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

                                   FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 (Fee Required)

                   For the fiscal year ended December 31, 1996

                                       OR

[ ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 (No Fee Required)

        For the transition period from ______________ to _______________

                          Commission File No. 1-11109

                           Lukens Medical Corporation
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

             Delaware                                         22-2429965
------------------------------                           ----------------------
       (State or other                                        (IRS Employer
jurisdiction of incorporation)                           Identification Number)

3820 Academy Parkway North, N.E.
Albuquerque, New Mexico                                         87109
------------------------------------------------         -----------------------
(Address of principal executive offices)                     (Zip Code)

Issuer's telephone number, including area code              (505) 892-4118
                                                         -----------------------
Securities registered under Section 12(b) of the Exchange Act:

    Title of each class              Name of each exchange on which registered
----------------------------         -------------------------------------------
Common Stock, $.01 par value                  Pacific Stock Exchange


Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

                          Yes   X         No
                              ----           -----

     Check if the  disclosure  of  delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]




<PAGE>



         State issuer's revenues for its most recent fiscal year:  $8,178,576.

         State  the  aggregate   market  value  of  the  voting  stock  held  by
non-affiliates  computed by  reference to the price at which the stock was sold,
or the  average  bid and  asked  price  of such  stock,  as of March  19,  1997:
$14,754,347.   In  determining   the  market  value  of  voting  stock  held  by
non-affiliates,  shares of Common Stock of the registrant  beneficially owned by
directors,  officers and holders of more than 10% of the  outstanding  shares of
Common  Stock  of the  registrant  have  been  excluded.  The  determination  of
affiliate  status  is not  necessarily  a  conclusive  determination  for  other
persons.

         State the number of shares  outstanding of each of the issuer's classes
of common equity,  as of March 1, 1997:  2,731,988 shares of Common Stock,  $.01
par value.
<TABLE>
<CAPTION>
<S>                                                      <C>
DOCUMENTS INCORPORATED BY REFERENCE

   Part III - Items 9, 10, 11 and 12     Included   in   the   Company's   Proxy
                                         Statement   to  be   filed   with   the
                                         Securities   and  Exchange   Commission
                                         prior to April 30, 1997.

   Part III - Certain exhibits listed    Included  in prior  filings  made under
           in  response  to Item 13(a)   the Securities Act of 1933, as amended,
                                         and  the  Securities  Exchange  Act  of
                                         1934, as amended.


</TABLE>



Transitional Small Business Disclosure Format:  Yes         No    X


<PAGE>



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

                  Lukens Medical  Corporation  (the "Company") was  incorporated
under the laws of the State of New  Jersey on  December  27,  1982 and  operated
under the name Gyneco, Inc. until 1987 when it was renamed Lukens Corporation --
New Jersey.  On April 27 1988, the Company  reorganized in the State of Delaware
by merger with and into its Delaware  wholly-owned  subsidiary,  Lukens  Medical
Corporation.  All references to the Company herein include the operations of the
Company's wholly-owned subsidiaries. The Company's executive offices are located
at 3820 Academy  Parkway North,  N.E.,  Albuquerque,  New Mexico,  87109 and its
telephone number is (505) 892- 4118.

                  The Company is primarily  engaged in the design,  development,
manufacturing  and  marketing of wound  closure  products for use in the medical
industry,  including,  without  limitation,  suture  products and bonewax Suture
products include sutures (a product  consisting of suture material attached to a
surgical  needle) and  ligatures  (suture  material  not  attached to a surgical
needle).  Suture  materials  are  made  from  silk,  catgut  and  other  similar
materials.  Bonewax is a product used to  temporarily  seal severed bones during
surgery.  The Company  markets its  products for general  surgery  applications,
including for use in oral and  veterinary  surgery,  and for  specialty  surgery
applications,  including  for  use in  plastic,  ophthalmic  and  cardiovascular
surgery.

                  In  March,   1996,   the  Company,   through  a   wholly-owned
subsidiary,  acquired assets  constituting  the following three product lines of
Ulster  Scientific,  Inc.  ("Ulster")  of  New  Paltz,  New  York  (the  "Ulster
Acquisition"):  (i) lancets,  including needles and accessories,  (ii) dispettes
and (iii) infection control kits (collectively referred to herein as the "Ulster
Product Lines").  Lancets are finger-prick devices used to draw small amounts of
blood,  primarily to test glucose  levels.  Dispettes are disposable  diagnostic
devices used primarily in physicians'  offices to test blood.  Infection control
kits contain various items used in medical and scientific facilities to clean up
blood and other bodily fluid spills. Approximately 30% of the Company's revenues
for the fiscal year ended December 31, 1996 are attributable to the sale of such
products.  For a further  description of these Ulster Product Lines, see "Ulster
Product Lines."

                  In January, 1997, the Company entered into a new joint venture
with  certain  of  its  international   distribution   partners  to  manufacture
hypodermic  needles,  syringes and related  medical  products  for  distribution
worldwide (the "India Joint  Venture").  As part of the  transaction,  the joint
venture acquired a modern, fully-equipped 22,000 square foot plant in the Cochin
Export Zone in Southern India. See "India Joint Venture."

PRODUCTS

                  SUTURE  PRODUCTS.  During 1996, the surgical  suture  industry
represented in excess of $2.3 billion of the overall disposable surgical product
industry,  approximately 60% of which  represented the international  market and
40% of which  represented  the domestic  market.  Surgical  suture  products are
comprised of two principal categories: (i) general surgical suture products, and
(ii) specialty surgical suture products.  Differentiating the categories are the
physical  properties  of  the  surgical  needle  such  as  size,  sharpness  and
ductility,  the type of suture material used, as well as packaging and cost. The
Company  designs,  develops,  manufactures  and markets suture products for both
general and specialty surgery uses.

                  The Company's  general  surgical suture products are comprised
of  approximately  750 standard  products  and  approximately  3,000  additional
products which the Company is capable of providing to meet the specifications of
particular  surgeons  and  practitioners.  General  surgical  sutures  primarily
include  standard  needles.  The Company  designs,  develops,  manufactures  and
markets  suture  products  that cover a broad  spectrum of surgical  categories,
including,  without limitation,  general, ob-gyn, urology,  orthopedic, oral and
veterinary surgery, all of which generally utilize the same types of needles and
suture  materials.  The  Company  markets  and sells  its full  line of  general
surgical suture products worldwide. See "Sales, Marketing and Customers."

                  The Company's specialty surgical suture products consist of an
innovative  line of  laser-drilled  needles and suture  materials for use in the
areas of  plastic,  ophthalmic,  cardiovascular  and  oral  surgery.  One  major
advantage to the specialty  surgeon of utilizing a drilled needle stems from the
manner in which the suture material

                                        3

<PAGE>



is attached to such a needle.  When suture material is attached to many standard
needles,  the back end of the needle is sliced open, the suture is placed in the
opened portion of the needle and the metal is then crimped together (referred to
as "channel swaging") to hold the suture material in the needle. Over the years,
specialty  surgeons  have  recognized  that one of the major  problems with such
sutures is that the crimped end of the needle  becomes  larger in diameter  than
the rest of the needle,  creating a larger hole in the tissue than is  required.
Laser-drilled  needles offer a significant  improvement to the standard  method.
Because the Company's specialty needles are laser-drilled,  as opposed to sliced
open,  there is no bulge at the end of the needle  when the suture  material  is
inserted and crimped into place.  During the laser drilling process,  the excess
metal is removed from the needle.  In addition,  because the  distortion  of the
remaining metal is minimal, as compared to the standard process,  the end of the
laser-drilled  needle is not as prone to breakage or snapping.  See  "Production
and Quality Assurance."

                  Laser-drilled  needles  are  manufactured  for the  Company by
independent suppliers in accordance with the Company's  specifications using 300
Series  stainless  steel,  an alloy which is more  corrosion  resistant than the
materials from which standard  needles are generally made. This special alloy of
stainless  steel also  enables  the  Company's  needles to remain  sharper  than
standard needles after repeated passes through tissue. In addition,  as a result
of using the 300 Series stainless steel, the Company's laser-drilled needles are
also less brittle and more ductile than standard needles.  The Company relies on
the confidential  treatment of its proprietary  needle design  specifications by
its  suppliers.  See  "Suppliers,"  "Competition"  and "Patents and  Proprietary
Rights."  The  Company  markets  and sells its full line of  specialty  surgical
products worldwide. See "Sales, Marketing and Customers."

                  BONEWAX.  The Company believes it is one of only two companies
in the United  States  that  sells,  and has the  approval  of the Food and Drug
Administration (the "FDA") to manufacture and market,  bonewax.  Bonewax is used
to temporarily seal severed bones during surgery.  The Company  manufactures its
bonewax  primarily from bees wax. Although the total worldwide bonewax market is
relatively small (estimated by the Company to be approximately $7 to $10 million
annually),  gross margins in this area are  relatively  high.  The Company sells
bonewax worldwide.

ULSTER PRODUCT LINES

                  In March 1996 in connection with the Ulster  Acquisition,  the
Company purchased the following product lines from Ulster:

                  LANCETS,  NEEDLES AND  ACCESSORIES.  The Company now markets a
broad range of blood  lancet-type  devices,  including  general  purpose  style,
safety style and  automatic  single-use  style.  The target  markets for lancets
include hospitals,  nursing homes, doctor's offices,  industrial  establishments
and the  home-use  market.  Blood  lancing-  type  devices  are used for several
purposes,  including routine lab testing,  diabetic monitoring,  and cholesterol
monitoring.

                  DISPETTES.  Dispettes are disposable  diagnostic  devices used
for sedimentation rate testing of blood and are a more affordable alternative to
the expensive  automated blood testing labs.  Because  dispettes are convenient,
easy to use, and  relatively  inexpensive  to purchase,  the primary  market for
these products are small medical clinics and individual physician practices.  As
sophisticated  blood testing technology in the United States continues to become
more  prevalent,  the use of dispettes is expected to  gradually  diminish.  The
Company  intends to expand the marketing of this product  internationally  where
access to sophisticated blood analysis technology is more limited.

                  INFECTION CONTROL KITS. Infection control kits contain various
items  used in medical  and  scientific  facilities  to clean up blood and other
bodily fluid  spills.  The infection  control  clean-up kits are marketed by the
Company under the "BASKIT" name.  Under the  Occupational  Safety and Health Act
(OSHA), safety spill clean up kits, such as the one marketed by the Company, are
required to be  maintained  in any facility  working with blood and other bodily
fluids, including, without limitation, hospitals,  laboratories, doctors offices
and ambulances.

                  The Company  does not  manufacture  any of the products in the
Ulster Product Lines. The Company purchases these products under agreements with
certain  suppliers  and,  following  sterilization  and  packaging,  resells the
products to other medical supply distributors and end-users. See "Suppliers".


                                        4

<PAGE>



INDIA JOINT VENTURE

                  In January, 1997, the Company entered into a new joint venture
to manufacture  hypodermic  needles,  syringes and related medical  products for
distribution worldwide. As part of the transaction, the joint venture acquired a
modern,  fully-equipped  22,000  square foot plant in the Cochin  Export Zone in
Southern India.  The new subsidiary,  Lukens Medical Products Private Ltd., is a
joint venture between the Company and certain of its international  distribution
partners.  The  Company  is  the  majority  shareholder,  and  will  manage  the
operations,  with all partners  contributing  to the  marketing of the products.
Production is expected to begin in April,  1997 and projects that the plant will
be capable of generating revenues of up to $3.5 million annually in syringes and
related products by the end of 1997, and $5 million by the end of 1998, although
there can be no assurance that any particular  level of revenue can be achieved.
The Company  estimates the worldwide market for syringes and related products to
be in excess of $2.5 billion.

SALES, MARKETING AND CUSTOMERS

                  PRODUCT SALES.  The Company's  principal  means of selling its
products has been through independent distributors that have entered into either
exclusive or non-exclusive arrangements with the Company. Such arrangements have
involved the grant by the Company of exclusive or semi-exclusive  rights to sell
specific products or product lines in particular  geographic  territories.  Such
agreements  generally  contain  specified minimum sales levels required in order
for the distributor to maintain exclusivity, as well as provisions requiring the
distributors to participate in trade shows and  conventions in their  respective
territories in order to promote the Company's products.

                  MARKETING STRATEGY. The Company's strategy with respect to its
suture products is to focus its marketing  energies on its general and specialty
surgical products which are used by doctors and practitioners  primarily outside
of a hospital (i.e., in doctor's offices, dentist's offices,  veterinary clinics
and outpatient plastic and ophthalmic  surgical  centers),  and where purchasing
decisions are made outside of the large hospital and institutional  environment.
To this end, the Company  aggressively  markets in the United  States its dental
and  veterinary  general  surgical  suture  products  and its plastic  specialty
surgical suture products. The Company also continues to market and sell its full
line of general and  specialty  surgical  products  internationally  where it is
better  able to compete  solely as a quality,  low-cost  supplier to the foreign
hospital  and  institutional  market.  As a result of the recent  receipt by the
Company of approval from the FDA to begin  marketing  its  synthetic  absorbable
suture  product for human use, the Company  believes that its ability to compete
in the worldwide  suture market will be enhanced.  See "Research and Development
Activities".

                  The Company currently has a staff of five employees engaged in
direct sales, telemarketing and direct mail promotion of general surgical suture
products and bonewax products worldwide,  as well as providing marketing support
to the Company's  specialty and general suture  distributors.  In addition,  the
Company has a five person  sales staff  responsible  for selling the products in
the Ulster Product Lines.

                  CUSTOMERS.  The primary  customers  for the  Company's  suture
products  are its  distributors,  who then  resell  the  products  to end users,
generally under their own brand names.  The Company sells its products  directly
to certain foreign governments and is also a party to exclusive  agreements with
distributors in a number of foreign  countries,  including Brazil,  Honduras and
Italy and  non-exclusive  agreements in Costa Rica and Saudi Arabia for the sale
of its general surgery  products (as well as certain of the Company's  specialty
products)  primarily under the "Lukens" name. The Company also markets and sells
its general  surgery suture  products and bonewax  directly to the United States
government.  During 1996,  sales to the United  States  military  accounted  for
approximately 13% of the Company's total sales.  Customers of the Ulster Product
Lines primarily include large medical and laboratory product distributors.

RESEARCH AND DEVELOPMENT ACTIVITIES

                  During 1996, the Company's  research and  development  efforts
were focused on finalizing its FDA submission for a synthetic  absorbable suture
product.  The  Company  received  clearance  from the FDA in February of 1997 to
market its  synthetic  absorbable  suture  product  for human use.  The  Company
expects to release its synthetic  absorbable  suture product to the human market
in the first half of 1997. See "Government Regulations".

                                        5

<PAGE>



The current  Research and  Development  activities of the Company are focused on
the  development  of the new  products  to be  manufactured  by the India  Joint
Venture and ongoing improvements to the Company's product line.

PRODUCTION AND QUALITY ASSURANCE

                  The Company's  manufacturing  operations for the production of
surgical  sutures  generally  consist of joining  surgical  needles  with suture
material and  packaging  the finished  suture  product.  The  Company's  general
surgical suture production  operations are primarily conducted in Juarez, Mexico
pursuant  to an  agreement  whereby a  maquiladora  conducts  manufacturing  and
assembly  operations for the Company's  benefit,  with the Company supplying all
parts,  components,  materials,  machinery  and  equipment and bearing all labor
costs. In addition,  a number of the Company's suture products are also produced
at its facility in  Albuquerque,  New Mexico.  Suture  production  and packaging
operations are extremely exacting and labor intensive processes.  Because of the
extensive range of possible  needle/suture  material  combinations and the large
number of short-run, special orders which must be filled, it is not economically
feasible  to  automate  the  predominant  portion  of the  Company's  production
activities. Most must instead be done by hand by highly-trained employees.

                  Materials  (i.e.,   needles  and  "suture   materials")  which
comprise the suture products are purchased from a number of vendors.  Upon their
receipt by the Company, all materials are subject to inspection by the Company's
quality  assurance  staff.  Tests conducted by the Company's  quality  assurance
staff include visual  inspection as well as physical tests.  Conformity with the
Company's  specifications is of prime importance and one of the staff's goals is
to detect  non-conforming  components  prior to  assembly  and  packaging.  Upon
approval,  needles  and suture  materials  are  released  to  storage  areas for
pre-processing preparation and subsequent assembly.

                  Although many suture  products  consist solely of the "thread"
(e.g.,  silk, catgut or other materials),  most consist of suture material which
has been attached to one or two needles.  Braided suture materials (e.g.,  silk)
used in the  Company's  products  undergo  "tipping," a process  which creates a
hardened tip on the end of the suture  material to facilitate  the attachment of
the material to the needles.  The attaching  process,  known as "swaging",  is a
critical step in the Company's production process,  with the minimum strength of
the attachment  prescribed by the U.S.  Pharmacopeia.  The attaching  process is
largely performed by individuals operating small, pedal activated machines which
form the metal of the needle around the thread, crimping the two together. After
swaging,  the  completed  sutures  are wound by hand onto  small  cards and then
packaged  according to suture type and intended use.  Packaged and boxed sutures
are delivered to subcontractors  for  sterilization.  After  sterilization,  the
products are returned to the Company for additional  packaging and distribution.
The Company's  quality  assurance  department is responsible  for in-process and
post-production analyses of all of the Company's products.  Quality assurance is
supported  through  the use of both manual and  computerized  systems to provide
traceability of product batches and track each stage of the production  process.
The Company's  production and quality assurance  operations must comply with the
FDA's current GMP regulations  and are subject to periodic FDA  inspection.  See
"Government Regulations."

                  The production of bonewax  entails the preparation of the bees
wax-based product at the Company's New Mexico facility, where it is packaged and
sent to subcontractors for sterilization by gamma radiation. The products in the
Ulster  Products  Lines are largely  purchased in finished  condition and do not
involve extensive  processing by the Company.  The hypodermic needles,  syringes
and related  medical  products to be produced by the India Joint Venture will be
manufactured and molded at the facility acquired by the joint venture.

SUPPLIERS

                  The Company's specialty needles are currently  manufactured to
the Company's  specifications by two independent overseas vendors. The Company's
general  surgery  needles and its suture  materials  are supplied by a number of
independent  manufacturers.  The  Company  believes  that  there are a number of
alternative  sources for all of such products and product  components.  Further,
while the Company relies upon  confidentiality  agreements with its suppliers of
specialty  needles to  protect  its  particular  proprietary  needle  design and
specifications,  specialty  needles are not  proprietary  to the Company and the
Company's   arrangements  with  its  suppliers  of  specialty  needles  are  not
exclusive. See "Competition."


                                        6

<PAGE>



                  In connection with the Ulster Acquisition, the Company entered
into two new  exclusive  supply  arrangements  with the  principal  suppliers of
certain of the products in the Ulster Product Lines.  The supply  agreement with
Guest Elchrom  Scientific AG,  relating to the dispette  products,  entitles the
Company to act as such supplier's exclusive  distributer of such products in the
United States, with negotiations  continuing with respect to other international
markets.  The Company's supply agreement with America Techma,  Inc., relating to
the  automatic  single-stick  lancet sold under the  "Gentle-let  1"  tradename,
entitles the Company to act as such supplier's exclusive distributor  throughout
the world (except for North and South Korea).  The other  products in the Ulster
Product  Lines are  purchased  by the  Company  on a  purchase-order  basis from
various other suppliers. In general, the molds utilized by such suppliers in the
manufacture  of  the  other  products  in  the  Ulster  Product  Lines  are  not
proprietary  to the Company and the Company's  arrangements  with such suppliers
are not exclusive.

                  While the Company  manufactures  its newly approved  synthetic
absorbable suture products, it purchases the synthetic absorbable suture threads
used in these products from  third-party  suppliers.  While these  materials are
currently  available upon  commercially  reasonable terms, any disruption of the
supply of these  materials  could have an adverse impact upon the ability of the
Company to produce its synthetic absorbable suture line.

COMPETITION

                  For the past 40 years,  the global  surgical suture market has
been  dominated  by  a  small  number  of  companies,  primarily  Ethicon,  Inc.
("Ethicon"),  a wholly-owned  subsidiary of Johnson & Johnson, Inc., and Davis &
Geck, a division of American  Cyanamid Company.  In addition,  there are several
small  national firms and regional  suppliers of suture  products with which the
Company competes in both the general surgery and specialty  surgery markets.  In
1992, United States Surgical Corporation ("USSC") entered the market with a full
line of general and specialty  surgery  products.  USSC is currently the world's
leading   manufacturer   and  marketer  of  surgical   staplers  and  endoscopic
instruments and supplies.

                  The Company  believes  that the  extensive  experience  of its
management  group,  its access to an abundant  and skilled  labor pool,  and its
economical  manufacturing operations have enabled the Company to position itself
as a quality, low-cost supplier of general and specialty surgery suture products
to the foreign  hospital and  institutional  market,  and thus to compete in the
sale of such  products  on the basis of price.  The  Company  currently  markets
approximately 750 products for use in general surgical  procedures,  and has the
capability and know-how to manufacture  approximately  3,000 additional products
in order to meet the specifications of particular  customers.  With the addition
of the Company's new synthetic  absorbable  suture line,  the Company's  product
line  offerings are comparable to those offered by Ethicon and Davis & Geck. The
Company  believes that its ability to remain a low-cost  producer of general and
specialty  surgical  suture  products in the  international  marketplace and its
focus on the dental and veterinary  surgical suture markets in the United States
will be  important  to its  ability  to remain  competitive  with the larger and
better capitalized competitors in these markets.

                  With respect to the Ulster  Product  Lines,  in the lancet and
needle market,  the Company has  essentially  four major  competitors:  Sherwood
Medical Co., Owen Mumford,  Ltd.,  Gainor Medical U.S.A.,  Inc., and Can-Am Care
Corporation.  LP Italiana SpA is considered the Company's only competitor in the
dispette  market.  The Company  believes the following four criteria,  listed in
order  of  priority,  influence  market  share:  price,  availability,  customer
relationships  and a well rounded  product line. The Company hopes to capitalize
on Ulster's  twenty years of  experience  in the market and its existing  client
base, augmented by the Company's international presence, to compete effectively.

                  The primary  competitors of the hypodermic  needles,  syringes
and related  medical  products to be produced by the new India Joint Venture are
Becton Dickinson and Terumo. The location of the joint venture's facility in the
Cochin  Export Zone of Southern  India offers a variety of  competitive  pricing
advantages over its  competitors,  including,  low labor costs, the avoidance of
duties on export  sales,  an exemption  from income taxes in India in respect of
export sales and lower transportation costs due to close proximity to its target
markets.


                                        7

<PAGE>



GOVERNMENT REGULATIONS

                  The  Company's   products  and   operations   are  subject  to
regulation by the FDA in the United States and by comparable regulatory agencies
in certain foreign  countries.  Under the Federal Food, Drug & Cosmetic Act (the
"FD&C Act"), the FDA has promulgated  regulations and established guidelines and
policies governing "medical devices",  including certain of the products sold by
the Company. Under these regulations,  the Company's products may not be shipped
in interstate  commerce  (including export) without prior authorization from the
FDA (except any devices that were in  commercial  distribution  prior to May 28,
1976 that were not then  regulated as drugs and that have not changed since that
time).  Such  authorization  is based on a review of the  products'  safety  and
effectiveness  for their intended use.  Medical devices may be authorized by the
FDA for marketing  either  pursuant to a pre-market  notification  under Section
510(k) of the FD&C Act ("510(k)") or a pre-market approval  application ("PMA").
A 510(k)  consists  of a  submission,  90 days  prior to planned  marketing,  of
information sufficient to establish that the device is substantially  equivalent
to a device marketed prior to May 28, 1976 or a device substantially  equivalent
to such a device.  Such  information  normally  consists of data  comparing  the
respective devices, and may include data from clinical studies. A finding by the
FDA of substantial equivalence may take significantly longer than 90 days. A PMA
consists  of  information  sufficient  to  establish  that a device  is safe and
effective for its intended use,  including data from clinical and other studies.
FDA  approval  of a PMA,  may take as long as several  years.  Whether a product
requires a 510(k) or a PMA, depends on its classification  under the law and FDA
regulations.  Most of the Company's  products require 510(k)s,  although certain
products  which the Company may  develop in the future  might  require a PMA. In
addition,  the  testing  of  medical  devices  through  clinical  investigations
generally requires FDA authorization.

                  The Company  believes  that it currently  has in place all the
requisite authorizations to market its current line of products,  including nine
PMAs and  fourteen  510(k)s.  The  Company's  current  line of  suture  products
includes  all of the major  suture  materials  that are  marketed  in the United
States.  The  Company  believes  that all of its current  suture and  non-suture
products are covered by its PMAs and 510(k)s, or are otherwise legally marketed,
and that, in view of a  reclassification  of suture  products by the FDA,  those
products for which the Company has PMAs now require only 510(k)s; however, there
is no assurance that the FDA would agree with these positions.

                  The Company is subject to  additional  requirements  under the
FD&C Act, including registration,  recordkeeping and reporting requirements.  In
addition,  the FDA  regulates  the  promotion  of medical  devices  (except  for
advertising for non-restricted devices which is regulated by other authorities),
in  particular  to ensure that  devices are  promoted  within the terms of their
authorized labeling guidelines.

                  The Company's  manufacturing  operations  must comply with the
FDA's current GMP regulations and are subject to periodic FDA inspection.

                  Future changes in  regulations  or enforcement  policies could
impose more stringent  requirements on the Company,  compliance with which could
adversely  affect the  Company's  business.  Failure to comply  with  applicable
regulatory requirements could result in enforcement action, including withdrawal
of marketing authorization,  injunction,  seizure of products, and liability for
civil and/or criminal penalties.

PATENTS AND PROPRIETARY RIGHTS

                  The Company  considers its technology and procedures  relating
to its suture lines  proprietary  and relies  primarily on trade secret laws and
confidentiality agreements to protect its technology and innovations. Employees,
distributors and key suppliers of the Company, as well as consultants which from
time  to  time  may  be  hired,  enter  into  confidentiality  and/or  invention
assignment  agreements  providing for  non-disclosure  of proprietary  and trade
secret  information  of the  Company  and the  assignment  to the Company of all
inventions,  improvements, technical information and suggestions relating in any
way to the  business  of the  Company  (whether  patentable  or not)  which  the
employee  or  consultant  develops  during  the  period of their  employment  or
association with the Company. Despite these restrictions, it may be possible for
competitors  or customers to copy one or more aspects of the Company's  products
or obtain  information  that the Company  regards as  proprietary.  In addition,
consultants  of the Company  will most likely be employed by third  parties and,
accordingly,  disputes could arise as to the  proprietary  rights to information
which has been  applied  to Company  projects  independently  developed  by such
consultants.

                                        8

<PAGE>



Furthermore,  there  can be no  assurance  that  others  will not  independently
develop products similar to those sold by the Company.

                  The  Company  owns one United  States  patent  relating to its
cardiovascular product packaging and has filed one additional patent application
with the United States Patent and Trademark Office relating thereto. The Company
is also licensed under a patent for the coating of synthetic absorbable sutures.
In addition, in connection with the Ulster Acquisition, the Company acquired the
rights to a patent  covering a mold used in the  production and component of the
BASKIT product and various trademarks and trademark applications relating to the
products  in the  Ulster  Product  Lines.  While  the  Company  may seek  patent
protection  in the future for new products,  there can be no assurance  that any
patents,  or  patents  which  may be  issued,  will  provide  the  Company  with
sufficient  protection in the case of an  infringement of its technology or that
others will not independently  develop technology  comparable or superior to the
Company's.

                  Although the Company  believes that the products sold by it do
not and will not infringe upon the patents or violate the proprietary  rights of
others,  it is possible that such  infringement or violation has occurred or may
occur.  In the event that  products  sold by the  Company are deemed to infringe
upon the patents or proprietary  rights of others, the Company could be required
to modify its  products or obtain a license for the  manufacture  and/or sale of
such  products.  There can be no assurance  that, in such an event,  the Company
would be able to do so in a timely manner,  upon acceptable terms and conditions
or at all,  and the  failure  to do any of the  foregoing  could have a material
adverse effect upon the Company.

                  The  Company  has  acquired  a  registered  trademark  for the
"Lukens"  name.  The Company  believes that this name,  established  in 1906, is
important  to  its  business  and  prospects.  In  connection  with  the  Ulster
Acquisition,  the Company  acquired all rights to the  trademarks and tradenames
used in connection  with the sale of the products in the Ulster  Product  Lines.
The Company has also  obtained a  perpetual,  non-exclusive,  license to use the
name  "Ulster  Scientific"  in  connection  with the sale of the products in the
Ulster Product Lines.

PRODUCT LIABILITY AND INSURANCE

                  The use of the Company's  products entails an inherent risk of
medical  complications to patients and resultant product liability claims. While
the Company presently  maintains product liability insurance in the amount of $2
million per  occurrence  and in the aggregate  which it believes is adequate for
its current activities,  there can be no assurance that the Company will be able
to obtain such insurance in the future or that such insurance will be sufficient
to cover all possible liabilities. In the event of a successful suit against the
Company or one of its customers,  lack or  insufficiency  of insurance  coverage
could have a material  adverse  impact on the Company.  To date, the Company has
had no material product liability claims.

EMPLOYEES

                  At March 14, 1997, the Company had 115 employees (including 63
contract  employees  and 52 full time  employees),  of which 97 were  engaged in
production,  1 in  development  activities,  10 in sales and  marketing and 7 in
finance  and  administration.  The  Company's  employees  are not covered by any
collective  bargaining  agreement.  The  Company  considers  relations  with its
employees to be good.

ITEM 2.  DESCRIPTION OF PROPERTY

                  On July 1, 1996, the Company relocated its principal executive
offices  and  certain  of  its  production  facilities  to,  and  now  occupies,
approximately  17,000 square feet of space in  Albuquerque,  New Mexico which is
leased by the Company  (the  "Facility").  Rental  payments on the  Facility are
equal to $10,000 per month.  The term of the lease  expires on August 31,  2001,
with two,  two-year  renewal options.  Management  believes that the Facility is
suitable and adequate for the Company's  current and proposed use thereof and is
adequately covered by insurance.

                  In connection with the Ulster Acquisition,  the Company leased
Ulster's 25,000 square foot warehouse and office facility in New Paltz, New York
for a period of one year,  at a rent  equal to  $12,500  per  month.  Such lease
expired in March,  1997. In 1996, the Company relocated the Ulster Product Lines
to the Facility in Albuquerque, New Mexico.

                                        9

<PAGE>




                  See "Item 1.  Description of Business,  India Joint  Venture,"
for a description of the joint venture which owns a production facility utilized
by the Company in  Southern  India.  Since the  facility is located in an export
zone,  the India Joint  Venture  leases the site from the zone at a nominal rate
per year.

ITEM 3.  LEGAL PROCEEDINGS.

                  The Company is not a party to any material legal proceedings.

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

                  None.


                                                      PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

                  The  Company's  Common  Stock has been quoted on the  National
Association of Securities  Dealers Automated  Quotation  ("NASDAQ") system under
the symbol  "LUKN"  since May 6, 1992.  The Common Stock has also been listed on
the Pacific Stock Exchange under the symbol "LKN" since May 6, 1992.

                  The  following  table sets forth the range of high and low bid
prices for the Common  Stock for the periods  indicated,  as reported by NASDAQ,
the principal  system or exchange on which such securities are quoted or traded.
The  quotations  represent   "inter-dealer"   prices,  without  retail  mark-up,
mark-down or commission, and may not necessarily represent actual transactions.


                                  Common Stock

<TABLE>
<CAPTION>
Fiscal Year Ending                                  Fiscal Year Ending
December 31, 1996          High ($) Low ($)         December 31, 1995          High ($) Low ($)
-----------------          -------- -------         -----------------          -------- -------
<S>                       <C>          <C>          <C>                       <C>          <C>
Quarter ended                                       Quarter ended
March 31, 1996            3 11/16      1 7/16       March 31, 1995            1 7/8        1

Quarter ended                                       Quarter ended
June 30, 1996             3 5/16       2 5/8        June 30, 1995             2 1/8         3/4

Quarter ended                                       Quarter ended
September 30, 1996        3 9/16       2 9/16       September 30, 1995        2 1/8         1

Quarter ended                                       Quarter ended
December 31, 1996         4 9/16       3            December 31, 1995         1 15/16       1 7/8
</TABLE>


----------

     As of March 18, 1997 there were  approximately  93 holders of record of the
Company's Common Stock.

     On March 18,  1997,  the closing bid and asked  prices of the Common  Stock
were $7.375 and $7.75, respectively.

                  The  Company  has never paid a cash  dividend  on its  capital
stock and does not anticipate  that it will declare or pay cash dividends in the
foreseeable  future as  earnings  are  expected  to be  retained  to finance the
Company's   growth.   The  Company's  loan  agreement  with  its  bank  contains
restrictions  on the  payment  of  dividends.  Subject  to  then  existing  loan
agreements,  declaration  of  dividends  in the future  will  remain  within the
discretion of the Company's  Board of Directors,  which will review its dividend
policy from time to time.


                                       10

<PAGE>



CHANGES IN SECURITIES

                  In March,  1996,  the  Company  issued a warrant  to  purchase
Common Stock to the sole stockholder of Ulster, who was an accredited  investor,
in connection with the Ulster Acquisition. Such warrant is exercisable for up to
200,000  shares of  Common  Stock,  subject  to  vesting  based  upon  achieving
specified  financial  targets.  The per share exercise  price  contained in such
warrant is $3.00 per share  (subject to  adjustment  for stock  splits,  reverse
stock splits and the like).  Such  transaction was effected in reliance upon the
exemption from the registration  requirements of the Securities Act contained in
Section 4(2) of the  Securities Act on the basis that such  transaction  did not
involve any public offering.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

RESULTS OF OPERATIONS

          FISCAL YEAR ENDED  DECEMBER 31, 1996 ("1996")  COMPARED TO FISCAL YEAR
          ENDED DECEMBER 31, 1995 ("1995")

                  Sales  increased   approximately  67%  to  approximately  $8.2
million during 1996 from approximately $4.9 million during 1995,  primarily as a
result of the Ulster Acquisition and increased government, veterinary and export
suture sales. The Company's export sales in 1996 and 1995 totaled $2,295,066 and
$1,788,944, respectively, which represents 28% and 37% of total sales in each of
those years, respectively.

                  The Company's  gross margins  declined  slightly,  from 30% in
1995 to 29% in 1996,  due  partially  to the  addition  of certain of the Ulster
Product  Lines,  which have a lower gross margin  compared to the other products
sold by the  Company.  The Company also reduced its margin for 1996 by booking a
special charge to its inventory which reduced the valuation of that inventory by
approximately  $306,000.  The  adjustment  was prompted by reductions in certain
manufacturing  costs which the Company  chose to reflect at year-end by reducing
the carrying value of certain items in inventory. The income statement effect of
this  charge was an  increase  in the Cost of Goods Sold line for the year.  The
manufacturing  costs which were reduced  included  reductions  in the  effective
prices of certain raw materials due to  improvements  in foreign  exchange rates
and increased labor efficiencies.

                  Selling  expenses  increased to $716,042 in 1996 from $364,906
in 1995 as a result of the Ulster Acquisition, which resulted in the hiring of a
small sales force to sell the products in the Ulster  Product  Lines,  and other
marketing expenses such as convention and literature  expenditures also relating
to the Ulster Product Lines.

                  General and administrative  expenses  increased  approximately
19%,  to  $965,180  in 1996  compared  to  $813,574  in 1995,  due mainly to the
amortization of the costs incurred in connection with the Ulster Acquisition.

                  Research and development expenses decreased approximately 22%,
to $108,594 in 1996 compared to approximately $138,450 in 1995, due primarily to
the finalization of the synthetic absorbable suture development project.

                  As a result of the above noted  increases in  revenues,  which
allowed  the  Company  to  operate  more  efficiently,  income  from  operations
increased to $592,226 in 1996 from $129,805 in 1995.

                  Interest  income  was  $6,000 in 1996  compared  to $18,000 in
1995.  Interest  expenses  decreased  to  approximately  $198,000  in 1996  from
approximately  $210,000 in 1996 due  primarily to the payoff of a capital  lease
for  certain  production  equipment,  as well  as the  payoff  of the  Company's
mortgage in mid-1995.

                  The Company  experienced a net profit of $463,481 for the year
ended  December 31, 1996 compared to a net profit of $200,967 for the year ended
December 31, 1995, for the reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

                  BANK FINANCING. As of December 31, 1996, the Company had drawn
$900,000 of its $1,000,000  working capital line of credit with its lending bank
(the "Line of Credit"). The Line of Credit also includes an

                                       11

<PAGE>



additional  $1,650,000  commitment  for the  issuance of standby and  commercial
letters of credit.  On that date,  approximately  $796,838 in standby letters of
credit  were  outstanding  under this letter of credit  commitment.  The Line of
Credit  matures and  expires on August 30,  1997  unless it is renewed,  and all
outstanding  amounts are due and payable on such date.  The Company  expects the
Line of Credit to be renewed  for an  additional  year prior to its  expiration.
There can be no assurances,  however,  that such a renewal will be  forthcoming,
or, if available, will be on terms acceptable to the Company.

                  In October 1996,  the Company  renewed a U.S.  Small  Business
Administration  ("SBA") export working capital line of credit  agreement,  which
currently  provides  working  capital for foreign  sales up to the lesser of (a)
$600,000  or (b) 80 percent of the face amount of  negotiated  letters of credit
issued for the benefit of the Company and  delivered to the lender.  Interest is
payable  monthly on the amount  drawn at the New York prime rate as published in
the Wall Street  Journal  plus 1.5  percent  (9.75% at December  31,  1996).  At
December  31,  1996,  there was $50,301  outstanding  under this  line-of-credit
agreement.

                  Also in  October  1996,  the  Company  renewed  an SBA  export
equipment term loan,  which provides for the purchase of equipment and machinery
up to $150,000,  interest and principal payable monthly on equal installments of
$2,510 at the New York prime rate as published in the Wall Street Journal,  plus
1.5 percent  (9.75% percent at December 31, 1996).  At December 31, 1996,  there
was $130,096 outstanding under this agreement.

                  In February 1996, the Company  received SBA approval for a new
revolving  working capital line of credit which allows the Company to draw up to
$420,000 to finance labor and inventory purchases relating to U.S.
government contracts.

                  To fund future acquisitions and joint ventures, the Company is
reliant upon obtaining long-term  borrowing and/or equity financing.  Management
believes that the Company will have access to the capital resources necessary to
continue  to fund  such  expansion,  although  there is no  assurance  that such
financing will be available or, if available, will be on terms acceptable to the
Company.  For a more  complete  description  of  the  Company's  current  credit
facilities see Note 4 to Notes to Consolidated Financial Statements.

                  STOCKHOLDER LOANS. On April 13, 1995, the Company entered into
an agreement  with John H.  Robinson,  a director and large  stockholder  of the
Company,  whereby Mr.  Robinson  (i) loaned  $400,000 to the Company (the "April
Loan") and (ii) was issued 400,000  five-year  warrants to purchase Common Stock
at an exercise  price of $1.10 per share.  The April Loan bears  interest at the
rate of 8% per annum,  and all  principal and interest  accrued  during the term
thereof is deferred and payable on April 15, 1999.  On September  11, 1995,  Mr.
Robinson  loaned the Company an  additional  $250,000 to  partially  finance the
buyout of a capitalized  lease  obligation (the "Buyout Loan").  The Buyout Loan
bears  interest  at the rate of 8% per  annum  and all  principal  and  interest
accrued  during the term  thereof is deferred and payable in October,  1999.  On
March 5, 1996, Mr. Robinson loaned the Company $400,000 to fund a portion of the
purchase price relating to the Ulster Acquisition (the "Acquisition  Loan"). The
Acquisition  Loan bears  interest at the rate of 10% per annum and all principal
and  interest  accrued  during  the term  thereof  is  deferred  and  payable on
September  5,  2000.  Repayment  of the  April  Loan,  the  Buyout  Loan and the
Acquisition Loan are  subordinated to the Line of Credit,  and at the request of
the Company's lending bank, the previous maturity dates thereunder were extended
for two additional years, to the maturity dates reflected above.

                  On February  28, 1997,  the Company  entered into an agreement
with John H.  Robinson  and Robert L.  Priddy,  also a director of the  Company,
whereby Messrs.  Robinson and Priddy loaned the Company an aggregate of $300,000
and agreed to loan the Company an  additional  $700,000  (the "Second  Tranche")
upon the request of the President of the Company  prior to April 30, 1997.  Such
loans bear  interest  at the rate of 10% per annum and if the Second  Tranche is
funded,  will be  repayable  on or before  May 31,  1998.  In the event that the
Second Tranche is not funded in accordance with the terms of the agreement, such
loans shall be repayable  on July 15, 1997.  In  connection  therewith,  Messrs.
Robinson  and Priddy were each issued  warrants  to  purchase  15,000  shares of
Common Stock at an exercise  price of $8.25 per share,  and, upon funding of the
Second Tranche,  will each be issued  warrants to purchase an additional  35,000
shares of Common Stock on the same terms.  See "Item 12.  Certain  Relationships
and Related Transactions."


                                       12

<PAGE>



                  In the  past,  the  Company  has  been  reliant  upon  Messrs.
Robinson or Priddy to finance the costs associated with certain acquisitions and
to restructure certain  indebtedness,  on terms favorable to the Company.  There
can be no  assurance  the such  financing,  or other  third party debt or equity
financing,  will be available in the future or, if  available,  will be on terms
acceptable to the Company.

OTHER INFORMATION

                  SALES TO THE U.S.  GOVERNMENT.  During 1996, the department of
the U.S. Government responsible for procuring medical supplies, such as sutures,
began  purchasing  more of such items outside the  traditional  bid system.  The
Company has been successful over the last several years in obtaining substantial
awards under the bid system.  The new system,  which  incorporates local dealers
called  Prime  Vendors,  is less  sensitive  to price and more  sensitive to the
impact of a direct sales force. As a result of the foregoing,  since the Company
has only a limited sales force,  there can be no assurance that the Company will
continue to meet or exceed its historical levels of sales of its products to the
U.S. Government in the future.

                  ACQUISITION OF THE ULSTER PRODUCT LINES.  For a description of
the consideration  paid and payable by the Company in connection with the Ulster
Acquisition,  including,  without limitation,  the royalty  arrangements and the
warrants to purchase  shares of the Company's  Common Stock issued in connection
therewith,  see Note 14 to Notes to  Consolidated  Financial  Statements and the
Company's  Current  Report of Form 8-K and 8-K/A  filed in  connection  with the
Ulster Acquisition.

                  NET OPERATING LOSS CARRYFORWARDS. As of December 31, 1996, the
Company  had  net  operating  loss   carryforwards   ("NOLs")  of  approximately
$10,675,000  which will expire from 1998  through  2009.  The  deductibility  of
portions  of the  NOLs is  subject  to an  annual  limitation  of  approximately
$460,000;  the excess of such  annual  limitation  over the amount to be used in
subsequent year until they expire. See Note 9 of Notes to Consolidated Financial
Statements.

ITEM 7.  FINANCIAL STATEMENTS.

                  The responses to this item are submitted in a separate section
of this  Annual  Report  on Form 10- KSB.  See Index to  Consolidated  Financial
Statements on page 18.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE.

                  Not Applicable.

                                                     PART III

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

                  The information  required under this item will be set forth in
the  Company's  proxy  statement  to be filed with the  Securities  and Exchange
Commission on or before April 30, 1997 and is incorporated herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION.

                  The information  required under this item will be set forth in
the  Company's  proxy  statement  to be filed with the  Securities  and Exchange
Commission on or before April 30, 1997 and is incorporated herein by reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

                  The information  required under this item will be set forth in
the  Company's  proxy  statement  to be filed with the  Securities  and Exchange
Commission on or before April 30, 1997 and is incorporated herein by reference.

                                       13

<PAGE>




ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                  For  information  regarding the recent loans to the Company by
John H.  Robinson and Robert L. Priddy,  two  directors of the Company,  and the
issuance of warrants in connection therewith,  see "Management's  Discussion and
Analysis or Plan of Operations." The other information  required under this item
will be set  forth  in the  Company's  proxy  statement  to be  filed  with  the
Securities  and  Exchange  Commission  on  or  before  April  30,  1997  and  is
incorporated herein by reference.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

         (A) EXHIBITS.

Exhibit No.       Description

3.1               Certificate of Incorporation of the Registrant, as amended (1)

3.2               Form  of   Certificate   of   Amendment  of   Certificate   of
                  Incorporation (1)

3.3               Form of Amended and Restated Bylaws of the Registrant (1)

10.1              1988 Amended and Restated Stock Option Plan (1)

10.2              1992 Stock Option Plan (1)

10.3*             Exclusive Distributorship Agreement between the Registrant and
                  Meadox Medicals, Inc. (1)

10.4*             Exclusive Distributorship Agreement between the Registrant and
                  Cottrell Limited (1)

10.5*             Exclusive Distributorship Agreement between the Registrant and
                  Convergenza, as amended (1)

10.6*             Exclusive Distributorship Agreement between the Registrant and
                  HP - medica GmbH (1)

10.7              Business  Loan and Security  Agreement  among the  Registrant,
                  Lukens   Corporation   -  New  Mexico  and  Sunwest   Bank  of
                  Albuquerque, N.A., as amended (1)

10.8              Form of Indemnity Agreement (1)

10.9              Employment  Agreement  between  the  Registrant  and  James A.
                  Wimbush (1)

10.10             Employment  Agreements  between  the  Registrant  and  each of
                  Steven J. Schroeder,  Robert S. Huffstodt, Scott Henderson and
                  Donald E. Lawson (1)

10.11*            Collaborative Development Agreement between the Registrant and
                  Medisorb Technologies International, L.P. (1)

10.12             Lease for Registrant's facility (1)

10.13             Form  of  Consulting  Agreement  between  the  Registrant  and
                  Commonwealth Associates, Inc.(1)

10.14*            Exclusive Distributorship Agreement between the Registrant and
                  Core Dynamics, Inc. (3)

10.15             Consulting  Agreement  between the  Registrant  and Kronenthal
                  Associates (3)


                                                        14

<PAGE>



10.16*            Exclusive Patent License  Agreement between the Registrant and
                  Innovative Surgical Technology, Inc. (4)

10.17             Agreement,  dated November 19, 1992,  between  Sunwest Bank of
                  Albuquerque,   National   Association,   and  Lukens   Medical
                  Corporation,   a  New  Mexico   corporation,   together   with
                  promissory note, as amended, security agreements and mortgages
                  executed pursuant thereto (5)

10.18*            Amendment No. 1, dated as of May 17, 1994, to Exclusive Patent
                  License  Agreement,  dated  August  9,  1993,  between  Lukens
                  Medical Corporation, a New Mexico corporation,  and Innovative
                  Surgical Technology, Inc. (5)

10.19*            Manufacturing  Agreement,  dated  May 26,  1994,  between  the
                  Registrant and West Texas Engineering, Inc.(5)

10.20*            Supply Agreement,  dated June 29, 1994, between Lukens Medical
                  Corporation,  a New Mexico corporation,  and Farnam Companies,
                  Inc. d.b.a. Veterinary Products Laboratories (5)

10.21             Business Loan and Security Agreement, dated July 27, 1994 (the
                  "Sunwest Loan  Agreement"),  as amended  pursuant to the Third
                  Amendment  thereto,  dated as of January 31,  1995,  among the
                  Registrant,   Lukens   Medical   Corporation   (a  New  Mexico
                  corporation  formerly known as Lukens Corporation) and Sunwest
                  Bank of Albuquerque,  N.A.,  together with  promissory  notes,
                  guaranty and security agreements executed pursuant thereto (5)

10.22*            Exclusive  Distribution  Agreement,  dated  October  7,  1994,
                  between Lukens Medical Corporation,  a New Mexico corporation,
                  and Dentsply International Inc. (5)

10.23             Amendment  No. 3, dated as of November 2, 1994,  to 1992 Stock
                  Option Plan (5)

10.24*            Supplier/Distributor   Agreement,  dated  November  14,  1994,
                  between Lukens Medical Corporation,  a New Mexico corporation,
                  and Henry Schein, Inc. (5)

10.25             Amendment  No. 4, dated as of  January 3, 1995,  to 1992 Stock
                  Option Plan (5)

10.26             Promissory  Note of the Company to John H. Robinson,  dated as
                  of  April  13,  1995,  in the  original  principal  amount  of
                  $400,000;  Commitment letter of John H. Robinson,  dated as of
                  April 13, 1995. (5)

10.27             Warrant, dated as of April 13, 1995, granted by Lukens Medical
                  Corporation, a Delaware corporation, to John H. Robinson.

10.28             Lease for the  Facility,  dated  July 14,  1995,  between  Rio
                  Rancho  Public  Schools,  as  landlord,   and  Lukens  Medical
                  Corporation, as tenant.

10.29             Fourth Amendment, Fifth Amendment, Sixth Amendment and Seventh
                  Amendment to the Sunwest Loan Agreement, dated April 10, 1995,
                  April  28,  1995,   July  14,  1995  and  December  31,  1995,
                  respectively.

10.30             Promissory   Notes  of  the   Company  to   Sunwest   Bank  of
                  Albuquerque,  N.A. relating to certain loans guaranteed by the
                  U.S. Small Business Administration,  in the original principal
                  amounts  of  $150,000,  $500,000  and  $420,000,  dated  as of
                  October 31,  1995,  October 31, 1995 and  February  15,  1996,
                  respectively, and related Loan and Security Agreements.

10.31             Promissory  Note of the Company to John H. Robinson,  dated as
                  of September  11, 1996,  in the original  principal  amount of
                  $250,000;  Promissory Note of the Company to John H. Robinson,
                  dated as of March 5, 1996, in the original principal amount of
                  $400,000


                                       15

<PAGE>



10.32             Distribution  Agreement,  dated as of March  5,  1996,  by and
                  between  Guest  Elchrom   Scientific  AG  and  Lukens  Medical
                  Corporation, a New Mexico corporation.

10.33             Agreement of Purchase and Sale of Assets, dated as of March 4,
                  1996 by and among the  Company,  Ulster  Scientific,  Inc. and
                  Peter F. Lordi, Jr. (6)

10.34             Lease  Agreement,  dated as of March 5, 1996,  between  Ulster
                  Scientific, Inc., a New York corporation,  Peter F. Lordi, Jr.
                  and Lukens Medical Corporation, a New Mexico corporation. (6)

10.35             Consulting Agreement, dated as of March 5, 1996, between Peter
                  F. Lordi,  Jr. and Lukens  Medical  Corporation,  a New Mexico
                  corporation. (6)

10.36             Warrant,  dated as of March 5, 1996, granted by Lukens Medical
                  Corporation,  a Delaware  corporation,  to Peter F. Lordi, Jr.
                  (6)

10.37             Lease  between  Kenneth  I.  White,  as  landlord,  and Lukens
                  Medical Corporation, as tenant, dated May 31, 1996. (7)

10.38             Joint  Venture/Stockholders'  Agreement,  dated as of February
                  21, 1997,  between Lukens Medical Products Private Limited and
                  the  stockholders  of the compnay listed on the signature page
                  thereto.

10.39             Letter  Agreement,  dated as of  February  28,  1997,  between
                  Lukens Medical  Corporation  and John H. Robinson;  Promissory
                  Note of Lukens  Medical  Corporation  dated as of February 28,
                  1997  to John H.  Robinson  in the  amount  of  $150,000;  and
                  Warrant Agreement between Lukens Medical  Corporation and John
                  H. Robinson, dated as of February 28, 1997.

10.40             Letter  Agreement,  dated as of  February  28,  1997,  between
                  Lukens Medical  Corporation  and Robert L. Priddy;  Promissory
                  Note of Lukens  Medical  Corporation  dated as of February 28,
                  1997 to  Robert  L.  Priddy in the  amount  of  $150,000;  and
                  Warrant  Agreement  between  Lukens  Medical  Corporation  and
                  Robert L. Priddy, dated as of February 28, 1997.

21                Subsidiaries

23                Consent of Neff & Company

27                Financial Data Schedule

----------

(1)  These  exhibits  were  filed  as  exhibits  to the  Company's  Registration
     Statement on Form S-1 (File No. 33- 46466) and are  incorporated  herein by
     reference.

(2)  This exhibit was filed with the  Company's  Amendment  No. 1 to its Current
     Report  on Form 8-K  dated  July 17,  1992 and is  incorporated  herein  by
     reference.

(3)  These  exhibits  were filed as exhibits to the  Company's  Annual Report on
     Form  10-KSB  for the year ended  December  31,  1992 and are  incorporated
     herein by reference.

(4)  These  exhibits  were filed as exhibits to the  Company's  Annual Report on
     Form  10-KSB  for the year ended  December  31,  1993 and are  incorporated
     herein by reference.

(5)  These  exhibits  were filed as exhibits to the  Company's  Annual Report on
     Form  10-KSB  for the year ended  December  31,  1994 and are  incorporated
     herein by reference.

(6)  These  exhibits were filed as exhibits to the Company's  Current  Report on
     Form 8-K filed on March 18, 1996, and are incorporated herein by reference.


                                       16

<PAGE>



(7)  This exhibit was filed as an exhibit to the Company's  Quarterly  Report on
     Form 10-QSB for the quarter ended June 30, 1996, and is incorporated herein
     by reference.

*    Confidential  treatment  has been granted with respect to portions of these
     exhibits.

         (B) REPORTS ON FORM 8-K.

                  None.



                                       17

<PAGE>



                   Lukens Medical Corporation and Subsidiaries

Consolidated Financial Statements

                          Index of Financial Statements



Reports of Independent Public Accountants                     F-1
Consolidated Balance Sheets                                   F-2
Consolidated Statements of Operations                         F-4
Consolidated Statement of Stockholders' Equity                F-6
Consolidated Statements of Cash Flows                         F-7
Notes to Consolidated Financial Statements                    F-9


                                       18

<PAGE>
                   LUKENS MEDICAL CORPORATION AND SUBSIDIARIES


                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1996 AND 1995



<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders of
Lukens Medical Corporation


We have audited the accompanying  consolidated  balance sheets of Lukens Medical
Corporation  and  Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated  statements of earnings,  stockholders'  equity, and cash flows for
each  of  the  two  years  then  ended.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Lukens  Medical
Corporation  and  Subsidiaries at December 31, 1996 and 1995, and the results of
their  operations and their cash flows for each of the two years then ended,  in
conformity with generally accepted accounting principles.


/s/ Neff & Company LLP

Albuquerque, New Mexico
March 25, 1997

                                      F-1



<PAGE>




LUKENS MEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>

ASSETS

                                                                  1996              1995
<S>                                                         <C>                        <C>
Current assets:
    Cash and cash equivalents                               $       878,090            39,049
    Accounts receivable, net of allowance of
        $5,790 in 1996 and 1995 (Notes 4, 5,
           and 11)                                                1,901,947         1,269,211
    Inventory (Notes 2, 4, 5, and 13)                             5,565,210         3,849,051
    Prepaid expenses                                                 34,290            23,456
                                                            ---------------------------------

               Total current assets                               8,379,537         5,180,767

Fixed assets, net (Notes 3, 4,
    5 and 7)                                                      2,062,842         1,710,633

Intangible assets, net of accumulated amortization
    of $966,065 and $707,036 in 1996 and 1995,
    respectively (Note 14)                                        1,098,487           469,408

Deferred start up costs                                             199,100            62,599
Other assets                                                         62,194            35,381
                                                            ---------------------------------













               Total assets                                 $    11,802,160         7,458,788
                                                            =================================
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-2
<PAGE>


LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                               1996              1995
<S>                                                                      <C>                       <C>
Current liabilities:
    Accounts payable                                                     $     1,406,243           665,080
    Accrued payroll                                                               28,634            20,029
    Accrued liabilities                                                           33,505            63,026
    Current maturities of long-term debt
        (Notes 4 and 5)                                                        2,002,191           357,095
    Current maturities of obligations under
        capital leases (Note 7)                                                   39,825            19,380
                                                                         ---------------------------------

               Total current liabilities                                       3,510,398         1,124,610

Long-term debt, excluding current maturities
    (Notes 4 and 5)                                                              796,446            79,979

Stockholder payable and accrued interest (Note 6)                              1,157,408           678,384

Obligations under capital leases, excluding
    current maturities (Note 7)                                                   59,378            37,227
                                                                         ---------------------------------

               Total liabilities                                               5,523,630         1,920,200

Commitments and contingencies (Notes 4, 7, 12, 14, and 15)

Stockholders' equity (Notes 4 and 8):
    Common stock $.01 par value, authorized
        20,000,000 shares; issued and outstanding
        2,731,988 shares in 1996 and 2,611,418 shares
        in 1995                                                                   27,320            26,115
    Additional paid-in capital                                                17,213,952        16,938,696
    Accumulated deficit                                                      (10,962,742)      (11,426,223)
                                                                         ---------------------------------
               Total stockholders' equity                                      6,278,530         5,538,588
                                                                         ---------------------------------

               Total liabilities and stockholders' equity                $    11,802,160         7,458,788
                                                                         =================================
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-3
<PAGE>




LUKENS MEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
                                                                               1996              1995
<S>                                                                      <C>                     <C>
Net sales (Notes 1 and 11)                                               $     8,178,576         4,883,288
Cost of sales and inventory reduction (Note 13)                                5,796,534         3,436,553
                                                                         ---------------------------------
        Gross profit                                                           2,382,042         1,446,735
                                                                         ---------------------------------

Selling expenses                                                                 716,042           364,906
General and administrative expenses                                              965,180           813,574
Research and development expenses (Note 1)                                       108,594           138,450
                                                                         ---------------------------------
        Total operating expenses                                               1,789,816         1,316,930
                                                                         ---------------------------------
        Earnings from operations                                                 592,226           129,805

Other income (expense):
    Interest income                                                                6,578            18,133
    Interest expense                                                            (197,566)         (209,424)
    Gain on sale of building                                                           -           150,721
    Other, net                                                                    62,243          (121,508)
                                                                                  -------------------------
        Total other expense, net                                                (128,745)         (162,078)
                                                                         ---------------------------------
        Earnings (loss) before income taxes and
           extraordinary item                                                    463,481           (32,273)

Income tax expense (Note 9)                                                            -                 -
                                                                         ---------------------------------
Earnings (loss) before extraordinary item                                        463,481           (32,273)
Extraordinary gain on extinguishment of debt                                           -           233,240
                                                                         ---------------------------------
           Net earnings                                                  $       463,481           200,967
                                                                         =================================

Weighted average number of common and common
 equivalent shares outstanding (Note 1):
        Primary                                                                2,743,659         2,611,418
        Fully diluted                                                          3,153,723         2,743,659
Net earnings (loss) per common and common
 equivalent share-primary (Note 1):
        Earnings (loss) before extraordinary item                        $          .169             (.012)
        Extraordinary gain                                                             -              .089
                                                                         ---------------------------------
           Net earnings                                                             .169              .077
                                                                         =================================
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-4
<PAGE>



CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995


                                                     1996                 1995

Net earnings per common and common equivalent
  share-fully diluted (Note 1):
        Earnings before extraordinary item     $      .147             (.012)
        Extraordinary gain                               -              .085
                                               -----------------------------
           Net earnings                               .147              .073
                                               =============================


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.



                                      F-5

<PAGE>




CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>

                                                 COMMON STOCK               ADDITIONAL
                                               (NOTES 8 AND 12)               PAID-IN        ACCUMULATED
                                             SHARES          AMOUNT           CAPITAL          DEFICIT           TOTAL

<S>                                          <C>          <C>                 <C>             <C>                 <C>
Balance, December 31, 1994                   2,610,255    $     26,103        16,937,421      (11,627,190)        5,336,334

Exercise of options for common
  stock                                          1,163              12             1,275                -             1,287

Net earnings                                         -               -                 -          200,967           200,967
                                         ----------------------------------------------------------------------------------

Balance December 31, 1995                    2,611,418          26,115        16,938,696     (11,426,223)         5,538,588

Exercise of options for common
  stock                                        120,570           1,205           275,256                -           276,461

Net earnings                                         -               -                 -          463,481           463,481
                                         ----------------------------------------------------------------------------------

Balance, December 31, 1996                   2,731,988    $     27,320        17,213,952     (10,962,742)         6,278,530
                                         ==================================================================================
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       F-6

<PAGE>




LUKENS MEDICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>

                                                                               1996              1995
<S>                                                                       <C>                      <C>
Cash flows from operations:
    Net earnings                                                          $      463,481           200,967
    Adjustments to reconcile net earnings
        to cash flows used in operating activities:
           Depreciation                                                          262,941           265,702
           Amortization of intangible assets                                     169,563            72,730
           Gain on sale of building                                                    -          (150,721)
           Extraordinary gain on extinguishment
               of debt                                                                 -          (233,240)
           Decrease in inventory valuation allowance                             250,000                 -
           Loss on disposal of fixed assets                                        9,855                 -
           Accrued interest due stockholder                                       79,024            28,384
    Changes in current assets and liabilities:
        Accounts receivable                                                     (632,736)         (520,544)
        Inventory                                                             (1,966,159)         (271,822)
        Prepaid expenses                                                         (10,834)           12,401
        Accounts payable                                                         741,163           (78,284)
        Accrued payroll                                                            8,605            (2,540)
        Accrued liabilities                                                      (29,521)           17,058
                                                                         ---------------------------------
               Net cash used in operating activities                            (654,618)         (659,909)
                                                                         ---------------------------------

Cash flows from investing activities:
    Proceeds from sale of marketable securities                                        -           233,416
    Purchase of equipment                                                       (561,910)         (211,545)
    Increase in intangible assets                                               (785,377)          (35,868)
    Increase in deferred start-up costs                                         (149,766)          (62,691)
    Purchase of other assets                                                     (26,813)           27,402
    Proceeds from sale of building                                                     -         2,000,000
                                                                         ---------------------------------
               Net cash flows (used by) provided
                  for investing activities                                    (1,523,866)        1,950,714
                                                                         ---------------------------------

Cash flows from financing activities:
    Proceeds from issuance of common stock
        and equivalents                                                          276,461             1,287
    Borrowings on long-term debt                                               2,621,155           299,230
    Principal payments on long-term debt and
        capital leases                                                          (280,091)       (2,680,235)
    Borrowings from major stockholder                                            400,000           650,000
                                                                         ---------------------------------
               Net cash flows (used by) provided
                  for financing activities                                     3,017,525        (1,731,005)
                                                                         ---------------------------------
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


<PAGE>

                                      F-7

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>

                                                                               1996              1995
<S>                                                                      <C>                      <C>

               Net increase (decrease) in cash and cash
                  equivalents                                            $       839,041          (440,200)

Cash and cash equivalents at beginning of year                                    39,049           479,249
                                                                         ---------------------------------

Cash and cash equivalents at end of year                                 $       878,090            39,049
                                                                         =================================

Supplemental disclosures:
    Cash paid for interest                                               $       113,532           200,798
                                                                         =================================

    Production equipment acquired with capital
        leases                                                           $        63,095                 -
                                                                         =================================
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                      F-8

<PAGE>




LUKENS MEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996


NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization  and Principles of  Consolidation.  Lukens Medical  Corporation,  a
Delaware  corporation,  and its  wholly-owned  subsidiaries,  (the Company) is a
disposable  surgical  products  company  engaged  in  the  design,  development,
manufacture,  and  marketing  of  needle  suture  products,   disposable  safety
scalpels,  lancets,  disposal  supplies,  and bone wax. The Company  markets its
products  worldwide  to  hospitals,  independent  care  facilities,  physicians'
offices,  and to the United States government  directly and through  independent
distributors.   Foreign  operations  consist  of  a  maquiladora   manufacturing
operation in Juarez,  Mexico.  Inventory and fixed assets  related to the Juarez
facility are approximately $657,564 at December 31, 1996.

The  consolidated  financial  statements  include the accounts of Lukens Medical
Corporation and its  wholly-owned  subsidiaries.  All  significant  intercompany
accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents.  Cash and cash equivalents  consist  substantially of
cash in banks and repurchase  agreements which are  collateralized by government
securities at a 102 percent of fair market value and recorded in the banks name.
The Company  considers all highly  liquid  financial  instruments  with original
maturities of three months or less to be cash equivalents.

Inventory.  Inventory,  which consists principally of medical sutures,  supplies
and  components,  is  stated  at the  lower  of cost or  market  value.  Cost is
determined  using the first-in,  first-out  (FIFO) method.  Market value for raw
materials is based on replacement costs and for other inventory  classifications
on net realizable  value.  Appropriate  consideration is given to deterioration,
obsolescence  and other factors in evaluating  net realizable  value.  Inventory
costs include material, labor, and manufacturing overhead.

Fixed  Assets.  Equipment  and  leasehold  improvements  are  recorded  at cost.
Depreciation  expense is calculated using the straight-line  method based on the
estimated useful lives of the respective  assets which  approximate three to ten
years.  The  Company  follows  the  policy  of  capitalizing  expenditures  that
materially  increase asset useful lives and charging  ordinary  maintenance  and
repairs to operations as incurred.

Intangible  Assets.  Intangible assets consist  principally of costs incurred to
obtain Food and Drug Administration approvals, trademarks, organizational costs,
patents,  and the rights to sell  Ulster  products.  The Company  evaluates  its
intangible  assets annually to determine  potential  impairment by comparing the
carrying value to the undiscounted  future gross cash margins of related assets.
They are being amortized using the straight-line  method over periods of 5 to 17
years.

                                      F-9

<PAGE>



NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES     (CONTINUED)

Deferred  Start  Up  Costs.  The  start up costs  consist  principally  of costs
incurred  for the start up of joint  ventures  and  possible  joint  ventures in
India, Mexico, and Brazil.

Net Sales.  Sales are recorded net of sales returns and allowances.

Research and Development  Expenses.  Research and development costs are expensed
as incurred.

Net Earnings Per Common and Common Equivalent Share. Net earnings per common and
common equivalent share is computed based on the weighted average (based on time
period outstanding) number of common shares outstanding and, if dilutive, common
equivalent  shares  (options and warrants  (see Note 8)  outstanding  during the
year.  Common  equivalent shares included in the computation of weighted average
shares totaled 410,064 shares for 1996 and 132,241 shares for 1995, assuming the
exercise of all options  outstanding  and  dilutive at year-end,  as  calculated
using the treasury stock method.

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 and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Reclassification.  The  Company  has  reclassified  certain  amounts in the 1995
financial statements to conform to the 1996 presentation.


NOTE 2.        INVENTORY

Inventory consists of the following components at December 31:

                                              1996              1995

    Raw materials                    $     2,767,214         1,821,321
    Work-in-process                        1,419,685           874,080
    Finished goods                         1,378,311         1,153,650
                                     ---------------     -------------
                                     $     5,565,210         3,849,051
                                     =================================

                                      F-10

<PAGE>



NOTE 3.        FIXED ASSETS

Fixed  assets  owned and held  under  capital  lease (see Note 7) consist of the
following at December 31:

                                                    1996              1995

    Leasehold improvements                    $       172,677           102,395
    Production equipment                            3,018,600         2,555,378
    Office equipment                                  229,646           202,884
                                              ---------------------------------
                                                    3,420,923         2,860,657
           Less accumulated depreciation            1,358,081         1,150,024
                                              ---------------------------------

                                              $     2,062,842         1,710,633
                                              =================================

Production  equipment  valued at $807,543 was not being utilized in 1995 or 1996
and as of December 31, 1996, was in Piedras  Negras,  Mexico in  anticipation of
the start up of a joint venture (See Note 14).


NOTE 4.        BANK FINANCING INSTRUMENTS

At December 31, 1996, the Company had the following bank borrowing agreements:

     A working capital line-of-credit  agreement,  which provides for borrowings
     for working capital up to the lesser of (a) $1,000,000 or (b) the sum of 80
     percent of eligible accounts  receivable (as defined in the agreement) plus
     (i) the lesser of 40 percent of qualified  inventory;  or (ii)  $1,200,000.
     Interest  is payable  monthly on the amount  drawn at the Bank's  corporate
     base rate (the Bank's  prime rate) plus 1 percent.  At December  31,  1996,
     there was $900,000 outstanding under this line-of-credit agreement.

     A  letter-of-credit  line,  which  provides  for other  credit  instruments
     including  commercial  letters-of-credit  and  banker's  acceptances  which
     guarantee payment to raw material suppliers, and standby  letters-of-credit
     which may also be used for the purchase of raw material on forward currency
     contracts. The sum of these shall not exceed $1,650,000 at any one time. At
     December 31, 1996, there was $796,838 of outstanding  letters of credit and
     $153,761 in standby letters-of-credit outstanding under this line.



                                      F-11

<PAGE>



NOTE 4.        BANK FINANCING INSTRUMENTS (CONTINUED)

     A SBA export  working  capital  line-of-credit  agreement,  which  provides
     working  capital for foreign  sales up to the lesser of (a) $600,000 or (b)
     80 percent of the face amount of  negotiated  Letters of Credit  issued for
     the benefit of the  Borrower and  delivered to Lender.  Interest is payable
     monthly on the amount  drawn at the New York prime rate as published in the
     Wall Street  Journal  plus 1.5 percent.  At December  31,  1996,  there was
     $50,301 outstanding under this line-of-credit agreement.

     A SBA  government  contract  line-of-credit  which  provides for the use of
     working  capital  for  government  contracts  up to  $420,000,  interest is
     payable monthly on the amount drawn at the New York prime rate as published
     in the Wall Street  Journal plus 1.5 percent.  At December 31, 1996,  there
     was $15,801 outstanding under this line-of-credit agreement.

     A SBA equipment term loan, which provides for the purchase of equipment and
     machinery up to $150,000,  interest and principal  payable monthly on equal
     installments  of $2,510 at the New York prime rate as published in the Wall
     Street Journal,  plus 1.5 percent. At December 31, 1996, there was $130,096
     outstanding under this agreement.

     A SBA equipment term loan, which provides for the purchase of equipment and
     machinery up to $150,000,  interest and principal  payable monthly on equal
     installments  of $2,535 at the New York prime rate as published in the Wall
     Street Journal,  plus 1.5 percent.  At December 31, 1996, there was $23,150
     outstanding under this agreement.

     To evidence the  Company's  obligation  to  reimburse  the Bank under these
     credit instruments  issued and drawn on behalf of the Company,  the Company
     is  required  to issue a  promissory  note  payable  upon  demand,  bearing
     interest at one percent above the Bank's corporate base rate.

     On May 24, 1996, the Company  obtained a bank term loan for the purchase of
     equipment and  machinery in the amount of $120,000,  interest and principal
     payable  monthly on equal  installments  of $3,859 at the bank's  corporate
     base rate plus 1.5 percent.

     On December 30, 1996, the Company  obtained a bank term loan for funding of
     a joint venture in India in the amount of $700,000,  interest and principal
     payable monthly on equal  installments  of $14,700 at the bank's  corporate
     base rate plus 1 percent.

                                      F-12
<PAGE>



NOTE 4.        BANK FINANCING INSTRUMENTS (CONTINUED)

At  December  31,  1996,  these bank  credit  instruments  had  covenants  which
provided, among other things, for: the maintenance of consolidated stockholders'
equity of not less than  $4,700,000;  a minimum current ratio, as defined in the
agreement,  of 2:1; aggregate debt to consolidated  stockholders'  equity of not
greater than 1:1; fixed charges  coverage not less than 1:3 and a quick ratio of
not less than 1:1.  The  agreements  also  provide  for a security  interest  in
substantially  all of the  Company's  assets  and has  certain  covenants  which
restrict  the  Company's  payment  of  dividends  and  prohibit   incurring  any
additional material indebtedness without the consent of the Bank.


NOTE 5.        LONG-TERM DEBT

Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                               1996              1995
Bank Debt:

<S>                                                                      <C>                  <C>
    Outstanding line-of-credit payable, interest is accrued
        at the corporate base rate plus 1% (9.25% at
        December 31, 1996), maturing August 30, 1997                     $       796,838                 -

    Outstanding line-of-credit payable, interest is accrued
        at the corporate base rate plus 1.5% (9.75% at
        December 31, 1996), maturing August 30,1997                              900,000           200,000

    Notepayable,  due in monthly  installments of $3,859,
        including interest at the bank's corporate  base
        rate plus 1.5% (9.75% at December 31, 1996),
        maturing May 24, 1999                                                     98,828                 -

    Notepayable, due in monthly  installments of $14,700,
        including interest at the bank's  corporate  base
        rate plus 1% (9.25% at December  31,  1996),
        maturing  December 30, 2001                                              700,000                 -

    Outstanding  line-of-credit  payable,  interest is
        accrued at the prime rate from the Wall Street
        Journal plus 1.5% (9.75% at December 31, 1996)
        maturing November 8, 1997                                                 50,301            28,000
                                                                         ---------------------------------

Balance forward                                                                2,545,967           228,000
                                                                         ---------------------------------
</TABLE>

                                      F-13

<PAGE>


<TABLE>
<CAPTION>
NOTE 5. LONG-TERM DEBT (CONTINUED)

<S>                                                                       <C>                      <C>
Balance forward                                                           $     2,545,967          228,000

    Notepayable will be due in monthly installments of
        $2,510 including interest at New York Prime from
        the Wall Street Journal plus 1.5% (9.75% at
        December 31, 1996) maturing October 2002                                 130,096            71,230

    Notepayable will be due in monthly  installments  of
        $2,535  beginning April 1997, including interest
        at New York prime from the Wall Street Journal
        plus 1.5% (9.75% at December 31, 1996) maturing
        November 2003                                                             23,150                 -

    Outstanding  line-of-credit  payable,  interest is
        accrued at the prime rate from the Wall Street
        Journal  plus 1.5% (9.75% at December 31, 1996)
        maturing February 1997                                                    15,801                 -

Other debt:

    Community  Development  Block Grant  note,  due in
        monthly installments of $4,167,  plus  interest
        at a rate equal to the  six-month  Treasury Bill
        rate with a minimum of 7% and a maximum of 9% (7%
        at December 31, 1996), maturing July 7, 1998,
        secured by equipment  purchased with the proceeds
        from the note                                                             83,623           137,844
                                                                         ---------------------------------

           Total long-term debt                                                2,798,637           437,074
           Current maturities of long-term debt                                2,002,191           357,095
                                                                         ---------------------------------

           Long-term debt, excluding current maturities                  $       796,446            79,979
                                                                         =================================
</TABLE>

The  aforementioned  Bank debt is held by a single institution and is secured by
accounts receivable, inventory and fixed assets of the Company, except for those
purchased with the proceeds obtained from the Community  Development Block Grant
note.


                                      F-14
<PAGE>



NOTE 5. LONG-TERM DEBT (CONTINUED)

Future scheduled debt payments at December 31 are:

           1997                                      $     2,002,191
           1998                                              210,747
           1999                                              185,462
           2000                                              182,506
           2001                                              193,518
           Thereafter                                         24,213
                                                     ---------------

                                                     $     2,798,637


NOTE 6.        STOCKHOLDER PAYABLE

During 1995, a major  stockholder  loaned the Company  $400,000 which defeased a
$350,000 line of credit and provided $50,000 for general operations. The note is
due  April  1999,  including  all  interest,  accrued  at 8  percent.  The major
stockholder   also  received   warrants  for  400,000  shares  of  common  stock
exercisable at 1.10 per share (Note 8).

In September  1995,  the Company also received an  additional  $250,000 from the
stockholder for repayment of various  capital leases.  The note is due September
1999, including all interest, accrued at 8 percent.

In March 1996, the Company received $400,000 from the stockholder for use in the
Ulster  acquisition.  The note is due  September  1999,  including all interest,
accrued at 10 percent.


NOTE 7.        LEASES

The Company has two capital lease  obligations  for  production  equipment  that
expire in 1999.  At December  31, 1996 and 1995,  the Company had  $126,508  and
$138,904,  respectively,  recorded as production  equipment under capital leases
with related accumulated  depreciation of $4,206 and $73,172,  respectively (see
Note 3).

                                      F-15
<PAGE>



NOTE 7.        LEASES (CONTINUED)

The present value of future  minimum  capital lease  payments as of December 31,
1996 follows:

           1997                                              $        48,586
           1998                                                       38,868
           1999                                                       25,333
                                                             ---------------
               Total minimum lease payments                          112,787

           Less amount representing interest
               (at rates ranging from 8% to 9.75%)                    13,584
           Present value of net minimum capital
               lease payments                                         99,203
           Current maturities of obligations under
               capital leases                                         39,825
           Obligations under capital leases, ex-
               cluding current maturities                    $        59,378
                                                             ===============

The Company leases its facilities and certain  equipment  under terms of various
operating  leases.  Future minimum rental payments  required under the operating
leases as of December 31, 1996, are as follows:

         Year ending December 31:
                      1997                                    $          119,311
                      1998                                               125,748
                      1999                                               128,953
                      2000                                               132,253
                      2001                                                86,925
                                                              ------------------

         Total minimum payments required                      $          593,190
                                                              ==================

Total rental expense for operating  leases during 1996 and 1995 was $111,787 and
$64,979, respectively.

                                      F-16
<PAGE>



NOTE 8.        STOCK WARRANTS AND OPTIONS

Warrants for Common Stock

The following warrants are outstanding at December 31, 1996:
<TABLE>
<CAPTION>

          NUMBER OF SHARES                 EXERCISE                  DATE                 DATE OF
         COVERED BY WARRANTS                 PRICE                EXERCISABLE           EXPIRATION
<S>                                     <C>                     <C>                 <C>
               137,500                  $       9.00            Presently            May 6, 1997
               500,000                          6.00            Presently            May 6, 1998
               400,000                          1.10            Presently            April 13, 2000
                50,000                          3.00            Presently            March 5, 2004
</TABLE>

Each  warrant  allows the holder to  purchase  one share of common  stock at the
warrant price. The 400,000 warrants are to the major stockholder.

Options for Common Stock

In 1992, the Company  adopted a stock option plan (1992 Plan) which provides for
the  issuance  of  incentive  and  nonqualified   stock  options  for  officers,
directors, key employees, and consultants of the Company. The 1992 Plan replaced
a similar plan in effect in prior years.  The 1992 Plan allows the issuance of a
maximum of 850,000 options for exercise into common stock at an option price not
less than the fair market value (trading  value) of the common stock on the date
such options are granted.  Options outstanding under the 1992 Plan total 243,223
and 380,611 at December 31, 1996 and 1995, respectively. As of December 31, 1996
and 1995,  an  additional  103,000 and  103,531,  respectively,  of options were
granted under various other plans. All options terminate three to ten years from
the date of issuance.  The Company has filed a  registration  statement  for its
stock option plans.

A summary of the common stock  options for the year ended  December 31, 1996 and
1995 follows:
<TABLE>
<CAPTION>
                                                    OPTIONS                  PRICE RANGE
                                               ---------------------------------------------------

<S>                                                   <C>             <C>
Balance, December 31, 1994                             388,632         $   1.125      -     6.50
    Granted                                            125,400             1.063      -     3.00
    Expired                                            (28,727)            2.375      -     2.375
    Exercised                                           (1,163)            1.063      -     1.125
                                               --------------------------------------------------
Balance, December 31, 1995                             484,142             1.063      -     6.50
                                               -------------------------------------------------
    Granted                                            185,800             3.00             7.00
    Expired                                           (198,149)            2.375            3.00
    Exercised                                         (120,570)            1.063            2.375
                                               --------------------------------------------------
Balance, December 31, 1996                             351,223             1.063            7.00
                                               =================================================

Options exercisable, December 31,
    1996                                               115,425             1.063      -     6.50
                                               =================================================
</TABLE>

                                      F-17
<PAGE>



NOTE 8.        STOCK WARRANTS AND OPTIONS (CONTINUED)

The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its plans.  FASB Statement No. 123 Accounting for  Stock-Based  Compensation
(SFAS 123) was issued by the FASB and, if fully adopted, changes the methods for
recognition  of cost or plans similar to those of the Company.  Adoption of SFAS
123 is optional;  however,  proforma  disclosures as if the Company  adopted the
cost recognition requirements under SFAS 123 in 1996 are presented below:
<TABLE>
<CAPTION>
                                                                            AS REPORTED       PROFORMA
<S>                                                                         <C>                    <C>
Net income                                                                  $    463,481           267,225

Net earnings per common and
    common equivalent share-primary (Note 1)                                        .169              .097

Net earnings per common and common
    equivalent share-fully diluted (Note 1)                                         .147              .085
</TABLE>

The effects of applying SFAS 123 in this proforma  disclosure are not indicative
of  future  amounts.  SFAS  123  does  not  apply  to  awards  prior to 1996 and
additional awards in future years are anticipated.

NOTE 9.        INCOME TAXES

The Company uses the asset and liability  method of accounting for income taxes.
In 1994,  a net  deferred  tax expense  resulted  from a reduction  of valuation
allowance due to a change in circumstances as more fully discussed below.

Components  of the net deferred  income tax asset at December 31, 1996 and 1995,
are as follows:

                                                 1996              1995
Deferred income tax assets:
    Resulting from net operating loss
        carryforwards                         $  3,845,000         3,844,000
    Carryforward of capital loss                   105,000           105,000
    Carryforward credit from increasing
        research activities                        105,000           105,000
    Other                                          264,000           244,000
                                              ------------------------------
                                                 4,319,000         4,298,000

Deferred income tax liabilities:
    Depreciation and other basis differences       (75,000)          (62,000)
                                              ------------------------------

    Net deferred tax asset before valuation
        allowance                                4,244,000         4,236,000

Valuation allowance                             (4,244,000)       (4,236,000)
                                              ------------------------------

Net deferred income tax asset                 $          -                 -
                                              ==============================

                                      F-18

<PAGE>



NOTE 9.        INCOME TAXES (CONTINUED)

The Company conducts a periodic evaluation of its valuation  allowance.  Factors
considered in the evaluation include recent and  demonstratable  future earnings
and the  Company's  liquidity  and  equity  positions.  For 1996 and  1995,  the
deferred  tax assets were  reserved  for in the  valuation  allowance  given the
Company's limited history of profitable operations.

There is no income tax payable at December 31, 1996, because of the usage of net
operating loss carryforwards.

The  net  operating   loss  and  credit  for  increasing   research   activities
carryforwards are each subject to annual  limitations of approximately  $460,000
and as of December 31, 1996, expire as follows:
<TABLE>
<CAPTION>

                                                                                    INCREASING RESEARCH
                                     APPROXIMATE NET OPERATING                      ACTIVITIES BOOK/TAX
                                         LOSS CARRYFORWARD                                CREDITS
                  --------------------------------------------------------------    -------------------
                      STATE LOSS           FEDERAL LOSS
                        AMOUNT                AMOUNT             TAX EFFECT             TAX EFFECT

<C>               <C>                       <C>                       <C>                    <C>
1999              $        2,537,000                     -               122,000                3,800
2000                               -             2,056,000               699,000               37,200
2001                               -             1,835,000               624,000               37,500
2002                               -             1,132,000               385,000                1,400
2003                       1,480,000             2,086,000               780,000               25,100
2004                         315,000               390,000               148,000                    -
2005                         161,000               278,000               102,000                    -
2006                               -                50,000                17,000                    -
2008                               -                88,000                30,000                    -
2009                               -             2,760,000               938,000                    -
                  -----------------------------------------------------------------------------------
                  $        4,493,000            10,675,000             3,845,000              105,000
                  ===================================================================================
</TABLE>

The  capital  loss  carryforwards  of  approximately  $271,000,  tax  effect  of
$105,000, expire in 1998.

The provision  (benefit) for income taxes consists of the following for the year
ended December 31:

                                                   1996              1995
Deferred:
    Federal                                  $        112,001           66,374
    State                                              3,548             2,102
                                             ---------------------------------
                                                     115,549            68,476
Adjustment to valuation allowance                   (115,549)          (68,476)
                                             ---------------------------------

        Total                                $             -                 -
                                             =================================

                                      F-19
<PAGE>



NOTE 9.        INCOME TAXES (CONTINUED)

The  provision  (benefit)  for income taxes is  reconciled  with the federal and
state statutory rates for the year ended December 31, as follows:
<TABLE>
<CAPTION>

                                                 1996                                1995
                                   ----------------------------------     -------------------------------
                                         TAX                 TAX RATE           TAX              TAX RATE
<S>                                <C>                           <C>           <C>                 <C>
Provision computed
   at federal statutory
   rate                            $        157,584              34%           68,328              34%

State taxes, net of
   federal tax benefit                        4,697               1%            5,884               3%

Non-deductible meals
   and entertainment                          4,480               1%            3,057               2%

Other                                             -               -            (2,600)             (1)%

Adjustment of prior year
   deferred tax asset attri-
   butable to loss carry-
   forwards                                 (51,212)            (11)%          (6,193)             (4)%

Adjustment of beginning
   of year valuation allow-
   ance                                    (115,549)            (25)%         (68,476)            (34)%
                                   ------------------------------------------------------------------

     Total                         $              -               0%                -               0%
                                   ==================================================================
</TABLE>


NOTE 10.       FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions are used by the Company in determining its
fair value disclosures for financial investments:

Cash and cash  equivalents.  The carrying  amount  reported in the balance sheet
approximates fair value.

Long-term  debt  including  current  maturities  and  stockholder  payable.  The
floating-rate  long-term debt approximates its fair value. The fair value of the
fixed-rate  long-term  debt is estimated  using  discounted  cash flow analysis,
based on the Company's current incremental  borrowing rates for similar types of
borrowing arrangements.

                                      F-20
<PAGE>



NOTE 10.       FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The carrying amounts and fair values of the Company's financial instruments are:

                                                      CARRYING         FAIR
                                                       AMOUNT          VALUE

    Cash and cash equivalents                      $      878,090   $    878,090
    Long-term debt, including current
        maturities                                 $    2,798,637   $  2,780,346
    Stockholder payable and accrued interest       $    1,157,408   $  1,084,208


NOTE 11.       SIGNIFICANT CUSTOMERS AND EXPORT SALES

During 1995,  approximately  24 percent of the Company's net sales were from two
customers.  At December 31, 1995, the two customers  accounted for approximately
30 percent of total trade accounts receivable.

In addition, the Company's export sales for 1996 and 1995 totaled $2,295,066 and
$1,788,944 ,  respectively,  which  represent 28 percent and 37 percent of total
sales in each of those years.


NOTE 12.       COMMITMENTS AND CONTINGENCIES

Employment Agreement.  The Company has entered into an employment agreement with
its Chief  Executive  Officer which  provides for a three-year  term expiring in
January 1998,  with automatic  one-year  extensions  thereafter.  This agreement
provides for a base salary of $135,000 per annum.  This agreement  allows for an
annual base salary  increase  at least equal to the  percentage  increase in the
Consumer Price Index (or closest substitute for such index then available).  For
future years,  the employee's base salary shall increase no less than 10 percent
if the  Company's  net income  increases  at least 10 percent as compared to the
preceding year. The Chief Executive Officer is entitled to an annual bonus of up
to 35  percent  of base  compensation  for such  year for  achieving  objectives
established  jointly by the employees and Board of Directors,  as defined in the
agreement.

Litigation.  The Company is involved in  litigation  in the  ordinary  course of
business.  Management  believes,  after consulting with legal counsel,  that the
ultimate outcome of this litigation will not result in a material adverse impact
on the Company's financial statements.

                                      F-21
<PAGE>



NOTE 12.       COMMITMENTS AND CONTINGENCIES (CONTINUED)

Consulting  Agreement.  Effective  March 1, 1996, the Company entered into a one
year consulting agreement with a major stockholder. Payments under the agreement
are $4,167 per month.

Profit  Sharing/Savings Plan. The Company has a voluntary profit sharing/savings
plan (Plan) covering  substantially all employees  residing in the United States
over age 21 and who have been  employed at least six months by the Company.  The
Plan is qualified  under section  401(k) of the Internal  Revenue Code. The Plan
provides for voluntary employee  contributions and discretionary  Company profit
sharing/savings plan contributions.  The Company matches employee  contributions
at a rate of 50  percent  of their  contributions  up to 3 percent of their base
pay.  In  addition,  the Plan  provides  that the  Company  may pay for  certain
administrative  costs of the Plan.  For 1996 and  1995,  there  were no  Company
profit sharing contributions.  Company matching contributions and administrative
expenses for 1996 and 1995 were $24,551 and $17,484, respectively.


NOTE 13.       INVENTORY REDUCTION

During 1996,  the Company  experienced  reductions  in its cost,  as compared to
1995, to manufacture  certain products mainly from favorable shifts in overhead,
labor,  and exchange  rates.  In order to more  accurately  reflect the new cost
structure inventory carrying amounts were reduced and cost of sales increased by
approximately $300,000.


NOTE 14.       ACQUISITION AND JOINT VENTURE

On March 4, 1996,  the Company  completed an  acquisition of three product lines
from Ulster Scientific, Inc. (USI), a New York corporation.  The acquisition was
accounted  for under the purchase  method.  USI was a wholesale  distributor  of
medical supplies.  The Company paid $248,000 cash,  assumed $320,000 in supplier
liabilities,  and agreed to terms on a  consulting  and  royalty  contract  with
payments of 3 percent to 7 percent of certain  Ulster sales over eight years and
with minimum  payments of $90,000 per year for the next five years. In addition,
the  Company  issued  200,000  warrants  to the  seller,  150,000  of which  are
contingent  upon future  product  sales.  The Company  acquired,  in addition to
inventory and equipment,  the rights to sell Ulster  product lines,  trademarks,
and other intangible assets. All intangibles are amortized over eight years.

                                      F-22

<PAGE>



NOTE 14.       ACQUISITION AND JOINT VENTURE (CONTINUED)

The  proforma  results of  operations  for the year ended  December  31, 1995 as
though the  companies  had been  combined at the  beginning of that period is as
follows:

Net sales                                                       $   8,705,783
                                                                =============

Earnings before extraordinary item                              $     298,810
                                                                =============

Net earnings                                                    $     532,050
                                                                =============

Weighted average number of common and
 common equivalent shares outstanding:
        Primary                                                 $   2,611,418
        Fully diluted                                               2,743,659

Net earnings per common and
    common equivalent share-
    primary:
        Before extraordinary
           item                                                           .11
        Extraordinary gain                                                .09
                                                              ---------------
           Net earnings                                       $           .20
                                                              ===============

Net earnings per common and
    common equivalent share-
    fully diluted:
        Before extraordinary
           item                                               $           .11
        Extraordinary gain                                                .08
                                                              ---------------
           Net earnings                                       $           .19
                                                              ===============


In 1996,  the Company  formed a joint  venture  with Serral,  SADECV,  a Mexican
Corporation,  to  produce  needles.  The  joint  venture  is  formed as an equal
partnership. Each partner will retain ownership of the equipment it provides. As
of December 31, 1996, the joint venture was not yet active.


NOTE 15.       SUBSEQUENT EVENTS

On January 9, 1997, the Company  became the majority  shareholder in a new joint
manufacturing  venture  based  in  Cochin,   India.  The  venture,   which  will
manufacture syringes, hypodermic needles, and related products, has acquired the
basic  equipment  required  for the  process,  as well as a  22,000  square-foot
facility  which is being  renovated and is to be  operational  by mid-1997.  The
venture  will  market  the  products  through  Lukens  and  the  three  minority
shareholders  who are all  current  distribution  partners  of Lukens in various
parts of the world.

                                      F-23
<PAGE>



NOTE 15.       SUBSEQUENT EVENTS (CONTINUED)

The Company's initial investment in the venture was $494,228.  In addition,  the
Company has issued a standby  guaranty of the venture's  $360,000  two-year term
note payable to a bank.

Two outside  directors  have  committed to loan up to $1 million to the Company.
The funds will be used for continued  expansion of its  recently-acquired  India
facility. Terms of the loan include an interest rate of 10 percent, and issuance
of up to 100,000 warrants to purchase common stock of Lukens Medical Corporation
at an exercise price of $8.25 per share.

In February 1997,  the Company  received 510K clearance from the FDA for its new
synthetic absorbable suture material.  The new suture will be marketed worldwide
and is heavily used in gynecology, orthopedics and general surgery.

On March 25, 1997,  the Company signed a letter of intent to acquire 100 percent
of Pro-Tec Containers,  Inc. of Sanford,  Florida. The letter of intent outlines
general  terms  and  conditions  of the  transaction,  which  will be a  reverse
triangular   merger  of  Pro-Tec  and  a  newly  formed  subsidiary  of  Lukens.
Consideration  will be $250,000  cash and  $1,300,000  in Lukens common stock at
closing, with closing scheduled within 45 days.

Pro-Tec  specializes  in the  manufacture  and marketing of containers  for used
needles, scalpel blades, and other sharp items used by healthcare professionals.
Pro-Tec had revenues of  approximately  $1.3 million in 1996.  The Company feels
the products will fit well with their existing lines, the use of which generates
the need for  Pro-Tec's  products.  While the two  companies  share many  common
customers and distribution channels,  Lukens plans to expand distribution of the
Pro-Tec products into its overseas markets as well.


NOTE 16.       MANAGEMENT'S PLANS FOR FUTURE OPERATIONS       (UNAUDITED)

The Company produced net earnings for 1995 and 1996.  However,  to remain viable
as a going concern, it must achieve  profitability from operations  consistently
in the future.  The  Company's  acquisition  of three  product lines from Ulster
Scientific, Inc., its recent joint venture and the Pro-Tec acquisition,  provide
an  opportunity  to  increase  revenues.  There  can be no  assurance  that  the
Company's  efforts will be successful or that existing  inventory can be sold on
favorable terms.

                                      F-24
<PAGE>



                                   SIGNATURES

                  In  accordance  with Section 13 or 15(d) of the Exchange  Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                   LUKENS MEDICAL CORPORATION


                                   By:  /s/ Robert S. Huffstodt
                                        --------------------------------------
                                        Robert S. Huffstodt, President

                                   Date:  March 28, 1997

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

         SIGNATURE AND TITLE                                     DATE
         -------------------                                     ----


/s/ Robert S. Huffstodt                                     March 28, 1997
----------------------------------------------
Robert S. Huffstodt
Chairman of the Board of Directors, President and
Chief Executive Officer (Principal Executive Officer)


/s/ Robert S. Huffstodt                                    March 28, 1997
----------------------------------------------
Robert S. Huffstodt
Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)


/s/ John H. Robinson                                       March 28, 1997
----------------------------------------------
John H. Robinson
Director


/s/ Robert L. Priddy                                       March 28, 1997
----------------------------------------------
Robert L. Priddy
Director



<PAGE>



<TABLE>
<CAPTION>

                                                   EXHIBIT INDEX
Exhibit No.       Description                                                                                             Page #
<S>               <C>
3.1               Certificate of Incorporation of the Registrant, as amended (1)

3.2               Form of Certificate of Amendment of Certificate of Incorporation (1)

3.3               Form of Amended and Restated Bylaws of the Registrant (1)

10.1              1988 Amended and Restated Stock Option Plan (1)

10.2              1992 Stock Option Plan (1)

10.3*             Exclusive Distributorship Agreement between the Registrant and Meadox Medicals, Inc. (1)

10.4*             Exclusive Distributorship Agreement between the Registrant and Cottrell Limited (1)

10.5*             Exclusive Distributorship Agreement between the Registrant and Convergenza, as amended (1)

10.6*             Exclusive Distributorship Agreement between the Registrant and HP - medica GmbH (1)

10.7              Business Loan and Security Agreement among the Registrant, Lukens Corporation - New Mexico and Sunwest
                  Bank of Albuquerque, N.A., as amended (1)

10.8              Form of Indemnity Agreement (1)

10.9              Employment Agreement between the Registrant and James A. Wimbush (1)

10.10             Employment  Agreements  between the Registrant and each of Steven J.  Schroeder,  Robert S. Huffstodt,
                  Scott Henderson and Donald E. Lawson (1)

10.11*            Collaborative  Development Agreement between the Registrant and Medisorb  Technologies  International,
                  L.P. (1)

10.12             Lease for Registrant's facility (1)

10.13             Form of Consulting Agreement between the Registrant and Commonwealth Associates, Inc.(1)

10.14*            Exclusive Distributorship Agreement between the Registrant and Core Dynamics, Inc. (3)

10.15             Consulting Agreement between the Registrant and Kronenthal Associates (3)

10.16*            Exclusive Patent License Agreement between the Registrant and Innovative Surgical Technology, Inc. (4)

10.17             Agreement,  dated November 19, 1992, between Sunwest Bank of Albuquerque,  National  Association,  and
                  Lukens Medical  Corporation,  a New Mexico  corporation,  together with  promissory  note, as amended,
                  security agreements and mortgages executed pursuant thereto (5)

10.18*            Amendment  No. 1, dated as of May 17, 1994, to Exclusive  Patent  License  Agreement,  dated August 9,
                  1993,  between  Lukens  Medical  Corporation,  a  New  Mexico  corporation,  and  Innovative  Surgical
                  Technology, Inc. (5)

                                                        20

<PAGE>




10.19*            Manufacturing  Agreement,  dated May 26,  1994,  between the  Registrant  and West Texas  Engineering,
                  Inc.(5)

10.20*            Supply Agreement,  dated June 29, 1994, between Lukens Medical Corporation,  a New Mexico corporation,
                  and Farnam Companies, Inc. d.b.a. Veterinary Products Laboratories (5)

10.21             Business Loan and Security Agreement,  dated July 27, 1994 (the "Sunwest Loan Agreement"),  as amended
                  pursuant to the Third Amendment  thereto,  dated as of January 31, 1995, among the Registrant,  Lukens
                  Medical  Corporation (a New Mexico corporation  formerly known as Lukens Corporation) and Sunwest Bank
                  of  Albuquerque,  N.A.,  together with promissory  notes,  guaranty and security  agreements  executed
                  pursuant thereto (5)

10.22*            Exclusive  Distribution  Agreement,  dated October 7, 1994, between Lukens Medical Corporation,  a New
                  Mexico corporation, and Dentsply International Inc. (5)

10.23             Amendment No. 3, dated as of November 2, 1994, to 1992 Stock Option Plan (5)

10.24*            Supplier/Distributor  Agreement,  dated November 14, 1994, between Lukens Medical  Corporation,  a New
                  Mexico corporation, and Henry Schein, Inc. (5)

10.25             Amendment No. 4, dated as of January 3, 1995, to 1992 Stock Option Plan (5)

10.26             Promissory  Note of the  Company to John H.  Robinson,  dated as of April 13,  1995,  in the  original
                  principal amount of $400,000; Commitment letter of John H. Robinson, dated as of April 13, 1995. (5)

10.27             Warrant, dated as of April 13, 1995, granted by Lukens Medical Corporation, a Delaware corporation, to
                  John H. Robinson.

10.28             Lease for the Facility,  dated July 14, 1995,  between Rio Rancho  Public  Schools,  as landlord,  and
                  Lukens Medical Corporation, as tenant.

10.29             Fourth  Amendment,  Fifth  Amendment,  Sixth  Amendment  and Seventh  Amendment  to the  Sunwest  Loan
                  Agreement, dated April 10, 1995, April 28, 1995, July 14, 1995 and December 31, 1995, respectively.

10.30             Promissory  Notes of the  Company to Sunwest  Bank of  Albuquerque,  N.A.  relating  to certain  loans
                  guaranteed by the U.S. Small Business  Administration,  in the original principal amounts of $150,000,
                  $500,000  and  $420,000,  dated as of October  31,  1995,  October  31, 1995 and  February  15,  1996,
                  respectively, and related Loan and Security Agreements.

10.31             Promissory  Note of the Company to John H.  Robinson,  dated as of September 11, 1996, in the original
                  principal amount of $250,000; Promissory Note of the Company to John H. Robinson, dated as of March 5,
                  1996, in the original principal amount of $400,000

10.32             Distribution  Agreement,  dated as of March 5, 1996, by and between  Guest  Elchrom  Scientific AG and
                  Lukens Medical Corporation, a New Mexico corporation.

10.33             Agreement of Purchase and Sale of Assets,  dated as of March 4, 1996 by and among the Company,  Ulster
                  Scientific, Inc. and Peter F. Lordi, Jr. (6)

10.34             Lease Agreement,  dated as of March 5, 1996, between Ulster Scientific,  Inc., a New York corporation,
                  Peter F. Lordi, Jr. and Lukens Medical Corporation, a New Mexico corporation. (6)


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<PAGE>



10.35             Consulting  Agreement,  dated as of March 5, 1996,  between  Peter F.  Lordi,  Jr. and Lukens  Medical
                  Corporation, a New Mexico corporation. (6)

10.36             Warrant, dated as of March 5, 1996, granted by Lukens Medical Corporation, a Delaware corporation,  to
                  Peter F. Lordi, Jr. (6)

10.37             Lease between Kenneth I. White, as landlord, and Lukens Medical Corporation,  as tenant, dated May 31,
                  1996. (7)

10.38             Joint Venture/Stockholders'  Agreement, dated as of February 21, 1997, between Lukens Medical Products
                  Private Limited and the stockholders of the compnay listed on the signature page thereto.

10.39             Letter  Agreement,  dated as of February 28, 1997,  between  Lukens  Medical  Corporation  and John H.
                  Robinson;  Promissory  Note of Lukens  Medical  Corporation  dated as of February  28, 1997 to John H.
                  Robinson in the amount of $150,000;  and Warrant Agreement between Lukens Medical Corporation and John
                  H. Robinson, dated as of February 28, 1997.

10.40             Letter  Agreement,  dated as of February 28, 1997,  between Lukens Medical  Corporation  and Robert L.
                  Priddy;  Promissory  Note of Lukens  Medical  Corporation  dated as of February  28, 1997 to Robert L.
                  Priddy in the amount of $150,000;  and Warrant Agreement between Lukens Medical Corporation and Robert
                  L. Priddy, dated as of February 28, 1997.

21                Subsidiaries

23                Consent of Neff & Company

27                Financial Data Schedule
</TABLE>
----------

(1)  These  exhibits  were  filed  as  exhibits  to the  Company's  Registration
     Statement on Form S-1 (File No.  33-46466) and are  incorporated  herein by
     reference.

(2)  This exhibit was filed with the  Company's  Amendment  No. 1 to its Current
     Report  on Form 8-K  dated  July 17,  1992 and is  incorporated  herein  by
     reference.

(3)  These  exhibits  were filed as exhibits to the  Company's  Annual Report on
     Form  10-KSB  for the year ended  December  31,  1992 and are  incorporated
     herein by reference.

(4)  These  exhibits  were filed as exhibits to the  Company's  Annual Report on
     Form  10-KSB  for the year ended  December  31,  1993 and are  incorporated
     herein by reference.

(5)  These  exhibits  were filed as exhibits to the  Company's  Annual Report on
     Form  10-KSB  for the year ended  December  31,  1994 and are  incorporated
     herein by reference.

(6)  These  exhibits were filed as exhibits to the Company's  Current  Report on
     Form 8-K filed on March 18, 1996, and are incorporated herein by reference.

(7)  This exhibit was filed as an exhibit to the Company's  Quarterly  Report on
     Form 10-QSB for the quarter ended June 30, 1996, and is incorporated herein
     by reference.

*    Confidential  treatment  has been granted with respect to portions of these
     exhibits.


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