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

                                  Form 10-K

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

                 For the fiscal year ended December 31, 1998
                        Commission File Number 0-11997

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

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

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

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

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

         Title of each class     Name of exchange on which registered
                 None

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

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

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

     Indicate  by check mark if disclosure of delinquent filers pursuant to
  Item  405  of  Regulation  S-K  is  not contained herein, and will not be
  contained, to the best of the Registrant's knowledge, in definitive proxy
  or  information  statements incorporated by reference in Part III of this
  Form 10-K or any amendment to this Form 10-K.  [ ]
<PAGE>
     The  aggregate market value of the Common Stock held by non-affiliates
  of  the  Registrant on March 24, 1999, was $29,242,387.  (This figure was
  computed  on  the  basis of the closing price of such stock on the NASDAQ
  National  Market  on March 24, 1999, using the aggregate number of shares
  held  on  that  date by, or in nominee name for, shareholders who are not
  officers,  directors or record holders of 10% or more of the Registrant's
  outstanding  voting  stock.    The  characterization  of  such  officers,
  directors  and  10%  shareholders  as  affiliates is for purposes of this
  computation  only  and  should  not  be construed as an admission for any
  other  purpose  that  any of such persons are, in fact, affiliates of the
  Registrant.)

     Indicate  the number of shares outstanding of each of the Registrant's
  classes of common stock, as of the latest practicable date:    

     9,357,564  shares  of  Common  Stock, par  value $.01  per share, were
  outstanding on March 24, 1999.

                     DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's proxy statement for its annual meeting of
  shareholders  to  be  held  on May 20, 1999 are incorporated by reference
  into Part III hereof, to the extent indicated herein.

<PAGE>
                                    PART I

  ITEM 1.  BUSINESS.

                                   General

  Carrington  Laboratories,  Inc.  ("Carrington"  or  the  "Company")  is a
  research-based  biopharmaceutical,  medical  device and raw materials and
  nutraceutical  company  engaged  in  the  development,  manufacturing and
  marketing  of  naturally  derived  complex carbohydrate and other natural
  product  therapeutics  for the treatment of major illnesses, the dressing
  and  management  of  wounds  and  nutritional  supplements.   The Company
  comprises  two business divisions.  See Note Fourteen to the consolidated
  financial  statements  in  this  Annual  Report for financial information
  about  these  business  divisions.  The Company sells, using a network of
  distributors,  prescription  and  nonprescription  human  and  veterinary
  products  through  its Wound and Skin Care Division and consumer and bulk
  raw  material products through its consumer products subsidiary, Caraloe,
  Inc.  The Company's research and product portfolio are based primarily on
  complex carbohydrates isolated from the Aloe vera L 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 offers a comprehensive line of
  wound  management  products to hospitals, nursing homes, 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's  primary  marketing  emphasis  for its wound and skin care
  business  is  directed toward hospitals and nursing homes, alternate care
  facilities,  home health care providers, managed care organizations, with
  wound  and  skin care products being promoted primarily to physicians and
  specialty nurses, e.g., enterostomal therapists.  As some segments of the
  market  shift  from  home  health  care to nursing homes, the Company has
  developed and is marketing a specialized educational and training program
  to  nursing homes.  Opportunities in the growing Internet market are also
  addressed  through  the  Company's  websites,  www.carringtonlabs.com.and
  www.woundcare.com.

  The  Company  currently  has 47 employees and independent representatives
  engaged  in  the  sales  and  marketing  of  the Company's products.  The
  Company's  field  sales force currently employs 20 sales representatives,
  each  assigned  to  a  specific  geographic  area in the United States, 4
  regional  sales managers, 1 representative in Puerto Rico and 1 in Italy.
  The  Company  also  uses 4 independent sales companies employing 12 sales
  representatives  to sell its products on a commission basis.  In addition
  to  this  field  sales  force, the Wound and Skin Care Division employs 2
  telemarketers,  who  focus  on  alternative  care facilities and the home
  health  care  market,  and  9 employees in customer service and executive
  management.
<PAGE>
  The  Company's  products   are  primarily  sold   through  a  network  of
  distributors.    Three  of  the  Company's  largest  distributors  in the
  hospital  market  are  McKesson General/Medical("McKesson), Owens & Minor
  and  Bergen  Brunswig.  During fiscal 1996, 1997 and 1998, sales of wound
  and  skin  care  products  to  McKesson  represented  9%,  12%,  and 11%,
  respectively,  of  the Company's total net sales.  Sales to Owens & Minor
  represented  11%,  11%,  and 10%, respectively, of total net sales during
  the  same periods.  Sales to Bergen Brunswig represented 12%, 9%, and 5%,
  respectively, of total net sales during the same periods.

  The  Company  currently  has 20 distribution and licensing agreements for
  the  promotion  and  sale of its products.  In November 1995, the Company
  signed  a  Sales  Distribution  Agreement  with Laboratorios PiSA S.A. de
  C.V.,  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.   On May 15, 1998, the Sales Distribution Agreement was amended to
  delete  the  Dominican  Republic  from  the  territories  covered  by the
  agreement.

  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.  This agreement was canceled by
  the  Company  on  March  3,  1999 due to non-performance by Trudell.  The
  Company now sells into the Canadian market on a non-exclusive basis.

  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 (Taiwan).  CHP was required to register
  the  Company's  products  for  sale in Taiwan within a specified time and
  failed  to  do  so.   The Company has not yet taken action regarding this
  failure to comply with the terms of the agreement.

  In  September  3,  1996,  the  Company  signed an exclusive contract with
  Faulding  Pharmaceuticals  to market the Company's wound care products in
  Australia  and New Zealand.  On January 12, 1998, Faulding and Carrington
  executed  Amendment  Number  One  to  the existing Distribution Agreement
  between  the parties.  This Amendment adds the following countries to the
  territories  covered  under that Agreement: Thailand, Vietnam, Singapore,
  the  Philippines,  Malaysia  and  Myanmar.  Pursuant  to  the  Amendment,
  products are being shipped on order.

  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.  On May 15, 1998, the agreement was
  amended  to  include  the Dominican Republic as a territory and to extend
  the agreement's term for an additional two (2) years.
<PAGE>
  In  December  1996,  the  Company  and Darrow Laboratories 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 in the Company's name 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.   As of December 31, 1998, these registrations were still
  pending completion.

  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 two initial
  payments  to the Company, the first when the agreement was signed and the
  second  when the products to be sold were registered, and is obligated to
  make  an  additional  payment  contingent  on  the  occurrence of certain
  events.  Under the agreement, the Company applied for, and was granted in
  February 1998, the CE mark, a quality certification recognized by members
  of the European Economic Community and certain other countries.

  In  January  1998, the Company signed a Sales Distribution Agreement with
  Henry  Schein  UK  Holdings,  LTD. ("Schein"), a British company, for the
  exclusive  distribution  rights  to  sell  The Carrington[R] Patch in the
  United Kingdom and Ireland for a period of ten years.  Schein markets the
  product under the name UlcerEze[TM].

  In  January  1998, the Company signed a Sales Distribution Agreement with
  Saude  2000   ("Saude"),   a  Portuguese   company,  for   the  exclusive
  distribution  rights  to  sell  The Carrington[R] Patch in Portugal for a
  period  of  five  years.    Saude  markets  the  product  under  the name
  PazAftas[TM].    In June 1998, the Company also signed a letter of intent
  granting  Saude  the  exclusive distribution rights to sell the Company's
  wound care products, including the DiaB[TM] product line, under the terms
  of the initial agreement.  Pricing for the wound care products is subject
  to negotiation.

  In  March  1998,  the  Company signed a Sales Distribution Agreement with
  Hemofarm,  GmbH,  a German company, for the exclusive distribution rights
  to  sell the Company's wound and skin care products and The Carrington[R]
  Patch in Yugoslavia for a period of five years.

  In  March  1998,  the  Company  signed  an  Exclusive  Sales Distribution
  Agreement  with  Vincula  International  Trade  Company for the exclusive
  distribution  rights  to  sell the Company's wound and skin care products
  and The Carrington[R] Patch in Oman and Saudi Arabia for a period of five
  years,  with  options  for  other  countries  in  the  Middle  East to be
  negotiated in the future.
<PAGE>
  In  April  1998,  the  Company  signed  an  Agency and Sales Distribution
  Agreement  with  Egyptian  American  Medical  Industries,  Inc.  for  the
  exclusive  distribution  rights to sell the Company's wound and skin care
  products and The Carrington[R] Patch in Egypt for a period of five years.

  In April 1998,  the Company  signed a  Sales  Distribution Agreement with
  CSC  Pharmaceuticals,  LTD.,  an  Austrian  company,  for  the  exclusive
  distribution  rights  to  sell  the Company's DiaB[TM], RadiaCare[TM] and
  CarraKlenz[TM]  products  in  Austria,  Croatia,  Hungry, Czech Republic,
  Slovak  Republic,  Romania, Bulgaria, Slovenia and Poland for a period of
  ten years.

  In 1998, total international sales were $1,260,000 of which $584,000 were
  related  to  the  above  mentioned international agreements.  The Company
  presently  estimates  the expected sales associated with these agreements
  in 1999 to be between $800,000 and $1,200,000.

  The Company also 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.  On
  March  1,  1997,  Fort  Dodge  Animal  Health("Fort Dodge), a division of
  American  Home  Products Corporation, acquired the business and assets of
  Solvay,  including  the License Agreement dated September 20, 1990 and an
  Addendum  thereto  between  Carrington  and  Solvay  granting  Solvay  an
  exclusive  world-wide field of use license to use and sell acemannan as a
  component/adjuvant  to enhance the performance of poultry vaccines.  Fort
  Dodge  notified  Carrington  in  the summer of 1997 that, as successor in
  interest to Solvay, it intended to terminate the License Agreement.  This
  agreement  was  terminated  effective February 1, 1999. All sales of this
  product are now on a non-exclusive basis.

  In  March  1996,  the  Company signed an agreement with Farnam Companies,
  Inc.,  a  leading  veterinary  marketing company, to promote and sell the
  CarraVet[R]  product  line,  including  Acemannan  Immunostimulant.   The
  CarraVet[R] product line currently consists of eight products.
<PAGE>

                               Consumer Health

  Caraloe,  Inc.,  a  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 (Manapol[R] Powder),
  a  speciality  raw  material, to manufacturers who desire quality complex
  carbohydrate ingredients for their finished products.  The second goal is
  to  develop the contract manufacturing business by providing high quality
  products  for  nutritional  and  skin  care  markets, and the third is to
  expand  Caraloe's  Manapol[R]  Powder  franchise  and  establish  it as a
  leading brand in the health food market.

  In  February  1996,  Caraloe  signed  an  agreement  with Mannatech, Inc.
  ("Mannatech")  granting  it an exclusive license in the United States for
  Manapol[R]  Powder.  This agreement, including the grant of the exclusive
  license,  was  terminated  by  Mannatech  effective  March  31, 1997, and
  Caraloe began to market Manapol[R] Powder to third parties as well as use
  it  in  Caraloe's  products.    In  August  1997,  Caraloe  signed a new,
  nonexclusive supply agreement with Mannatech to supply Manapol[R] Powder.
  This  agreement  is  effective  through  July  2000  and contains monthly
  minimum  purchase  requirements.    During  1996,  1997  and  1998, sales
  of  Manapol[R]  Powder  to  Mannatech  represented   15%,  15%  and  23%,
  respectively, of the Company's total consolidated net sales.

  In  December  1997, Caraloe signed a supply agreement with Met-Trim, Inc.
  ("Met-Trim"),  for  the  sale  of  Manapol[R]  Powder.  The agreement was
  terminated  on  January  11,  1999 due to the failure of Met-Trim to meet
  first  year minimum requirements.  The Company is currently negotiating a
  revised sales agreement with Met-Trim.

  In  October  1996,  Caraloe  made  a  $200,000  equity 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 raw
  materials  that  ACI  needs  for  drinks and other consumer products.  In
  December  1997,  Caraloe made an additional equity investment of $400,000
  in ACI.  Carrington owns less than 10% of the total outstanding shares of
  ACI.    See  Note  Six  to  the  consolidated  financial  statements   in
  this Annual Report  for additional information  regarding  the  Company's
  relationship  with  ACI, the amount of ACI's indebtedness to the Company,
  and  the  Company's creation of valuation reserves for the amounts of its
  equity investment in ACI and the indebtedness owed to it by ACI.
<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 LRU will purchase from Caraloe annually at least
  the  minimum  quantities of Manapol[R] Powder specified in the agreement.
  The  Supply  Agreement  also contemplates that LRU will be Caraloe's sole
  distributor  of Manapol[R] Powder 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] Powder in connection with the advertising and sale of the
  LRU  brand  (Manapol[R] Gold[TM] Powder) to the targeted group.  Sales to
  LRU  in  1997  under  this  agreement  were  $167,000. Sales in 1998 were
  $197,000, an increase of 18% over 1997.

  In  October 1998,  Caraloe  signed  a  supply  agreement  and a trademark
  license  agreement  with  One  Family, Inc.("One Family"), a direct sales
  company  with  headquarters  located  in  Colorado.  One  Family  will be
  marketing  Manapol[R]  Powder in capsule form. Sales under this agreement
  will commence in 1999.

  In December 1998, Caraloe signed a supply agreement and trademark license
  agreement  with  Eventus  International,  Inc.  ("Eventus"), the consumer
  health  subsidiary  of  BeautiControl.  Eventus  will market a variety of
  products  containing  Manapol[R]  Powder  to  promote  a natural, healthy
  lifestyle.  The value of the agreement for the first three years based on
  projections is approximately $4,900,000.


  Research and Development

  General

  Carrington  has  developed a proprietary process for purifying a material
  that  has  been  designated  bulk  pharmaceutical  mannan  ("BPM").  This
  material is a natural product mixture which contains a high percentage of
  complex  carbohydrate.   The Company intends to seek approval of the Food
  and Drug Administration (the "FDA") and other regulatory agencies to sell
  drugs  and/or  medical  devices  derived  from BPM based materials in the
  United States and in foreign countries.  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).
<PAGE>
  The Company expended approximately $5,927,000, $3,006,000, and $2,589,000
  on research and development in fiscal 1996, 1997, and 1998, respectively.
  The   Company  has  adopted  a  focused  approach  to  its  research  and
  development  efforts.  The Company is planning on returning to the clinic
  in  April 1999 to conduct a Phase III trial in ulcerative colitis, and as
  a  result,  estimates  that  in  fiscal  1999 it will spend approximately
  $5,200,000  on research and development.  The Company expects to fund its
  1999  research and development costs, including the cost of the Phase III
  clinical trial, with cash flows from operations.

  The  Company  initiated a program in 1996 which continued through 1998 to
  restructure  research  and development to meet the challenges and demands
  for  drug  development in the 21st century.  This entailed establishing a
  strong  nucleus  or  infrastructure  for chemistry, assay development and
  formulation development with outsourcing capabilities for high throughput
  drug screening, and preclinical and clinical drug and device development.
  This  approach  allows  the  Company  to  maximize its opportunities in a
  timely  and  cost  effective  manner.   Currently, the Company's research
  staff  comprises  ten  full-time  employees.    Dr.  Robert  A. Fildes, a
  director  of the Company, has served as part-time, interim Executive Vice
  President,  Research  and Development from October 1, 1997 to the present
  time,  and  Dr.  Bill  Yates was promoted to Vice President, Research and
  Development in January 1999.


  Preclinical Research

  The  Company's  main  preclinical  research and development objective for
  1998  was  to  continue to assess the viability of the ulcerative colitis
  program, interact with the FDA and make a decision by mid-year on whether
  to  proceed  to  new  clinical  trials  for  the  indication.   Following
  extensive preclinical studies, formulation development and evaluation and
  interaction  with  the  FDA, the Company made a decision to return to the
  clinic  with  a  new  dosage  form  of  Aliminase[TM]  as  a  powder  for
  reconstitution.  The Company initiated a new Phase III trial in the first
  quarter  of  1999,  and  dosing  of patients is scheduled for early April
  1999.

  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,  and tumor
  necrosis   factor  alpha  which  regulate  other  cells.    Interleukin-1
  stimulates  fibroblasts,  which  are  essential  to wound healing.  Tumor
  necrosis  factor  alpha  acts  against  tumors in the body.  In addition,
  laboratory  experiments  conducted  by  the  Company have shown that some
  compounds  from  Aloe  vera  L. have pro- or anti-inflammatory actions as
  shown  in animal models of wound healing and in inflammation of the lung,
  colon,   joint  and  ear.    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.    There  is  no  assurance, however, that the Company will be
  successful in its efforts.
<PAGE>
  The  Company  sponsors a research and development laboratory at Texas A&M
  University  in  association  with  the  College of Veterinary Medicine 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.

  In  1998, the Company completed an animal preclinical wound healing study
  in  cooperation  with the Scott Ritchie Foundation and Auburn University,
  evaluating  Carrasyn[R] Freeze-Dried Gel (CarraSorb[TM] M) as compared to
  saline.    The  product  demonstrated a significant increase in the early
  development  of  granulation tissue, which is an important early step for
  wound healing.
                                               
  Further  processed  BPM,  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 animal
  studies conducted at Texas A&M University in 1988 and 1989 indicated that
  a  single  intraperitoneal  dose  caused significant tumor reduction in a
  statistically  significant  percentage  of  animals with highly malignant
  tumors.    This  effect  in  many  instances  was dramatic, with complete
  regression  of the tumor and with continuing immunity.  Recovered animals
  were  resistant  to  syngeneic  tumor reimplantation for up to six months
  after initial tumor regression.

  In  1991,  the USDA granted the Company conditional approval to market an
  injectable  form  of  a  complex carbohydrate as an aid to surgery in the
  treatment  of  canine  and  feline  fibrosarcoma,  a  form of soft tissue
  cancer,  under  the  name  Acemannan  Immunostimulant.    The product was
  conditionally approved based on safety and efficacy studies.  The Company
  continues  to  work on developing a suitable cost effective potency assay
  that  will  meet  USDA  requirements  for  the  purpose of removal of the
  conditional  status.  A  submission  was  made  in November 1998 for this
  purpose.   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.

  An extensive series of animal studies was initiated in 1997 to assess the
  direct and adjunct effects of CarraVex[TM] and Acemannan Immunostimulant.
  The  primary purpose of these studies was to identify a suitable model to
  evaluate  new  product  formulations  (see  Human  Studies below).  These
  studies  were  completed  successfully  in  1998,  and  models  have been
  identified to assess future drug candidates.

  In 1998, a new and unique pectin (complex carbohydrate) was isolated from
  the  cell  walls  of  the  inner  gel  of Aloe vera L.  Basic research is
  continuing  on  this material, and the Company is planning to produce the
  product  in  pilot scale in 1999.  The product has near term utility as a
  product  to  be  used  in  wound  healing,  and  other  future  potential
  applications  are  being explored.  Two patent applications covering this
  invention were filed in July 1998.
<PAGE>

  Human Studies

  Evaluation  of  Aliminase[TM]  (formerly  CARN 1000) oral capsules in the
  Treatment of Ulcerative Colitis. In late 1996, the Company placed on hold
  its testing of Aliminase[TM]oral capsules for the treatment of ulcerative
  colitis.    The  Company  has reformulated the product into a single unit
  dose  powder  for  reconstitution.  (See "Preclinical Research" above and
  "Management's  Discussion and Analysis of Financial Condition and Results
  of  Operations"  below.)   The Company is initiating a Phase III trial of
  the  new dosage form, with the treatment of patients to commence in early
  April 1999.

  Evaluation   of  CarraVex[TM]  injectable  (formerly  CARN  750)  in  the
  Treatment  of  Solid  Tumors in Humans.  In 1993, the Company completed a
  Phase I safety study in normal volunteers using CarraVex[TM] which led to
  a   Phase  I  clinical  trial  in  disease  patients  using  CarraVex[TM]
  injectable  in  certain  solid tumor indications.  The trial began in the
  United  States  in  late  1995  and  continued  until mid-1997.  Eighteen
  patients completed the study, with no safety concerns noted.  The product
  required filtration at the bedside, which the Company believes is not the
  best  delivery  approach  for  CarraVex[TM].  A program for improving the
  formulation is in progress, and a decision on future clinical trials will
  be made once a suitable formulation is developed.

  Evaluation  of  Carrasyn[R] for Radiation-Induced Dermatitis.  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  in  an  animal model.  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.  These studies led to the development of RadiaCare[TM]
  Gel for the management 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  preventing  the
  development  of radiation dermatitis in humans.  The 70-patient study was
  designed  to  evaluate the prevention of radiation dermatitis as compared
  to  another  hydrogel.    No statistical difference was noted between the
  groups.

  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 sponsoring a small pilot clinical study at the University
  of Wales to evaluate the effect of CarraSorb[TM]  M on wound macrophages.
  The results of this study should be known in 1999.

  Evaluation  of  RadiaCare[TM]  Oral  Wound Rinse.  In March 1997, the FDA
  cleared  Carrington  to  market  RadiaCare[TM]  Oral  Wound Rinse for the
  management  and relief of pain associated with mucositis and all types of
  oral  wounds.   The Company is sponsoring individual case studies and co-
  sponsoring  a pilot study of 50 patients in a placebo-controlled, double-
  blind  trial  in  radiation-induced  mucositis.  Results will be known in
  1999.
<PAGE>
  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.

<TABLE>
                PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED,
                         PLANNED OR UNDER DEVELOPMENT

   PRODUCT OR                 POTENTIAL
   POTENTIAL INDICATION       MARKET APPLICATIONS          STATUS
   --------------------       -------------------          ------
   <S>                        <C>                          <C>
   Topical
     Dressings                Pressure and Vascular        Marketed
                              Ulcers
     Cleansers                Wounds                       Marketed
     Anti-fungal              Cutaneous Fungal Infection   Marketed
     Hydrocolloids            Wounds                       Marketed
     Alginates                Wounds                       Marketed

   Oral
     Human 
        Anti-inflammatory     Ulcerative Colitis           Phase III
        Pain Reduction        Mucositis                    Marketed

     Dental
        Pain Reduction        Aphthous Ulcers, Oral        Marketed
                              Wounds
   Injectable
     Human
        Adjunct for cancer    Melanoma, Breast, Prostate,  New
                              Colon, Hypernephroma, and    Formulation 
                              Soft Tissue Sarcoma          Required

        Neutropenia           Neutropenia associated with  Preclinical
                              cancer                       and
                                                           Formulation
                                                           Development

     Veterinary
        Adjunct for cancer    Fibrosarcoma                 Marketed

   Vaccine Adjuvant
     Veterinary
        Poultry Vaccines      Marek's Disease              Marketed

</TABLE>
<PAGE>
                              Licensing Strategy

  The  Company expects that prescription pharmaceutical products containing
  certain  defined  drug  substances  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 products 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  chemical   entities  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 products 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
  L.   Through patented processes, the Company produces bulk pharmaceutical
  and  injectable  mannans  and  freeze-dried aloe extract from the central
  portion  of  the  Aloe  vera  L  leaf  known  as  the  gel.  A basic bulk
  pharmaceutical  mannan, (Acemannan) 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 125
  acres  planted  with  Aloe  vera.   The Company's current need for leaves
  exceeds  the  supply  of  harvestable  leaves  from  the  Company's farm,
  requiring  the purchase of leaves from other sources in Central and South
  America   at  considerably  higher  prices.    Additional  quantities  of
  harvestable  leaves  from the Company's farm will become available in the
  second  quarter  of 1999, but will not completely eliminate the Company's
  dependence  on  other  sources  of leaves.  Due to economic and political
  instability in the Central American region, the supply of imported leaves
  cannot be guaranteed.  A 10% increase in Aloe vera leaf prices from other
  sources  would  result  in  a  $162,000  decrease  in  gross profit.  The
  Company's  sensitivity  analysis of the effects of changes in leaf prices
  does  not factor in a potential change in sales levels or a change in the
  percentage  of leaves  purchased  from  other  sources.  The  Company has
  been exploring other  options to  obtain leaves  to  meet  its  projected
  requirements at lower costs.
<PAGE>
  In May 1998, Aloe and Herbs International, Inc., a Panamanian corporation
  ("Aloe & Herbs"), was formed for the purpose of purchasing 5,000 acres of
  land  in  Costa  Rica  and  establishing  an Aloe vera farm.  The Company
  received  1.5 million shares of Aloe & Herbs common stock for agreeing to
  make  certain loans to Aloe & Herbs, arranging for Aloe vera plants to be
  supplied  to the farm and providing know-how in farming Aloe vera plants.
  Aloe  &  Herbs  formed a Costa Rican subsidiary, Rancho Aloe (C.R.), S.A.
  ("Rancho Aloe"), which owns and operates the farm.  The Company purchased
  the  initial plants for the farm on behalf of Rancho Aloe in exchange for
  unsecured notes and accounts receivable.

  In  March 1998, prior to the incorporation of Aloe & Herbs, the Company's
  Caraloe  subsidiary  signed a letter of intent with one of the organizers
  of  Aloe  &  Herbs  to enter into a supply agreement with Aloe & Herbs to
  purchase,  at  mutually agreeable, locally competitive prices, all of the
  Aloe  vera  leaves that Caraloe needs, to the extent its needs exceed the
  leaves  available from the Company's farm plus up to 200,000 kilograms of
  leaves  per month from another local source.  At the date of this report,
  no  such  supply  agreement  has  been negotiated or entered into, but in
  March  1999,  the  Company began receiving approximately eight percent of
  its  monthly  requirements  of  leaves from Rancho Aloe.  However, Rancho
  Aloe  is  not  expected  to  be  able  to  harvest and supply significant
  quantities  of  leaves  for  another one to two years.  See "Management's
  Discussion  and Analysis of Financial Condition and Results of Operations
  --  Liquidity  and  Capital  Resources"  and Note Six to the consolidated
  financial  statements  for  further  information  regarding the Company's
  relationship with Aloe & Herbs.

  Manufacturing

  During the last quarter of 1994 and the first three quarters of 1995, the
  Company  moved  its  wound-and skin-care product manufacturing operations
  from  a leased facility in Dallas, Texas to the Company's headquarters in
  Irving,  Texas.    In connection with this move, the Company upgraded and
  expanded   its  manufacturing  capacity  by  installing  higher  capacity
  equipment  and  upgraded  its  capabilities  to  produce injectable-grade
  pharmaceutical  products.  The Company believes that the 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, hydrocolloids, foam dressings, gel
  sheets,  tablets,  capsules, and freeze-dried products are being provided
  by third parties.  In 1998 the Company engaged Elemco, a consulting firm,
  to  review  and modernize the Company's manufacturing and quality control
  processes and make recommendations for process improvements.

  All of the Company's bulk pharmaceutical mannans, bulk injectable mannans
  and  freeze-dried  Aloe  vera  L  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
  and  bulk  material  contracts for the foreseeable future.  Finished oral
  and injectable dosage forms will be produced by outside vendors until in-
  house production becomes economically justified.

<PAGE>
                                 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 (in areas including 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  both in its present wound care market and in markets
  associated with products the Company currently has under development.

  Wound  and  Skin  Care  Division  and Caraloe, Inc.  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
  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.    In  1998 the Company began a marketing study to
  evaluate  ways  to clearly separate its products from the perception of a
  regular Aloe company.  The results of this study should be known in 1999.


  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.
<PAGE>
  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 short-term side effects of the drug.

  If  efficacy  and  safety  are observed in the Phase II trials, Phase III
  trials  (usually two 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,  and  how  both the drug substance and drug
  product will be manufactured and controlled.
<PAGE>
  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.
  Also, under the new program for harmonization between Europe and the U.S.
  and  the  ISO  9001  Certification  Program, a company can, under certain
  circumstances after application, have a new drug approved under a process
  known  as  centralization  rather than having to go through a country-by-
  country approval in the European Union.

  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.  The Company currently markets seven (7) products which require
  a prescription as medical devices.

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

  Other  Regulatory  Authorities.    The  Company's  advertising  and sales
  practices  are subject to regulation by the Federal Trade Commission (the
  "FTC"),  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
  (the "EPA"), as well as the FDA.
<PAGE>
  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.

  The  manufacturing,  processing,  formulating,  packaging,  labeling  and
  advertising  of  products  of the Company's subsidiary, Caraloe, are also
  subject to regulation by one or more federal agencies, including the FDA,
  the  FTC,  the  USDA and the EPA.  These activities are also regulated by
  various agencies of the states, localities and foreign countries to which
  Caraloe's  products  are  distributed and in which Caraloe's products are
  sold.  The FDA, in particular, regulates the formulation, manufacture and
  labeling of vitamin and other nutritional supplements.

  On October 25, 1994, the President signed into law the Dietary Supplement
  Health  and  Education  Act  of 1994 ("DSHEA").  This new law revised the
  provisions  of  the Federal Food, Drug, and Cosmetic Act (the "FFDC Act")
  concerning  the  composition  and labeling of dietary supplements and, in
  the  judgement  of  the  Company,  is favorable to the dietary supplement
  industry.    The  legislation  created  a new statutory class of "dietary
  supplement."    This  new class includes vitamins, minerals, herbs, amino
  acids  and other dietary substances for human use to supplement the diet,
  and  the  legislation  grandfathers,  with  certain  limitations, dietary
  ingredients  on the market before October 15, 1994.  A dietary supplement
  which contains a new dietary ingredient, one not on market before October
  15,  1994, will require evidence of a history of use or other evidence of
  safety  establishing that it will reasonably be expected to be safe.  The
  majority  of  the  products marketed by Caraloe are classified as dietary
  supplements under the FFDC Act.

  Both  foods and dietary supplements are subject to the Nutrition Labeling
  and  Education  Act  of 1990 (the "NLEA"), which prohibits the use of any
  health  claim for foods, including dietary supplements, unless the health
  claim  is  supported  by  significant  scientific agreement and is either
  pre-approved  by  the  FDA  or  the  subject  of  substantial  government
  scientific  publications and a notification to the FDA.  To date, the FDA
  has   approved  the  use  of  only  limited  health  claims  for  dietary
  supplements.   However, among other things, the DSHEA amends, for dietary
  supplements,  the  NLEA  by  providing  that  "statements  of nutritional
  support"  may  be  used  in  labeling for dietary supplements without FDA
  preapproval  if  certain  requirements, including prominent disclosure on
  the label of the lack of FDA review of the relevant statement, possession
  by the marketer of substantiating evidence for the statement and post-use
  notification  to  the  FDA,  are  met.   Such statements may describe how
  particular  nutritional  supplements  affect  the  structure, function or
  general  well-being  of  the  body  (e.g.,  "promotes your cardiovascular
  health").

  The FDA issued final dietary supplement labeling regulations in 1997 that
  required  Caraloe  to  revise  most  of  its  product labels by 1999, and
  Caraloe  completed  the  revisions  required  for  compliance  with these
  regulations  in  January  1999.    In  compliance with these regulations,
  Caraloe  maintains supporting documentation on file for its "statement of
  nutritional support".
<PAGE>
  Advertising  and  label  claims  for dietary supplements and conventional
  foods have been regulated by state and federal authorities under a number
  of  disparate regulatory schemes.  There can be no assurance that a state
  will  not  interpret  claims  presumptively  valid  under  federal law as
  illegal under that state's regulations, or that future FDA regulations or
  FTC decisions will not restrict the permissible scope of such claims.

  Governmental  regulations  in  foreign  countries  where Caraloe plans to
  commence  or  expand  sales may prevent or delay entry into the market or
  prevent  or  delay  the  introduction,  or  require the reformulation, of
  certain of Caraloe's products.  Compliance with such foreign governmental
  regulations is generally the responsibility of Caraloe's distributors for
  those  countries.    These  distributors are independent contractors over
  whom the Company has limited control.

  As  a  result of Caraloe's efforts to comply with applicable statutes and
  regulations,  Caraloe  has  from time to time reformulated, eliminated or
  relabeled  certain  of its products and revised certain provisions of its
  sales  and  marketing  program.  Caraloe cannot predict the nature of any
  future  laws,  regulations,  interpretations  or applications, nor can it
  determine    what   effect   additional   governmental   regulations   or
  administrative  orders,  when  and  if  promulgated,  would  have  on its
  business  in  the future.  They could, however, require the reformulation
  of  certain  products to meet new standards, the recall or discontinuance
  of  certain  products  not  capable  of  reformulating, additional record
  keeping,  expanded  documentation  of the properties of certain products,
  expanded or different labeling, and/or scientific substantiation.  Any or
  all  of  such  requirements  could  have a material adverse effect on the
  Company's results of operations and financial condition.

  Compliance with the provisions of national, state and local environmental
  laws  and  regulations  has  not  had  a  material  adverse  effect  upon
  the capital  expenditures,  earnings,  financial position,  liquidity  or
  competitive  position  of  the  Company.    See  also  "Business -- Legal
  Matters" and "-- Regulatory Matters."


                        Patents and Proprietary Rights

  As  is  industry  practice,  the  Company  has a policy of using patents,
  trademarks  and  trade secrets to protect 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.
<PAGE>
  The  Company  has  obtained  patents  or filed patent applications in the
  United  States  and  approximately  26  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  26 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") was  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.

  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  has  filed  a  number  of  divisional
  applications  to  these  patents,  each  dealing  with  specific  uses of
  acetylated  mannan  derivatives.   Patent Cooperation Treaty applications
  based  on  the  parent   United  States  applications   have  been  filed
  designating  a  number  of  foreign  countries where the applications are
  pending.    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.

  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).  A Patent Treaty
  application  based on the parent United States application has been filed
  designating  a  number  of  foreign  countries where the applications are
  pending.
<PAGE>
  The  Company  has obtained a patent in the United States (U.S. Patent No.
  5,760,102, issued on June 2, 1998) and in Taiwan related to the uses of a
  denture  adhesive (Taiwan Patent No. 89390 issued on August 21, 1997) and
  also a patent in the United States relating to methods for the prevention
  and  treatment of infections in animals (U.S. Patent No. 5,703,060 issued
  on December 30, 1997).

  Three additional patents concerning various areas of interest were issued
  in 1998. 

  The  Company  has  filed  and  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 L 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
  with  its  current  and  planned  business  activities,  there  can be no
  assurance  that holders of such other Aloe vera L.-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,  on 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.
<PAGE>
  The  Company  has  given  the  trade  name  Carrasyn[R] to certain of its
  products containing acetylated mannans.  The Company has filed a selected
  series  of  domestic  and  foreign  trademark  applications for the marks
  Manapol[R] Powder, Carrisyn[R] and Carrasyn[R].  Further, the Company has
  registered  the trademark AVMP[R] Powder and the trade name Carrington[R]
  in the United States.  The Company believes that its trademarks and trade
  names are valuable assets.


                                  Employees

  As  of  March  5, 1999, the Company employed 313 persons, of whom 21 were
  engaged  in the operation and maintenance of its Irving, Texas processing
  plant,  201 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,  89 were located in Texas, 201 in Costa Rica and one in Puerto
  Rico.    In addition, 22 sales personnel were located in 14 other states.
  The  Company  considers  relations  with  its  employees to be good.  The
  employees are not represented by a labor union.


                                  Financing

  In  November  1997, the Company entered into a financing arrangement with
  Comerica  Bank-Texas  ("Comerica").    The  agreement  was  composed of a
  $3,000,000  line of credit structured as a demand note without expiration
  with  an  interest  rate  equal  to the Comerica prime rate.  The line of
  credit  is  collateralized  by  the  Company's  accounts  receivable  and
  inventory.    This  credit  facility will be used for operating needs, as
  required, and is currently being used to secure a letter of credit in the
  amount  of $1,250,000.  As of December 31, 1998, there was no outstanding
  balance owed to Comerica under the terms of the financing agreement.  See
  "Management's  Discussion and Analysis of Financial Condition and Results
  of  Operations  --  Liquidity  and  Capital  Resources"  for  information
  regarding  a  supply  agreement  between  the Company and its supplier of
  freeze-dried products that obligates the Company to purchase more of such
  products than it is currently able to sell.  


  Year 2000 Issues

  See  "Management's  Discussion  and  Analysis  of Financial Condition and
  Results  of Operations -- Year 2000 Issues" for information regarding the
  Company's  efforts  to  assess, and to deal with the effects of, problems
  that  may affect the Company as a result of the types of Year 2000 issues
  described in that discussion.
<PAGE>
  ITEM 2.     PROPERTIES.

  The  Company  believes  that  all  its  farming  property,  manufacturing
  and  laboratory  facilities,  as  described  below,  and  material  farm,
  manufacturing  and laboratory equipment are in satisfactory condition and
  are  adequate for the purposes for which they are used, although the farm
  is  not  adequate  to  supply  all  of  the Company's needs for Aloe vera
  leaves.     (See  "Management's  Discussion  and  Analysis  of  Financial
  Condition  and  Results of Operations" for more information regarding the
  Company's arrangements to purchase Aloe vera leaves.)

  Walnut Hill Facility.  The Company's corporate headquarters and principal
  U.S.  manufacturing  facility occupy all of the 35,000 square foot office
  and  manufacturing  building  (the  "Walnut  Hill  Facility"),  which  is
  situated  on  an  approximately 6.6 acre tract of land located in the Las
  Colinas  area  of  Irving,  Texas.    The  Company  owns the land and the
  building.    The  manufacturing  operations  occupy  approximately 19,000
  square  feet   of  the   facility,  and   administrative  offices  occupy
  approximately 16,000 square feet.

  Laboratory  Facility.    The Company leases 24,000 square feet of office,
  manufacturing and laboratory space (the "Laboratory Facility") in Irving,
  Texas  pursuant  to  a lease that expires in January 2000.  The Company's
  in-house  research  and  development and quality assurance activities are
  conducted  at  the  Laboratory  Facility for the production of injectable
  dosage  forms  of  Acemannan  Immunostimulant.   The Company is currently
  evaluating   whether  to  extend  the  lease  or  move  into  alternative
  facilities.

  Warehouse and Distribution Facility.  Since September 1994, the Company's
  warehouse  and  distribution  center  has been located in a 35,050 square
  foot  facility  that  the  Company  leases  in  Irving,  Texas,  near the
  Walnut Hill Facility.   The  warehouse and  distribution center  occupies
  approximately  27,000  square  feet  of  the  leased  facility,  and  the
  remaining space is used for offices.  The lease expires in October 2001.

  Costa Rica Facility.  The Company owns approximately 405 acres of land in
  the Guanacaste province of northwest Costa Rica.  This land is being used
  for the farming of Aloe vera plants and for a processing plant to produce
  bulk pharmaceutical and injectable mannans and freeze-dried extracts from
  Aloe  vera  used  in  the  Company's  operations.    Construction  of the
  processing plant was completed during the second quarter of 1993, and the
  plant became operational in June 1993.  In 1994, the Company upgraded 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.  In order to
  meet demand for new products, a new compounding area and hi-speed filling
  line  were  constructed  as an addition to the Costa Rica facility during
  1998.   Also, other new equipment was installed in January 1999 to refine
  the BPM manufacturing process.
<PAGE>
  ITEM 3.     LEGAL PROCEEDINGS.

  In November 1997, the Company received a letter from the Texas Department
  of  Licensing  and  Regulation  (the  "TDLR") alleging that the Company's
  Walnut  Hill  Facility  in  Irving, Texas had been inspected and found in
  non-compliance  with  provisions  of the Texas Architectural Barriers Act
  (the  "Act")  and regulations issued thereunder.  The Act and the related
  regulations  contain  design requirements to ensure that disabled persons
  can  make  use of public facilities.  An inspection report describing the
  alleged  deficiencies  was  enclosed  with the letter.  The letter stated
  that  the Walnut Hill Facility was required to be brought into compliance
  and  written  verification furnished to the TDLR within 30 days, and that
  the   Company  should  contact  the  TDLR  if  compliance  could  not  be
  accomplished  within  that  time.  The letter also stated that failure to
  respond  to  the  letter  would  result  in  the  matter  being  referred
  to the TDLR's Enforcement  Division,  which  could result  in  a  maximum
  administrative penalty of $1,000 per violation per day.

  The  Company  subsequently  took a number of steps to correct the alleged
  deficiencies,  obtained extensions for completing the necessary work, and
  kept  the  TDLR  informed,  orally  and  in writing, of its plans and its
  progress.    In  June 1998, the Company sent the TDLR a letter describing
  the  work  it  had  done and proposed to do and explaining why it was not
  feasible  to  correct  certain of the alleged deficiencies.  Although the
  Company  expected  that  the work it proposed to do would be completed by
  September  30,  1998, delays in receiving some of the necessary materials
  prevented  the  completion  of some of the work by that date.  In October
  1998,  after  the  Company  informed  the  TDLR  that some of the alleged
  deficiencies  had  been  corrected,  the  TDLR  sent the Company a letter
  listing the remaining alleged deficiencies and informing the Company that
  its proposal not to correct certain alleged deficiencies would be treated
  as  an  enforcement  issue  after all of the work proposed to be done was
  completed.    By letter dated December 30, 1998, the Company informed the
  TDLR that it had completed the remaining work that it had previously said
  it  would  complete.  The Company has received no communications from the
  TDLR  since the date of that letter.  As far as the Company is aware, the
  TDLR  has not turned this matter over to its Enforcement Division or made
  any claims for penalties to date.

  On  January  7,  1999   Parnell  Pharmaceuticals,   Inc.,  ("Parnell")  a
  California  corporation,  filed a lawsuit styled Parnell Pharmaceuticals,
  Inc.  v. Carrington Laboratories, Inc. No. C99-0035, in the U.S. District
  Court,  Northern  California  District,  alleging  infringement  of their
  federally  registered  trademark,  MouthKote[R],  and  unfair competition
  under  California law.  Parnell sought a permanent injunction banning the
  Company  from  selling  or marketing products using the name OraKote[TM].
  On March 27, 1999, the Company signed a settlement agreement with Parnell
  agreeing  to  cease  using  the  name  OraKote[TM]  after  May 1, 1999 in
  exchange for Parnell's dismissal of the complaint.
<PAGE>
  In  October 1998, the Company was served with a Summons and Notice by the
  Chapter  7  Trustee  for  the estates of FoxMeyer Corporation and certain
  related  companies ("FoxMeyer") regarding an alleged claim of $28,159.69.
  In  July  1998,  the  Company's counsel advised FoxMeyer that the Company
  believed  that  the  October 1998 claim had been settled in the July 1998
  settlement.  As of the date of this report, FoxMeyer has not contradicted
  the  Company's  position,  nor  has  it  formally  confirmed that it will
  release  the  October  1998 claim.  If FoxMeyer fails to acknowledge that
  the  October  1998  claim  was previously settled, or if FoxMeyer asserts
  that the October 1998 claim  was not covered by the July 1998 settlement,
  the Company intends to vigorously defend the October 1998 claim.

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

  The  Company  did  not  submit  any  matter to a vote of security holders
  during  the  fourth  quarter  of  the  fiscal year covered by this Annual
  Report.

<PAGE>
                                     PART II


  ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS.

  The  Common  Stock of the Company is traded on the NASDAQ National Market
  under the symbol "CARN."  The following table sets forth the high and low
  sales  prices  per  share  of  the  Common  Stock for each of the periods
  indicated.

<TABLE>

   Fiscal 1997                           High           Low
   -----------                           ----           ---
   <S>                                  <C>           <C>
   First Quarter                        $8 1/8        $5  1/4

   Second Quarter                        8 3/4         4 11/16

   Third Quarter                         6 1/2         4 13/16

   Fourth Quarter                        6 5/16        3  1/2


   Fiscal 1998                           High           Low
   -----------                           ----           ---
   First Quarter                        $5 1/2        $4

   Second Quarter                        6 7/16        4

   Third Quarter                         5 3/8         2 1/2

   Fourth Quarter                        3 5/8         2 

</TABLE>

  At  March 24, 1999, there were 970 holders of record (including brokerage
  firms) of Common Stock.

  The  Company  has  not  paid  any  cash dividends on the Common Stock and
  presently  intends to retain all earnings for use in its operations.  Any
  decision  by  the Board of Directors of the Company to pay cash dividends
  in  the  future  will  depend  upon,  among  other factors, the Company's
  earnings, financial condition and capital requirements.

<PAGE>

  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,  1998,  is
  derived from  the consolidated  financial statements of the  Company,  of
  which the years 1994 through 1996, and the month of December  1994,  have
  been  audited  by  Arthur  Andersen  LLP, independent public accountants,
  and  the  years  1997 and 1998  have been audited by Ernst &  Young  LLP,
  independent public  accountants.   The  earnings per share amounts  prior
  to  1997  have  been  restated as  required to comply with  Statement  of
  Financial Accounting Standards No. 128, Earnings Per Share.  For  further
  discussion of earnings per share and the impact of Statement No. 128, see
  the notes to the consolidated financial statements beginning  on page F-6.



                                     II - 1
<PAGE>
<TABLE>
Years Ended November 30, 1994,
Month Ended December 31, 1994 and Years
Ended December 31, 1995, 1996, 1997 and 1998

(Dollars and numbers of shares in  November 30             December 31
                                   ----------- -----------------------------------------
thousands except per share amounts)   1994     1994     1995     1996     1997     1998
----------------------------------------------------------------------------------------
<S>                                  <C>      <C>     <C>      <C>      <C>      <C>
OPERATIONS STATEMENT INFORMATION:

  Net Sales                          $25,430  $1,781  $24,374  $21,286  $23,559  $23,625 
  Cost and Expenses:
    Cost of Sales                      6,415     516    7,944   10,327    9,530   10,870 
    Selling, general and
      administrative                  11,968     985   12,442   10,771   10,814   10,254 
    Research and development           5,334     327    5,370    5,927    3,006    2,589 
    Charges related to ACI and
      Aloe & Herbs (1)                    -       -        -        -        -     1,750 
    Interest expense (income), net       133      23      115     (304)     (37)    (233)
                                      ------    ----   ------   ------   ------   ------
  Income (loss) before income taxes    1,580     (70)  (1,497)  (5,435)     246   (1,605)
      Provision for income taxes         159      -       131       88       20       10 
                                      ------    ----   ------   ------   ------   ------
  Net Income (loss)                  $ 1,421   $ (70) $(1,628) $(5,523) $   226  $(1,615)
                                      ======    ====   ======   ======   ======   ======
  Net Income (loss) per common
    share - basic and diluted (2)     $  .18   $(.01) $  (.22) $  (.74) $   .02    $(.17)
                                      ======    ====   ======   ======   ======   ======

  Weighted average shares used in
    per share computations             7,341   7,344    7,933    8,798    8,953    9,320 


BALANCE SHEET INFORMATION:

  Working capital                    $ 4,720 $ 4,472  $ 9,095  $13,910  $ 9,484  $ 9,716 
  Total assets                        19,797  18,899   27,934   31,202   25,796  $24,247 
  Long-term debt, net of current
    portion                            2,035   1,997       88       -        -        -  
  Total shareholders' investment     $12,509 $12,439  $22,399  $27,757  $22,826  $21,363 

</TABLE>
  (1)  During  the  fourth  quarter  of  1998  the Company fully reserved its
       investments  in  and advances to Aloe Commodities International, Inc.,
       and Aloe and Herbs International, Inc., and subsidiaries in the amount
       of  a  $1.75 million charge to operations primarily due to substantial
       doubt  regarding  the entities' ability to continue as going concerns.
       See Note Six to the consolidated financial statements.

  (2)  For  a  description of the calculation of basic and diluted net income
       (loss)   per  share,  see  Note  Two  to  the  consolidated  financial
       statements.  

                                     II - 2
<PAGE>
  ITEM 7.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS.

  Background

  The  Company  is  a  research-based  biopharmaceutical,  medical  device,
  raw materials  and nutraceutical  company  engaged  in  the  development,
  manufacturing and marketing of naturally-derived complex carbohydrate and
  other natural product  therapeutics for the treatment of major illnesses,
  the dressing  and management  of wounds and nutritional supplements.  The
  Company is comprised  of two business segments.  See Note Fourteen to the
  consolidated financial  statements for  financial information about these
  business  segments.  The  Company sells, using a network of distributors,
  prescription and  nonprescription  human and  veterinary products through
  its  wound  and  skin  care division and consumer  and  bulk raw material
  products through  its  consumer products  subsidiary,  Caraloe, Inc.  The
  Company's  research  and product portfolio are based primarily on complex
  carbohydrate isolated from the Aloe vera L. plant.

  Liquidity and Capital Resources

  At December 31, 1998 and 1997, the Company held cash and cash equivalents
  of $3,931,000  and $4,023,000,  respectively, a decrease of $92,000.  Net
  cash provided by operating activities in 1998 was $1,065,000, as compared
  to a  cash outflow  from  operating  activities  in  1997  of $1,899,000.
  Significant  cash  outflows during  1998 included investments in property
  and  equipment  of  $1,278,000.   Customers  with   significant  accounts
  receivable  balances   at  the   end  of  1998   include  Mannatech, Inc.
  ($693,000), Aloe  Commodities  International,  Inc.  ("ACI")  ($681,000),
  McKesson/General  Medical  ($340,000);  and  of  these  amounts, $748,346
  was collected as of March  4,  1999.   The ACI balance, which  was  fully
  reserved as of December 31, 1998, was converted to a  note  receivable on
  February 8, 1999  (see Note Six to  the consolidated financial statements
  for additional discussion of ACI).

  As of December  31, 1998, the Company had no material capital commitments
  other than its  leases and agreements with suppliers.  In March 1998, the
  Company, with  four other investors, formed Aloe and Herbs International,
  Inc.,  a  Panamanian  corporation,  with the  sole  intent of acquiring a
  5,000-acre tract  of land in Costa Rica to  be used for the production of
  Aloe vera  leaves  to be sold to the Company at competitive, local market
  rates.  This would  allow the  Company  to save  approximately 50% on the
  per-kilogram cost of leaves  as  compared to the cost of importing leaves
  from  other  Central   and  South  American   countries.   Aloe  &  Herbs
  subsequently formed a wholly-owned  subsidiary, Rancho Aloe (C.R.), S.A.,
  a Costa Rica  corporation, which  acquired  the land in  April 1998.  The
  Company  received 1,500,000  shares of  Aloe  & Herbs common stock, which
  represents  a  19.3%   ownership  position,  in  exchange  for  providing
  expertise in farming aloe plants and providing a cash advance  to  Rancho
  Aloe to  be used  for the purchase of aloe plants.  This  cash advance of
  $187,000 is evidenced by a note receivable payable in installments,  with
  the  final payment due in June 2000.  The Company also advanced  $300,000
  to Aloe  & Herbs  in November 1998  for the  acquisition of an irrigation
  system to improve production on the farm and allow harvesting  of  leaves
  year  round.    This advance was evidenced by a note receivable which  is
  payable in full in May 2000, and the Company was also granted a five-year
  warrant to purchase 300,000 shares of common stock of Aloe &  Herbs.  The
  first  shipments  of leaves from Rancho Aloe to the Company were  made in
  March 1999.  In the fourth quarter  of 1998, the  Company  fully reserved
  all amounts due from Aloe & Herbs.
<PAGE>
  In  November  1997, the  Company  entered into an agreement with Comerica
  Bank-Texas  for  a  $3,000,000   line  of  credit,  secured  by  accounts
  receivable and inventory. This credit facility will be used for operating
  needs, as required, and is currently being  used to  secure the letter of
  credit described below.

  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")  with  the  intention of using the proceeds from this
  sale to fund the Company's clinical research programs. Due to unfavorable
  results of  the  first  Phase  III  trial  in  the  Aliminase[TM] project
  and  to market  conditions creating  potential additional dilution to the
  outstanding  shares  of  Common  Stock,  as  well  as  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 repurchase
  the Series E Shares, a process it completed in May 1997.  Amounts paid to
  preferred shareholders in excess of  par  totaled  $70,000  more than the
  embedded  deemed dividend recognized in  1996  and  thus, in the earnings
  per  share  calculation in 1997, reduced net  income available to  common
  shareholders.

  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 in November 1995.  In
  July 1997 and October 1997, additional payments of $166,000 and $167,000,
  respectively,  were  paid   to  this   supplier  upon   delivery  of  the
  CarraSmart[TM] Hydrocolloid,  a new product launched in the third quarter
  of 1997.  These payments  resulted in  increasing  other  assets  of  the
  Company.  As of December 31, 1998, the  net  book value of this agreement
  was $619,000.  Additional  payments totaling $167,000 will be made to the
  supplier as new products are delivered.

  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  letter  of  credit  equal  to  60%  of  the  minimum
  purchase commitment  of  $2,500,000,  but allowed  for  the amount of the
  letter  of  credit  to be  reduced by 60% of the purchases made under the
  agreement.  As of December 31, 1998, the letter of credit was $1,250,000.
  The supplier currently  produces the  CarraSorb[TM]  M  Freeze-Dried  Gel
  and The Carrington[R]  (Aphthous  Ulcer)  Patch for the Company.  Both of
  these products represent new technology and are still in the early  phase
  of marketing. The Company  had approximately  $407,000 of CarraSorb[TM] M
  and Carrington[R] (Aphthous Ulcer) Patch inventory on hand as of December
  31, 1998.
<PAGE>
  The supply agreement  also  requires  the Company to make minimum monthly
  purchases of $30,000.  In February 1998, the supply agreement was amended
  to allow  for unmet  monthly  minimum  purchase requirements to be met by
  prepayments, to be applied to future purchases under the agreement, which
  allows the  Company  to keep  inventory  at  levels appropriate for sales
  demand.   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 increase, demand will exceed the aggregate
  minimum  purchase  requirement.  In December 1998, the supplier agreed to
  add a freeze-dried  gel product as  a listed product  under the agreement
  and to consider  an  extension of the term of the agreement.  As of March
  5, 1999,  the  Company  has  purchased  products  totaling  approximately
  $610,000 from this  supplier.  The Company is in full compliance with the
  agreement and,  as of March 5, 1999, has  the available resources to meet
  all future minimum purchase requirements. 

  The Company  believes that its available cash resources and expected cash
  flows  from  operations  will provide  the  funds  necessary  to  finance
  its current operations and the  current  Phase  III  clinical  trial  for
  Aliminase[TM]. However, the Company does not expect that its current cash
  resources will be sufficient to finance future 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 1998 Compared to Fiscal 1997

  Net sales  were  $23,625,000 in  1998, compared with $23,559,000 in 1997.
  Sales of  consumer nutritional  products  by Caraloe, Inc., the Company's
  consumer products subsidiary, increased 32.0%, from $5,444,000 in 1997 to
  $7,187,000  in  1998.  This  increase  in  Caraloe  sales was offset by a
  decrease in wound care sales of 9.4%.  Total sales of the Company's wound
  and  skin  care  products  in  1998  were   $16,292,000  as  compared  to
  $17,990,000 in 1997.
<PAGE>
  Of  the 1998  Caraloe  sales, $6,424,000  was  related  to  the  sale  of
  bulk Manapol[R] Powder.  Caraloe currently sells bulk  Manapol[R]  Powder
  to  Mannatech  under  a three-year,  non-exclusive  supply  and licensing
  agreement  which  expires in  August 2000.  Sales to  Mannatech increased
  from $3,547,000  in 1997 to $5,508,000 in 1998.  In October 1998, Caraloe
  also signed supply and license agreements with One Family, Inc., allowing
  One Family to  purchase  Manapol[R] Powder and market it in capsule form.
  Sales  under  this  agreement  will  commence in 1999.  In December 1998,
  Caraloe signed supply and license  agreements with Eventus International,
  Inc.,  allowing  Eventus  to  market  a  variety  of products  containing
  Manapol[R]  Powder to promote a  natural,  healthy  lifestyle.  Estimated
  sales during the first three years of  these agreements are approximately
  $4,900,000.  Caraloe also continued to develop its contract manufacturing
  business during 1998.  In September 1998,  Caraloe began  to  manufacture
  products on a contract manufacturing basis  for  SkinCeuticals,  Inc.,  a
  direct  sales  company  selling  skin  care   products  through  licensed
  professionals.    Products  to be manufactured include  gels  and  creams
  utilizing   formulas   developed  by  SkinCeuticals.   Caraloe  also  has
  arrangements  to  contract  manufacture  beverage  products for  Deynique
  Cosmetics, GmbH.

  The Company's  wound  and skin care products are marketed domestically to
  hospitals,  nursing homes,  home  health care  agencies  and  acute  care
  providers.   This  market  has continued to be very competitive and price
  sensitive  as a  result  of pressures  to  control health care costs.  In
  addition,  the market  is heavily  influenced by government reimbursement
  programs.    The  home health  care segment  of  the market in particular
  experienced  significant  turmoil  in  1998  as  many  of  the  Company's
  customers either  went out of  business or postponed buying decisions due
  to changes in government reimbursement  programs.    This had  a negative
  impact on the Company's  wound  care  sales  to  that  segment.   Nursing
  homes  were   also   impacted  by  government  regulations  in  1998,  as
  government-mandated  reimbursement  changes  due  to  go  into  effect in
  January 1999 were postponed  until  the  year  2000.    Many nursing home
  facilities and the dealers who supply  them  postponed  buying  decisions
  and  liquidated  inventory  in  anticipation  of  the regulations  taking
  effect.  In  response to the  uncertainty  in this segment of the market,
  the Company developed its Smart Outcomes  System[TM]  program,   designed
  to  educate  nursing  home  administrators about  the  regulatory changes
  and to promote the Company's products. 

  The   Company  also  sells  its  wound  care  products  to  international
  distributors,  primarily  in  Italy,  Australia,  Singapore,  Mexico  and
  Argentina,  with lesser  sales  to a number of Central and South American
  countries.  Total  international sales in 1998 were $1,260,000.  Included
  in this  amount were  sales  of  $685,000  of  wound care products, which
  was $546,000 over 1997.

  Sales of the Company's oral technology products, which were launched late
  in  1997, were  $278,000 in 1998.  Included in this line are products for
  the  management of oral mucositis/stomatitis and oral lesions and ulcers.
  Sales of  the  Company's  veterinary  products increased from $125,000 in
  1997 to  $146,000 in 1998.  These products were marketed on behalf of the
  Company  in  1998  by  Farnam  Companies,  Inc.,  a  leading  marketer of
  veterinary products.
<PAGE>
  Cost of sales  increased  from $9,530,000 to $10,870,000, or 14.1%.  As a
  percentage  of  sales, cost  of sales increased from 40.5% to 46.0%.  The
  increase in  cost of goods sold  was largely attributable to product mix,
  as  sales  in 1998 of Caraloe products were a greater percentage of total
  sales than  in  1997, 30.4%  as  compared  to 23.1%, and Caraloe products
  have a higher cost as a percentage of sales than wound care products.

  Selling,  general  and  administrative  ("SG&A")  expenses  decreased  to
  $10,254,000 from $10,814,000, or 5.2%.  Selling expenses related to wound
  care  sales in  1998 were  trimmed by $753,000 from the 1997 level as the
  Company   reduced   expenditures  in  response  to  the  changing  market
  conditions. Partially offsetting  the decrease was an increase in Caraloe
  selling  and  marketing  expenses  of $310,000.  This  increase primarily
  represented costs  for  additional  personnel  for sales  and formulation
  development   in   support  of   Caraloe's   raw  material  and  contract
  manufacturing efforts.

  Research and development  ("R&D")  expenses  decreased to $2,589,000 from
  $3,006,000,  or 13.9%.   This  decrease  was  primarily the result of the
  completion of  the  Company's  preclinical pharmacology  studies in early
  1998.  The  Company  continued  its  efforts  in  basic  research  during
  1998 and discovered a new and unique pectin in the inner gel of Aloe vera
  L. which has potential near-term utility as a product to be used in wound
  healing.  Basic research  on this  material  is ongoing.  Included in the
  total R&D  activities  during 1998  were  various  small  clinical trials
  designed to collect data in support of the Company's products,  including
  the reformulation of Aliminase[TM]. The Company will return to the clinic
  with a Phase III trial of Aliminase[TM] in April 1999.

  Beginning in  the  second quarter  of  1998,  the  Company  began to make
  strategic  investments  into Aloe & Herbs and its subsidiary Rancho Aloe,
  an  aloe  farm  close  to  the Company's existing farm in Costa Rica. The
  Company  obtained  a  19.3%  equity  interest  in  the farming venture in
  return for  agreement  to  provide  farming  expertise,  working  capital
  and Aloe vera  plants. The Company  expects  Aloe &  Herbs, upon reaching
  full production, to have  the potential of reducing the Company's cost of
  aloe leaves, which is  a  significant  component of the Company's cost of
  sales. Additionally, the Company  expects that when the farm reaches full
  production it will provide  a supply  of leaves  to  meet  the  Company's
  growing  demand in the raw  materials  product lines  and expected future
  demand if the Company receives  FDA  approval of  Aliminase[TM]. Further,
  the Company  believes  this  supply  will reduce the Company's dependence
  upon  leaves  from  other  countries  where  consistency  and  quality of
  supplies are uncertain.
<PAGE>
  During  the  second  and  fourth  quarters of 1998 the Company invested a
  total of  approximately  $.5  million  in  Aloe & Herbs, generally in the
  form of  notes  receivable. Aloe & Herbs has had difficulty acquiring the
  additional financing required to complete its  business  plans and, based
  upon the review of the  financial statements of Aloe & Herbs, the Company
  believes  there  is  substantial  doubt  regarding  Aloe & Herbs' ability
  to remain a going concern  without obtaining  additional  financing. Aloe
  & Herbs has  substantial  capital  requirements  during 1999 and 2000 for
  debt  payments,  ongoing  investments  in  aloe  plants and other general
  start-up  costs. The  Company  has not committed to provide the amount of
  additional capital Aloe  &  Herbs  requires.  Consequently,  the  Company
  has fully reserved the $.5  million  invested in  Aloe & Herbs due to the
  risk and  uncertainty of Aloe &  Herb's  ability to repay the amounts due
  the Company. The Company continues to believe that  strategies to  reduce
  the overall cost of leaves while  increasing  the  supply  and quality of
  leaves for raw materials production are essential.

  The  Company had reserved  approximately $.1 million at December 31, 1997
  to  cover  potential  exposures  on  the  approximately  $1.1  million of
  investments in and  notes  and  accounts receivable from ACI. The Company
  continued  to  monitor  its relationship with ACI and gradually increased
  the reserve over  the  first  three  quarters  of  1998  by approximately
  $.1 million. In the  fourth  quarter  of  1998  the  Company obtained the
  1997  audited  financial  statements  and  the October  1998 year-to-date
  unaudited financial statements of  ACI,  which  indicated  a  substantial
  doubt  regarding   ACI's  ability  to  continue  as  a  going concern. In
  addition, ACI had been unsuccessful in raising  capital  needed  for  its
  operations.  Consequently,  the Company increased  the  reserves  against
  its  investment,  and notes and accounts receivable  balances  related to
  ACI  by  approximately  $1.2  million  to fully  reserve all such amounts
  related to ACI.

  Net interest income  of  $233,000 was realized in 1998, versus $37,000 in
  1997, with  the variance  primarily  due to the costs associated with the
  repurchase of the Series E Preferred Stock in 1997.

  Provision for  income taxes was $10,000 in 1998 as compared to $20,000 in
  1997.   A  tax benefit  was  not  recognized  in  1998 due to the Company
  recording  an offsetting  deferred tax  asset  valuation  allowance.  The
  Company had provided a valuation allowance against all deferred tax asset
  balances at  December  31, 1998  and  1997  due  to uncertainty regarding
  realization of the asset.

  The  Company's net  loss for  1998  was  $1,615,000, versus net income of
  $226,000  for  1997.  This  change  was  primarily the  result of charges
  related to ACI and Aloe & Herbs in the amount of $1,750,000. Net loss per
  share was $.17 in 1998, compared to net income per share of $.02 in 1997.
  Net income  per  share  in 1998, excluding the charges related to ACI and
  Aloe & Herbs, was $.01.
<PAGE>
  Fiscal 1997 Compared to Fiscal 1996

  Net sales  were $23,559,000  in  1997, compared with $21,286,000 in 1996.
  This increase  of  $2,273,000, or  10.7%,  resulted  from  an increase of
  $1,750,000, or  47.4%,  in sales of Caraloe, Inc., the Company's consumer
  products  subsidiary,  and an increase  of $688,000, or 4.0%, in sales of
  the Company's wound and skin care products.  Total sales of the Company's
  wound  and  skin care  products in  1997 were $17,990,000, as compared to
  $17,302,000  in  1996.   New  products  introduced  in 1997 accounted for
  $682,000  in  wound  and skin  care sales  during 1997.  Caraloe sales to
  Mannatech increased from $3,273,000 to $3,547,000.   Of the 1997  Caraloe
  sales, $4,102,000 was  related  to  the  sale of  bulk Manapol[R] Powder.
  Sales of the Company's  veterinary  products  decreased  from $283,000 to
  $125,000, primarily due to  the  Company's  inability to supply Acemannan
  Immunostimulant during part of the year. 

  Cost of sales  decreased  from  $10,327,000 to $9,530,000, or 7.7%.  As a
  percentage of sales,  cost of sales decreased from 42.2%, after adjusting
  for period cost  write-offs (discussed below), to 40.5%.  The decrease in
  cost   of   goods   sold  was  largely   attributable  to  volume-related
  manufacturing  efficiencies  realized in Costa Rica  due to the increased
  Caraloe Manapol[R] Powder sales.   The benefits  of  these  manufacturing
  efficiencies were  partially offset by the lower profit margins earned on
  Manapol[R] Powder as compared to  wound  care  products.    Cost of goods
  sold in 1996 included $1,396,000  of  additional expenses which consisted
  of a $630,000 inventory valuation decrease on June 30, 1996, as described
  below, and period costs  of  $766,000.   The period costs were related to
  the  annual  shutdown  of  the  facility   in  Costa  Rica   for  routine
  maintenance and inventory reduction programs.

  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
  were 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
  represented 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 1996 as a period cost and was
  included in cost of sales.
<PAGE>
  S G & A expenses increased to  $10,814,000  from  $10,771,000,  or  0.4%.
  Partially offsetting the  increase was approximately $242,000 in one-time
  charges incurred in 1996 which were not incurred in 1997.  These one-time
  charges  included  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 modest size
  of the increase in SG&A  expenses  were  the  ongoing  benefits  received
  from cost reduction programs put in  place  in 1996 and the restructuring
  of  the  sales force,  also put in place in 1996, which were continued in
  1997.

  R&D  expenses decreased  to $3,006,000  from  $5,927,000, or 49.3%.  This
  decrease was primarily the result of discontinuing the Phase III clinical
  program for the  testing of Aliminase[TM]  oral capsules in October 1996,
  due   to   unfavorable  results.   The  Company  has  since  reformulated
  Aliminase[TM] into a reconstitutable powder and will return to the clinic
  with a  Phase III  in April 1999.  Approximately $317,000 of expenses for
  the 1996 clinical program was incurred in 1997.

  Net interest  income of  $37,000 was realized in 1997, versus $304,000 in
  1996, due  to having less excess cash to invest resulting from repurchase
  of the remainder of the Series E Preferred Stock in May 1997.

  Provision for  income taxes was $20,000 in 1997 as compared to $80,000 in
  1996.  The  tax provision on 1997 was less than the statutory rate due to
  the Company's ability to utilize tax loss carryforwards.  The Company had
  provided a valuation allowance against all deferred tax asset balances at
  December  31, 1998  and 1997 due  to uncertainty regarding realization of
  the offset.

  Net income  for 1997  was $226,000,  versus a net loss  of $5,523,000 for
  1996. This change  is  a  result  of  increased  volume  in Caraloe, Inc.
  sales,  increased  production  volumes  in  Costa  Rica  resulting in the
  realization of manufacturing efficiencies  and  the  full  absorption  of
  production, and decreased R&D  expenditures  related  to  the termination
  of the Phase III  Aliminase[TM]  study.  Net income per share was $.02 in
  1997, compared to a loss per share of $.74 in 1996.

  Year 2000 Issues

  Like  many  other organizations,  the Company  faces the prospect of what
  will  happen to  computers  and other microprocessor-controlled equipment
  using two digit  data  fields  when  they  encounter  dates  beyond 1999,
  as they  may recognize the "00" of  the Year 2000 as the year 1900.  This
  phenomenon,  known  as the Year 2000 or Y2K issue, may impact the Company
  in  some  manner,  although  the  extent  of any  impact  cannot be fully
  determined at this time. The  Company has undertaken considerable efforts
  to assess its situation in areas that are determinable at this time. 
<PAGE>
  With   respect  to  information  technology   systems,  the  Company  has
  historically followed  a policy  of  purchasing or licensing commercially
  available computer  software packages  for use in operating its business.
  These packages  are typically  maintained  by their developers, and newer
  releases of the  packages are periodically made available to the users of
  the packages for  purchase  or  license  or as part of annual maintenance
  programs. The Company typically installs these packages with little or no
  custom modification  to the programs contained therein.  Accordingly, the
  Company  expects to  incur  little, if  any,  cost  for  custom-developed
  software. The Company's primary business application software used in its
  Costa Rica facility  was  found  during 1998 not to be ready for the Year
  2000, and  the  Company  subsequently  acquired  a  newer  release of the
  software package  which  is  Y2K-ready.    This upgrade will be installed
  during the  first  or  second quarter of 1999.  The cost incurred to date
  to replace or upgrade software packages are approximately $30,000.

  With  respect to  non-information technology  systems,  the  Company  has
  initiated efforts  to assess  its  exposure  due  to  the  Y2K  impact on
  the portions  of  its  production  and  laboratory  equipment  which  are
  microprocessor-controlled.   The Company has determined that there are no
  significant pieces  of equipment in its U.S. facilities that are not Year
  2000-ready.   The identified non-conforming equipment will be upgraded or
  replaced at  an  estimated cost  of  $20,000,  and  the  target  date for
  completing this task  is  the second quarter of 1999. A Y2K review of the
  manufacturing  and  laboratory  equipment  in  the  Company's  Costa Rica
  facility  should  be  completed  early  in  the  second  quarter of 1999.
  Remedial action required, if any, would be targeted for completion by the
  end of the second quarter of 1999.

  With respect to  third  parties, the Company has undertaken to assess the
  potential impact to its operations of its vendors and customers not being
  prepared for the Year 2000 impact on their systems.  The Company surveyed
  all  of its vendors from  whom the Company made purchases totaling $5,000
  or more in a recent 12-month  period.   To date, the Company has received
  responses  from  approximately  83%  of  the  vendors  surveyed,  and the
  majority of vendors  responding  indicated  that they were addressing the
  issue but  were  not  yet  fully  ready.   The Company made specific oral
  inquiries  of  local  U.S.  utility  companies  (electric, gas, water and
  telephone),  each  of  which  indicated  it has  made significant strides
  toward readiness but is not  yet  fully  ready.   Because of the material
  effect that the failure of any one of these utilities,  particularly  the
  electric company, to provide service  to  the Company as a result of Year
  2000  unreadiness  could   have  on  the  Company,  and  because  of  the
  uncertain  responses that  these utility  companies  have  provided,  the
  Company  cannot  provide  assurance  that  its  operations  will  not  be
  materially  affected  by  the  Year 2000 issue, nor can  it  quantify the
  impact that a failure of one of these utilities to provide service  would
  cause. The Company has met with representatives of the Costa Rica utility
  company  providing  service to its facility in Costa Rica, who  indicated
  that  the  utility's  operational  equipment,  much  of  which  is  older
  analog equipment,  has  not been  tested,  but  is backed up by redundant
  manual/mechanical systems.  Newer digital equipment is being certified as
  Y2K  compliant as  installed.  The Company also met with officials of the
  National Bank  of Costa  Rica,  who  presented  a  detailed  plan for Y2K
  compliance and testing.   The bank officials indicated that approximately
  80-90% of their systems have been tested and found compliant.
<PAGE>
  The  most reasonably likely  worst  case  scenario  for  the Company is a
  disruption  in power  to  its  manufacturing  plants, as discussed above.
  As  part  of  its  contingency  plan  for  dealing  with  these  material
  uncertainties, the Company  has  initiated  an inventory program designed
  to  have  several  months  of  inventory  of  its core wound care and raw
  material products on hand  by  the end of the third quarter of 1999.  The
  cost of this inventory program is estimated not to exceed $500,000.

  The Company will  also  be  sending  a  similar survey to its significant
  customers  early in the  second quarter  of 1999 in order to assess their
  Y2K readiness.  The disruption in a customer's business due to this issue
  could   also  have   a   negative  impact  on  the  Company's  sales  and
  profitability, although the impact to the Company cannot be determined at
  this time.

  The costs of the Company's Y2K remediation programs are being funded with
  cash flows from  operations  and  are  not  expected  to exceed $100,000,
  excluding  inventory  buildup.   Some of these costs relate solely to the
  upgrade of existing functionality. In total, these costs are not expected
  to be substantially  different from the normal recurring costs of systems
  and equipment  upgrades and therefore are not expected to have a material
  adverse effect  on the  Company's  overall  results of operations or cash
  flows.

  Forward Looking Statements

  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 achieve growth in  demand for or sales of products, to reduce expenses
  and manufacturing costs and increase  gross  margin  on  existing  sales,
  to initiate, continue or  complete  clinical and other research programs,
  to obtain  financing  when it  is  needed,  to  fund  its operations from
  revenue  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  sell  all of the freeze-dried, calcium  alginate  and  certain  other
  wound care products that it is required to  purchase  under its  existing
  agreements with the suppliers of  those  products, to purchase sufficient
  supplies of Aloe vera leaves at reasonable prices, and to properly assess
  its situation with respect to Y2K issues and avoid  any  material adverse
  effects of the Y2K problem, as well as various other matters.
<PAGE>
  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 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, that one or  more  of  the  customers  that
  the Company expects to purchase significant  quantities  of products from
  the  Company  or  Caraloe may fail to do so, that  competitive  pressures
  may require  the Company to lower the prices of or increase the discounts
  on its products, that the Company's sales of products it is contractually
  obligated  to purchase from suppliers may not  be  sufficient  to  enable
  and  justify its fulfillment of those contractual  purchase  obligations,
  that other parties who owe the Company substantial amounts  of  money may
  be unable to pay what they owe the Company, that the  Company  may suffer
  adverse effects from Y2K problems affecting the Company  or  its  vendors
  (including  utility companies) or customers, and that the Company may  be
  unable to produce or obtain, or may have to pay excessive prices for, the
  raw materials or products it needs.

  All forward-looking statements  in this report are expressly qualified in
  their entirety  by the  cautionary  statements  in  the  two  immediately
  preceding paragraphs.

  ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

  Foreign Currency

  The Company's manufacturing  operation in Costa Rica accounted for 57% of
  cost of  sales for  the  year  ended December 31, 1998.  As a result, the
  Company's  financial results  could be  significantly affected by factors
  such  as  changes  in  foreign  currency exchange  rates or weak economic
  conditions in Costa  Rica.   When the U.S. Dollar strengthens against the
  Costa Rican Col  n, the cost of sales  decreases.  During  the year ended
  1998,  the  exchange  rate  from  U.S.  Dollars  to   Costa  Rican  Colon
  increased  by  10%  to  269  at  December 31, 1998.  The  effect of a 10%
  strengthening  in  the  value  of the  U.S.  Dollar relative to the Costa
  Rican Colones would result in a increase in gross profit of $208,000. The
  Company's  sensitivity  analysis  of  the  effects  of changes in foreign
  currency rates does not factor in a  potential  change in sales levels or
  local currency prices.
<PAGE>
  Sales  of  products  to  foreign markets  comprised 5% of sales for 1998.
  These  sales  are  generally  denominated  in  U.S. Dollars.  The Company
  does not  believe  that  changes  in  foreign  currency exchange rates or
  weak  economic  conditions  in  foreign  markets  in  which  the  Company
  distributes  its  product  would  have a  significant effect on operating
  results.  If sales to foreign  markets  increase  in  future periods, the
  effects could become significant.

  For quantitative and qualitative disclosures about market risk related to
  the supply of Aloe vera leaves, see "Business".

  ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  The  response to Item 8  is submitted  as a separate section of this Form
  10- K.  See Item 14.

  ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE.

  Effective  March 19, 1997,  the  Company appointed the accounting firm of
  Ernst  &  Young LLP as  the  Company's independent public accountants for
  fiscal 1997 to  replace  Arthur Andersen LLP, which resigned on that same
  date.  The Company's Board of Directors approved the selection of Ernst &
  Young  LLP as independent  public  accountants upon the recommendation of
  the Board's independent Audit Committee comprised of outside directors.

  During  1996 and  the period from January 1, 1997 through March 18, 1997,
  there  were no  disagreements with  Arthur  Andersen LLP on any matter of
  accounting  principle or  practice,  financial  statement  disclosure  or
  auditing scope or  procedures  or any reportable events.  Arthur Andersen
  LLP's report  on the  financial statements for the year 1996 contained no
  adverse  opinion  or  disclaimer  of  opinion  and  was  not qualified or
  modified as to uncertainty, audit scope or accounting principles.

  The Company provided Arthur  Andersen LLP with  a copy of this disclosure
  and requested that Arthur Andersen LLP furnish it with a letter addressed
  to  the  Securities  and  Exchange  Commission (the "Commission") stating
  whether it agreed with the  above statements.   A copy of Arthur Andersen
  LLP's letter to the Commission, dated April 7, 1997, was filed as Exhibit
  16.1  to  the  Company's Form 10-K/A  amendment  to its  Form 10-K Annual
  Report  for the  year ended December 31, 1996,  which amendment was filed
  with the Commission on April 7, 1997.

<PAGE>
                                     PART III

  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  The information  required by Item 10  of Form 10-K is hereby incorporated
  by reference from the  information appearing under the captions "Election
  of  Directors,"  "Executive   Officers"  and  "Section  16(a)  Beneficial
  Ownership   Reporting  Compliance"  in  the  Company's  definitive  Proxy
  Statement relating to its 1999 annual meeting of shareholders, which will
  be filed pursuant to Regulation 14A within 120 days after  the  Company's
  fiscal year ended December 31, 1998.

  ITEM 11.  EXECUTIVE COMPENSATION.

  The information required  by Item 11 of  Form 10-K is hereby incorporated
  by reference from the information appearing under  the caption "Executive
  Compensation" in the Company's definitive Proxy Statement relating to its
  1999 annual  meeting  of shareholders,  which  will  be filed pursuant to
  Regulation 14A  within 120  days  after  the  Company's fiscal year ended
  December 31, 1998.


  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

  The  information  required by Item 12 of Form 10-K is hereby incorporated
  by reference from the information appearing under  the captions "Security
  Ownership of Management"  and  "Principal  Shareholders" in the Company's
  definitive  Proxy Statement  relating  to  its  1999  annual  meeting  of
  shareholders, which will  be  filed pursuant to Regulation 14A within 120
  days after the Company's fiscal year ended December 31, 1998.


  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

  The  information required by Item 13 of Form  10-K is hereby incorporated
  by reference from the information appearing  under the  caption  "Certain
  Transactions" in the Company's definitive Proxy Statement relating to its
  1999 annual  meeting of  shareholders,  which  will  be filed pursuant to
  Regulation 14A  within 120  days  after  the  Company's fiscal year ended
  December 31, 1998.

<PAGE>
                                       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-12 for a list of all exhibits filed as a part of
              this Annual Report.

 (b)          Reports on Form 8-K.

              The Company filed no reports on Form 8-K during the last
              quarter of its fiscal year ended December 31, 1998.



<PAGE>

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


  Consolidated Financial Statements of the Company:
         Consolidated Balance Sheets --
               December 31, 1997 and 1998                             F  - 2

         Consolidated Statements of Operations -- years ended
               December 31, 1996, 1997 and 1998                       F  - 3

         Consolidated Statements of Shareholders' Investment --
               years ended December 31, 1996, 1997 and 1998           F  - 4

         Consolidated Statements of Cash Flows -- years ended
               December 31, 1996, 1997 and 1998                       F  - 5

         Notes to Consolidated Financial Statements                   F  - 6

         Financial Statement Schedule
               Valuation and Qualifying Accounts                      F - 19

         Report of Ernst & Young LLP, Independent Public Accountants  F - 20

         Report of Arthur Andersen LLP, Independent Public            F - 21
         Accountants

<PAGE>
<TABLE>

  Consolidated Balance Sheets
  (Dollar amounts in thousands, except share amounts)


                                                       December 31, December 31,
                                                          1997        1998
                                                         --------    -------
   <S>                                                   <C>        <C>
   ASSETS:
   Current Assets:
        Cash and cash equivalents                        $  4,023   $  3,931 
        Accounts receivable, net of allowance for  
           doubtful accounts of $478 and $922, 1997
           and 1998, respectively                           3,090      2,961 
        Inventories                                         5,003      4,969 
        Prepaid expenses                                      328        739 
                                                         --------   --------
   Total current assets                                    12,444     12,600 

   Property, plant and equipment, net                      10,815     11,050 
   Other assets                                             2,537        597 
                                                         --------   --------
   Total assets                                          $ 25,796   $ 24,247 
                                                         ========   ========


   LIABILITIES AND SHAREHOLDERS' INVESTMENT
   Current Liabilities:
        Accounts payable                                 $  1,143   $  1,369 
        Accrued liabilities                                 1,827      1,515 
                                                         --------   --------
   Total current liabilities                                2,970      2,884

   Commitments and contingencies

   SHAREHOLDERS  INVESTMENT:
        Common stock, $.01 par value, 30,000,000 shares
           authorized, 9,306,462 and 9,350,064 shares
           issued and outstanding at December 31, 1997
           and 1998, respectively                              93         94 
        Capital in excess of par value                     51,585     51,736 
        Deficit                                           (28,852)   (30,467)
                                                         --------   --------
   Total shareholders' investment                          22,826     21,363 
                                                         --------   --------
   Total liabilities and shareholders' investment        $ 25,796   $ 24,247 
                                                         ========   ========

  The accompanying notes are an integral part of these balance sheets.

</TABLE>
<PAGE>
<TABLE>
  Consolidated Statements of Operations
  (Amounts in thousands, except per share amounts)



                                                    Years Ended December 31,
                                              ------------------------------------
                                                 1996          1997         1998   
                                               -------       -------      --------
   <S>                                        <C>           <C>          <C>
   Net Sales                                  $ 21,286      $ 23,559     $  23,625 
   Cost and expenses:
     Cost of sales                              10,327         9,530        10,870 
     Selling, general and administrative        10,771        10,814        10,254 
     Research and development                    5,927         3,006         2,589 
     Charges related to ACI and
      Aloe & Herbs                                   -             -         1,750
     Interest expense                               88             6             3 
     Interest income                              (392)          (43)         (236)
                                               -------       -------      --------
   Income (loss) before income taxes            (5,435)          246        (1,605)
   Provision for income taxes                       88            20            10 
                                               -------       -------      --------
   Net Income (loss)                            (5,523)          226        (1,615)
   Dividends and income attributed to
     preferred shareholders                     (1,023)          (70)            - 
                                               -------       -------      --------
   Net income (loss) available to common
     shareholders                             $ (6,546)     $    156     $  (1,615)
                                               =======       =======      ========
   Net income (loss) available to common
     shareholders per share - basic and
     diluted                                  $   (.74)     $    .02     $    (.17)
                                               =======       =======      ========

  The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
      Consolidated Statements of Shareholders' Investment
      For the Years Ended December 31, 1996, 1997 and 1998
      (Dollar amounts and share amounts in thousands)
                                                                    Capital in             Total
                                     Preferred           Common     Excess of           Shareholders'
                                       Stock             Stock      Par Value   Deficit  Investment
                                   --------------    -------------  ---------   -------  ----------
                                   Shares  Amount    Shares Amount
                                   ------  -----     ------ ------
      <S>                            <C>  <C>        <C>      <C>    <C>       <C>         <C>
      Balance,
        January 1, 1996              12   $1,167     8,379    $84    $44,666   $(23,518)   $22,399
      Issuance of common stock
        upon exercise of stock
        options, warrants and
        employee stock purchase
        plan                         -        -        316      3     4,604          -       4,607 
      Dividends on preferred
        stock (Series C)             -        35        -      -         -          (37)       (2)
      Conversion of preferred to
        common stock (Series C)     (12)  (1,202)      175      2     1,200          -         -  
      Sales of convertible 
        preferred stock (Series E),
        $100 Par, net of issuance 
        costs of $324                 1       66        -      -      6,210          -      6,276 
      Net loss and comprehensive
        loss                         -        -         -      -         -       (5,523)   (5,523)
      --------------------------------------------------------------------------------------------
      Balance,
        December 31, 1996             1       66     8,870     89    56,680     (29,078)   27,757 
      Issuance of common stock for
        employee stock purchase
        plan                         -        -         21     -        153          -        153
      Sale of common stock net of
        issuance costs of $21        -        -        415      4     2,471          -      2,475 
      Repurchase of convertible
        preferred stock (Series E),
        $100 Par                     (1)     (66)       -      -     (7,719)         -     (7,785)
      Net income and comprehensive
        income                       -        -         -      -         -          226       226 
      --------------------------------------------------------------------------------------------
      Balance,
        December 31, 1997            -        -      9,306     93    51,585     (28,852)   22,826 
      Issuance of common stock for
        employee stock purchase
        plan                         -        -         44      1       151          -        152 
      Net loss and comprehensive
        loss                         -        -         -      -         -       (1,615)   (1,615)
      --------------------------------------------------------------------------------------------
      Balance,
        December 31, 1998            -    $   -      9,350    $94   $51,736    $(30,467)   $21,363
                                  ======   ======   ======   ====    ======     =======     ======

      The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>


  Consolidated Statements of Cash Flow
  (Dollar amounts in thousands)
                                                       Years Ended December 31,   
                                                   -------------------------------
                                                    1996        1997         1998
                                                   ------      ------       ------
  <S>                                             <C>         <C>          <C>   
  Cash flows from (used in) operating activities:
     Net income (loss)                            $(5,523)    $   226      $(1,615)
     Adjustments to reconcile income (loss)
        to net cash provided (used) by 
          operating activities:
        Depreciation and amortization               1,273       1,196        1,043 
        Charge related to ACI investments               -           -          600 
        Provision for inventory obsolescence          545         523           53 
     Changes in assets and liabilities:
        Accounts receivable, net                      315      (1,545)         129
        Inventories                                 1,067      (1,903)         (19)
        Prepaid expenses                              490          40         (411)
        Other assets                               (1,534)       (360)       1,340 
        Accounts payable and accrued liabilities      949         (76)         (55)
                                                   ------      ------       ------
     Net cash provided (used) by 
       operating activities                        (2,418)     (1,899)       1,065 
  Cash flows from investing activities:
     Purchases of property, plant and equipment      (242)       (295)      (1,278)
                                                   ------      ------       ------
        Net cash used by investing activities        (242)       (295)      (1,278)
  Cash flows from financing activities:
     Issuances of common stock                      4,607       2,628          152 
     Issuance (retirement) of preferred stock       6,276      (7,785)          -  
     Payments of short and long-term debt          (2,999)        -             -  
     Principal payments of capital lease 
        obligations                                   (40)        (32)         (31)
                                                   ------      ------       ------
        Net cash provided (used) by financing
          activities                                7,844      (5,189)         121 
                                                   ------      ------       ------
  Net increase (decrease) in cash and cash
     equivalents                                    5,184      (7,383)         (92)
  Cash and cash equivalents at beginning of year    6,222      11,406        4,023 
                                                   ------      ------       ------
  Cash and cash equivalents at end of year        $11,406     $ 4,023      $ 3,931 
  Supplemental Disclosure of Cash Flow             ======      ======       ======
     Information
     Cash paid during the year for interest       $    87     $    10      $     3 
     Cash paid during the year for income taxes        13         -             44 
  Supplemental Disclosure of Non-Cash 
     Financing Activities:
     Equipment acquired through capital leases         39         -             -  


  The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


  NOTE ONE. BUSINESS

  Carrington   Laboratories,  Inc.  (the  "Company")  is  a  research-based
  biopharmaceutical medical device, raw materials and nutraceutical company
  engaged in  the  development, manufacturing  and  marketing of naturally-
  derived  complex  carbohydrates  and  other natural  product therapeutics
  for  the  treatment  of  major  illnesses, the dressing and management of
  wounds, and nutritional supplements.

  The Company's Wound and skin care division offers a comprehensive line of
  human  wound management products to hospitals, nursing homes, alternative
  care  facilities and the home health care market and also offers vaccines
  and  wound,  and  skin  care products to the veterinary market.  Sales are
  primarily in the United States through a network of distributors.

  Caraloe,  Inc.,  a  subsidiary, markets or licenses consumer products and
  bulk  raw  material products.  Principal sales of Caraloe, Inc., are bulk
  raw  material products  which are sold to United States manufacturers who
  include the high quality extracts from aloe in their finished products.

  The Company's products are produced at its plants in Irving, Texas and in
  Costa Rica.  A portion of the Aloe vera leaves used for manufacturing the
  Company's products are grown on a Company-owned farm in  Costa Rica.  The
  remaining  leaves are purchased from independent producers in Costa Rica,
  Mexico, Venezuela and Central America.

  NOTE TWO. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES  OF  CONSOLIDATION       The consolidated financial statements
  include  the   accounts   of   Carrington  Laboratories,  Inc.,  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 1998 presentation.

  CASH EQUIVALENTS    The  Company's  policy  is  that  all  highly  liquid
  investments purchased with a  maturity of  three months or less  at  date
  of  acquisition  are  considered to  be cost equivalents unless otherwise
  restricted.

  INVENTORY Inventories  are  recorded at lower of first-in, first-out cost
  or market.

  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.    Leasehold  improvements  and equipment under capital leases are
  amortized over the terms of the respective leases.

  LONG-LIVED ASSETS         The Company regularly reviews long-lived assets
  for  impairment whenever events or changes in circumstances indicate that
  the  carrying  amounts   of   the   assets   may   not   be  recoverable.
  Recoverability  is  based  on  whether  the  carrying amount of the asset
  exceeds  the  current  and anticipated undiscounted cash flows related to
  the asset.
<PAGE>
  TRANSLATION  OF  FOREIGN CURRENCIES  The    functional    currency    for
  international  operations  (primarily  Costa  Rica)  is  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
  the consolidated statement of operations in the year of occurrence.

  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 shipment.

  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.

  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.

  ADVERTISING         Advertising  expense  is charged to operations in the
  year  in which such costs are incurred.  Advertising expense has not been
  significant for 1996, 1997, or 1998.

  STOCK-BASED COMPENSATION  The Company  has  elected to follow APB Opinion
  No.  25,  "Accounting  for  Stock  Issued  to  Employees", in the primary
  financial statements and to provide supplementary disclosures required by
  FASB  Statement  No.  123, "Accounting for Stock-Based Compensation" (see
  Note Nine).

  NET INCOME (LOSS) PER SHARE   Basic  net income (loss) per share is based
  on  the  weighted  average  number  of shares of common stock outstanding
  during  the  year  and excludes any dilutive effects of options, warrants
  and convertible securities.  Diluted net income (loss) per share includes
  the  effects  of  options, warrants and convertible securities unless the
  effect is antidilutive.

  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.
<PAGE>
  OPERATING SEGMENTS  In  June  1997,  the  Financial  Accounting Standards
  Board  issued  Statement  of  Financial  Accounting  Standards  No.  131,
  "Disclosures  about  Segments  of  an Enterprise and Related Information"
  ("Statement  131"), which is effective for years beginning after December
  15,  1997.    Statement 131 establishes standards for the way that public
  business  enterprises  report  information  about  operating  segments in
  annual  financial  statements  and requires that those enterprises report
  selected  information  about  operating  segments  in  interim  financial
  reports.    It  also  establishes standards for related disclosures about
  products  and services,  geographic  areas,  and  major  customers.   The
  Company adopted the new requirements retroactively in 1998.  The adoption
  of  the new  requirements  did  not impact  the operating results of  the
  Company.

  NOTE THREE.    INVENTORIES

  The following summarizes the components of inventory at December 31, 1997
  and 1998, in thousands:

                                                    1997      1998
  -------------------------------------------------------------------------
  Raw materials and supplies                      $1,438    $1,135
  Work-in-process                                  1,296     1,182
  Finished goods                                   2,269     2,652
  -------------------------------------------------------------------------
  Total                                           $5,003    $4,969
  -------------------------------------------------------------------------

  The  inventory  balances are net of $516,000 and $525,000 of reserves for
  obsolete  and  slow  moving  inventory  at  December  31,1997  and  1998,
  respectively.

  NOTE FOUR.     PROPERTY, PLANT AND EQUIPMENT

  Property,  plant  and equipment consists of the following at December 31,
  1997 and 1998, in thousands:
<TABLE>
                                                      Estimated
                                  1997       1998    Useful Lives
  -------------------------------------------------------------------------
  <S>                          <C>        <C>        <C>
  Land and improvements        $ 1,389    $ 1,389

  Buildings and improvements     8,086      8,862    7 to 25 years
  Furniture and fixtures           892        930    4 to 8 years
  Machinery and equipment        7,836      8,165    3 to 10 years
  Leasehold improvements           793        928    1 to 3 years
  Equipment under capital
   leases                          150        150    4 years
                                ------     ------
  Total                         19,146     20,424    
  -------------------------------------------------------------------------
  Less accumulated
   depreciation and
   amortization                  8,331      9,374
  -------------------------------------------------------------------------
  Property, plant and
   equipment, net              $10,815   $ 11,050
                                ======    =======
</TABLE>
<PAGE>
  The  Company's  net investment in property, plant and equipment and other
  assets  in  Costa  Rica  at December 31, 1997 and 1998 was $3,738,000 and
  $4,310,000, respectively.

  NOTE FIVE.     ACCRUED LIABILITIES

  The following summarizes significant components of accrued liabilities at
  December 31, 1997 and 1998, in thousands:

                                         1997         1998
  -------------------------------------------------------------------------
  Accrued payroll                      $  232       $  213
  Accrued sales commissions               238          185
  Accrued taxes                           633          377
  Other                                   724          740
  -------------------------------------------------------------------------
  Total                                $1,827       $1,515
  -------------------------------------------------------------------------

  NOTE SIX. CHARGES RELATED TO ACI AND ALOE & HERB

  The  Company  invested  $200,000  in Aloe Commodities International, Inc.
  ("ACI"),  in  exchange  for 200,000 shares of ACI common stock in October
  1996  and  invested an additional $400,000 in exchange for 400,000 shares
  of  ACI  common  stock  in December 1997.  These investments were made in
  anticipation  of  a possible acquisition of ACI which never materialized.
  In addition, the Company also sells liquid aloe gel and Manapol[R] Powder
  to  ACI  through  its  Caraloe subsidiary.  Sales to ACI in 1997 and 1998
  were  $929,000  and $561,000, respectively.  Separately, during 1998, the
  Company  loaned  ACI $200,000  as  part  of  the  funding  for  the  Aloe
  and Herbs International, Inc. venture (described  below).   The  loan was
  evidenced by an unsecured  note  receivable with an initial maturity date
  in August 1998.  The maturity date  on  the note was extended to February
  1999, at which  time  it  was  replaced by a note with a maturity date of
  February 4, 2000.   At December  31,  1998,  ACI  also  owed  the Company
  $681,000 on open account.  On February  4, 1999,  the  Company  converted
  the entire  open account  balance  into a separate note receivable with a
  maturity date of February 4, 2000. 

  The  Company  had reserved approximately $.1 million at December 31, 1997
  to  cover  potential  exposures  on  the  approximately  $1.1  million of
  investments in and  notes and accounts receivable from ACI.  The  Company
  continued to monitor its relationship with ACI  and  gradually  increased
  the  reserve  over  the first  three  quarters  of  1998 by approximately
  $.1 million. In the fourth  quarter  of  1998 the  Company  obtained  the
  1997  audited  financial  statements and the  October  1998  year-to-date
  unaudited  financial  statements of ACI, which  indicated  a  substantial
  doubt  regarding  ACI's  ability  to  continue as  a  going  concern.  In
  addition, ACI had been unsuccessful in raising  capital  needed  for  its
  operations.  Consequently,  the  Company  increased the reserves  against
  its investment and notes and accounts receivable balances related to  ACI
  by  approximately $1.2 million in the fourth quarter to fully reserve all
  such amounts related to ACI.
<PAGE>
  Beginning  in  the  second  quarter  of  1998,  the Company began to make
  strategic  investments  into  Aloe & Herbs and its subsidiary Rancho Aloe
  (collectively  "Aloe  &  Herbs"), an  aloe  farm  close  to the Company's
  existing  farm  in  Costa  Rica.   The  Company  obtained  a 19.3% equity
  interest in  Aloe &  Herbs in  return  for  agreement  to provide farming
  expertise, working capital and Aloe vera plants. The Company expects Aloe
  &  Herbs,  upon  reaching  full  production,  to  have  the  potential of
  reducing  the  Company's  cost  of  aloe  leaves  which is a  significant
  component  of  the  Company's  cost  of sales. Additionally, the  Company
  expects  that when the  farm  reaches full  production  it will provide a
  supply  of  leaves  to  meet  the  Company's  growing  demand in the  raw
  materials  product  lines  and  expected  future  demand  if  the Company
  receives  the  FDA  approval  of the Company's ulcerative colitis complex
  carbohydrate-based  drug.  Further, the Company believes this supply will
  reduce  the  Company's dependence upon leaves from other countries  where
  consistency and quality of supplies are uncertain.

  During  the second  and  fourth  quarters  of 1998 the Company invested a
  total of approximately $.5 million in Aloe & Herbs, generally in the form
  of  notes  receivable.  Aloe  &  Herbs  has  had difficulty acquiring the
  additional  financing  required to complete its  business plans and based
  upon  the review of the financial statements of Aloe & Herbs, the Company
  believes  there  is  substantial doubt regarding Aloe & Herbs' ability to
  remain  a  going  concern  without obtaining additional financing. Aloe &
  Herbs  has substantial capital requirements during 1999 and 2000 for debt
  payments,  ongoing  investments in aloe plants and other general start-up
  costs.  The Company has not committed to provide the amount of additional
  capital  Aloe  &  Herbs  requires.  Consequently,  the  Company has fully
  reserved  the  $.5  million  invested in Aloe & Herbs due to the risk and
  uncertainty  of  Aloe  &  Herbs'  ability  to  repay the amounts  due the
  Company.  The  Company continues to believe that strategies to reduce the
  overall  cost of leaves while increasing the supply and quality of leaves
  for raw materials production are essential.

  NOTE SEVEN.    LINE OF CREDIT

  In November 1997, the Company entered into an agreement with a bank for a
  $3,000,000  line  of  credit,  collateralized  by accounts receivable and
  inventory.    This  credit facility is available for operating  needs and
  was  used to issue a letter of credit to replace a certificate of deposit
  of    $1,250,000  at   December  31,  1997  (included  in  other  assets)
  collateralizing a supply agreement with the Company's supplier of freeze-
  dried products (see Note Ten).  The interest rate on this credit facility
  is  equal to the bank's prime rate.  As of December 31, 1998 there was no
  balance outstanding on the credit line.

  NOTE EIGHT.    PREFERRED STOCK

  SERIES C SHARES     The  Series  C  Shares  were  convertible into common
  stock  of the Company at a price of $7.58 per share; 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.  Dividends
  of  $140,000  and  $37,000 were recorded in 1995 and 1996 on the 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, and related
  warrants  to purchase 55,000 shares of common stock at $15 per share were
  exercised.
<PAGE>
  SERIES E SHARES     In  October  1996,  the  Company  sold  660 shares of
  Series  E  Convertible  Preferred  Stock  (the  "Series  E  Shares")  for
  $6,600,000  before  offering  fees  and  costs of $324,000.  The Series E
  Shares  were  convertible  into  shares  of  the  Company's common  stock
  beginning  on  December  20,  1996,  and  prior  to October 21, 1999 at a
  conversion  price  per  share  equal  to the lower of $25.20 (120% of the
  market  price  per  share  of  the  Company's common stock) or 87% of the
  market  price  immediately  preceding the conversion date.  Each Series E
  Share  was  convertible  into  the number of whole shares of common stock
  determined  by  dividing  $10,000  by  the conversion price.  Because the
  preferred  stock  was  convertible into common stock at a conversion rate
  that  was  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 was considered to be an assured incremental yield to the preferred
  shareholders  which  had  to be recognized as a deemed preferred dividend
  over  the  period  from issuance  to  the date when  the  preferred stock
  first became convertible.  Accordingly, a deemed dividend of $986,000, or
  $0.11  per  share,  was  recognized  in  the  net income (loss) per share
  calculation  for  1996  as  a  reduction  in earnings available to common
  shareholders.

  On October 31, 1996, the Company announced the unfavorable results of the
  first  Phase  III  trial   of  Aliminase[TM]   oral  capsules,  and   the
  Aliminase[TM]  project  was  placed  on  hold.    This  event resulted in
  significant  changes  in the Company's planned uses of and need for these
  funds.    In  addition,  the decline in the market price of the Company's
  common  stock  had  increased  the extent of the dilution that would have
  occurred  if  all  of  the  Series  E  Shares  then  outstanding had been
  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 repurchase the Series E
  Shares.   In March 1997, the Company completed a repurchase of 50% of the
  above  Series E Shares for $3,832,000, a premium of 13% over the original
  purchase  price.    In  May  1997,  the Company repurchased the remaining
  shares  of  its  Series  E  Shares  for  a  total  cash purchase price of
  $ 3,852,000.    For   both  transactions,   amounts  paid   to  preferred
  shareholders  in  excess  of  par  totaled $70,000 more than the embedded
  deemed  dividend  of $986,000 recognized in 1996.  This additional deemed
  dividend  was used in the net income (loss) per share calculation in 1997
  to reduce net income available to common shareholders. 

  NOTE NINE.     COMMON STOCK

  PRIVATE PLACEMENT OF COMMON STOCK  In June 1997, the Company sold 415,000
  shares  of  common  stock at a price of $6.00 per share.  Total proceeds,
  net of issuance costs, were $2,454,000.

  SHARE PURCHASE RIGHTS PLAN    The  Company  has  a  share purchase rights
  plan which provides, among other rights, for the purchase of common stock
  by  certain  existing  common  stockholders  at  significantly discounted
  amounts  in  the event a person or group acquires or announces the intent
  to  acquire 20% or more of the Company's common stock.  The rights expire
  in  2001  and  may  be redeemed at any time at the option of the Board of
  Directors for $.01 per right.
<PAGE>
  EMPLOYEE STOCK PURCHASE PLAN  The  Company has an Employee Stock Purchase
  Plan  under which 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 each month.  A maximum of 500,000
  shares  of common stock was reserved for purchase under this Plan.  As of
  December  31,  1998,  136,646  shares  had been purchased by employees at
  prices ranging from $1.81 to $29.54 per share. 

  STOCK OPTIONS  The  Company  has an incentive stock option plan which was
  approved  by  the  shareholders  in 1995 upon expiration of the 1985 plan
  under which incentive stock options and nonqualified stock options may be
  granted  to certain  employees  consultants  and  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.  Employee  options are  normally granted  for  terms
  of 10 years.  Options granted  prior to  December  1998  normally  vested
  at  the rate of 25% per year  beginning on  the  first anniversary of the
  grant date.  Options granted in or  subsequent  to December 1998 normally
  vest at the rate of 33 1/3% per year beginning  on  the first anniversary
  of the grant date, but certain options  granted  in  December  1998  were
  25%,  50%  or 100% vested on the  grant   date,  with  the  remainder  of
  each  option  vesting  in  equal installments  on  the  first, second and
  third anniversaries of the grant date.  Options to non-employee directors
  have terms of  four  years  and are  100%  vested on the grant date.  The
  Company has reserved 1,500,000 shares  of common stock for issuance under
  the this Plan. As of December 31, 1998 options to purchase 143,967 shares
  were available for future grants under the Plan.

  The  following  summarizes  stock  option  activity for each of the three
  years ended December 31, 1996, 1997 and 1998 (shares in thousands):
<TABLE>
                                                           Weighted Average
                                                                 Exercise
                                Shares      Price Per Share        Price
  -------------------------------------------------------------------------
  <S>                            <C>       <C>                     <C>
  Balance, January 1, 1996        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
     Granted                      470      $ 5.31  to $ 7.50       $ 6.84
     Lapsed or canceled          (178)     $ 7.50  to $47.75       $18.38
  -------------------------------------------------------------------------
  Balance, December 31, 1997      959      $ 5.31  to $47.75       $15.19
     Granted                      678      $ 2.50  to $13.13       $ 3.26
     Lapsed or canceled          (249)     $ 4.63  to $35.25       $11.02
  -------------------------------------------------------------------------
  Balance, December 31, 1998    1,388      $ 2.50  to $28.75       $ 4.58
  -------------------------------------------------------------------------
  Options exercisable at
     December 31, 1998            417      $ 2.50  to $28.75       $ 5.71
  -------------------------------------------------------------------------
</TABLE>
<PAGE>
  The  following   table  summarizes   information   about  stock  options
  outstanding at December 31, 1998:

<TABLE>
                                                            
                         Options  Outstanding        Options Exercisable
                    ------------------------------   --------------------
                              Weighted
                              Average     Weighted            Weighted
                              Remaining   Average             Average
     Range of                Contractual  Exercise            Exercise
  Exercise Prices   Shares      Life        Price    Shares     Price
  -------------------------------------------------------------------------
  <S>                <C>      <C>          <C>        <C>      <C>
  $ 2.50 to $ 5.25   1,186    9.3 years    $3.77      303      $ 3.41
  $ 6.00 to $28.75     202    6.1 years    $9.36      114      $11.82
   ---------------   -----    ---------    -----      ---      ------
  $ 2.50 to $28.75   1,388    8.8 years    $4.58      417      $ 5.71
   ===============   =====    =========    =====      ===      ======

</TABLE>

  In  1998,  the  Company  offered  all  option  holders  the   opportunity
  to exchange their outstanding  options  for  new  options.  Employees who
  accepted  the  Company's  offer  received  new 10-year options granted on
  January  30,  1998  for  the  same  numbers  of  shares  as  the  options
  surrendered, with an exercise  price of  $4.81 per  share  and a  vesting
  schedule of 25% per year beginning  on the first anniversary of the grant
  date.  Non-employee directors, all of whom accepted  the Company's offer,
  received new, fully-vested, four-year options  granted on  May  14,  1998
  for the  same  numbers  of shares as the  options  surrendered,  with  an
  exercise price of $5.25 per share.  Options for a total of 671,547 shares
  were  surrendered  with  exercise  prices  between  $5.31  and  $47.75 in
  exchange for new options for the same number of shares.

  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 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  income  (loss)  and diluted net income
  (loss)  available  to  common  shareholders per share would have been the
  following pro forma amounts:

  -------------------------------------------------------------------------
                                          1996       1997        1998
  -------------------------------------------------------------------------
  Net income (loss)
   (in thousands):
       As reported                      $(5,523)      $226     $(1,615)
       Pro forma                         (8,022)    (2,199)     (4,155)

  Diluted net income (loss)
    available to common shareholders
    per share:
       As reported                       $(0.74)      $.02       $(.17)
       Pro forma                          (1.03)      (.25)       (.96)
  -------------------------------------------------------------------------
<PAGE>
  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.

  The  fair value of  each  option granted was estimated on the date of the
  grant  using  the Black-Scholes option  pricing  model with the following
  weighted-average assumptions used  for  grants  in  1996, 1997, and 1998,
  respectively:   risk-free  interest  rates  of  6.47%,  6.13%  and 5.38%,
  expected  volatility  of  63.0%,  57.0% and 54.7%, expected lives of 5.0,
  5.0 and 2.4 years  on  options  granted  to  employees.  The Company used
  the following weighted-average assumptions  for  grants in 1996, 1997 and
  1998: expected dividend yields  of 0%  and expected lives  of  4.0  years
  on grants  to  directors.  The  weighted  average  fair value  of options
  granted   were  $18.70,  $6.84   and  $1.05  in  1996,  1997,  and  1998,
  respectively.

  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 periods ending December 31, 1996, 1997
  and 1998, (shares in thousands):            

                                                            Weighted
                                                            Average
                             Shares      Price Per Share    Exercise
                                                             Price
  -------------------------------------------------------------------------
  Balance, January 1, 1996    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
    and December 31, 1997      51      $ 9.75  to  $20.13   $15.03
    Lapsed or canceled        (10)     $ 9.75               $ 9.75
  Balance, December 31, 1998   41      $13.00  to  $20.13    16.32
  -------------------------------------------------------------------------
  Warrants exercisable at
    December 31, 1998          41      $13.00  to  $20.13   $16.32
  -------------------------------------------------------------------------

  Warrants  outstanding  at  December  31,  1998  had  a  weighted  average
  remaining contractual life of one year.

  COMMON STOCK RESERVED    At  December 31, 1998 the Company had reserved a
  total  of  1,936,472  common  shares  for future issuance relating to the
  employee  stock  purchase  plan,  stock option plans  and stock warrants,
  disclosed above.

  NOTE TEN. COMMITMENTS AND CONTINGENCIES

  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  four  years.  In
  addition,  the  Company  leases  certain office equipment under operating
  leases  that expire over the next three years.  The Company's commitments
  under  noncancellable  operating  leases, as of December 31, 1998, are as
  follows, in thousands:


  Years Ending December 31,
  -------------------------------------------------------------------------
  1999                                      $ 439
  2000                                        182
  2001                                        131
  2002                                          5
  -------------------------------------------------------------------------
  Total minimum lease payments               $757
  -------------------------------------------------------------------------

  Total  rental expenses under operating leases were $451,000, $465,000 and
  $451,000   for  the  years  ended  December  31,  1996,  1997  and  1998,
  respectively.
<PAGE>
  In  February 1995, the Company entered into a commitment to purchase $2.5
  million  of  freeze-dried  products from its principal supplier over a 66
  month  period ending in August 2000.  The commitment, which also provides
  for  monthly minimum purchases, is required to be supported to the extent
  of 60% of the remaining commitment by a letter of credit from a bank or a
  pledged  certificate  of  deposit  (see Note Seven). The Company has made
  purchases  pursuant  to this commitment of $255,000, $245,000 and $95,000
  in  1996,  1997 and 1998, respectively.  At December 31, 1998 the Company
  had  made  prepayments  of  $360,000  toward  future deliveries under the
  commitment.    Although  management  believes that new products which the
  Company  began to actively market in late 1997, additional products to be
  developed  and outsourcing of a portion of its freeze drying requirements
  to  this  supplier  will result in no losses pursuant to this commitment,
  the  Company could incur significant losses if it is not able to meet the
  minimum purchase commitments.

  NOTE ELEVEN.   INCOME TAXES

  The  tax  effects of temporary differences that give rise to deferred tax
  assets  and  deferred tax liabilities at December 31, 1996, 1997 and 1998
  are as follows, in thousands:
<TABLE>

                                         1996      1997     1998  
  -------------------------------------------------------------------------
  <S>                                <C>        <C>      <C>
  Net operating loss carryforward    $  12,875  $ 12,468 $ 12,182
  Research and development
     and other credits                     839       858      867 
  Property, plant and equipment            184       225      259 
  Patents                                  318       318      318 

  Inventory                                249       315      250 
  Other, net                               285       430      753 
  Bad Debt Reserve                          72       162      662 
  Less - Valuation allowance           (14,822)  (14,776) (15,291)
                                      --------   -------  -------
                                     $     0    $    0   $    0
                                      ========   =======  =======
</TABLE>
  The  Company  has  provided  a  valuation  allowance  against  the entire
  deferred  tax  asset  at  December  31,  1996,  1997  and 1998 due to the
  uncertainty as to the realization of the asset. 

  The  provisions for income taxes for the years  ended  December  31, 1996,
  1997 and 1998 consisted of the following, in thousands:
<TABLE>

                                          1996      1997    1998
  -------------------------------------------------------------------------
  <S>                                    <C>       <C>      <C>
  Current provision                      $ 88      $ 20     $ 10

  Deferred provision, net                  -         -        - 
  -------------------------------------------------------------------------
  Total provision                        $ 88      $ 20     $ 10
  -------------------------------------------------------------------------
</TABLE>
<PAGE>
  The  differences  (expressed  as  a percentage of pre-tax income or loss)
  between the statutory and effective income tax rates are as follows:
<TABLE>

                                         1996       1997        1998
  -------------------------------------------------------------------------
  <S>                                  <C>         <C>        <C>
  Statutory tax rate                   (34.0%)      34.0%     (34.0%)
  State income taxes                      .5          -          -   

  Unrecognized deferred tax
     benefit/change in valuation
     allowance                          34.9       (20.8)      34.0
  Expenses related to foreign
    operations                            -           -          -   

  Other                                   .2        (4.9)        -   
  -------------------------------------------------------------------------
  Effective tax rate                     1.6%        8.3%       0.0% 
  -------------------------------------------------------------------------

</TABLE>

  At December 31, 1998, the Company had net operating loss carryforwards of
  approximately  $35,830,000  for federal income tax purposes, which expire
  beginning in  1999, and research and development tax credit carryforwards
  of approximately  $839,000,  which expire beginning in 1999, all of which
  are  available  to  offset  federal  income  taxes due in future periods.
  Additionally,  the  Company  has  approximately  $28,000  in  alternative
  minimum tax credits which do not expire.

  NOTE TWELVE.   CONCENTRATIONS OF CREDIT RISK

  Financial   instruments   that   potentially   expose   the   Company  to
  concentrations  of  credit  risk  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 customers.  McKesson/General Medical
  accounted  for  9%, 12% and 11%; Owens & Minor accounted for 11%, 11% and
  10%;  and  Bergen  Brunswig,  which  acquired  Durr  Medical and Colonial
  Healthcare  in  December  1996,  accounted  for  12%,  9%  and  5% of the
  Company's  net  sales  in  1996,  1997 and 1998.  Sales by Caraloe, Inc.,
  to Mannatech, Inc., accounted for 15%, 15% and 23% of the  Company's  net
  sales in  1996,  1997  and 1998, respectively.  Accounts receivable  from
  Mannatech  represented  17% of  gross  accounts  receivable December  31,
  1998.   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.
<PAGE>
  NOTE THIRTEEN. NET INCOME (LOSS) PER SHARE

  Basic  net  income  (loss) available to common shareholders per share was
  computed  by  dividing net income (loss) available to common shareholders
  by the weighted average number of common shares outstanding of 8,798,000,
  8,953,000 and 9,320,000 in 1996, 1997, and 1998, respectively.

  In  calculating the diluted net loss available to common shareholders per
  share  for  1996  and  1998,  no effect was given to options, warrants or
  convertible  securities  because the effect of including these securities
  would  have  been antidilutive.  In 1997, diluted net income available to
  common shareholders per share was also based only on the weighted average
  number  of  common  shares outstanding.  There was no additional dilution
  related  to  options  whose  exercise  price was below the average market
  price  due  to  the  application of the treasury stock method.  Remaining
  options  and  warrants  to purchase 885,000 shares at an average exercise
  price  of  $16.84  per  share  were excluded because their exercise price
  exceeded the average market price and were, therefore, antidilutive.

  NOTE FOURTEEN. REPORTABLE SEGMENTS

  The  Company  operates  in  two reportable segments: human and veterinary
  products  sold  through  its  wound  care  division  and Caraloe, Inc., a
  consumer   products  subsidiary, which sells bulk  ingredients,  consumer
  beverages, and nutritional and skin care products.

  The Company evaluates performance and allocates resources based on profit
  or  loss from operations before income taxes.  The accounting policies of
  the reportable segments are the same as those described in the Summary of
  Significant Accounting Polices (Note Two).

  Corporate  Income  Before  Income  Taxes set forth in the following table
  includes  research  and  development  expenses  which were related to the
  development  of pharmaceutical products not associated with the reporting
  segments.  Assets which are used in more than one segment are reported in
  the  segment  where the predominant use occurs.  The Company's production
  facility in Costa Rica, which provides bulk ingredients for all segments,
  and  total  cash  for  the  Company  are included in the Corporate Assets
  figure.
<PAGE>

  Reportable Segments (in thousands)
<TABLE>

                            Wound   Caraloe,
  1997                      Care      Inc.     Corporate   Total
  -------------------------------------------------------------------------
  <S>                      <C>       <C>       <C>        <C>
  Sales to unaffiliated
    customers              $18,115   $5,444    $   -      $23,559 
  Income(loss) before
    income taxes             1,480    1,381     (2,615)       246 
  Identifiable assets       15,718    1,426      8,652     25,796 
  Capital expenditures         135      -          160        295 
  Depreciation and 
    amortization               849      -          347      1,196 
  -------------------------------------------------------------------------
  1998
  -------------------------------------------------------------------------
  Sales to unaffiliated
    customers              $16,438   $7,187     $  -      $23,625 
  Income(loss) before
    income taxes             1,023      854     (3,482)    (1,605)
  Identifiable assets       14,319    1,923      8,005     24,247 
  Capital expenditures         344      -          934      1,278 
  Depreciation and 
    amortization               737      -          306      1,043
  -------------------------------------------------------------------------
</TABLE>
<PAGE>
  NOTE FIFTEEN.  UNAUDITED SELECTED QUARTERLY FINANCIAL DATA

  The unaudited selected  quarterly financial data below reflect the fiscal
  years ended December 31, 1997, and 1998, respectively.
<TABLE>

  (Dollar amounts in thousands, except shares and per share amounts)


  1997                    1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
  -------------------------------------------------------------------------
   <S>                      <S>          <S>          <S>          <S>
   Net sales                $ 6,083      $ 5,121      $ 6,229      $ 6,126
   Gross profit               3,576        3,234        3,653        3,566 
   Net income (loss)             83         (531)         463          211 
   Diluted income (loss)
     available to common
     shareholders per
     share                  $   .00      $  (.05)     $   .05      $   .02
   Weighted average
     common shares        8,870,000    8,896,000    9,239,000    9,293,000 
  -------------------------------------------------------------------------
  1998                    1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
  -------------------------------------------------------------------------
   Net sales                $ 5,788      $ 6,027      $ 6,003      $ 5,807 
   Gross profit               3,208        3,428        3,237        2,882 
   Net income (loss)            152           60          101   [1] (1,928)
   Diluted income (loss)
     available to common
     shareholders per
     share                  $   .02      $   .00      $   .01      $  (.21)
   Weighted average
     common shares        9,306,000    9,315,000    9,330,000    9,343,000

   [1]    After a charge of $1,750,000 for ACI and Aloe & Herbs as
          described in Note Six.

</TABLE>
<PAGE>

  Financial Statement Schedule
  Valuation and Qualifying Accounts
  (In thousands)

<TABLE>

  Description                           Additions      
                                 -----------------------
                    Balance at   Charged to   Charged to                Balance
                    Beginning     Cost and       Other                   at End
                    of Period     Expenses     Accounts    Deductions  of Period
  ------------------------------------------------------------------------------
   <S>                 <C>        <C>           <C>         <C>           <C>
   1996

   Bad Debt Reserve    $227       $   82        $  -        $   96        $213
   Inventory Reserve    218          545           -           441         322
   Rebates               82           90           -            36         136
   

   1997

   Bad Debt Reserve    $213       $  280        $  -        $   15        $478
   Inventory Reserve    322          523           -           329         516
   Rebates              136          331           -           125         342
   

   1998

   Bad Debt Reserve    $478       $  564       $  -         $  120        $922
   Inventory Reserve    516           53          -             44         535
   Rebates              342        3,499          -          3,437         404
   ACI and Aloe &
     Herbs non-current
     notes and
     investments
     included in other
     Assets               0        1,350          -              0       1,350
  ----------------------------------------------------------------------------
</TABLE>
<PAGE>
  Report of Independent Public Accountants

  Shareholders and Board of Directors 
  Carrington Laboratories, Inc.

  We   have   audited  the  accompanying  consolidated  balance  sheets  of
  Carrington  Laboratories,  Inc.  and subsidiaries as of December 31, 1998
  and  1997  and   the  related   consolidated  statements  of  operations,
  shareholders'  investment  and cash flows for the two years in the period
  then  ended.    Our audits also included the financial statement schedule
  listed  in the Index at item 14(a) for the same periods.  These financial
  statements   and  schedule   are  the  responsibility  of  the  Company's
  management.    Our  responsibility  is  to  express  an  opinion on these
  financial  statements  and schedule based on our audit.  The accompanying
  consolidated  financial  statements of Carrington Laboratories, Inc., and
  subsidiaries  for the year ended December 31, 1996 were examined by other
  independent  accountants  whose  report  thereon,  dated February 7, 1997
  (except  with respect to certain matters as to which the dates were April
  25, 1997 and March 4, 1997), contained no qualifications.

  We  conducted  our  audits in accordance with generally accepted auditing
  standards.    Those standards require that we plan and perform the audits
  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  1998  and  1997 consolidated financial statements
  referred   to  above  present  fairly,  in  all  material  respects,  the
  consolidated  financial  position  of  Carrington  Laboratories, Inc. and
  subsidiaries  as  of  December  31,  1998  and 1997, and the consolidated
  results of their operations and their cash flows for the years then ended
  in  conformity  with  generally accepted accounting principles.  Also, in
  our opinion, the related financial statement schedule, when considered in
  relation  to  the  basic  financial statements taken as a whole, presents
  fairly in all material respects the information set forth therein.


                                        Ernst & Young LLP


  Dallas, Texas
  February 26, 1999

<PAGE>

  Report of Independent Public Accountants


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

  We have audited the consolidated statement of  operations,  shareholders'
  investment  and  cash  flows  of  Carrington Laboratories, Inc. (a  Texas
  corporation)  and subsidiaries for the  year  ended  December  31,  1996.
  These  financial  statements  are  the responsibility  of  the  Company's
  management.    Our  responsibility  is  to  express  an opinion on  these
  financial statements based on our audit.

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

  In  our  opinion, the consolidated financial statements referred to above
  present  fairly,  in  all material respects the results of operations and
  cash flows of Carrington Laboratories, Inc. and subsidiaries for the year
  ended December 31, 1996, in conformity with generally accepted accounting
  principles.

  Our  audit  was  made  for the purpose of forming an opinion on the basic
  consolidated financial statements taken as a whole.  The schedule on page
  F-20  of  this  form  10-K,  as  it relates to 1996, is presented for the
  purpose  of complying with the Securities and Exchange Commission's rules
  and  is  not  part  of the basic consolidated financial statements.  This
  schedule,  as  it  relates  to  1996,  has been subjected to the auditing
  procedures  applied  in  our  audit  of  the basic consolidated financial
  statements  and,  in  our opinion, fairly states in all material respects
  the  financial  data  required to be set forth therein in relation to the
  basic consolidated financial statements taken as a whole.


                                        Arthur Andersen LLP

  Dallas, Texas,

    February 7, 1997 (except with respect
    to certain matters discussed in Note 8,
    as to which the date is April 25, 1997)

<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: March 31, 1999                  By: /s/ Carlton E. Turner   
                                        -------------------------
                                        Carlton E. Turner, Ph.D., President


       Pursuant to the requirements of the Securities Exchange Act of 1934,
  this report has been signed  by the  following  persons on  behalf of the
  registrant and in the capacities and on the dates indicated.



   Signatures                    Title                      Date
   ----------                    ------                     ----
   /s/ Carlton E. Turner         President, Chief           March 31, 1999
       Carlton E. Turner, Ph.D.  Executive Officer and
                                 Director
                                 (principal executive
                                 officer)

   /s/ Robert W. Schnitzius      Chief Financial Officer    March 31, 1999
       Robert W. Schnitzius      (principal financial and
                                 accounting officer)


   /s/ R. Dale Bowerman          Director                   March 31, 1999
       R. Dale Bowerman


   /s/ George DeMott             Director                   March 31, 1999
       George DeMott


   /s/ Robert A. Fildes, Ph.D.   Director                   March 31, 1999
       Robert A. Fildes, Ph.D.


   /s/ Thomas J. Marquez         Director                   March 31, 1999
       Thomas J. Marquez


   /s/ James T. O Brien          Director                   March 31, 1999
       James T. O Brien


   /s/ Selvi Vescovi             Director                   March 31, 1999
       Selvi Vescovi
<PAGE>


                              INDEX TO EXHIBITS



                                                                  Sequentially
        Exhibit                                                      Numbered
        Number                      Exhibit                            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    Statement of Cancellation of Treasury Shares, dated
                July 17, 1997 (incorporated herein by reference to
                Exhibit 3.6 to Carrington's 1997 Annual Report on Form
                10-K).

         3.7    Statement of Resolution Eliminating Four Series of
                Preferred Stock, dated July 17, 1997 (incorporated
                herein by reference to Exhibit 3.7 to Carrington's
                1997 Annual Report on Form 10-K).

         3.8    By-laws of Carrington Laboratories, Inc., as amended
                through March 3, 1998 (incorporated herein by
                reference to Exhibit 3.8 to Carrington's 1997 Annual
                Report on Form 10-K).

<PAGE>
                                                                  Sequentially
        Exhibit                                                      Numbered
        Number                      Exhibit                            Page
        ------                      -------                            ----

         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).

         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 non-
                employee 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).

<PAGE>
                                                                  Sequentially
        Exhibit                                                      Numbered
        Number                      Exhibit                            Page
        ------                      -------                            ----

         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).

         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 Societe Europeenne
                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).

<PAGE>
                                                                  Sequentially
        Exhibit                                                      Numbered
        Number                      Exhibit                            Page
        ------                      -------                            ----

        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).

        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). 

<PAGE>
                                                                  Sequentially
        Exhibit                                                      Numbered
        Number                      Exhibit                            Page
        ------                      -------                            ----

        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). 

        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).
<PAGE>

        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        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).

        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).
<PAGE>

        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        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).

        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).

<PAGE>
        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        10.48** Carrington Laboratories, Inc., 1995 Stock Option Plan,
                As Amended and Restated Effective January 15, 1998
                (incorporated herein by reference to Exhibit 10.3 to
                Carrington's Quarterly Report on Form 10-Q for the
                quarter ended March 31, 1998).

        10.49** Form of Nonqualified Stock Option Agreement with
                Outside Director, relating to the Registrant's 1995
                Stock Option Plan, as amended (incorporated herein by
                reference to Exhibit 10.3 to Carrington's Quarterly
                Report on Form 10-Q for the quarter ended June 30,
                1998).

        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).

        10.54   Sales Distribution Agreement between Suco
                International Corp. and Carrington Laboratories, Inc.,
                dated December 1, 1996 (incorporated by reference to
                Exhibit 10.54 to Carrington's 1996 Annual Report on
                Form 10-K).

        10.55   Sales Distribution Agreement between Recordati,
                S.P.A., and Carrington Laboratories, Inc., and
                Carrington Laboratories Belgium N.V., dated December
                20, 1996 (incorporated by reference to Exhibit 10.55
                to Carrington's 1996 Annual Report on Form 10-K).

<PAGE>
        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        10.56   Nonexclusive Distribution Agreement between Polymedica
                Industries, Inc., and Carrington Laboratories, Inc.,
                dated November 15, 1996 (incorporated by reference to
                Exhibit 10.56 to Carrington's 1996 Annual Report on
                Form 10-K).

        10.57   Sales Distribution Agreement between Gamida-Medequip
                Ltd., and Carrington Laboratories, Inc., dated
                December 24, 1996 (incorporated by reference to
                Exhibit 10.57 to Carrington's 1996 Annual Report on
                Form 10-K).

        10.58   Sales Distribution Agreement between Gamida For Life
                BV, and Carrington Laboratories, Inc., dated December
                24, 1996 (incorporated by reference to Exhibit 10.58
                to Carrington's 1996 Annual Report on Form 10-K).

        10.59   Sales Distribution Agreement between Darrow
                Laboratorios S/A and Carrington Laboratories, Inc.,
                dated December 4, 1996 (incorporated by reference to
                Exhibit 10.59 to Carrington's 1996 Annual Report on
                Form 10-K).

        10.60   Independent Sales Representative Agreement between
                Vision Medical and Carrington Laboratories, Inc.,
                dated October 1, 1996 (incorporated by reference to
                Exhibit 10.60 to Carrington's 1996 Annual Report on
                Form 10-K).

        10.61   Independent Sales Representative Agreement between
                Think Medical, Inc., and Carrington Laboratories,
                Inc., dated October 1, 1996 (incorporated by reference
                to Exhibit 10.61 to Carrington's 1996 Annual Report on
                Form 10-K).

        10.62   Independent Sales Representative Agreement between
                Meares Medical Sales Associates and Carrington
                Laboratories, Inc., dated October 1, 1996
                (incorporated by reference to Exhibit 10.62 to
                Carrington's 1996 Annual Report on Form 10-K).

        10.63   Supply Agreement between Aloe Commodities
                International, Inc., and Caraloe, Inc., dated February
                13, 1997 (incorporated by reference to Exhibit 10.63
                to Carrington's 1996 Annual Report on Form 10-K).

        10.64   Trademark License Agreement between Light Resources
                Unlimited and Carrington Laboratories, Inc., dated
                March 1, 1997 (incorporated by reference to Exhibit
                10.64 to Carrington's 1996 Annual Report on Form 10-
                K).

<PAGE>
        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        10.65   Supply Agreement between Light Resources Unlimited and
                Caraloe, Inc., dated February 13, 1997 (incorporated
                by reference to Exhibit 10.65 to Carrington's 1996
                Annual Report on Form 10-K).

        10.66   Sales Distribution Agreement between Penta
                Farmaceutica, S.A., and Carrington Laboratories, Inc.,
                dated December 27, 1996 (incorporated by reference to
                Exhibit 10.66 to Carrington's 1996 Annual Report on
                Form 10-K).

        10.67   Stock Subscription Offer of Aloe Commodities, Inc.,
                and Caraloe, Inc., dated October 30, 1996
                (incorporated by reference to Exhibit 10.67 to
                Carrington's 1996 Annual Report on Form 10-K).

        10.68   Modification Number Two to the Production Contract
                dated February 13, 1995, between Carrington
                Laboratories, Inc., and Oregon Freeze Dry, Inc.,
                listed as Exhibit 10.18, dated November 19, 1996
                (incorporated by reference to Exhibit 10.68 to
                Carrington's 1996 Annual Report on Form 10-K).

        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 (incorporated by
                reference to Exhibit 10.69 to Carrington's 1996 Annual
                Report on Form 10-K).

        10.70   Sales Distribution Agreement between Laboratories PiSA
                S.A. DE C.V., and Carrington Laboratories, Inc., dated
                November 1, 1995 (incorporated by reference to Exhibit
                10.70 to Carrington's 1996 Annual Report on Form 10-
                K).

        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
                (incorporated by reference to Exhibit 10.71 to
                Carrington's 1996 Annual Report on Form 10-K).

        10.72   Letter from Immucell Corporation to Carrington
                Laboratories, Inc., dated February 7, 1996, canceling
                the License Agreement listed as Exhibit 10.16
                (incorporated by reference to Exhibit 10.72 to
                Carrington's 1996 Annual Report on Form 10-K).

<PAGE>
        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        10.73   Supply Agreement between Met-Trim, LLC and Caraloe,
                Inc., dated December 1, 1997 (incorporated herein by
                reference to Exhibit 10.73 to Carrington's 1997 Annual
                Report on Form 10-K).

        10.74   Trademark License Agreement between Met-Trim, LLC and
                Caraloe, Inc., dated December 1, 1997 (incorporated
                herein by reference to Exhibit 10.74 to Carrington's
                1997 Annual Report on Form 10-K).

         10.75  Amendment Number One to Sales Distribution Agreement
                between Carrington Laboratories, Inc., and Faulding
                Pharmaceuticals/David Bull Laboratories, dated January
                12, 1998 (incorporated herein by reference to Exhibit
                10.75 to Carrington's 1997 Annual Report on Form 10-
                K).

        10.76   Sales Distribution Agreement between Carrington
                Laboratories, Inc. and Carrington Laboratories Belgium
                N.V., and Henry Schein U.K. Holdings, Ltd., dated
                January 1, 1998 (incorporated herein by reference to
                Exhibit 10.1 to Carrington's Quarterly Report on Form
                10-Q for the quarter ended March 31, 1998).

        10.77   Sales Distribution Agreement between Carrington
                Laboratories, Inc. and Carrington Laboratories Belgium
                N.V., and Saude 2000, dated January 5, 1998
                (incorporated herein by reference to Exhibit 10.2 to
                Carrington's Quarterly Report on Form 10-Q for the
                quarter ended March 31, 1998).

        10.78   Sales Distribution Agreement between Carrington
                Laboratories, Inc. and Carrington Laboratories Belgium
                N.V., and Hemopharm GmbH, dated March 27, 1998
                (incorporated herein by reference to Exhibit 10.4 to
                Carrington's Quarterly Report on Form 10-Q for the
                quarter ended March 31, 1998).

        10.79   Sales Distribution Agreement between Carrington
                Laboratories, Inc. and Carrington Laboratories Belgium
                N.V., and Vincula International Trade Company, dated
                March 27, 1998 (incorporated herein by reference to
                Exhibit 10.5 to Carrington's Quarterly Report on Form
                10-Q for the quarter
                ended March 31, 1998).
<PAGE>

        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        10.80** Separation Agreement and Full and Final Release dated
                May 1, 1998 between Carrington Laboratories, Inc. and
                Christopher S. Record (incorporated herein by
                reference to Exhibit 10.6 to Carrington's Quarterly
                Report on Form 10-Q for the quarter ended March 31,
                1998).

        10.81   Agency and Sales Distribution Agreement dated April
                13, 1998, between Carrington Laboratories, Inc., and
                Carrington Laboratories Belgium N.V., and Egyptian
                American Medical Industries, Inc. (incorporated herein
                by reference to Exhibit 10.1 to Carrington's Quarterly
                Report on Form 10-Q for the quarter ended June 30,
                1998).

        10.82   Sales Distribution Agreement dated April 24, 1998,
                between Carrington Laboratories, Inc., and Carrington
                Laboratories Belgium N.V., and CSC Pharmaceuticals
                Ltd., Dublin (incorporated herein by reference to
                Exhibit 10.2 to Carrington's Quarterly Report on Form
                10-Q for the quarter ended June 30, 1998).

        10.83   Promissory Note of Aloe Commodities International,
                Inc.,dated June 17, 1998, payable to the order of the
                Registrant in the principal amount of $200,000
                (incorporated herein by reference to Exhibit 10.4 to
                Carrington's Quarterly Report on Form 10-Q for the
                quarter ended June 30, 1998).

        10.84** Resignation and Consulting Agreement effective May 31,
                1998 between Carrington Laboratories, Inc., and Luiz
                F. Cerqueira (incorporated herein by reference to
                Exhibit 4.1 to Carrington's Quarterly Report on Form
                10-Q for the quarter ended June 30, 1998).

        10.85   Promissory Note of Rancho Aloe, (C.R.) S.A., dated
                July 1, 1998 payable to the order of the Registrant in
                the principal amount of $186,655.00 (incorporated
                herein by reference to Exhibit 10.1 to Carrington's
                Quarterly Report on Form 10-Q for the quarter ended
                September 30, 1998).

        10.86   Wound and Skin Care Purchase Agreement dated August
                27th, 1998, between American Association for Homes &
                Services for the Aging and Carrington Laboratories,
                Inc. (incorporated herein by reference to Exhibit 10.2
                to Carrington's Quarterly Report on Form 10-Q for the
                quarter ended September 30, 1998).
<PAGE>

        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        10.87   Letter agreements dated September 30, 1998 and
                November 4, 1998 between Aloe Commodities
                International, Inc. and the Registrant amending due
                date of Promissory Note dated June 17, 1998 from Aloe
                Commodities International, Inc. to the Registrant
                (incorporated herein by reference to Exhibit 10.2 to
                Carrington's Quarterly Report on Form 10-Q for the
                quarter ended September 30, 1998).

        10.88   Purchase Agreement dated October 1, 1998, between
                Vencor, Inc. and Carrington Laboratories, Inc.
                (incorporated herein by reference to Exhibit 10.3 to
                Carrington's Quarterly Report on Form 10-Q for the
                quarter ended September 30, 1998).

        10.89*  Modification Number Three to the Production Contract
                dated February 13, 1995, between Carrington
                Laboratories, Inc., and Oregon Freeze Dry, Inc.,
                listed as Exhibit 10.89, dated March 30, 1998. 

        10.90*  Supply Agreement dated October 12, 1998 between
                Caraloe, Inc. (Seller) and One Family, Inc.(Buyer)

        10.91*  Trademark License Agreement between Caraloe, Inc.
                (Licensor), and One Family, Inc. (Licensee), dated
                October 12, 1998.

        10.92*  Promissory Note of Aloe & Herbs International, Inc.
                dated November 23, 1998 payable to the order of the
                Registrant in the principal amount of $300,000.00.

        10.93*  Supply Agreement dated December 3, 1998 between
                Caraloe, Inc. (Seller) and Eventus International, Inc.
                (Buyer)

        10.94*  Trademark License Agreement between Caraloe, Inc.
                (Licensor), and Eventus International, Inc.
                (Licensee), dated December 3, 1998.

        10.95*  Amendment Number One dated December 3, 1998 to Supply
                Agreement between Caraloe, Inc. and Eventus
                International, Inc.

        10.96*  Clinical Services Agreement between Carrington
                Laboratories, Inc., and PPD Pharmaco, Inc. dated
                January 25, 1999.

        10.97*  Promissory Note of Aloe Commodities International,
                Inc., dated February 4, 1999 payable to the order of
                the Registrant in the principal amount of $681,730.43.

<PAGE>

        Exhibit                                                     Sequentially
        Number                                                        Numbered
                                    Exhibit                             Page

        10.98*  Letter Agreement dated February 4, 1999 between Aloe
                Commodities International Inc., and the Registrant
                amending due date of Promissory Note dated June 17,
                1998 from Aloe Commodities Internationa1, Inc. to the
                Registrant.

        10.99*  Common Stock Purchase Warrant dated November 23,
                1998, issued by Aloe and Herbs International, Inc.,
                to Carrington Laboratories, Inc.

         16.1   Letter dated March 21, 1997 from Arthur Andersen LLP
                to the Securities and Exchange Commission
                (incorporated herein by reference to Exhibit 16.1 to
                Carrington's Form 10-K/A amendment to its Form 10-K
                Annual Report for the year ended December 31, 1996,
                which amendment was filed on April 7, 1997).

         21.1*  Subsidiaries of Carrington.

         23.1*  Consent of Arthur Andersen LLP

         23.2*  Consent of Ernst & Young LLP

         27.1*  Financial Data Schedule


  *       Filed herewith.

  **      Management contract or compensatory plan.