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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                                  -------------

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997


                         Commission file number 0-22726

                              SAFESKIN CORPORATION
             (Exact name of registrant as specified in its charter)
                                  -------------

          FLORIDA                                          59-2617525
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                         Identification No.)


                             12671 HIGH BLUFF DRIVE
                           SAN DIEGO, CALIFORNIA 92130
          (Address of principal executive offices, including zip code)
        Registrant's telephone number, including area code (619) 794-8111
                                  -------------


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

                                      NONE

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

                          COMMON STOCK, $.01 PAR VALUE

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].

      As of March 20, 1998, the aggregate market value of the voting stock of
the Registrant held by non-affiliates of the Registrant was $1,535,976,215.

      As of March 20, 1998, the number of outstanding shares of Common Stock,
par value $.01 per share, of the Registrant was 26,855,342.

                       Documents Incorporated by Reference

      Information required by Part III is incorporated by reference to portions
of the Registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission within 120 days
after the close of the 1997 fiscal year.


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                                TABLE OF CONTENTS
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<S>      <C>                                                                               <C>
PART I

Item 1.  Business ............................................................................1

Item 2.  Properties .........................................................................11

Item 3.  Legal Proceedings ..................................................................12

Item 4.  Submission of Matters to a Vote of Security Holders ................................12

PART II

Item 5.  Market for the Registrant's Common Equity and
         Related Shareholder Matters.........................................................13

Item 6.  Selected Consolidated Financial Data ...............................................14

Item 7.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations ......................................15

Item 8.  Financial Statements and Supplementary Data ........................................21

Item 9.  Disagreements on Accounting and Financial Disclosures...............................43

PART III

Item 10. Directors and Executive Officers of the Registrant..................................43

Item 11. Executive Compensation..............................................................43

Item 12. Security Ownership of Certain Beneficial Owners and Management .....................43

Item 13. Certain Relationships and Related Transactions......................................43

PART IV

Item 14. Exhibits, Financial Statement Schedules
         and Reports on Form 8-K ............................................................43

Signatures ..................................................................................46
</TABLE>


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                                     PART I

ITEM 1. BUSINESS

            The Company is a leading manufacturer of high quality disposable
latex medical examination gloves for the United States market and believes that
it is the world's leading manufacturer of high quality disposable latex
powder-free examination gloves. The Company sells its gloves to the medical,
dental, high technology and scientific and consumer markets. The Company markets
high quality gloves designed to prevent the transmission of infectious disease
while at the same time minimizing the risk of any debilitating side effects
which may result from prolonged use by the wearer; high quality gloves
engineered to meet the stringent contamination control requirements of cleanroom
applications in the semiconductor and pharmaceutical industries; and gloves for
consumer use. In 1995, the Company became the market share leader, in both sales
dollars and total units, of medical examination gloves to acute care facilities
(hospitals) in the United States. Based upon information provided by its
distributors, the Company believes that, in 1997, approximately 60% of the sales
(in units) of the Company's products to end user customers were to acute care
facilities; approximately 30% were to alternate care (primary care and extended
care) and dental facilities; and approximately 10% were to the high technology
and scientific and consumer markets.

            The Company began operations in 1987 to take advantage of the
opportunity presented by the growing demand for high quality latex gloves which
would be safe, durable and comfortable to don and wear for extended time
periods. The Company built a manufacturing facility in Malaysia and began
producing latex gloves in 1988. In order to protect the wearer from the glove,
the Company developed manufacturing processes which produced gloves that were
lower in chemical allergens than those on the market at that time. In August
1989, the Company was the first manufacturer to receive FDA clearance to market
non-sterile latex gloves labeled "hypoallergenic" and "lightly powdered." In
November 1989, the Company received FDA clearance to market non-sterile latex
gloves labeled "hypoallergenic" and "powder-free;" these gloves were introduced
to the market early in 1990 and have become the Company's largest selling and
fastest growing product. (See "Product Labeling" for a discussion of the
Company's use of the "hypoallergenic" label.) In 1992, the Company introduced
its line of HypoClean(R) gloves for high technology and scientific uses; in
1994, the Company introduced a powder-free latex surgical glove; in 1995, the
Company introduced a powder-free glove made of a non-latex material called
nitrile designed for use in the high technology and scientific market. During
1995, the Company received FDA clearance to label its powder-free gloves as
having the lowest protein level claim that the FDA allows for medical grade
latex gloves. The Company was the first glove manufacturer to receive clearance
for use of this claim for its powder-free examination glove products. In 1996,
the Company introduced its Safeskin 2000(TM) powder-free latex surgical glove,
which was developed through the use of computer-aided design (CAD) and a new
rapid prototyping technique known as "laminated object manufacturing." In
December 1996, the Company gained FDA clearance to market a glove made of
nitrile; these gloves were introduced to the market in 1997 and were designated
primarily for use in the medical market. In addition, as a result of its
acquisition of Tactyl Technologies, Inc. ("Tactyl"), the Company began offering
Tactylon(R) synthetic examination and surgical gloves. In February 1998, the
Company completed the acquisition of Absolute Quality Leadership, Inc., (AQL).
AQL is a California based marketer of glove products for the
high-technology/scientific markets. (See "Recent Developments" for additional
information regarding this acquisition.)

INDUSTRY

            In 1997, the total market for medical gloves, which includes medical
examination and surgical gloves, in the United States was approximately $1
billion. The market for acute care medical examination gloves, those medical
examination gloves used in hospitals, accounted for approximately $325 million
and the market size of the powder-free segment of the acute care medical
examination glove market is approximately $165 million. The Company estimates
that it has 29% of the acute care medical examination glove market and 47% of
the powder-free segment (including sales of the Company's product under private
label agreements) of the acute care medical examination glove market. The growth
in the market for medical examination gloves over the past ten years has largely
resulted from the increased concerns among health care professionals over
protection from the transmission of infectious diseases, particularly viruses
such as AIDS and Hepatitis B. In 1987, the Centers for Disease Control and
Prevention ("CDC") issued recommendations that anyone coming into contact with
bodily fluids should use "universal precautions," including the wearing of
gloves. Additionally, since 1991 Occupational Safety and Health Administration
("OSHA") regulations have required that protective gloves be worn when it can be
reasonably anticipated that an employee will have contact with blood, saliva or
other potentially infectious substances.


                                      -1-
<PAGE>   4
            The demand for latex gloves has also grown among users in the
semiconductor, biotechnology, pharmaceutical, general industrial manufacturing
and research segments of the high technology and scientific market.
Increasingly, the manufacturing processes in these industries take place in
cleanrooms requiring gloves that minimize the amount of particulates to prevent
product contamination.

            As people began wearing more latex gloves for longer periods, there
was an increase in irritations to the powder used to make the glove, in allergic
reactions to the water soluble proteins in latex and to the chemicals and other
additives used in processing latex and manufacturing gloves. In 1991, the FDA
issued a medical alert warning health care professionals about the increased
incidences of allergic reactions to latex medical products by both medical
personnel and patients. In response to the increase in allergic reactions to
latex gloves, glove manufacturers attempted to reduce the amount of powder,
latex proteins and chemical allergens in their gloves, which may contribute to
the possibility of allergic reaction. OSHA regulations in effect since 1991
require that all employers provide gloves that are both low in chemical
residuals and powder-free for employees who are allergic to the gloves otherwise
provided.

PRODUCTS

            The Company currently manufactures and markets three basic types of
gloves: medical examination gloves, surgical gloves and high technology and
scientific gloves. The Company's gloves consist of six types of latex gloves,
two types of nitrile gloves and two types of Tactylon(R) gloves. The majority of
the Company's gloves are marketed under the "Safeskin" trade name to enhance
market recognition and brand loyalty. The Company markets its non-latex surgical
glove under the Tactylon(R) trade name. Each type of the Company's latex gloves
comes in various sizes. All gloves are manufactured with a beaded cuff for added
strength and ease in donning. The Company manufactures both ambidextrous and
hand specific gloves.

MEDICAL EXAMINATION GLOVES

-     Medical Examination Gloves-Powder-Free. Safeskin powder-free medical
      examination gloves were introduced to the market in 1990. Medical
      examination gloves are designed to be used for medical uses where a
      sterile glove is not required. These gloves are manufactured utilizing a
      proprietary process that make them easy to don and remove without the need
      for corn starch powder. These are also processed to reduce further both
      proteins in the latex and additives used in the manufacturing process. The
      lack of powder makes the gloves more desirable to wearers who may develop
      reactions to prolonged use of powdered gloves. Additionally, powder-free
      gloves eliminate complications which could be caused by powder entering
      open wounds, and they eliminate airborne powder which may cause distress
      to respiratory and neo-natal patients. According to market studies, end
      users typically pay between $.10 and $.20 per pair for powder-free medical
      examination gloves.

-     Medical Examination Gloves-Lightly Powdered. Safeskin lightly powdered
      medical gloves were the Company's first product introduced to the market
      in 1989. The lightly powdered glove is the Company's least expensive and
      is designed to minimize the incidence of contact dermatitis. "Lightly
      Powdered" refers to the corn starch powder added to the inside of the
      glove in order to make it easier to don and remove. Principal users are
      hospital personnel. The glove is also used by other healthcare personnel
      such as paramedics, nursing home workers and dental professionals.
      According to market studies, end users typically pay between $.08 and $.16
      per pair for lightly powdered medical examination gloves.

-     Medical Examination Gloves-Nitrile. Safeskin nitrile medical examination
      gloves were introduced to the market in 1997. These gloves are made out of
      a material called nitrile, a synthetic co-polymer that contains no natural
      rubber latex. The nitrile medical examination glove provides an
      alternative for individuals allergic to natural rubber latex. This glove
      is powder-free and manufactured with reduced chemical levels. In addition,
      the nitrile glove is easy to don, comfortable to wear for extended
      periods, durable and designed to be soft, odor-free, and non-sticky.
      According to market studies, end users typically pay between $.26 and $.36
      per pair for powder-free, nitrile medical examination gloves.


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SURGICAL GLOVES

-     Safeskin 2000(TM) Powder-Free Surgical Gloves. In 1996, the Company
      introduced a powder-free, sterile surgical glove, which was developed
      through the use of computer-aided design (CAD) and a new rapid prototyping
      technique known as "laminated object manufacturing (LOM)." Surgical gloves
      are designed to meet the more rigorous demands of the operating room
      environment. In addition to being sterile, the glove is non-pyrogenic,
      reducing the risk of endotoxin (dead bacteria) contamination of surgical
      sites. Utilizing data from a United States Army Anthropometric Survey on
      several thousand hand measurements and spatial relationships for unique
      fit, the CAD/LOM program revolutionized prototype and mold design
      processes, greatly decreasing the time between product development and
      market launch. According to market studies, end users typically pay
      between $1.40 and $1.50 per pair for powder-free surgical gloves.

-     Tactylon(R) Surgical Gloves. In March 1997, the Company acquired the
      synthetic glove business of Tactyl, a San Diego-based developer and
      manufacturer of non-latex surgical gloves for the domestic and
      international markets. As a result of this acquisition, the Company
      incorporated Tactylon(R) synthetic examination and surgical gloves into
      its product line. Tactyl's surgical glove is the synthetic market leader,
      with an approximate 37% share in the fastest growing segment of the
      surgical glove market. Tactyl's gloves are constructed from a patented and
      advanced synthetic thermoplastic elastomer technology, developed to
      address the needs of healthcare professionals and patients who are
      sensitive to natural rubber latex. This technology enhances the tactile
      sensitivity as compared to other synthetic materials while providing
      barrier protection and latex allergy avoidance. The Company's management
      believes that Tactyl's patented technology and surgical glove business
      strategically complement the Company's Safeskin 2000(TM) powder-free
      surgeons' glove by permitting the Company to be able to offer surgeons the
      choice of two products which provide the quality, barrier integrity,
      comfort and tactile sensitivity required of latex and synthetic surgical
      gloves. According to market studies, end users typically pay between $2.65
      and $3.25 per pair for Tactylon(R) synthetic surgical gloves.

HIGH TECHNOLOGY AND SCIENTIFIC GLOVES

-     HypoClean 100(R) Cleanroom Latex Gloves. Introduced in 1992, HypoClean
      100(R) cleanroom gloves are engineered and processed to meet the stringent
      contamination control requirements of highly critical cleanroom
      applications in the semiconductor and pharmaceutical industries. These
      gloves are produced through an integrated manufacturing process, the
      Oxyglazed System(TM). The Oxyglazed System(TM) is a proprietary process
      that minimizes particulates, reduces latex proteins, removes residual
      chemicals and enables the Company to offer the first non-cytotoxic (i.e.,
      does not destroy cells) glove to the high technology and scientific
      market. In addition, HypoClean 100(R) gloves receive further ultra pure
      cleaning and are packaged in a cleanroom for compatibility with all
      critical environment applications. According to market studies, end users
      in the high technology and scientific fields typically pay between $.24
      and $.80 per pair for latex gloves designed for a cleanroom environment.

-     HypoClean(R) Powder-Free Latex Gloves. These hand specific and
      ambidextrous gloves, which were introduced in 1992 and are produced
      through the Oxyglazed System(TM), are sold to the high technology and
      scientific market for applications where glove powders can interfere with
      production yields and laboratory processes. According to market studies,
      end users in the high technology and scientific fields typically pay
      between $.18 and $.40 per pair for powder-free latex gloves.

-     High Technology and Scientific Nitrile Gloves. The Company introduced its
      synthetic gloves made of nitrile in its high technology and scientific
      product line in 1995. These gloves are manufactured from a synthetic
      material, thus eliminating natural rubber protein antigens, contain lower
      levels of extractable contaminants, and offer a broader range of
      resistance to many of the chemicals used in high technology and laboratory
      applications. According to market studies, end users in the high
      technology and scientific fields typically pay between $.24 and $.55 per
      pair for powder-free and cleanroom nitrile gloves.


                                      -3-
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RESEARCH AND DEVELOPMENT

            The Company's research and development strategy is to develop high
quality disposable gloves for the medical, dental, high technology and
scientific markets. In 1997, 1996 and 1995, the Company's research and
development expenses were approximately $3,505,000, $2,209,000 and $1,493,000,
respectively. The Company expects these costs to increase as the Company
increases the number of new products it introduces.

PRODUCT LABELING

            In August 1989, the Company was the first manufacturer to receive
FDA clearance to market non-sterile latex gloves labeled "hypoallergenic". This
clearance, which was also obtained for subsequent versions of the Company's
latex gloves, was based on the low level of residual chemicals in the gloves
following their manufacture, as demonstrated by their passing the modified
Draize test for hypoallergenicity. The clearance did not relate to the level of
latex proteins in the glove, which at that time was not recognized as a
potential issue. It was subsequently discovered that proteins in latex gloves
may provoke allergic reactions in latex allergic individuals. As a result, in
June 1996, the FDA proposed issuing regulations prohibiting the use of the term
"hypoallergenic" on natural rubber latex gloves. In 1997, the FDA issued
regulations to that effect, which become effective September 30, 1998.

            Recognizing that certain users of its latex gloves might mistake the
term "hypoallergenic" to apply to latex proteins rather than chemical residuals
only, Safeskin has already removed the term "hypoallergenic" from its packaging
in advance of the FDA mandated regulation.

SALES AND MARKETING

            The Company's sales and marketing efforts focus principally on the
acute care market (hospitals), alternate care market (primary care and extended
care facilities) and dental market with respect to medical products and on the
semiconductor, biotechnology, pharmaceutical, general industrial manufacturing
and research market segments with respect to high technology and scientific
products. Based upon information provided by its distributors, the Company
believes that, in 1997, approximately 60% of the sales (in units) of the
Company's products to end user customers were to acute care facilities;
approximately 30% were to alternate care facilities; and approximately 10% were
to the high technology and scientific and consumer markets.

            The Company's sales and marketing activities in the medical products
area are directed at the end users of medical glove products, such as hospitals,
group purchasing organizations, integrated healthcare networks and primary or
alternate care providers. The Company targets decision makers at these entities
and attempts to increase demand for the Company's medical glove products with
them and among their constituencies. Sales to end users are then made by a
medical products distributor who will purchase the Company's products, stock
inventory and resell and deliver the products to the healthcare provider or
other end user, typically pursuant to a contract between the Company and the
distributor specifying prices to be paid by the distributor for gloves sold to a
particular end user. As of December 31, 1997, the Company's gloves were used in
over 3,800 hospitals.

            Purchasing decisions by healthcare systems are customarily made by a
clinical staff committee which evaluates potential products based on quality
criteria, such as effectiveness, durability and likelihood to cause dermatitis,
as well as price and value. The Company's sales representatives work with
healthcare personnel to ensure that the Company's products are considered in the
process and that their comparative advantages are known by the committee. The
Company's sales staff also participates in healthcare trade shows to introduce
prospective customers to its products and to generate sales orders for the
distributors. The Company also participates in various workshops and educational
programs relating to end users, patient and personnel protection in healthcare
related areas as well as educational programs for personnel in the
high-technology and scientific markets in order to promote the Company's
products and educate.

            The Company's sales force for medical gloves comprises 49 persons,
as of December 31, 1997, who are supervised by seven Regional Managers and the
Director of Sales, Medical Division. In addition, as of December 31, 1997, the
Company has two sales representatives focused on the dental market who report to
a dental sales manager. The sales representatives are paid salaries plus
performance-based commissions. Each sales


                                      -4-
<PAGE>   7
representative possesses at least five years of previous sales experience and
is trained by the Company in the dermatological and immunological aspects of
glove use. They are also specifically trained to conduct continuing education
programs for healthcare personnel to educate them on the reactions possible from
latex gloves. The sales force maintains regular interaction with healthcare
personnel, thereby providing the Company with valuable feedback on market
perception of the Company's products as well as new developments within the
industry. In 1997, the Company had seven nurse consultants supporting the
Company's sales efforts through clinical education. The Company continues to
expand its healthcare marketing efforts to other healthcare professionals,
including physicians offices, nursing homes, outpatient clinics, surgical
centers, blood banks and other areas of the alternate-care market.

            The Company's national accounts department promotes sales to and
negotiates agreements with group purchasing organizations, integrated delivery
networks, large non-acute care customers and multifacility high technology and
scientific customers. The national accounts department is also responsible for
assuring that all operating functions of the Company provide high service levels
to these national accounts and maintain relationships with the purchasing agents
and senior officers at each such account once a contract is in place. As of
December 31, 1997, the Company has three national account managers who are
supervised by a Director of National Accounts. In addition, the Company added
three strategic alliance managers focused on national accounts distributor
relations and implementing supply chain management initiatives with key
distributor partners.

            The Company's sales and marketing efforts are supported by the
Company's logistics team that delivers services to medical products distributors
and end users designed to assist them in their businesses. Specifically, the
Company's logistics personnel work with medical products distributors to reduce
their order cycle time and inventory levels. In addition, the Company actively
promotes the use of electronic data interchange (EDI) technology, for
applications such as order entry, invoicing, and sales tracing, which produces
savings for both the Company and its distributors.

            All domestic sales of the Company's medical products are made
through approximately 167 national, regional and local distributors, typically
pursuant to a contract between the Company and the distributor specifying prices
to be paid by the distributor for gloves sold to a particular end user. Two of
the largest distributors to the general hospital market, McKesson General
Medical ("MGM") and Owens & Minor, Inc. ("Owens & Minor") currently carry the
Company's product line on a non-exclusive basis. MGM and Owens & Minor
distributed gloves accounting for approximately 22.2% and 19.6%, respectively,
of the Company's 1997 consolidated net sales. Medical products distributors
provide the Company with an extensive nationwide distribution network. This
enables the Company's products to reach hospitals, clinics, physicians and
dental offices located in metropolitan as well as rural areas. The distributors
do not, however, necessarily promote the sale of the Company's products more
aggressively than the other competing lines of gloves which they carry.

            Effective October 1, 1994, the Company entered into a three year
contract with MGM governing sales of the Company's gloves through MGM. The
contract designated the Company as the exclusive manufacturer of MGM's private
label gloves. Sales of gloves under the contract first occurred in 1995. In July
1996, the contract was amended to extend its term for an additional two years,
expiring on October 1, 1999, and to name the Company as MGM's preferred glove
manufacturer. In the amendment, MGM also agreed to promote sales of the
Company's gloves and the private label gloves manufactured by the Company. MGM
is a leading national medical/surgical products distributor and is the nation's
largest distributor to the alternate healthcare market.

            In December 1996, the Company entered into a five year contract,
subject to early termination, to supply its examination gloves to Premier
Purchasing Partners, L.P. ("Premier"), a national group purchasing organization
("GPO") which is the largest hospital alliance in the United States. The Company
is currently one of three examination glove suppliers selected by Premier.
Premier comprises 1,800 healthcare facilities with 315,000 beds, approximately
one-third of the U.S. hospital marketplace. Premier corporate guidelines direct
members to utilize contracted vendors for a minimum of 90 percent of their
product requirements.

            In December 1996, the Company also entered into a three year
contract, subject to early termination, to supply its examination gloves to
Catholic Materials Management Alliance ("CMMA"), a GPO representing
approximately 230 healthcare facilities with 40,000 beds in the United States.
The contract contemplates that the Company will be the sole contracted supplier
of examination gloves to CMMA members between March 1997 and February 2000.


                                      -5-
<PAGE>   8
            In March 1997, the Company entered into an exclusive supply
agreement with Costco Wholesale ("Costco") for Safeskin lightly powdered
examination gloves for consumer use. Costco operates approximately 270
warehouses throughout the United States, Canada, Mexico and the United Kingdom.
This agreement reflects the Company's intent to continue to pursue new market
opportunities beyond its present penetration of the hospital, doctors' office,
dental, and high-technology and scientific markets.

            In April 1997, the Company entered into an exclusive, six-year
contract to supply Columbia/HCA Healthcare Corporation ("Columbia") with latex
examination gloves. Columbia is the largest provider of health care services in
the United States. The Columbia network includes hospitals, surgery centers,
home health locations, and nationwide pharmacy benefit management. The estimated
value of the six-year contract is approximately $120 million.

            The Scientific Division markets its products for a variety of
cleanroom and laboratory applications in the semiconductor, biotechnology,
pharmaceutical, general industrial manufacturing and research segments of the
high technology and scientific market. Like the medical segment, more workers in
the high technology and scientific market are using gloves. Gloves protect both
the worker and the products or processes in these industries. As of December 31,
1997, the Company's high technology and scientific products were sold by a
network of approximately 107 distribution companies, including the two largest
distributors of high-technology and scientific gloves in the United States, VWR
Scientific Products Corporation ("VWR Scientific Products") and Fisher
Scientific International, Inc. The Company has a sales force of seven company
sales representatives, a sales manager and two independent manufacturing
representatives actively supporting the distribution network and end user
customers. As a result of the Company's recent acquisition of AQL, the Company
will now be able to market a broad line of proprietary latex and synthetic glove
products, specifically designed for the microelectronics (semiconductor and disk
drive), health technologies (pharmaceutical, medical device and biotechnology),
and general laboratory and safety market segments. Products are marketed under
the CertiClean(R), MicroGrip(TM), NXT(TM) and VeriSafe(TM) trade names and are
distributed primarily through VWR Scientific Products.

            The Company established a sales and marketing office in The
Netherlands in 1992. In 1994, the Company established sales and marketing
subsidiaries in Germany and the United Kingdom. The Company also recruited and
trained a sales organization in 1994 and continues to expand its distribution
network throughout the European Union (the "EU"). The Company also sells its
products in South America, Australia, Africa and Japan. During 1997,
international sales represented approximately twelve percent of the Company's
total sales. Foreign sales may be subject to certain additional risks, including
import and export license requirements, trade regulations, tariffs and foreign
medical regulations.

MANUFACTURING AND QUALITY CONTROL

            The Company currently manufactures its products at two manufacturing
facilities in Ipoh, Malaysia, one manufacturing facility in Hat Yai, Thailand,
and one manufacturing facility in Vista, California. The latex manufacturing
facilities locations are selected to be close to the rubber tree plantations,
which are the Company's source of natural latex, as well as for favorable cost
and availability of labor supply. Immediately after daily harvest from rubber
trees, raw natural rubber is sold by the plantations to latex processing firms
which concentrate the rubber to produce latex concentrate and incorporate
additives and preservatives to prevent spoilage.

            Traditionally, the Company had purchased latex concentrate from
latex processing firms in Malaysia and Thailand. However, in mid-1997 Safeskin
broke ground, in Thailand, on one of the world's largest latex concentrate
plants. Removing a significant portion of this process from the domain of the
independent concentrators allows Safeskin to apply its stringent quality
standards and proprietary formulations directly on incoming raw latex while also
driving down costs. The plant was 75% complete and contributing to Safeskin's
profitability within the first six months of operation. Scheduled for completion
in early 1998, the plant is expected to generate enough raw latex to supply
approximately 80% of the Company's present needs.

            The gloves are manufactured on production machines which can run
continuously and can be changed quickly to produce different types and sizes of
gloves. Quality control and testing are emphasized throughout the Company's
manufacturing process. Each batch is tested to ensure that it meets Company
quality


                                      -6-
<PAGE>   9
standards. Each latex glove is formed by dipping a porcelain mold into the latex
compound. Water soluble proteins which occur naturally in latex, and certain
additives added for processing, are reduced by means of an extensive heating and
leaching processes. In both the Thailand and Malaysian facilities, the Company
has automated the glovestripping process. In the past, the lack of rigidity of
newly-manufactured gloves required that they be removed manually from their
molds; new glovestripping equipment streamlines the procedure by reducing
manpower requirements. Proteins and chemicals are minimized as a result of the
Company's proprietary latex formulations. In addition, the majority of the
Company's gloves are treated under a proprietary process to make them
powder-free and lower in protein. Throughout the manufacturing process the
Company's quality assurance team performs in-process testing of gloves for
thickness, tensile strength, tear resistance and water tightness. A sample of
every batch is retained for future analysis.

            The Company's HypoClean 100(R) gloves for use in cleanrooms are
processed and packaged in a Class M3.5 (100) cleanroom built into one of the
Company's Ipoh, Malaysia factories in 1993. Cleanrooms are classified by the
level and size distribution of allowed airborne particles per given volume of
air and are increasingly required for the manufacture of sensitive
microelectronic components. In a Class M3.5 (100) cleanroom, no more than 100
airborne particles per cubic foot of air are allowed.

            The Company's facilities in Ipoh, Malaysia, Hat Yai, Thailand and
Vista, California have received an ISO 9002 certification. ISO standards are
internationally recognized quality manufacturing standards established by the
International Organization for Standardization based in Geneva, Switzerland. To
obtain its ISO registrations, the Company's factories were independently audited
to ensure compliance with the applicable standards, and to maintain
registrations, the factories receive regular, announced inspections by an
independent certification organization. The Company believes that the ISO 9002
registration makes it more competitive in the marketplace as customers are
increasingly recognizing the standard as an indication of product quality.

            The Company's Thailand facility began producing gloves in the first
quarter of 1995 and is capable of producing all types of the Company's latex
medical examination glove products. Processes have been added in order to allow
the Company to further reduce protein levels and chemical contact sensitizers to
minimize adverse reactions to natural rubber latex gloves and in anticipation of
potential FDA labeling regulations. See "--Product Labeling." Current results
indicate that the new facility generates significant labor, raw materials, and
water processing savings and efficiencies as compared to the Company's Malaysian
facilities. As of December 31, 1997, the Company's continuing expansion brought
its total production capacity, in both Thailand and Malaysia, to 3.5 billion
latex and synthetic gloves annually. To accommodate the Company's increased
production requirements, the Company completed construction and began operating
the first of its new production lines located in its Thailand facility in July
1997, referred to by the Company as the "Grand Master." Two additional "Grand
Master" production lines began operating in the first quarter of 1998. The
Company's management believes that a single "Grand Master" production line will
have the highest capacity of any glove production line in the world, equivalent
in capacity to approximately eight of the existing production lines in the
facility. The Company believes these three Grand Master production lines will
boost production by over one billion gloves annually when fully operational.

            In April 1997, the Company announced plans for the expansion of its
Southeast Asian manufacturing operations in order to meet the demand for its
latex and synthetic medical examination, surgical and high-technology and
scientific gloves. The Company's expansion plans over the next two years include
(i) the construction of a fifth building and related machinery at the Company's
existing Hat Yai, Thailand facility and (ii) the construction of a second
manufacturing facility in Tambol Patong, Thailand that is expected to produce
latex and synthetic surgical, high-technology and scientific and medical
examination gloves. The fifth building at the Company's existing Hat Yai
facility will house 22 high-speed and product-flexible dipping production lines.
These dipping production lines are scheduled for staggered commissioning
throughout 1998, beginning in the second quarter, and will boost production by
an additional 1.5 billion gloves annually when fully operational. Construction
of the new manufacturing facility in Tambol Patong, Thailand began in the second
half of 1997 after preliminary approval by the Thailand Board of Investment.
Four production buildings are expected to be constructed on this site. One of
these buildings will house the expansion of the Company's Tactylon(R) synthetic
medical examination and surgical glove production and the Company's nitrile
glove production and is scheduled to be completed during the second half of
fiscal 1998. This building is expected to increase by over 200 percent the
production capacity of the Tactylon(R) product line in comparison to the
existing


                                      -7-
<PAGE>   10
facility which is located in Vista, California. The second building will provide
additional capacity for the production of the Company's surgical and clean-room
glove products and is scheduled to be completed in the fourth quarter of 1998.
Finally, the additional two buildings will provide the Company increased
capacity for latex and synthetic medical examination, surgical and scientific
glove production. Production at these two additional buildings is scheduled to
begin in 1999. The new buildings, machines and supporting infrastructure at the
new Tambol Patong manufacturing facility are expected to cost approximately $80
million in the aggregate and is expected to increase the Company's annual
production capacity by over 2.5 billion gloves, when fully operational.

            On December 13, 1996, the Company announced plans to move all of its
remaining latex medical examination glove production from its Malaysian facility
to its Hat Yai, Thailand facility in 1997. In connection with the move, the
Company took a $3 million charge against earnings in the fourth quarter of 1996.
Subsequent to December 31, 1996, the Company extended the planned use of the
Malaysian facility due to increasing production requirements and the timing of
bringing new production capacity on-line in Thailand. The Company will continue
to operate both of its Malaysian facilities for the production of medical
examination gloves and higher value products, such as the newly introduced
Safeskin 2000(TM) powder-free surgical glove, the high technology and scientific
division's HypoClean(R) products and nitrile products and its Vista, California
manufacturing facility for its Tactylon(R) product line until new production
facilities in Thailand are completed.

            Although the Company has never experienced an interruption in the
availability of latex due to natural phenomena or transportation problems or by
a factory shutdown resulting from fire, power outage, employee strike or other
cause, there can be no assurance that the Company's production of gloves will
not be adversely affected by such events.

COMPETITION

            The Company faces substantial competition from a number of
manufacturers of latex gloves. The leading competitors in the medical glove
product line are Allegiance Corporation (a spin-off of Baxter International),
Maxxim Medical Inc., Ansell-Perry Inc., and Johnson & Johnson. The Company's
management believes that Allegiance Corporation is the leading competitor in the
high technology and scientific glove market. There are also a number of other
competitors which are engaged in manufacturing or distributing high technology
and scientific gloves. Many of the Company's competitors, particularly those
competitors which are large medical and pharmaceutical and hospital supply
companies, have substantially greater financial, manufacturing, marketing and
technical resources than the Company. The Company and other synthetic glove
manufacturers also sell products in the medical and non-medical glove market.
Synthetic gloves are generally more expensive than natural rubber latex gloves
and do not, in the opinion of the Company's management, present a significant
threat to the Company's natural rubber latex products at this time.

            The Company's management believes the primary competitive factors
within its markets are product quality, durability, reliability, consistency,
clinical value, ease of product use, access to distribution channels, price and
the availability of prompt delivery. Failure of the Company to continue to
distinguish its products on the basis of quality, reliability and value could
have a material adverse effect on the Company's business and results of
operations. Furthermore, there can be no assurance that the Company's
competitors or others will not develop products, manufacturing processes or new
technologies which would be more cost effective or more efficient than those of
the Company or that the Company's gloves will not be rendered obsolete or
uncompetitive. Such competition could have a material adverse effect on the
Company's business, financial condition and results of operations.

GOVERNMENT REGULATION

            The Company's products are subject to regulation by numerous
governmental authorities in the United States and other countries, particularly
as to safety and efficacy, and adherence to the Good Manufacturing Practices
("GMP") regulations for medical devices. In the United States, examination and
surgical gloves are classified as Class I medical device products regulated by
the FDA. The Federal Food, Drug, and Cosmetic Act (the "FFD&C Act") and other
federal statutes and regulations govern or influence the testing, manufacture,
safety, labeling, storage, record-keeping, approval, advertising and promotion
of Class I devices. Noncompliance with the FFD&C Act or regulations promulgated
thereunder can result in administrative enforcement, such as warning letters,


                                      -8-
<PAGE>   11
import alerts and administrative detention, or in civil penalties, product bans,
defect notifications, mandatory field corrections, seizures, recalls,
injunctions and criminal prosecution. Periodically the FDA inspects shipments of
medical gloves as they arrive in United States ports. The time period during
which the tests are conducted and the FDA review of the results may cause delays
in delivery and thus can result in a loss or delay in recognition of income by
the Company.

            Medical examination and surgical gloves must be submitted to the FDA
for clearance to market by a pre-market notification filing under Section 510(k)
of the FFD&C Act. An application is made for a particular use or performance
claim for each type of glove produced by a specific manufacturer. Applications
under the 510(k) procedure must demonstrate substantial equivalence to a legally
marketed device. Additional data requirements apply to gloves such as surgical
gloves, which are sterile. Applicants must defer marketing until a written order
is issued by the FDA finding the firm's device substantially equivalent to a
legally marketed device. This notice may be issued within 90 days of submission,
but may take substantially longer. The FDA, however, may determine that the
proposed device is not substantially equivalent, or the agency may require the
Company to submit further information, such as additional test data, before it
is able to make a substantial equivalence determination. Such an adverse
determination or request for additional information could have the effect of
materially delaying the commencement of marketing. As part of the substantial
equivalence determination, the Company must demonstrate that the glove complies
with the American Society of Testing and Materials testing standards relating to
physical specifications for the product and must pass the FDA "leakage test."
In addition, the FDA may inspect the manufacturing facilities before issuing a
notice of substantial equivalence and may delay or decline to issue such notice.

            The Company has obtained 510(k) clearance for each type of currently
marketed glove which requires clearance. The Company has not experienced any
substantial difficulty in obtaining 510(k) clearances in the past. If the
Company makes any changes to a type of glove previously cleared by the FDA that
could significantly affect its safety or effectiveness (such as significant
changes in the manufacturing process), a new 510(k) submission will be required.

            The Company is subject to periodic inspection by the FDA for
compliance with GMP regulations. Under GMP regulations, the Company is subject
to significant procedural and documentation requirements with respect to
manufacturing, packaging, storage and control activities. The Company also may
be subject to inspection by foreign regulatory authorities to determine
compliance with comparable standards. Due to the FDA's recently promulgated
Quality System Regulation, which will replace the GMP regulations for medical
devices and will incorporate preproduction design and development controls and
achieve consistency with quality system requirements worldwide, the Company must
continue to expend time, monies and efforts in the areas of production and
quality control to ensure full technical compliance with these standards.

            The Company must also comply with various FDA labeling and
post-market reporting requirements. Failure to comply with applicable regulatory
requirements can result in administrative enforcement, such as warning letters,
import alerts and administrative detention, or in product bans, field
corrections, seizures, recalls, injunctions and criminal prosecutions. Changes
in existing requirements or adoption of new requirements could adversely affect
the ability of the Company to comply with regulatory requirements. Failure to
comply with regulatory requirements could have a material adverse effect on the
Company's business, financial condition and results of operations.

            Whether or not FDA clearance is obtained for a new product, approval
or clearance of a product by regulatory authorities in foreign countries may be
required prior to the commencement of commercial sales of the product in such
countries. The requirements governing product approvals or clearances vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval.

            The Company must meet various regulatory requirements for the sale
and distribution of its products throughout the European Union ("EU"). The
Company currently meets such regulatory requirements for the majority of its
products sold in Europe, including registration with the appropriate notified
bodies, which register companies for the sale of products throughout the EU. In
order to continue selling its products within the EU following June 14, 1998,
the Company will be required to comply with the EU's Medical Devices Directive.


                                      -9-
<PAGE>   12
            Although the Company's customers do not bill third-party
reimbursement sources separately for purchases of the Company's gloves, the
Company's ability to sell its medical gloves profitably may depend in part on
the reimbursement policies and regulations of government health administration
authorities, private health insurers and other organizations. Such third-party
payors are increasingly challenging the price of medical products and services.
Additionally, reform measures, if adopted, could adversely affect the pricing of
the Company's medical gloves.

            In addition to the statutes and regulations described above, the
Company is also subject to Malaysian and Thai occupational, health and
environmental laws and regulations.

PRODUCT LIABILITY AND INSURANCE

            Participants in the medical supply industry are subject to lawsuits
alleging product liability, many of which involve significant damage claims and
defense costs. The Company currently has in force product liability insurance
policies. The Company's insurance policies are on a "claims made" basis and are
subject to annual renewal. A successful claim against the Company in excess of
the Company's insurance coverage could have a material adverse effect on the
Company's results of operations or financial condition. Claims made against the
Company, regardless of their merit, also could have a material adverse effect on
the Company's reputation. There is no assurance that the coverage limits of the
Company's insurance policies will be adequate. While the Company has been able
to obtain product liability insurance in the past, such insurance varies in
cost, is difficult to obtain and may not be available in the future on
acceptable terms or at all.

EMPLOYEES

            As of December 31, 1997, the Company had approximately 5,341
employees of whom approximately 5,088 were employed in Malaysia and Thailand.
The Malaysian factory workers are represented by a company union which has
entered into a collective bargaining agreement with the Company's Malaysian
subsidiary. The agreement was reinstated beginning October 1, 1997 and will
expire on September 30, 2000. The Company considers its relations with its
employees to be good.

RECENT DEVELOPMENTS

            On February 17, 1998, the Company authorized a 100% stock dividend
on its common stock to be distributed on April 1, 1998 to shareholders of record
at the close of business on February 27, 1998. No effect of the stock dividend
has been reflected in the accompanying financial statements.

            On February 20, 1998, the Company completed the acquisition of
Absolute Quality Leadership, Inc. ("AQL"). AQL is a California-based marketer of
glove products for the high-technology and scientific markets. AQL markets a
broad line of proprietary latex and synthetic glove products, specifically
designed for the microelectronics (semiconductor and disk drive), health
technologies (pharmaceutical, medical device, and biotechnology), and general
laboratory and safety market segments. Products are marketed under the
CertiClean(R), MicroGrip(TM), NXT(TM) and VeriSafe(TM) trade names and are
distributed primarily through VWR Scientific Products. The Company believes that
the acquisition of AQL and its solid reputation for quality within the
high-technology and scientific market provides synergies for the Company's
high-margin scientific glove business. As a result of this acquisition, the
Company expects to have greater product depth and management focus pertaining to
the high-technology and scientific market. The Company intends to change the
name of AQL to Safeskin Scientific Corporation.

            In February 1998, the Company established a partnership with Perot
Systems Corporation, a leader in information technology services, in order to
enable the Company to streamline distribution and administrative procedures for
itself and its customers.


                                      -10-
<PAGE>   13
ITEM 2. PROPERTIES

            The Company owns two manufacturing facilities located in Ipoh,
Malaysia, totaling approximately 300,000 square feet, and a latex concentrate
manufacturing and processing plant located in Seremban, Malaysia, comprised of
approximately 30,000 square feet. The Company leases the land where its
facilities are located under long-term leaseholds from the state government
which have expiration dates ranging from the year 2063 to the year 2072. Any
transfer of a land leasehold by the Company requires the prior approval of the
state. The Company announced plans to close one of the smaller Malaysian
facilities in 1997. Subsequent to December 31, 1996, the Company extended the
planned use of the Malaysian facility due to existing production requirements
and the timing of bringing new production capacity on-line in Thailand. In
connection with the plant closure, the Company took a charge of approximately $3
million in 1996. The charge relates to the Company's anticipated costs to
relocate all of its remaining lightly powdered and powder-free latex medical
examination glove production from its Malaysian facility to its Thailand
facility. As of December 31, 1997, the Malaysian facility is still considered
held for sale and the delay in moving the examination glove production from
Malaysia to Thailand has had no impact on the Company's restructuring plan and
the write-down of fixed assets recorded in 1996. The relocation will enable the
Company to capitalize on its substantially lower operating costs in Thailand.

            The Company also owns a manufacturing facility in Hat Yai, Thailand
totaling approximately 500,000 square feet. The Company owns the approximately
42 acres of land on which the facility is located. In addition, the Company also
owns a latex concentrate manufacturing and processing plant located in Nathavee
District, 50 kilometers from Hat Yai, Thailand totaling approximately 94,000
square feet. The Company owns the 40 acres of land on which this facility is
located.

            In the United States, the Company leases approximately 19,265 square
feet of warehouse space for its sample fulfillment center in Hanover, Maryland.
The Company leases two buildings, one with approximately 42,000 square feet and
the other with approximately 12,000 square feet of office space, respectively in
San Diego, California for its headquarters and approximately 1,755 square feet
of additional office space in Boca Raton, Florida. The Company also leases
approximately 6,063 square feet of space in San Diego, California for its
research and development laboratory and related storage space.

            The Company leases space in Vista, California totaling approximately
16,933 square feet for the headquarters, related storage space and production
facilities of Tactyl. In Mexico, the Company also leases 11,000 square feet
located in La Mesa, Tijuana for the packing and distribution operations of
Tactyl.


                                      -11-
<PAGE>   14
ITEM 3. LEGAL PROCEEDINGS

            From May 1995 through March 26, 1998, 135 product liability lawsuits
seeking monetary damages, in most cases of an unspecified amount, have been
filed in federal and state courts against the Company, and other manufacturers
of latex gloves, alleging injures ranging from dermatitis to severe allergic
reactions caused by the residual chemicals or latex proteins in gloves worn by
medical workers while performing their duties. The Company has been dismissed
from 22 of those product liability lawsuits. On February 26, 1997, the Judicial
Panel on Multi-District Litigation entered an order transferring all latex
allergy lawsuits brought on behalf of healthcare workers against the Company and
other latex glove manufacturers in the Federal courts to the docket of Judge
Edmund V. Ludwig of the United States District Court for the Eastern District of
Pennsylvania, consolidating those cases for discovery management and other
pre-trial proceedings. The Company has referred the defense of these lawsuits to
its insurance carriers. While the Company maintains levels of insurance coverage
which it believes will be adequate to cover the costs of the legal defense of
these suits, there can be no assurance that the Company's insurance will be
sufficient to meet any damages for which the Company may be found liable in the
existing lawsuits, which are still in relatively early stages of discovery, or
any others that may be filed in the future, or that the outcome of such suits
will not adversely affect the Company's results of operations or financial
condition.

            From time to time, the Company is involved in other litigation
relating to claims arising out of its operations in the normal course of
business. As of the date hereof, the Company is not a party to any other legal
proceedings, the adverse outcome of which, in management's opinion, individually
or in the aggregate, would have a material adverse effect on the Company's
financial condition.


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

      None.


                                      -12-
<PAGE>   15
                                     PART II

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

(a)         MARKET INFORMATION

            The Company's Common Stock trades on The Nasdaq Stock Market(SM)
under the symbol "SFSK." The following table sets forth the high and low sales
prices of a share of the Company's Common Stock for each quarter in 1996 and
1997, and the interim period indicated, as reported by The Nasdaq Stock
Market(SM) and restated to give effect to the 100% stock dividend distributed on
January 2, 1997.

<TABLE>
<CAPTION>
                                            High                 Low
                                            ----                 ---
<S>                                         <C>                  <C>
            1996
        First Quarter                       13 5/8               8
        Second Quarter                      20 3/4               12 1/2
        Third Quarter                       20 5/8               15
        Fourth Quarter                      26 11/16             17 7/8

            1997
        First Quarter                       27 1/4               17 5/8
        Second Quarter                      29 1/2               17 5/8
        Third Quarter                       47 5/8               28
        Fourth Quarter                      58                   40

            1998
        First Quarter                       68 3/4               51 1/2
        (through March 20, 1998)
</TABLE>

            The closing price of the Company's Common Stock on March 20, 1998,
as reported by The Nasdaq Stock Market(SM) was $68 1/4.

            On December 12, 1996, the Board of Directors of the Company declared
a dividend on its shares of Common Stock of preferred share purchase rights
("Preferred Share Purchase Rights") as part of a shareholder rights plan. The
Preferred Share Purchase Rights trade in tandem with the Common Stock of the
Company until the earlier to occur of (i) 10 business days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of the Common Stock, or (ii)
within ten (10) business days (or such later date as may be determined by the
Board of Directors prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) following the commencement of a tender
offer or exchange offer that would result in a person or group beneficially
owning 15% or more of the outstanding shares of the Common Stock.

(b)         HOLDERS

            The number of record holders of the Company's common stock as of
March 20, 1998 was 446. The Company believes that a larger number of beneficial
owners hold such shares of Common Stock in depository or nominee form.

(c)         DIVIDENDS

            The Company has not paid cash dividends on its common stock and does
not intend to pay any cash dividends in the foreseeable future.


                                      -13-
<PAGE>   16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
        (In thousands, except per share data)

            The following selected consolidated financial data of the Company
for the five years ended December 31, 1997 are derived from the audited
consolidated financial statements of the Company, except for per share
information, which has been restated to give effect to the 100% stock dividend
on the common stock effected on January 2, 1997. The consolidated financial
statements as of December 31, 1997 and 1996 and for each of the three years
ended December 31, 1997, 1996, 1995 are included elsewhere in this Report. The
financial information for the Company at December 31, 1994 and 1993 was derived
from financial statements of the Company not included in this Report. The
following information should be read in conjunction with the Consolidated
Financial Statements of the Company and the related notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information included elsewhere in this Report.


<TABLE>
<CAPTION>
                                              1997             1996             1995             1994             1993
                                           ---------        ---------        ---------        ---------        ---------
<S>                                        <C>              <C>              <C>              <C>              <C>

STATEMENT OF OPERATIONS DATA:
 Net sales                                 $ 182,998        $ 146,089        $ 117,014        $  84,142        $  57,264
 Costs of goods sold                          98,144           84,325           75,756           50,376           33,237
                                           ---------        ---------        ---------        ---------        ---------
     Gross profit                             84,854           61,764           41,258           33,766           24,027
Selling expenses                              22,700           17,693           16,120           11,685            7,999
Research and development                       3,504            2,209            1,493              977              398
General and administrative expenses           15,923           12,287            6,397            3,625            2,561
Write-down of fixed assets                      --              2,979             --               --               --
                                           ---------        ---------        ---------        ---------        ---------
    Income from operations                    42,727           26,596           17,248           17,479           13,069
Interest expense, related parties               --               --               --               --                156
Interest expense (income), net                  (823)             (58)             194               17            1,285
Other expense (income), net                   (2,699)             133             (163)            (825)            (237)
                                           ---------        ---------        ---------        ---------        ---------
     Income before income tax                 46,249           26,521           17,217           18,287           11,865
Income tax provision                           4,999            2,939            2,326            3,920              213
                                           ---------        ---------        ---------        ---------        ---------
    Net income                             $  41,250        $  23,582        $  14,891        $  14,367        $  11,652
                                           =========        =========        =========        =========        =========
Net income per share-basic (2)             $    1.58        $     .93        $     .60        $     .59        $     .58
Net income per share-diluted (1) (2)       $    1.41        $     .85        $     .58        $     .57        $     .56
Weighted average common shares
   outstanding-basic                          26,130           25,472           24,750           24,506           20,025
Weighted average common shares
   outstanding-diluted                        29,269           27,775           25,605           25,392           20,817


BALANCE SHEET DATA:
Working capital                            $  43,201        $  48,310        $  28,055        $  22,987        $  22,310
Total assets                                 138,520          116,749           84,675           61,230           43,224
Long-term debt                                  --               --              2,750             --               --
Shareholders' equity                         106,578          103,015           69,861           54,260           38,750
</TABLE>


(1)   Net income per share-diluted is computed by dividing net income by the
      weighted average of common shares outstanding and dilutive common stock
      equivalents. Common stock options are common stock equivalents and are
      included in the weighted average of common shares outstanding using the
      treasury stock method.

(2)   The number of shares outstanding has been adjusted to reflect the 100%
      stock dividend of the Common Stock distributed on January 2, 1997.


                                      -14-
<PAGE>   17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

            The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and related Notes thereto
incorporated by reference herein.

            The Company's net sales have grown substantially over the past
several years. The Company attributes the growth in net sales during this period
principally to increased market penetration due to the implementation of sales
and marketing programs, the introduction of new products and growth in markets
for its products. The Company introduced lightly powdered medical gloves,
powder-free medical gloves, HypoClean(R) powder-free gloves, powder-free latex
surgical gloves, high technology and scientific nitrile gloves, and Safeskin
2000(TM) powder-free latex surgical gloves in 1989, 1990, 1992, 1994, 1995 and
1996, respectively. In 1997, the Company began selling a medical examination
glove made of a non-latex material called nitrile. In addition, as a result of
its acquisition of the synthetic glove business of Tactyl Technologies, Inc.,
the Company began selling Tactylon(R) synthetic examination and surgical gloves.
Although the Company has continued to develop new products and expects to do so
in the future, no assurance can be given that the new products will be accepted
in the marketplace or will have similar growth rates.

            The Company's net sales are derived from the sale of finished
products, net of contractual allowable rebates and fees provided to distributors
and group purchasing organizations for the resale of the Company's products in
specific volumes to specified end user customers. The Company estimates
allowable rebates on a monthly basis through the analysis of actual sales
information from customers, contractual arrangements and historical trends
related to actual rebates issued. Cost of goods sold includes all costs to
manufacture the finished product plus related costs associated with ocean
freight, customs duty and warehousing. Selling expenses include all salaries for
sales and marketing staffs and other related expenses such as sales commissions,
and costs associated with travel, trade show participation, advertising and
product delivery. Research and development expenses include salaries for
research and development staffs and related expenses for consulting, product
testing and travel. General and administrative expenses include salaries for
administrative and information technology staffs and related expenses for
travel, insurance, facilities, consulting and professional fees. The income tax
provision is less than statutory rates as a result of the tax free status of the
Company's foreign manufacturing operations. During June 1994, the Company's
Malaysian manufacturing operations were granted five additional years of tax
free status retroactive to October 1, 1993, the date on which the original five
year grant of tax free status expired. The Company's existing Thailand
manufacturing operations have been granted tax free status through 2003 and have
been granted a reduced tax rate through 2007. As the Company begins to build new
production facilities in Thailand, it has applied for and received similar tax
free status for these operations.

            The Company's medical glove distributor customers do not bill
third-party reimbursement sources separately for purchases of the Company's
gloves. Consequently, the timing and effect of third-party payments to hospitals
and clinics do not have a material effect on the Company's operations or
liquidity.

1997 COMPARED TO 1996

            Net sales for 1997 were $182,998,000 which represents a 25.3%
increase over net sales of $146,089,000 in 1996. The predominant cause for the
sales growth was an increase in unit volumes sold during the 1997 period, which
includes sales of lightly-powdered gloves associated with the Company's new
contracts with group purchasing organizations as well as increased sales of
powder-free exam gloves, powder-free surgical gloves and scientific glove
products. The Company's sales into international markets continued to
demonstrate strong growth in 1997; international net sales increased by 24.8%
over the prior year.

            Cost of goods sold increased l6.4% from $84,325,000 for 1996 to
$98,144,000 for 1997. As a percentage of net sales, cost of goods sold decreased
from 57.7% in 1996 to 53.6% in 1997. This decrease in cost of goods sold as a
percentage of net sales was principally attributable to the favorable impact of
greater manufacturing efficiencies, the continued shift of production to the
Company's lower-cost manufacturing facility in Thailand, and lower latex prices.
Although sales of the Company's lower margin lightly powdered gloves increased
slightly as a


                                      -15-
<PAGE>   18
percentage of net sales in the 1997 period as compared to the 1996 period, the
impact on the gross profit margin was partially offset by increased sales of
higher margin powder-free surgical and scientific glove products. In addition,
the Company's gross profit margin was favorably impacted in 1997 due to the
positive effects of the significant devaluation of the currencies in both
Malaysia and Thailand. As a result of the above factors, gross profits increased
37.4% from $61,764,000 in 1996 to $84,854,000 in 1997.

            Selling expenses increased 28.3% from $17,693,000 in 1996 to
$22,700,000 in 1997. As a percentage of net sales, selling expenses increased
slightly from 12.1% in 1996 to 12.4% in 1997. The increase in selling expenses
as a percentage of net sales is primarily attributed to increased selling
expenses in the Company's European operations.

            Research and development expenses increased 58.7% from $2,209,000 in
1996 to $3,504,000 in 1997. As a percentage of net sales, research and
development expenses increased from 1.5% in 1996 to 1.9% in 1997. The increase
in research and development expenses as a percentage of net sales reflects an
increase in the Company's product testing, research and development personnel
and research and development costs related to the Tactylon(R) product line.

            General and administrative expenses increased 29.6% from $12,287,000
in 1996 to $15,923,000 in 1997. As a percentage of net sales, general and
administrative expenses increased slightly from 8.4% for the 1996 period to 8.7%
for the 1997 period. The increase in general and administrative expenses as a
percentage of net sales was caused primarily by increased costs associated with
the Company's acquisition of Tactyl Technologies, Inc.

            On December 13, 1996, the Company announced plans to move all of its
remaining latex examination glove production from its Malaysian facility to its
Thailand facility in 1997. In connection with the move, the Company took a $3
million charge against earnings in the fourth quarter of 1996, reflected in the
accompanying financial statements as a write-down of fixed assets. During 1997,
the Company extended the planned use of the Malaysian facility due to existing
production requirements and the timing of bringing new production capacity
on-line in Thailand. The Malaysian facility is still considered held for sale
and the delay in moving examination glove production from Malaysia to Thailand
has had no impact on the Company's restructuring plan and the write-down of
fixed assets recorded in 1996.

            Income from operations increased 60.6% from $26,596,000 in 1996 to
$42,727,000 in 1997. Operating margins increased from 18.2% in 1996 to 23.3% in
1997. Excluding the effects of the write-down of fixed assets in 1996, income
from operations increased 44.5% from $29,575,000 in 1996 to $42,727,000 in 1997.
Operating margins, excluding the effects of the write-down of fixed assets,
would have been 20.2% in 1996.

            Interest expense (income), net, increased from $58,000 of interest
income in 1996 to $823,000 of interest income in 1997, and is primarily due to
the fact that in 1997 the Company did not have any debt outstanding and
generated investment returns on its increased cash balances. Since 1996, the
Company has been able to successfully fund its operations, including its
acquisition of Tactyl Technologies, Inc. and the expansion of the Company's
foreign manufacturing operations, with internally generated cash while, at the
same time, generating excess cash balances.

            Other expense (income), net, changed from $133,000 of other expense
in 1996 to $2,699,000 of other income in 1997. This change in other expense was
substantially due to net foreign currency transaction gains experienced in the
Company's Malaysian and Thailand subsidiaries in 1997. Due to their
immateriality and because substantially all of the sales of these subsidiaries
were intercompany sales, the gains and losses from foreign currency transactions
for the Company's Malaysian and Thailand subsidiaries were recorded as a
component of cost of sales in 1996. With the significant devaluation of the
Malaysian ringgit and the Thai baht since June 30, 1997, the Company has
experienced an increased amount of net foreign currency transaction gains and,
therefore, has decided to record these net foreign currency transaction gains as
a component of other expense (income), net in 1997. In future periods, the
Company will record net foreign currency transaction gains and losses,
regardless of materiality, as a component of other expense (income), net.

            Provision for income taxes increased 70.1% from $2,939,000 in 1996
to $4,999,000 in 1997. The



                                      -16-
<PAGE>   19

income tax provisions recorded in both 1996 and 1997 remain less than statutory
rates due to the tax free status of the Company's foreign manufacturing
operations.

            Net income increased 74.9% from $23,582,000 in 1996 to $41,250,000
in 1997 and the net income margin increased from 16.1% in 1996 to 22.5% in 1997
due to the foregoing factors. Excluding the effects of the write-down of fixed
assets in 1996, net income increased 55.3% from $26,561,000 in 1996 to
$41,250,000 in 1997. Net income margin, excluding the effects of the write-down
of fixed assets, was 18.2% in 1996.

1996 COMPARED TO 1995

            Net sales for 1996 were $146,089,000 which represents a 24.8%
increase over net sales of $117,014,000 in 1995. The predominant causes for the
sales growth were the shift in product mix to higher priced powder-free gloves
and an increase in unit volumes sold in the 1996 period as compared to the 1995
period.

            Cost of goods sold increased l1.3% from $75,756,000 for 1995 to
$84,325,000 for 1996. As a percentage of net sales, cost of goods sold decreased
from 64.7% in 1995 to 57.7% in 1996. This decrease in cost of goods sold as a
percentage of net sales was principally attributable to improved operating
efficiencies in the Thai facility as well as decreased raw material costs during
the 1996 period. As a result of the above, gross profits increased 49.7% from
$41,258,000 in 1995 to $61,764,000 in 1996.

            Selling expenses increased 9.8% from $16,120,000 in 1995 to
$17,693,000 in 1996. As a percentage of net sales, selling expenses decreased
from 13.8% in 1995 to 12.1% in 1996. The decrease in selling expenses as a
percentage of net sales is primarily a result of selling expenses such as
salaries, travel costs and delivery expenses remaining comparable to the prior
year while sales have significantly increased over the prior year.

            Research and development expenses increased 47.9% from $1,493,000 in
1995 to $2,209,000 in 1996. As a percentage of net sales, research and
development expenses increased from 1.3% in 1995 to 1.5% in 1996.

            General and administrative expenses increased 92.1% from $6,397,000
in 1995 to $12,287,000 in 1996. As a percentage of net sales, general and
administrative expenses increased from 5.5% for the 1995 period to 8.4% for the
1996 period. The increase in general and administrative expenses as a percentage
of net sales pertains primarily to increased costs associated with the continued
investments in information technology to support the continued growth of the
Company. Additional factors include increased compensation and facilities costs
as well as expenses associated with the Company's secondary offering which was
completed in January 1997.

            On December 13, 1996, the Company announced plans to move all of its
remaining latex examination glove production from its Malaysian facility to its
Thailand facility. In connection with the move, the Company took a $3 million
charge against earnings in the fourth quarter of 1996, reflected in the
accompanying financial statements as a write-down of fixed assets. The Company
anticipates that the move will improve profit margins in future years due to the
lower production costs at the Thailand facility.

            Income from operations increased 54.2% from $17,248,000 in 1995 to
$26,596,000 in 1996. Operating margins increased from 14.7% in 1995 to 18.2% in
1996. Income from operations, excluding the effects of the write-down of fixed
assets, was $29,575,000 in 1996; representing an increase of 71.5% over the
prior year. Operating margins, excluding the effects of the write-down of fixed
assets, would have been 20.2% in 1996.

            Interest expense (income), net, decreased from $194,000 of interest
expense in 1995 to $58,000 of interest income in 1996, and is primarily due to
the Company's reduction of debt from $2,750,000 in 1995 to $0 in 1996.

            Other expense (income), net, increased from $163,000 of other income
in 1995 to $133,000 of other expense in 1996. The increase in other expense was
substantially due to losses experienced from foreign currency transactions in
the Company's European subsidiaries in 1996.


                                      -17-
<PAGE>   20
            Provision for income taxes increased 26.4% from $2,326,000 in 1995
to $2,939,000 in 1996. The income tax provisions recorded in both 1995 and 1996
remain less than statutory rates due to the foreign tax free status.

            Net income increased 58.4% from $14,891,000 in 1995 to $23,582,000
in 1996 and the net income margin increased from 12.7% in 1995 to 16.1% in 1996
due to the foregoing factors. Net income, excluding the effects of the
write-down of fixed assets, was $26,561,000 in 1996; representing an increase of
78.4% over the prior year. Net income margin, excluding the effects of the
write-down of fixed assets, was 18.2% in 1996.

LIQUIDITY AND CAPITAL RESOURCES

            The Company's operations generated approximately $62,512,000,
$30,937,000, and $10,843,000 of cash during 1997, 1996 and 1995, respectively.
Further, during 1997, 1996 and 1995, the Company acquired capital assets of
approximately $35,183,000, $20,230,000, and $16,461,000, respectively, most of
which were for the expansion of the Company's foreign manufacturing operations.
Included in the 1997 amount was approximately $31,015,000 for the expansion of
the Company's manufacturing operations and latex concentrate plant located in
Thailand. Included in the 1996 and 1995 amounts were approximately $16,441,000
and $14,319,000, respectively, for the expansion of the Company's foreign
manufacturing operations and the acquisition of land at the Company's
manufacturing facility in Hat Yai, Thailand.

            During 1997, the Company completed construction and began operating
the first of its new production lines located in its Thailand facility, referred
to by the Company as the "Grand Master." Two additional production lines began
operating in the first quarter of 1998. The Company's management believes that a
single "Grand Master" production line will have the highest capacity of any
glove production line in the world, equivalent in capacity to approximately
eight of the existing production lines in this facility. The construction of
these production lines has been funded with internally generated cash.

            In addition, the Company is currently building a latex concentrate
plant in Thailand. The output of the plant will supply latex concentrate to the
Company's factories in Thailand and Malaysia for the manufacture of its
disposable latex gloves. The Company began initial production of latex
concentrate in the third quarter of 1997 and expects the final phase of
construction of its latex concentrate plant to be completed within a year. The
Company anticipates that this construction will be funded with internally
generated cash. This plant will allow the Company to integrate its manufacturing
processes to gain better control over the quality, cost and reliability of latex
supplies.

            In April 1997, the Company announced plans for the expansion of its
Southeast Asian manufacturing operations in order to meet the continued strong
demand and anticipated future demand for its latex and synthetic medical
examination, surgical and high-technology and scientific gloves. The Company's
expansion plans over the next two years include the construction of an
additional building and related machinery at the Company's existing Thailand
facility. Additionally, the Company also plans to construct a second
manufacturing facility to be located in southern Thailand that is expected to
produce latex and synthetic surgical, high-technology and scientific and
examination gloves. Construction of this site began in the second half of 1997
after approval by the Thailand Board of Investment. Four production buildings
are expected to be constructed on this site. One of these buildings will house
the expansion of the Company's Tactylon(R) synthetic examination and surgical
glove and the Company's nitrile glove production and is scheduled to be
completed during the second half of fiscal 1998. This building is expected to
increase by over 200 percent the production capacity of the Tactylon(R) product
line in comparison to the existing facility which is located in Vista,
California. The second building will be constructed to provide additional
capacity for the production of the Company's surgical and cleanroom glove
products. Production is scheduled to begin in the fourth quarter of 1998. In the
interim, these products will continue to be manufactured at the Company's
Malaysia and Vista, California facilities. An additional two buildings will be
constructed to house the Company's increased capacity for latex exam,
scientific, synthetic and surgical gloves. Production is scheduled to begin in
1999. The new buildings, machines and supporting infrastructure are expected to
cost approximately $80 million in the aggregate. The significant investment by
the Company in its manufacturing operations is expected to increase the
Company's annual production capacity by over 2.5 billion gloves. Due to the
Company's strong cash flow, financing for the total capital expenditures for the
two-year period is projected to come from internally


                                      -18-
<PAGE>   21
generated funds, with any shortfalls financed through borrowings from the
existing credit facilities.

            As of December 31, 1996, the Company's plan for the Malaysian
operations included transfer of production to Thailand in 1997. At December 31,
1996, the Malaysian facility was considered held for sale. Subsequent to
December 31, 1996, the Company extended the planned use of the Malaysian
facility due to existing production requirements and the timing of bringing new
production capacity on-line in Thailand. The Company still intends to transfer
production to Thailand. As of December 31, 1997, the Malaysian facility is still
considered held for sale and the delay in moving the examination glove
production from Malaysia to Thailand has had no impact on the Company's
restructuring plan and the write-down of fixed assets recorded in 1996.

            The Company has outstanding contractual commitments at December 31,
1997 for the construction of plant and equipment in Malaysia and Thailand in the
approximate amount of $6,035,000.

            In March 1997, the Company acquired the synthetic glove business of
Tactyl Technologies, Inc., a San Diego based developer and manufacturer of
non-latex surgical gloves for the domestic and international markets. The
acquisition, which has been accounted for under the purchase method, included an
acquisition price of approximately $14.5 million payable at the closing, plus up
to an additional $5 million payment which is contingent upon the Tactyl business
achieving certain future sales and performance targets, including the
development of the next generation of synthetic latex technology. Such
additional payment, if any, would be recorded as goodwill and amortized over its
remaining life.

            In February 1998, the Company completed the acquisition of Absolute
Quality Leadership, Inc., a California based marketer of glove products for the
high-technology and scientific markets. The Company paid for this acquisition
with internally generated cash.

            The Company has an unsecured two-year credit facility for financing
general working capital needs, up to a maximum of $25,000,000. As of December
31, 1997, there were no borrowings outstanding under this credit facility.

            The Company's foreign manufacturing subsidiaries have revolving
lines of credit for financing general working capital needs up to approximately
$8,900,000. As of December 31, 1997, there were no borrowings outstanding under
these credit facilities. These borrowings are secured by a guarantee of the
Company.

            In July 1997, the Thai baht and Malaysian ringgit were permitted to
float against the U.S. dollar and other currencies, and as a result, the baht
and ringgit have devalued from approximately 24.7 bahts/dollar and 2.5235
ringgits/dollar, as of June 30, 1997 to approximately 48.15 bahts/dollar and
3.8903 ringgits/dollar as of December 31, 1997, respectively. The significant
devaluation in both the Thailand and Malaysian currencies has resulted in an
increased amount of foreign currency transaction net gains, which are included
in other income, and an increased amount of foreign currency translation
adjustments, which are recorded as a separate component of equity. The
devaluation of the baht and ringgit may cause the Company's competitive
environment to improve. It is not possible at this time to determine what effect
the devaluation will have upon pricing or costs, but management believes the
devaluation will not have a material adverse effect and may have a positive
impact upon the Company's operating results for 1998 and beyond.

RISKS ASSOCIATED WITH YEAR 2000

            The Company recognizes the need to ensure its operations will not be
adversely impacted by the inability of the Company's systems to process data
having dates on or after January 1, 2000 (the "Year 2000" issues). Processing
errors due to software failures arising from calculations using the Year 2000
date are a recognized risk. The Company has engaged Perot Systems Corporation
for the management of its information technology systems. Both the Company and
Perot Systems Corporation are currently addressing the risk, with respect to the
availability and integrity of its financial systems and the reliability of its
operating systems, and are in the process of communicating with suppliers,
customers, financial institutions and others with whom it conducts business
transactions to assess whether they are Year 2000 compliant. The Company does
not believe that it will incur a material financial impact from the risk, or
from assessing the risk, arising from the Year 2000 issues. However, there can
be no guarantee that the Company's initial assessment of the financial impact of
this risk will be accurate; actual results could differ materially from those
anticipated. Specific factors that might cause such material differences,
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.


                                      -19-
<PAGE>   22
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

            This report and the documents incorporated by reference herein
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements include, among others,
statements concerning the Company's outlook for 1998 and beyond, the effect of
currency fluctuations in Thailand and Malaysia on the operating results of the
Company, the Company's liquidity and working capital, the Company's ability to
complete construction of new facilities as scheduled, the production capacity
and the Company's ability to achieve additional efficiencies in its
manufacturing facilities and other statements of expectations, beliefs, future
plans and strategies, anticipated events or trends, anticipated growth in the
Company's markets and growth in the Company's market share and similar
expressions concerning matters that are not historical facts. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause the assumptions underlying such forward-looking statements and
the actual results to differ materially from those expressed in or implied by
the statements.

            The most important factors that could prevent the Company from
achieving its goals--and cause the assumptions underlying forward-looking
statements and the actual results of the Company to differ materially from those
expressed in or implied by those forward-looking statements--include, but are
not limited to, the following;

      -     the competitive nature of the industry and the ability of the
            Company to continue to distinguish its products on the basis of
            quality, reliability and value, the ability of the Company to
            maintain strong distributor relationships, and the ability of the
            Company to maintain selling prices and anticipated volumes;

      -     adverse outcomes regarding product liability lawsuits or the ability
            to obtain sufficient product liability insurance coverage at
            reasonable rates;

      -     the ability of the Company to meet existing or future FDA
            regulations regarding the manufacture and sale of the Company's
            gloves;

      -     delays in the completion of the Company's construction of its new
            production facilities in Thailand and the failure of these
            production facilities to generate anticipated productivity and
            efficiencies;

      -     risks associated with investments and operations in foreign
            countries, particularly Thailand and Malaysia, including exchange
            rate fluctuations, local economic conditions, exchange rate
            fluctuations, governmental policies regarding foreign ownership of
            manufacturing facilities, local regulatory requirements, tax
            holidays and political factors;

      -     the consistent availability, at budgeted prices, of raw rubber from
            independent growers and concentrate plant operators in Malaysia and
            Thailand;

      -     delays in the completion of the final phase of the Company's
            construction of its latex concentrate plant in Thailand or the
            failure of this plant to generate anticipated productivity and
            efficiencies;

      -     failure of the Company's new production lines, referred to by the
            Company as "Grand Masters," to generate anticipated productivity and
            efficiencies;

      -     economic conditions in the healthcare industry, including the
            potential impact of industry consolidation and cost constraints on
            the end-user;

      -     changes in significant government regulations affecting the
            healthcare industry;

      -     the ability of the Company to protect its proprietary products,
            know-how and manufacturing processes;

      -     changes in the Company's rates or basis of income taxation; and

      -     rapid levels of inflation, which could have a significant effect on
            the Company's net sales and profitability.

These and other risks and uncertainties affecting the Company are discussed in
greater detail in this report and in other filings by the Company with the
Securities and Exchange Commission.


                                      -20-
<PAGE>   23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES


<TABLE>
<CAPTION>
                                                                                  Pages
                                                                                  -----
<S>                                                                               <C>

INDEPENDENT AUDITORS' REPORT                                                         22

CONSOLIDATED FINANCIAL STATEMENTS:

  Consolidated Balance Sheets at December 31, 1997 and 1996                          23

  Consolidated Statements of Operations for the Years Ended
    December 31, 1997, 1996 and 1995                                                 24

  Consolidated Statements of Shareholders' Equity for the
    Years Ended December 31, 1997, 1996 and 1995                                     25

  Consolidated Statements of Cash Flows for the
    Years Ended December 31, 1997, 1996 and 1995                                     26

  Notes to Consolidated Financial Statements                                      27-38

FINANCIAL STATEMENT SCHEDULES:

    Schedule I - Condensed Financial Information of
     Parent Company                                                               39-41

    Schedule II- Valuation of Qualifying Accounts                                    42
</TABLE>


                                      -21-
<PAGE>   24
                          INDEPENDENT AUDITORS' REPORT




To the Shareholders and Board of Directors of
Safeskin Corporation:


We have audited the accompanying consolidated balance sheet of Safeskin
Corporation and subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year 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 audit. The financial statements of Safeskin
Corporation for the year ended December 31, 1996 and for each of the two years
in the period then ended were audited by other auditors whose report, dated
February 17, 1997, expressed an unqualified opinion on these statements.

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

In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Safeskin Corporation and
subsidiaries as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.




San Diego, California
February 27, 1998


                                      -22-
<PAGE>   25
                              SAFESKIN CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                  1997                 1996
                                                             -------------        -------------
<S>                                                          <C>                  <C>
ASSETS

Current assets:
  Cash and cash equivalents                                  $  23,916,959        $  16,265,468
  Accounts receivable, net of allowance of
    $966,000 and $665,000, respectively                         22,195,828           19,848,253
  Inventory                                                     21,242,732           21,867,835
  Other current assets                                           5,692,369            4,062,314
                                                             -------------        -------------
            Total current assets                                73,047,888           62,043,870

Property, plant and equipment, net                              52,904,271           53,391,423
Intangibles and other assets                                    12,568,245            1,313,731
                                                             -------------        -------------
            Total assets                                     $ 138,520,404        $ 116,749,024
                                                             =============        =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                           $   6,922,540        $   5,362,273
  Accrued liabilities                                           22,924,623            8,371,962
                                                             -------------        -------------
            Total current liabilities                           29,847,163           13,734,235

Deferred income taxes and other liabilities                      2,094,928                 --
                                                             -------------        -------------
            Total liabilities                                   31,942,091           13,734,235

Commitments and contingencies
Shareholders' equity:
  Preferred stock; $.01 par value; 10,000,000 shares
    authorized and no shares issued or outstanding in
    1997 and 1996                                                     --                   --
  Common stock; $.01 par value; 40,000,000 shares
    authorized; 26,482,112 and 25,811,048 shares
    outstanding in 1997 and 1996, respectively                     264,821              258,110
  Additional paid-in-capital                                    47,782,274           39,101,451
  Foreign currency translation adjustment                      (45,687,717)             686,544
  Retained earnings                                            104,218,935           62,968,684
                                                             -------------        -------------
            Total shareholders' equity                         106,578,313          103,014,789
                                                             -------------        -------------
            Total liabilities and shareholders' equity       $ 138,520,404        $ 116,749,024
                                                             =============        =============
</TABLE>


See notes to consolidated financial statements.


                                      -23-
<PAGE>   26
                                     SAFESKIN CORPORATION
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                     FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                         1997                 1996                 1995
                                                     -------------        -------------        -------------
<S>                                                  <C>                  <C>                  <C>
Net sales                                            $ 182,998,305        $ 146,089,348        $ 117,014,207

Cost of goods sold                                      98,144,224           84,325,513           75,756,616
                                                     -------------        -------------        -------------

       Gross profit                                     84,854,081           61,763,835           41,257,591
                                                     -------------        -------------        -------------

Operating expenses:
   Selling                                              22,699,975           17,693,236           16,119,769
   Research and development                              3,504,553            2,208,436            1,493,562
   General and administrative                           15,922,824           12,286,798            6,396,666
   Write-down of fixed assets                                 --              2,979,146                 --
                                                     -------------        -------------        -------------

       Total operating expenses                         42,127,352           35,167,616           24,009,997
                                                     -------------        -------------        -------------

       Income from operations                           42,726,729           26,596,219           17,247,594

Interest expense (income), net                            (822,981)             (58,337)             193,808
Other expense (income), net                             (2,699,335)             133,278             (162,884)
                                                     -------------        -------------        -------------

Income before income tax provision                      46,249,045           26,521,278           17,216,670

Income tax provision                                     4,998,794            2,938,879            2,325,972
                                                     -------------        -------------        -------------

Net income                                           $  41,250,251        $  23,582,399        $  14,890,698
                                                     =============        =============        =============

Per share amounts:
Earnings per share of common stock
and common stock equivalents:
      Basic                                          $        1.58        $         .93        $         .60
      Diluted                                        $        1.41        $         .85        $         .58

Weighted average number of shares of common
stock and common stock equivalents outstanding
      Basic                                             26,130,269           25,471,907           24,750,184
      Diluted                                           29,268,847           27,775,334           25,605,102
</TABLE>


See notes to consolidated financial statements.


                                      -24-
<PAGE>   27
                              SAFESKIN CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                                                              FOREIGN
                                                         COMMON STOCK                   ADDITIONAL            CURRENCY
                                             ----------------------------------           PAID-IN             TRANSLATION
                                                 SHARES               AMOUNT              CAPITAL             ADJUSTMENT
                                             -------------        -------------        -------------        -------------
<S>                                          <C>                  <C>                  <C>                  <C>
Balance, January 1, 1995                        24,529,354        $     245,294        $  29,064,185        $     454,990
Exercise of common stock options                   231,708                2,316              352,005                 --
Foreign currency translation
  adjustment                                          --                   --                   --               (106,139)
Deferred compensation related to
  stock grant                                      200,000                2,000            1,473,000
Amortization of deferred compensation
  related to stock grant
Net income                                            --                   --                   --                   --
                                             -------------        -------------        -------------        -------------
Balance, December 31, 1995                      24,961,062              249,610           30,889,190              348,851
Exercise of common stock options                   966,654                9,667            5,342,257                 --
Foreign currency translation
adjustment                                            --                   --                   --                337,693
Forfeited stock related to stock grant            (116,668)              (1,167)            (859,259)                --
Amortization of deferred compensation
  related to stock grant                              --                   --                   --                   --
Tax benefit from exercise of options                                                       3,729,263
Net income                                            --                   --                   --                   --
                                             -------------        -------------        -------------        -------------
Balance, December 31, 1996                      25,811,048              258,110           39,101,451              686,544
Exercise of common stock options                   671,064                6,711            4,244,423                 --

Foreign currency translation
adjustment                                            --                   --                   --            (46,374,261)
Tax benefit from exercise of options                  --                   --              4,436,400                 --
Net income                                            --                   --                   --                   --
                                             -------------        -------------        -------------        -------------
Balance, December 31, 1997                      26,482,112        $     264,821        $  47,782,274        $ (45,687,717)
                                             =============        =============        =============        ==============

</TABLE>


<TABLE>
<CAPTION>


                                                DEFERRED            RETAINED
                                              COMPENSATION          EARNINGS              TOTAL
                                             -------------        -------------       -------------
<S>                                          <C>                  <C>                 <C>
Balance, January 1, 1995                     $        --          $  24,495,587       $  54,260,056
Exercise of common stock options                      --                   --               354,321
Foreign currency translation
  adjustment                                          --                   --              (106,139)
Deferred compensation related to
  stock grant                                   (1,475,000)                --                   --
Amortization of deferred compensation
  related to stock grant                           462,105                                  462,105
Net income                                            --             14,890,698          14,890,698
                                             -------------        -------------       -------------
Balance, December 31, 1995                      (1,012,895)          39,386,285          69,861,041
Exercise of common stock options                      --                   --             5,351,924
Foreign currency translation
adjustment                                            --                   --               337,693
Forfeited stock related to stock grant             860,426                 --                  --
Amortization of deferred compensation
  related to stock grant                           152,469                 --               152,469
Tax benefit from exercise of options                  --                   --             3,729,263
Net income                                            --             23,582,399          23,582,399
                                             -------------        -------------       -------------
Balance, December 31, 1996                            --             62,968,684         103,014,789
Exercise of common stock options                      --                   --             4,251,134

Foreign currency translation
adjustment                                            --                   --           (46,374,261)
Tax benefit from exercise of options                  --                   --             4,436,400
Net income                                                           41,250,251          41,250,251
                                             -------------        -------------       -------------
Balance, December 31, 1997                   $        --          $ 104,218,935       $ 106,578,313
                                             =============        =============       =============
</TABLE>


See notes to consolidated financial statements.


                                      -25-
<PAGE>   28
                              SAFESKIN CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                  1997                1996                1995
                                                              ------------        ------------        ------------
<S>                                                           <C>                 <C>                 <C>
Cash flows from operating activities:
  Net income                                                  $ 41,250,251        $ 23,582,399        $ 14,890,698
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                              7,138,338           6,094,758           3,772,090
      Exchange loss unrealized                                     182,460                --                  --
      Write-down of fixed assets                                      --             2,979,146                --
      Loss (gain) on sale of equipment                             125,725              57,919             (56,493)
      Deferred taxes                                             1,872,000          (2,287,424)           (144,000)
      Amortization of deferred compensation                           --               152,469             462,105
  Changes in operating assets and liabilities:
      Accounts receivable                                       (1,794,099)         (2,319,400)         (3,395,844)
      Inventory                                                   (548,485)         (3,895,369)         (8,630,091)
      Other assets                                              (4,683,784)          1,161,148          (1,149,137)
      Accounts payable and accrued liabilities                  18,969,217           5,411,489           5,093,564
                                                              ------------        ------------        ------------
    Net cash provided by operating activities                   62,511,623          30,937,135          10,842,892
                                                              ------------        ------------        ------------

Cash flows from investing activities:
  Net cash paid for acquisition of subsidiary                  (14,463,092)               --                  --
  Purchases of property, plant and equipment                   (35,182,574)        (20,230,415)        (16,460,874)
  Proceeds from sale of equipment                                   52,113              36,519             101,950
                                                              ------------        ------------        ------------
    Net cash used by investing activities                      (49,593,553)        (20,193,896)        (16,358,924)
                                                              ------------        ------------        ------------

Cash flows from financing activities:
  Proceeds from issuance of common stock                         4,251,134           5,351,924             354,321
  Increase (decrease) in long-term debt                               --            (2,750,000)          2,750,000
                                                              ------------        ------------        ------------
    Net cash provided by financing activities                    4,251,134           2,601,924           3,104,321
                                                              ------------        ------------        ------------

Effect of exchange rate changes on cash                         (9,517,713)            833,333             (82,734)
                                                              ------------        ------------        ------------

Net increase (decrease) in cash and cash equivalents             7,651,491          14,178,496          (2,494,445)
Cash and cash equivalents at beginning of year                  16,265,468           2,086,972           4,581,417
                                                              ------------        ------------        ------------
Cash and cash equivalents at end of year                      $ 23,916,959        $ 16,265,468        $  2,086,972
                                                              ============        ============        ============

Supplemental cash flow information:
    Amounts paid for:
      Interest                                                $       --          $    133,550        $    113,637
      Income taxes                                            $      1,600        $  1,831,678        $  2,275,000

Supplemental schedule of non-cash investing activities:
    The Company acquired an entity, assets acquired and
    liabilities were assumed as follows:
      Fair value of assets acquired                           $ 14,728,362
      Liabilities assumed                                         (265,270)
                                                              ------------
      Net cash paid for acquisition                           $ 14,463,092
                                                              ============
</TABLE>


See notes to consolidated financial statements.


                                      -26-
<PAGE>   29
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


1.    Description of Business:

      Safeskin Corporation (the "Company") is a leading manufacturer of high
      quality disposable latex medical examination gloves for the United States
      market. The Company is also a leading manufacturer of powder-free
      disposable latex and synthetic examination gloves for the medical, dental
      and high-technology and scientific markets worldwide. The Company
      manufactures its products in Malaysia and Thailand, using proprietary
      formulations and processes, for sale primarily in the United States.

2.    Significant Accounting Policies:

      Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
      and its domestic and foreign subsidiaries after elimination of all
      significant intercompany transactions and accounts.

      Foreign Currency Translation

      The accounts of the Company's foreign subsidiaries are measured using
      local currency as the functional currency. For those operations, assets
      and liabilities are translated into U.S. dollars at period-end exchange
      rates and income and expense accounts are translated at average exchange
      rates in effect during the year. Net currency exchange gains or losses
      resulting from such translation are excluded from net income and
      accumulated in a separate component of shareholders' equity.

      Foreign Currency Transactions and Hedging Activities

      The Company is exposed to exchange rate risk when its U.S. and non-U.S.
      subsidiaries enter into transactions denominated in currencies other than
      their functional currency. Certain firmly committed transactions are
      hedged with forward foreign exchange contracts. As exchange rates change,
      gains and losses on the exposed transactions are partially offset by gains
      and losses related to the hedging contracts. Both the exposed transactions
      and the hedging contracts are translated at current spot rates, with gains
      and losses included in earnings. The Company's derivative activities, all
      of which consist of forward foreign exchange contracts as of December 31,
      1997, are initiated primarily to hedge intercompany receivables and
      payables.

      The forward foreign exchange contracts generally require the Company to
      exchange U.S. dollars for foreign currencies based on pre-established
      exchange rates at the contracts maturity dates. If the counterparties to
      the exchange contracts (primarily AA rated international institutions) do
      not fulfill their obligations to deliver the contracted currencies, the
      Company could be at risk for currency related fluctuations (generally
      limited to unrealized gains). Management believes that the high credit
      worthiness of the counterparties to the hedging contracts minimizes the
      risk of non-performance.

      For the year ended December 31, 1997, the Company recognized foreign
      exchange transaction net gains of $19,837,286 related to transactions with
      its manufacturing subsidiaries in Malaysia and Thailand, offset by net
      losses on forward foreign exchange contracts of $16,441,247, which have
      been recorded net as other income in the accompanying statement of
      operations. Gains and losses from foreign currency transactions during the
      years ended December 31, 1996 and 1995 were not significant.


                                      -27-
<PAGE>   30
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


      Property, Plant and Equipment

      Property, plant and equipment are recorded at cost. Additions and
      improvements are capitalized, while maintenance and repairs are expensed
      when incurred. Asset and accumulated depreciation accounts are relieved
      for dispositions with resulting gains or losses recorded in the statements
      of operations. Depreciation of plant and equipment is computed over
      estimated useful lives using the straight-line method as follows:


               Building and improvements                 10 to 50 years
               Machinery and equipment                    3 to 10 years
               Computer and office equipment              3 to 10 years

      Inventory

      Inventory is valued at the lower of cost, determined on a first-in,
      first-out basis, or market, determined on a net realizable value basis.
      Consideration is given to obsolescence and other factors in evaluating net
      realizable value.

      Income Taxes

      The Company accounts for income taxes in accordance with the provisions of
      Statement of Financial Accounting Standards No. 109, Accounting for Income
      Taxes. This standard requires, among other things, recognition of future
      tax benefits, measured by enacted tax rates, attributable to deductible
      temporary differences between financial statement and income tax bases of
      assets and liabilities, and net operating loss carryforwards to the extent
      that realization of such benefits is more likely than not. The provision
      for income taxes consists of taxes payable for the year and the changes
      during the year of deferred income tax assets and liabilities. Valuation
      allowances are established when necessary to reduce deferred income tax
      assets to amounts expected to be realized.

      Cash and Cash Equivalents

      The Company considers highly liquid investments, those with maturities of
      less than three months when acquired, to be cash equivalents.

      Net Income Per Share

      The Company accounts for net income per share in accordance with the
      provisions of Statement of Financial Accounting Standards No. 128,
      Earnings Per Share. Net income per share is computed by dividing net
      income by the weighted average number of common shares outstanding and
      dilutive common stock equivalents. Common stock options are common stock
      equivalents and are included in the weighted average number of common
      shares outstanding using the treasury stock method.

      Revenue Recognition

      The Company recognizes revenue upon shipment of products to customers. The
      Company's net sales are derived from the sales of finished products, net
      of contractual allowable rebates and fees provided to distributors and
      group purchasing organizations for the resale of the Company's products in
      specific volumes to specified end user customers. The Company estimates
      allowable rebates on a monthly basis


                                      -28-
<PAGE>   31
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


      through the analysis of actual sales information from customers,
      contractual arrangements and historical trends related to actual rebates
      issued.

      Research and Development Expenses

      Expenditures for research and development of new products are expensed as
      incurred. Research and development expenses incurred by the Company were
      approximately $3,505,000, $2,209,000 and $1,493,000 for the years ended
      December 31, 1997, 1996, and 1995, respectively.

      Use of Estimates

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

      Shareholders' Equity

      On November 14, 1996, the Company authorized a two-for-one stock split of
      its common stock to be effective in the form of a stock dividend
      distributed on January 2, 1997 to shareholders of record at the close of
      business on November 29, 1996. The holders of the Company's common stock
      received a stock dividend at the rate of one share of common stock for
      each share of common stock owned. The stated par value of each share was
      not changed from $.01. A total of $129,055 and $124,805 was reclassified
      from the Company's additional paid-in capital account to the Company's
      common stock account for the years ending December 31, 1996 and 1995,
      respectively. All share and per share amounts have been retroactively
      restated to reflect the stock split.

      On February 17, 1998, the Company authorized a two-for-one stock split of
      its common stock to be effective in the form of a stock dividend to be
      distributed on April 1, 1998 to shareholders of record at the close of
      business on February 27, 1998. The holders of the Company's common stock
      will receive a stock dividend at the rate of one share of common stock for
      each share of common stock owned. The stated par value of each share will
      not change from $.01. No effect of the stock split has been reflected in
      the accompanying financial statements.

      Stock Based Compensation

      Statement of Financial Accounting Standard No. 123, Accounting for
      Stock-Based Compensation, ("SFAS 123") encourages, but does not require,
      companies to record compensation cost for stock-based employee
      compensation plans at fair value. The Company has elected to continue to
      account for stock-based compensation using the intrinsic value method
      prescribed in Accounting Principles Board Opinion No. 25, Accounting for
      Stock Issued to Employees, and related interpretations. Accordingly,
      compensation cost for stock options is measured as the excess, if any, of
      the quoted market price of the Company's stock at the date of grant over
      the grant price.


                                      -29-
<PAGE>   32
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


3.    Inventory:

      Inventory at December 31, 1997 and 1996 consisted of:


<TABLE>
<CAPTION>
                          1997              1996
                      -----------       -----------
<S>                   <C>               <C>
Raw materials         $ 2,700,643       $ 1,919,992
Work in process           690,480           114,443
Finished goods         17,851,609        19,833,400
                      -----------       -----------

                      $21,242,732       $21,867,835
                      ===========       ===========
</TABLE>


4.    Property, Plant and Equipment:

      Property, plant and equipment at December 31, 1997 and 1996 consisted of:

<TABLE>
<CAPTION>
                                        1997              1996
                                    -----------       -----------
<S>                                 <C>               <C>
Land                                $ 4,488,277       $ 6,902,944
Buildings and improvements            8,651,187         9,277,472
Machinery and equipment              31,741,450        37,624,679
Computer and office equipment         9,020,427         5,947,480
Construction in progress             12,402,336         6,982,522
                                    -----------       -----------
                                     66,303,677        66,735,097
Less accumulated depreciation        13,399,406        13,343,674
                                    -----------       -----------
                                    $52,904,271       $53,391,423
                                    ===========       ===========
</TABLE>

      Statement of Financial Accounting Standard No. 121, Accounting for the
      Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
      ("SFAS 121"), requires the evaluation of long-lived assets for impairment
      whenever events or changes in circumstances indicate that the carrying
      amount of an asset may not be recoverable.

      In December 1996, the Company announced plans to move all of its latex
      examination glove production from its Malaysian facility to its Thailand
      facility and its intent to sell the Malaysian facility during 1997. At
      December 31, 1996, the Malaysian facility was considered held for sale. In
      fiscal year 1997, the Company extended the planned use of the Malaysian
      facility due to existing production requirements and the timing of
      bringing new production capacity on-line in Thailand. The Company still
      intends to transfer production to Thailand and to sell the Malaysian
      facility. In connection with the announced move in fiscal year 1996, the
      Company took an approximately $3,000,000 charge against earnings that is
      reflected in the accompanying financial statements as a write-down of
      fixed assets, to reflect the Malaysian facility at estimated fair value.


                                      -30-
<PAGE>   33
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


5.    Accrued Liabilities:

      Accrued liabilities at December 31, 1997 and 1996 consisted of:

<TABLE>
<CAPTION>
                                                    1997              1996
                                                -----------       -----------
<S>                                             <C>               <C>
Accrued salary and bonuses                      $ 3,519,880       $ 3,796,037
Forward foreign exchange contract accrual        12,062,942              --
Accrued equipment purchase orders                 2,185,935              --
Accrued commissions                                 541,255           579,447
Income taxes payable (receivable)                   431,847           (21,127)
Other                                             4,182,764         4,017,605
                                                -----------       -----------
                                                $22,924,623       $ 8,371,962
                                                ===========       ===========
</TABLE>

      The forward foreign exchange contract accrual results from outstanding
      forward foreign exchange contracts to purchase Malaysian ringgit in the
      amount of $35,466,327, with a weighted average exchange rate of 2.78
      Malaysian ringgit to 1 U.S. dollar.

6.    Due to Banks and Other Financial Institutions:

      During 1997, the Company amended its unsecured domestic two-year term
      credit facility for financing general working capital needs up to a
      maximum of $25,000,000. Obligations under this arrangement are due July
      31, 1999 and bear interest at the London Interbank Offered Rate (LIBOR)
      plus .80% or the banks' reference rate. The credit facility specifies
      various financial covenants such as minimum quick ratio, tangible net
      worth, and debt to equity. As of December 31, 1997 and 1996, there were no
      borrowings outstanding under this credit facility.

      The Company has foreign credit facilities for financing general working
      capital needs up to a maximum of approximately $8,900,000. These
      facilities bear interest ranging from .9% to 1.2% over the base lending
      rate or the discount rate of the foreign banks (9.3% to 11.3% at December
      31, 1997). These facilities are guaranteed by the Company. As of December
      31, 1997 and 1996, there were no borrowings outstanding under these
      foreign credit facilities.

7.    Foreign Operations:

      The Company has wholly-owned subsidiaries that operate manufacturing
      facilities in the countries of Malaysia and Thailand. Principally all of
      the subsidiaries' sales are to other subsidiaries of the Company and are,
      therefore, eliminated in consolidation. Further, the Company has
      wholly-owned subsidiaries in Germany, the Netherlands and the United
      Kingdom that operate as distributors. Domestic product sales were 88% of
      net consolidated sales for both of the years ended December 31, 1997 and
      1996. Substantially all product sales were domestic for the year ended
      December 31, 1995.


                                      -31-
<PAGE>   34
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


      Included in the consolidated balance sheets are the following domestic and
      foreign components at December 31, 1997 and 1996:


<TABLE>
<CAPTION>
                                              1997               1996
                                          ------------       ------------
<S>                                       <C>                <C>
Current assets:
  Domestic                                $ 43,960,273       $ 50,184,459
  Foreign                                   29,087,615         11,859,411
                                          ------------       ------------
                                          $ 73,047,888       $ 62,043,870
                                          ============       ============

Property, plant and equipment, net:
  Domestic                                $  7,184,131       $  4,052,660
  Foreign                                   45,720,140         49,338,763
                                          ------------       ------------
                                          $ 52,904,271       $ 53,391,423
                                          ============       ============

Other assets:
  Domestic                                $  3,658,055       $    358,252
  Foreign                                    8,910,190            955,479
                                          ------------       ------------
                                          $ 12,568,245       $  1,313,731
                                          ============       ============

Total assets:
  Domestic                                $ 54,802,459       $ 54,595,371
  Foreign                                   83,717,945         62,153,653
                                          ------------       ------------
                                          $138,520,404       $116,749,024
                                          ============       ============
</TABLE>


                                      -32-
<PAGE>   35
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


8.    Income Taxes:


      The income tax provision for the years ended December 31, 1997, 1996 and
      1995, consists of the following:

<TABLE>
<CAPTION>
                          1997               1996               1995
                      -----------        -----------        -----------
<S>                   <C>                <C>                <C>
Current:
  Federal             $ 2,131,000        $ 3,078,000        $ 1,903,000
  State                   509,000            312,000            451,000
  Foreign                 487,000             (5,000)           116,000
                      -----------        -----------        -----------

                        3,127,000          3,385,000          2,470,000
                      -----------        -----------        -----------
Deferred:
  Federal               1,618,000           (433,000)          (109,000)
  State                   254,000            (13,000)           (35,000)
                      -----------        -----------        -----------

                        1,872,000           (446,000)          (144,000)
                      -----------        -----------        -----------

Total provision       $ 4,999,000        $ 2,939,000        $ 2,326,000
                      ===========        ===========        ===========
</TABLE>


      The provision for income taxes is different from that which would be
      obtained by applying the statutory Federal income tax rate (35%) to income
      before provision for income taxes. The items causing this difference for
      the period December 31, 1997, 1996 and 1995 are as follows:


<TABLE>
<CAPTION>
                                                 1997           1996           1995
                                                ------         ------         ------
<S>                                             <C>            <C>            <C>
Statutory federal rate                            35.0%          35.0%          35.0%
Foreign taxes less than federal statutory rate   (25.5)         (23.7)         (34.3)
Change in valuation allowance                      1.1            2.0            9.6
Miscellaneous                                       .2           (2.2)           3.2
                                                ------         ------         ------
Effective tax rate                                10.8%          11.1%          13.5%
                                                ======         ======         ======
</TABLE>


      Deferred income taxes reflect the net tax effects of temporary differences
      between the carrying amounts of assets and liabilities for financial
      reporting purposes and the amounts used for income tax purposes.
      Significant components of the net deferred tax liability as of December
      31, 1997 and the deferred tax assets as of December 31, 1996 are as
      follows:


                                      -33-
<PAGE>   36
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


<TABLE>
<CAPTION>
                                           1997               1996
                                       -----------        -----------
<S>                                    <C>                <C>
Deferred tax assets (liability):
  Net operating losses                 $ 4,565,000        $ 3,219,000
  Depreciation and amortization          2,428,000          1,825,000
  Bad debt reserves                        439,000            382,000
  Rebate reserves                          486,000            179,000
  Inventory reserves                       110,000            481,000
  Foreign exchange reserve                 827,000               --
  Charitable contributions                 298,000               --
  State taxes                             (266,000)           (25,000)
  Other                                    753,000            314,000
                                       -----------        -----------
                                         9,640,000          6,375,000
Other liabilities                       (7,604,000)        (2,993,000)
Valuation allowance                     (3,905,000)        (3,379,000)
                                       -----------        -----------
Total                                  $(1,869,000)       $     3,000
                                       ===========        ===========
</TABLE>

      A valuation allowance is provided when it is more likely than not that
      some portion or all of the deferred tax assets will not be realized. The
      Company's net increase to the valuation allowance is primarily
      attributable to the European subsidiaries current year losses. Deferred
      income taxes resulting from the tax effect of cumulative temporary
      differences between the foreign subsidiaries' book and tax bases of
      certain assets and liabilities, are a net asset subject to a 100%
      valuation allowance since realization is considered uncertain.

      In Malaysia, the subsidiary company has been granted pioneer status under
      that country's Promotion of Investment Act of 1986. As a result of the
      pioneer status, the subsidiary company is exempt from paying tax on profit
      earned from pioneer products through September 1998. In Thailand, the
      subsidiary company has been granted exempt status with respect to profit
      earned through 2003 under that country's Investment Promotion Act, and has
      been granted a reduced tax rate through 2007. As the Company begins to
      build new production facilities in Thailand, it has applied for and
      received similar tax free status for these operations.

      As of December 31, 1997, the Company has net operating loss carryovers of
      approximately $6,780,000, $5,684,000 and $1,967,000 for federal, state,
      and foreign tax purposes. At December 31, 1996, the Company had net
      operating loss carryovers of approximately $2,264,000 and $1,441,000, for
      state and foreign tax purposes, respectively. These carryovers expire in
      various years through 2013.


                                      -34-
<PAGE>   37
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


9.    Commitments and Contingencies:

      At December 31, 1997, approximate future minimum rental payments
      applicable to noncancelable operating leases for office and warehouse
      space were as follows:


<TABLE>
<S>                            <C>
1998                            $2,174,000
1999                             1,919,000
2000                             1,199,000
2001                                53,000
                                ----------
                                $5,345,000
                                ==========
</TABLE>


      Rent expense for the years ended December 31, 1997, 1996 and 1995 was
      $1,547,000, $1,144,000 and $695,000, respectively.

      The Company has outstanding contractual commitments at December 31, 1997
      for the construction of plant and equipment in Malaysia and Thailand in
      the approximate amount of $6,035,000.

      Litigation

      The Company is the defendant in certain product liability lawsuits
      occurring in the normal course of business. Management has referred the
      defense of these cases to insurance carriers. The Company maintains levels
      of insurance coverage which it believes will be adequate to cover the cost
      of the legal defense of these suits. Although the ultimate outcome of
      these matters is uncertain, if such insurance coverage is not sufficient
      to meet damages for which the Company may be found liable, a negative
      outcome related to these matters could have a material, adverse affect on
      the Company's financial condition or results from operations.

10.   Equity Compensation Plan and Stock Options:

      The Company's Equity Compensation Plan (the "Plan"), adopted in 1993,
      provides for the issuance of stock options, stock appreciation rights and
      restricted stock to eligible directors, certain employees, and
      consultants. The Company has reserved 6,662,053 shares of common stock for
      issuance under the Plan.

      All stock options are granted at a price not less than the fair market
      value on the date the option is granted. The stock options granted can be
      exercised over periods of zero to ten years from the date of grant and
      will expire ten years from the date of grant.

      The Company has adopted the disclosure-only provisions of SFAS No. 123,
      Accounting for Stock-Based Compensation. Had compensation costs for the
      Company's stock option plan been determined based on the fair value at the
      grant date for awards in 1997, 1996 and 1995 consistent with the
      provisions of SFAS No. 123, net income and net income per common share
      would have been reduced to the pro forma amounts indicated below:


                                      -35-
<PAGE>   38
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


<TABLE>
<CAPTION>
                                       1997                 1996                 1995
                                  --------------       --------------       --------------
<S>                               <C>                  <C>                  <C>
Net income:
  As reported                     $   41,250,251       $   23,582,399       $   14,890,698
  Pro forma                           38,791,856           21,221,580           14,767,818

Basic earnings per share:
  As reported                     $         1.58       $         0.93       $         0.60
  Pro forma                                 1.48                 0.83                 0.60

Diluted earnings per share:
  As reported                     $         1.41       $         0.85       $         0.58
  Pro forma                                 1.33                 0.76                 0.58
</TABLE>

      The fair value of each option grant is estimated as of the date of grant
      using the Black-Scholes option-pricing model with the following
      weighted-average assumptions used for grants in 1997, 1996 and 1995:
      dividend yield of 0%; expected volatility of 51.6%, 52.7% and 52.7%,
      respectively; risk-free interest rate ranging from 5.0% to 7.2%; and
      expected lives of 3 to 8 years.

      Stock option activity for the years ended December 31, 1997 and 1996 was
      as follows:

<TABLE>
<CAPTION>
                                                                WEIGHTED-AVERAGE
                                                   OPTIONS           PRICES
                                                 ----------     ----------------
<S>                                              <C>            <C>
Outstanding at January 1, 1996                    4,190,800        $     6.85
      Granted                                     1,466,400        $    12.24
      Exercised                                    (878,300)       $     6.08
      Forfeited                                    (159,400)       $     7.19
                                                 ----------        ----------
Outstanding at December 31, 1996                  4,619,500        $     8.69
      Granted                                     1,044,100        $    30.52
      Exercised                                    (590,710)       $     7.28
      Forfeited                                     (96,560)       $     9.88
                                                 ----------        ----------
Outstanding at December 31, 1997                  4,976,330        $    13.41
                                                 ==========        ==========
Shares exercisable as of December 31, 1997        2,265,990        $    10.94
                                                 ==========        ==========
</TABLE>

      As of December 31, 1997 and 1996, options outstanding have exercise prices
      between $5.00 and $56.25 and $5.00 and $25.88, respectively, and a
      weighted-average remaining contractual life of 8 years.

      During 1995, the Company issued a restricted stock grant of 200,000 shares
      at $7.38, the fair market value at date of grant, to a former executive of
      the Company. Restrictions on the shares granted lapse in five annual
      installments beginning in January of 1996 through January 2000. During
      1996, 116,668 shares relating to this restricted stock grant were
      forfeited, in conjunction with the terms of a separation agreement between
      the Company and the former executive.

      In August 1990, the Company granted an option to an employee, which
      expires July 2000, to purchase 441,770 shares of common stock at an option
      price of $.12 per share. The option provides for the exercise of 88,354
      shares at the grant date and the exercise of 88,354 shares annually from
      April 1994 through April


                                      -36-
<PAGE>   39
      1997. At December 31, 1997, options to acquire the 441,770 shares had been
      exercised and none are exercisable.

11.   Major Customers and Concentrations of Credit Risk:

      Major customers are those that individually account for more than 10% of
      the Company's consolidated net sales. During 1997, two customers accounted
      for approximately 22.2% and 19.6% of consolidated net sales. During 1996,
      two customers accounted for approximately 21.7% and 22.5% of consolidated
      net sales. During 1995, two customers accounted for approximately 29.8%
      and 30.3% of consolidated net sales.

      The majority of the Company's sales are to medical supply distribution
      companies. This could unfavorably affect the Company's overall exposure to
      credit risk inasmuch as these customers could be affected by similar
      economic or other conditions. At December 31, 1997, 1996 and 1995,
      approximately 55.5%, 50.2%, and 48.7%, respectively, of net receivables
      were represented by three customers. Historically, the Company's
      uncollectible accounts receivable have not been significant, and typically
      the Company does not require collateral for its receivables.

      In addition, in assessing its concentration of credit risk related to cash
      and cash equivalents, the Company places its cash and cash equivalents,
      which may at times exceed FDIC insurance limits, in foreign and domestic
      financial institutions.

12.   Employee Benefits:

      In 1995, the Company established and implemented a 401(k) defined
      contribution plan (the "401(k) Plan") available to eligible employees who
      have completed at least one year of service. Participants may defer, until
      termination of employment with the Company, salary up to the limit imposed
      by the Internal Revenue Code for any calendar year. In 1997 and 1996,
      contributions were matched by the Company in an amount equal to 33-1/3% of
      the participant's contribution. For the years ended December 31, 1997 and
      1996, the Company incurred costs of approximately $276,000 and $139,000,
      respectively, in connection with the 401(k) Plan.


                                      -37-
<PAGE>   40
13.   Quarterly Financial Data (Unaudited):

      Summarized quarterly financial data for the periods ended December 31,
      1997 and 1996 is as follows (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                                     Basic          Diluted
                                                                   Earnings        Earnings
                Revenues     Gross Profit       Net Income        Per Share       Per Share
                --------     ------------       ----------        ---------       ---------
<S>             <C>          <C>                <C>               <C>             <C>
1997:
December 31      $49,985        $23,296           $11,997            $.46            $.40
September 30      46,897         21,400            11,560             .44             .39
June 30           44,948         20,749             9,203             .35             .32
March 31          41,168         19,409             8,490             .33             .30

1996:
December 31      $39,555        $17,806            $4,891            $.20            $.17
September 30      37,492         16,470             7,052             .27             .25
June 30           35,987         14,219             6,189             .24             .22
March 31          33,055         13,269             5,450             .22             .21
</TABLE>


                                      -38-
<PAGE>   41
                              SAFESKIN CORPORATION
                              (PARENT COMPANY ONLY)

                                   SCHEDULE I
                CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY


      The following condensed financial statements reflect those of the parent
company only. The parent company has accounted for its subsidiaries on the
equity method of accounting.

      All footnote disclosures have been omitted because all the information is
included in the Safeskin Corporation consolidated financial statements included
elsewhere in this Report.

                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                     1997                 1996
                                                                -------------        -------------
<S>                                                             <C>                  <C>
ASSETS
Current assets:
  Cash and cash equivalents                                     $  21,908,840        $  14,514,225
  Accounts receivable                                              18,243,363           18,075,373
  Inventory                                                        10,092,806           26,358,943
  Other current assets                                                836,805              635,919
                                                                -------------        -------------
    Total current assets                                           51,081,814           59,584,460
  Investment in and advances to wholly-owned subsidiaries         111,140,323           87,842,651
  Property, plant and equipment, net                                6,240,405            4,052,660
  Intangibles and other assets                                        116,034              358,252
                                                                -------------        -------------
    Total assets                                                $ 168,578,576        $ 151,838,023
                                                                =============        =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities                      $  10,016,903        $   6,705,828
  Payable to wholly-owned subsidiaries                             49,888,432           42,117,406
                                                                -------------        -------------
    Total current liabilities                                      59,905,335           48,823,234
Deferred income taxes and other liabilities                         2,094,928                 --
                                                                -------------        -------------
    Total liabilities                                              62,000,263           48,823,234
Shareholders' equity:
  Common stock                                                        264,821              258,110
  Additional paid-in-capital                                       47,782,273           39,101,451
  Foreign currency translation adjustment                         (45,687,717)             686,544
  Retained earnings                                               104,218,936           62,968,684
                                                                -------------        -------------
    Total shareholder's equity                                    106,578,313          103,014,789
                                                                -------------        -------------
    Total liabilities and shareholders' equity                  $ 168,578,576        $ 151,838,023
                                                                =============        =============
</TABLE>


                                      -39-
<PAGE>   42
                              SAFESKIN CORPORATION
                              (PARENT COMPANY ONLY)

                            SCHEDULE I - (CONTINUED)
                       CONDENSED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                           1997                 1996                 1995
                                                      -------------        -------------        -------------
<S>                                                   <C>                  <C>                  <C>
Net sales .......................................     $ 158,938,566        $ 128,614,248        $ 109,959,572
Cost of goods sold ..............................       121,347,644           95,576,710           81,255,007
                                                      -------------        -------------        -------------
           Gross profit .........................        37,590,922           33,037,538           28,704,565
                                                      -------------        -------------        -------------
Operating expenses:
           Selling ..............................        19,179,398           15,935,764           19,761,304
           Research and development .............         1,962,366            1,676,684            1,411,109
           General and administrative ...........        14,731,012           12,286,798            6,396,666
                                                      -------------        -------------        -------------
             Total operating expenses ...........        35,872,776           29,899,246           27,569,079
                                                      -------------        -------------        -------------
             Income from operations .............         1,718,146            3,138,292            1,135,486
Interest expense (income), net ..................          (676,270)             (58,337)             130,738
Other expense (income), net .....................         1,602,855             (168,603)             213,806
Equity in net income of wholly-owned subsidiaries       (45,457,484)         (23,156,046)         (16,425,728)
                                                      -------------        -------------        -------------
           Income before income tax provision ...        46,249,045           26,521,278           17,216,670
Income tax provision ............................         4,998,794            2,938,879            2,325,972
                                                      -------------        -------------        -------------
           Net income ...........................     $  41,250,251        $  23,582,399        $  14,890,698
                                                      =============        =============        =============
</TABLE>


                                      -40-
<PAGE>   43
                              SAFESKIN CORPORATION
                              (PARENT COMPANY ONLY)

                            SCHEDULE I - (CONTINUED)
                       CONDENSED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                               1997                1996                1995
                                                           ------------        ------------        ------------
<S>                                                        <C>                 <C>                 <C>
Cash flows from operating activities:
  Net income .......................................       $ 41,250,251        $ 23,582,399        $ 14,890,698
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
    Depreciation and amortization ..................          1,445,783             761,231             207,801
    Loss on sale of equipment ......................             21,209               6,542               8,423
    Deferred taxes .................................          1,872,000          (2,287,424)           (144,000)
    Amortization of deferred compensation ..........               --               152,469             462,106
    Undistributed net income of wholly-owned
    subsidiaries ...................................        (45,457,484)        (23,156,046)        (16,425,728)
  Change in operating assets and liabilities:
      Accounts receivable ..........................           (167,990)         (1,742,990)         (2,407,311)
      Inventory ....................................         16,266,137          (7,602,653)        (10,675,808)
      Other assets .................................             41,332           3,188,760            (686,187)
      Accounts payable and other accrued liabilities          7,970,404           5,738,454           2,154,409
      Payable to wholly-owned subsidiaries .........          7,771,026          15,023,324          16,744,408
                                                           ------------        ------------        ------------
    Net cash provided by operating activities ......         31,012,668          13,664,066           4,128,811
                                                           ------------        ------------        ------------

Cash flows from investing activities:
 Decrease (increase) in investment in and
   advances to wholly-owned subsidiaries ...........         (9,751,357)          1,927,507          (8,247,150)
 Net cash paid for acquisition of subsidiary .......        (14,463,092)               --                  --
 Purchase of property, plant and equipment .........         (3,686,946)         (3,750,137)           (732,123)
 Proceeds from sale of equipment ...................             32,208               9,000               7,000
                                                           ------------        ------------        ------------
   Net cash used by investing activities ...........        (27,869,187)         (1,813,630)         (8,972,273)
                                                           ------------        ------------        ------------

Cash flows from financing activities:
  Increase (decrease) in long-term debt ............               --            (2,750,000)          2,750,000
  Proceeds from issuance of common stock ...........          4,251,134           5,351,924             354,321
                                                           ------------        ------------        ------------
   Net cash provided by financing activities .......          4,251,134           2,601,924           3,104,321
                                                           ------------        ------------        ------------

Net increase (decrease) in cash and cash equivalents          7,394,615          14,452,360          (1,739,141)
Cash and cash equivalents at beginning of year .....         14,514,225              61,865           1,801,006
                                                           ------------        ------------        ------------
Cash and equivalents at end of year ................       $ 21,908,840        $ 14,514,225        $     61,865
                                                           ============        ============        ============
</TABLE>


                                      -41-
<PAGE>   44

                              SAFESKIN CORPORATION

                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
                        December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                     BALANCE AT          CHARGES TO                              BALANCE AT
                                                    DECEMBER 31,          COSTS AND                             DECEMBER 31,
      DESCRIPTION                                       1996              EXPENSES           DEDUCTIONS             1997
      -----------                                   ------------        ------------        ------------        ------------
<S>                                                 <C>                 <C>                 <C>                 <C>
Allowance for doubtful accounts receivable          $    665,000        $    301,000                --          $    966,000
Allowance for inventory cost to net
   realizable value ......................          $  1,112,000        $     33,000        $    879,000        $    266,000
</TABLE>


<TABLE>
<CAPTION>
                                                     BALANCE AT          CHARGES TO                             BALANCE AT
                                                    DECEMBER 31,          COSTS AND                            DECEMBER 31,
      DESCRIPTION                                       1995              EXPENSES           DEDUCTIONS           1996
      -----------                                   ------------        ------------        ------------       ------------
<S>                                                 <C>                 <C>                 <C>                <C>
Allowance for doubtful accounts receivable          $    321,000        $    344,000                --         $    665,000
Allowance for inventory cost to net
   realizable value ......................          $    180,000        $    932,000                --         $  1,112,000
</TABLE>


<TABLE>
<CAPTION>
                                                  BALANCE AT               CHARGES TO                            BALANCE AT
                                                 DECEMBER 31,              COSTS AND                            DECEMBER 31,
      DESCRIPTION                                    1994                   EXPENSES          DEDUCTIONS           1995
      -----------                                ------------            ------------        ------------      ------------
<S>                                              <C>                     <C>                 <C>               <C>
Allowance for doubtful accounts receivable       $    311,000            $    480,000        $    470,000      $    321,000
Allowance for inventory cost to net
   realizable value ......................       $    406,780                     ___        $    226,780      $    180,000
</TABLE>


                                      -42-
<PAGE>   45

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

      None.


                                    PART III

ITEM 10, 11, 12 AND 13.

      The information required under these items is contained in the Company's
1998 Proxy Statement, which will be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year end.
This information is incorporated herein by reference.


                                     PART IV

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

      (a)   DOCUMENTS FILED AS A PART OF THIS REPORT:

            1.    Financial Statements

                  The financial statements required by this item are included
                  and listed in the accompanying Index to Consolidated Financial
                  Statements and Schedules in Part II, Item 8 of this Report.

            2.    Financial Statement Schedules

                  The financial statement schedules required by this item are
                  included and listed in the accompanying Index to Consolidated
                  Financial Statements and Schedules in Part II, Item 8 of this
                  Report.

            3.    Exhibits

                  The following is a list of all exhibits filed as a part of
                  this Report:

        EXHIBIT     DESCRIPTION OF DOCUMENT
        -------     -----------------------

           3.1      Amended and Restated Articles of Incorporation(1)

           3.2      Amended and Restated Bylaws(8)

          10.1      Safeskin Corporation Amended and Restated Equity
                    Compensation Plan(1)

          10.2      Employment Agreement, dated June 15, 1993, between Neil K.
                    Braverman and Safeskin Corp.(1)

          10.3      Employment Agreement, dated June 15, 1993, between Richard
                    Jaffe and Safeskin Corp.(1)

          10.4      Office Lease Agreement, dated November 14, 1989, between
                    Crocker Center Associates IV, Ltd. and Safeskin Corp.(1)

          10.5      Standard Industrial Sublease, dated April 14, 1993, between
                    Tri Gem Computer, Inc. and Safeskin Corporation(1)

          10.6      Lease, dated August 7, 1992, between Merritt-Bavar Limited
                    Partnership and Safeskin Corporation(1)

          10.7      Accounts Financing Agreement, dated February 27, 1989,
                    between Congress Financial Corporation (Florida) and
                    Safeskin Corp., and amendment thereto(1)

          10.8      Promissory Note, dated November 9, 1993, by Safeskin Corp.
                    to Bankers Trust Company(1)


                                      -43-
<PAGE>   46
        EXHIBIT     DESCRIPTION OF DOCUMENT
        -------     -----------------------
          10.9      Promissory Note, dated December 31, 1991, by Safeskin Corp.
                    to The Jaffe Family Partnership(1)

          10.10     Promissory Note, dated July 23, 1992, by Safeskin Corp. to
                    Mr. Neil K. Braverman(1)

          10.11     Promissory Note, dated December 21, 1992, by Safeskin Corp.
                    to Mr. Neil K. Braverman(1)

          10.12     Promissory Note, dated December 21, 1992, by Safeskin Corp.
                    to The Jaffe Family Partnership(1)

          10.13     Letter of Offer of Banking Facilities, dated November 25,
                    1992, by Perwira Habib Bank Malaysia Berhad to Safeskin
                    Corporation (Malaysia) Sdn. Bhd., and amendment thereto(1)

          10.14     Letter of Offer of Banking Facilities, dated March 4, 1992,
                    by Standard Chartered Bank to Safeskin Corporation (M) Sdn.
                    Bhd.(1)

          10.15     Guarantee, dated February 3, 1992, by Safeskin Corp. to
                    Standard Chartered Bank(1)

          10.16     Letter of Offer of Banking Facilities, dated January 30,
                    1992, by Perwira Habib Bank Malaysia Berhad to Safeskin
                    Latex Company Sdn. Bhd.(1)

          10.17     Corporate Guarantee, dated March 24, 1992, by Safeskin
                    Corporation (Malaysia) Sdn. Bhd. to Perwira Habib Bank
                    Malaysia Berhad(1)

          10.18     Debenture, dated June 27, 1991, between Safeskin Corporation
                    (Malaysia) Sdn. Bhd. and Perwira Habib Bank Malaysia
                    Berhad(1)

          10.19     Debenture, dated March 10, 1992, between Safeskin
                    Corporation (Malaysia) Sdn. Bhd. and Perwira Habib Bank
                    Malaysia Berhad(1)

          10.20     Debenture, dated June 1, 1992, between Safeskin Corporation
                    (M) Sdn. Bhd. and Standard Chartered Bank(1)

          10.21     Corporate Guarantee, dated February 8, 1993, by Safeskin
                    Corporation to Perwira Habib Bank Malaysia Berhad(1)

          10.22     Letter of Offer of Banking Facilities, dated December 28,
                    1992, by The Hong Kong and Shanghai Banking Corporation
                    Limited to Safeskin Corporation (M) Bhd. Sdn.

          10.23     Continuing Guaranty, dated February 22, 1993, by Safeskin
                    Corp. to The Hong Kong and Shanghai Banking Corporation
                    Limited(1)

          10.24     Agreement, dated December 7, 1992, between Norsechem Latex
                    Products (M) Sdn. Bhd. and Safeskin Corporation (M) Sdn.
                    Bhd.(1)

          10.25     Corporate Guarantee and Indemnity, dated February 18, 1993,
                    by Safeskin Corp. to Norsechem Latex Products (M) Sdn. Bhd.
                    and Synthetic Bakelites (Malaysia) Sdn. Bhd.(1)

          10.26     Bank Guarantee and Indemnity, dated February 27, 1993, The
                    Hong Kong and Shanghai Banking Corporation Limited to
                    Synthetic Bakelites (Malaysia) Sdn. Bhd.(1)

          10.27     Stock Option Grant by Safeskin Corp. to Lee Chee Ming(1)

          10.28     Collective Agreement, dated October 25, 1991, between
                    Safeskin Corporation (M) Sdn. Bhd. and Kesatuan
                    Pekerja-Pekerja Safeskin Corporation (M) Sdn. Bhd.(1)

          10.29     Trust Deed, dated June 9, 1993, with respect to shares of
                    Safeskin Latex Company Sdn. Bhd.(1)

          10.30     Trust Deed, dated June 9, 1993, with respect to shares of
                    Safeskin Latex Company Sdn. Bhd.(1)

          10.31     Letter of Review of Credit Facilities--Enhancement, dated
                    August 18, 1993 by Perwira Habib Bank Malaysia Berhad(1)

          10.32     Corporate Guarantee, dated October 8, 1993, by Safeskin
                    Corporation to Perwira Habib Bank Malaysia Berhad(1)

          10.33     Industrial Real Estate Lease, dated January 1, 1994, between
                    California State Teachers Retirement System and Safeskin
                    Corporation(2)

          10.34     Employment Agreement, dated July 20, 1995, between David L.
                    Morash and Safeskin Corp.(3)


                                      -44-
<PAGE>   47
        EXHIBIT     DESCRIPTION OF DOCUMENT
        -------     -----------------------
          10.35     Employment Agreement, dated June 29, 1995, between Judy W.
                    Grimes and Safeskin Corporation (4)

          10.36     Office Lease, dated October 31, 1995, between SDC LP and
                    Safeskin Corporation

          10.37     Credit Agreement, dated July 15, 1996, by Safeskin
                    Corporation to Union Bank(5)

          10.38     Letter of Agreement between Judy Grimes and Safeskin
                    Corporation(5)

          10.39     Consulting Agreement, dated as of January 1, 1997, between
                    Neil K. Braverman and Safeskin Corporation (6)

          10.40     Amended and Restated Assets Purchase Agreement, dated as of
                    March 24, 1997, by and among TT Acquisition Company, EQ
                    Corporation and Tactyl Technologies, Inc.(6)

          10.41     Executive Deferred Compensation Plan of Safeskin
                    Corporation(7)

          11        Statement re: Computation of Per Share Earnings (8)

          21        Subsidiaries of the Registrant (8)

          23.1      Consent of Deloitte & Touche LLP (8)

          23.2      Consent of Coopers & Lybrand L.L.P. (8)

          99        Report of Independent Accountants (8)

----------

            (1)   Filed as an exhibit to the Company's Registration Statement on
            Form S-1, No. 33-68284, as filed with the Securities and Exchange
            Commission and incorporated herein by reference.

            (2)   Filed as an exhibit to the Company's Form 10-K for the fiscal
            year ended December 31, 1993.

            (3)   Filed as an exhibit to the Company's Form 10-Q for the fiscal
            quarter ending September 30, 1995 as 10a.

            (4)   Filed as an exhibit to the Company's Form 10-Q for the fiscal
            quarter ending September 30, 1995 as 10b.

            (5)   Filed as an exhibit to the Company's Form 10-Q for the fiscal
            quarter ending June 30, 1996.

            (6)   Filed as on exhibit to the Company's Form 10-Q for the fiscal
            quarter ending March 31, 1997.

            (7)   Filed as on exhibit to the Company's Form 10-Q for the fiscal
            quarter ending September 30, 1997.

            (8)   Filed as on exhibit hereto.

      (b)   REPORTS ON FORM 8-K:

      During the quarter ending December 31, 1997, the Company filed one Form
      8-K. The Form 8-K filing, which was dated October 7, 1997, reported
      "Changes in Registrant's Certifying Accountant".


                                      -45-
<PAGE>   48
                                   SIGNATURES

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

                                       SAFESKIN CORPORATION


                                       By:  /s/ Richard Jaffe
                                       -----------------------------------------
Dated:  March 30, 1998                 Richard Jaffe, Chairman, President and
                                       Chief Executive Officer


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

<TABLE>
<CAPTION>
       Signature                             Title                                       Date
       ---------                             -----                                       ----

<S>                                          <C>                                         <C>
/s/ Richard Jaffe                            Chairman, President, Chief Executive        March 30, 1998
----------------------------                 Officer and Director
Richard Jaffe

/s/ David L. Morash                          Executive Vice President                    March 30, 1998
-----------------------------                and Chief Financial Officer
David L. Morash

/s/ Seth S. Goldman                          Vice President, Finance                     March 30, 1998
-----------------------------                Controller and Secretary
Seth S. Goldman

/s/ Neil K. Braverman                        Director                                    March 30, 1998
---------------------------
Neil K. Braverman

/s/ Irving Jaffe                             Chairman Emeritus and Director              March 30, 1998
----------------------------
Irving Jaffe

/s/ Howard L. Shecter                        Director                                    March 26, 1998
----------------------------
Howard L. Shecter

/s/ Joseph Stemler                           Director                                    March 24, 1998
----------------------------
Joseph Stemler

/s/  Cam L. Garner                           Director                                    March 30, 1998
-------------------------
Cam L. Garner
</TABLE>


                                      -46-
<PAGE>   49
                                  EXHIBIT INDEX


EXHIBIT     DESCRIPTION OF DOCUMENT
-------     -----------------------

3.2         Amended and Restated Bylaws

11          Statement re: Computation of Per Share Earnings

21          Subsidiaries of the Registrant

23.1        Consent of Deloitte & Touche LLP

23.2        Consent of Coopers & Lybrand L.L.P.

27          Financial Data Schedule

99          Report of Independent Accountants


                                      -47-