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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996


                         Commission file number 0-22726

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

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            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

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           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 21, 1997, the aggregate market value of the voting stock of
the Registrant held by non-affiliates of the Registrant was $404,284,682.

      As of March 21, 1997, the number of outstanding shares of Common Stock,
par value $.01 per share, of the Registrant was 25,981,248.

                       Documents Incorporated by Reference

      Information required by Part III is incorporated by reference to portions
of the Registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission within 120 days
after the close of the 1996 fiscal year.

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                               TABLE OF CONTENTS                          PAGE

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 ..................... 20

Item 9.  Disagreements on Accounting and Financial Disclosures ........... 41

PART III

Item 10. Directors and Executive Officers of the Registrant .............. 41

Item 11. Executive Compensation .......................................... 41

Item 12. Security Ownership of Certain
         Beneficial Owners and Management ................................ 41

Item 13. Certain Relationships and Related Transactions .................. 41

PART IV

Item 14. Exhibits, Financial Statement Schedules
         and Reports on Form 8-K .......................................... 41

Signatures ................................................................ 45
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                                    PART I

ITEM 1.     BUSINESS

      The Company is the 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 powder-free
examination gloves. The Company sells its gloves primarily to the medical,
dental, high technology and scientific 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. 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 1996, approximately
60% of the Company's sales were to acute care facilities, approximately 27% were
to alternate care (primary care and extended care) and dental facilities and
approximately 13% were to the high technology and scientific market.

      The Company began operations in 1987 to take advantage of the opportunity
presented by the growing demand for high quality latex gloves which appeal to
the wearer by being 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 proteins and 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 gloves for high technology and
scientific uses; in 1994, the Company introduced a powder-free latex surgical
glove; and in 1995, the Company introduced a powder-free glove made of nitrile
synthetic latex 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
gloves. The Company was the first glove manufacturer to receive clearance for
use of this claim for all of its powder-free glove products. In 1996, the
Company introduced its Safeskin 2000 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."

INDUSTRY

      In 1996, the total market for medical gloves in the United States was
approximately $1 billion. The growth in the market for medical examination
gloves over the past nine years has largely resulted from the increased concerns
among health care professionals over protection from the transmission of
infectious diseases, particularly HIV, which can cause AIDS, and HBV. In 1987,
the Centers for Disease Control ("CDC") issued recommendations that anyone
coming into contact with bodily fluids should use "universal precautions,"
including wearing 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.

      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 and require gloves that minimize the amount of particles on their
surfaces to prevent contamination.

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      As people began wearing more latex gloves for longer periods, there was an
increase in allergic reactions to the water soluble proteins in latex and to the
chemical 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 likelihood of allergic reaction. OSHA regulations in effect
since 1991 require that all employers provide gloves that are both
hypoallergenic and powder-free for employees who are allergic to the gloves
otherwise provided. As of September 30, 1996, the United States acute care
market for powder-free medical examination gloves was approximately $125
million.

STRATEGY

      The Company's strategy for future growth includes the following principal
components:

      Increase Domestic Market Penetration. The Company's strategy is to
increase its penetration of the overall domestic acute care medical examination
glove market, which had estimated annualized sales of $298 million for 1996, by
emphasizing sales in the powder-free segment of that market. The Company
estimates that in 1996 it had a 44% share of the powder-free segment, compared
to a 24% share of the overall market.

      Expand Customer Base. The Company intends to expand the customer base of
its products to include new categories of customers and international markets.
The Company's traditional marketing efforts have focused on the domestic acute
care market, which accounted for approximately 60% of the Company's sales in
1996. The Company plans to increase its marketing efforts in the expanding
alternate care market, such as the medical laboratory, primary care, and
extended care segments, in the dental market, and in the high technology and
scientific market, which includes the semiconductor, biotechnology,
pharmaceutical, general industrial manufacturing and research segments. The
Company also plans to expand its sales and marketing efforts in Europe.

      Introduce New Products. The Company has a history of new product
development and innovation and has recently introduced the Safeskin 2000
powder-free surgical latex glove to the estimated $225 million annual United
States market for surgical gloves. The Company plans to continue to be an
innovator in glove manufacturing technology and intends to introduce new
products to the marketplace in the future. Specifically, the Company intends to
acquire or develop other medical and scientific gloves made of nitrile or other
synthetic latex and to continue to dedicate resources to research and
development of new healthcare and scientific product opportunities. In
conjunction with the Company's strategy, on February 20, 1997, the Company
announced the signing of a definitive agreement to acquire the synthetic glove
business of Tactyl Technologies, Inc., a developer and manufacturer of non-latex
surgical gloves for the domestic and international markets. (See "Recent
Developments" for additional information regarding this acquisition.)

      Emphasize Innovative Manufacturing. The Company intends to continue to
develop innovative manufacturing techniques and facilities to improve quality
and efficiency. The Company is currently constructing a new production line in
its Thai facility. The new production line, referred to by the Company as the
"Grand Master," is expected to 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 is also in the process of building
a latex concentrate plant in Thailand, which will supply latex concentrate to
the Company's factories in Thailand and Malaysia and will allow the Company to
integrate more fully its manufacturing processes. These two manufacturing
innovations will improve the reliability of the Company's raw material supplies
and the quality of the Company's gloves, decrease raw material costs, improve
operating efficiencies and profitability, expand capacity and reduce capital
costs.

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


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latex gloves and one type of nitrile synthetic latex glove, substantially all of
which are marketed under the "Safeskin" trade name to enhance market recognition
and brand loyalty. Each type of the Company's latex gloves comes in various
sizes and, except for the high technology and scientific nitrile glove, is made
of natural rubber latex with a beaded cuff for added strength and ease in
donning. The Company manufactures both ambidextrous and hand specific gloves.
The price data appearing below are industry-wide averages.

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 and 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. End users typically pay between $.12 and $.24 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. End users typically pay
    between $.08 and $.16 per pair for lightly powdered medical examination
    gloves.

SURGICAL GLOVES

-   Safeskin 2000 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." Surgical gloves are designed to meet the
    more rigorous demands of the operating room environment. The Safeskin 2000
    surgical glove offers superior ergonomic characteristics which provide
    surgeons with greater freedom of motion and increased dexterity, thereby
    resulting in less hand fatigue. In addition to being sterile, the glove is
    non-pyrogenic, which eliminates endotoxin (dead bacteria) contamination of
    surgical sites. The CAD program revolutionized prototype and mold design
    processes, greatly decreasing the time between product development and
    market launch, and utilized data from a United States Army Anthropometric
    Survey on several thousand hand measurements and spatial relationships for
    unique fit. End users typically pay between $1.00 and $2.00 per pair for
    powder-free surgical gloves.

-   Surgical Gloves- Lightly Powdered. Safeskin lightly powdered sterile
    surgical gloves were first introduced in 1994 to the European market. These
    gloves offer many of the same benefits of the Company's powder-free sterile
    surgical glove. End users in the European market typically pay between $.45
    and $.75 per pair for lightly powdered 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
    developed 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 enabled
    the Company to offer the first non-cytotoxic (i.e., does not destroy cells)
    glove to the high technology and scientific market. In


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    addition, HypoClean 100(R) gloves receive further ultra pure cleaning and
    are packaged in a Class M3.5 (100) cleanroom for compatibility with all
    critical environment applications. End users in the high technology and
    scientific fields typically pay between $.32 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 developed 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. End users in the high technology and scientific
    fields typically pay between $.20 and $.60 per pair for powder-free latex
    gloves.

-   High Technology and Scientific Nitrile Gloves. The Company introduced its
    nitrile synthetic latex gloves in its high technology and scientific product
    line in the first half of 1996. These gloves are manufactured from a
    synthetic material, thus eliminating natural rubber protein antigens and
    offering a broader range of resistance to many of the chemicals used in high
    technology and laboratory applications. End users in the high technology and
    scientific fields typically pay between $.28 and $.70 per pair for
    powder-free synthetic latex gloves.

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 1994, 1995 and 1996, the Company's research and development expenses
were approximately $977,000, $1,493,000 and $2,209,000, respectively. The
Company expects these costs to increase as the Company increases the number of
new products it introduces. The Company believes that the close interaction
between its research and development and manufacturing personnel allows for
timely and effective realization of the Company's new glove concepts.

PRODUCTS UNDER DEVELOPMENT

      The Company has developed a medical examination glove made of nitrile
synthetic latex and has recently received clearance from the FDA to begin
selling the gloves in the United States. The Company is also currently
developing non-nitrile synthetic latex gloves for the medical, high technology
and scientific markets. In the future, the Company intends to introduce
specialty powder-free surgical gloves designed to offer additional benefits such
as increased barrier protection.

      There can be no assurance that these new products will be successfully
developed, will be cleared by the FDA, will gain market acceptance or will
command pricing levels acceptable to the Company.

PRODUCT LABELING

      All of the Company's latex medical gloves are labeled "hypoallergenic" and
have passed the modified Draize test for hypoallergenicity. Gloves labeled
"hypoallergenic" are manufactured and processed with lower levels of chemicals.
These products are designed to minimize the likelihood of irritation or allergic
contact dermatitis. The Company's powder-free latex gloves have soluble and
antigenic protein levels which the Company believes are as low as the level in
any other latex gloves on the market. The Company has received 510(k) clearance
for its powder-free medical gloves with labeling concerning total protein
content. The product labeling which was cleared through the 510(k) process
included a claim for "50 micrograms or less of total water extractable protein
per gram," the lowest protein content claim allowable by the FDA for latex
medical gloves.

      There is a risk with all latex gloves that individuals sensitive to latex
proteins might have allergic reactions. The recent emergence of allergies to
latex protein have caused the FDA to question whether the use of the term
"hypoallergenic" is still appropriate. Therefore, in June 1996, the FDA proposed
issuing regulations prohibiting the use of a "hypoallergenic" label on latex
gloves for use by healthcare personnel and requiring a labeling statement that
latex may cause allergic reactions. In the event such regulations are adopted by
the FDA, the Company will stop using the term "hypoallergenic" on its packaging
and will comply fully with applicable labeling requirements.


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As a result, the Company may need to rely on alternate labeling such as the low
protein content claim cleared through the 510(k) process. In addition, the
Company may elect to seek approval of alternative labeling with respect to the
chemical qualities of its medical gloves, but there can be no assurance such an
alternative claim will be permitted. The Company also currently uses the
statement "THIS PRODUCT CONTAINS NATURAL RUBBER LATEX" on all of its packaging
containing medical latex gloves, as recommended by the FDA.

      By establishing criteria for glove manufacturers to claim a low level of
chemical residue and a low protein content, the FDA will be raising industry
standards for glove manufacturing. The Company believes that its strength in
manufacturing and research and development provide it with an opportunity to
further distinguish itself from its competitors by anticipating and exceeding
regulatory requirements.

SALES AND MARKETING

      The Company's sales and marketing efforts focus principally on the acute
care market (hospital), alternate care market (primary care and extended care)
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. In
1996, sales of latex medical gloves to acute care facilities represented
approximately 60% of the Company's total sales, while sales to alternate care
facilities represented approximately 27% of total sales. Sales by the Scientific
Division to the non-medical, high technology and scientific users represented
approximately 13% of total sales during 1996.

      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, 1996, the Company's gloves were used in
over 3,400 hospitals, which constitute approximately 64% of all hospitals in the
United States.

      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 healthcare worker protection and skin disorders in order to
promote the Company's products and educate the hospital and other personnel
utilizing the products. 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. Recently, the Company hired a sales manager to focus on
the dental market and is in the process of recruiting sales representatives to
support the Company's efforts.

      The Company's sales force for medical gloves comprises 46 persons, as of
December 31, 1996, who are supervised by seven Regional Managers and the
Director of Sales, Medical Division. The sales representatives are paid salaries
plus performance-based commissions. Each sales representative possesses at least
five years of previous sales experience and is trained by the Company in the
dermatological and immunological aspects of latex. They are also specifically
trained to conduct continuing education programs for healthcare personnel to
educate them on the reactions possible from latex gloves. Under these education
programs, the Company has trained approximately 30,000 healthcare professionals.
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.

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      The Company's recently formed 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.

      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. The Company believes that
these logistics services are one of its key competitive advantages and have
helped the Company become the preferred supplier for many of its customers.
Specifically, the Company's logistics personnel work with medical products
distributors to reduce their order cycle time and inventory levels and have
succeeded in increasing product availability for the Company's customers. 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 140 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. Three of the
largest distributors to the general hospital market, Owens & Minor, General
Medical, and Bergen Brunswig Medical currently carry the Company's product line
on a non-exclusive basis. Owens & Minor, General Medical and Bergen Brunswig
Medical distributed gloves accounting for approximately 22.5%, 21.7% and 7.9%,
respectively, of the Company's 1996 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 latex gloves which
they carry.

      During 1994, the Company entered into a three year contract with General
Medical governing sales of the Company's gloves through General Medical. The
contract also designated the Company as the exclusive manufacturer of General
Medical'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 and to name the Company as General Medical's preferred
glove manufacturer. In the amendment, General Medical also agreed to promote
sales of the Company's gloves and the private label gloves manufactured by the
Company. General Medical 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 ("Premier"), a national group purchasing organization ("GPO") which is
the largest hospital alliance in the United States. The Company is one of two
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. Beginning in the first quarter of 1997, the Company's
examination gloves will be made available to the Premier member hospitals and
their alternate care affiliates. 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.

      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 beginning to use gloves. Gloves protect
both the worker and the products or processes in these industries. As of
December 31, 1996, the Company's high technology and scientific products were
sold by a


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network of approximately 80 distribution companies, including the two largest
U.S. laboratory/cleanroom distributors, Fisher Scientific and VWR Scientific
Products. The Company has a sales force of six Company sales representatives and
four independent manufacturing representatives actively supporting the
distribution network and end user customers. This sales force reports to the
Director of Sales, Scientific Division.

      The Company established a sales and marketing office in The Netherlands in
1992. In 1994, the Company opened its international sales and marketing
headquarters in Germany, with a satellite office in the United Kingdom. The
Company also recruited and trained a sales organization in 1994 and continues to
expand its distribution network throughout the European Community (the "EC").
The Company also sells its products in South America, Australia, and Japan.
During 1996, 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 manufactures its products at two factories in Ipoh, Malaysia
and one factory in Hat Yai, Thailand. Factory 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. Latex concentrate is then purchased by the Company as the raw material
for gloves.

      The Company's facilities in Ipoh, Malaysia have received an ISO 9002
certification and the Company expects to receive ISO 9002 certification for the
new Thailand facility in 1997. ISO standards are internationally recognized
quality manufacturing standards established by the International Organization
for Standardization based in Geneva, Switzerland. To obtain its ISO
registration, the Company's factories were independently audited to ensure
compliance with the applicable standards, and to maintain registration, 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 Thai facility began producing gloves in the first quarter of
1995 and is capable of producing all types of the Company's latex 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 its Malaysian
facilities. On December 13, 1996, the Company announced plans to move all of its
remaining latex examination glove production from its Malaysian facility to its
Thai facility in 1997. In connection with the move, the Company took a $3
million charge against earnings in the fourth quarter of 1996. The Company
anticipates that the move will improve profit margins in 1997 and future years
due to the lower production costs at the Thai facility. To accommodate the
increased production requirements in Thailand, the Company plans to complete a
new production line currently being constructed at the Thai facility, referred
to by the Company as the "Grand Master" and scheduled to be completed in the
first quarter of 1997 with two additional "Grand Master" lines schedule to be
completed during the second half of 1997. The combination of the three machines
is expected to increase the Thai facility's capacity by approximately 70% by the
end of 1997 when the new machines are scheduled to be fully operational. The
Company will continue to operate one of its Malaysian facilities for the
production of higher value products, such as the newly introduced Safeskin 2000
powder-free surgical glove, the high technology and scientific division's
HypoClean(R) products and synthetic nitrile products.

      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 to manufacture its disposable latex
gloves. The Company expects that the first construction phase of this new plant
will be completed in the first half of 1997 and that the final phase will be
completed within two years. This plant will allow the


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Company to integrate more fully its manufacturing processes in order to gain
better control over the quality, cost and reliability of latex supplies.

      The gloves are manufactured on production machines which can run
continuously and which 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 of latex concentrate arriving at the
factory is tested to ensure that it meets Company quality standards. Each glove
is formed by dipping a porcelain mold into the latex compound. Water soluble
proteins which occur naturally in latex, and certain additives which are added
to latex when it is processed, are removed by means of an extensive heating and
leaching processes. In both the Thai and Malaysian facilities, the Company has
begun automating the glove stripping 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.

      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 (a spin-off of Baxter Healthcare), Maxxim Medical, Ansell-Perry, and
Johnson & Johnson. The Company believes that Allegiance 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. Synthetic latex glove
manufacturers also sell products in the medical and non-medical glove market.
Synthetic latex gloves are generally more expensive than natural latex gloves
and do not, in the Company's opinion, present a significant threat to the
Company's natural rubber latex products at this time.

      The Company believes the primary competitive factors within its markets
are product quality, durability, reliability and 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.

                                      -8-
<PAGE>   11
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,
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.

      Latex medical 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. Beginning in June 1997, the Company will
have to comply with 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. Therefore, 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.

                                      -9-
<PAGE>   12
      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 product throughout the EC. The Company currently meets all
such regulatory requirements, including registration with the appropriate
notified bodies, which register companies for the sale of products throughout
the EC. In order to continue selling its products within the EC following June
14, 1998, the Company will be required to comply with the EC's Medical Devices
Directive.

      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 latex 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, 1996, the Company had approximately 4,100 employees of
whom approximately 3,900 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 expires on September 30, 1997. The Company considers its relations
with its employees to be good.

RECENT DEVELOPMENTS

      Effective January 1, 1997, the Company's founder, Co-Chairman and
Director, Neil K. Braverman, resigned as Co-Chairman and entered into a one-year
consulting agreement with the Company. Pursuant to the consulting arrangement,
Mr. Braverman is working on a part-time basis, assisting the Company in the
areas of manufacturing and new product development. Mr.
Braverman is a director of the Company.

      On January 29, 1997, certain principal shareholders of the Company
completed a secondary offering of 3,200,000 shares of the Company's Common
Stock. The Company did not receive any proceeds from the offering.

      On February 20, 1997, the Company announced the signing of a definitive
agreement to acquire 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 agreement was finalized on March 24,
1997. The acquisition price is approximately $14 million payable at the closing,
plus up to an additional $5 million contingent


                                      -10-
<PAGE>   13
upon the Tactyl business achieving certain future sales and performance targets,
including the development of the next generation of synthetic latex technology.
The acquisition is expected to be accretive, with a positive impact on
Safeskin's earnings in Tactyl's first full year of operation. Tactyl's surgical
glove is the market leader, with an approximate 50% share in the fastest growing
segment of the surgeons' glove market. Tactyl's gloves are constructed from a
patented and advanced synthetic thermoplastic elastomer technology called
TACTYLON(TM), developed to address the needs of healthcare professionals and
patients who are sensitive to natural rubber latex. TACTYLON(TM) enhances the
tactile sensitivity as compared to other synthetic materials while providing
internal barrier protection and latex allergy avoidance. The Company believes
that Tactyl's patented technology and surgical glove business strategically
compliment the Company's Safeskin 2000 powder-free surgeons' glove and will
accelerate the Company's strategy to become the market share leader not only in
exam gloves but also surgical gloves. The Company will now be able to offer
surgeons the choice of two powder-free products which provide the quality,
comfort and tactile sensitivity required of a latex or non-latex glove.

      On March 5, 1997, the Company announced an exclusive supply agreement with
Costco Wholesale for Safeskin lightly powdered examination gloves for consumer
use. The Company and Costco Wholesale believe this agreement has a potential
value of up to six million dollars annually. Costco Wholesale now operates 270
warehouses throughout the U.S., 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.


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 Malaysian facilities in
1997. 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 examination glove production from its Malaysian facility to
its Thai facility. 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 300,000 square feet. The Company owns the approximately
46 acres of land on which the facility is located.

      In the United States, the Company leases warehouse space in Hanover,
Maryland of approximately 40,000 square feet. The Company also utilizes the
services of a logistical management company which provides warehouse services in
Des Plaines, Illinois. In 1996, the Company leased warehouse space in San Diego,
California of approximately 45,000 square feet. This lease expired in February
1997, and the Company currently utilizes the services of the aforementioned
logistical management company to provide warehouse services in both Mira Loma,
California and Forest Park, Georgia. The Company leases approximately 42,000
square feet of office space 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 2,746 square feet of space in San
Diego, California for its research and development laboratory.

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

      Since May 1995, 52 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. Although there have been no class actions certified in connection
with these lawsuits, the Company was recently served with a complaint seeking to
certify a class in the U.S. District Court for the Southern District of Indiana.
However, on February 26, 1997, the Judicial Panel on Multi-District Litigation
entered an order transferring certain latex allergy lawsuits brought 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 in Philadelphia. Other pending and future federal court
latex allergy lawsuits, including the Indiana action seeking to certify a class,
are expected to be transferred to Judge Ludwig's docket, 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 National Market
under the symbol "SFSK." The following table sets forth the high and low closing
prices of a share of the Company's Common Stock for each quarter in 1995 and
1996, and the interim period indicated, as reported by the Nasdaq National
Market and restated to give effect to a two-for-one split of the Common Stock
effected on January 2, 1997.

                                    High              Low
                                    ----              ---
          1995
          ----
      First Quarter                 7 5/8             6 1/8
      Second Quarter                7 3/4             5 1/2
      Third Quarter                 9 5/8             7 1/4
      Fourth Quarter                9 13/16           8

          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
      (through March 21, 1997)      25 3/4            18

            The closing price of the Company's Common Stock on March 21, 1997,
as reported by the Nasdaq National Market was $18 7/8.

            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 21, 1997 was 322. 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, 1996 are derived from the audited
consolidated financial statements of the Company, except for per share
information, which has been restated to give effect to a two-for-one split of
the common stock effected on January 2, 1997. The consolidated financial
statements as of December 31, 1996 and 1995 and for each of the three years
ended December 31, 1996, 1995, 1994 are included elsewhere in this Report. The
financial information for the Company at December 31, 1993 and 1992 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>
---------------------------------------------------------------------------------------------------------
                                             1996          1995          1994          1993          1992
---------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Net sales                                $146,089      $117,014       $84,142       $57,264       $33,878
Costs of goods sold                        84,325        75,756        50,376        33,237        20,603
                                         --------       -------       -------       -------       -------
    Gross profit                           61,764        41,258        33,766        24,027        13,275
Selling expenses                           17,693        16,120        11,685         7,999         3,981
Research and development (1)                2,209         1,493           977           398            --
General and administrative expenses        12,287         6,397         3,625         2,561         1,812
Write-down of fixed assets                  2,979            --            --            --            --
                                         --------       -------       -------       -------       -------
    Income from operations                 26,596        17,248        17,479        13,069         7,482
Interest expense, related parties              --            --            --           156           216
Interest expense (income), net                (58)          194            17         1,285         1,325
Other expense (income), net                   133          (163)         (825)         (237)         (203)
                                         --------       -------       -------       -------       -------
     Income before income tax              26,521        17,217        18,287        11,865         6,144
Income tax provision                        2,939         2,326         3,920           213           127
                                         --------       -------       -------       -------       -------

    Net income                           $ 23,582       $14,891       $14,367       $11,652       $ 6,017
                                         ========       =======       =======       =======       =======
Net income per share (2) (3)             $    .85       $   .58       $   .57       $   .56       $   .34
Weighted average common shares             27,775        25,605        25,392        20,817        17,491
   outstanding


BALANCE SHEET DATA:
Working capital                          $ 48,310       $28,055        $22,987      $22,310      $(6,768)
Total assets                              116,749        84,675         61,230       43,224        21,393
Long-term debt                                 --         2,750            --            --           852
Shareholders' equity                      103,015        69,861         54,260       38,750           934
---------------------------------------------------------------------------------------------------------
</TABLE>

(1) Prior to the year ended December 31, 1993, the Company did not separately
    classify the cost of research and development because it was not
    significant.
(2) Net income per share 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. Primary and fully diluted net income per share amounts and the
    number of primary and fully diluted weighted average common shares
    outstanding are the same for all periods presented except for the twelve
    months ended December 31, 1996. Fully diluted net income per share and the
    number of fully diluted weighted average common shares for the twelve months
    ended December 31, 1996 were $.84 and 28,187, respectively.
(3) The number of shares outstanding has been adjusted to reflect the
    two-for-one stock split of the Common Stock effected 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 the introduction of new products, growth in markets for its
products, and increased market penetration due to the implementation of sales
and marketing programs. The Company introduced lightly powdered medical gloves,
powder-free medical gloves, HypoClean(R) powder-free gloves, powder-free latex
surgical gloves and high technology and scientific nitrile gloves in 1989, 1990,
1992, 1994 and 1995, respectively. In the fourth quarter of 1996, the Company
formally launched its Safeskin 2000 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." The Company has
recently developed a medical examination glove made of nitrile synthetic latex
and has received clearance from the FDA to begin selling the gloves in the
United States. 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 allowable rebates provided by contract to distributors covering the
resale of the Company's products in specific volumes to specified end user
customers. 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 together with other related expenses such as sales commissions, travel
costs, trade shows, advertising and delivery expenses. Research and development
expenses include salaries for research and development staffs as well as
expenses such as consulting, product testing and travel costs. General and
administrative expenses include salaries for executives and administrative and
information technology staffs, together with related expenses such as travel
costs, insurance, facilities costs and consulting and professional fees. Income
tax expenses are substantially 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 Thai
manufacturing operations have been granted tax free status through 2003.

      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.

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.

                                      -15-
<PAGE>   18
      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
Thai 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. The Company
anticipates that the move will improve profit margins in 1997 and future years
due to the lower production costs at the Thai 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.

      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.

1995 COMPARED TO 1994

      Net sales for 1995 were $117,014,000 which represents a 39.1% increase
over net sales of $84,142,000 in 1994. The predominant cause for the sales
growth was higher unit volumes in the 1995 period as compared to the 1994
period. The Company's gross margins were negatively impacted by competitive
pricing pressures beginning in the later part of 1994. In response to higher raw
materials costs, the Company increased prices on most of its products in the
United States beginning in the second quarter of 1995.

      Cost of goods sold increased 50.4% from $50,376,000 for 1994 to
$75,756,000 for 1995. As a percentage of net sales, cost of goods sold increased
from 59.9% in 1994 to 64.7% in 1995. The increase in cost of goods sold as a
percentage of net sales is principally attributable to increased raw material
costs coupled with competitive pricing pressures. Despite the significant
increase in raw material costs in 1995, manufacturing costs benefited from
greater operating efficiencies in the new Thai facility. The Company anticipates
that these operating efficiencies will continue in 1996 as the Thai facility's
production capacity increases. As a result of the above, gross profits increased
22.2% from $33,766,000 in 1994 to $41,258,000 in 1995.

                                      -16-
<PAGE>   19
      Selling expenses increased 38.0% from $11,685,000 in 1994 to $16,120,000
in 1995. As a percentage of net sales, selling expenses are comparable to the
prior year, decreasing slightly from 13.9% in 1994 to 13.8% in 1995.

      Research and development expenses increased 52.8% from $977,000 in 1994 to
$1,493,000 in 1995. As a percentage of net sales, research and development
expenses increased from 1.1% in 1994 to 1.3% in 1995.

      General and administrative expenses increased 76.5% from $3,625,000 in
1994 to $6,397,000 in 1995. As a percentage of net sales, general and
administrative expenses increased from 4.3% in 1994 to 5.5% in 1995. This
increase in general and administrative expenses as a percentage of net sales
pertains primarily to the formation of an Information Technology Department in
fiscal year 1995 to support the growth of the Company. Additional factors
include increased consulting, investor relations efforts and legal expenses as
well as the costs associated with the relocation of the finance department to
San Diego to consolidate the sales, marketing and finance areas of the Company.

      Income from operations decreased 1.3% from $17,479,000 in 1994 to
$17,248,000 in 1995 and operating margins decreased from 20.8% in 1994 to 14.7%
in 1995.

      Interest expense, net increased from $17,000 in 1994 to $194,000 in 1995.
This increase resulted from additional debt incurred in 1995 to facilitate the
growth of the Company.

      The excess of other income, net over other expense decreased from $825,000
in 1994 to $163,000 in 1995. This reflected a decrease in other income,
primarily due to the reclassification in fiscal 1995 of scrap sale proceeds
totaling approximately $688,000 as a reduction of cost of goods sold.

      Provision for income taxes decreased 40.7% from $3,920,000 in 1994 to
$2,326,000 in 1995. During June 1994, the Company's Malaysian manufacturing
operations were granted five additional years of tax free status retroactive to
October 1, 1993. The income tax provisions recorded in both 1994 and 1995 remain
less than statutory rates due to the foreign tax free status.

      Net income increased 3.6% from $14,367,000 in 1994 to $14,891,000 in 1995
and the net income margin decreased from 17.1% in 1994 to 12.7% in 1995 due to
the foregoing factors.

LIQUIDITY AND CAPITAL RESOURCES

      The Company's operations generated approximately $30,937,000, $10,843,000,
and $11,868,000 of cash during 1996, 1995 and 1994, respectively. Further,
during 1996, 1995 and 1994, the Company acquired capital assets of approximately
$20,230,000, $16,461,000, and $15,423,000, respectively, substantially all of
which were for the expansion of the Company's foreign manufacturing operations.
Included in the 1994, 1995 and 1996 amounts were approximately $10,645,000,
$14,319,000 and $9,832,000, respectively, for the acquisition of land and the
construction of plant and equipment at the Company's manufacturing facility in
Hat Yai, Thailand.

      The Company is currently constructing a new production line in its Thai
facility. The new production line, referred to by the Company as the "Grand
Master," is expected to 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. Production and capital costs are expected to
be reduced due to labor savings and higher unit production. Construction is
expected to be completed by early 1997 and is being funded with internally
generated cash. The Company plans to build two additional "Grand Master" lines
by the end of 1997, construction of which is also being 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 to manufacture its disposable latex
gloves. The Company expects that the first construction phase of this new plant
will be completed in the first half of 1997 and that the final phase will be
completed within three years and is expected to be funded with internally
generated cash. This plant will allow the


                                      -17-
<PAGE>   20
Company to integrate more fully its manufacturing processes to gain better
control over the quality, cost and reliability of latex supplies.

      The Company has outstanding contractual commitments at December 31, 1996
for the construction of plant and equipment in Malaysia and Thailand in the
approximate amount of $3,200,000.

      On February 20, 1997, the Company announced the signing of a definitive
agreement to acquire 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 agreement was finalized on March 24,
1997. The acquisition, which will be accounted for under the purchase method,
includes an acquisition price of approximately $14 million payable at the
closing, plus up to an additional $5 million contingent upon the Tactyl business
achieving certain future sales and performance targets, including the
development of the next generation of synthetic latex technology. The Company
intends to pay for this acquisition with internally generated cash.

      The Company has a domestic two-year term credit facility for financing
general working capital needs, up to a maximum of $25,000,000 in borrowings. As
of December 31, 1996, 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
$13,700,000, of which there were no outstanding balances as of December 31,
1996. These borrowings are collateralized by all assets of the subsidiaries and
are further supported by a guarantee of the Company.

INFLATION

      The Company does not believe that the relatively moderate levels of
inflation which have been experienced in the United States in recent years have
had a significant effect on its net sales or its profitability.

                                      -18-
<PAGE>   21
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 1997 and beyond, the Company's liquidity
and working capital, the Company's ability to generate additional efficiencies
in its manufacturing facilities and other statements of expectations, beliefs,
future plans and strategies, anticipated events or trends 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.
-     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 or cost overruns on the Company's construction
      of its new production line, referred to by the Company as the "Grand
      Master", and latex concentrate plant in Thailand or the failure of such
      new line or plant to generate anticipated productivity and efficiencies.
-     risks associated with investments and operations in foreign countries,
      particularly Thailand and Malaysia, including those related to local
      economic conditions, exchange rate fluctuations, governmental policies
      regarding foreign ownership of, or the economic value of manufacturing
      facilities, local regulatory requirements, tax holidays and political
      factors.
-     adverse outcomes regarding product liability lawsuits or the ability to
      obtain sufficient product liability insurance coverage at reasonable
      rates.
-     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.
-     the ability of the Company to meet existing or future FDA regulations
      regarding the manufacture and sale of the Company's gloves.
-     changes in the Company's rates or basis of income taxation.
-     possible obsolescence of the Company's primary product due to the
      development by competitors of new products, manufacturing processes or
      technologies including latex alternatives.

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.

                                      -19-
<PAGE>   22
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES



                                                                   Pages
                                                                   -----
CONSOLIDATED FINANCIAL STATEMENTS:

    Report of Independent Public Accountants                          21

    Consolidated Balance Sheets                                       22
     at December 31, 1996 and 1995

    Consolidated Statements of Operations
     for the years ended December 31, 1996, 1995 and 1994             23

    Consolidated Statements of Shareholders' Equity
     for the years ended December 31, 1996, 1995, and 1994            24

    Consolidated Statements of Cash Flows
     for the years ended December 31, 1996, 1995 and 1994             25

    Notes to Consolidated Financial Statements                     26-36

FINANCIAL STATEMENT SCHEDULES:

    Schedule I - Condensed Financial Information of
     Parent Company                                                37-39

    Schedule II- Valuation of Qualifying Accounts                     40

                                      -20-
<PAGE>   23
                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Shareholders and Board of Directors of
Safeskin Corporation:


We have audited the consolidated financial statements and the financial
statement schedules of Safeskin Corporation and subsidiaries listed in the index
on page 20 of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Safeskin
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.



                            COOPERS & LYBRAND L.L.P.



San Diego, California
February 17, 1997

                                      -21-
<PAGE>   24
                              SAFESKIN CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                          1996          1995
                                                                          ----          ----
<S>                                                                  <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents                                          $  16,265,468  $  2,086,972
  Accounts receivable, net of allowance of
    $665,000 and $321,000                                               19,848,253    17,521,996
  Inventory                                                             21,867,835    18,021,414
  Other current assets                                                   4,062,314     2,488,855
                                                                     -------------   -----------

          Total current assets                                          62,043,870    40,119,237

Property, plant and equipment, net                                      53,391,423    42,737,526
Deferred taxes and other assets                                          1,313,731     1,818,030
                                                                     -------------   -----------

          Total assets                                                $116,749,024  $ 84,674,793
                                                                     =============   ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                   $   5,362,273  $  6,318,089
  Accrued liabilities                                                    8,371,962     5,745,663
                                                                     -------------  ------------
          Total current liabilities                                     13,734,235    12,063,752

Long term debt                                                                  --     2,750,000
                                                                     -------------   -----------

          Total liabilities                                             13,734,235    14,813,752

Commitments and contingencies

Shareholders' equity:

  Preferred stock; $.01 par value; 10,000,000
   shares authorized and no shares issued or
   outstanding in 1996 and 1995                                                 --            --
  Common stock; $.01 par value; 40,000,000 shares
   authorized; 25,811,048 and 24,961,062 shares
   outstanding in 1996 and 1995, respectively                              258,110       249,610
  Additional paid-in-capital                                            39,101,451    30,889,190
  Deferred compensation                                                         --    (1,012,895)
  Foreign currency translation adjustment                                  686,544       348,851
  Retained earnings                                                     62,968,684    39,386,285
                                                                      ------------   -----------
          Total shareholders' equity                                   103,014,789    69,861,041
                                                                      ------------  ------------
          Total liabilities and shareholders' equity                  $116,749,024  $ 84,674,793
                                                                      ============  ============
</TABLE>

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

                                      -22-
<PAGE>   25
                              SAFESKIN CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                   ----------

<TABLE>
<CAPTION>
                                                                1996               1995              1994
                                                                ----               ----              ----

<S>                                                         <C>                <C>                <C>
Net sales                                                   $146,089,348       $117,014,207       $84,142,131
Cost of goods sold                                            84,325,513         75,756,616        50,375,777
                                                            ------------       ------------       -----------

    Gross profit                                              61,763,835         41,257,591        33,766,354
                                                            ------------       ------------       -----------

Operating expenses:
  Selling                                                     17,693,236         16,119,769        11,685,169
  Research and development                                     2,208,436          1,493,562           976,650
  General and administrative                                  12,286,798          6,396,666         3,625,076
  Write-down of fixed assets                                   2,979,146                 --                --
                                                            ------------       ------------       -----------

    Total operating expenses                                  35,167,616         24,009,997        16,286,895
                                                            ------------       ------------       -----------

    Income from operations                                    26,596,219         17,247,594        17,479,459

Interest expense (income), net                                   (58,337)           193,808            17,105
Other expense (income), net                                      133,278           (162,884)         (824,721)
                                                            ------------       ------------       -----------

Income before income tax provision                            26,521,278         17,216,670        18,287,075

Income tax provision                                           2,938,879          2,325,972         3,920,000
                                                            ------------       ------------       -----------

Net income                                                  $ 23,582,399       $ 14,890,698       $14,367,075
                                                            ============       ============       ===========

Per share amounts:
Earnings per share of common stock and common stock
equivalents:
      Primary                                               $        .85       $        .58       $       .57
      Fully diluted                                                  .84                .58               .57

Weighted average number of shares of
common stock and common stock
equivalents outstanding
      Primary                                                 27,775,334         25,605,102        25,391,458
      Fully diluted                                           28,186,570         25,605,102        25,391,458
</TABLE>



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

                                      -23-
<PAGE>   26
                              SAFESKIN CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                                             FOREIGN
                                     COMMON STOCK          ADDITIONAL       CURRENCY
                                 --------------------        PAID-IN       TRANSLATION      DEFERRED      RETAINED
                                 SHARES        AMOUNT        CAPITAL        ADJUSTMENT    COMPENSATION    EARNINGS        TOTAL
                                 ------        ------        -------        ----------    ------------    --------        -----

<S>                            <C>            <C>          <C>            <C>              <C>           <C>          <C>
Balance, January 1, 1994       24,506,354     $245,064     $28,932,415    $    (555,965)   $        --   $10,128,512  $  38,750,026
Exercise of common stock
  options                          23,000          230         131,770               --             --            --        132,000
Foreign currency
  translation adjustment               --           --              --        1,010,955             --            --      1,010,955
Net income                             --           --              --               --             --    14,367,075     14,367,075
                              -----------     --------     -----------    -------------   ------------   -----------  -------------

Balance, December 31, 1994     24,529,354      245,294      29,064,185          454,990             --    24,495,587     54,260,056

Exercise of common stock
  options                         231,708        2,316         352,005               --             --            --        354,321
Foreign currency
  translation adjustment               --           --              --         (106,139)            --            --       (106,139)
Deferred compensation
  related to stock grant          200,000        2,000       1,473,000               --     (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     24,961,062      249,610      30,889,190          348,851     (1,012,895)   39,386,285     69,861,041

Exercise of common stock
  options                         966,654        9,667       5,342,257               --             --            --      5,351,924
Foreign currency
  translation adjustment               --           --              --          337,693             --            --        337,693
Forfeited stock related to
  stock grant                    (116,668)      (1,167)       (859,259)              --        860,426            --             --
Amortization of deferred
  compensation related to
  stock grant                          --           --              --               --        152,469            --        152,469
Tax benefit from exercise
  of options                           --           --       3,729,263               --             --            --      3,729,263
Net income                             --           --              --               --             --    23,582,399     23,582,399
                              -----------     --------     -----------    -------------   ------------   -----------  -------------
Balance, December 31, 1996     25,811,048     $258,110     $39,101,451    $     686,544    $        --   $62,968,684  $ 103,014,789
                              ===========     ========     ===========    =============   ============   ===========  =============
</TABLE>

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

                                      -24-
<PAGE>   27
                              SAFESKIN CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                      1996             1995               1994
                                                  ------------     ------------       ------------
<S>                                               <C>              <C>                <C>
Cash flows from operating activities:
  Net income                                      $ 23,582,399     $ 14,890,698       $ 14,367,075
  Adjustments to reconcile net income to cash
   provided by operating activities:
     Depreciation and amortization                   6,094,758        3,772,090          2,234,320
     Write-down of fixed assets                      2,979,146               --                 --
     Loss (gain) on sale of equipment                   57,919          (56,493)            14,731
     Deferred taxes                                 (2,287,424)        (144,000)          (565,000)
     Amortization of deferred compensation             152,469          462,105                 --
  Changes in operating assets and liabilities:
   (Increase) decrease in:
     Accounts receivable                            (2,319,400)      (3,395,844)        (3,154,051)
     Inventory                                      (3,895,369)      (8,630,091)        (1,489,426)
     Other assets                                    1,161,148       (1,149,137)        (1,858,805)
   Increase in:
     Accounts payable and accrued liabilities        5,411,489        5,093,564          2,319,043
                                                  ------------     ------------       ------------
   Net cash provided by operating activities        30,937,135       10,842,892         11,867,887
                                                  ------------     ------------       ------------
Cash flows from investing activities:
  Purchases of property, plant and equipment       (20,230,415)     (16,460,874)       (15,422,720)
  Proceeds from sale of equipment                       36,519          101,950            115,156
                                                  ------------     ------------       ------------
   Net cash used by investing activities           (20,193,896)     (16,358,924)       (15,307,564)
                                                  ------------     ------------       ------------
Cash flows from financing activities:
  Proceeds from issuance of common stock             5,351,924          354,321            132,000
  Increase (decrease) in long-term debt             (2,750,000)       2,750,000                 --
                                                  ------------     ------------       ------------
   Net cash provided by financing activities         2,601,924        3,104,321            132,000
                                                  ------------     ------------       ------------

Effect of exchange rate changes on cash                833,333          (82,734)           121,932
                                                  ------------     ------------       ------------

Net increase (decrease) in cash and cash
  equivalents                                       14,178,496       (2,494,445)        (3,185,745)
Cash and cash equivalents at beginning of year       2,086,972        4,581,417          7,767,162
                                                  ------------     ------------       ------------
Cash and cash equivalents at end of year          $ 16,265,468     $  2,086,972       $  4,581,417
                                                  ============     ============       ============

Supplemental cash flow information:
   Amounts paid for:
     Interest                                     $    133,550     $    113,637       $     17,105
     Income taxes                                 $  1,831,678     $  2,275,000       $  3,550,000
</TABLE>

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

                                      -25-
<PAGE>   28
                              SAFESKIN CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  ------------


 1.   Description of Business:

      Safeskin Corporation (the "Company") is a leading manufacturer of high
      quality disposable latex gloves for medical, dental, scientific, and
      high-technology markets. The Company manufactures its products in Malaysia
      and Thailand 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. Gains and
      losses from foreign currency transactions, which are not significant, are
      included in cost of goods sold.

      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
            Office furniture and 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.

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

                                  ------------



2.    Significant Accounting Policies, continued:

      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 tax assets and liabilities. Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the amount 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

      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.

      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 $2,209,000, $1,493,000 and $977,000 for the years ended
      December 31, 1996, 1995, and 1994, 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.

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

                                  ------------



2.    Significant Accounting Policies, continued:

      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, $124,805 and $122,647 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,
      1995 and 1994, respectively. All share and per share amounts have been
      retroactively restated to reflect the stock split.

      Stock Based Compensation

      Statement of Financial Accounting Standard No. 123, Accounting for
      Stock-Based Compensation, 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.

3.    Inventory:

      Inventory at December 31, 1996 and 1995 consisted of:

<TABLE>
<CAPTION>
                                      1996              1995
                                      ----              ----
<S>                            <C>               <C>
         Raw materials         $ 1,919,992       $ 2,004,997
         Work in process           114,443           131,868
         Finished goods         19,833,400        15,884,549
                               -----------       -----------
                               $21,867,835       $18,021,414
                               ===========       ===========
</TABLE>

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

                                  ------------


4.    Property, Plant and Equipment:

      Property, plant and equipment at December 31, 1996 and 1995 consisted of:

<TABLE>
<CAPTION>
                                                     1996              1995
                                                     ----              ----
<S>                                           <C>               <C>
         Land                                 $ 6,902,944       $ 5,939,893
         Building and improvements              9,277,472         7,671,839
         Machinery and equipment               37,624,679        31,852,818
         Office furniture and equipment         5,947,480         2,962,190
         Construction in progress               6,982,522         3,291,436
                                              -----------       -----------
                                               66,735,097        51,718,176
         Less accumulated depreciation         13,343,674         8,980,650
                                              -----------       -----------
                                              $53,391,423       $42,737,526
                                              ===========       ===========
</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 Malaysia facility to its Thai
      Facility in 1997. In connection with the move, under the provisions of
      SFAS 121, the Company took an approximately $3 million charge against
      earnings that is reflected in the accompanying financial statements as a
      write-down of fixed assets.

5.    Accrued Liabilities:

      Accrued liabilities at December 31, 1996 and 1995 consisted of:

<TABLE>
<CAPTION>
                                                       1996              1995
                                                       ----              ----
<S>                                              <C>               <C>
         Accrued salary and bonuses              $3,796,037        $1,769,230
         Accrued commissions                        579,447           257,138
         Income taxes payable (receivable)          (21,127)        1,148,446
         Other                                    4,017,605         2,570,849
                                                 ----------        ----------
                                                 $8,371,962        $5,745,663
                                                 ==========        ==========
</TABLE>


6.    Due to Banks and Other Financial Institutions:

      During 1996, the Company entered into an 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
      15, 1998 and bear interest at the London Interbank Offered Rate (LIBOR)
      plus 1.0% 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, 1996, there were no
      borrowings outstanding under this credit facility.


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

                                  ------------


6.    Due to Banks and other Financial Institutions, continued:

      Foreign credit facilities, including working capital provisions and term
      loans, up to a maximum of approximately $13,700,000, are collateralized by
      all assets of the Company's principal foreign subsidiaries. These
      facilities bear interest ranging from 1% to 1.6% over the base lending
      rate or the discount rate of the foreign banks (8.0% to 9.4% at December
      31, 1996 and 1995). These facilities are guaranteed by the Company and
      prohibit the payment of dividends to the Company. As of December 31, 1996
      and 1995, 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 the Company and are, therefore, eliminated
      in consolidation. Further, the Company has wholly-owned subsidiaries in
      Germany, The Netherlands and United Kingdom that operate as distributors.
      Substantially all product sales were domestic for the years ended December
      31, 1996, 1995 and 1994.

      Included in the consolidated balance sheets are the following domestic and
      foreign components at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                       1996              1995
                                                       ----              ----
<S>                                                <C>                <C>
         Current assets:
            Domestic                               $ 50,184,459       $31,047,431
            Foreign                                  11,859,411         9,071,806
                                                   ------------       -----------
                                                   $ 62,043,870       $40,119,237
                                                   ============       ===========
         Property, plant and equipment, net:
            Domestic                               $  4,052,660       $ 1,079,296
            Foreign                                  49,338,763        41,658,230
                                                   ------------       -----------
                                                   $ 53,391,423       $42,737,526
                                                   ============       ===========
         Other assets:
            Domestic                               $    358,252       $ 1,398,613
            Foreign                                     955,479           419,417
                                                   ------------       -----------
                                                   $  1,313,731       $ 1,818,030
                                                   ============       ===========
         Total assets:
            Domestic                               $ 54,595,371       $33,525,340
            Foreign                                  62,153,653        51,149,453
                                                   ------------       -----------
                                                   $116,749,024       $84,674,793
                                                   ============       ===========
</TABLE>



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

                                  ------------


8.   Income Taxes:

     The income tax provision for the years ended December 31, 1996, 1995 and
1994, consists of the following:

<TABLE>
<CAPTION>
                               1996              1995              1994
                               ----              ----              ----
<S>                         <C>               <C>               <C>
         Current:
            Federal         $3,078,000        $1,903,000        $3,615,000
            State              312,000           451,000           857,000
            Foreign             (5,000)          116,000            13,000
                            ----------        ----------        ----------

                             3,385,000         2,470,000         4,485,000
                            ----------        ----------        ----------
         Deferred:
            Federal           (433,000)         (109,000)         (459,000)
            State              (13,000)          (35,000)         (109,000)
            Foreign                 --                --             3,000
                            ----------        ----------        ----------

                              (446,000)         (144,000)         (565,000)
                            ----------        ----------        ----------
         Total taxes:
            Federal          2,645,000         1,794,000         3,156,000
            State              299,000           416,000           748,000
            Foreign             (5,000)          116,000            16,000
                            ----------        ----------        ----------

                            $2,939,000        $2,326,000        $3,920,000
                            ==========        ==========        ==========
</TABLE>

     The significant components of the net deferred tax asset as of December 31,
     1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                                               1996               1995
                                                               ----               ----
<S>                                                       <C>                <C>
         Deferred tax assets:
         Depreciation, capital allowances and NOL's       $ 5,044,000        $ 2,840,000
         Bad debt reserves                                    382,000            127,000
         Rebate reserves                                      179,000            203,000
         Inventory reserves                                   481,000            201,000
         Deferred compensation                                182,000            182,000
         Other                                                107,000             (4,000)
                                                          -----------        -----------
                                                            6,375,000          3,549,000
         Other liabilities                                 (2,993,000)                --
         Valuation allowance                               (3,379,000)        (2,840,000)
                                                          -----------        -----------

                                                          $     3,000        $   709,000
                                                          ===========        ===========
</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
   has established a valuation allowance primarily attributable to depreciation
   and capital allowances pertaining to the Malaysian subsidiary. 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. The net change in the total
   valuation allowance for the year ended December 31, 1996 was an increase of
   $537,000 and for the year ended December 31, 1995 was a decrease of
   $1,654,000.

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

                                  ------------


8.   Income Taxes, continued:

     A reconciliation between the actual income tax expense and income taxes
   computed by applying the statutory income tax rates to earnings before income
   taxes is as follows:

<TABLE>
<CAPTION>
                                                    1996               1995               1994
                                                    ----               ----               ----
<S>                                              <C>                <C>                <C>
         Computed federal income tax             $ 2,502,000        $ 1,820,000        $ 3,333,000
         Computed foreign income tax               8,465,000          3,711,000          2,784,000
         Computed state income tax, net              197,000            492,000            476,000
         Benefit of foreign pioneer status        (8,438,000)        (3,607,000)        (2,768,000)
         Other, net                                  213,000            (90,000)            95,000
                                                 -----------        -----------        -----------
                                                 $ 2,939,000        $ 2,326,000        $ 3,920,000
                                                 ===========        ===========        ===========
</TABLE>

     In Malaysia, the subsidiary company has been granted pioneer status under
     that country's Promotion of Investment Act of 1986. As a result of this
     pioneer status, the subsidiary company is exempt from paying tax on the
     profit earned from pioneer products through September 1998. In Thailand,
     the subsidiary company has been granted exempt status through 2003 under
     that country's Investment Promotion Act with respect to profit earned. The
     benefit of foreign tax exempt status on net income per share was $.30, $.14
     and $.11 during 1996, 1995 and 1994, respectively.

     At December 31, 1996, $62,770,000 of foreign subsidiary net earnings are
     considered by the Company to be permanently invested in those subsidiaries
     primarily due to the prohibition of the payment of dividends as restricted
     by the foreign credit facilities. Accordingly, U.S. income taxes have not
     been provided for such earnings. It is not practicable to determine the
     amount of unrecognized deferred tax liabilities associated with such
     earnings.

     At December 31, 1996, the Company has net operating loss carryovers of
     approximately $4,800,000 $2,264,000, and $1,441,000, for federal, state and
     foreign tax purposes. At December 31, 1995, the Company had foreign net
     operating loss carryovers of $1,161,000. These carryovers expire in various
     years from 2002 through 2012.

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

                                  ------------


9.   Commitments and Contingencies:

     At December 31, 1996, approximate future minimum rental payments
     applicable to noncancelable operating leases for office and warehouse
     space were as follows:
<TABLE>
                   <S>                      <C>
                   1997                     $835,000
                   1998                      689,000
                   1999                      647,000
                   2000                      672,000
                   2001 and thereafter        56,000
</TABLE>

      Rent expense for the years ended December 31, 1996, 1995 and 1994 was
      $1,144,000, $695,000 and $590,000, respectively.

      The Company has outstanding contractual commitments at December 31, 1996
      for the construction of plant and equipment in Malaysia and Thailand in
      the approximate amount of $3,200,000.

      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 and certain employees. The Company
      has reserved 6,000,000 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.

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

                                  ------------


10.   Equity Compensation Plan and Stock Options, continued:

      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 1995 and 1996 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:

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

         Net income per common share:
             As reported                  $       .85       $       .58
             Pro forma                    $       .76       $       .58
</TABLE>

      The fair value of each option grant is estimated on the date of grant
      using the Black-Scholes option-pricing model with the following
      weighted-average assumptions used for grants in 1996 and 1995: dividend
      yield of 0%; expected volatility of 52.7%; 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, 1996 and 1995 was
as follows:

<TABLE>
<CAPTION>
                                                                Weighted-Average
                                                 Options              Price
                                                ----------      ----------------
<S>                                             <C>             <C>
         Outstanding at January 1, 1995          4,254,000            $ 6.87
             Granted                               298,000            $ 6.72
             Exercised                             (55,000)           $ 6.07
             Forfeited                            (306,200)           $ 7.11
                                                ----------            ------

         Outstanding at December 31, 1995        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
                                                ==========            ======

             Shares exercisable                  1,316,900            $ 6.61
                                                ==========            ======
</TABLE>

     As of December 31, 1996, options outstanding have exercise prices between
     $5.00 and $25.88 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


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

                                  ------------

10.  Equity Compensation Plan and Stock Options, continued:

     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 1997. At December 31, 1996, options to acquire 353,416 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 1996, three customers
     accounted for approximately 22.5%, 21.7% and 7.9% of consolidated net
     sales. During 1995, three customers accounted for approximately 30.3%,
     29.8% and 8.2% of consolidated net sales. During 1994, three customers
     accounted for approximately 34.1%, 18.1% and 10.8% of consolidated net
     sales.

     Substantially all 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, 1996, approximately 50.2% of
     the net receivables were represented by three customers. At December 31,
     1995, approximately 48.7% of net receivables were represented by three
     customers. At December 31, 1994, approximately 40.1% of net receivables
     were represented by three customers. Historically, the Company's
     uncollectable 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 1996, contributions
     were matched by the Company in an amount equal to 33-1/3% of the
     participant's contribution. For the year ended December 31, 1996, the
     Company incurred costs of approximately $139,000 in connection with the
     401(k) Plan.


                                      -35-

<PAGE>   38
                              SAFESKIN CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  ------------


13.    Quarterly Financial Data (Unaudited):

       Summarized quarterly financial data for the periods ended December 31,
1996 and 1995 is as follows (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                                                                  NET INCOME
                                   REVENUES           GROSS PROFIT            NET INCOME          PER SHARE
                                   --------           ------------            ----------          ---------
<S>                                <C>                <C>                    <C>                  <C>
           1996:
           December 31               $39,555               $17,806                $4,891                $.17
           September 30               37,492                16,470                 7,052                 .25
           June 30                    35,987                14,219                 6,189                 .22
           March 31                   33,055                13,269                 5,450                 .21

           1995:
           December 31               $32,736               $12,262                $4,532                $.17
           September 30               32,441                11,531                 4,127                 .16
           June 30                    29,244                 9,334                 3,135                 .13
           March 31                   22,593                 8,131                 3,097                 .12
</TABLE>


      Primary and fully diluted net income per share amounts are the same for
      all quarterly periods presented except for the quarter ended March 31,
      1996. Fully diluted net income per share for the three months ended March
      31, 1996 was $0.20.

14.   Subsequent Events (unaudited):

      On February 20, 1997, the Company signed an agreement to acquire 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 agreement was finalized on March 24, 1997.
      The acquisition, which will be accounted for under the purchase method,
      includes an acquisition price of approximately $14 million payable at the
      closing, plus up to an additional $5 million contingent upon the Tactyl
      business achieving certain future sales and performance targets, including
      the development of the next generation of synthetic latex technology.


                                      -36-
<PAGE>   39
                              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.

         The subsidiaries of the parent company have entered into various debt
agreements with banking institutions in which the most restrictive covenant
prohibits any payment of dividends to the parent company.

         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, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                      1996                 1995
                                                                      ----                 ----
<S>                                                              <C>                 <C>
ASSETS
Current assets:
  Cash and cash equivalents ................................     $ 14,514,225        $      61,865
  Accounts receivable ......................................       18,075,373           16,332,383
  Inventory ................................................       26,358,943           18,756,290
  Other current assets .....................................          635,919              496,894
                                                                 ------------        -------------
    Total current assets ...................................       59,584,460           35,647,432
  Investment in and advances to wholly-owned subsidiaries ..       87,842,651           66,276,420
  Property, plant and equipment, net .......................        4,052,660            1,079,296
  Deferred taxes and other assets ..........................          358,252            1,398,613
                                                                 ------------        -------------
    Total assets ...........................................     $151,838,023        $ 104,401,761
                                                                 ============        =============


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities .................     $  6,705,828        $   4,696,638
  Payable to wholly-owned subsidiaries .....................       42,117,406           27,094,082
                                                                 ------------        -------------
    Total current liabilities ..............................       48,823,234           31,790,720
Long-term debt .............................................               --            2,750,000
                                                                 ------------        -------------
    Total liabilities ......................................       48,823,234           34,540,720
Shareholders' equity:
  Common stock .............................................          258,110              249,610
  Additional paid-in-capital ...............................       39,101,451           30,889,190
  Deferred compensation ....................................               --           (1,012,895)
  Foreign currency translation adjustment ..................          686,544              348,851
  Retained earnings ........................................       62,968,684           39,386,285
                                                                 ------------        -------------
    Total shareholder's equity .............................      103,014,789           69,861,041
                                                                 ------------        -------------
    Total liabilities and shareholders' equity .............     $151,838,023        $ 104,401,761
                                                                 ============        =============
</TABLE>



                                      -37-
<PAGE>   40
                            SCHEDULE I - (CONTINUED)
                       CONDENSED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                               1996                   1995                 1994
                                                               ----                   ----                 ----
<S>                                                       <C>                   <C>                   <C>
Net sales ........................................        $ 128,614,248         $ 109,959,572         $ 82,096,964
Cost of goods sold ...............................           95,576,710            81,255,007           56,896,233
                                                          -------------         -------------         ------------
         Gross profit ............................           33,037,538            28,704,565           25,200,731
                                                          -------------         -------------         ------------

Operating expenses:
         Selling .................................           15,935,764            19,761,304           10,611,922
         Research and development ................            1,676,684             1,411,109              913,151
         General and administrative ..............           12,286,798             6,396,666            3,625,076
                                                          -------------         -------------         ------------
           Total operating expenses ..............           29,899,246            27,569,079           15,150,149
                                                          -------------         -------------         ------------
           Income from operations ................            3,138,292             1,135,486           10,050,582
Interest expense (income), net ...................              (58,337)              130,738                   --
Other expense (income), net ......................             (168,603)              213,806             (352,168)
Equity in net income of wholly-owned subsidiaries           (23,156,046)          (16,425,728)          (7,884,325)
                                                          -------------         -------------         ------------
         Income before income tax provision ......           26,521,278            17,216,670           18,287,075
Income tax provision .............................            2,938,879             2,325,972            3,920,000
                                                          -------------         -------------         ------------
         Net income ..............................        $  23,582,399         $  14,890,698         $ 14,367,075
                                                          =============         =============         ============
</TABLE>



                                      -38-
<PAGE>   41
                              SAFESKIN CORPORATION
                              (Parent Company Only)

                            SCHEDULE I - (Continued)
                       CONDENSED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                  1996                 1995                 1994
                                                                  ----                 ----                 ----
<S>                                                           <C>                  <C>                  <C>
Cash flows from operating activities:
  Net income .........................................        $ 23,582,399         $ 14,890,698         $ 14,367,075
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
    Depreciation and amortization ....................             761,231              207,801              149,919
    Loss on sale of equipment ........................               6,542                8,423                4,787
    Deferred taxes ...................................          (2,287,424)            (144,000)            (565,000)
    Amortization of deferred compensation ............             152,469              462,106                   --
    Undistributed net income of wholly-owned
    subsidiaries .....................................         (23,156,046)         (16,425,728)          (7,884,325)
  Change in operating assets and liabilities:
    (Increase) decrease in:
      Accounts receivable ............................          (1,742,990)          (2,407,311)          (3,466,994)
      Inventory ......................................          (7,602,653)         (10,675,808)            (143,597)
      Other assets ...................................           3,188,760             (686,187)            (120,358)
    Increase in:
      Accounts payable and other accrued liabilities .           5,738,454            2,154,409            1,054,979
      Payable to wholly-owned subsidiaries ...........          15,023,324           16,744,408            6,119,662
                                                              ------------         ------------         ------------
    Net cash provided by operating activities ........          13,664,066            4,128,811            9,516,148
                                                              ------------         ------------         ------------

Cash flows from investing activities:
Decrease (increase) in investment in and advances to
  wholly-owned subsidiaries ..........................           1,927,507           (8,247,150)         (14,191,135)
Purchase of property, plant and equipment ............          (3,750,137)            (732,123)            (308,854)
  Proceeds from sale of equipment ....................               9,000                7,000                  500
                                                              ------------         ------------         ------------
    Net cash used by investing activities ............          (1,813,630)          (8,972,273)         (14,499,489)
                                                              ------------         ------------         ------------

Cash flows from financing activities:
  Increase (decrease) in long-term debt ..............          (2,750,000)           2,750,000                   --
  Proceeds from issuance of common stock .............           5,351,924              354,321              132,000
                                                              ------------         ------------         ------------
    Net cash provided by financing activities ........           2,601,924            3,104,321              132,000
                                                              ------------         ------------         ------------

  Net increase (decrease) in cash and cash equivalents          14,452,360           (1,739,141)          (4,851,341)

  Cash and cash equivalents at beginning of year .....              61,865            1,801,006            6,652,347
                                                              ------------         ------------         ------------
  Cash and equivalents at end of year ................        $ 14,514,225         $     61,865         $  1,801,006
                                                              ============         ============         ============
</TABLE>




                                      -39-
<PAGE>   42
                              SAFESKIN CORPORATION

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS
                        December 31, 1996, 1995 and 1994

<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

<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

<CAPTION>




                                                      BALANCE AT        CHARGES TO                             BALANCE AT
                                                     DECEMBER 31,        COSTS AND                            DECEMBER 31,
  DESCRIPTION                                              1993          EXPENSES           DEDUCTIONS              1994
<S>                                                    <C>                <C>                <C>               <C>

 Allowance for doubtful accounts                       $ 320,000         $ 92,906           $ 101,906           $ 311,000
 receivable..............................
 Allowance for inventory cost to net
    realizable value.....................              $ 115,000         $ 291,780             --               $ 406,780
</TABLE>




                                      -40-
<PAGE>   43
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 1997 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*

     3.2       Bylaws*

     10.1      Safeskin Corporation Amended and Restated Equity Compensation
               Plan*

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

     10.3      Employment Agreement, dated June 15, 1993, between Richard Jaffe
               and Safeskin Corp.*

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

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

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


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

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


                                      -41-
<PAGE>   44
   EXHIBIT     DESCRIPTION OF DOCUMENT
   -------     -----------------------

     10.9      Promissory Note, dated December 31, 1991, by Safeskin Corp. to
               The Jaffe Family Partnership*

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

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

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

     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*

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

     10.15     Guarantee, dated February 3, 1992, by Safeskin Corp. to Standard
               Chartered Bank*

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

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

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

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

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

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

     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*

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

     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.*

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

     10.27     Stock Option Grant by Safeskin Corp. to Lee Chee Ming*

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

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

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

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

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


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


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


                                      -42-
<PAGE>   45
    EXHIBIT    DESCRIPTION OF DOCUMENT
    -------    -----------------------

     10.35     Employment Agreement, dated June 29, 1995, between Judy W. Grimes
               and Safeskin Corp. ****

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

     10.37     Credit Agreement, dated July 15, 1996, by Safeskin Corporation to
               Union Bank*****

     10.38     Letter of Agreement between Judy Grimes and Safeskin
               Corporation*****

     11        Statement re: Computation of Per Share Earnings

     21        Subsidiaries of the Registrant

               ----------
                  * 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.

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

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

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

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

         (b)  REPORTS ON FORM 8-K:

         During the last quarter of the period ending December 31, 1996, the
         Company filed one Form 8-K. The Form 8-K filing, which was dated
         December 12, 1996, reported the following "Other Events" that the
         Company deemed of importance to security holders:

                  1.       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;

                  2.       As a result of the relocation of the Company's
                           principal place of business and corporate
                           headquarters from Boca Raton, Florida to San Diego,
                           California, in February 1996, the anti-takeover
                           provisions of Section 607.0902 of the Florida
                           Business Corporation Act are no longer available to
                           the Company. A revised description of Capital Stock
                           of the Company was filed with the Form 8-K;


                                      -43-
<PAGE>   46
                  3.       On December 13, 1996, the Company announced its plans
                           to move all of its remaining latex examination glove
                           production from its Malaysian facility to its Thai
                           facility in 1997. In connection with the move, the
                           Company announced its intent to take a $3 million
                           charge against earnings in the fourth quarter of
                           1996;

                  4.       Effective January 1, 1997, the Company's founder,
                           Co-Chairman and Director, Neil K. Braverman resigned
                           as Co-Chairman and entered into a one year consulting
                           arrangement with the Company. Pursuant to the
                           consulting arrangement, Mr. Braverman will work on a
                           part-time basis, assisting the Company in the areas
                           of manufacturing and new product development.



                                      -44-
<PAGE>   47
                                   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 31, 1997                       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 31, 1997
______________________________         Officer and Director
Richard Jaffe

/s/ David L. Morash                    Executive Vice President                 March 31, 1997
______________________________         and Chief Financial Officer
David L. Morash

/s/ Seth S. Goldman                    Vice President, Finance                  March 31, 1997
______________________________         Controller and Secretary
Seth S. Goldman

/s/ Neil K. Braverman                  Director                                 March 31, 1997
______________________________
Neil K. Braverman

/s/ Irving Jaffe                       Chairman Emeritus and Director           March 31, 1997
______________________________
Irving Jaffe

/s/ Howard L. Shecter                  Director                                 March 31, 1997
______________________________
Howard L. Shecter

/s/ Joseph Stemler                     Director                                 March 31, 1997
______________________________
Joseph Stemler

/s/  Cam L. Garner                     Director                                 March 31, 1997
______________________________
Cam L. Garner
</TABLE>

                                      -45-
<PAGE>   48
                                  EXHIBIT INDEX


EXHIBIT           DESCRIPTION OF DOCUMENT


11                Statement re: Computation of Per Share Earnings
21                Subsidiaries of the Registrant
23.3              Consent of Coopers and Lybrand
27                Financial Data Schedule


                                      -46-