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, 1996
                  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.  [ ]

    The aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 14, 1997, was $51,179,297.  (This figure was computed
on the basis of the closing price of such stock on the NASDAQ National Market
on March 14, 1997 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.)
<PAGE>
    Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date:  
    8,873,639 shares of Common Stock, par value $.01 per share, were
outstanding on March  14, 1997.

               DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on May 22, 1997 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 naturally derived complex
carbohydrate and other natural product therapeutics for the treatment of
major illnesses and the dressing and management of wounds.  The Company
comprises three business divisions.  See Note Sixteen to the consolidated
financial statements in 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 growing
alternate care and home health care markets are also addressed through a
telemarketing sales team and a National Accounts Department.
<PAGE>
The Company's hospital field sales force currently employs 31 sales
representatives, each assigned to a specific geographic area in the United
States, four regional sales managers and a representative in Puerto Rico.  The
Company also uses three independent sales company employing eight sales
representatives to sell its products on a commission basis and an independent
sales representative in Canada.  In addition to this field sales force, the
Wound and Skin Care Division employs five 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. 
Three of the Company's largest distributors in the hospital market for the
last several years have been Allegiance Healthcare Corporation ("Allegiance",
formerly Baxter Healthcare Corporation), Owens & Minor and Bergen Brunswig,
which acquired Durr Medical and Colonial Healthcare in December 1996.  During
fiscal 1994, 1995 and 1996, sales of wound and skin care products to
Allegiance represented 11%, 10%, and 9%, respectively, of the Company's total
net sales.  Sales to Owens & Minor represented 7%, 14%, and 11%, respectively,
of total net sales over the same period.  Sales to Bergen Brunswig represented
8%, 10%, and 12%, respectively, of total net sales over the same period.

In November 1995, the Company signed a Sales Distribution Agreement with
Laboratories PiSA S.A., a Mexican corporation, for the exclusive distribution
rights to sell the Company's wound care products in Mexico, Guatemala,
Nicaragua, Panama, El Salvador, and the Dominican Republic for a period of
five years.

In May 1996, the Company entered into an agreement with Trudell Medical Group
("Trudell") granting Trudell exclusive Canadian distribution rights for the
Company's wound care products. 

In May 1996, the Company granted Ching Hwa Pharmaceutical Company, Ltd.
("CHP"), exclusive distribution rights to market the Company's wound care
products in the Republic of China.  CHP is required to register the Company's
products for sale in Taiwan within a specified time.

In October 1996, the Company signed an exclusive contract with Faulding
Pharmaceuticals to market the Company's wound care products in Australia and
New Zealand.  In December 1996, the Company entered into an agreement with
Suco International Corp. ("Suco") whereby the Company appointed Suco as
exclusive distributor of certain of the Company's products in Haiti, Columbia,
Venezuela, Uruguay, Bolivia, Peru, Paraguay, and Ecuador for a five-year term,
subject to early termination under certain circumstances.  The agreement
requires Suco to register the products covered by the agreement in each of
those countries.

In December 1996, the Company and Darrow Laboratorios S/A ("Darrow") entered
into a Sales Distribution Agreement whereby the Company appointed Darrow as a
marketer and distributor of certain of the Company's wound care products for a
term of 10 years (subject to early termination under certain circumstances) in
Brazil, with a limited right of first refusal to distribute those products in
Argentina, Uruguay, Paraguay, and Chile.  The agreement requires Darrow to
register such of the Company's products as the Company directs, at the
Company's expense, in Brazil and each other country where Darrow is authorized
to distribute such products.
<PAGE>
In December 1996, the Company and its Belgian subsidiary entered into an
agreement with Recordati Industria Chimica & Farmaceutica S.P.A. ("Recordati")
whereby the Company and its subsidiary jointly granted exclusive distribution
rights to Recordati for certain of the Company's products in Italy, Vatican
City and San Marino for a term of 10 years, subject to automatic renewal for
an additional two years unless either party elects to terminate the agreement
at the end of the initial term, and subject to early termination under certain
circumstances.  In return for the grant of the distribution rights, Recordati
made an initial payment to the Company and is obligated to make two additional
payments contingent on the occurrence of certain events.  Under the agreement,
the Company is obligated to apply for a CE mark for the products covered by
the agreement in the United Kingdom or another member of the European Economic
Community, and Recordati is obligated to register those products in each area
covered by the agreement.

In 1996, sales of the Company related to the above mentioned international
agreements were less than $100,000.  The Company can not estimate what sales
associated with these agreements will be in 1997.

                         Consumer Health

Caraloe, Inc., a separate subsidiary of the Company ("Caraloe"), 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[TM] 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
Aloe vera raw materials to commercial companies incorporating Aloe vera
mucilaginous polysaccharides into their established product lines.  

In May 1994, Caraloe signed an agreement with Mannatech, Inc., formerly
Emprise International, Inc., to supply it a product known as bulk Manapol(R)
powder.  In February 1996, an agreement was signed with Mannatech granting it
an exclusive license in the United States for Manapol(R) powder.  During
fiscal 1994, 1995, and 1996, sales of Manapol(R) powder to Mannatech
represented 4%, 10%, and 15%, respectively, of the Company's total net sales. 
In January 1997, the Company received notification from Mannatech that the
current supply agreement for Manapol(R) powder would be terminated effective
March 31, 1997.  As the supply agreement between Caraloe and Mannatech will
not be renewed, the exclusive license agreement for the Manapol(R) trade name
will also terminate and the Company will then be able to sell Manapol(R)
powder and/or license the trademark to other third parties as well as use
Manapol(R) powder in the Company's products.  The Company plans to reintroduce
its Manapol(R) capsules in April 1997.

In October 1996, Caraloe made a $200,000 investment in Aloe Commodities
International, Inc. ("ACI").  In February, 1997 Caraloe entered into a Supply
Agreement with ACI for a term of 10 years (subject to early termination under
certain circumstances).  The agreement contemplates that ACI will purchase
from Caraloe all of certain bulk raw materials that ACI needs for drinks and
other consumer products.
<PAGE>
In February 1997, Caraloe entered into a Supply Agreement with Light Resources
Unlimited ("LRU"), and effective March 1, 1997, Carrington entered into a
related Trademark License Agreement with LRU.  The terms of the Supply
Agreement and the Trademark License Agreement end on May 12, 2002, and May 4,
2002, respectively, and the term of each agreement is subject to early
termination under certain circumstances.  The Supply Agreement provides that
during the first three months of the term, LRU will purchase from Caraloe
quantities of AVMP(R) Powder and/or Manapol(R) Gold[TM] Powder ("Product") to
be mutually agreed upon, and beginning May 12, 1997, LRU will purchase from
Caraloe annually at least the minimum quantities of Product specified in the
agreement.  The Supply Agreement also contemplates that LRU will be Caraloe's
sole distributor of Product to natural health care practitioners in the United
States and Canada, subject to Caraloe's right to sell "simple purchase bulk
Product" to natural health care practitioners in quantities exceeding certain
specified limits.  The Trademark License Agreement grants LRU a non-exclusive
license to use the trademarks AVMP(R) Powder and Manapol(R) Gold[TM] Powder in
connection with the advertising and sale of Product.

                   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 is renewed on an annual basis and will be removed upon completion
and acceptance by the USDA of additional potency testing.  However, there can
be no assurance that these tests will result in the 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.

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.  The CarraVet[TM] product
line currently consist of nine products.


                     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
<PAGE>
based on a family of complex carbohydrates in the United States and in foreign
countries:  (i) to treat various forms of cancer; (ii) to treat inflammatory
bowel diseases, including ulcerative colitis, a widespread, chronic,
inflammatory disease of the colon; (iii) to treat non-healing and other
wounds; and (iv) for use as an adjuvant to various vaccines.  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(R) powders for both food grade and cosmetic grade products.  Further
refinement produces Bulk Pharmaceutical Mannans ("BAM's") that are used to
produce hydrogels; the Carrington[TM] Patch, an oral care product;
CarraSorb[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] capsules (formerly CARN 1000) which were being
developed for the ulcerative colitis program.  Finally, Bulk Injectable
Mannans ("BIM's") are marketed as Acemannan Immunostimulant (CARN 700), and a
product has been developed for the treatment of cancer, CarraVex[TM]
injectable (formerly CARN 750).

The Company expended approximately $5,334,000, $5,370,000, and $5,927,000 on
research and development in fiscal 1994, 1995, and 1996, respectively.  The
Company estimates that in fiscal 1997 it will spend substantially less on
research and development than in 1996.  Currently, the Company's research
staff comprises eight full-time employees as compared to 13 full-time
employees at the end of 1995.

                       Preclinical Research

The Company identified the characteristics of its naturally occurring 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 macrophages and other white blood cells to produce
cytokines, including interleukin-1, interleukin-6, tumor necrosis factor alpha
("TNFA") and nitric oxide ("NO"), that regulate other cells.  Interleukin-1
stimulates fibroblasts, which are essential to wound healing and NO is
involved in blood vessel regeneration.  Tumor necrosis factor alpha acts
against tumors in the body.  In addition, laboratory experiments conducted by
the Company have shown that some Aloe vera components have both pro- and
anti-inflammatory actions as shown in rodent models of wound healing and in
inflammation of the lung, colon, joint and ear.
<PAGE>
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.

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, 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, including CarraVex[TM]
injectable (formerly 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.
<PAGE>
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, based on discussions with
the USDA in 1996, that the USDA's remaining requirements to remove the
conditional restriction can be completed in 1997 (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[TM] (formerly CARN 1000) oral capsules 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[TM] capsules 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 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[TM] capsules in the treatment of
ulcerative colitis patients who are experiencing an acute flare-up of the
disease.  This study, completed in May 1994, 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[TM] capsules
in patients with ulcerative colitis began in September 1995.  Over 300
patients were enrolled in four groups comparing a placebo with three doses of
Aliminase[TM] capsules (150, 300 and 600 mg dosage levels, administered twice
daily for six weeks).  Results were assessed in October 1996 and failed to
show a therapeutic effect of Aliminase[TM] capsules as compared with the
placebo.  The program was placed on hold pending an in-depth evaluation of
dosage form, timing of dosing, frequency of dosing and route of
administration.  (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.")

Evaluation of CarraVex[TM] injectable (formerly CARN 750) in the Treatment of
Solid Tumors in Humans.  The Company believes that CarraVex[TM] injectable 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 CarraVex[TM]
injectable 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 treating dogs and cats, the Company has reason to believe that CarraVex[TM]
injectable may play a significant role in the treatment of cancer in humans.

Evaluation of the Carrington[TM] 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. 
<PAGE>
This product, the Carrington[TM] Patch, reduced the pain of these ulcers.  The
Company was given clearance by the FDA to market the freeze-dried formulation
for the management of oral aphthous ulcers in 1994.  In 1996, the FDA cleared
these additional indications to market: oral wounds, mouth sores, injuries and
ulcers of the oral mucosa including traumatic ulcers such as those caused by
braces and ill fitting dentures.  The product is being marketed as the
Carrington[TM] Patch. 

Evaluation of Carrasyn(R) 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.  A study conducted at the Diabetic Foot
and Wound Center in Denver, Colorado, suggested a higher incidence in wounds
healed in sixteen weeks with Carrasyn(R) wound gel as compared to saline
gauze.  Four new indications (post-surgical incisions, sunburn, diabetic
ulcers and radiation dermatitis) for Carrasyn(R) were added in 1995.  Further
studies may be conducted in 1997.

Evaluation of RadiaCare[TM] Gel in the Treatment of Radiation Dermatitis.  In
1996, a study was begun at the Texas Oncology Center of Dallas to determine if
RadiaCare[TM] Gel was of benefit in treating radiation dermatitis in humans. 
The results of this study should be known in mid-1997.

Evaluation of Carrasyn(R) Freeze-Dried Gel (CarraSorb[TM] M) in Wound Healing. 
Following the submission of a 510(k) pre-market notification for a
preservative-free freeze-dried gel for wound care, the FDA cleared Carrington
to market CarraSorb[TM] M, and it was launched in early 1996.  The Company is
performing a case study to support the marketing effort for this product.

Summary.  The following table outlines the status of the products and
potential indications of the Company's aloe-based products 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                     On hold

Injectable
  Human
    Anticancer            Melanoma, Breast, Prostate, Colon,     Phase I
                            Hypernephroma, and Soft Tissue    Clinical Trial
                            Sarcoma
<PAGE>
  Veterinary
    Anticancer            Fibrosarcoma                           Marketed

Dental
    Pain reduction        Aphthous Ulcers, Oral Wounds           Marketed

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


                           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.

                   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 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
both 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 210 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).

<PAGE>
                          Manufacturing

Prior to the second quarter of 1995, the Company produced substantially all of
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 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 to 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, foam
dressings, gel sheets, tablets, capsules 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 processing plant in Costa
Rica.  This facility has the ability to supply the bulk aloe 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 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
<PAGE>
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.

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.
<PAGE>
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 mannan 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 mannan 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 mannan 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 mannan derivatives, to
certain specific examples of such processes and to certain formulations of
acetylated mannan 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 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 mannan 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.
<PAGE>
The third series of patent applications, relating to the uses of acetylated
mannan 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 mannan 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 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 mannan 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 to skin care and cosmetic
uses.  While the Company is not aware of any existing patents which conflict
<PAGE>
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 mannan 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 acceptable terms.

The Company has given the trade name Carrasyn(R) to certain of its products
containing acetylated mannan 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(R), 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 3, 1997, the Company employed 252 persons, of whom 19 were engaged
in the operation and maintenance of its Irving processing plant, 127 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, 87 were located in
Texas, 127 in Costa Rica and one in Puerto Rico.  In addition, 37 sales
personnel were located in 21 other states.  The Company considers relations
with its employees to be good.  The employees are not represented by a labor
union.

                            Financing

In January 1995, the Company entered into a financing arrangement with
NationsBank of Texas, N.A. (the "Bank").  The agreement was 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 was to mature five years from the
date of the agreement.  The interest rate on both credit facilities was the
Company's option of 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 were collateralized by the Company's
assets and contained certain covenants.  As of December 31, 1995, the Company
was not in compliance with the term loan's fixed charge ratio covenant. 
Rather than amend the terms of the term loan agreement, 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's line of credit expired
January 30, 1996.  The Company had reached an oral agreement with the Bank for
a new line of collateralized credit for approximately $1,200,000.  However due
to fees that were payable for the unused line of credit and the Company's lack
of immediate need of cash, management elected to withdraw from discussions
with the Bank and allowed the agreement to be tabled until such time as a line
of credit is desirable and favorable to the Company. 
<PAGE>

                                   PART II

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA.

   The selected consolidated financial data below should be read in conjunction
   with the consolidated financial statements of the Company and notes thereto
   and "Item 7, Management's Discussion and Analysis of Financial Condition and
   Results of Operations."  The selected consolidated financial information for
   the five years ended December 31, 1996, is derived from the consolidated
   financial statements of the Company which have been audited by Arthur
   Andersen LLP, independent public accountants.

   <TABLE>
   <CAPTION>
   Years Ended November 30, 1992, 1993, and 1994,
   and Month Ended December 31, 1994 and
   Years Ended December 31, 1995 and 1996
   (Dollars and numbers of shares in thousands,
   except per share amounts))

                                               November 30,                     December 31,  
                                        ---------------------------      -------------------------
                                        1992       1993        1994      1994      1995       1996
   Operations Statement Information:   ------    -------     ------     ------    ------     ------
   <S>                               <C>       <C>         <C>        <C>      <C>        <C>
    Net Sales                         $ 20,064  $ 21,184    $ 25,430   $ 1,781  $ 24,374   $ 21,286
    Cost and expenses: 
     Cost of sales                       5,113     5,289       6,415       516     7,944     10,327
     Selling, general and 
          administrative                 9,687     9,371      11,968       985     12,442    10,771
     Research and development            4,141     5,397       5,334       327      5,370     5,927
     Cost of uncompleted public 
          offering                         400         -           -         -          -        - 
     Interest, net                         249       218         133        23        115     (304)
                                       -------    ------      ------     -----    -------    ------
   Income (loss) before income taxes       474       909       1,580       (70)    (1,497)   (5,435)
     Provision for income taxes            159       104         159         -        131        88
                                       -------    ------     -------     ------    -------   ------
   -
   Net income (loss)                  $    315  $    805    $  1,421    $  (70)   $(1,628)  $(5,523)
                                      ========  ========    ========    =======   ========  ========
   Net income (loss) per common      
     and common equivalent share:     $    .03  $    .09    $    .18    $ (.01)   $  (.22)  $  (.74)*
                                      ========  ========    ========    =======   ========  ========
   Weighted average shares
     used in per share computations      6,801     7,324       7,341      7,344      7,933    8,798
----------------------------------------------------------------------------------------------------


   Balance Sheet Information:
       Working capital                $  5,702  $  5,292    $  4,720     $ 4,472  $  9,095  $13,910
       Total assets                     15,115    16,305      19,797      18,899    27,934   31,202
       Long-term debt,
         net of current portion          2,821     2,168       2,035       1,997        88       46
                                       -------    ------      ------      ------    ------  -------
       Total shareholders' investment $ 10,062  $ 11,041    $ 12,509    $ 12,439  $ 22,399  $27,757
----------------------------------------------------------------------------------------------------
<PAGE>
</TABLE>
[FN]
   * Net loss per share for the year ended December 31, 1996, gives effect to 
     the accounting treatment announced by the staff of the Securities and 
     Exchange Commission relevant to the Company's Series E convertible 
     preferred stock having "beneficial conversion features."  The net loss 
     per share reflects a $986,000 preferred dividend as a result of this 
     treatment.  This treatment reflects the conversion premium as a 
     reduction of net income available to common shareholders between the time 
     it is offered, October 21, 1996, and the first available conversion date, 
     December 20,1996, to more closely reflect the evolving accounting 
     literature regarding accounting for beneficial conversion features.


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 naturally occurring
complex carbohydrate and other natural products for therapeutics in 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. (see Note 16 for
financial information on each of the segments).  The Company's research and
product portfolio is primarily based on complex carbohydrate technology
derived naturally from the Aloe vera plant.

Liquidity and Capital Resources

At December 31, 1996 and 1995, the Company held cash and cash equivalents of
$11,406,000 and $6,222,000, respectively.  The increase in cash of $5,184,000
is attributable to a private placement of preferred stock (see Note Eight to
the consolidated financial statements) and the issuance of common stock
through the exercise of stock options and warrants (see Note Nine to the
consolidated financial statements) that resulted in an additional $10,883,000
cash.  This increase in cash was partially offset by the retirement of all
bank debt and the purchase of a $1,500,000 certificate of deposit ("CD") (see
Note Four to the consolidated financial statements) as well as increased
research and development expenditures.  In March 1997, the Company repurchased
50% of the outstanding preferred stock for cash (see Note Eighteen to the
consolidated financial statements).

Although wound care sales for 1996 were lower than projected, the Company was
able to effectively manage and reduce inventory levels throughout 1996.  The
Company regularly evaluates its inventory levels and adjusts production at
both its Costa Rica plant, where the bulk freeze-dried Aloe extracts are
manufactured, and at its U.S. plant to meet anticipated demand.  As a result
of these evaluations, inventory reduction programs were initiated in the
latter part of 1995 and early 1996.  These programs included reduced
production at the Company's manufacturing facility in Irving, Texas, as well
as the Costa Rica facility.  As a result of these programs, inventory levels
were reduced by $1,481,000 during 1996, including a $630,000 reduction in the
production cost of Aloe vera derived products as described below.  As a result
of the decreased production levels, the Company expensed $1,396,000 of
unabsorbed overhead as cost of goods sold in 1996.
<PAGE>
The production capacity of the Costa Rica plant is larger than the Company's
current usage level.  The Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), in the first quarter of
1996.  SFAS 121 requires that long-lived assets held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts of the assets may not be recoverable.  At the time
of adoption, there was no impairment of asset value in Costa Rica based on
historical production levels and future capacity requirements needed to
produce the Company's drug Aliminase[TM], then under initial phase III
clinical trials (see discussion below).  In late October 1996, the Company
received the results of the initial phase III clinical trial for the testing
of Aliminase[TM] oral capsules, which indicated no statistically significant
differences that would support a conclusion that Aliminase[TM] oral capsules
provide a therapeutic effect in the treatment of ulcerative colitis.  As a
result, the Company terminated the second large scale clinical trial and
placed further testing of Aliminase[TM] oral capsules on hold.  These results
triggered a new assessment of the recoverability of the costs of the Costa
Rica plant's assets using the methodology provided by SFAS 121 in the fourth
quarter of 1996.  The net book value of the Costa Rica Plant assets as of
December 31, 1996, was $3,958,000.  The Company evaluated the value of Costa
Rica produced components in its current product mix to determine the amount of
net revenues, excluding Manapol(R) powder sales to Mannatech (see discussion
of Caraloe sales to Mannatech below), attributable to the Costa Rica plant. 
Cash inflows for 1997 and future years were estimated using management's
current forecast and business plan.  All direct costs of the facility,
including certain allocations of Company overhead, were considered in the
evaluation of cash outflows.  Results indicate there is no impairment of value
under SFAS 121.  However, there is no assurance that future changes in product
mix or the content of Costa Rica produced components in the current products
will generate sufficient revenues to recover the costs of the plant under SFAS
121 methodology.

As of March 14, 1997, the Company had no material capital commitments other
than its leases and agreements with suppliers.  In January 1995, the Company
entered into an agreement with NationsBank of Texas, N.A. (the "Bank") for a
$2,000,000 line of credit and a $6,300,000 term loan.  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 was to 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.  Rather than amend the terms of the term loan, 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.  All assets
previously collateralizing the term loan were released by the Bank.  The
Company pledged a $1,500,000 CD to secure the letter of credit as described
below.

Although the aforementioned CD matures every 90 days, the Company's management
has elected not to classify the CD as a cash equivalent.  As the CD secures a
letter of credit, described below, it is effectively unavailable to the
Company for other purposes until such time as the letter of credit expires or
is otherwise released.  Therefore, the CD is included in other non-current
assets for reporting purposes.

The line of credit agreement expired January 30, 1996.  The Company had
reached an oral agreement with the Bank for a new line of collateralized
credit for approximately $1,200,000.  However, due to fees that were payable
<PAGE>
for the unused line of credit and the Company's lack of immediate need of
cash, management elected to withdraw from discussions with the Bank and
allowed the agreement to be tabled until such time as a line of credit is
desirable and favorable to the Company.

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
initially used to fund this letter of credit.  The funding of the letter of
credit reduced the amount that the Company could borrow under the term loan
but did not increase the Company's debt unless the letter of credit was
utilized by the supplier.  As of March 14, 1997, the supplier had not made a
presentation for payment under the letter of credit.  In April 1996, and in
conjunction with the Company's settlement of the term loan, the Bank agreed to
reduce the fees on the letter of credit by one percentage point in
consideration of the Company's agreement to purchase and assign to the Bank a
CD in an amount equal to the letter of credit.  The Company will maintain the
CD until such time as the letter of credit expires or is otherwise released. 
The contract 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 purchase
requirements were waived for the three month period ending December 31, 1996. 
The supplier currently produces the CarraSorb[TM] M Freeze Dried Gel and the
Carrington[TM] (Aphthous Ulcer) Patch for the Company.  Both of these products
represent new technology and are still in the product acceptance and launch
phase.  The Company had approximately $325,000 and $370,000 of CarraSorb[TM] M
and Carrington[TM] (Aphthous Ulcer) Patch inventory on hand as of December 31,
1996 and March 11, 1997, respectively.  Current sales of both items are lower
than the minimum purchase requirement, but the Company believes that as
licensing, acceptance and demand for the new technology increases, demand will
exceed the minimum purchase requirement.  As of March 11, 1997, the Company
has purchased products totaling approximately $281,000 from this supplier. The
Company is in full compliance with the agreement and, as of March 14, 1997,
has the available resources to meet all future minimum purchase requirements.  

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.  Under 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 began a large scale clinical trial during the third quarter of
1995 for the testing of its Aliminase[TM] oral capsules for the treatment of
acute flare-ups of ulcerative colitis. The cost of this clinical trial was
approximately $2,300,000.  All expenses related to this trial have been
recognized and paid.  In the third quarter of 1996, the Company began a second
large scale clinical trial for the testing of Aliminase[TM] oral capsules for
the treatment of ulcerative colitis.  The cost of this trial was expected to
be approximately $2,500,000, of which approximately $212,000 was required as
an initial payment when the research contract was signed on September 19,
1996.  The full amount of the initial payment was expensed in the third
quarter.  In late October 1996, the Company received the results of the
initial phase III clinical trial for the testing of Aliminase[TM] oral
capsules, which indicated that no statistically significant differences were
found to support a therapeutic effect.  As a result, the Company terminated
<PAGE>
the second large scale clinical trial and placed further testing of
Aliminase[TM] oral capsules on hold.  Approximately $150,000 in cancellation
fees was recorded in relation to this termination.  No significant additional
expenses related to phase III trials of Aliminase[TM] oral capsules are
anticipated as of March 14, 1997.

In late 1995, the Company began an initial Phase I study using CarraVex[TM] 
injectable (formerly CARN 750) in cancer patients involving six cancer types. 
The estimated cost of this study is $475,000, of which, approximately $201,000
had been expensed as of December 31, 1996.  An additional $95,000 has been
expensed in the first quarter of 1997.

Also in late 1995, the Company initiated an ongoing program to reduce expenses
and the cost of manufacturing, thereby increasing the gross margin on existing
sales.  This program included a restructuring of the work force in Costa Rica
as well as a change in the manufacturing process for Aloe vera based raw
materials.  Product costs have been decreased through changes in product
packaging and other costs have been reduced through competitive bidding. 
Where appropriate, the Company now complies with lower USDA or food grade
requirements instead of more stringent FDA requirements.  The Company has
restructured the sales force to position it for growth and is refocusing the
sales effort to increase market share in the alternative care markets.  As
part of this restructuring, the Company eliminated six sales positions,
including representatives in five sales territories.  The Company replaced
three of these positions with commission based independent manufacturer's
representatives.  Two of the positions were integrated into existing sales
territories.  And finally, sales representatives in territories that were
contributing a low return are now compensated under a compensation plan that
emphasizes increased sales.  This compensation plan rewards the employee by
paying a commission on every sales dollar.  To offset the higher commissions,
the employees have a significantly lower base salary and are responsible for
covering their own travel and entertainment expenses.  This program will
continue into the foreseeable future and will continually challenge the costs
of doing business and where possible, further reduce the cost of operations.  

In October 1996, the Company completed a $6,600,000 financing involving the
private placement of Series E Convertible Preferred Stock (the "Series E
Shares").  At that time, plans called for much of the proceeds from this sale
to be used to continue Carrington's clinical research programs (see Footnote
Eight to the consolidated financial statements).  On October 31, 1996, the
Company announced the results of the first Phase III trial of Aliminase[TM]
oral capsules.  Due to the unfavorable results of the first Phase III trial,
the Aliminase[TM] project was placed on hold.  Additionally, the Company's
management canceled the second Phase III clinical trial then under contract. 
This event resulted in significant changes in the Company's planned uses of
and need for these funds.  

In addition to the change in the Company's needs, the decline in the market
price of the Company's Common Stock has increased the extent of the dilution
that would have occurred if all of the Series E Shares then outstanding were
converted into Common Stock.  For these and other reasons, the Company's Board
of Directors concluded that it was in the best interest of the Company and its
shareholders that the Company use a portion of its existing funds to
repurchase 50% of the Series E Shares (see Note Eighteen to the consolidated
financial statements).  On March 4, 1997, the Company completed a repurchase
of 50% of the above Series E Shares.

The Company believes that its available cash resources, after the above
described repurchase of the Series E Shares, and expected cash flows from
<PAGE>
operations will provide the funds necessary to finance its current operations. 
However, the Company does not expect that its current cash resources will be
sufficient to finance the major clinical studies and costs of filing new drug
applications 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, and there is no
assurance that the Company will be able to obtain such funds on satisfactory
terms when they are needed.

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.

Impact of Inflation

The Company does not believe that inflation has had a material impact on its
results of operations.

Fiscal 1996 Compared to Fiscal 1995

Net sales were $21,286,000 in 1996, compared with $24,374,000 in 1995.  This
decrease of $3,088,000, or 12.6%, resulted from a decrease of $3,845,000 in
sales of the Company's wound and skin care products from $21,147,000 to
$17,302,000, or 18.2%.  New products introduced in late January accounted for
$1,182,000 in wound and skin care sales during 1996.  The decrease in wound
and skin care sales was partially offset by a $787,000, or 27.1%, increase in
sales of Caraloe, Inc., the Company's consumer products subsidiary.

In the past, the Company's wound and skin care products have been marketed
primarily to hospitals and select acute care providers.  This market has
become increasingly competitive as a result of pressures to control health
care costs.  Hospitals and distributors have reduced their inventory levels
and the number of suppliers used.  Also, health care providers have formed
group purchasing consortiums to leverage their buying power.  This environment
required the Company to offer greater discounts and allowances to maintain
customer accounts.  Additionally, in the fourth quarter of 1995, the Medicare/
Medicaid reimbursement rate for hydrogels was significantly reduced (from 1
ounce per day to 3 ounces per month).  This change significantly reduced the
demand for hydrogels in the market place.  In February 1996, the Company
revised its price list to more accurately reflect current market conditions. 
Overall wound and skin care prices were lowered by a weighted average of
19.1%.  With the February price reduction, the Company expected, and began to
realize, a decrease in the amount of discounts required.  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
<PAGE>
focused on the hospital market.  To counter the market changes, the sales
force is now also aggressively pursuing the alternative and home health care
markets.

To continue to grow its wound care business, the Company realized that it had
to expand from the estimated $38 million hydrogel market in which it competed
to a much larger segment of the estimated billion dollar wound care market. 
To achieve this objective, an aggressive program of new product development
and licensing was undertaken in 1995 with the goal of creating 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 types in
late January 1996.  The Company expects to launch additional products in 1997.

Caraloe's sales increased from $2,907,000 to $3,694,000, or 27.1%.  Caraloe
sales to Mannatech increased from $2,488,000 to $3,273,000.  Of the 1996
sales, $3,213,000 was related to the sale of bulk Manapol(R) powder.  Pursuant
to the Supply Agreement, Mannatech is currently required to purchase a minimum
of 225 kilograms of Manapol(R) powder per month at a purchase price of $1,200
per kilogram.  The Supply Agreement provides for an increase in Mannatech's
minimum purchase requirement commencing in April 1997, but it also provides
for renegotiation by the parties by March 15, 1997 of the purchase price to be
paid by Mannatech for Manapol(R) powder.  The Company has been informed by
Mannatech that the supply agreement will not be renewed.  Mannatech has
indicated it will honor the minimum purchase requirements through March 31,
1997, the termination date.  As the Supply Agreement between Mannatech and the
Company will not be renewed, the exclusive license agreement for the
Manapol(R) trade mark will also terminate on March 31, 1997.   The Company
will then be able to sell Manapol(R) powder or license the trade mark to other
third parties as well as use it in the Company's products.  Mannatech may
continue to purchase Manapol(R) powder on an as-needed basis.  The termination
of the Supply Agreement could have a material effect on the Company's results
of operations. 

Sales of the Company's veterinary products decreased from $320,000 to
$290,000.  In March 1996, the Company entered into an agreement with Farnam
Companies, Inc., a leading marketer of veterinary products, to promote and
sell the Company's veterinary line on a broader scale.  In 1997, the Company
will begin to private label the veterinary line under the Farnam name.  Farnam
has increased its sales force to improve the market share of the private
labeled products.

Cost of sales increased from $7,944,000 to $10,327,000, or 30.0%.  As a
percentage of sales, cost of sales increased from 32.2% to 42.0% after
adjusting for a $630,000 inventory valuation decrease on June 30, 1996, as
described below, and period costs of $104,000 and $766,000 in 1995 and 1996,
respectively.  The period costs are related to the annual shutdown of the
facility in Costa Rica for routine maintenance and inventory reduction
programs.  The increase in cost of goods sold is largely attributable to the
increased sales of bulk Manapol(R) powder, which had a substantially lower
profit margin in the first quarter of 1996 as compared to 1995, as a result of
decreased production levels in the first quarter of 1996, and as compared to
the margins on the Company's wound and skin care products, and the overall
19.1% price decrease which occurred in February of 1996.  Additionally, all of
the new products introduced in the first half of 1996 are manufactured for the
Company by third-party manufacturers and have a lower profit margin than the
products manufactured by the Company.
<PAGE>
As a result of the implementation of programs to reduce operating and
production costs, several changes were implemented at the Company's Costa Rica
production facility in early 1996.  This facility produces all of the
Company's freeze dried Aloe vera raw materials.  Among these changes was a
restructuring of the work force as well as improvements in efficiencies in the
manufacturing process.  The implementation of these changes significantly
reduced the cost of Costa Rica production in the second quarter of 1996.  As a
result of these reductions in cost, the actual cost of production under FIFO
as of June 30, 1996, was approximately 18% lower than the Company's standard
cost, which was equal to the FIFO cost of production at December 31, 1995 and
March 31, 1996.  The Company determined that the standard cost should be reset
to the then current actual cost of production.  This reduction in standard
FIFO cost decreased inventory valuation by $630,000.  This amount represents
the change in the accumulated value of all items in inventory as of June 30,
1996 that were produced in Costa Rica as well as those finished goods that
contain component items produced in Costa Rica.  This decrease in inventory
value was expensed in the second quarter as a period cost and is included in
cost 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.  Approximately $15,000 of these savings were
offset with the hiring of Kirk Meares, Vice President of Sales and Marketing,
in the second quarter of 1996.  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
$1,400,000 of one-time charges were taken during 1995.  Of these charges,
approximately $147,000 of severance compensation was paid in the first two
quarters of 1996.  Of this amount, $75,000 was a final payment to a single
former high ranking research and development employee.  This negotiated
payment relieved the Company of $128,000 in future severance compensation
liability to this employee.  As of June 30, 1996, all liabilities resulting
from the restructuring were paid in full or otherwise relieved.

Selling, general and administrative ("SG&A") expenses decreased to $10,771,000
from $12,442,000, or 13.4%.  This decrease was attributable in part to
approximately $900,000 in one-time charges in the first nine months of 1995. 
These one-time charges were related to severance agreements, legal expenses
and settlements and debt refinancing costs.  This was partially offset as the
Company incurred approximately $150,000 in additional costs related to the
launch of three new product types and a one-time write-off of approximately
$92,000 of bank and legal charges related to the early retirement of all bank
debt in 1996.  Also contributing to the reduced SG&A expenses were the
benefits received from the cost reduction programs put in place earlier in the
year as well as savings generated from the restructuring of the sales force.
<PAGE>
Research and development ("R&D") expenses increased to $5,927,000 from
$5,370,000, or 10.4%.  This increase was the result of beginning the initial
large scale phase III clinical trial for the testing of Aliminase[TM] oral
capsules for the treatment of acute flare-ups of ulcerative colitis during the
third quarter of 1995.  This study was substantially completed in the third
quarter of 1996.  In September of 1996, the Company initiated the second
pivotal phase III testing of Aliminase[TM] oral capsules.  The initial payment
of approximately $212,000 was expensed in the third quarter.  In late October
1996, the Company received the results of the initial phase III clinical trial
for the testing of Aliminase[TM] oral capsules, which indicated that no
statistically significant differences were found to support a therapeutic
effect.  As a result, the Company terminated the second large scale clinical
trial and placed further testing of the Aliminase[TM] oral formulation on
hold.  Approximately $150,000 in cancellation fees was recorded in the third
quarter of 1996.  Additional R&D costs related to the ongoing cancer research
contributed to the increase in R&D during 1996 as well.  These costs were
partially offset by a reduction of internal salaries and other operating
expenses.

Net interest income of $304,000 was realized in 1996, versus net interest
costs of $115,000 in 1995, due to having more excess cash to invest as well as
the retirement of all bank debt in April 1996.

Net loss for 1996 was $5,523,000, versus a net loss of $1,628,000 for 1995. 
This change is a result of a changing product mix, more products manufactured
by third parties, decreased sales which resulted from a change in the Medicare
reimbursement rates, and increased research and development expenditures
related to the Phase III ulcerative colitis study and the ongoing Phase I
cancer study.  Loss per share was $.74 in 1996, compared to a loss per share
of $.22 in 1995.  The loss per share available to common shareholders in 1996
includes the recognition of a $986,000, or $.11 per share, beneficial
conversion feature of the Company's Series E convertible preferred stock,
accounted for as a preferred dividend in the calculation of loss per share for
the year ended December 31, 1996.


Fiscal 1995 Compared to Fiscal 1994

Net sales decreased from $25,430,000 to $24,374,000, or 4%.  The decrease of
$1,056,000 resulted from a $2,518,000, or 11%, decrease in sales of the
Company's wound and skin care products.  Sales of these products decreased
from $23,665,000 to $21,147,000.  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 increasingly competitive
as a result of pressures to control health care costs.  Hospitals and
distributors have reduced their inventory levels and the number of suppliers
used.  Also, health care providers have formed group purchasing consortiums to
leverage their buying power.  This environment required the Company to offer
greater discounts and allowances during 1995 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 an 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
<PAGE>
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 and home health care markets.

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) powder
to one customer, Mannatech.  Sales of bulk Manapol(R) powder to Mannatech
increased from $934,000 to $2,447,000.  Sales of the Company's veterinary
products decreased from $404,000 to $320,000.  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 was attributable in part to the increased sales of bulk Manapol(R)
powder, 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) powder 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 $1,400,000 of one-time charges were taken during 1995.  Of these
charges, only $275,000 remained unpaid as of December 31, 1995.

Of the above 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 costs were incurred in 1995 to complete
the refinancing.  These costs were included in other long-term assets and were
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[TM] (formerly CARN
1000) oral capsules for the treatment of acute flare-ups of ulcerative colitis
during the third quarter of 1995.
<PAGE>
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.

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

All statements other than statements of historical fact contained in this
report, including but not limited to statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (and
similar statements contained in the Notes to Consolidated Financial
Statements) concerning the Company's financial position, liquidity, capital
resources and results of operations, its prospects for the future and other
matters, are forward-looking statements.  Forward-looking statements in this
report generally include or are accompanied by words such as "anticipate,"
"believe," "estimate," "expect," "intend" or words of similar import.  Such
forward-looking statements include, but are not limited to, statements
regarding the Company's plan or ability to recover the cost of the Costa Rica
plant, to absorb the plant's operating cost, to achieve growth in demand for,
or sales of, products, to reduce expenses and manufacturing costs and increase
gross margin on existing sales, to use the proceeds from its sale of Series E
Convertible Preferred Stock to continue its clinical research programs, to
file a registration statement and have it declared effective within the time
required by its agreements with the holders of its Series E Convertible
Preferred Stock, to vigorously defend the legal proceedings described in this
report, to maintain the CD that secures its outstanding letter of credit, to
obtain financing when it is needed, to increase the Company's market share in
the alternative and home health care markets, to improve its revenues and fund
its operations from such revenues and other available cash resources, to enter
into licensing agreements, to develop and market new products and increase
sales of existing products, to obtain government approval to market new
products, to expand its business into a larger segment of the market for wound
care products and increase its market share in the alternative care markets,
to promote and sell its veterinary products on a broader scale, and various
other matters.

Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, no assurance can be given that such
expectations will prove correct.  Factors that could cause the Company's
results to differ materially from the results discussed in such
forward-looking statements include but are not limited to the possibilities
that the
Company may be unable to obtain the funds needed to carry out large scale
clinical trials and other research and development projects, that the results
of the Company's clinical trials may not be sufficiently positive to warrant
continued development and marketing of the products tested, that new products
may not receive required approvals by the appropriate government agencies or
may not meet with adequate customer acceptance, that the Company may not be
able to obtain financing when needed, that the Company may not be able to
obtain appropriate licensing agreements for products that it wishes to market
or products that it needs assistance in developing, that demand for the
Company's products may not be sufficient to enable it to recover the cost of
the Costa Rica plant or to absorb all of that plant's operating costs, and
that the Company's efforts to improve its sales and reduce its costs may not
be sufficient to enable it to fund its operating costs from revenues and
available cash resources.
<PAGE>
All forward-looking statements in this report are expressly qualified in their
entirety by the cautionary statements in the two immediately preceding
paragraphs.                                   

                                 PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
           8-K.

(a)(1) Financial Statements.

   Reference is made to the index on page F-1 for a list of all financial
   statements filed as a part of this Annual Report.

   (2) Financial Statement Schedules.   

   Reference is made to the index on page F-1 for a list of all financial
   statement schedules filed as a part of this Annual Report.

   (3) Exhibits.   

   Reference is made to the Index to Exhibits on pages E-1 through E-10 for a
   list of all exhibits filed as a part of this Annual Report.

(b) Reports on Form 8-K.   

   During the last quarter of 1996, the Company filed a Form 8-K Current
Report dated October 21, 1996 with the Securities and Exchange Commission
describing the Company's private placement of 660 shares of Series E
Convertible Preferred Stock.  See Notes Eight and Eighteen to the Consolidated
financial statements for a description of that private placement and
subsequent repurchase by the Company of 330 such shares.


                         CARRINGTON LABORATORIES, INC.
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                      AND FINANCIAL STATEMENT SCHEDULES

Consolidated Financial Statements of the Company:

  Consolidated Balance Sheets --
    December 31, 1995 and 1996                                 F - 2

  Consolidated Statements of Operations -- year ended 
    November 30, 1994, month ended December 31, 1994
    and years ended December 31, 1995 and 1996                 F - 3

  Consolidated Statements of Shareholders' Investment -- 
    year ended November 30 1994, month ended December 31, 1994
    and years ended December 31, 1995 and 1996                 F - 4

  Consolidated Statements of Cash Flows -- year ended
    November 30, 1994, month ended December 31, 1994
    and years ended December 31, 1995 and 1996                 F - 5

  Notes to Consolidated Financial Statements                   F - 6

  Report of Independent Public Accountants                    F - 28
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Dollar amounts in thousands, except share amounts)

                                                December 31,     December 31, 
                As of                              1995             1996    
                                               ------------     ------------
<S>                                              <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents                       $ 6,222         $11,406 
  Accounts receivable, net of
    allowance for doubtful accounts of
    $227 and $213 as of December 31,
    1995 and 1996, respectively                     2,227           1,912 
  Inventories                                       5,235           3,623 
  Prepaid expenses                                    858             368 
                                                  -------         -------
Total current assets                               14,542          17,309
  Property, plant and equipment, at cost           18,933          18,851
  Less: Accumulated depreciation                   (6,222)         (7,173)
                                                   12,711          11,678 
  Other assets                                        681           2,215 
                                                  -------         -------
Total assets                                      $27,934         $31,202 
                                                  =======         =======

LIABILITIES AND SHAREHOLDERS' INVESTMENT 
LIABILITIES:
  Current portion of long-term debt               $ 3,026         $    29 
  Accounts payable                                    590           1,621 
  Accrued liabilities                               1,831           1,749 
  Short-term borrowings                               -               -   
Total current liabilities                           5,447           3,399 

  Long-term debt,
   net of current portion                              88              46 
                                                  --------        --------
SHAREHOLDERS' INVESTMENT:
 Preferred stock, 1,000,000 shares
  authorized (all series)
   Series C, $100 par value,
     11,840, and 0 shares issued 
     December 31, 1995 and
     1996, respectively                             1,167             -
   Series E Convertible, $100 par
     value, 660 issued at 
     December 31, 1996                                -                66 
 Common stock, $.01 par value,
  30,000,000 shares authorized, 
  8,378,999, and 8,869,819
  shares issued and outstanding at 
  December 31, 1995 and 1996,
  respectively                                         84              89 
 Capital in excess of par value                    44,666          56,680 
<PAGE>
 Deficit                                          (23,344)        (28,904) 
 Foreign currency translation adjustment             (174)           (174)
                                                  --------        --------
Total shareholders' investment                     22,399          27,757 
                                                  --------        --------
Total liabilities and
   shareholders' investment                       $27,934         $31,202 
                                                  =======         ========

                                    F - 2
</TABLE>
[FN]
The accompanying notes are an integral part of these balance sheets.
<PAGE>

<TABLE>
<CAPTION>
Consolidated Statements of Operations For the Year Ended November 30, 1994,
the Month Ended December 31, 1994 and the Years Ended December 31, 1995 and
1996 (Dollar amounts in thousands, except per share amounts)


                                     November 30,               December 31,
                                     ------------      ----------------------------
                                        1994           1994         1995       1996  
                                       ------         ------       ------     ------    
<S>                                   <C>            <C>         <C>        <C>
Net sales                              $25,430        $1,781      $24,374    $21,286 
Cost and expenses:
  Cost of sales                          6,415           516        7,944     10,327 
  Selling, general and
    administrative                      11,968           985       12,442     10,771
  Research and development               5,334           327        5,370      5,927
  Interest expense                         171            23          251         88 
  Interest income                          (38)          -           (136)      (392)
                                       --------       -------     --------   --------
  Income (loss) before
    income taxes                         1,580           (70)      (1,497)    (5,435)
                                       --------       -------     --------   --------
  Provision for income taxes               159           -            131         88 
  Net income (loss)                    $ 1,421        $  (70)     $(1,628)   $(5,523)
                                       =======        =======     ========   ========    
Weighted average
    shares outstanding                   7,341         7,344        7,933      8,798

Net income (loss) per common and 
  common equivalent share              $   .18        $ (.01)      $ (.22)   $  (.63)

Preferred stock beneficial 
  conversion feature (Series E)              -             -             -      (.11)
                                       -------        -------      -------   --------
Net income (loss) per common
  and common equivalent share
  available to common shareholders     $   .18        $ (.01)      $ (.22)   $  (.74)
                                       =======        =======      =======   ========

                                            F - 3
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE>

<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Investment
For the Year Ended November 30, 1994, the Month
Ended December 31, 1994, and the Years Ended
December 31, 1995 and 1996
(Dollar amounts and share amounts in thousands)

                                                                                   Foreign
                                                       Capital in                  Currency
                         Preferred       Common        Excess of                   Translation                       
                           Stock          Stock        Par Value     Deficit       Adjustment 
                         ---------       -------       -----------   --------      -----------             
                      Shares  Amount  Shares  Amount                           
                      ------  ------  ------  ------
<S>                    <C>    <C>     <C>    <C>      <C>          <C>              <C>
-----------------------------------------------------------------------------------------------
Balance,
 November 30, 1993       10    $928    7,336  $   74    $33,016     $(22,802)        $(174)
-----------------------------------------------------------------------------------------------
Issuance of 
 common stock upon
 exercise of stock
 options and warrants     -     -          8     -           59          -              -
Dividends on
 Preferred stock          1     113      -       -          -           (125)           -
Net income                -     -        -       -          -          1,421            -
-----------------------------------------------------------------------------------------------
Balance,
 November 30, 1994       11  $1,041    7,344  $   74    $33,075     $(21,506)        $(174)
-----------------------------------------------------------------------------------------------
Net loss                  -     -        -       -          -            (70)           -
-----------------------------------------------------------------------------------------------
Balance,
 December 31, 1994       11  $1,041    7,344  $   74    $33,075     $(21,576)        $(174)
------------------------------------------------------------------------------------------------
Sales of common stock
 at $10 per share,
 net of issuance
 costs of $41,000         -     -        300       3      2,956          -              -
Issuance of common
 stock upon exercise
 of stock options
 and warrants             -     -        711       7      8,426          -              -
Issuance of common
 stock for management
 and directors'
 compensation             -     -         24     -          209          -              -
Dividends on
 preferred stock          1     126      -       -          -           (140)           -
Net loss                  -     -        -       -          -         (1,628)           -
------------------------------------------------------------------------------------------------
Balance,
 December 31, 1995       12  $1,167    8,379  $   84    $44,666     $(23,344)        $(174)
------------------------------------------------------------------------------------------------
<PAGE>
Issuance of common
 stock upon exercise
 of stock options,
 warrants and 
 employee stock
 purchase plan            -     -        316       3      4,604          -              -
Dividends on
 preferred stock          -      35      -       -          -            (37)           -
Conversion of
 preferred to common
 stock (Series C)       (12) (1,202)     175       2      1,200          -              -
Sales of preferred 
 convertible stock 
 (Series E), $100 Par,
 net of issuance costs
 of $58,000               1      66      -       -        6,210          -              -
Net loss                  -     -        -       -          -         (5,523)           -
------------------------------------------------------------------------------------------------
Balance,
 December 31, 1996        1      66    8,870      89     56,680      (28,904)         (174)
------------------------------------------------------------------------------------------------

                                            F - 4
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Year Ended November 30, 1994, the
Month Ended December 31, 1994 and the Years Ended
December 31, 1995 and 1996
(Dollar amounts in thousands)
                                                  November 30,           December 31,
                                                  ------------    -------------------------
                                                     1994          1994     1995      1996
                                                    ------        ------   ------    ------ 
<S>                                                <C>          <C>      <C>       <C>
Cash flows from operating activities:
 Net income (loss)                                  $ 1,421      $ (70)   $(1,628)  $(5,523)
 Adjustments to reconcile income (loss)
  to net cash provided (used) by 
  operating activities:
   Depreciation and amortization                      1,206        110      1,277     1,273
 Changes in assets and liabilities:
 (Increase) decrease in accounts receivable, net       (603)         6        658       315
 (Increase) decrease in inventories                  (2,072)      (411)      (188)    1,612 
 (Increase) decrease in prepaid expenses               (428)       102       (319)      490 
  Decrease (increase) in other assets                     8         36       (514)   (1,534)
  Increase (decrease) in accounts payable
    and accrued liabilities                             838       (638)      (545)      949 
                                                     -------      -----    -------   -------       
  Net cash provided (used) by operating
    activities                                          370       (865)    (1,259)   (2,418) 
                                                     -------      -----    -------   -------  
Cash flows from investing activities:
 Purchases of property, plant and equipment          (3,014)      (286)    (4,206)     (242) 
                                                     -------      -----    -------   ------- 
  Net cash used by investing activities              (3,014)      (286)    (4,206)     (242)
                                                     -------      -----    -------   -------
Cash flows from financing activities:
 Issuances of common stock                               59        -       11,393     4,607
 Issuance of preferred stock                            -          -          -       6,276
 Proceeds from short- and long-term borrowings        1,500        -        5,742       -
 Payments of short- and long-term debt                 (385)      (187)    (5,848)   (2,999)
 Principal payments of capital lease obligations        (49)        (3)       (64)      (40) 
                                                     -------      -----    -------   ------- 
  Net cash provided (used) by financing activities    1,125       (190)    11,223      7,844 
                                                     -------      -----    -------   ------- 
Net (decrease) increase in cash and 
  cash equivalents                                   (1,519)    (1,341)     5,758      5,184 
Cash and cash equivalents at beginning of year        3,324      1,805        464      6,222 
                                                     -------    -------    -------    ------
Cash and cash equivalents at end of year            $ 1,805    $   464    $ 6,222    $11,406
                                                    ========   =========  ========   =======
<PAGE>
Supplemental Disclosure of Cash
 Flow Information:
  Cash paid during the year for interest            $   206    $    20    $   281    $    87 
  Cash paid during the year for income taxes            124        -           99         13
Supplemental Disclosure of Non-Cash
Financing Activities:
  Equipment acquired through capital leases             114        -            -         39
  Issuances of common stock and warrants                -          -          209          -

                                        F - 5
</TABLE>
[FN]
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 end from November 30 to
December 31.  Comparative financial statements reflect the fiscal year ended
November 30, 1994, the single month of December 1994, and the fiscal years
ended December 31, 1995 and 1996.

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 1996 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 unless otherwise restricted.

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.  However, certain customers do not take title until the goods are
delivered to their location or agent at which time revenue is recognized.

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     The Company applies Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which was issued
in February 1992 to account for federal income taxes.

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 has been 
capitalized and is depreciated as research and development expense over the 
life of the equipment.

POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS     The Company does not offer
any post-retirement or post-employment benefits.

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 1994, 1995 and 1996.  Preferred dividends, including the difference 
between the market value of the Company's common stock and conversion price 
(the "beneficial conversion feature") of the Company's Series E convertible
preferred stock, are deducted from net earnings to arrive at net earnings 
available to common shareholders.  The weighted average numbers of common 
shares used in computing earnings per share were  7,340,982, 7,932,675, and 
8,798,211 for the fiscal years ended November 30, 1994, and December 31, 1995 
and 1996, respectively.

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 December 31, 1995 and
1996:

(Dollar amounts in thousands)
                                  1995         1996
------------------------------------------------------
Raw materials and supplies      $  714        $  658
Work-in-process                  2,726         1,197
Finished goods                   1,795         1,768
------------------------------------------------------
Total                           $5,235         3,623
------------------------------------------------------

Included in work-in-process are $2,538,000 and $1,124,000 of freeze-dried Aloe
vera inventory as of December 31, 1995 and 1996, 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 and
primary manufacturing facility.

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 of 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 and 1996 were $4,545,000, $4,280,000,
and $3,958,000, respectively.

The production capacity of the Company's Aloe vera processing plant in Costa
Rica, where its bulk freeze-dried Aloe vera extract is manufactured, is
greater than the Company's current level of usage of the plant.  The Company is
currently exploring other options to utilize the available capacity.  There is
no assurance that the Company will be able to fully utilize the Costa Rica
plant's capacity.  The Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121") in the first quarter of
1996.  SFAS 121 requires that long-lived assets held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate 
that the carrying amounts of the assets may not be recoverable.  At the time of
adoption, there was no impairment of asset value in Costa Rica based on 
historical production levels and future capacity requirements needed to produce 
the Company's drug Aliminase[TM], then under initial phase III clinical trials. 
Under SFAS 121, when there is an event or change in circumstances that may
impair the recoverability of the assets, the carrying amount of the asset
should be assessed.  In late October 1996, the Company received the results 
of the initial phase III clinical trial for the testing of Aliminase[TM] oral
capsules, which indicated no statistically significant differences that would 
support a conclusion that Aliminase[TM] oral capsules provide a therapeutic 
effect in the treatment of ulcerative colitis.  As a result, the Company 
terminated the second large scale clinical trial and placed further testing of 
Aliminase[TM] oral formulation on hold.  These results triggered a new 
assessment of the recoverability of the costs of the Costa Rica plant's assets 
using themethodology provided by SFAS 121 in the fourth quarter of 1996.  The 
net book value of the Costa Rica Plant assets as of December 31, 1996, was 
$3,958,000.  The Company evaluated the value of Costa Rica produced components 
in its current product mix to determine the amount of net revenues, excluding 
Manapol(R)powder sales to Mannatech (see also Note Thirteen), attributable to 
the Costa Rica plant.  Sales to Mannatech were excluded from the analysis as 
the Company has been informed by Mannatech that the supply agreement in effect 
<PAGE>
throughout 1996 will not be renewed.  As the Supply Agreement between Mannatech 
and the Company will not be renewed, the exclusive license agreement for the 
Manapol(R) trademark will also terminate on March 31, 1997.  The Company will 
then be able to sell Manapol(R) powder or license the trademark to other third 
parties as well as use it in the Company's products.  Mannatech may continue to 
purchase Manapol(R) powder on an as-needed basis, but no such purchases could 
be anticipated for the SFAS 121 analysis.  Cash inflows for 1997 and future 
years were estimated using management's current forecast and business plan.  
All direct costs of the facility, including certain allocations of Company
overhead, were considered in the evaluation of cash outflows.  Results indicate 
there is no impairment of value under SFAS 121.  However, there is no assurance 
that future changes in product mix or the content of Costa Rica produced 
components in the current products will generate sufficient revenues to recover 
the costs of the plant under SFAS 121 methodology.<PAGE>
The following summarizes 
the components of property, plant and equipment at December 31, 1995 and 1996:

(Dollar amounts in thousands)
                                                       1995         1996
----------------------------------------------------------------------------
Land and improvements                               $ 1,389       $ 1,389
Buildings and improvements                            8,073         8,085
Furniture and fixtures                                  868           880
Machinery and equipment                               7,826         7,589
Leasehold improvements                                  330           756
Equipment under capital leases                          447           152
----------------------------------------------------------------------------
Total                                               $18,933       $18,851
---------------------------------------------------------------------------- 


NOTE FOUR.     OTHER ASSETS:

The Company owns a $1,500,000 certificate of deposit ("CD") that matures every
90 days. Although includable in cash as a cash equivalent, the Company's
management has elected not to classify the CD as such.  Because the CD secures
a letter of credit (see Note Seven), it is effectively unavailable to the
Company for other purposes until such time as the letter of credit expires or 
is otherwise released.  Therefore, the CD is included in other non-current 
assets for reporting purposes.

Also included in other assets are the unamortized portion of a Product
Development and Exclusive Distribution Agreement with Innovative Technologies
Limited ("IT"), capitalized legal and start-up costs related to the Costa Rica
operation, and a $200,000 investment in Aloe Commodities International, Inc.
("ACI").
<PAGE>
The following summarizes the components of other assets at December 31, 1995
and 1996:

(Dollar amounts in thousands)                    1995             1996
---------------------------------------------------------------------------
Certificate of deposit                           $ -             $1,500
IT product development 
   and exclusive distribution agreement           442               392
Investment in ACI                                  -                200
Costa Rica start-up costs                         123                81
Cost of 1995 restructure of bank debt              77               -
Other                                              39                42
---------------------------------------------------------------------------
Total                                            $681            $2,215
---------------------------------------------------------------------------

NOTE FIVE.     ACCRUED LIABILITIES:

The following summarizes significant components of accrued liabilities at
December 31, 1995 and 1996:

(Dollar amounts in thousands)
                                                         1995       1996
-------------------------------------------------------------------------
Accrued payroll                                        $  210     $  232
Accrued sales commissions                                 251        187
Accrued taxes                                             165        512
Preferred dividends (Series C Shares)                     124         -
Accrued severance liability                               267         -
Rebates                                                   182        129
Legal                                                      30        125
Other                                                     602        564
--------------------------------------------------------------------------
Total                                                  $1,831     $1,749
--------------------------------------------------------------------------


NOTE SIX.     SHORT-TERM BORROWINGS:

Short-term debt activity for each of the years ended December 31, 1995 and
1996 was as follows:

(Dollar amounts in thousands)
                               1995            1996
------------------------------------------------------
Average amount
  of short-term
  debt outstanding
  during the year            $  468           $  991
Maximum amount
  of short-term
  debt outstanding
  during the year             2,977            2,977
Average interest rate
  for the year                  7.9%             7.7%
------------------------------------------------------
<PAGE>

NOTE SEVEN.     DEBT:

In January 1995, the Company entered into an agreement with NationsBank of
Texas, N.A., (the "Bank") for a $2,000,000 line of credit and a $6,300,000
term loan.  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 was to be used for operating
needs, as required.  The term loan was 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 was due.  The interest rate on 
both credit facilities was the Company's option of prime plus .5% or 30, 60, 
90, or 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
1995, 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.  As of December 31, 1995, the Company was not in
compliance with the term loan's fixed charge ratio covenant.  Therefore, the
entire balance was classified as current debt for reporting purposes.  Rather
than amend the terms of the term loan, 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.  All assets previously collateralizing the term loan
were released by the Bank.  The Company pledged a $1,500,000 CD to secure the
letter of credit as described below.  The interest rate on the borrowing
ranged from 7.70% to 8.125% between January 30, 1995 and December 31, 1995.  
In 1996, the interest rate was 7.7% from January 1, 1996 through April 29, 
1996.

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 Nine).

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 
initially used to fund this letter of credit.  The funding of the letter of 
credit reduced the amount that the Company could borrow under the term loan 
but did not increase the Company's debt unless the letter of credit was 
utilized by the supplier.  As of March 14, 1997, the supplier had not made 
a presentation for payment under the letter of credit.  In April 1996, and 
in conjunction with the Company's settlement of the term loan, the Bank 
agreed to reduce the fees on the letter of credit by one percentage point 
in consideration of the Company's agreement to purchase and assign to the 
Bank a CD in an amount equal to the letter of credit.  The Company will 
maintain the CD until such time as the letter of credit expires or is 
otherwise released.
<PAGE>
Long-term debt of the Company for the years ended December 31, 1995 and 1996
is summarized as follows:

(Dollar amounts in thousands)
                                       1995        1996
--------------------------------------------------------
Term loan                             $2,977       $ -
Obligations under capital leases         137         75
--------------------------------------------------------
                                       3,114         75
Less - Current portion                 3,026         29 
--------------------------------------------------------
Long-term debt, net of current        $   88       $ 46
--------------------------------------------------------

The Company leases certain computer and other equipment under capital leases
expiring at various dates through 2001.  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, 1996:

(Dollar amounts in thousands)
Fiscal years ending December 31,
-----------------------------------------------
1997                                   $ 35
1998                                     35
1999                                      9
2000                                      6
2001                                      1
-----------------------------------------------
Aggregate minimum lease payments         86
Less - Imputed interest included in
  aggregate minimum lease payments       11
-----------------------------------------------
Present value of aggregate minimum
   lease payments                      $ 75
-----------------------------------------------


NOTE EIGHT.     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 had a par value of $100 per share, were 
convertible at par into common stock of the Company at a price of $7.58 per 
share (subject to certain adjustments), and were callable by the Company, after 
January 14, 1996 and provided for dividend payments to be made only through 
the issuance of additional Series C Shares.

In January 1996, all of the outstanding Series C shares were converted to
174,935 shares of the Company's common stock.
<PAGE>
The Company had previously issued to the Investor warrants to purchase 55,000
shares of common stock of the Company at $15 per share through February 1,
1996.  In addition to issuing the Series C Shares to the Investor, the Company
reduced the exercise price of warrants held by the Investor from $15 per share 
to $12.75 per share, which was above the market price of the common stock at 
the date of adjustment.  These warrants were exercised in the first quarter of 
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 20,000 shares of common stock of the Company (all 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.

SERIES E SHARES     On October 21, 1996 (the "Closing Date"), the Company
completed a $6,600,000 financing involving the private placement of Series E
Convertible Preferred Stock (the "Series E Shares").  Each Series E Share has
a par value of $100 and an initial purchase price of $10,000.  After placement
fees, legal and other costs related to the private placement, the Company
expects to realize net proceeds of $6,266,000.  At the Closing Date, the
Company's plans called for much of the proceeds from this sale to be used to
continue Carrington's clinical research programs.

The Series E Shares are convertible, at the option of the holder thereof, into
shares of the Company's common stock beginning on December 20, 1996, and prior
to October 21, 1999 (the "Maturity Date"), at a conversion price per share
(the "Conversion Price") equal to the lower of $25.20 (120 % of the market 
price of the Company's common stock as calculated over the three trading-day 
period ended on the last trading day prior to the Closing Date) or 87% of the 
market price as calculated over the three trading-day period ending on the 
last trading day immediately preceding the conversion date.  The Conversion 
Price is subject to adjustment to take into account stock dividends, stock 
splits and share combinations involving the Company's common stock.  Each 
Series E Share will be convertible into the number of whole shares of 
common stock determined by dividing $10,000 by the Conversion Price.

The Securities and Exchange Commission (the "Commission") has taken the
position that when preferred stock is convertible to common stock at a 
conversion rate that is the lower of a rate fixed at issuance or a fixed 
discount from the common stock market price at the time of conversion, the 
discounted amount is an assured incremental yield, the "beneficial conversion 
feature," to the preferred shareholders and should be accounted for as an 
embedded dividend to preferred shareholders.  As such, this dividend was 
recognized in the earnings per share calculation.  Based on the conversion 
terms of the Series E Shares, an embedded dividend of $986,000, or $0.11 per 
share, was deducted from net earnings available to common shareholders in the 
calculation of earnings per share.

Each Series E Share outstanding on the Maturity Date will automatically
convert into common stock at the then current Conversion Price.  Holders of 
Series E Shares will be entitled to receive an annual dividend payment equal 
to $500 per share for the one year period commencing on October 21, 1998 and 
ending on October 20, 1999 (equal to 5% of the per share Purchase Price).  
Dividends are payable only if the preferred shares are held to maturity, and 
are payable either in shares of common stock at the then current Conversion 
Price or in cash, or a combination of both, at the option of the Company. 
<PAGE>
The Company entered into Registration Rights Agreements (collectively, the
"Registration Agreements") with the holders of the Series E Shares obligating
the Company to prepare and file with the Commission a registration statement
(the "Registration Statement") with respect to the resale of the underlying
shares of common stock (including any shares issued in payment of dividends on
the Series E Shares or the periodic payments described below.  The
Registration Agreements provided that if the Commission did not declare the 
Registration Statement effective on or before January 9, 1997, the Company 
would make periodic payments to the holders of the Series E Shares equal to 1% 
of the Purchase Price for the first 30-day period thereafter and 2% of the 
Purchase Price for each additional 30-day period, prorated to the date on 
which the Commission declared the Registration Statement effective.  Such 
payments could be made in cash or shares of common stock or a combination of 
both, at the election of the Company.  The Company filed the Registration 
Statement with the Commission on December 2, 1996.

In March 1997, the Company repurchased 50% of the above Series E shares for
$3,729,000.  See Note Eighteen for further discussion.


NOTE NINE.     COMMON STOCK:

PRIVATE PLACEMENT OF COMMON STOCK     In April 1995, the Company completed a
self-directed private placement of 300,000 shares of common stock at a price
of $10.00 per share.  The average of the high and low sale prices 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 costs were 
$2,956,000.  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.

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 (defined as January 1, April 1,
July 1 or October 1 of 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, 1996, 62,970 shares had been purchased 
by employees at prices ranging from $7.23 to $29.54 per share. 

STOCK OPTIONS     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 as well as non-employee directors.  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, which 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 accounts for employee stock 
based compensation under APB Opinion No. 25, under which no compensation cost 
has been recognized.  Had compensation cost been determined based on the fair 
<PAGE>
value of options at their grant dates consistent with the method of Statement 
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company's net loss and losses per share would 
have been reduced to the following pro forma amounts:

--------------------------------------------------------
                               1995              1996
--------------------------------------------------------
Net loss (in thousands):
   As reported               $(1,628)         $(5,523)
   Pro forma                  (2,656)          (8,022)

Loss per share:
   As reported               $ (0.22)         $ (0.74)
   Pro forma                   (0.35)           (1.03)
--------------------------------------------------------

Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the pro forma compensation cost may not be
representative of the pro forma cost to be expected in future years.
<TABLE>
<CAPTION>
The following summarizes stock option activity for each of the three years 
ended November 30, 1994, and December 31, 1995 and 1996:

(Shares in thousands)
                                          Options Outstanding                 
                              ------------------------------------------------
                                                              Weighted-Average
                               Shares      Price Per Share     Exercise Price
------------------------------------------------------------------------------
<S>                            <C>     <C>      <C>  <C>           <C>
Balance, November 30, 1993      754     $ 6.25   to   $29.00        $13.96
    Granted                     268     $ 8.25   to   $12.75        $11.47
    Lapsed or canceled         (118)    $ 6.25   to   $21.72        $14.45
    Exercised                    (7)    $ 6.25   to   $10.25        $ 6.25
------------------------------------------------------------------------------
Balance, November 30, 1994      897     $ 6.25   to   $29.00        $12.95
    Granted                     592     $11.12   to   $35.25        $20.63
    Lapsed or canceled          (72)    $ 8.62   to   $20.12        $11.93
    Exercised                  (581)    $ 6.25   to   $29.00        $12.45
------------------------------------------------------------------------------
Balance, December 31, 1995      836     $ 6.25   to   $35.25        $18.82
    Granted                     141     $24.25   to   $47.75        $32.69
    Lapsed or canceled         (109)    $11.25   to   $28.75        $23.81
    Exercised                  (201)    $ 6.25   to   $29.00        $15.33
------------------------------------------------------------------------------
Balance, December 31, 1996      667     $ 6.25   to   $47.75        $21.99
------------------------------------------------------------------------------
Options exercisable at
  December 31, 1996             223     $ 6.25   to   $47.75        $22.84
------------------------------------------------------------------------------
Weighted Average Fair Value of Options 
   Granted using SFAS 123 Valuation Method:
                                                  1995    $11.86
                                                  1996     18.70
------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:

                              Options Outstanding                           Options Exercisable
                 ----------------------------------------------       ----------------------------
                     Number        Weighted-Avg                       Number  
   Range of        Outstanding      Remaining        Weighted-Avg     Exercisable    Weighted-Avg
Exercise Prices    at 12/31/96   Contractual Life   Exercise Price    at 12/31/96   Exercise Price
----------------   -----------   ----------------   --------------    -----------   --------------
<C>                    <C>          <C>                <C>               <C>          <C>
 $ 8.25 to $13.13       227          7.0 years          $11.18             71           $10.74
 $16.56 to $20.13       107          7.0                $18.22             45           $18.62
 $24.25 to $30.25       251          9.1                $27.16             62           $27.62
 $35.25                  45          8.6                $35.25             30           $35.25
 $47.75                  37          7.0                $47.75             15           $47.75
 ----------------   -----------   ----------------   --------------  -----------   --------------
 $ 8.25 to $47.75       667          7.9                $21.99            223           $22.84
 ================   ===========   ================   ==============  ===========   ==============
</TABLE>

The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants in 1995 and 1996, respectively: risk-free 
interest rates of 6.50% and 6.47%, expected volatility of 64.2% and 63.0%.  
The Company used the following weighted-average assumptions for grants in 
1995 and 1996: expected dividend yields of 0% and expected lives of 5.0 years 
on options granted to employees and 4.0 years on grants to directors.

The Company has reserved 1,500,000 shares of common stock for issuance under
the Option Plan.  As of December 31, 1996, options to purchase 525,125 shares 
had been granted under the option plan, of which options for 17,200 shares had 
been exercised.  As of December 31, 1996, options covering 422,675 shares were
outstanding with exercise prices between $16.56 and $47.75, with a weighted
average exercise price of $27.87 and a weighted average contractual life of
8.8 years.  Of these options, 134,518 are currently exercisable with a weighted
average exercise price of $29.56.

The Company's 1985 Stock Option Plan expired in February 1995.  The Company
had 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 863,540 shares have been exercised.  As of December 31, 
1996, options covering 244,089 shares were outstanding with exercise prices 
between $6.25 and $29.00, with a weighted average exercise price of $11.81 
and a weighted average contractual life of 6.8 years.  Of these options, 
88,330 are currently exercisable with a weighted average exercise price of 
$12.57.

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 normally 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, 1994, and December 31, 1995 and 1996:
<PAGE>
<TABLE>
<CAPTION>
                                          Warrants Outstanding                
(Shares in thousands)         ------------------------------------------------
                                                              Weighted-Average
                               Shares      Price Per Share     Exercise Price
------------------------------------------------------------------------------
<S>                             <C>     <C>      <C>  <C>          <C>
 Balance, November 30, 1993      331     $ 6.25   to   $26.00        $14.43
     Granted                      10     $ 9.75                      $ 9.75
     Lapsed or canceled          (42)    $18.00   to   $26.00        $23.66
------------------------------------------------------------------------------
 Balance, November 30, 1994      299     $ 6.25   to   $26.00        $14.27
     Granted                      20     $16.00                      $16.00
     Lapsed or canceled          (88)    $11.25   to   $26.00        $17.88
     Exercised                  (102)    $ 6.25   to   $16.25        $11.88
------------------------------------------------------------------------------
 Balance, December 31, 1995      129     $ 9.75   to   $20.13        $13.99
     Lapsed or canceled           (3)    $12.13                      $12.13
     Exercised                   (75)    $12.75   to   $15.00        $13.35
------------------------------------------------------------------------------
 Balance, December 31, 1996       51     $ 9.75   to   $20.13        $15.03
------------------------------------------------------------------------------
 Warrants exercisable at
   December 31, 1996              49     $ 9.75   to   $20.13        $15.14
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock warrants outstanding at
December 31, 1996:

                              Warrants Outstanding                     Warrants Exercisable
                 ----------------------------------------------  ------------------------------
                     Number        Weighted-Avg                        Number 
   Range of        Outstanding      Remaining        Weighted-Avg   Exercisable    Weighted-Avg
Exercise Prices    at 12/31/96   Contractual Life   Exercise Price   at 12/31/96   Exercise Price
----------------   -----------   ----------------   --------------  -----------   --------------
<C>                     <C>         <C>                <C>                <C>         <C>
 $ 9.75 to $13.00        20          2.8 years          $11.38             18          $11.14
 $16.00 to $20.13        31          2.8                $17.39             31          $17.39
----------------   -----------   ----------------   --------------  -----------   --------------
 $ 9.75 to $20.13        51          2.8                $15.03             49          $15.14
================   ===========   ================   ==============  ===========   ==============
</TABLE>
<PAGE>
NOTE TEN.     SHARE PURCHASE RIGHTS PLAN:

In September 1991, 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.  Alternatively, 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 ELEVEN.     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 five 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, 1996 as follows:

(Dollar in thousands)
Fiscal Years Ending December 31,
----------------------------------------------
1997                                    $  409
1998                                       421
1999                                       394
2000                                       394
Thereafter                                  97
----------------------------------------------
Total minimum lease payments            $1,715
----------------------------------------------
<PAGE>
Total rental expenses under operating leases were $447,000, $364,000 and
$451,000 for the years ended November 30, 1994, and December 31, 1995 and 
1996, respectively.

NOTE TWELVE.     INCOME TAXES:

The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31, 1995 and 1996 are as follows:

(Dollars in thousands)
                                      1995         1996
--------------------------------------------------------
Net operating loss carryforward   $  9,835     $ 12,875
Research and development                               
   and other credits                   839          839 
Patent fees                            308          318 
Other, net                             795          791 
Less - Valuation allowance         (11,777)     (14,823) 
--------------------------------------------------------
Deferred income tax asset         $    -       $    - 
--------------------------------------------------------

Pursuant to the requirements to SFAS 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 December 31, 1995 and 1996.

The provisions for federal income and state franchise taxes for the years
ended November 30, 1994, and December 31, 1995 and 1996 consisted of the 
following:

(Dollars in thousands)
                             1994      1995      1996
-------------------------------------------------------
Current provision            $159      $131      $ 88
Deferred provision, net        -         -         -
-------------------------------------------------------
Total provision              $159      $131      $ 88
-------------------------------------------------------
<PAGE>
The differences (expressed as a percentage of pre-tax income) between the
statutory and effective federal income tax rates are as follows:

                                1994    1995     1996
-------------------------------------------------------
Statutory tax rate              34.0%  (34.0%)  (34.0%)
State income taxes               5.4     2.8       .5
Recognition of previously
   unrecognized deferred
   tax benefits                (35.3)     -        -
Unrecognized deferred tax
   benefit                        -     34.6     34.9
Expenses related to foreign
  operations                     4.7     4.1       -
Research and development
   tax credit adjustment          .5      -        -
Other                             .8     1.3       .2
-------------------------------------------------------
Effective tax rate              10.1%    8.8%     1.6%
-------------------------------------------------------

At December 31, 1996, the Company had net operating loss carryforwards of
approximately $37,868,000 for federal income tax purposes, which expire during
the period from 1999 to 2011, 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 THIRTEEN.     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 three unaffiliated customers.  Allegiance 
Healthcare Corporation ("Allegiance," formerly Baxter Healthcare Corporation) 
accounted for $2,775,000, $2,492,000 and $1,877,000; Owens & Minor accounted 
for $1,795,000, $3,348,000 and $2,433,000; and Bergen Brunswig, which acquired 
Durr Medical and Colonial Healthcare in December 1996, accounted for 
$2,042,000, $2,359,000, and $2,568,000 of the Company's net sales in 1994, 
1995 and 1996, respectively.  Sales by Caraloe, Inc., to an unaffiliated 
customer, Mannatech, Inc., formerly Emprise International, Inc., accounted for 
$934,000, $2,488,000 and $3,273,000 of the Company's net sales in 1994, 1995 
and 1996, 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.

In the first quarter of 1997, the Company granted extended payment terms to
Mannatech for orders placed in January through March, 1997, after which
Mannatech's exclusive supply agreement will terminate.  Orders placed in 1997,
which should total approximately $810,000, will be paid in even monthly
installments of $101,250 from February through September 1997.  The Company's
normal terms for sales to Mannatech are net 30.
<PAGE>

NOTE FOURTEEN.     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.  For cash, trade receivables and 
payables, the net 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.  No such instruments were 
outstanding as of December 31, 1996.


NOTE FIFTEEN.     RELATED PARTY TRANSACTIONS

In April 1996, the Company hired an independent manufacturer's representative
as Vice President of Sales and Marketing.  This individual continues to 
maintain his sales territory, primarily Alabama and Georgia, as an independent
manufacturer's representative and currently employs three sales representatives 
to cover the territory.  From April 1996 through December 31, 1996, the Company 
paid commissions of approximately $268,000 to this individual.

NOTE SIXTEEN.     SALES BY DIVISION

The following summarizes the Company's sales by division and consolidated
sales for the years ended November 30, 1994, December 31, 1995, and December 
31, 1996: (Dollar amounts in thousands)
<TABLE>
<CAPTION>
                          Carrington Laboratories            Consolidated  
                       ---------------------------------    ----------------
Year Ended             Wound                  Carrington    Caraloe    Total
 November 30, 1994      Care    Veterinary     Sales         Inc.      Sales 
------------------     -----    ----------    ----------     ------    ------
<S>                  <C>           <C>          <C>          <C>      <C>
 Net Sales            $23,665       $404         $24,069      $1,361   $25,430
 Cost of Sales          5,392        190           5,582         833     6,415
                      -------      -----         -------      ------   -------
 Gross Margin         $18,273       $214         $18,487      $  528   $19,015
                      =======      =====         =======      ======   =======

 Year Ended
 December 31, 1995
------------------
                     
 Net Sales            $21,147       $320         $21,467      $2,907   $24,374
 Cost of Sales          5,971        163           6,134       1,810     7,944
                      -------       ----         -------      ------   -------
 Gross Margin         $15,176       $157         $15,333      $1,097   $16,430
                      =======       ====         =======      ======   =======
<PAGE>
 Year Ended
 December 31, 1996
------------------

 Net Sales            $17,302       $290         $17,592      $3,694   $21,286
 Cost of Sales          7,128        249           7,377       2,950    10,327 
                      -------       ----         -------      ------   -------
 Gross Margin         $10,174       $ 41         $10,215      $  744   $10,959
                      =======       ====         =======      ======   =======
</TABLE>

NOTE SEVENTEEN.     UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:

The unaudited selected quarterly financial data below reflect the fiscal 
years ended December 31, 1995 and 1996, respectively.
(Dollar amounts in thousands, except shares and per share amounts)

1995                 1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
--------------------------------------------------------------------------
 Net sales             $6,276         $6,408        $6,621       $ 5,069
 Gross profit           4,636          4,332         4,351         3,111
 Net (loss) income       (497)          (287)          163        (1,007)
(Loss) income
   per share           $ (.07)        $ (.04)       $  .02       $  (.12)
 Weighted average
   common shares      7,359,387     7,812,878     8,213,508     8,344,929

1996                 1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
--------------------------------------------------------------------------
 Net sales              $5,515         $5,438        $5,112        $5,221
 Gross profit            2,584          2,073         2,967         3,335 
 Net (loss) income      (2,156)        (2,545)        ( 839)           17 
(Loss) income
   per share           $ (.25)        $ (.29)       $ (.09)        $ (.11) *
 Weighted average
   common shares      8,666,177     8,804,567     8,854,533     8,867,575
--------------------------------------------------------------------------

*  Net loss per share for the quarter ended December 31, 1996, gives effect 
   to the accounting treatment announced by the staff of the Securities and
   Exchange Commission relevant to the Company's Series E convertible 
   preferred stock having "beneficial conversion features."  The net loss per 
   share includes a $986,000 preferred dividend as a result of this treatment.  
   This treatment reflects the discount in the conversion price as a reduction 
   of net income available to common shareholders between the date of issuance 
   of the preferred stock, October 21, 1996,  and the first available 
   conversion date, December 20, 1996, to more closely reflect the evolving 
   accounting literature regarding accounting for beneficial conversion 
   features.


NOTE EIGHTEEN.     SUBSEQUENT EVENT

On October 31, 1996, the Company announced that the results of its first Phase
III trial of Aliminase[TM] oral capsules were not favorable and that the 
Company had placed the Aliminase[TM] project on hold and terminated the second 
Phase III trial of that product.  Those developments resulted in changes in 
the Company's planned uses of and need for funds.  In addition, a decline in 
<PAGE>
the market price of the Company's common stock that followed that announcement 
increased the extent of the dilution that would have occurred if all of the 
outstanding Series E Shares issued in October 1996 were converted into common 
stock (see Note Eight).  Also, since the Registration Statement covering the 
shares of common stock underlying the Series E Shares had not been declared 
effective by the Commission, the periodic payments required by the 
Registration Agreements had begun to accrue (see Note Eight).

Accordingly, the Company's Board of Directors concluded that it was in the
best interest of the Company and its shareholders to use a portion of its 
existing funds to repurchase 50% of the outstanding Series E Shares, and that
repurchase was completed on March 4, 1997 (the "Repurchase Date").  The price 
paid by the Company was $11,300 per Series E Share, or a premium of $1,300 
over the original Purchase Price.  In connection with the repurchase, the 
parties agreed (i) that no periodic payments would be due for the period 
from February 15, 1997 through May 15, 1997; (ii) that the Company would pay 
in cash on the Repurchase Date the periodic payments that had accrued from 
January 10 through February 14, 1997; (iii) that the Company would pay the 
holders of the Series E Shares interest at the rate of 7% per annum on the 
original Purchase Price of their outstanding Series E Shares for the period 
from February 15, 1997 through the earliest of (a) May 15, 1997, (b) the 
Repurchase Date (in the case of Series E Shares repurchased by the Company), 
or (c) the date on which the Registration Statement is declared effective by 
the Commission; and (iv) that if the Commission does not declare the
Registration Statement effective on or before May 15, 1997, the periodic
payments required by the Registration Agreements will resume accruing on 
May 16, 1997, but will be equal to 1% of the original Purchase Price of the 
outstanding Series E Shares through June 15, 1997 and 2% for each additional 
30-day period, prorated to the date on which the Commission declares the 
Registration Statement effective, and will be payable only in cash.

On the Repurchase Date, the Company paid the Series E Shareholders $3,729,000
(330 Series E Shares at $11,300 per share), $92,400 (the periodic payment due 
on all 660 Series E Shares from January 10, 1997 through February 14, 1997) 
and $10,759 (7% per annum interest on $3,300,000 from February 15, 1997 to the 
Repurchase Date).  These amounts will be shown as a reduction of Shareholders' 
Investment in the first quarter of 1997.
<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 December 31,
1995, and December 31, 1996, and the related consolidated statements of
operations, shareholders' investment, and cash flows for the year ended
November 30, 1994, the month ended December 31, 1994, and the two years ended 
December 31, 1995 and December 31, 1996, as revised, see Note Eight.  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 December 31, 1995 and December 31, 1996, and the results 
of their operations and their cash flows for the year ended November 30, 1994, 
the month ended December 31, 1994 and the two years ended December 31, 1995 
and December 31, 1996, in conformity with generally accepted accounting 
principles.



Arthur Andersen LLP
Dallas, Texas
February 7, 1997 (except with respect to the matter discussed in Notes Eight
and Eighteen, as to which the dates are April 25, 1997, and March 4, 1997,
respectively).                                 
<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: April 30, 1997                   By:/s/ Sheri L. Pantermuehl
                                              --------------------------
                                              Sheri L. Pantermuehl, CFO


                                 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: April 30, 1997                   By:
                                              --------------------------
                                              Sheri L. Pantermuehl, CFO
<PAGE>

                             INDEX TO EXHIBITS


                Exhibit
Exhibit         Sequentially
Number          Numbered Page

3.1             Restated Articles of Incorporation of Carrington
                Laboratories, Inc., (incorporated herein by
                reference to Exhibit 3.1 to Carrington's 1988
                Annual Report on Form 10-K).

3.2             Statement of Cancellation of Redeemable Shares of
                Carrington Laboratories, Inc., dated June 9, 1989
                (incorporated herein by reference to Exhibit 3.2
                to Carrington's 1991 Annual Report on Form 10-K).

3.3             Statement of Change of Registered Office and
                Registered Agent of Carrington Laboratories,
                Inc., (incorporated herein by reference to
                Exhibit 3.1 to Carrington's Quarterly Report on
                Form 10-Q for the quarter ended May 31, 1991).

3.4             Statement of Resolution Establishing Series D
                Preferred Stock of Carrington Laboratories, Inc.,
                (incorporated herein by reference to Exhibit 3.1
                to Carrington's Quarterly Report on Form 10-Q for
                the quarter ended August 31, 1991).

3.5             Statement of Resolution Establishing Series E
                Convertible Preferred Stock of Carrington
                Laboratories, Inc., (incorporated herein by
                reference to exhibit 3.1 to Carrington's Form 8-K
                Current Report dated October 21, 1996).

3.6             Bylaws of Carrington Laboratories, Inc., as
                amended through April 27, 1995 (incorporated
                herein by reference to Exhibit 3.5 to
                Carrington's 1995 Annual Report on Form 10-K).
  
4.1             Form of certificate for Common Stock of
                Carrington Laboratories, Inc., (incorporated
                herein by reference to Exhibit 4.5 to
                Carrington's Registration Statement on Form S-3
                (No. 33-57360) filed with the Securities and
                Exchange Commission on January 25, 1993).

4.23            Rights Agreement dated as of September 19, 1991,
                between Carrington Laboratories, Inc., and
                Ameritrust Company National Association
                (incorporated herein by reference to Exhibit 1 to
                Carrington's Report on Form 8-K dated September
                19, 1991).
<PAGE>
10.1            1985 Stock Option Plan of Carrington
                Laboratories, Inc., as amended through April 28,
                1994 (incorporated herein by reference to Exhibit
                4.1 to Carrington's Form S-8 Registration
                Statement (No. 33-64407) filed with the
                Securities and Exchange Commission on November
                17, 1995).

10.2            Form of Nonqualified Stock Option Agreement for
                employees, as amended, relating to Carrington's
                1985 Stock Option Plan (incorporated herein by
                reference to Exhibit 4.2 to Carrington's
                Registration Statement on Form S-8 (No. 33-50430)
                filed with the Securities and Exchange Commission
                on August 4, 1992).

10.3            Form of Nonqualified Stock Option Agreement for
                nonemployee directors, as amended, relating to
                Carrington's 1985 Stock Option Plan (incorporated
                herein by reference to Exhibit 4.3 to
                Carrington's Registration Statement on Form S-8
                (No. 33-64407) filed with the Securities and
                Exchange Commission on November 17, 1995).

10.4            License Agreement dated September 20, 1990,
                between Carrington Laboratories, Inc., and Solvay
                Animal Health, Inc. (incorporated herein by
                reference to Exhibit 10.1 to Carrington's
                Quarterly Report on Form 10-Q for the quarter
                ended August 31, 1990).

10.5            Contract Research Agreement dated as of August 8,
                1991, between Carrington Laboratories, Inc., and
                Texas Agriculture Experimental Station, as agent
                for the Texas A&M University System (incorporated
                herein by reference to Exhibit 10.55 to
                Carrington's 1991 Annual Report on Form 10-K).

10.6            Lease Agreement dated as of August 30, 1991,
                between Carrington Laboratories, Inc., and
                Western Atlas International, Inc. (incorporated
                herein by reference to Exhibit 10.59 to
                Carrington's 1991 Annual Report on Form 10-K).

10.7            Employee Stock Purchase Plan of Carrington
                Laboratories, Inc., as amended through June 15,
                1995 (incorporated herein by reference to Exhibit
                10.29 to Carrington's 1995 Annual Report on Form
                10-K).

10.8            Employment Agreement dated July 6, 1993, between
                Carrington Laboratories, Inc., and Luiz F.
                Cerqueira (incorporated herein by reference to
                Exhibit 10.43 to Carrington's 1993 Annual Report
                on Form 10-K).
<PAGE>
10.9            Common Stock Purchase Warrant dated September 14,
                1993, issued by Carrington Laboratories, Inc., to
                E. Don Lovelace (incorporated herein by reference
                to Exhibit 10.44 to Carrington's 1993 Annual
                Report on Form 10-K).

10.10           Common Stock Purchase Warrant dated September 14,
                1993, issued by Carrington Laboratories, Inc., to
                Jerry L. Lovelace (incorporated herein by
                reference to Exhibit 10.45 to Carrington's 1993
                Annual Report on Form 10-K).

10.11           Agreement Regarding Termination of Employment and
                Full and Final Release dated February 16, 1994,
                between Carrington Laboratories, Inc., and David
                A. Hotchkiss (incorporated herein by reference to
                Exhibit 10.49 to Carrington's 1993 Annual Report
                on Form 10-K).

10.12           License Agreement dated March 18, 1994, between
                Carrington Laboratories, Inc., and Socie'te'
                Europe'enne de Biotechnologie (incorporated herein
                by reference to Exhibit 10.53 to Carrington's
                1994 Annual Report on Form 10-K).

10.13           Agreement dated March 28, 1994, between
                Carrington Laboratories, Inc., and Keun Wha
                Pharmaceutical Co., Ltd., (incorporated herein by
                reference to Exhibit 10.54 to Carrington's 1994
                Annual Report on Form 10-K).

10.14           Lease Agreement dated June 15, 1994, between DFW
                Nine, a California limited partnership, and
                Carrington Laboratories, Inc., (incorporated
                herein by reference to Exhibit 10.55 to
                Carrington's 1994 Annual Report on Form 10-K).

10.15           Lease Amendment dated August 23, 1994, amending
                Lease Agreement listed as Exhibit 10.14
                (incorporated herein by reference to Exhibit
                10.57 to Carrington's 1994 Annual Report on Form
                10-K).

10.16           License Agreement dated September 29, 1994,
                between Carrington Laboratories, Inc., and
                Immucell Corporation (incorporated herein by
                reference to Exhibit 10.58 to Carrington's 1994
                Annual Report on Form 10-K).

10.17           Third Lease Amendment dated December 1, 1994,
                amending Lease Agreement listed as Exhibit 10.6
                (incorporated herein by reference to Exhibit
                10.60 to Carrington's 1994 Annual Report on Form
                10-K).
<PAGE>
10.18           Production Contract dated February 13, 1995,
                between Carrington Laboratories, Inc., and Oregon
                Freeze Dry, Inc. (incorporated herein by
                reference to Exhibit 10.63 to Carrington's 1994
                Annual Report on Form 10-K).

10.19           Management Compensation Plan (incorporated herein
                by reference to Exhibit 10.64 to Carrington's
                1994 Annual Report on Form 10-K).

10.20           Research Agreements dated June 24, 1994,
                September 16, 1994, and February 2, 1995, between
                Southern Research Institute and Carrington
                Laboratories, Inc., (incorporated herein by
                reference to Exhibit 10.65 to Carrington's 1994
                Annual Report on Form 10-K).

10.21           Trademark License Agreement between Caraloe, Inc.
                (Licensor), and Emprise International, Inc.
                (Licensee), dated March 31, 1995 (incorporated
                herein by reference to Exhibit 10.2 to
                Carrington's Second Quarter 1995 Report on Form
                10-Q). 

10.22           Supply Agreement between Caraloe, Inc. (Seller),
                and Emprise International, Inc. (Buyer), dated
                March 31,1995 (incorporated herein by reference
                to Exhibit 10.3 to Carrington's Second Quarter
                1995 Report on Form 10-Q). 

10.23           Sales Distribution Agreement between the Chinese
                Academy of Sciences and Carrington Laboratories,
                Inc., dated August 16, 1995 (incorporated herein
                by reference to Exhibit 10.1 to Carrington's
                Third Quarter 1995 Report on Form 10-Q). 

10.24           Sales Distribution Agreement between the Chinese
                Academy of Sciences and Carrington Laboratories,
                Inc., dated August 16, 1995 (incorporated herein
                by reference to Exhibit 10.2 to Carrington's
                Third Quarter 1995 Report on Form 10-Q). 

10.25           Sales Distribution Agreement between the Chinese
                Academy of Sciences and Carrington Laboratories,
                Inc., dated August 16, 1995 (incorporated herein
                by reference to Exhibit 10.3 to Carrington's
                Third Quarter 1995 Report on Form 10-Q). 

10.26           Supply and Distribution Agreement between Medical
                Polymers, Inc., and Carrington Laboratories,
                Inc., dated September 15, 1995 (incorporated
                herein by reference to Exhibit 10.4 to
                Carrington's Third Quarter 1995 Report on Form
                10-Q). 
<PAGE>
10.27           Clinical Services Agreement between
                Pharmaceutical Products Development, Inc., and
                Carrington Laboratories, Inc., dated July 10,
                1995 (incorporated herein by reference to Exhibit
                10.5 to Carrington's Third Quarter 1995 Report on
                Form 10-Q). 

10.28           Non-exclusive Sales and Distribution Agreement
                between Innovative Technologies Limited and
                Carrington Laboratories, Inc., dated August 22,
                1995 (incorporated herein by reference to Exhibit
                10.6 to Carrington's Third Quarter 1995 Report on
                Form 10-Q). 

10.29           Supplemental Agreement to Non-exclusive Sales and
                Distribution Agreement between Innovative
                Technologies Limited and Carrington Laboratories,
                Inc., dated October 16, 1995 (incorporated herein
                by reference to Exhibit 10.7 to Carrington's
                Third Quarter 1995 Report on Form 10-Q).

10.30           Product Development and Exclusive Distribution
                Agreement between Innovative Technologies Limited
                and Carrington Laboratories, Inc., dated November
                10, 1995 (incorporated herein by reference to
                Exhibit 10.8 to Carrington's Third Quarter 1995
                Report on Form 10-Q).

10.31           Resignation Agreement and Full and Final Release
                dated February 24, 1995, between Carrington
                Laboratories, Inc., and Bill H. McAnalley
                (incorporated herein by reference to Exhibit
                10.68 to Carrington's 1995 Annual Report on Form
                10-K).

10.32           Revised and Restated Resignation Agreement dated
                March 14, 1995, between Carrington Laboratories,
                Inc., and Karl H. Meister (incorporated herein by
                reference to Exhibit 10.69 to Carrington's 1995
                Annual Report on Form 10-K).

10.33           Common Stock Purchase Warrant dated August 4,
                1995, issued by Carrington Laboratories, Inc., to
                Clifford T. Kalista (incorporated herein by
                reference to Exhibit 10.70 to Carrington's 1995
                Annual Report on Form 10-K).

10.34           Form of Stock Purchase Agreement dated April 5,
                1995 between Carrington Laboratories, Inc., and
                persons named in Annex I thereto (incorporated
                herein by reference to Exhibit 2.1 to
                Carrington's Registration Statement 33-60833 on
                Form S-3).

10.35           Form of Registration Rights Agreement dated June
                20, 1995 between Carrington Laboratories, Inc.,
                and persons named in Annex I thereto
                (incorporated herein by reference to Exhibit 2.2
                to Carrington's Registration Statement 33-60833
                on Form S-3).
<PAGE>
10.36           Supply and Distribution Agreement between Farnam
                Companies, Inc., and Carrington Laboratories,
                Inc., dated March 22, 1996 (incorporated herein
                by reference to Exhibit 10.76 to Carrington's
                1995 Annual Report on Form 10-K).

10.37           Placement Agent Agreement between Carrington
                Laboratories, Inc., and First Granite Securities,
                Inc. (incorporated herein by reference to Exhibit
                10.1 to Carrington's Current Report on Form 8-K
                dated October 21, 1996).

10.38           Indemnification Agreement between the Carrington
                Laboratories, Inc., and First Granite Securities,
                Inc. (incorporated herein by reference to Exhibit
                10.2 to Carrington's Current Report on Form 8-K
                dated October 21, 1996).

10.39           Joint Escrow Instructions from Carrington
                Laboratories, Inc., and accepted by Krieger &
                Prager, Esqs., as escrow agent (incorporated
                herein by reference to Exhibit 10.3 to
                Carrington's Current Report on Form 8-K dated
                October 21, 1996).

10.40           Stock Purchase Agreement between Carrington
                Laboratories, Inc., and each of the purchasers of
                shares of the Registrant's Series E Convertible
                Preferred Stock (incorporated herein by reference
                to Exhibit 10.4 to Carrington's Current Report on
                Form 8-K dated October 21, 1996).

10.41           Amendment to the Stock Purchase Agreement between
                Carrington Laboratories, Inc., and each of the
                purchasers of shares of Carrington's Series E
                Convertible Preferred Stock, dated October 15,
                1996 (incorporated herein by reference to Exhibit
                10.5 to Carrington's Current Report on Form 8-K
                dated October 21, 1996).

10.42           Registration Rights Agreement between Carrington
                Laboratories, Inc., and each of the purchasers of
                shares of Carrington's Series E Convertible
                Preferred Stock (incorporated herein by reference
                to Exhibit 10.6 to Carrington's Current Report on
                Form 8-K dated October 21, 1996).
 
10.43           Distribution Agreement between Carrington
                Laboratories, Inc., and Ching Hwa Pharmaceutical
                Co., Ltd., dated March 1, 1996 (incorporated
                herein by reference to Exhibit 10.1 to
                Carrington's First Quarter 1996 Report on Form
                10-Q).
<PAGE>
10.44           Fourth Amendment to Credit Agreement and Term
                Note between Carrington Laboratories, Inc., and
                NationsBank of Texas, N.A., dated May 1, 1996
                (incorporated herein by reference to Exhibit 10.2
                to Carrington's First Quarter 1996 Report on Form
                10-Q).

10.45           Assignment of Certificate of Deposit to
                NationsBank of Texas, N.A., dated May 1, 1996
                (incorporated herein by reference to Exhibit 10.3
                to Carrington's First Quarter 1996 Report on Form
                10-Q).

10.46           Release of Liens agreement between Carrington
                Laboratories, Inc., and NationsBank of Texas,
                N.A., dated May 1, 1996 (incorporated herein by
                reference to Exhibit 10.4 to Carrington's First
                Quarter 1996 Report on Form 10-Q).

10.47           Form of Nonqualified Stock Option Agreement for
                Employees (incorporated herein by reference to
                Exhibit 4.1 to Carrington's Second Quarter 1996
                Report on Form 10-Q).

10.48           Carrington Laboratories, Inc., 1995 Stock Option
                Plan, As Amended and Restated effective March 27,
                1996 (incorporated herein by reference to Exhibit
                4.2 to Carrington's Second Quarter 1996 Report on
                Form 10-Q).

10.49           Form of Nonqualified Stock Option Agreement for
                Nonemployee Directors (incorporated herein by
                reference to Exhibit 4.3 to Carrington's Second
                Quarter 1996 Report on Form 10-Q).
 
10.50           Form of Incentive Stock Option Agreement for
                Employees (incorporated herein by reference to
                Exhibit 4.4 to Carrington's Second Quarter 1996
                Report on Form 10-Q).

10.51           Sales Distribution Agreement between Faulding
                Pharmaceuticals Laboratories and Carrington
                Laboratories, Inc., dated September 30, 1996
                (incorporated herein by reference to Exhibit 10.1
                to Carrington's Third Quarter 1996 Report on Form
                10-Q).

10.52           Sales Distribution Agreement between Trudell
                Medical Marketing Limited and Carrington
                Laboratories, Inc., dated May 15, 1996
                (incorporated herein by reference to Exhibit 10.2
                to Carrington's Third Quarter 1996 Report on Form
                10-Q).

10.53           Clinical Research Agreement between ICON and
                Carrington Laboratories, Inc., dated July 15,
                1996 (incorporated herein by reference to Exhibit
                10.3 to Carrington's Third Quarter 1996 Report on
                Form 10-Q).
<PAGE>
10.54           Sales Distribution Agreement between Suco
                International Corp. and Carrington Laboratories,
                Inc., dated December 1, 1996.
 
10.55           Sales Distribution Agreement between Recordati,
                S.P.A., and Carrington Laboratories, Inc., and
                Carrington Laboratories Belgium N.V., dated
                December 20, 1996.

10.56           Nonexclusive Distribution Agreement between
                Polymedica Industries, Inc., and Carrington
                Laboratories, Inc., dated November 15, 1996.
 
10.57           Sales Distribution Agreement between Gamida-Medequip 
                Ltd., and Carrington Laboratories, Inc., dated December 
                24, 1996.

10.58           Sales Distribution Agreement between Gamida For
                Life BV, and Carrington Laboratories, Inc., dated
                December 24, 1996.

10.59           Sales Distribution Agreement between Darrow
                Laboratorios S/A and Carrington Laboratories,
                Inc., dated December 4, 1996.

10.60           Independent Sales Representative Agreement
                between Vision Medical and Carrington
                Laboratories, Inc., dated October 1, 1996.
 
10.61           Independent Sales Representative Agreement
                between Think Medical, Inc., and Carrington
                Laboratories, Inc., dated October 1, 1996.

10.62           Independent Sales Representative Agreement
                between Meares Medical Sales Associates and
                Carrington Laboratories, Inc., dated October 1,
                1996.

10.63           Supply Agreement between Aloe Commodities
                International, Inc., and Caraloe, Inc., dated
                February 13, 1997.

10.64           Trademark License Agreement between Light
                Resources Unlimited and Carrington Laboratories,
                Inc., dated March 1, 1997.

10.65           Supply Agreement between Light Resources
                Unlimited and Caraloe, Inc., dated February 13, 1997.

10.66           Sales Distribution Agreement between Penta
                Farmaceutica, S.A., and Carrington Laboratories,
                Inc., dated December 27, 1996.

10.67           Stock Subscription Offer of Aloe Commodities,
                Inc., and Caraloe, Inc., dated October 30, 1996.
<PAGE>
10.68           Modification Number Two to the Production
                Contract dated February 13, 1995, between
                Carrington Laboraties, Inc., and Oregon Freeze
                Dry, Inc., listed as Exhibit 10.18, dated
                November 19, 1996.

10.69           Offer and Agreement of Sale and Purchase of
                Convertible Preferred Series E Stock between
                holders of Carrington Laboratories, Inc.,
                Convertible Preferred Series E Stock and
                Carrington Laboratories, Inc., dated February 26,
                1997.

10.70           Sales Distribution Agreement between Laboratorios
                PiSA S.A. DE C.V., and Carrington Laboratories,
                Inc., dated November 1, 1995.

10.71           Termination Acknowledgment between China Academy
                of Sciences and Carrington Laboratories, Inc.,
                dated February 12, 1996, regarding the three
                agreements listed as Exhibits 10.23, 10.24 and
                10.25.

10.72           Letter from Immucell Corporation to Carrington
                Laboratories, Inc., dated February 7, 1996,
                canceling the License Agreement listed as Exhibit
                10.16.

11.1*           Computation of Net Income (Loss) Per Common and
                Common Equivalent Share (Amendment No. 1).

16.1            Letter from Arthur Andersen LLP to the Securities
                and Exchange Commission.

21.1            Subsidiaries of Carrington.

23.1            Consent of Arthur Andersen LLP

27.1            Financial Data Schedule


*   Filed herewith.
    Management contract or compensatory plan.
<PAGE>