of the Company's products are regulated by the FDA. 
   The Company is required to obtain FDA approval before it can study or
   market any proposed prescription drugs and may be required to obtain
   such approval for proposed nonprescription products.  This procedure
   involves extensive clinical research, and separate FDA approvals are
   required at various stages of product development.  The approval
   process requires, among other things, presentation of substantial
   evidence to the FDA, based on clinical studies, as to the safety and
   efficacy of the proposed product.

      In order to initiate human clinical trials on a product, extensive
   basic research and development information must be submitted to the FDA
   in an investigational new drug ("IND") application.  The IND
   application contains a general investigational plan, a copy of the
   investigator's brochure (a comprehensive document provided by the drug
   manufacturer), copies of the initial protocol for the first study, a
   review of the chemistry, manufacturing and controls information for the
   drug, pharmacology and toxicology information, any previous human
   experience with the drug, results of preclinical studies and any other
   information requested by the FDA.
      If permission is obtained to proceed to clinical trials based on the
   IND application, initial trials, usually categorized as Phase I, are
   instituted.  The initial or Phase I trials typically involve the
   administration of small, increasing doses of the investigational drug
   to healthy volunteers, and sometimes patients, in order to determine
   the general overall safety profile of the drug and how it is
   metabolized.  Once the safety of the drug has been established, Phase
<PAGE>
   II efficacy trials are conducted in which the expected therapeutic
   doses of the drug are administered to patients having the disease for
   which the drug is indicated, and a therapeutic response is sought as
   compared to the expected progression of the underlying disease or
   compared to a competitive product or placebo.  Information also is
   sought on any possible short-term side effects of the drug.  If
   efficacy and safety are observed in the Phase II trials, Phase III
   trials are undertaken on an expanded group in which the patients
   receiving the drug are compared to a different group receiving either a
   placebo or some form of accepted therapy in order to establish the
   relative safety and efficacy of the new drug compared with the control
   group.  Data are also collected to provide an adequate basis for future
   physician prescribing information.

      If Phases I through III are successfully completed, the data from
   these trials are compiled into a new drug application ("NDA"), which is
   filed with the FDA in an effort to obtain marketing approval.  In
   general, an NDA will include a summary of the components of the IND
   application, a clinical data section reviewing in detail the studies
   from Phases I through III and the proposed description of the benefits,
   risks and uses, or labeling, of the drug.

      In general, a more comprehensive NDA and a more prolonged review
   process are required for drugs not previously approved for marketing by
   the FDA.  If a second indication for an already approved product is
   sought, since many of the components of the review process are the
   same, a shortened review process generally can be anticipated. 
   However, the FDA gives high priority to novel drugs providing unique
   therapeutic benefits and a correspondingly lower priority to drugs
   similar to or providing comparable benefits to others already on the
   market.

      In addition to submitting safety and efficacy data derived from
   clinical trials for FDA approval, NDA approval requires the
   manufacturer of the drug to demonstrate the identity, potency, quality
   and purity of the active ingredients of the product involved, the
   stability of these ingredients and compliance of the manufacturing
   facilities, processes and quality control with the FDA's current Good
   Manufacturing Practices regulations.  After approval, manufacturers
   must continue to expend time, money and effort in production and
   quality control to assure continual compliance with the current Good
   Manufacturing Practices regulations.

      Certain of the Company's wound and skin care products are registered
   with the FDA as "devices" pursuant to the regulations under Section
   510(k) of the Federal Food, Drug and Cosmetic Act, as amended.  A
   device is a product used for a particular medical purpose, such as to
   cover a wound, with respect to which no pharmacological claim can be
   made.  A device which is "substantially equivalent" to another device
   existing in the market prior to May 1976 can be registered with the FDA
   under Section 510(k) and marketed without further testing.  A device
   which is not "substantially equivalent" is subject to an FDA approval
   process similar to that required for a new drug, beginning with an
   Investigational Device Exemption and culminating in a Premarket
   Approval.  The Company has sought and obtained all its device approvals
   under Section 510(k).  With respect to certain of its wound and skin
   care products, the Company intends to develop claims for which IND and
   NDA submissions will be required.
<PAGE>

      Department of Agriculture.  Certain products being developed by the
   Company for  animal health indications must be approved by the USDA. 
   The procedure involves extensive clinical research, and USDA approvals
   are required at various stages of product development.  The approval
   process requires, among other things, presentation of substantial
   evidence to the USDA as to the safety and efficacy of the proposed
   product.  Furthermore, even if approval to test a product is obtained,
   there is no assurance that ultimate approval for marketing the product
   will be granted.  USDA approval procedures can be protracted.

      Other Regulatory Authorities.  The Company's advertising and sales
   practices are subject to regulation by the Federal Trade Commission,
   the FDA and state agencies.  The Company's processing and manufacturing
   plants are subject to federal, state and foreign laws and to regulation
   by the Bureau of Alcohol, Tobacco and Firearms of the Department of the
   Treasury and by the Environmental Protection Agency as well as the FDA.

      The Company believes that it is in substantial compliance with all
   applicable laws and regulations relating to its operations, but there
   is no assurance that such laws and regulations will not be changed. 
   Any such change may have a material adverse effect on the Company's
   operations.

                          Patents and Proprietary Rights
   
      As is industry practice, the Company has a policy of using patent,
   trademark and trade secret protection with a view to preserving its
   right to exploit the results of its research and development activities
   and, to the extent it may be necessary or advisable, to exclude others
   from appropriating the Company's proprietary technology.  The Company's
   policy is to protect aggressively its proprietary technology by seeking
   and enforcing patents in a worldwide program.

      The Company has obtained patents or filed patent applications in the
   United States and approximately 24 other countries in three series
   regarding the compositions of acetylated manna derivatives, the
   processes by which they are produced and the methods of their use.  The
   first series of patent applications, relating to the compositions of
   acetylated manna derivatives and certain basic processes of their
   production, was filed in a chain of United States patent applications
   and its counterparts in the other 24 countries.  The first United
   States patent application in this first series, covering the
   composition claims of acetylated manna derivatives, matured into United
   States Patent No. 4,735,935 (the "935 Patent"), which was issued on
   April 5, 1988.  United States Patent No. 4,917,890 (the "890 Patent")
   issued on April 17, 1990 from a divisional application to the 935
   Patent.  This divisional application pertains to most of the remaining
   claims in the original application not covered by the 935 Patent.  The
   890 Patent generally relates to the basic processes of producing
   acetylated manna derivatives, to certain specific examples of such
   processes and to certain formulations of acetylated manna derivatives. 
   Two other divisional applications covering the remaining claims not
   covered by the 890 Patent matured into patents, the first on September
   25, 1990, as United States Patent No. 4,959,214, and the second on
<PAGE>
   October 30, 1990, as United States Patent No. 4,966,892.  Foreign
   patents that are counterparts to the foregoing United States patents
   have been granted in some of the member states of the European Economic
   Community and several other countries.

      The second series of patent applications related to preferred
   processes for the production of acetylated manna derivatives.  One of
   them matured into United States Patent No. 4,851,224, which was issued
   on July 25, 1989.  This patent is the subject of a Patent Cooperation
   Treaty application and national foreign applications in several
   countries.  An additional United States patent based on the second
   series was issued on September 18, 1990, as United States Patent
   No. 4,957,907.

      The third series of patent applications, relating to the uses of
   acetylated manna derivatives, was filed subsequent to the second
   series.  Three of them matured into United States Patent
   Nos. 5,106,616, issued on April 21, 1992, 5,118,673, issued on June 2,
   1992, and 5,308,838, issued on May 3, 1994.  The Company intends to
   file a number of divisional applications to these patents, each dealing
   with specific uses of acetylated manna derivatives.  A Patent
   Cooperation Treaty application based on the parent United States
   application has been filed designating a number of foreign countries in
   which the Company has the option to file specific applications.

      In addition, the Company has also obtained a patent in the United
   States relating to a wound cleanser, U.S. Patent No. 5,284,833, issued
   on February 8, 1994.  This patent application is the subject of a
   Patent Cooperation Treaty application designating a number of foreign
   countries in which the Company has the option to file specific
   applications in the designated foreign countries.

      The Company has obtained a patent in the United States relating to a
   therapeutic device made from freeze-dried complex carbohydrate hydrogel
   (U.S. Patent No. 5,409,703 issued on April 25, 1995).

      The Company intends to file patent applications with respect to
   subsequent developments and improvements when it believes such
   protection is in the best interest of the Company.  Although the scope
   of protection which ultimately may be afforded by the patents and
   patent applications of the Company is difficult to quantify, the
   Company believes its patents will afford adequate protection to conduct
   the business operations of the Company.  However, there can be no
   assurance that (i) any additional patents will be issued to the Company
   in any or all appropriate jurisdictions, (ii) litigation will not be
   commenced seeking to challenge the Company's patent protection or such
   challenges will not be successful, (iii) processes or products of the
   Company do not or will not infringe upon the patents of third parties
   or (iv) the scope of patents issued to the Company will successfully
   prevent third parties from developing similar and competitive products. 
   It is not possible to predict how any patent litigation will affect the
   Company's efforts to develop, manufacture or market its products.

      The Company also relies upon, and intends to continue to rely upon,
   trade secrets, unpatented proprietary know-how and continuing
   technological innovation to develop and maintain its competitive
   position.  The Company typically enters into confidentiality agreements
<PAGE>
   with its scientific consultants, and the Company's key employees have
   entered into agreements with the Company requiring that they forbear
   from disclosing confidential information of the Company and assign to
   the Company all rights in any inventions made while in the Company's
   employ relating to the Company's activities.  Accordingly, the Company
   believes that its valuable trade secrets and unpatented proprietary
   know-how are adequately protected.

      The technology applicable to the Company's products is developing
   rapidly.  A substantial number of patents have been issued to other
   biopharmaceutical companies.  In addition, competitors have filed
   applications for, or have been issued, patents and may obtain
   additional patents and proprietary rights relating to products or
   processes competitive with those of the Company.

      To the Company's knowledge, acetylated manna derivatives do not
   infringe any valid, enforceable, United States patents.  A number of
   patents have been issued to others with respect to various extracts of
   the Aloe vera plant and their uses and formulations, particularly in
   respect of skin care and cosmetic uses.  While the Company is not aware
   of any existing patents which conflict with its current and planned
   business activities, there can be no assurance that holders of such
   other aloe vera based patents will not claim that particular
   formulations and uses of acetylated manna derivatives in combination
   with other ingredients or compounds infringe, in some respect, these
   other patents.  In addition, others may have filed patent applications
   and may have been issued patents relating to products and technologies
   potentially useful to the Company or necessary to commercialize its
   products or achieve their business goals.  There is no assurance that
   the Company will be able to obtain licenses of such patents on terms
   acceptable to it.

      The Company has given the trade name Carrasyn(R) to certain of its
   products containing acetylated manna derivatives.  A selected series of
   domestic and foreign trademark applications exists for the marks
   Carrisyn(R), Manapol(R) and Carrasyn(R) which are registered in the United
   States and several foreign countries.  Further, the Company has filed
   applications for the registration of a number of other trademarks,
   including AVMP , both in the United States and in certain foreign
   countries.  The Company believes that its trademarks and trade names
   are valuable assets. 

                                 Employees

      As of March 1, 1996, the Company employed 276 persons, of whom 26
   were engaged in the operation and maintenance of its Irving processing
   plant, 131 were employed at the Company's facility in Costa Rica and
   the remainder were executive, research, quality assurance,
   manufacturing, administrative, sales, and clerical personnel.  Of the
   total number of employees, 102 were located in Texas, 131 in Costa Rica
   and one in Puerto Rico.  In addition, 42 sales personnel were located
   in 26 other states.  The Company considers relations with its employees
   to be good.  The employees are not represented by a labor union.
<PAGE>
                                  Financing

      In January 1995, the Company entered into a financing arrangement
   with NationsBank of Texas, N.A.  The agreement is composed of a
   $2,000,000 line of credit which expired one year from the date of the
   agreement and a $6,300,000 term loan that matures five years from the
   date of the agreement.  The interest rate on both credit facilities is
   prime plus one-half percent or the London Interbank Offering Rate plus
   200 basis points set for a period of thirty, sixty, ninety or one
   hundred eighty days.  The loans are collateralized by the Company's
   assets and contain certain covenants.  As of December 31, 1995, the
   Company was not in compliance with the term loan's fixed charge ration
   covenant.  The Company is in discussions with the Bank and is currently
   working toward a long-term resolution to the non-compliance.  As no
   binding amendments to the term-loan have been agreed upon as of March
   31, 1996, all outstanding debt under the term-loan has been presented
   as current for reporting purposes.  Given the current cash position,
   the Company's short- and long-term liquidity will not be significantly
   affected.  As of March 15, 1995, borrowings outstanding under the line
   of credit and term loan were $0 and $2,977,073, respectively.
<PAGE>
   
   ITEM  7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS.

   Background

   The Company is a research-based pharmaceutical and medical device
   company engaged in the development, manufacturing and marketing of
   carbohydrate-based therapeutics for the treatment of major illnesses
   and the dressing and management of wounds and other skin conditions. 
   The Company sells nonprescription products through its wound and skin
   care division; veterinary medical devices and pharmaceutical products
   through its veterinary medical division; and consumer products through
   its consumer products subsidiary, Caraloe, Inc.  The Company's research
   and product portfolio is primarily based on complex carbohydrate
   technology derived naturally from the Aloe vera plant.

   In February 1995, the Company changed its fiscal year ending from
   November 30 to December 31. Comparative financial statements reflect
   the single month of December 1994, the fiscal year ended December 31,
   1995, and the preceding fiscal years ended November 30.

   Liquidity and Capital Resources

   At December 31, 1995 and November 30, 1994, the Company held cash and
   cash equivalents of $6,222,000 and $1,805,000, respectively.  The
   increase in cash of $4,417,000 from November 30, 1994 to December 31,
   1995 was attributable to the issuance of common stock through a private
   placement and the exercise of options and warrants (see Note 8 to the
   consolidated financial statements) that resulted in an additional
   $11,602,000 cash.  The cash raised through the sale of common stock has
   been used for capital expenditures of $4,492,000, to increase inventory
   by $468,000, to reduce debt by a net amount of $570,000, to reduce
   trade accounts payable and accrued liabilities by $1,183,000 and to
   increase prepaid expenses and other assets by $666,000. Prior to the
   private placement, these expenditures were funded using the Company's
   line of credit. Subsequent to the private placement, the line of credit
   was paid off and no additional borrowings under the line have occurred.
   The capital expenditures related to construction at the Company's
   headquarters in Irving, Texas and the relocation of its manufacturing
   facility at a leased site to an unused portion of its headquarters (see
   Note 3 to the Consolidated Financial Statements).

   During the first quarter of 1994, the Company completed an evaluation
   of the production requirements necessary to meet all federal regulatory
   requirements as a fully-integrated pharmaceutical manufacturer and to
   provide the production capacity needed to meet long-term sales growth. 
   The Company has moved its wound and skin care manufacturing operation
   from a leased location to an unused portion of the Company's
   headquarters facility in Irving, Texas, and expanded its production
   capability through the addition of higher capacity equipment. At the
   same location, the Company has upgraded its capability to enable it to
   produce injectable products that meet FDA standards. 

   An increase in inventory was planned during the first half of the year
   to meet sales requirements during the period the manufacturing
   operations were relocating.  However, less than forecasted sales of the
<PAGE>
   Company's bulk Aloe vera products and less than projected sales in the
   Company's wound and skin care products during the year has resulted in
   higher than expected inventory levels.  The Company regularly evaluates
   its inventory levels and adjusts production levels at both its Costa
   Rica plant, where the bulk freeze-dried aloe vera extract is
   manufactured, and at its U.S. plant to meet anticipated demand.  As a
   result of these evaluations, inventory levels were reduced by $910,000.

   In January 1995, the Company entered into an agreement with NationsBank
   of Texas, N.A. for a $2,000,000 line of credit and a $6,300,000 term
   loan (see Note 6 to the consolidated financial statements).  This
   agreement increased the Company's available borrowing capacity by over
   $3,000,000.  As of December 31, 1995, the Company had available
   $2,000,000 under the line of credit and $823,000 under the term loan. 
   In addition to increasing the Company's credit capacity, the agreement
   lowered the interest rate that the Company has to pay on its
   outstanding debt by over one percent.  Proceeds from the term loan were
   used to fund planned capital expenditures, a letter of credit required
   by a supplier, as discussed below, and planned research projects.  The
   line of credit will be used for operating needs, as required.  As of
   December 31, 1995, the Company was not in compliance with the term
   loan s fixed charge ratio covenant.  The Company is in discussions with
   the Bank and is currently working toward a long-term resolution to the
   non-compliance.  As no binding amendments to the term-loan have been
   agreed upon as of March 31, 1996, all outstanding debt under the term
   loan has been presented as current for reporting purposes.  Given the
   current cash position, the Company's short- and long-term liquidity
   will not be significantly affected.

   In February 1995, the Company entered into a supply agreement with its
   supplier of freeze-dried products.  The agreement required that the
   Company establish a $1,500,000 letter of credit.  The term loan with
   NationsBank was used to fund this letter of credit.  The funding of the
   letter of credit reduces the amount that the Company can borrow under
   the term loan but does not increase the Company's debt unless the
   letter of credit is utilized by the supplier.  As of March 31, 1996 and
   January 16, 1997, the supplier had not made a presentation for payment
   under the letter of credit.  On April 29, 1996, the Company's
   management elected to pay off the entire term loan balance of
   $2,977,000 plus $18,000 in accrued interest with available cash to
   eliminate the interest expense on the term loan.  The Company pledged a
   $1,500,000 certificate of deposit (CD) to secure the letter of credit.
   The supply agreement also requires the Company to accept minimum
   monthly shipments of $30,000 and to purchase a minimum of $2,500,000
   worth of product over a period of five years.  At the request of the
   supplier, the minimum buy quantities were waived for the three month
   period ending December 31, 1996.  The supplier currently produces the
   CarraSorb(TM)M  Freeze Dried Gel and the Aphthous Ulcer Patch for the
   Company.  Both of these products represent new technology and are still
   in the product launch phase.  The Company had approximately $49,000 and
   $232,000 of CarraSorb(TM)M  and Aphthous Ulcer Patch inventory on hand as
   of March 31, 1996 and January 16, 1997, respectively.  Current sales
   are lower than the minimum purchase requirement but the Company
   believes that as demand for the new technology increases, demand will
   exceed the minimum purchase requirement.  The Company is in full
   compliance with the agreement and has the available resources to meet
   all future minimum purchase requirements as of January 16, 1997.
<PAGE>
   On April 5, 1995, the Company completed a self-directed private
   placement of 300,000 shares of common stock at a price of $10 per share
   (see Note 8 to the consolidated financial statements).  The net
   proceeds from this offering were $2,956,000.  Of these proceeds,
   $1,919,000 was used to pay off the outstanding balance and related
   interest on the Company's line of credit with NationsBank. 
   Additionally, $150,000 was used to pay off debt related to the
   Company's Costa Rica operations that bore an interest rate of 10.875%. 
   Remaining proceeds are being used to fund capital expenditures,
   research projects and other operating needs.  

   From February 1995 through December 1995, 71 employees and 6 directors
   exercised options for 580,951 shares of common stock.  The option
   prices ranged from $6.25 to $29.00.  A total of $7,349,000 was raised
   by the Company through the exercise of these options.  As part of
   registering for resale the shares issued in the April 1995 private
   placement, the Company allowed certain warrant holders to include the
   shares of common stock underlying their warrants in the registration if
   they would exercise the warrants within 30 days of the effective date
   of the registration statement.  Warrants covering a total of 92,000
   shares were exercised at prices of $6.25 to $16.25 per share, resulting
   in the Company's receipt of a total of $1,084,000.

   The Company began a large scale clinical trial during the third quarter
   of 1995 for the testing of its Aliminase(R) (formerly CARN 1000) oral
   capsules for the treatment of acute flare-ups of ulcerative colitis.
   The Company estimates that the cost of this clinical trial will be
   approximately $2,000,000, of which 20% was required as an up-front
   payment.  Payments made in advance to the clinical research
   organization resulted in prepaid expenses increasing.  In late 1995,
   the Company began an initial Phase I study using an injectable Alovex(TM) 
   (formerly CARN 750) in cancer patients involving six cancer types.  The
   estimated cost of this study is $475,000.  In the middle of 1996, the
   Company may begin a second large scale clinical trial for the testing
   of Aliminase(R) oral capsules for the treatment of ulcerative colitis. 
   The cost of this trial is expected to be approximately the same as the
   one that began in the third quarter of 1995.

   In November 1995, the Company signed a licensing agreement with a
   supplier of calcium alginates and other wound care products.  Under the
   agreement, the Company has exclusive marketing rights for ten years to
   advanced calcium alginate products for North and South America and in
   the People s Republic of China.  Per the agreement, the Company made an
   up-front payment to the supplier of $500,000.  This payment resulted in
   increasing the prepaid assets of the Company.  Additional payments
   totaling $500,000 will be made to the supplier as new products are
   delivered.

   The Company believes that its cash resources, including available cash,
   bank line of credit and term loan agreement (see Note 6 to the
   consolidated financial statements) and expected revenues from sales of
   wound and skin care, veterinary and consumer products will provide the
   funds necessary to finance its current operations.  The Company does
   not expect that these cash resources will be sufficient to finance the
   major clinical studies necessary to develop its products to their full
   commercial potential.  Additional funds, therefore, may have to be
   raised through equity offerings, borrowings, licensing arrangements, or
   other means.
<PAGE>
   The Company is subject to regulation by numerous governmental
   authorities in the United States and other countries.  Certain of the
   Company s proposed products will require governmental approval prior to
   commercial use. The approval process applicable to prescription
   pharmaceutical products usually takes several years and typically
   requires substantial expenditures. The Company and any licensees may
   encounter significant delays or excessive costs in their respective
   efforts to secure necessary approvals. Future United States or foreign
   legislative or administrative acts could also prevent or delay
   regulatory approval of the Company's or any licensees  products. 
   Failure to obtain requisite governmental approvals or failure to obtain
   approvals of the scope requested could delay or preclude the Company or
   any licensees from marketing their products, or could limit the
   commercial use of the products, and thereby have a material adverse
   effect on the Company's liquidity and financial condition.

   The production capacity of the Costa Rica plant is larger than the
   Company's current usage level. Management believes, however, that the
   cost of the Costa Rica facility will be recovered through operations.
   The upgraded facility will provide for the production of products
   needed for large scale clinical trials.  At March 11, 1996, the Company
   had no material capital commitments other than its promissory notes,
   leases, agreement with suppliers and clinical trials described above.


   Fiscal 1994 Compared to Fiscal 1995

   Net sales decreased from $25,430,000 to $24,374,000, or 4%.  The
   decrease of $1,056,000 resulted from a $2,557,000, or 11%, decrease in
   the Company's wound and skin care products.  Sales of these products
   decreased from $23,703,000 to $21,146,000.  Fourth quarter sales of the
   wound and skin care products decreased from $5,900,000 to $4,348,000,
   or 26%.  The Company's wound and skin care products have been marketed
   primarily to hospitals and select acute care providers.  This market
   has become increasing competitive as a result of pressures to control
   health care costs.  Hospital and distributors have reduced their
   inventory levels and the number of suppliers used.  Also, health care
   providers have formed group purchasing consortia to leverage their
   buying power.  This environment has required the Company to offer
   greater discounts and allowances throughout the year to maintain
   customer accounts. Discounts and allowances increased from $1,267,000
   to $3,063,000.  They averaged 6.2% of gross wound care sales in the
   fiscal fourth quarter of 1994, compared with a 18.3% average during the
   fourth quarter of 1995.  In February 1996, the Company revised its
   price list to more accurately reflect current market conditions. 
   Overall wound care prices were lowered by an average of 19%.  In
   addition to these cost pressures, over the last several years the
   average hospital stay has decreased over 50% resulting in more patients
   being treated at alternative care facilities and at home by home health
   care providers.  This also had a negative impact on sales since the
   Company's sales force had been primarily focused on the hospital
   market.  To counter the market changes, the sales force is now also
   aggressively pursuing the alternative care markets.
<PAGE>
   To continue to grow its wound care business, the Company realized that
   it had to expand from the $38 million hydrogel market in which it
   currently competes to a much larger segment of the billion dollar plus
   wound care market.  To achieve this objective, an aggressive program of
   new product development and licensing was undertaken in 1995 with the
   goal to create a complete line of wound care products to address all
   stages of wound management.  As a result of this program, the Company
   launched three new wound care product lines in late January 1996.  The
   Company expects to launch additional products in 1996.  However, the
   Company expects the first quarter of 1996 wound care sales to be over
   $1.5 million less than the first quarter of 1995 as a result of the
   reduced prices and other competitive market factors.  The Company
   expects the new products to improve sales during the second quarter.

   The decrease in the Company's wound and skin care products was
   partially offset by an increase in sales of Caraloe, Inc., the
   Company's consumer products subsidiary.  Caraloe's sales increased from
   $1,361,000 to $2,907,000, or 114%.  Of this, $1,513,000 is related to
   the sale of bulk Manapol(R) to one customer, Mannatech.  Sales of bulk
   Manapol(R) to Mannatech increased from $934,000 to $2,447,000.  Sales of
   the Company's veterinary products decreased from $366,000 to $321,000. 
   In March 1996, the Company entered into an agreement with Farnam,
   Companies, Inc., a leading marketer of veterinary products, to promote
   and sell its veterinary line on a broader scale.

   Cost of sales increased from $6,415,000 to $7,944,000, or 23.8%.  As a
   percentage of sales, cost of sales increased from 25.2% to 32.6%.  This
   increase is attributable to the increased sales of bulk Manapol(R), which
   has a substantially lower profit margin, 33%, as compared to the
   Company's wound and skin care products.  In January 1996, the profit
   margin on Manapol(R) was reduced to 8% as a result of current production
   levels and costs at the Company's Costa Rica facility.   Also, the
   increasing discounts, as discussed earlier, resulted in the Company's
   wound and skin care product costs increasing by approximately 4% as a
   percentage of sales.

   To accelerate new product development and reduce overhead, the Company
   was restructured in 1995.  The restructuring included the lay-off of
   seventeen high level and under-utilized positions in administration,
   marketing, and research and development for a net reduction in salaries
   and benefits of approximately $120,000 per month.  Also, the Company
   relocated its manufacturing operations to its current facility on
   Walnut Hill in Irving, Texas and immediately realized a reduction in
   overhead and production costs as the new facility is more efficient
   than the prior location.  As the Walnut Hill facility is owned by the
   Company, rent and other facility expenses related to the former
   production facility of approximately $25,000 per month were eliminated. 
   Each of these items is expected to reduce future expenses and improve
   cash flow results.  As a result of the restructuring, approximately
   $1.4 million of one-time charges were taken during 1995.  Of these
   charges, only $275,000 remained unpaid as of December 31, 1995.

   Of these charges, approximately $700,000 were selling, general and
   administrative expenses, $500,000 related to severance agreements,
   $130,000 was due to increased legal fees and a $70,000 write off of
   unamortized legal and banking costs that resulted when the Company
   refinanced its long term debt in 1993.  Approximately, $90,000 of cost
<PAGE>
   were incurred in 1995 to complete the refinancing.  These costs are
   included in other long term assets and will be amortized over the term
   of the loan.  As a result, selling, general and administrative expenses
   increased from $11,968,000 to $12,442,000, or 4%.

   Research and development expenses increased from $5,334,000 to
   $5,370,000, or 1%.  During the first half of 1995, $564,000 of cost
   associated with severance agreements resulting from the above described
   restructuring was charged to research and development.  These charges
   will reduce internal salaries on an ongoing basis.  However, this
   reduction was offset in 1995 by beginning the large scale clinical
   trial for the testing of Aliminase(R) (formerly CARN 1000) oral capsules
   for the treatment of acute flare-ups of ulcerative colitis during the
   third quarter of 1995.  The Company expects its research and
   development costs to increase by over $2,000,000 in 1996 due to the
   ulcerative colitis and cancer studies.

   Interest expense increased from $171,000 to $251,000, or 47%, due to
   increased borrowings during the first four months of 1995.  Interest
   income increased from $38,000 to $136,000, or 258%, due to having more
   excess cash to invest.

   Net income for 1994 was $1,421,000, compared with a net loss of
   $1,628,000 for 1995.  This change is a result a changing product mix,
   increased discounts and one-time charges related to restructuring. 
   Earnings per share were $.18 in 1994, compared to a loss per share of
   $.22 in 1995.  
   
   Fiscal 1993 Compared to Fiscal 1994

   Net sales increased from $21,184,000 to $25,430,000, or 20%.  The
   increase of $4,246,000 resulted from a $3,220,000, or 16%, increase in
   sales of the Company's wound and skin products due to a price increase
   that went into effect in January 1994.  Actual unit sales of the wound
   and skin care products were unchanged from 1993 to 1994.  Also
   attributing to this increase is a $1,084,000, or 393%, increase in
   sales of Caraloe, Inc., products, including bulk Manapol(R).  These
   increases were partially offset by a $58,000, or 13%, decline in sales
   of veterinary products.  Cost of sales increased from $5,288,000 to
   $6,415,000, or 21%, due to increase in net sales.  As a percentage of
   net sales, cost of sales was 25% in 1993 and 1994.

   Selling, general and administrative expenses increased from $9,371,000
   to $11,968,000, or 28%, representing a $1,904,000 volume-related
   increase in sales and marketing expenses and a $693,000 increase in
   general and administrative expenses attributable to increases in
   personnel-related costs and legal expenses.

   Research and development expenses decreased from $5,397,000 to
   $5,334,000, or 1%.  Significant research and development expenditures
   were postponed in 1994 principally due to deferred clinical studies
   while the Company was upgrading its manufacturing facilities to meet
   specification requirements for new products and while it was obtaining
   the necessary FDA clearances to conduct the clinical studies.
<PAGE>
   Interest expense decreased from $259,000 to $171,000.  Interest income
   decreased slightly from $40,000 to $38,000.  Net income increased from
   $805,000 to $1,421,000, or 77%, with earnings per share increasing from
   $.09 to $.18.
<PAGE>
   <TABLE>
   <CAPTION>   
   Consolidated Balance Sheets                 As of                
                                     November 30,    December 31,    December 31,
                                       1994            1994              1995
                                    -------------   -------------    ------------
   <S>                            <C>             <C>             <C>
   Assets
   Current Assets:
     Cash and cash equivalents     $ 1,804,638     $   464,367       $6,222,008
     Accounts receivable, net of 
       allowance for doubtful 
       accounts of $197,586, 
       $204,905 and $226,884 at 
       November 30, 1994, Decem-
       ber 31, 1994 and December 
       31, 1995, respectively         2,891,375       2,884,911       2,226,651
     Inventories                      4,635,769       5,047,149       5,103,988
     Prepaid expenses and other         641,184         538,650         858,506
         Total current assets         9,972,966       8,935,077      14,411,153
   Property, Plant & Equipment,
     at cost                         14,441,430      14,726,840      18,932,959
     Less   Accumulated depreciation (4,981,041)     (5,070,401)     (6,222,309)
                                     ----------      -----------     -----------
                                      9,460,389       9,656,439      12,710,650
   Other Assets                         363,391         307,460         812,294
                                     ----------      -----------     -----------
                                    $19,796,746     $18,898,977     $27,934,097
   Liabilities and Shareholders'  Investment
   Current Liabilities:
     Current portion of 
       long-term debt               $   649,993     $   450,395     $ 3,026,287
     Accounts payable                 1,217,511       1,557,946         589,607
     Accrued liabilities              2,385,842       1,408,075       1,830,573
     Short-term borrowings            1,000,000       1,046,532               
         Total current liabilities    5,253,346       4,462,948       5,446,467
   Long-term Debt, net of 
       current portion                2,034,563       1,997,261          88,506
   Shareholders  Investment:
     Preferred stock, $100 par value,
       1,000,000 shares authorized, 
       10,572, 10,572 and 11,840 
       Series C shares issued at 
       November 30, 1994, December 31,
       1994 and December 31, 1995, 
       respectively                  1,040,634       1,040,634        1,167,434
     Common stock, $.01 par value,
       30,000,000 shares authorized,
       7,344,390, 7,344,390 and 
       8,378,999 shares issued and 
       outstanding at November 30, 
       1994, December 31, 1994 and 
       1995, respectively               73,444         73,444            83,790
     Capital in excess of par value 33,074,508     33,074,508        44,666,112
     Deficit                       (21,505,938)   (21,576,007)      (23,344,401)
     Foreign currency
        translation adjustment        (173,811)      (173,811)         (173,811)
   Total shareholders  investment   12,508,837     12,438,768        22,399,124
                                   ------------   ------------      ------------
                                   $19,796,746    $18,898,977       $27,934,097
<TABLE/>
   The accompanying notes are an integral part of these balance sheets.
<PAGE>


</TABLE>
<TABLE>   
<CAPTION>
   Consolidated Statements of Operations

   For the Years Ended November 30, 1993 and 1994
     and the Month Ended December 31, 1994 and the 
     Year Ended December 31, 1995     November 30,             December 31,
                                  1993         1994          1994        1995
                               -----------  -----------  -----------  -----------
   <S>                        <C>          <C>          <C>          <C>
   Net Sales                   $21,183,774  $25,429,654  $ 1,781,017  $24,374,090
   Cost and Expenses:
      Cost of sales             5,288,450    6,414,757      516,247     7,944,271
      Selling, general and 
        administrative          9,370,946   11,968,200      984,535    12,441,972
      Research and development  5,397,000    5,333,780      326,916     5,370,109
      Interest expense            258,606      170,755       23,413       250,751
      Interest income             (39,860)     (38,411)         (25)     (136,096)
   Income before Income Taxes     908,632    1,580,573      (70,069)   (1,496,917)
      Provision for income taxes  104,000      159,335                    131,350
   Net Income                  $  804,632  $ 1,421,238   $  (70,069)  $(1,628,267)

   Net Income per Common and
      Common Equivalent Share: $      .09  $       .18   $     (.01)  $     (.22)
<TABLE/>
   The accompanying notes are an integral part of these statements.
<PAGE>
   
</TABLE>
<TABLE>
   <CAPTION>
   Consolidated Statements of Shareholders' Investment

   For the Years Ended November 30, 1993 and 1994, and the Month Ended
   December 31, 1994, and the Year Ended December 31, 1995,                         Foreign
                                                        Capital in                  Currency
          Preferred   Stock       Common     Stock      Excess of                   Translation
          Shares      Amount      Shares     Amount     Par Value      Deficit      Adjustment
   --------------------------------------------------------------------------------------------
   <S>    <C>      <C>         <C>         <C>       <C>           <C>            <C>
   Balance, November 30, 1992
           8,429    $ 826,334   7,296,202   $72,962   $32,761,703   $(23,495,021)  $(103,923)
     Issuance of common stock upon exercise
       of stock options and warrants
                                   40,377       404       253,933                     
     Dividends on preferred stock
           1,011      101,100                                  -       (111,674)        
     Net income for the year
                                       -                                804,632         
     Translation adjustment                                                         (69,888)
   -----------------------------------------------------------------------------------------
   Balance, November 30, 1993
          9,440     $ 927,434  7,336,579    $73,366   $33,015,636  $(22,802,063)  $(173,811)
   -----------------------------------------------------------------------------------------
     Issuance of common stock upon exercise 
       of stock options and warrants
                                   7,811         78        58,872                      
     Dividends on preferred stock
          1,132       113,200                                         (125,113)         
     Net income for the year
                                                                     1,421,238         
   ----------------------------------------------------------------------------------------
   Balance, November 30, 1994
        10,572     $1,040,634  7,344,390    $73,444   $33,074,508  $(21,505,938) $(173,811)
   ----------------------------------------------------------------------------------------
      Net loss for the month
                                                                       (70,069)       
   ----------------------------------------------------------------------------------------
   Balance, December 31, 1994
        10,572     $1,040,634  7,344,390    $73,444   $33,074,508  $(21,576,007) $(173,811)
   ---------------------------------------------------------------------------------------
<PAGE>   
   Sale of common stock at $10 per share, 
       net of issuance costs of $40,732
                                 300,000      3,000     2,956,268                      
     Issuance of common stock upon exercise
       of stock options and warrants
                                 710,536      7,105     8,426,340                      
     Issuance of common stock for 
       management and directors  compensation
                                  24,073        241       208,996                      
     Dividends on preferred stock
         1,268        126,800                                          (140,127)        
     Net loss for the year
                                                                     (1,628,267)         
   ----------------------------------------------------------------------------------------
   Balance, December 31, 1995
        11,840     $1,167,434  8,378,999    $83,790   $44,666,112  $(23,344,401) $(173,811)
   ----------------------------------------------------------------------------------------
   <TABLE/>
   The accompanying notes are an integral part of these statements.
<PAGE>
   
</TABLE>
<TABLE>
   <CAPTION>
   For the Years Ended November 30, 1993 and 1994
     and the Month Ended December 31, 1994 and the 
     Year Ended December 31, 1995       November 30,            December 31,
                                     1993        1994        1994        1995
                                 -----------  -----------  ----------  ---------
   <S>                           <C>         <C>          <C>        <C>
   Cash Flows from Operating Activities:
    Net income (loss)             $  804,632  $1,421,238   $(70,069)  $(1,628,267)
     Adjustments to reconcile income (loss)
     to net cash provided (used) 
        by operating activities:
      Depreciation and amortization  964,380   1,206,323     109,648    1,277,466
      Changes in assets and liabilities:
       Decrease (increase) in 
         accounts receivable, net    483,691    (603,534)      6,464      658,260
      (Increase) in inventories     (230,018) (2,072,239)   (411,380)     (56,839)
       Decrease (increase) in 
         prepaid expenses and other  227,782    (427,752)    102,534     (319,856)
      (Increase) decrease in 
         other assets               (90,290)      7,535      35,642       (630,391)
      Increase (decrease) in                                           
         accounts payable and
         accrued liabilities        773,838     838,264    (637,332)      (559,168)
                                 -----------  -----------  ----------  ------------
      Net cash provided (used) by 
        operating activities      2,934,015     369,835    (864,493)    (1,258,795)

   Cash Flows from Investing Activities:
    Purchases of property, 
      plant and equipment         (1,575,426)  (3,014,053)   (285,410)  (4,206,119)
                                 -----------  -----------  ----------  ------------
      Net cash used by 
        investing activities      (1,575,426)  (3,014,053)   (285,410)  (4,206,119)

   Cash Flows from Financing Activities:
    Issuances of common stock        254,337       58,951               11,392,713
    Proceeds from short and 
      long-term borrowings                      1,500,000                5,741,569
    Payments of short and 
      long-term debt                (590,730)    (385,224)   (187,111)  (5,847,644)
    Principal payments of 
      capital lease obligations      (69,819)     (48,266)     (3,257)     (64,083)
                                 ------------    ----------  ---------- -----------
      Net cash (used) provided by 
        financing activities        (406,212)   1,125,461    (190,368)   11,222,555

   Effect of Exchange Rate 
      Changes on Cash                (4,034)                                  
                                 -----------    ----------   ----------  ----------
   Net Increase (Decrease) in 
      Cash and Cash Equivalents      948,343   (1,518,757) (1,340,271)    5,757,641

   Cash and Cash Equivalents 
      at Beginning of Year         2,375,053    3,323,396   1,804,638       464,367
                                 -----------  -----------  ----------   -----------
   Cash and Cash Equivalents
       at End of Year             $3,323,396   $1,804,639  $  464,367    $6,222,008
                                 -----------  -----------  ----------    ----------
<PAGE>
   Supplemental Disclosure of 
    Cash Flow Information:
      Cash paid during the 
        year for interest         $  283,938   $  206,129  $   20,386   $  281,476
       Cash paid during the 
        year for income taxes        166,210      124,120                   99,157

   Supplemental Disclosure of 
    Non-Cash Financing Activities:
      Equipment acquired through
       capital leases                            114,203                       
      Issuances of common stock
       and warrants                                                       209,237
   <TABLE/>
   The accompanying notes are an integral part of these statements.
<PAGE>
   
   Notes to the Consolidated Financial Statements

   Note One. Summary of Significant Accounting Policies:

   In February 1995, the Company changed its fiscal year ending from
   November 30 to December 31. Comparative financial statements reflect the
   single month of December 1994, the fiscal year ended December 31, 1995,
   and the preceding fiscal years ended November 30.

   PRINCIPLES OF CONSOLIDATION   The consolidated financial statements
   include the accounts of Carrington Laboratories, Inc. (the  Company )
   and its subsidiaries, all of which are wholly owned. All intercompany
   accounts and transactions have been eliminated in consolidation. Certain
   prior year amounts have been reclassified to conform with 1995
   presentation.

   CASH EQUIVALENTS    The Company's policy is that all highly liquid
   investments purchased with a maturity of three months or less are
   considered to be cash equivalents.

   DEPRECIATION AND AMORTIZATION     Land improvements, buildings and
   improvements, furniture and fixtures and machinery and equipment are
   depreciated on the straight-line method over their estimated useful
   lives (3 - 40 years). Leasehold improvements and equipment under capital
   leases are depreciated over the terms of the respective leases (2 - 5
   years).

   TRANSLATION OF FOREIGN CURRENCIES     Based on an evaluation of the
   activities of its Costa Rica subsidiaries, as of September 1, 1993, the
   Company concluded that the functional currency for these operations was
   the U.S. dollar. Accordingly, such foreign entities translate monetary
   assets and liabilities at year-end exchange rates while non-monetary
   items are translated at historical rates. Revenue and expense accounts
   are translated at the average rates in effect during the year, except
   for depreciation and cost of sales which are translated at historical
   rates. Translation adjustments and transaction gains or losses are
   recognized in consolidated income in the year of occurrence.

   Prior to September 1, 1993, all assets and liabilities of foreign
   subsidiaries were translated into U.S. dollars at the exchange rates in
   effect at the balance sheet date. Revenue and expense accounts were
   translated at weighted average exchange rates. Translation gains and
   losses were reflected as a separate component of shareholders 
   investment.

   FEDERAL INCOME TAXES     Statement of Financial Accounting Standards
   ( SFAS ) No. 109,  Accounting for Income Taxes,  was issued in February
   1992. As permitted under SFAS No. 109, the Company elected to adopt the
   new standard retroactively to December 1, 1989. The adoption of SFAS No.
   109 had no significant impact on the financial condition and results of
   operations for any of the years presented. 
   
   Deferred income taxes reflect the tax effect of temporary differences
   between the amount of assets and liabilities recognized for financial
   reporting and tax purposes. These deferred taxes are measured by
   applying currently enacted tax laws. The effect on deferred income tax
   assets and liabilities of a change in tax rates is recognized in income
   in the period that includes the enactment date.
<PAGE>
   Certain of the Company's research and development expenditures qualify
   for tax credits and such credits are accounted for as a reduction of the
   current provision for income taxes in the year they are realized.

   RESEARCH AND DEVELOPMENT    Research and development costs are expensed
   as incurred. Certain laboratory and test equipment determined to have
   alternative future uses in other research and development activities
   have been capitalized and are depreciated as research and development
   expense over the life of the equipment.

   POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS  The Financial Accounting
   Standards Board has issued SFAS No. 106,  Employers  Accounting for
   Post-Retirement Benefits Other Than Pensions  and SFAS   No. 112,
   Employers  Accounting for Post-Employment Benefits.  The Company does
   not offer any post-retirement or post-employment benefits; therefore,
   these statements have no impact on the Company.

   EARNINGS PER SHARE    Earnings per share are based on the weighted
   average number of common and common equivalent shares outstanding during
   each period. Stock options and warrants  are included as common stock
   equivalents if the dilutive effect on net earnings per share is greater
   than 3%. The common stock equivalents were either antidilutive, or
   represented dilution of less than 3%, in 1993, 1994 and 1995. The
   weighted average number of common shares used in computing earnings per
   share was 7,323,521, 7,340,982 and 7,932,675 for the years ended
   November 30, 1993, 1994 and December 31, 1995.

   REVENUE RECOGNITION    The Company recognizes revenue when title to the
   goods transfers.  For the majority of the Company's sales, this occurs
   at the time of shipping.  Certain customers do not take title until the
   goods are delivered to their location or agent.

   USE OF ESTIMATES     The preparation of financial statements in
   conformity with generally accepted accounting principles requires
   management to make estimates and assumptions that affect the reported
   amounts of 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.


   Note Two. Inventories:

   Inventories are recorded at the lower of first-in, first-out cost or
   market. The following summarizes the components of inventory at November
   30, 1994 and December 31, 1995:
   
                                  1994                1995
   Raw materials and supplies   $  577,475          $  583,408
   Work-in-process               2,615,090           2,725,399
   Finished goods                1,443,204           1,795,181
                               ----------           ----------
                               $4,635,769           $5,103,988

   Included in work-in-process is $2,495,021 and $2,537,546 of freeze-dried
   aloe vera inventory as of November 30, 1994 and December 31, 1995,
   respectively. Finished goods consist of materials, labor and
   manufacturing overhead.
<PAGE>

   Note Three. Property, Plant and Equipment:

   The Company has a 6.6 acre tract of land and a 35,000 square foot office
   and manufacturing building situated thereon. This facility is located in
   Irving, Texas, a suburb of Dallas, and is used as the Company's
   headquarters.

   During July 1995, the Company completed the manufacturing and
   distribution project started during the first quarter of 1994. The
   project involved the physical relocation of its manufacturing operation
   from a leased facility in Dallas to an unused portion at the Company's
   corporate headquarters facility in Irving, Texas. The new facility is
   intended to meet all federal regulatory requirements applicable to
   provide the production capacity needed to meet long-term sales growth.
   At the same location, the Company has upgraded its capability to enable
   it to produce  injectable products that meet FDA standards. The total
   cost expended on the project was $4,469,000.

   During the first quarter of 1994, the Company initiated a project in
   Costa Rica to upgrade its production plant to meet regulatory
   requirements for the production of bulk acetylated oral and injectable
   mannans as required for investigational new drugs (INDs). This project
   was completed in the fourth quarter of 1994 and cost approximately
   $1,200,000. Funding was provided by existing cash on hand and cash flow
   from operations. The Company's net investment in property, plant,
   equipment and other assets in Costa Rica at November 30, 1994 and
   December 31, 1995 were $4,545,000 and $4,280,000, respectively.

   The production capacity of the Costa Rica plant is larger than the
   Company's current usage level. Management believes, however, that the
   cost of the Costa Rica facility will be recovered through operations.
   The upgraded facility will provide for the production of products needed
   for large scale clinical trials. Management will continue to assess the
   realizability of the Costa Rica plant assets and will use the
   methodology described in SFAS No. 121,  Accounting for the Impairment of
   Long-Lived Assets and for Long-Lived Assets to be Disposed of  when it
   adopts the statement in 1996. 

   The following summarizes the components of property, plant and equipment
   at November 30, 1994 and December 31, 1995:

                                     1994             1995
                                 -----------      -----------
   Land and improvements         $ 1,389,433      $ 1,389,334
   Buildings and improvements      4,166,115        8,072,992
   Furniture and fixtures            822,666          867,571
   Machinery and equipment         7,314,440        7,825,667
   Leasehold improvements            301,846          330,465
   Equipment under capital leases    446,930          446,930
                                -----------      ------------
                                $14,441,430       $18,932,959
<PAGE>
   Note Four. Accrued Liabilities:

   The following summarizes significant components of accrued liabilities
   at November 30, 1994 and December 31, 1995:

                                  1994              1995
                              ----------       ----------
   Accrued payroll            $  587,038       $  210,185
   Accrued management
       incentive compensation    386,533              
   Accrued sales commissions     199,622          251,511
   Accrued taxes                 133,055          165,249
   Preferred dividends           111,168          124,495
   Accrued severance liability   126,554          266,735
   Other                         841,872          812,398
                              ----------        ----------
                              $2,385,842       $1,830,573



   Note Five. Short-term Borrowings:

   Short-term debt activity for each of the years ended November 30, 1994
   and December 31, 1995 was as follows:

                                 1994               1995
                            -----------          -----------
   Average amount
      of short-term
      debt outstanding
      during the year        $    3,000           $  467,667
   Maximum amount
      of short-term
      debt outstanding
      during the year         1,000,000            1,905,259
   Average interest rate
      at year end                9.25%                  
   Average interest rate
      for the year                                    8.9%


   Note Six. Debt:
   
   On January 30, 1995, the Company entered into an agreement with
   NationsBank of Texas, N.A. (the  Bank ). The agreement is composed of a
   $2,000,000 line of credit that expires one year from the date of the
   agreement and a $6,300,000 term loan that matures four years from the
   date of the agreement. The term loan is payable in equal quarterly
   installments of $250,000 principal, plus accrued interest beginning
   March 31, 1995 and ending January 30, 1999, when the unpaid balance is
   due. The interest rate on both credit facilities is the Company's option
   of prime plus .5% or 30, 60, 90, 180 day reserve adjusted LIBOR (London
   Interbank Offering Rate) plus 2%. The Company paid a commitment fee of
   $31,500 on the closing date. In February, the Bank waived the
   requirement that the Costa Rica assets be pledged to secure the term
   loan. The Company agreed to pay an additional commitment fee of $31,500
   at that time. $1,900,000 of the borrowings from the Bank were used to
   pay off all of the outstanding balances on notes due to Texas Commerce
<PAGE>
   Bank Dallas, N.A. and $1,827,000 was used to pay off the outstanding
   balance on the mortgage on the Company's headquarters building in
   Irving, Texas.  Of the term loan, $1,500,000 was carved out to provide a
   letter of credit to a supplier. The letter of credit did not increase
   long-term debt but reduced the amount available to borrow under the term
   loan. The remaining proceeds will be used to fund planned capital
   expenditures, planned research projects, and other operating needs. As
   of December 31, 1995, no amounts were outstanding under the line of
   credit and $2,977,000 was outstanding under the term loan. The interest
   rate on the borrowing ranged from 7.70% to 8.125% between January 30,
   1995 and December 31, 1995.

   The borrowings under the agreement are secured by the Company's assets
   in the United States. The Company is required to maintain a consolidated
   tangible net worth of $12,000,000 through November 29, 1995; $13,750,000
   thereafter through November 29, 1996; $15,250, 000 thereafter through
   November 29, 1997; and $16,750,000 thereafter. Also, the Company cannot
   permit the ratio of its consolidated total liabilities to consolidated
   tangible net worth to exceed 1.0 to 1.0 at any time; the ratio of the
   sum of pretax net income plus unusual charges (severance, extraordinary
   legal fees and debt refinancing costs related to terminated debt
   agreements) plus interest expense plus lease expense to fixed charges
   (interest expense and lease expense) to be less than 1.75 to 1.0; or
   capital expenditures to exceed $6,500,000 from the date of the agreement
   to December 31, 1995 or $2,000,000 per year for the calendar years
   thereafter. In addition, the Company may not pay cash dividends. As of
   December 31, 1995, the Company was not in compliance with the term
   loan s fixed charge ratio covenant.  The Company is in discussions with
   the Bank and is currently working toward a long-term resolution to the
   non-compliance.  As no binding amendments to the term-loan have been
   agreed upon as of March 31, 1996, all outstanding debt under the term
   loan has been presented as current for reporting purposes.  Given the
   current cash position, the Company's short- and long-term liquidity will
   not be significantly affected.

   In order to help finance the development of the Company's Costa Rica
   facilities, the Company arranged a five-year U.S. dollar-denominated
   loan in the amount of $600,000 from Corporacion Privada de Inversiones
   de CentroAmerica, S.A. In May 1995, the note was paid off using proceeds
   of the Company's private placement (see Note 8.)

   Long-term debt of the Company for the years ended November 30, 1994 and
   December 31, 1995 is summarized as follows:

                                        1994             1995
                                    -----------       -----------
   Note payable on land
      and building                  $ 1,829,199        $       -
   Note payable on Costa Rica
     development costs                  233,318                -
   Term Loan                            416,667         2,977,071
   Obligations under capital leases     205,372           137,722
                                      2,684,556         3,114,793
                                    ----------         -----------
   Less   Current portion               649,993         3,026,287
                                    ----------         -----------
                                     $2,034,563        $   88,506
                                     ==========        ===========
<PAGE>
   The Company leases certain computer and other equipment under capital
   leases expiring at various dates through 1998. The following is a
   schedule of future minimum lease payments under the capital lease
   agreements together with the present value of these payments as of
   December 31, 1995:

   Fiscal Years Ending December 31,  
                               1996        $ 58,910
                               1997          51,164
                               1998          45,425
   Aggregate minimum lease payments         155,499
   Less - Imputed interest included in
     aggregate minimum lease payments        17,777
   Present value of aggregate minimum
      lease payments                       $137,722

   Note Seven. Preferred Stock:

   Series C Shares     In June 1991, the Company completed a transaction
   whereby the Company issued 7,909 shares of Series C 12% cumulative
   convertible preferred stock (the  Series C Shares ) in exchange for
   convertible debentures plus interest accrued to the date of exchange to
   a private investor (the  Investor ). The Series C Shares have a par
   value of $100 per share, are convertible at par into common stock of the
   Company at a price of $7.58 per share (subject to certain adjustments),
   are callable by the Company after January 14, 1996 and provide for
   dividend payments to be made only through the issuance of additional
   Series C Shares.

   Subsequent to year end, all cumulative convertible preferred stock was
   converted to 174,935 shares of the Company's common stock.
   The Company had previously issued to the Investor a warrant to purchase
   25,000 shares of common stock of the Company at $15 per share through
   February 1, 1996. The Company also extended by three years, to February
   1, 1996, the life of certain warrants that had previously been issued to
   this Investor for the purchase of 50,000 shares of common stock of the
   Company (20,000 of which are now owned 10,000 shares each by two
   executives of the Investor, one of whom is a director of the Company),
   and reduced the exercise price of such warrants from $25 to $15 per
   share, which was above the market price of the common stock at the date
   of adjustment.

   In addition to issuing the Series C Shares to the Investor, the Company
   also reduced the exercise price of warrants held by the Investor and one
   of its executive officers to purchase 65,000 shares of the Company's
   common stock from $15 per share to $12.75 per share, which was above the
   market price of the common stock at the date of adjustment.

   Subsequent to year end, the Investor exercised 25,000 warrants and the
   remaining 30,000 warrants at $12.75 per share.
<PAGE>
   Note Eight. Common Stock:

   Private Placement of Common Stock    In April 1995, the Company
   completed a self-directed private placement of 300,000 shares of
   unregistered common stock at a price of $10.00 per share. The average of
   the high and low sale price of the Company's common stock on the NASDAQ
   National Market on the day of the placement was $10.69 per share. Total
   proceeds net of issuance cost was $2,956,268. The Company agreed to use
   its best efforts to file a registration statement with the Securities
   and Exchange Commission within 90 days after the placement. Effective
   July 11, 1995, shares related to the private placement were registered
   for resale with the Securities and Exchange Commission. Proceeds from
   the placement were used for planned capital expenditures, payment of
   bank debt, research and development expenditures and other operating
   needs.
   Stock Options     The following summarizes stock option activity for
   each of the three years ended November 30, 1993, 1994 and December 31,
   1995:

                                       Options Outstanding
                                   Shares                Price Per Share
   Balance, November 30, 1992      644,855            $ 6.25    to  $29.00
       Granted                     240,205            $ 8.62    to  $13.50
       Lapsed or canceled         (114,320)           $ 6.25    to  $29.00
       Exercised                   (17,025)           $ 6.25    to  $10.25
   ------------------------------------------------------------------------
   Balance, November 30, 1993      753,715             $ 6.25    to  $29.00
       Granted                     268,350             $ 8.25    to  $12.75
       Lapsed or canceled         (118,275)            $ 6.25    to  $21.72
       Exercised                    (7,100)            $ 6.25    to  $10.25
   ------------------------------------------------------------------------
   Balance, November 30, 1994      896,690             $ 6.25    to  $29.00
       Granted                     575,475             $11.125   to  $35.25
       Lapsed or canceled          (72,036)            $ 8.625   to  $20.12
       Exercised                  (580,951)            $ 6.25    to  $29.00
   ------------------------------------------------------------------------
   Balance, December 31, 1995       819,178             $ 6.25   to  $35.25
   ------------------------------------------------------------------------
   Options exercisable at
     December 31, 1995              175,424             $ 6.25   to $29.00

   The Company has an incentive stock option plan (the"Option Plan") under
   which incentive stock options and nonqualified stock options may be
   granted to certain employees. Options are granted at a price no less
   than the market value of the shares on the date of the grant, except for
   incentive options to employees who own more than 10% of the total voting
   power of the Company's common stock, to whom incentive options are
   granted at a price no less than 110% of the market value. Options
   granted expire four to ten years from the dates of grant. 
   The Company has reserved 1,500,000 shares of common stock for issuance
   under the Option Plan. As of December 31, 1995 options to purchase
   369,725 shares have been granted under the Option Plan, of which no
   options for shares have been exercised. The Company's 1985 Option Plan
   expired February 1995. The Company has reserved 1,400,000 shares of
   common stock for issuance under this plan. At the time the plan expired,
   options to purchase 1,150,440 had been granted, of which options for
   678,951 shares have been exercised.
<PAGE>
   In October 1995, SFAS No. 123,  Accounting for Stock-Based
   Compensation,  was issued. The disclosure requirements of this statement
   are effective for financial statements for fiscal years beginning after
   December 15, 1995. The Company intends to elect the option allowing it
   to continue to apply the accounting provisions of APB Opinion 25,
    Accounting for Stock Issued to Employees.  With the Company's plan of
   adoption, the impact will be limited to additional footnote disclosure.

   Stock Warrants    From time to time, the Company has granted warrants to
   purchase common stock to the Company's research consultants and certain
   other persons rendering services to the Company. The exercise price of
   such warrants was the market price or in excess of the market price of
   the common stock at date of issuance. The following summarizes warrant
   activity for each of the years ended November 30, 1993, 1994 and
   December 31, 1995:

                                         Warrants Outstanding
                                    Shares               Price Per Share
                                   ---------           -------------------
   Balance, November 30, 1992        330,376            $ 5.25   to  $30.50
      Granted                         10,000                         $13.00
      Lapsed or canceled            (41,126)            $19.75   to  $30.50
      Exercised                     (20,750)            $ 5.25   to  $ 6.25
   ------------------------------------------------------------------------
   Balance, November 30, 1993        278,500            $ 6.25   to  $26.00
      Lapsed or canceled             (42,500)           $18.00   to  $26.00
   ------------------------------------------------------------------------
   Balance, November 30, 1994        236,000            $ 6.25   to  $20.12
      Lapsed or canceled            (130,000)           $11.25   to  $26.00
      Exercised                     (92,000)            $ 6.25   to  $16.25
   ------------------------------------------------------------------------
   Balance, December 31, 1995        99,000             $12.125  to  $20.12
   ------------------------------------------------------------------------
   Warrants exercisable at
     December 31, 1995               99,000             $12.125  to  $20.12


   Warrants for 78,000 shares expire in 1996. The remaining warrants for
   21,000 shares expire between 2000 and 2002.

   Employee Stock Purchase Plan    On October 29, 1992, the Company adopted
   an Employee Stock Purchase Plan (the  Stock Purchase Plan ). Under the
   Stock Purchase Plan, employees may purchase common stock at a price
   equal to the lesser of 85% of the market price of the Company's common
   stock on the last business day preceding the enrollment date as defined
   as January 1, April 1, July 1 or October 1 or any plan year or 85% of
   the market price on the last business day of the month. If any employee
   elects to terminate participation in the Stock Purchase Plan, the
   employee is not eligible to re-enroll until the first enrollment date
   following six months from such election. The Stock Purchase Plan
   provides for the grant of rights to employees to purchase a maximum of
   500,000 shares of common stock of the Company commencing on January 1,
   1993. As of December 31, 1995, 48,731 shares had been purchased by
   employees at prices ranging from $7.23 to $29.54 per share.
<PAGE>

   Note Nine. Share Purchase Rights Plan:

   The Company's Board of Directors adopted a share purchase rights plan by
   declaring a dividend distribution of one preferred share purchase right
   (a  Right ) on each outstanding share of the Company's common stock (the
    Common Shares ). The dividend distribution was made October 15, 1991,
   payable to shareholders of record on that date. The Rights are subject
   to an agreement (the  Rights Agreement ) between the Company and the
   Company's stock transfer agent, and will expire October 15, 2001, unless
   redeemed at an earlier date.

   Pursuant to the Rights Agreement, each Right will entitle the holder
   thereof to buy one one-hundredth of a share of the Company's Series D
   Preferred Stock (the  Preferred Shares ), at an exercise price of $80,
   subject to certain antidilution adjustments. The Rights will not be
   exercisable or transferable apart from the Common Shares, until (i) the
   tenth day after a person or group acquires 20% or more of the Common
   Shares or (ii) the tenth business day following the commencement of, or
   the announcement of an intention to make, a tender or exchange offer for
   20% or more of the Common Shares. The Rights will not have any voting
   rights or be entitled to dividends. If the Company is acquired in a
   merger or other business combination, each Right will entitle its holder
   to purchase, at the exercise price of the Right, a number of the
   acquiring company's common shares having a current market value of twice
   such price. Alternately, if a person or group acquires 20% or more of
   the Common Shares, then each Right not owned by such acquiring person or
   group will entitle the holder to purchase, for the exercise price, a
   number of Common Shares having a market value of twice such price. The
   Rights are redeemable at the Company's option for $.01 per Right at any
   time prior to the close of business on the seventh day after the first
   date of public announcement that a person or group has acquired
   beneficial ownership of 20% or more of the Common Shares. At any time
   after a person or group acquires 20% or more of the Common Shares, but
   prior to the time such acquiring person acquires 50% or more of the
   Common Shares, the Company's Board of Directors may redeem the Rights
   (other than those owned by the acquiring person or group), in whole or
   in part, by exchanging one Common Share for each Right.

   Note Ten. Operating Leases:

   The Company conducts a significant portion of its operations from an
   office/warehouse/distribution facility and an office/laboratory facility
   under operating leases that expire over the next seven years. In
   addition, the Company leases certain office equipment under operating
   leases that expire over the next four years.

   The Company is committed under noncancellable operating leases, with
   minimum lease payments as of December 31, 1995 as follows:
   Fiscal Years Ending December 31,
                 1996                $  403,425
                 1997                   410,130
                 1998                   419,733
                 1999                   394,128
                 2000                   134,055
                 Thereafter              82,809
                                     ----------
   Total minimum lease payments       $1,844,280
<PAGE>

   Total rental expense under operating leases was $422,337, $446,935 and
   $363,973 for the years ended November 30, 1993, 1994 and December 31,
   1995, respectively.


   Note Eleven. Income Taxes:

   The tax effects of temporary differences that give rise to deferred tax
   assets and deferred tax liabilities at November 30, 1994 and December
   31, 1995 are as follows:

                                               1994               1995
                                            ----------         ----------
   Net operating loss carryforward          $6,744,072         $9,834,875
   Research and development
      and other credits                        860,509            839,189
   Patent fees                                 287,450            308,110
   Other, net                                  526,930            794,948
   Less   Valuation allowance               (8,418,961)       (11,777,122)
                                            -----------       ------------
   Deferred income tax asset                 $   -              $    -  
                                            ===========       ============

   Pursuant to the requirements to SFAS No. 109, a valuation allowance is
   provided when it is more likely than not the deferred income tax asset
   will not be realized. The Company has provided a valuation allowance
   against the entire deferred tax asset at November 30, 1994 and December
   31, 1995.

   The provision for income taxes for the years ended November 30, 1993,
   1994 and December 31, 1995 consisted of the following:

                                    1993              1994             1995
                                 ---------          --------         --------
   Current provision              $104,000          $159,335         $131,350
   Deferred provision, net                                                 
                                 --------          --------          --------
   Total provision                $104,000          $159,335         $131,350
                                 ========          ========          ========
<PAGE>
   The differences (expressed as a percentage of pre-tax income) between
   the statutory and effective federal income tax rates are as follows:
   
                                   1993              1994             1995
                                 --------          --------          ------
   Statutory tax rate              34.0%             34.0%           (34.0%)
   State income taxes               6.2               5.4               2.8
   Recognition of previously
      unrecognized deferred
      tax benefits                (36.6)            (35.3)               -
   Unrecognized deferred tax
      benefit                        -                -                34.6
   Expenses related to foreign
      operations                    6.2               4.7               4.1
   Research and development
      tax credit adjustment          .7                .5                 -
   Other                             .9                .8               1.3
                                 --------          --------         --------
   Effective tax rate              11.4%             10.1%              8.8%
                                 ========          ========         ========


   At December 31, 1995, the Company had net operating loss carryforwards
   of approximately $28,926,000 for federal income tax purposes, which
   expire during the period from 2000 to 2010, and investment and research
   and development tax credit carryforwards of approximately $839,000,
   which expire during the period from 1999 to 2008, all of which are
   available to offset federal income taxes due in future periods.


   Note Twelve. Concentrations of Credit Risk:

   Financial instruments that potentially expose the Company to
   concentrations of credit risk, as defined by SFAS No. 105, consist
   primarily of trade accounts receivable. The Company's customers are not
   concentrated in any specific geographic region but are concentrated in
   the health care industry. Significant sales were made to two
   unaffiliated customers, Baxter Healthcare Corporation accounted for
   $2,146,000, $2,775,000 and $2,492,000 and Owens &Minor accounted for
   $1,456,000, $1,795,000 and $3,348,000 of the Company's net sales in
   1993, 1994 and 1995, respectively. Sales by Caraloe, Inc. to an
   unaffiliated customer, Mannatech, Inc., formerly Emprise, Inc.,
   accounted for $0, $934,000 and $2,488,000 of the Company's net sales in
   1993, 1994 and 1995, respectively. The Company performs ongoing credit
   evaluations of its customers  financial condition and establishes an
   allowance for doubtful accounts based on factors surrounding the credit
   risk of specific customers and historical trends and other information.


   Note Thirteen. Fair Values of Financial Instruments:

   SFAS No. 107,  Disclosures About Fair Value of Financial Instruments, 
   requires disclosure of the fair value of financial instruments. The
   following methods and assumptions were used by the Company in estimating
   the fair value disclosures for its financial instruments.
<PAGE>
   For cash, trade receivables and payables, the carrying amounts reported
   in the Consolidated Balance Sheets approximate fair value. The carrying
   amounts for revolving notes and notes payable approximate fair value
   based upon the borrowing rates currently available to the Company for
   similar bank loans.

   Note Fourteen. Unaudited Selected Quarterly Financial Data:

   The unaudited selected quarterly financial data below reflect the fiscal
   years ended November 30, 1994 and December 31, 1995, respectively.

   1994         1st Quarter     2nd Quarter     3rd Quarter     4th Quarter
                -----------     -----------     -----------     -----------
   Net sales    $6,414,153      $5,969,416      $6,303,426      $6,742,659
   Gross profit  5,092,901       4,508,094       4,682,973       4,730,929
   Net income      402,795         403,752         391,750         222,941
   Income per
       share           .05             .05             .05             .03
   Weighted average
       shares    7,337,458       7,339,148       7,342,932       7,344,390

   1995          1st Quarter     2nd Quarter     3rd Quarter     4th Quarter
                 -----------     -----------     -----------     -----------
   Net sales     $6,275,759      $6,407,881      $6,621,396      $5,069,054
   Gross profit   4,636,540       4,331,661       4,351,009       3,110,609
   Net income      (496,782)       (286,555)        162,522     
   (1,007,452)
   Income
      per share       (.07)            (.04)           .02            (.12)
   Weighted average
      shares      7,359,387       7,812,878       8,213,508       8,344,929
<PAGE>

   (15)     Sales by Division

   The following summarizes the Company's sales by division and
   consolidated sales for the years ending December 31, 1995, November 30,
   1994 and 1993
   (Dollar amounts in 000's)
                            Carrington Laboratories         Consolidated  
                        -------------------------------   ----------------

    Year Ended            Wound                Carrington  Caraloe   Total
     December 31, 1995    Care     Veterinary    Sales      Inc.     Sales
    ------------------  --------   ----------  ----------  -------  -------

    Sales, net           $21,147      $320      $21,467    $2,907   $24,374 
    Cost of Goods Sold     5,971       163        6,134     1,810     7,944 
                         --------    ------     --------   -------  ------- 
    Gross Margin         $15,176      $157     $ 15,333    $1,097   $16,430 
                         ========    ======     ========   =======  ======= 

    Year Ended
     November 30, 1994

    Sales, net           $23,665      $404      $24,069    $1,361   $25,430 
    Cost of Goods Sold     5,392       190        5,582       833     6,415 
                         --------    ------     --------   -------  ------- 
    Gross Margin         $18,273      $214      $18,487    $  528   $19,015 
                        ========    ======     ========   =======  ======= 
    Year Ended
     November 30, 1993

    Sales, net           $20,684      $463      $21,147    $   37   $21,184 
    Cost of Goods Sold     4,822       445        5,267        22     5,289 
                         --------    ------     --------   -------  ------- 
    Gross Margin         $15,862      $ 18      $15,880    $   15   $15,895 
                         ========    ======     ========   =======  ======= 
   <PAGE> 
   Report of Independent Public Accountants


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

   We have audited the accompanying consolidated balance sheets of
   Carrington Laboratories, Inc. (a Texas corporation), and subsidiaries as
   of November 30, 1994, December 31, 1994, and December 31, 1995, and the
   related consolidated statements of operations, shareholders  investment,
   and cash flows for each of the two years in the period ended November
   30, 1994, the month ended December 31, 1994, and the year ended December
   31, 1995. These financial statements are the responsibility of the
   Company's management. Our responsibility is to express an opinion on
   these financial statements based on our audits.

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

   In our opinion, the consolidated financial statements referred to above
   present fairly, in all material respects, the financial position of
   Carrington Laboratories, Inc., and subsidiaries as of November 30, 1994,
   December 31, 1994 and December 31, 1995, and the consolidated results of
   their operations and their cash flows for the two years ended November
   30, 1994, the month ended December 31, 1994 and the year ended December
   31, 1995, in conformity with generally accepted accounting principles.



   Arthur Andersen LLP
   Dallas, Texas
   February 9, 1996
<PAGE>   

                                    SIGNATURES

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

                                      CARRINGTON LABORATORIES, INC.



   Date: January __, 1997              By:  /s/ Sheri L. Pantermuehl
                                         ---------------------------
                                          Sheri L. Pantermuehl, CFO

    
     


    

</TABLE>