<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------
                                    FORM 10-K

(MARK ONE)
   [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR


   [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                          Commission File No.: 33-20323

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

                              ROYAL BODYCARE, INC.
             (Exact name of registrant as specified in its charter)

             NEVADA                                              91-2015186
 (State or other jurisdiction of                             (I.R.S. employer
  incorporation or organization)                             identification no.)

                   2301 CROWN COURT
                     IRVING, TEXAS                      75038
       (Address of principal executive offices)       (Zip Code)

        Registrant's telephone number, including area code: 972-893-4000

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

        Securities Registered Pursuant to Section 12(b) of the Act: NONE

        Securities registered pursuant to Section 12(g) of the Act: NONE

            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. X

            On March 15, 2001, the closing price of Registrant's common stock
sold was $.3125 per share. On such date, 6,468,106 shares of Registrant's Common
Stock were held by non-affiliates. Based upon the price on such date, the
aggregate market value of Registrant's voting stock held by non-affiliates on
that date was $2,021,283 (6,468,106 shares time $.3125 per share).

            As of March 15, 2001, 13,916,294 shares of the registrant's Common
Stock were outstanding.

================================================================================



<PAGE>   2

                           FORWARD LOOKING STATEMENTS

            The statements, other than statements of historical facts included
in this report are forward-looking statements. Forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may", "will", "expect", "intend", "estimate", "anticipate" or "believe". We
believe that the expectations reflected in such forward-looking statements are
accurate. However, we cannot assure you that such expectations will occur. Our
actual future performance could differ materially from such statement. Factors
that could cause or contribute to such differences include, but are not limited
to:

o    general economic conditions

o    general market acceptance of our products and distribution methods

o    introduction of competitive products

o    pricing of competitive products

o    regulatory actions effecting the market of our products and distribution
     methods

o    reduction in demand for our products or the rate at which new distributors
     are recruited to join us

o    the discontinuance or reduction of the production of Flanagan
     Microclusters(R) and Silica Hydride, essential ingredients in certain of
     our products and which are produced at a single manufacturing facility



<PAGE>   3

                              ROYAL BODYCARE, INC.

                                    FORM 10-K
                          YEAR ENDED DECEMBER 31, 2000

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                      PAGE
                                                                                                      ----
<S>                                                                                                   <C>
PART I..................................................................................................1
      Item 1. Business..................................................................................1
      Item 2. Properties................................................................................6
      Item 3. Legal Proceedings.........................................................................6
      Item 4. Submission of Matters to a Vote of Securities Holders.....................................6

PART II.................................................................................................7
      Item 5. Market for the Company's Common Equity and Related Stockholder Matters....................7
      Item 6. Selected Financial Data...................................................................8
      Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....8
      Item 7A. Quantitative and Qualitative Disclosure about Market Risk...............................11
      Item 8. Financial Statements and Supplemental Data...............................................11
      Item 9. Changes in and Disagreements with accountants and Financial Disclosure...................11
PART III...............................................................................................13
      Item 10. Directors and Executive Officers........................................................13
      Item 11. Executive Compensation..................................................................15
      Item 12. Security Ownership and Certain Beneficial Owners and Management.........................17
      Item 13. Certain Relationships and Related Transactions..........................................18

PART IV................................................................................................19
      Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................19

SIGNATURES.............................................................................................21
</TABLE>




<PAGE>   4
                                     PART I

ITEM 1. BUSINESS

GENERAL/HISTORY

            We are a Nevada corporation engaged in marketing products
through a worldwide network of independent distributors. Our core product line
is marketed under the Royal BodyCare brand name and includes products in the
following categories:

            -  herbal formulas        -  antioxidants
            -  vitamins               -  fitness and weight management programs
            -  minerals               -  hair and skin products


            We have recently introduced a selection of Internet products that we
market under the brand name BizAdigm(TM). This marketing effort is currently in
the development stage so only limited activity has taken place. The Internet
products to be offered include web sites, on-line training and mini-CD's used
for presenting promotional information.

            Our principal offices are located at 2301 Crown Court, Irving, Texas
75038. We can be reached by phone at 972-893-4000, by fax at 972-893-4111 and by
e-mail at webmaster@royalbodycare.org. Our web sit address is
www.royalbodycare.com. Our Chief Executive Officer is Clinton H. Howard and our
Chief Financial Officer is Steven E. Brown, and both of them can be reached at
our principal offices.

            In October 1999, we changed our name from GlobeNet International I,
Inc. to Royal BodyCare, Inc. In conjunction with the name change, we also
redomesticated to the State of Nevada.

            GlobeNet Inc. was incorporated in June 1995, to serve as a holding
company for affiliated corporations owned or controlled by Clinton Howard. In
July, 1995, Mr. Howard and members of his immediate family contributed the stock
of these affiliated corporations to GlobeNet in exchange for shares of its
stock. The affiliated corporations acquired by GlobeNet in this manner were
Royal BodyCare, Inc., a Texas corporation, Royal BodyCare, Inc., a Canadian
corporation, Royal BodyCare S.A. de C.V., a Mexican corporation, Arlington
Laboratories, Inc., a Texas corporation, and KaloVita, Inc., a Delaware
corporation.

            Mr. Howard formed Royal BodyCare, Inc., a Texas corporation, in 1991
to market a line of aloe vera based personal care products and an aloe drink in
the United States through a multi-level network of independent distributors. Its
product line was expanded in 1992 to also include nutritional supplements.

            Mr. Howard formed Royal BodyCare, Inc., a Canadian corporation, in
1992 to market through a network of independent distributors in Canada the same
line of products being marketed domestically by the Texas-incorporated Royal
BodyCare, Inc. Shortly after its formation, the Canadian-incorporated Royal
BodyCare acquired Pure Life International Products Inc., then a 12-year old
company which distributed its Pure Life brand of nutritional products in Canada.
After this acquisition, the Pure Life line of products was introduced into the
domestic market through the Texas-incorporated Royal BodyCare, Inc.

            Both the Texas and Canadian-incorporated Royal BodyCare companies
are part of our on-going operations. Their product lines, distributor networks
and sales are continuing to increase. The other three affiliated corporations
acquired by GlobeNet, however, have discontinued operations. Royal BodyCare S.A.
de C.V., which was formed in 1993 to market through a network of independent
distributors in Mexico a limited number of our nutritional, skin care and
personal care products, discontinued operations in 1995, when it could not reach
a break-even operating level. KaloVita, Inc., which was a direct marketing
company with a product line and a 25,000-member distributor network similar to
ours, was acquired by Mr. Howard in 1994 from Dr. M. G. Robertson for nominal
consideration



                                      1
<PAGE>   5

at a time when KaloVita was in extremely poor financial condition having never
shown a profit and having exhausted its working capital. Efforts to streamline
their operations by closing its Virginia facility and moving it to Dallas, Texas
were not successful due to aggressive action by its creditors, and KaloVita,
Inc. was forced into filing for protection under Chapter 11 of the Bankruptcy
Code in November of 1994. A liquidating plan was approved by the bankruptcy
court in 1996 and the case was closed in 1998, with KaloVita being dissolved. We
have absorbed and merged into us the quality control testing and laboratory
operations formerly performed by Arlington Lab. Arlington Lab discontinued
operations in 1995.

            Light Force, Inc., a non-affiliated California corporation, was
acquired by GlobeNet in June, 1996. Light Force distributed a line of
nutritional supplements featuring Flanagan Microclusters(R) and with spirulina
as the main ingredient. The Light Force distributor network was merged into
GlobeNet's distributor network. GlobeNet entered into an exclusive world-wide
license agreement to make Flanagan Microclusters(R) its leading line of products
and to promote such products and others made available to GlobeNet by Dr.
Patrick Flanagan.

            Effective April 1, 1997, Mighty Power USA, Inc., now at this time a
corporation whose stock was publicly traded on the NASDAQ Bulletin Board, merged
with GlobeNet. In connection with the merger, Mighty Power USA effected a
one-for-seven reverse stock split. All share figures in this report have been
adjusted to reflect this reverse split. Mighty Power USA then issued 7,886,415
new shares to the shareholders of GlobeNet in exchange for 100% of the
outstanding stock of GlobeNet. In addition, under the terms of the merger
agreement, certain shareholders of Mighty Power USA transferred an additional
2,541,427 shares of common stock to the GlobeNet shareholders. As a result, the
shareholders of GlobeNet obtained 86% of the then outstanding common stock of
Mighty Power USA. In connection with these transactions, Mighty Power USA
changed its name to GlobeNet International I, Inc. The merger which was
accounted for as a purchase has been accounted for as a reverse merger with
GlobeNet being the acquirer. Therefore, GlobeNet's historical financial
statements are now our historical financial statements.

            Concurrent with the merger of Mighty Power USA and GlobeNet, an
affiliate of Mighty Power USA, Great Xpectations Marketing, Inc., acquired all
the assets and liabilities of two other affiliates of Mighty Power USA for
$100,000 in notes payable. Great Xpectations is a direct marketer of nutritional
supplements, automobile and household products and services. We then purchased
all the outstanding common stock of Great Xpectations for an additional $100,000
note payable. These transactions were also accounted for as a purchase. In June,
1998, we announced our intention to spin off Great Xpectations to our
shareholders. Great Xpectations was unable to adequately execute its business
plan and does not currently have any meaningful assets. As a result, we decided
to discontinue the planned spin-off of Great Xpectations. Our 1998 financial
statements were prepared as if the spin-off of Great Xpectations had been
completed on June 30, 1998. We have now restated our 1998 financial statements
to reflect our decision to discontinue the spin-off and discontinue Great
Xpectations' operations.

PLANT AND EQUIPMENT

            We purchase the products marketed under our Royal BodyCare division
from unaffiliated manufacturers and suppliers. The production of these products
can be obtained from a number of sources at competitive prices. However, some of
the essential ingredients, most notably Flanagan Microclusters(R), including the
Silica Hydride form, are subject to license agreements specifying the source and
price for such ingredients. Accordingly, we do not have or need any plant or
manufacturing facilities, machinery or equipment. Other than normal office
furniture and computer equipment, the only other property or equipment that we
own or use is laboratory equipment owned and maintained for internal quality
control testing of our products and distribution of our products to our
independent distributors.

            BizAdigm products marketed through the Internet are also provided
through contracts with third party providers. Computer equipment required to
provide the BizAdigm product line is principally provided by the Company's main
Internet product supplier, NetSalon, Inc.



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<PAGE>   6
EMPLOYEES

            We currently have 155 employees, of whom 7 are executive officers or
management employees, 17 are department heads, 26 are warehouse employees, 56
are in customer service or order entry, 6 are in financial or accounting and the
remaining are clerical or administrative. We do not foresee any significant
increase being necessary for our workforce in 2001. None of our employees are
represented by labor unions, and we have not experienced work stoppages or other
labor strife with our employees.

DISTRIBUTOR NETWORK

            We attempt to recruit people who can effectively explain our line of
products, demonstrate their uses and applications and effectively utilize our
direct marketing techniques to sell our products and sponsor other distributors.
This type of direct marketing strategy is commonly referred to as multi-level or
network marketing. Our distributors can market Royal BodyCare products, BizAdigm
products, or both. We believe that distributors who sell BizAdigm products
through the Internet will also have increased opportunities to sell Royal
BodyCare products.

            Our two Royal BodyCare companies, the United States and Canada, had
approximately 88,000 active independent distributors at December 31, 2000, of
whom approximately 73,000 are located in the United States and 15,000 are
located in Canada. We consider an independent distributor active if he/she has
placed an order within the previous twelve months. We compensate distributors
who market the Royal BodyCare product line through a "Stair Step" program
consistent with other industry recognized compensation programs. Under this
compensation program we pay sales commissions and cash rebates to our
distributors. These commissions and cash rebates are based on the amount of
purchases by the distributor and his/her sales group. Distributor compensation
is paid monthly.

            Distributors of BizAdigm products will be compensated through a
"Binary" compensation plan. This type plan is also an industry recognized
compensation program. Under this plan, we pay commissions based on the purchases
of the distributor's sales organization. Distributor compensation is paid weekly
and, in certain cases, daily.

            Except for sales meetings and certain promotional activities that we
sponsor, our distributors are responsible for all expenses incurred by them in
their sales programs.

            We use the Internet to support our marketing efforts and enhance
communication with our distributors. Presently though our web sites distributors
can obtain information about us and our products, and other current information
such as new product announcements and descriptions of product specials and other
sales promotions. Through our Royal BodyCare web site, we provide our
distributors the ability to enroll new Royal BodyCare distributors and to place
orders. All BizAdigm distributors are enrolled and all BizAdigm products are
ordered through a BizAdigm web site. To help our distributors better manage
their businesses, we allow them to obtain information related to their sales
groups directly from our database through the Internet.

OVERSEAS DISTRIBUTORS

            We have entered into exclusive license agreements with overseas
licensee groups for marketing the Royal BodyCare line of products. Five of these
licensees are active in the following nations:

            -  Japan             -  Finland              -  Australia
            -  Indonesia         -  Iceland              -  New Zealand
            -  Sweden            -  Switzerland          -  Kazakhstan
            -  Norway            -  Austria              -  Russia
            -  Denmark           -  Belgium              -  Ukraine
            -  Netherlands       -  Netherlands



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<PAGE>   7
            Pursuant to these agreements these overseas licensees, which are
unaffiliated third parties, are granted exclusive rights to sell our products in
their respective territories through office/warehouse facilities. The
independent distributors in these territories are compensated by the licensee
using the same or a similar compensation plan as that used by us for our
distributors in the United States and Canada.

PRODUCTS

            With the introduction of BizAdigm in December 2000, we now market
our products through two divisions. Royal BodyCare markets nutritional
supplements, personal care products and fitness programs. BizAdigm markets
Internet and related products.

            Royal BodyCare. We currently market a line of over 200 nutritional
supplements, personal care products and fitness programs, including herbs,
vitamins and minerals, as well as natural skin, hair and body care products. All
of these products are marketed under our Royal BodyCare trade name. We procure
these products from unaffiliated manufacturers and suppliers and have them made
or processed according to our specifications or formulas. Our line of products
features several proprietary ingredients including:

o           Flanagan Microclusters(R), a mineral catalyst that increases
            absorption of nutritional supplements;

o           Silica Hydride, a nutritional form of hydrogen that is an
            antioxidant and has other beneficial properties; and

o           Master Amino Acid Pattern, or MAP, a blend of essential maximum
            amino acids in a proportion that maximizes utilization by the body.

Because these ingredients are proprietary it is unlikely that we would be able
to find alternative suppliers of these ingredients. Our product line also
features spirulina as a main ingredient in nutritional supplements and aloe vera
as a main ingredient in our skin and personal care products. We maintain quality
control of our products by our in-house laboratory facilities and operations.

            BizAdigm. We are currently involved in the introduction of a new
line of Internet products that we have branded BizAdigm. This product line
presently consists of five products which we refer to as the Affiliate Portal,
the EzSite Builder, the University, the Aeon Card Program and the Tax Wellness
Program.

            With the purchase of an Affiliate Portal, a distributor receives
access to his/her own BizAdigm web site. This web site comes with unlimited
email accounts and can be used as a start page with links to information such as
news, weather and business information. The Affiliate Portal also provides the
distributor the means to market the BizAdigm product line. Through this
Affiliate Portal, the distributor can sign up new distributors through the sale
of a new Affiliate Portal as well as sell the other BizAdigm products. The
EzSite Builder is a program the allows a non-technical user the ability to
create a web site through a variety of preprogrammed web site templates. The
price of the EzSite web site includes hosting of the site for one year. The
University consists of over 170 on-line training courses covering topics such as
basic computer skills and other business-related subjects. The Aeon Card Program
allows a non-technical user the ability to create a presentation for
reproduction on a mini-CD. This program provides a variety of preprogrammed
presentation templates from which to choose. The Tax Wellness Program consists
of tax information and record-keeping aids relevant to the operation of a
home-based business.

            With the exception of the Tax Wellness Program, we provide the
BizAdigm products through a non-exclusive agreement with a third party provider.
The Tax Wellness Program is a combination of materials obtained from various
third party sources.

INDUSTRY/COMPETITORS

            We are in a highly competitive industry both domestically and
internationally. We compete against companies that sell heavily advertised
products through retail stores as well as other network marketing companies.




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<PAGE>   8

Many of our competitors are significantly larger than we are and have far
greater financial resources. We compete with other network marketing companies
close to our size such as Envion, Reliv International and Nutrition for Life. We
also compete with much larger companies such as Amway, Nu Skin and Herbalife. At
a consumer level, we compete with large health food chains such as GNC, small
independently-owned health food stores, as well as drug stores, department
stores and supermarkets that sell nutritional supplements and personal care
products.

            We offer a wide selection of products with a reputation for high
quality. Our leading products incorporate proprietary ingredients or have unique
formulations such that they are not available though other outlets. We believe
that our products possess features and provide benefits that are desired by
consumers looking for natural health products. We place a high degree of
emphasis on new product development to insure our product line remains current
with developing trends in our industry and new scientific evidence. We generally
do not attempt to compete based on price, although price is a consideration.
Prices are justified through product quality and benefits and, to the extent
possible, the proprietary ingredients and unique formulations.

CAPITAL STOCK

            We have authorized 50 million shares of common stock. As of March
15, 2001, we had issued and outstanding 13,916,294 shares of common stock.

REPORTS TO SECURITY HOLDERS

            We are subject to the continuous disclosure requirements of the
Securities and Exchange Commission because we have had previous offerings
registered pursuant to Section 15(d) of the Securities Act of 1933, as amended.
Because we are a Section 15(d) company, we are not required to distribute an
annual report to our shareholders. However, all of our filings with the
Securities and Exchange Commission are available on-line for all shareholders to
access at www.sec.gov. In addition, we distribute quarterly news releases to our
shareholders as well as a year-end news release that includes operating results
from our audited financial statements.

INVENTORY REQUIREMENTS, BACKLOGS

            Our independent distributors do not maintain large inventories of
our products. They depend on us to maintain our inventory at a level that will
allow us to fill their orders and the orders of their customers as they are
placed. We generally ship orders within 48 hours after we receive them so there
is no significant backlog of orders.

RESEARCH AND DEVELOPMENT

            We have contracted with scientists at universities, medical
colleges, and private research organizations to conduct a series of studies over
the past few years to evaluate the safety and functions of our dietary
supplements, primarily Microhydrin(R). Prior to acquiring Light Force in 1996,
Light Force contracted for more than one million dollars in research studies
conducted at Harvard Medical school on the product Phycotene(R).

TRADEMARKS, PATENTS OR OTHER INTELLECTUAL PROPERTY

            We own trademarks on the name Royal BodyCare(R) and the names of
certain key products such as Microhydrin(R).

            Through an agreement with Flanagan Technologies, Inc., a company
controlled by Dr. G. Patrick Flanagan, one of our directors, we have exclusive
marketing rights to Flanagan Microclusters(R), a mineral catalyst that increases
absorption of nutritional supplements, and Silica Hydride, a nutritional form of
hydrogen with antioxidant and other beneficial properties. These substances are
produced through proprietary technology developed and owned by its inventor, Dr.
Patrick Flanagan. Silica Hydride is the principal ingredient in our leading
product, Microhydrin(R).


                                       5
<PAGE>   9

            Interamerican Nutritional Research Laboratories owns the MAP patent
and has licensed it to International Nutrition Research Center. Both entities
are controlled by Dr. Maurizio Luca Moretti. We do not have any long-term
agreement with International Nutrition Research Center to supply us with or
license the MAP product to us.

GOVERNMENTAL REGULATIONS

            One or more of the following agencies regulates the formulation,
labeling and advertising of our products: the Food and Drug Administration, the
Federal Trade Commission, the Consumer Product Safety Commission and various
agencies of the states and foreign countries into which our products are shipped
or sold. In addition, our distribution and sales program is, like that of other
companies operating in interstate commerce, subject to the jurisdiction of the
Federal Trade Commission and a number of other federal agencies. Various state
agencies regulate our multi-level distribution activities.

ITEM 2. PROPERTIES

            In March 2001, we purchased the approximately 119,000 square feet
facility that houses our executive offices and warehouse space for approximately
$3.5 million. Prior to then, we leased that facility. We also lease distribution
facilities in Vancouver, British Columbia and Toronto, Ontario for our sales
operations in Canada at an aggregate annual rental of $128,000.

ITEM 3. LEGAL PROCEEDINGS

ROYAL BODYCARE JAPAN, DUDLEY A. OLSEN AND DUANE ENGHOLM v. ROYAL BODYCARE, INC.
and CLINTON HOWARD

            On March 29, 1999, the plaintiffs filed an action in federal court
against us and Mr. Howard, asserting causes of action for breach of contract,
fraud, misrepresentation and violations of the Texas the Texas Deceptive Trade
Practices Act and sought actual and compensatory damages of $2,868,000 and
punitive damages of $10,000,000. On December 14, 1999, the parties reached an
agreement in principal to settle all claims in controversies, under the terms of
which we agreed to pay the sum of $10,000.00 and to reinstate a particular
distributor plan for our distributors and related parties who performed sale
services on behalf of our Japanese affiliate. That settlement was not
consummated as the plaintiffs discharged their attorneys and apparently retained
new counsel. A further attempt at settlement, through a formal mediation
session, failed and the case has now been administratively reopened by the
Court. The Court has required the parties to meet and confer but it is unclear
whether new counsel has been formally retained by plaintiffs or whether their
most previous counsel served only for purposes of settlement discussions. As
only minimal discovery has been accomplished on this case, the Company is
unable to predict the ultimate resolution of this case. It is not possible to
determine materiality on our operations if the claims asserted are successful.

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

None.



                                       6
<PAGE>   10
                                     PART II

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

            Our Common Stock is traded on the Nasdaq over-the-counter Bulletin
Board published by the National Quotation Bureau, Inc. The following reflects
the range of high and low bid quotes for each calendar quarter during each of
the past two years:

<TABLE>
<CAPTION>
QUARTER
ENDED                             3/31/99             6/30/99           9/30/99            12/31/99
-----                             -------             -------           -------            --------
<S>                               <C>                 <C>               <C>                <C>
HIGH                               1.275               1.625             1.34375            1.03125
LOW                                 .875               .9375              .75                .6875
</TABLE>

<TABLE>
<CAPTION>
QUARTER
ENDED                             3/31/00             6/30/00           9/30/00            12/31/00
-----                             -------             -------           -------            --------
<S>                               <C>                 <C>               <C>                <C>
HIGH                               1.0625              .875              .8125              .7812
LOW                                .625                .375              .4688              .4062
</TABLE>

            As of March 23, 2001 there were approximately 442 holders of our
common stock. Since our inception, we have paid no dividends on our stock. We do
not anticipate that we will pay dividends in the foreseeable future.

SALES OF UNREGISTERED SECURITIES

            During the last year we have not sold our securities in offerings
which have not been registered for sale with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or any state securities
commissioner.

            Our convertible notes, and the shares of our common stock issued
upon conversion of these notes, are subject to certain restrictions upon the
sale or transfer thereof which are denoted prominently upon the certificates of
these securities as required by the applicable federal and state securities
laws. We have further instructed our transfer agent to not transfer these
securities in the absence of registration or satisfactory evidence that the
transfer would be in compliance with the applicable securities laws pertaining
thereto. Exemption from registration of the sale of these securities under the
applicable federal and state securities laws is claimed by us under Section 4(2)
of the Federal Securities Act of 1933 as a transaction by an issuer which does
not involve a public offering and comparable limited offering exemptions under
the state securities laws.



                                       7
<PAGE>   11

ITEM 6. SELECTED FINANCIAL DATA

            The financial data included in the table shown below has been
selected by us and has been derived from the financial statements for the
periods indicated. The consolidated balance sheets as of December 31, 1999 and
1998 and the related statements of operations, shareholders' equity and cash
flows for each of the years ended in the period December 31, 1999 have been
audited by Swalm, Thomas & Associates, PLLC, formerly Osborn, Swalm, Thomas &
Associates, PLLC. The consolidated balance sheet as of December 31, 2000 and the
related statements of operations, shareholders' equity and cash flows for the
year then ended have been audited by Grant Thornton LLP.

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31
                                ----------------------------------------------------------------------------
                                    2000            1999            1998            1997            1996
                                ------------    ------------    ------------    ------------    ------------
<S>                             <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Total Revenue                   $ 39,993,344    $ 35,681,261    $ 28,383,722    $ 13,350,194    $  9,022,066
Income (loss) from
      continuing operations          439,503         130,697         511,270        (614,578)        (25,441)
Net Income (Loss)                    510,289         268,273         (33,587)       (686,881)        (25,447)

BALANCE SHEET DATA:
Cash and cash equivalents            230,460          83,225         382,409          10,405          94,630
Working Capital (Deficit)           (329,625)        (16,364)        454,954         763,722        (149,181)
Total Assets                      10,744,991       9,000,396       8,207,633       5,608,426       3,967,493
Long Term Debt                     1,301,212       1,256,786       1,004,927         803,561         367,571
Shareholders' Equity               4,801,948       4,388,052       4,061,602       3,583,543       1,984,081
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES; MATERIAL CHANGES IN FINANCIAL CONDITION

            During the year ended December 31, 2000, we had a net increase in
cash of $147,000. This increase in cash resulted from net cash provided by
operating activities of $833,000, most of which was used to fund purchases of
property and equipment and repay borrowings. During 2000, we continued the
development of our computer system that began in 1999. This new software
platform was designed to support continued growth in our distributor base and
enhance our Internet capabilities. We began using the new computer system in
January 2000.

            Consistent with industry practice, most of our sales are paid at the
time of order. Therefore, our primary working capital need is to fund increases
in inventories required to support sales growth. Since our sales are generated
through independent distributors who do not maintain a significant inventory, it
is necessary for us to have products on hand when the distributors place their
orders. During periods of sales growth we must purchase inventory in
anticipation of sales, thereby creating the need for additional working capital.
Inventory increased $594,000 during 2000 due to our growth.

            We believe that we will be able to fund further moderate sales
increases through our operations. Should sales growth increase beyond our
ability to finance our growth internally, we will again seek outside sources of
capital including bank borrowings, other types of debt financing, or an equity
offering. There is no assurance, however, that we would be able to obtain any
additional outside financing.

            In March 2001, we completed the $3.5 million purchase of our Irving,
Texas headquarters facility. Financing for this purchase was provided by a $3
million mortgage note, a $250,000 note provided by the seller and $350,000 term
note from our bank. During 2001, we will also require additional capital to
complete the launch of BizAdigm, our new Internet product offering. We plan to
finance this launch through cash flow from operations. However, to the extent
cash flow from operations is less that we anticipate, or the capital
requirements are greater




                                       8
<PAGE>   12

than anticipated, we will require additional capital. Given the limited
marketability of our stock and the current market conditions, there can be no
assurance we will be able to raise this additional capital. At this time, we
have no plans or known requirements for any other significant capital
expenditures during 2001.

            Other than those factors already described, we are not aware of any
trends or uncertainties that would significantly effect our liquidity or capital
resources in the future.

RESULTS OF CONTINUING OPERATIONS - 2000 COMPARED WITH 1999

            Our sales for the year ended December 31, 2000 were $39,993,000
compared with sales for the prior year of $35,681,000, an increase of $4,312,000
or 12%. In 2000, sales increased in all of our markets. Sales in the United
States, Canada and other international markets increased $1,696,000, $1,820,000
and $796,000, respectively. The sales increase in the United States resulted
from new marketing programs and promotions initiated during 2000. The increase
in Canadian sales was also due to these marketing programs and promotions as
well as continued sales and distributor growth in Eastern Canada. Prior to
mid-1999, our Canadian sales were heavily concentrated in Western Canada. The
increase in sales in our other international markets related primarily to sales
growth by our licensees in Europe, Russia and Indonesia. The Russian licensee
began its selling activities in late 1999.

             Our cost of goods sold for the year ended December 31, 2000 was
$11,541,000 compared with cost of goods sold in the prior year of $10,272,000,
an increase of $1,269,000 or 12%. As a percentage of sales, cost of goods sold
was 29% in 2000 and 1999.

            Our general and administrative expenses for the year ended December
31, 2000, were $11,465,000 compared with $10,339,000 in 1999, an increase of
$1,126,000 or 11%. As percentage of sales, general and administrative expenses
were 29% in 2000 and 1999. General and administrative expenses in 1999 include
approximately $650,000 of non-recurring expenses that we incurred in the
settlement of three lawsuits. Excluding these expenses, our general and
administrative expenses for 1999 were $9,689,000 or 27% of sales. The increase
in general and administrative expenses from 1999 to 2000 was related primarily
to increased expenses incurred to support the growth of our Eastern Canadian
distributor base and other international markets, increased non-capitalizable
expenses to support our information technology systems and legal expenses
incurred in connection with certain trademark and intellectual property matters.

            Our distributor commissions for the year ended December 31, 2000
were $15,297,000 compared with $14,250,000 in 1999, an increase of $1,047,000 or
7%. As a percentage of sales, distributor commissions in 2000 were 38% compared
with 40% in 1999. The decrease in distributor commissions as a percentage of
sales was primarily attributable to the re-structuring of our distributor
compensation plan that became fully effective June 1, 2000. We expect this
percentage to increase over time as our distributors qualify for the maximum
commission levels under our compensation plan. The decrease in distributor
commissions as percentage of sales was also partially attributable to the
increase in export sales to our international licensees since we do not pay
distributor commissions on export sales.

            Our interest expense for the year ended December 31, 2000 was
$177,000 compared with interest expense in 1999 of $116,000, an increase of
$61,000 or 53%. This increase was primarily due to the increase in borrowings
during 1999 and 2000. The additional borrowings were mainly associated with the
use of working capital credit lines and the financing of property and equipment
purchases.

          Depreciation and amortization for the year ended December 31, 2000 was
$692,000 compared to $456,000 in 1999, an increase of $236,000 or 52%. This
increase was mainly due to depreciation associated with the capital investments
that we made during 1999 and 2000. These capital investments were necessary to
install distribution systems and technology systems that we needed to support
our distributor base and stay competitive with other companies in our industry.



                                       9
<PAGE>   13
            Our earnings from continuing operations for the year ended December
31, 2000 was $440,000 compared with earnings from continuing operations in the
prior year of $131,000, an increase of $309,000. This increase was the result of
the increased gross margin produced by our sales increase coupled with the
reduction in the related distributor commission expense.

            Discontinued operations represent the operations of Great
Xpectations. Earnings from discontinued operations was $71,000 for the year
ended December 31, 2000 compared with $138,000 in 1999. Earnings in 2000 and
1999 mainly resulted from the reversal of certain liabilities recorded in prior
years that were settled for less than the original contractual commitment.

            Our net earnings for the year ended December 31, 2000 was $510,000,
or $.04 per share, compared with net earnings in the prior year of $268,000, or
$.02 per share, an increase of $242,000. This increase was the result of the
factors described above.

RESULTS OF CONTINUING OPERATIONS - 1999 COMPARED WITH 1998

            Our sales for the year ended December 31, 1999 were $35,681,000
compared with sales for the prior year of $28,384,000, an increase of $7,297,000
or 26%. In 1999, sales increased in all of our markets. Sales in the United
States, Canada and other international markets increased $5,238,000, $1,409,000
and $650,000, respectively. The sales increase in the United States resulted
from the rapid growth in the United States distributor base that began in late
1997 and continued into the third quarter of 1998. Since the third quarter of
1998, the United States distributor base has grown but at a much lower rate. The
increase in Canadian sales was primarily related to increased sales in Eastern
Canada. Prior to 1999, our sales were heavily concentrated in Western Canada.
However, during the second quarter of 1999, we attracted a distributor group in
Eastern Canada that continues to grow rapidly. The increase in sales in our
other international markets related to the initiation of operations by our
licensees in Austria, Australia and Russia, and increased sales by our licensees
in Sweden, Indonesia and Japan.

            Our cost of goods sold for the year ended December 31, 1999 was
$10,272,000 compared with cost of goods sold in the prior year of $8,489,000, an
increase of $1,783,000 or 21%. As a percentage of sales, cost of goods sold was
29% in 1999 and 30% in 1998.

            Our general and administrative expenses for the year ended December
31, 1999, were $10,339,000 compared with such expenses in 1998 of $7,887,000, an
increase of $2,452,000 or 31%. As percentage of sales, general and
administrative expenses were 29% in 1999 compared with 28% 1998. A significant
portion of this increase represented expenses we incurred in the settlement of
three lawsuits. Settlement and legal expenses associated with these lawsuits
totaled approximately $650,000. Excluding these expenses, our general and
administrative expenses for 1999 were $9,689,000 or 27% of sales. The remainder
of the increase in general and administrative expenses from 1998 to 1999 was
related to increases in personnel and other expenses required to support the
increases in our distributor base.

            Our distributor commissions for the year ended December 31, 1999
were $14,250,000 compared with distributor commissions in 1998 of $11,057,000,
an increase of $3,193,000 or 29%. As a percentage of sales, distributor
commissions in 1999 were 40% compared with 39% in 1998. The increase in
distributor commissions as a percentage of sales were primarily attributable to
an increase in the percentage of our distributors who qualified to receive
maximum commission percentages under our distributor compensation plan.

            Our interest expense did not change significantly from 1998 to 1999,
increasing from $96,000 in 1998 to $116,000 in 1999.

            Depreciation and amortization for the year ended December 31, 1999
was $456,000 compared with depreciation and amortization in 1998 of $348,000, an
increase of $108,000 or 31%. This increase was mainly due to depreciation
associated with the capital investments that we made during 1998 and 1999. These
capital




                                       10
<PAGE>   14
investments were necessary to install distribution systems and technology
systems that we needed to support our distributor base and stay competitive with
other companies in our industry.

            Our earnings from continuing operations for the year ended December
31, 1999 was $131,000 compared with earnings from continuing operations in the
prior year of $511,000, a decrease of $380,000. This decrease was the result of
the expenses we incurred to settle the three lawsuits as previously described.

            Discontinued operations represent the operations of Great
Xpectations. Earnings from discontinued operations was $138,000 for the year
ended December 31, 1999 compared with a loss of $545,000 in 1998. The 1998 loss
was mainly the result of expenses incurred by Great Xpectations in the last six
months of 1998 to streamline its operations in an attempt to become profitable.
Earnings in 1999 mainly resulted from the reversal of certain liabilities
recorded in prior years that were settled for less than the original contractual
commitment.

            Our net earnings for the year ended December 31, 1999 was $268,000,
or $.02 per share, compared with a net loss in the prior year of $34,000, an
improvement of $302,000. This improvement was the result of the factors
described above.

            There have been no economic events or changes that have affected our
sales or operating results and we are not aware of any economic trends or
uncertainties that would have a material impact on our future sales or operating
results. We believe that we have purchased our products at the best price
available and that any price increases in the foreseeable future will be small.
Any such price increases would be passed through to our customers. In addition,
we do not believe at this time that inflation will have a material impact on our
operating results.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The following discussion about our market risk includes
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements. We do not use derivative financial instruments for speculative or
trading purposes. We are exposed to market risk from changes in foreign currency
exchange rates and interest rates which could affect our future results of
operations and financial condition. We manage our exposure to these risks
through our regular operating and financing activities.

Foreign exchange

     We have foreign-based operations in Canada which accounted for 18% of 2000
net sales. We make advances to our foreign subsidiary denominated in U.S.
dollars, exposing the foreign subsidiary to the effect of changes in spot
exchange rates of the Canadian dollar relative to the U.S. dollar. We do not
regularly use forward-exchange contracts to hedge these exposures. Based on our
foreign currency exchange rate exposure for intercompany advances of
approximately $463,000 at December 31, 2000, a 10% adverse change in the
currency rate would reduce earnings before tax by approximately $46,000.

Interest rates

     Our credit arrangements expose us to fluctuations in interest rates. At
December 31, 2000, we had $564,000 outstanding in indebtedness, which provided
for interest to be paid monthly based on a variable rate. Thus, interest rate
changes would result in a change in the amount of interest to be paid each
month. Based upon the interest rates and borrowings at December 31, 2000, a 10%
increase in interest rates would adversely affect our financial position, annual
results of operations, or cash flows by approximately $5,600.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

            The financial statements and supplementary data are listed in the
Index to Financial Statements appearing on Page F-1 and the Financial Schedule
appearing on Page S-2 of this Form 10-K.

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

(a)(1)      Previous independent accountants

                 (i) On December 15, 2000, we dismissed Swalm, Thomas &
            Associates, PLLC as our independent accountants.

                 (ii) The reports of Swalm, Thomas & Associates, PLLC on our
            financial statements for the past two fiscal years contained no
            adverse opinion or disclaimer of opinion and were not qualified or
            modified as to uncertainty, audit scope or accounting principle.

                 (iii) Our Board of Directors participated in and approved the
            decision to change our independent accountants.

                 (iv) In connection with our audits for our two most recent
            fiscal years and through December 15, 2000, there have been no
            disagreements with Swalm, Thomas & Associates, PLLC on any matter of
            accounting principles or practices, financial statement disclosure,
            or auditing scope or procedure which, if not resolved to the
            satisfaction of Swalm,

                                       11
<PAGE>   15

            Thomas & Associates, PLLC would have caused Swalm, Thomas &
            Associates, PLLC to make reference thereto in their reports on our
            financial statements for such years and/or interim periods.

                 (v) Swalm, Thomas & Associates, PLLC furnished us with a letter
            addressed to the Securities and Exchange Commission stating that it
            agrees with the above statements. A copy of such letter, dated
            January 5, 2001, is filed as Exhibit 16.1 herewith.

            (a)(2) New independent accountants

                 (i) We engaged Grant Thornton LLP as our new independent
          certified public accountants as of December 15, 2000. During our two
          most recent fiscal years and through December 15, 2000, no
          consultations have occurred between us and Grant Thornton LLP which
          concerned the subject matter of a disagreement with Swalm, Thomas &
          Associates, PLLC. As of December 15, 2000, Grant Thornton LLP had not
          rendered any oral advice or written report to us on the application of
          accounting principals to a specific transaction or the type of audit
          opinion that might be rendered on our financial statements.




                                       12
<PAGE>   16


                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS

            The following table sets forth, as of March 15, 2001, the name, age,
and position of each of our Executive Officers and Directors and the month in
which such Director or Officer began his term of office.

<TABLE>
<CAPTION>
                                                                                                   DIRECTOR OR
NAME                       AGE        POSITION                                                     OFFICER SINCE
----                       ---        --------                                                     -------------
<S>                        <C>        <C>                                                          <C>
Clinton H. Howard          72         Chairman of the Board, President and CEO                     May 1991

Steven E. Brown            45         Director, Vice President-Finance, Chief Financial Officer    May 1994

Kenneth Sabot              55         Director, Senior Vice President-Operations                   February 1998

Richard Howard             50         Director, Vice President-Sales and Marketing                 December 1999

G. Patrick Flanagan        56         Director                                                     June 2000

Joseph S. Schuchert        72         Director                                                     June 2000

Nelson J. Rogers           54         Vice President-International                                 November 1994
</TABLE>

TERM OF OFFICE

            Each of our directors serves for a term of one year, and thereafter
until his or her successor is elected at our annual shareholder's meeting, and
is qualified, subject to removal by our shareholders. Each officer serves, at
the pleasure of our Board of Directors, for a term of one year.

FAMILY RELATIONSHIPS

            Katherine M. Howard, our Secretary, is the wife of Clinton H.
Howard, our Chairman, President and Chief Executive Officer.

BIOGRAPHICAL INFORMATION

            Set forth below is certain biographical information regarding each
of our Directors and Executive Officers.

            CLINTON H. HOWARD. Mr. Clinton Howard is our Chairman of the Board,
President and Chief Executive Officer. He graduated from Rice University with a
BA degree and from Southwestern Medical School with an MA degree, after which he
studied graduate business courses at S.M.U. and the University of Dallas and
medical arts courses at Johns Hopkins Medical School. Mr. Howard founded
American Biomedical Corporation in 1958, and built it into a chain of 40 medical
testing laboratories. He took American Biomedical public in 1969. In 1974,
American Biomedical was merged with National Health Laboratories, then one of
the nation's largest medical laboratory chains. In 1974, Mr. Howard founded
Carrington Laboratories, Inc., originally named Avacare, Inc., a personal care
products, direct sales marketing firm. In 1981, he established a research
division which isolated an active medicinal compound in aloe vera, acemannan. He
then sold the skin care business and converted Carrington to a pharmaceutical
company. Mr. Howard retired from Carrington in 1990. The following year he
founded Royal BodyCare.



                                       13
<PAGE>   17

            STEVEN E. BROWN. Mr. Steven Brown is a Director and Vice
President-Chief Financial Officer and has held the same positions since joining
us in May 1994. Prior to joining us, Mr. Brown was the Vice President, Finance
and Chief Financial Officer of Carrington Laboratories, Inc. from 1980 through
April 1994. Mr. Brown was treasurer of Carrington from 1982 through 1994 and
served as a director from 1981 until August 1987. Mr. Brown is a Certified
Public Accountant and was previously associated with the international
accounting firm of Arthur Andersen & Co. from 1977 to 1980.

            KENNETH SABOT. Mr. Kenneth Sabot became the Senior Vice President of
Operations in February 1998. Prior to joining us, Mr. Sabot was the
Vice-President-Operations of To Life! L.L.C., a start up network marketing
company, from August 1996 until February 1998. Prior to joining To Life, he was
employed by Light Force, Inc. from 1981 through January 1996. Mr. Sabot joined
Light Force as the Controller in 1981 and served as Chief Operating Officer from
1986 until leaving Light Force in January 1996. Mr. Sabot became a Certified
Public Accountant in 1969.

            RICHARD HOWARD. Mr. Richard Howard joined us in December 1999, as
Vice President-Sales & Marketing. He has more than twenty years of experience in
the network marketing industry, including serving as a top executive at a $200
million network marketing company. Richard Howard has no relation to Clinton
Howard.

            G. PATRICK FLANAGAN. Dr. G. Patrick Flanagan was elected to the
Board of Directors in June 2000 and is the inventor and manufacturer of Flanagan
Microclusters and Silica Hydride, proprietary ingredients used in our most
popular products. Dr. Flanagan, through his company, Flanagan Technologies,
began supplying these ingredients to us in 1996. Dr. Flanagan has spent his
adult life working in his private laboratory conducting research and inventing
electronic devices, biophysical products and formulations for human health.

            JOSEPH S. SCHUCHERT. Joseph S. Schuchert was elected to the Board of
Directors in June 2000. Mr. Schuchert is the Chairman of Kelso & Company, a
merchant banking firm. Mr. Schuchert co-founded Kelso & Company in 1971 and has
been employed with it since that time.

            NELSON J. ROGERS. Mr. Nelson Rogers joined us as Vice
President-International in November 1994, when we acquired KaloVita. There he
was Chief Operating Officer and Vice President of Marketing. Prior to that
position, Mr. Rogers had, since 1969, been affiliated with firms in the direct
sales and network marketing industry, including Avon and Nature's Sunshine
Products as well as private concerns, WeCare and Watkins. His past international
experience includes opening and responsibility for 25 foreign markets worldwide
as well as two overseas assignments living in the Philippines and Venezuela,
while with Avon.



                                       14
<PAGE>   18
ITEM 11.    EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                      LONG-TERM COMPENSATION
                                                                                                  ------------------------------
                                                                 ANNUAL COMPENSATION              SECURITIES        ALL OTHER
                                                FISCAL      -------------------------------       UNDERLYING      COMPENSATION
                 NAME/TITLE                      YEAR       SALARY ($)            BONUS ($)       OPTIONS (#)        ($)(1)
                 ----------                      ----       ----------            ---------       -----------     --------------
<S>                                             <C>         <C>                   <C>             <C>             <C>
Clinton H. Howard..................              2000       $ 264,000                13,700          -- 0 -           $47,100
   President and Chief                           1999         257,000                10,000          -- 0 -           $47,100
   Executive Officer                             1998         253,000                 - 0 -         300,000           $47,100

Steven E. Brown....................              2000       $ 100,000                99,900          10,000             - 0 -
   Vice President - Finance Chief Financial      1999         100,000                70,570          10.000             - 0 -
   Officer                                       1998         100,000                70,000           - 0 -             - 0 -

Richard A. Howard(2)...............              2000       $ 192,010                 - 0 -           - 0 -             - 0 -
   Vice President - Sales & Marketing            1999          14,770                 - 0 -           - 0 -             - 0 -
                                                 1998           - 0 -                 - 0 -           - 0 -             - 0 -

Kenneth L. Sabot...................              2000       $ 149,350                 8,000          10,000             - 0 -
   Senior Vice President -Operations             1999         134,000                 7,200          10.000             - 0 -
                                                 1998         101,700                 - 0 -           - 0 -             - 0 -

Nelson J. Rogers                                 2000       $ 101,800              $ 41,721          10,000             - 0 -
   Vice President -International                 1999         101,800                22,705           - 0 -             - 0 -
                                                 1998         101,800                 - 0 -           - 0 -             - 0 -
</TABLE>

(1)  Clinton Howard has use of a company car with an aggregate annual cost to us
     of $10,000. The Company also pays his country club dues of $1,100. The
     Company also provides a split-dollar life insurance to Mr. Howard in the
     face amount of $1,000,000. The annual premiums are $36,000 per year. No
     other Named Executive Officers received any annual compensation not
     properly categorized as salary or bonus, except for certain perquisites or
     other benefits the aggregate incremental cost of which to us for each
     officer did not exceed the lesser of $50,000, or 10% of the total of annual
     salary and bonus reported for each such officer

(2)  Richard Howard joined the Company in December 1999.

            Stock Options. The following table presents information on stock
options granted to each of our executive officers during the fiscal year ending
on December 31, 2000:

<TABLE>
<CAPTION>
                                                                                                             POTENTIAL REALIZABLE
                                                                                                               VALUE OF ASSUMED
                                                                                                             ANNUAL RATES OF STOCK
                        NUMBER OF SHARES    PERCENTAGE OF OPTIONS                                             PRICE APPRECIATION
                           UNDERLYING       GRANTED TO EMPLOYEES                                              FOR OPTION TERM (1)
                             OPTIONS            DURING FISCAL          EXERCISE PRICE       EXPIRATION      -----------------------
NAME                         GRANTED                YEAR                  PER SHARE            DATE             5%           10%
----                    ----------------    ---------------------      --------------       ----------      ----------    ---------
<S>                     <C>                  <C>                       <C>                  <C>              <C>             <C>
Clinton H. Howard                --                  --                      --                   --               --           --
Steven E. Brown              10,000                  19%                    $.78              3/2/05           $2,155      $12,562
Richard A. Howard                --                  --                      --                   --               --          --
Kenneth L. Sabot             10,000                  19%                    $.78              3/2/05            2,155      12,562
Nelson J. Rogers             10,000                  19%                    $.78              3/2/05            2,155      12,562
</TABLE>



                                       15
<PAGE>   19

Stock Option Exercises. The following table presents certain information
concerning options exercised during the fiscal year ending December 31, 2000 by
each of our executive officers. The table also includes the value of unexercised
options held by our named executive officers at December 31, 2000.

               AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
                      AND FISCAL YEAR-END OPTION VALUES (1)

<TABLE>
<CAPTION>
                                                                                                       VALUE OF
                                                                 NUMBER OF                            UNEXERCISED
                                                                UNEXERCISED                          IN-THE-MONEY
                                                               OPTIONS AT FISCAL                    OPTIONS AT FISCAL
                          SHARES                                  YEAR-END                             YEAR-END(1)
                       ACQUIRED ON      VALUE           --------------------------------      ---------------------------------
NAME                   EXERCISE (#)    REALIZED         EXERCISABLE        UNEXERCISABLE      EXERCISABLE         UNEXERCISABLE
----                   ------------    --------         -----------        -------------      -----------         -------------
<S>                    <C>             <C>              <C>                <C>                <C>                 <C>
Clinton H. Howard         - 0 -          $ 0             322,500               7,500              $ 0                   $ 0
Steven E. Brown           - 0 -            0              11,500              20,500                0                     0
Richard A. Howard         - 0 -            0                   0                   0                0                     0
Kenneth L. Sabot          - 0 -            0               7,500              12,500                0                     0
Nelson J. Rogers          - 0 -            0               6,000              12,000                0                     0
</TABLE>

----------

(1)  The December 29, 2000 closing market price of $.4062 is used in the
     calculation to determine the value of unexercised options.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGES IN CONTROL ARRANGEMENTS

            There are no compensatory plans or arrangements, including payments
to be received from us, with respect to any person named in cash compensation
set out above which would in any way result in payments to any such person
because of his resignation, retirement, or other termination of such person's
employment by us or our subsidiaries, or any change in control of us, or a
change in the person's responsibilities following a changing in control of us.

            We entered into an employment letter agreement with Richard Howard
on December 1, 1999. This employment agreement is for a three year period. It
provides that Mr. Howard will receive a monthly salary of $16,000 and bonuses
based on attaining specified performance objectives set forth in the agreement.
Mr. Howard is also entitled to receive an annual option to acquire 25,000 shares
of our common stock, provided he is still employed on December 1 of such year.
These options have not yet been granted, but the trading price of our common
stock is currently less than the exercise price to which Mr. Howard is entitled.



                                       16
<PAGE>   20
ITEM 12.    SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The following tables set forth as of December 31, 2000, the address,
and the number of shares of our common stock held of record or beneficially by
each person who held of record, or was known by us to own beneficially, more
than 5% of the then 13,916,294 issued and outstanding shares of our Common
Stock, and the name and share holdings of each director and of all officers and
directors as a group. As a result of us not being registered under Section 12(g)
of the Securities Exchange Act of 1934, beneficial owners of more than 5% are
not required to file Schedule 13Ds or 13Gs with the Securities and Exchange
Commission. Therefore, there may be additional persons who have beneficially
acquired more than 5% of our common stock.

<TABLE>
<CAPTION>
                                                          AS OF DECEMBER 31, 1999
                                          -----------------------------------------------------
CLASS                                     BENEFICIAL OWNER                         AMOUNT               % OF CLASS
-----                                     ----------------                     ----------------         ----------
<S>                                       <C>                                    <C>                       <C>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Common                                    Clinton H. Howard                      7,773,188(1)              54.6%
                                           3917 Fox Glen Drive
                                          Irving, Texas 75062

Common                                    Penny Slinger Hills                      979,523                  7.0%
                                          Hills 1998 Living Trust
                                          910 Herman Gulch Road
                                          Boulder Creek, California 95006

Common                                    Dr. M. G. Robertson                    2,000,000(2)              13.4%
                                          977 Centerville Turnpike
                                          Virginia Beach, Virginia 23463

Common                                    My Garden, L.P.                        7,440,139                 53.5%
                                          3917 Fox Glen Drive
                                          Irving, Texas 75062
SECURITY OWNERSHIP OF MANAGEMENT

Common                                    Clinton H. Howard                      7,773,188(1)              54.6%

Common                                    Steven E. Brown                           11,500(3)                 *%

Common                                    Kenneth Sabot                              5,000(3)                 *%

Common                                    Nelson J. Rogers                           6,000(3)                 *%

ALL OFFICERS, DIRECTORS & BENEFICIAL
PERSONS AS A GROUP (8 PERSONS)                                                   7,795,688(4)              54.7%
</TABLE>

----------

* less than 1%

(1)  Includes 325,000 shares that may be acquired by presently exercisable
     common stock options; includes 7,440,139 shares held by a limited
     partnership, My Garden, L.P., the general partners of which are The Clinton
     H. Howard Family Trust and The Katherine M. Howard Family Trust and also
     includes 8,049 shares owned of record by Mr. Howard's spouse. Mr. Clinton
     H. Howard disclaims beneficial ownership of the shares held by his spouse
     except to the extent of his pecuniary interest.

(2)  Includes 1,000,000 shares that may be acquired by presently exercisable
     common stock warrants.

(3)  Represents shares that may be acquired by presently exercisable common
     stock options.

(4)  Includes 347,500 shares that may be acquired by presently exercisable
     common stock options and the shares referred to in footnote (1).


                                       17
<PAGE>   21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH AND INDEBTEDNESS OF MANAGEMENT AND OTHERS

            From time to time we have advanced money to Mr. Clinton Howard.
Currently the outstanding balance of this account payable is $63,676 and is
accruing a rate of interest at 6% per year and is payable before December 31,
2002. Mr. Howard has also guaranteed our obligations with respect to the loan
relating to our acquisition of our corporate headquarters. The Company has
undertaken certain obligations to indemnify him and secure our obligations to
him in the event we default on our loan.

            Flanagan Technologies, Inc., a company controlled by Dr. G. Patrick
Flanagan, one of our directors, has granted us an exclusive license with respect
to the rights to sell Flanagan Microclusters(R), our most successful product.
This license agreement was entered into in December 1998. Dr. Flanagan joined
our board of directors in June 2000. We paid Flanagan Technologies, Inc.
approximately $3,800,000 in 2000.



                                       18
<PAGE>   22
            PART IV

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

(a)         FINANCIAL STATEMENTS. The following financial statements are filed
            as part of this 10-K

Title of Document

Independent Auditors Reports of Swalm, Thomas & Associates, PLLC, Certified
Public Accountants and Grant Thornton LLP, Independent Certified Public
Accountants

            Consolidated Balance Sheets as of December 31, 2000 and 1999.

            Consolidated Statements of Operations for the Years December 31,
            2000, 1999 and 1998.

            Consolidated Statements of Shareholders' Equity for the Years Ended
            December 31, 2000, 1999 and 1998.

            Consolidated Statements of Cash Flows for the Years Ended December
            31, 2000, 1999 and 1998.

            Notes to Consolidated Financial Statements

(a)(2)      FINANCIAL STATEMENT SCHEDULES. None.

(a)(3)      EXHIBITS. The following exhibits are included as part of this
            report:

 Ex. No.     Description
 -------     -----------

 3.1         Articles of Incorporation(1)

 3.2         By-Laws(1)

 4.1         Specimen copy of Certificate for Common Stock(1)

 4.2         Specimen copy of 10% Convertible Notes issued in 1997 (2)

 4.3         The 1998 Stock Option Plan for our Directors, Employees and
             Consultants (2)

 4.4         Stock Purchase Agreement dated 10/27/97 with Dr. M. G.
             Robertson (2)

 10.1        Exclusive License Agreement with Flanagan Technologies for its
             Microclusters (2)

 10.2        Form of Member Agreement and Policies with Distributors (2)

 10.3        Form of Indemnification Agreement(1)

 10.4        Real Estate Purchase Agreement(3)

 10.5*       Employment Agreement with Richard Howard

 16.1        Letter regarding change in accountant(4)

----------

*Filed herewith.



                                       19
<PAGE>   23

(1)  Incorporated by reference to the Annual Report on Form 10-K filed April 26,
     2000

(2)  Incorporated by reference to the Annual Report on Form 10-K/A filed May 7,
     1999

(3)  Incorporated by reference to the Quarterly Report on Form 10-Q filed
     November 13, 2000

(4)  Incorporated by reference to the Current Report on Form 8-K/A filed January
     10, 2001

(b)  REPORTS ON FORM 8-K

            We filed no reports on Form 8-K during the quarter ending December
31, 2000.




                                       20
<PAGE>   24
                                   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.

                                   ROYAL BODYCARE, INC.,
                                   a Nevada corporation


Date: March 30, 2001               By: /s/ CLINTON H. HOWARD
                                      ------------------------------------------
                                      Clinton H. Howard, Chief Executive Officer

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

<TABLE>
<CAPTION>
            SIGNATURE                     TITLE                               DATE
            ---------                     -----                               ----
<S>                                 <C>                                   <C>
   /s/ CLINTON H. HOWARD            Chairman of the Board of
-------------------------------     Directors, President and
Clinton H. Howard                   Chief Executive Officer               March 30, 2001

   /s/ STEVEN E. BROWN              Director, Vice President-
-------------------------------     Chief Financial Officer               March 30, 2001
Steven E. Brown

   /s/ RICHARD A. HOWARD            Director, Vice President-
-------------------------------     Sales and Marketing                   March 30, 2001
Richard A. Howard

   /s/ KENNETH L. SABOT             Director, Senior Vice President-
-------------------------------     Operations                            March 30, 2001
Kenneth L. Sabot

   /s/ PATRICK FLANAGAN             Director                              March 30, 2001
-------------------------------
G. Patrick Flanagan

   /s/ JOSEPH S. SCHUCHERT           Director                              March 30, 2001
-------------------------------
Joseph S. Schuchert
</TABLE>



                                       21
<PAGE>   25
                            INDEX TO FINANCIAL PAGES

<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                     ----
<S>                                                                                  <C>
Report of Independent Certified Public Accountants - Grant Thornton LLP               F-2

Independent Auditors' Report - Swalm, Thomas & Associates, PLLC                       F-3

Consolidated Financial Statements

       Balance Sheets                                                                 F-4

       Statements of Operations                                                       F-5

       Statement of Shareholders' Equity                                              F-6

       Statements of Cash Flows                                                       F-7

Notes to Consolidated Financial Statements                                            F-8
</TABLE>



                                      F-1
<PAGE>   26

               Report of Independent Certified Public Accountants


Board of Directors and Stockholders
Royal BodyCare, Inc. and Subsidiaries


We have audited the consolidated balance sheet of Royal BodyCare, Inc. and
Subsidiaries as of December 31, 2000, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 our audit provides 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 Royal BodyCare,
Inc. and Subsidiaries as of December 31, 2000, and the consolidated results of
their operations and their consolidated cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.



GRANT THORNTON LLP

Dallas, Texas
March 16, 2001



                                      F-2
<PAGE>   27
                          INDEPENDENT AUDITORS' REPORT


Board of Directors
Royal BodyCare, Inc. and Subsidiaries
Dallas, Texas

We have audited the accompanying consolidated balance sheet of Royal BodyCare,
Inc. and Subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, shareholders' equity and cash flows for the two years
in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Royal BodyCare,
Inc. and Subsidiaries as of December 31, 1999 and the results of their
operations and their cash flows for the two years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.


SWALM, THOMAS & ASSOCIATES, PLLC


April 14, 2000
Plano, Texas


                                      F-3
<PAGE>   28
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,



<TABLE>
<CAPTION>
                        ASSETS                                        2000            1999
                                                                  ------------    ------------
<S>                                                               <C>             <C>
Current assets
     Cash                                                         $    230,460    $     83,225
     Interest bearing deposit                                          125,000         125,000
    Accounts receivable, net of allowance for doubtful accounts
         of $29,888 and $75,000, respectively                          491,406         542,191
    Inventories                                                      3,465,172       2,904,603
    Deferred income tax assets                                          98,542         248,981
    Prepaid expenses                                                   398,494          75,465
                                                                  ------------    ------------

                        Total current assets                         4,809,074       3,979,465

Property and equipment, net of accumulated depreciation              2,671,334       2,185,617

Goodwill, net of accumulated amortization                            2,273,081       2,516,945

Other assets                                                           991,502         318,369
                                                                  ------------    ------------

                                                                  $ 10,744,991    $  9,000,396
                                                                  ============    ============

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable, trade                                       $  1,554,817    $    944,071
    Accrued liabilities                                              2,208,489       2,059,495
    Current maturities of long-term debt                               759,142         671,806
    Lines of credit                                                    415,607         108,071
    Deferred revenue                                                   100,644              --
    Net liabilities of discontinued operations                         100,000         212,386
                                                                  ------------    ------------

                        Total current liabilities                    5,138,699       3,995,829

Deferred income tax liabilities                                        262,274          31,535

Long-term debt, less current maturities                                542,070         584,980

Shareholders' equity
    Preferred stock, $.10 par value; authorized
         20,000,000 shares; none outstanding                                --              --
    Common stock; $.001 par value; authorized
         50,000,000 shares; 13,916,294 shares issued and
         outstanding in 2000 and 1999, respectively                     13,916          13,916
    Additional paid-in capital                                      12,159,118      12,147,818
    Accumulated deficit                                             (7,275,118)     (7,785,407)
    Accumulated other comprehensive (loss) income                      (95,968)         11,725
                                                                  ------------    ------------
                                                                     4,801,948       4,388,052
                                                                  ------------    ------------

                                                                  $ 10,744,991    $  9,000,396
                                                                  ============    ============
</TABLE>


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


                                      F-4
<PAGE>   29
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                            Years ended December 31,

<TABLE>
<CAPTION>
                                                                         2000           1999           1998
                                                                      ------------   ------------   ------------
<S>                                                                   <C>            <C>            <C>
Sales                                                                 $ 39,993,344   $ 35,681,261   $ 28,383,722
Cost of sales                                                           11,541,470     10,272,046      8,489,498
                                                                      ------------   ------------   ------------

              Gross profit                                              28,451,874     25,409,215     19,894,224

Operating expenses
     General and administrative                                         11,464,602     10,339,441      7,886,672
     Distributor commissions                                            15,297,406     14,249,788     11,056,714
     Interest                                                              177,305        116,393         95,992
     Depreciation and amortization                                         692,380        455,517        347,630
                                                                      ------------   ------------   ------------

              Total operating expenses                                  27,631,693     25,161,139     19,387,008
                                                                      ------------   ------------   ------------

Earnings from continuing operations
     before income taxes                                                   820,181        248,076        507,216

Income tax expense (benefit)                                               380,678        117,379         (4,054)
                                                                      ------------   ------------   ------------

Earnings from continuing operations                                        439,503        130,697        511,270

Earnings (loss) from discontinued operations                                70,786        137,576       (544,857)
                                                                      ------------   ------------   ------------

              Net earnings (loss)                                     $    510,289   $    268,273   $    (33,587)
                                                                      ============   ============   ============


Basic and diluted earnings (loss) per share:
     Earnings from continuing operations                              $       0.03   $       0.01   $       0.04
     Earnings (loss) from discontinued operations                             0.01           0.01          (0.04)
                                                                      ------------   ------------   ------------

              Basic and diluted earnings (loss) per share             $       0.04   $       0.02   $      (0.00)
                                                                      ============   ============   ============

Basic and diluted weighted average shares outstanding                   13,916,294     13,893,883     13,699,163
                                                                      ============   ============   ============
</TABLE>

    The accompanying notes are an integral part of this financial statement.


                                      F-5
<PAGE>   30
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                     Common stock           Additional                     other          Total
                                              --------------------------     paid-in     Accumulated    comprehensive  shareholders'
                                                Shares         Amount        capital       deficit      income (loss)     equity
                                              -----------    -----------   -----------   -----------    -----------    -----------
<S>                                           <C>            <C>           <C>           <C>           <C>             <C>
Balance at December 31, 1997                   13,536,980    $    13,537   $11,593,209   $(8,020,093)   $    (3,110)   $ 3,583,543

Comprehensive loss
     Net loss                                          --             --            --       (33,587)            --        (33,587)
     Foreign currency translation adjustment           --             --            --            --         (2,342)        (2,342)
                                                                                                                       -----------
      Total comprehensive loss                                                                                             (35,929)

Conversion of notes payable                        22,619             22        29,978            --             --         30,000
Lightforce earn-out shares                         47,157             47        94,465            --             --         94,512
Private placement                                 255,449            256       389,220            --             --        389,476
                                              -----------    -----------   -----------   -----------    -----------    -----------

Balance at December 31, 1998                   13,862,205         13,862    12,106,872    (8,053,680)        (5,452)     4,061,602

Comprehensive income
     Net earnings                                      --             --            --       268,273             --        268,273
     Foreign currency translation adjustment           --             --            --            --         17,177         17,177
                                                                                                                       -----------
      Total comprehensive income                                                                                           285,450

Conversion of notes payable                           757              1           999            --             --          1,000
Shares purchased                                   53,332             53        39,947            --             --         40,000
                                              -----------    -----------   -----------   -----------    -----------    -----------

Balance at December 31, 1999                   13,916,294         13,916    12,147,818    (7,785,407)        11,725      4,388,052

Comprehensive income
     Net earnings                                      --             --            --       510,289             --        510,289
     Foreign currency translation
       adjustment                                      --             --            --            --       (107,693)      (107,693)
                                                                                                                       -----------
      Total comprehensive income                                                                                           402,596

Issuance of stock options for services                 --             --        11,300            --             --         11,300
                                              -----------    -----------   -----------   -----------    -----------    -----------

Balance at December 31, 2000                   13,916,294    $    13,916   $12,159,118   $(7,275,118)   $   (95,968)   $ 4,801,948
                                              ===========    ===========   ===========   ===========    ===========    ===========
</TABLE>



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



                                      F-6
<PAGE>   31
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                        For the years ended December 31,

<TABLE>
<CAPTION>
                                                                           2000           1999           1998
                                                                       -----------    -----------    -----------
<S>                                                                    <C>            <C>            <C>
Cash flows from operating activities
     Net earnings (loss) from operations                               $   510,289    $   268,273    $   (33,587)
     Less (earnings) loss from discontinued operations                     (70,786)      (137,576)       544,857
                                                                       -----------    -----------    -----------

                        Net earnings from continuing operations            439,503        130,697        511,270

     Adjustments to reconcile net earnings from continuing
         operations to net cash provided by continuing operations
              Depreciation and amortization                                692,380        468,124        347,630
              Lawsuit settlement                                                --        480,249             --
              Loss on sale of property and equipment                         8,593             --             --
              Deferred income taxes                                        335,454        (31,263)       (40,993)
              Issuance of stock options for services                        11,300             --             --
     Change in operating assets and liabilities
         Accounts receivable                                                50,539       (102,690)      (335,486)
         Interest bearing deposit                                               --       (125,000)            --
         Prepaid expenses                                                 (324,630)        62,737        (73,720)
         Inventories                                                      (594,281)      (236,197)    (1,059,142)
         Other assets                                                     (673,133)      (100,640)       (81,329)
         Accounts payable, trade                                           648,901         91,183        547,415
         Accrued liabilities                                               137,472        391,554        750,766
         Deferred revenue                                                  100,644             --             --
                                                                       -----------    -----------    -----------

                        Net cash provided by continuing operations         832,742      1,028,754        566,411
                        Net cash provided by discontinued operations            --             --          2,244
                                                                       -----------    -----------    -----------
                         Net cash provided by operating activities         832,742      1,028,754        568,655

Cash flows from investing activities
     Investing activities of discontinued operation                             --             --        (19,914)
     Purchase of property and equipment                                   (674,260)      (998,999)      (473,334)
     Proceeds from sale of property and equipment                            3,876             --             --
                                                                       -----------    -----------    -----------

                        Net cash used in investing activities             (670,384)      (998,999)      (493,248)

Cash flows from financing activities
     Net proceeds from lines of credit                                     308,242             --          2,917
     Net proceeds from sale of stock                                            --         40,000        389,476
     Proceeds from long-term debt                                          227,075        167,500             --
     Payments of long-term debt                                           (558,817)      (553,616)       (93,454)
                                                                       -----------    -----------    -----------

                        Net cash (used in) provided by financing
                         activities                                        (23,500)      (346,116)       298,939
                                                                       -----------    -----------    -----------

Effect of exchange rate changes on cash flows                                8,377         17,177         (2,342)
                                                                       -----------    -----------    -----------

Net increase (decrease) in cash                                            147,235       (299,184)       372,004

Cash at beginning of year                                                   83,225        382,409         10,405
                                                                       -----------    -----------    -----------

Cash at end of year                                                    $   230,460    $    83,225    $   382,409
                                                                       ===========    ===========    ===========

Supplemental cash flow disclosures
     Income taxes                                                      $        --    $        --    $        --
     Interest                                                          $   174,000    $   110,000    $    90,000
</TABLE>




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


                                      F-7
<PAGE>   32
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998

NOTE A - NATURE OF OPERATIONS AND ORGANIZATION

     The Company was formed in April 1997 through the merger of two entities,
     GlobeNet, Inc. ("GlobeNet") and Mighty Power USA, Inc. ("Mighty Power").
     Concurrent with this merger, the name of the Company was changed to
     GlobeNet International I, Inc. In October 1999, the Company changed its
     name to Royal BodyCare, Inc. ("RBC") in order to be more easily identified
     with the brand name of its main products. The Company is engaged in the
     marketing of nutritional supplements and personal care products and its
     continuing operations represent the separate business strategies and
     product lines of GlobeNet preceding the Merger described above.

     In December 2000, RBC created a new subsidiary called Bizadigm, Inc.
     (Bizadigm). Bizadigm offers internet products including web sites, on-line
     training courses in over 170 different topics, and mini CD's used for
     presenting promotional information. The Bizadigm products will be marketed
     through a network of independent distributors similar in approach to how
     RBC's current nutritional and personal care products are marketed. There
     was limited activity in Bizadigm at December 31, 2000 due to its recent
     inception.

     The operations conducted by Mighty Power and its affiliates prior to the
     Merger were conducted by Great Xpectations Marketing, Inc. ("GXI") and are
     classified in the accompanying consolidated financial statements as
     discontinued operations (see Note L).

     RBC has entered into agreements to license the exclusive rights to sell its
     nutritional and personal care products internationally through third party
     licensees in the respective countries. RBC has entered into seven such
     arrangements to market these products. Under these agreements, distributors
     in these countries are compensated by the third party licensees according
     to the same or a similar compensation plan as the one used by RBC for its
     independent distributors in the United States and Canada.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
     the accounts of RBC, and its wholly-owned subsidiaries; Royal BodyCare USA,
     Inc., Royal BodyCare Canada, Inc., Pure Life International Products, Inc.
     and Bizadigm, Inc. (collectively the "Company"). All significant
     intercompany accounts and transactions have been eliminated.

     TRANSLATION OF FOREIGN CURRENCIES - All assets and liabilities of foreign
     subsidiaries are translated into U.S. dollars at the exchange rate in
     effect at the balance sheet date. Revenue and expense accounts are
     translated at weighted average exchange rates. Translation gains and losses
     are reflected as other comprehensive income in shareholders' equity. Gains
     and losses on foreign currency transactions are included in the
     consolidated statements of operations.

     REVENUE RECOGNITION AND DEFERRED REVENUE - Sales are recorded when the
     product is shipped and title passes to the distributed and/or customer.
     Payments received for unshipped products are recorded as deferred revenue
     and are included in other current liabilities. Payments received for
     services offered through Bizadigm are deferred and recorded as revenue
     ratably over the service period.





                                      F-8
<PAGE>   33
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     INVENTORIES - Inventories consisting of raw materials and bulk products,
     packaging materials and finished goods are stated at the lower of cost of
     market.

     CASH EQUIVALENTS - For purposes of the statements of cash flows, the
     Company considers all highly liquid debt instruments purchased with an
     original maturity of three months or less to be cash equivalents.

     PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
     Depreciation and amortization are provided over the estimated useful lives
     of the related assets, principally on the straight-line method, ranging
     from three to seven years.

     GOODWILL - Goodwill represents the excess cost over fair value of assets
     acquired and is being amortized using the straight-line method over 20
     years. The Company periodically reviews the carrying value of goodwill for
     impairment based on expected future undiscounted operating cash flows of
     the related business unit. If an impairment has occurred, any excess is
     charged to operations.

     INCOME TAXES - The Company utilizes the liability method of accounting for
     income taxes. Under the liability method, deferred income tax assets and
     liabilities are provided based on the difference between the financial
     statement and tax bases of assets and liabilities as measured by the
     currently enacted tax rates in effect for the years in which these
     differences are expected to reverse. Deferred tax expense or benefit is the
     result of changes in deferred tax assets and liabilities. An allowance
     against deferred tax assets is recorded in whole or in part when it is more
     likely than not that such tax benefits will not be realized.

     EARNINGS (LOSS) PER SHARE - Basic earnings per common share is based upon
     the weighted average number of common shares outstanding. Diluted earnings
     per share is based upon the weighted average number of common shares
     outstanding and, when dilutive, common shares issuable for stock options,
     warrants and convertible debt.

     CREDIT RISK - Trade accounts receivable arise in the normal course of
     business and primarily relate to sales of products to the distributor
     network throughout the United States, Canada and its overseas licensees.
     Such receivables are unsecured. Ongoing credit evaluations are performed of
     the entities from whom such accounts are receivable.

     ACCOUNTING ESTIMATES - In preparing financial statements in conformity with
     accounting principles generally accepted in the United States of America,
     management is required to make estimates and assumptions that effect the
     reported amounts of assets and liabilities and the disclosure of contingent
     assets and liabilities at the date of the financial statements and revenues
     during the reporting period. Actual results could differ from those
     estimates.

     FINANCIAL INSTRUMENTS - The carrying value of cash, interest bearing
     deposits, accounts receivable and payable, accrued liabilities and lines of
     credit approximate fair value due to the short-term maturities of these
     assets and liabilities. Fair value of long-term debt is estimated based on
     interest rates for the same or similar debt offered having the same or
     similar maturities and collateral requirements.




                                      F-9
<PAGE>   34

                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

     SEGMENT INFORMATION - The Company's current operations involve a single
     industry segment; the development and distribution of nutritional and
     personal care products. The Company operates in various geographic
     segments. No distributor accounted for more than ten percent of net sales
     for the years ended December 31, 2000, 1999 or 1998.

     INTERNAL SOFTWARE DEVELOPMENT COSTS - Software development costs for
     internally used software are capitalized when technological feasibility for
     the project is established up to the time the product is ready for use.
     Amortization of capitalized costs begins when the software is ready for its
     intended use and after substantially all tests to determine whether the
     software is operational have been completed. Internally developed software
     is amortized over 3-5 years.

     PRODUCT RETURN POLICY - Returned product that is unused and resalable is
     refunded up to one year from the date of purchase at 100% percent of the
     sales price to the distributor less a ten percent restocking fee and
     commissions paid. Returned product that was damaged during shipment to the
     distributor is replaced by the Company. Return of product other than that
     which was damaged at the time of receipt by an distributor constitutes
     potential cancellation of the distributorship.

     STOCK-BASED COMPENSATION - The Company has chosen to account for
     stock-based compensation to employees using the intrinsic value method.
     Accordingly, compensation cost for employee stock options is measured as
     the excess, if any, of the quoted market price of the Company's stock at
     the date of the grant over the amount an employee must pay to acquire that
     stock. Option grants to non-employees are recorded at fair value at the
     time of grant.

     NEW ACCOUNTING PRONOUNCEMENTS - Effective December 31, 2000, the Company
     adopted the Financial Accounting Standards Board (FASB) guidelines on
     revenue recognition pursuant to Emerging Issues Task Force ("EITF") No.
     00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF
     00-10"). Under EITF 00-10 guidelines, historical and future revenue
     relating to amounts billed to a customer for shipping and handling should
     be classified as revenue. Shipping and handling revenues of approximately
     $1,517,000, $1,487,000 and $1,195,000, have been reclassified as sales
     revenue for the years ended December 31, 2000, 1999 and 1998, respectively.
     The corresponding shipping and handling expenses are classified in cost of
     sales for the years ended December 31, 2000, 1999 and 1998, and were
     approximately equivalent to the amounts reclassified as sales revenue.

     In December 1999, the Securities and Exchange Commission issued Staff
     Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
     ("SAB 101"). SAB 101 provides guidance on applying generally accepted
     accounting principles to revenue recognition issues in financial
     statements. The Company adopted SAB 101 in the fourth quarter of 2000 and
     its adoption has not had a material effect on the Company's results of
     operations or financial position.




                                      F-10
<PAGE>   35
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE C - INVENTORIES

     At December 31, 2000 and 1999, inventories consist of the following:

<TABLE>
<CAPTION>
                                                                    2000         1999
                                                                 ----------   ----------
<S>                                                              <C>          <C>
         Raw materials and bulk products                         $  931,436   $  787,373
         Packaging materials                                        289,357      277,869
         Finished goods                                           2,244,379    1,839,361
                                                                 ----------   ----------

                                                                 $3,465,172   $2,904,603
                                                                 ==========   ==========
</TABLE>

NOTE D - PROPERTY AND EQUIPMENT

     At December 31, 2000 and 1999, property and equipment consist of the
     following:

<TABLE>
<CAPTION>
                                                                    2000         1999
                                                                 ----------   ----------
<S>                                                              <C>          <C>
         Computer software and office equipment                  $3,717,310   $2,900,850
         Warehouse equipment                                        306,273      304,854
         Automotive equipment                                       118,901       15,609
         Leasehold improvements                                     157,587      106,525
                                                                 ----------   ----------
                                                                  4,300,071    3,327,838
         Less accumulated depreciation and amortization           1,628,737    1,142,221
                                                                 ----------   ----------

                                                                 $2,671,334   $2,185,617
                                                                 ==========   ==========
</TABLE>

NOTE E - GOODWILL

     At December 31, 2000 and 1999, goodwill consist of the following:

<TABLE>
<CAPTION>
                                                                    2000         1999
                                                                 ----------   ----------
<S>                                                              <C>          <C>
         Lightforce                                              $2,378,727   $2,378,727
         Pure Life                                                  843,622      843,622
                                                                 ----------   ----------
                                                                  3,222,349    3,222,349
         Less accumulated amortization                              949,268      705,404
                                                                 ----------   ----------

                                                                 $2,273,081   $2,516,945
                                                                 ==========   ==========
</TABLE>




                                      F-11
<PAGE>   36
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998

NOTE F - ACCRUED LIABILITIES

     At December 31, accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                    2000         1999
                                                                 ----------   ----------
<S>                                                              <C>          <C>
         Distributor commissions                                 $1,291,076   $1,496,558
         Deferred revenue for unshipped orders                      429,172           --
         Sales and other taxes                                      196,472      165,000
         Interest                                                    15,797       12,552
         Other                                                      275,972      385,385
                                                                 ----------   ----------

              Total                                              $2,208,489   $2,059,495
                                                                 ==========   ==========
</TABLE>

NOTE G - LINES OF CREDIT

     At December 31, lines of credit consist of the following:

<TABLE>
<CAPTION>
                                                                    2000         1999
                                                                 ----------   ----------
<S>                                                              <C>          <C>
         Line of credit ($250,000 maximum) - bank
              Prime plus 1.0%                                    $  200,000   $       --
         Line of credit ($100,000 maximum) - bank
              Prime plus 3.25%                                      100,000      100,000
         Line of credit ($50,000 maximum) - bank
              Prime plus 4.0%                                        46,446        8,071
         Line of credit ($100,000) - bank
              Prime plus 1.0%                                        69,161           --
                                                                 ----------   ----------

              Total                                              $  415,607   $  108,071
                                                                 ==========   ==========
</TABLE>

     The prime rate was 9.5% at December 31, 2000. The lines of credit are
     collateralized by the Company's receivables and inventories. The lines
     generally mature over a 12-month period.



                                      F-12
<PAGE>   37
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE H - LONG-TERM OBLIGATIONS

     At December 31, long-term obligations consist of the following:

<TABLE>
<CAPTION>
                                                                                                               2000        1999
                                                                                                             ----------  ----------
<S>                                                                                                          <C>         <C>
        Notes payable to banks bearing interest at prime plus 5% due in monthly
            payments aggregating $3,311 plus interest through November 2000                                  $       --  $   23,540
        Notes payable to bank bearing interest ranging from 4.9% to 10.4%, payable
            through 2005, collateralized by automobiles                                                         107,001      57,442
        Note payable to bank bearing interest at 9%, due in monthly payments of
            $2,146 through 2002, collateralized by equipment                                                     45,123      65,754
        Note payable to bank bearing interest at prime plus .5% (10% at December
            31, 2000). This note requires interest payments only through
            February 2001 with monthly principal and interest payments due
            thereafter. Proceeds from this borrowing were used to make certain
            escrow deposits in connection with the acquisition of the Company's
            headquarters facility located in Irving, Texas. The acquisition was
            completed in March 2001 at a purchase price of $3,500,000                                           148,000          --
        Convertible notes (original amount $730,000) bearing interest at 10% payable
            quarterly, originally due two years from the date of issuance, notes are
            convertible into common stock any time prior to maturity at the option of
            the holder based on a per share conversion price of $1.32, as of December
            31, 2000, $275,000 has been repaid and $248,000 has been converted into
            186,885 shares of common stock                                                                      207,000     273,000
        Litigation settlement to former marketing consultant and distributor, payable
            $5,000 per month through April 2004, settlement is without interest and
            has been discounted at 10%                                                                          169,487     380,248
        Capital lease obligations                                                                               599,601     431,802
        Other                                                                                                    25,000      25,000
                                                                                                             ----------  ----------
                                                                                                              1,301,212   1,256,786
        Less - current maturities                                                                               759,142     671,806
                                                                                                             ----------  ----------

            Total                                                                                            $  542,070  $  584,980
                                                                                                             ==========  ==========
</TABLE>

     Certain purchases of equipment have been financed through capital leases.
     Such leases have terms ending in 2004 and have various interest rates
     approximating 14%.



                                      F-13
<PAGE>   38
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE H - LONG-TERM OBLIGATIONS - Continued

     Long-term obligation payments payable in the next five years are as
follows:

<TABLE>
<CAPTION>
                                                                                               Capital
         December 31,                                                    Debt                   leases
         ------------                                                  --------                --------
<S>                                                                    <C>                     <C>
              2001                                                     $484,871                $342,667
              2002                                                      107,307                 287,914
              2003                                                       71,686                  70,012
              2004                                                       30,709                  16,202
              2005                                                        7,038                      --
                                                                       --------                --------
                                                                        701,611                 716,795
         Less amount representing interest                                   -                  117,194
         Less current maturities                                        484,871                 274,271
                                                                       --------                --------
                                                                       $216,740                $325,330
                                                                       ========                ========
</TABLE>

NOTE I - CAPITAL TRANSACTIONS

     Private Placements

     In 1999, the Company sold 53,332 shares of common stock to two distributors
     for $40,000. The proceeds of this stock placement were used to purchase a
     new product line.

     In 1998, the Company sold 255,449 shares of unregistered common stock at
     prices ranging from $1.35 to $1.66 per share. In addition, the Company
     granted warrants to purchase 216,932 shares of common stock, exercisable
     through October 2003 at an exercise price of $2.00 per share. Each of the
     warrants are outstanding at December 31, 2000. The offering raised
     $389,476.

     In 1997, the Company sold 1,000,000 shares of unregistered common stock
     through a private placement offering at a per share price of $1.25. The
     offering raised $947,442 in cash (net of offering costs) and included the
     conversion of a $250,000 note payable due the investor. In addition, the
     investor received a five-year warrant to purchase 1,000,000 shares of our
     unregistered common stock at an exercise price of $2.00 per share which
     remains outstanding at December 31, 2000. The investor also received a
     demand registration right covering the private placement and warrant shares
     exercisable under certain circumstances covered in the stock purchase
     agreement.





                                      F-14
<PAGE>   39
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE I - CAPITAL TRANSACTIONS - Continued

     Stock Options

     The Company has a stock option plan ("The 1998 Stock Option Plan"). The
Plan reserves 500,000 shares under the Plan.

     As of December 31, 2000, directors, officers and key employees have been
     granted options to acquire 194,000 shares of common stock that vest
     periodically through 2004. The options have been granted at prices ranging
     from $.50 to $1.062 per share, which were the market prices of the shares
     on the dates granted. The options expire at various dates through 2005.

     The Company has entered into stock option agreements outside of the Plan.
     As of December 31, 2000, individuals have been granted options to acquire
     868,520 shares of common stock.

     The Company has adopted only the disclosure provisions of Statement of
     Financial Accounting Standards No. 123, "Accounting for Stock-Based
     Compensation" (SFAS 123). The Company accounts for stock based compensation
     following Accounting Principles Board Opinion No. 25, under which no
     compensation cost is recognized. Had compensation cost for the stock based
     compensation been determined consistent with SFAS 123, our net earnings
     (loss) and earnings (loss) per share would have been changed to the
     following pro forma amounts:

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                         ---------------------------------------
                                                            2000          1999          1998
                                                         -----------   -----------   -----------
<S>                                                      <C>           <C>           <C>
         Net earnings (loss)
              As reported                                $   510,289   $   268,273   $   (33,587)
                                                         ===========   ===========   ===========

              Pro forma                                  $   453,042   $    89,559   $  (345,197)
                                                         ===========   ===========   ===========

         Earnings (loss) per share - basic and diluted
              As reported                                $      0.04   $      0.02   $     (0.00)
                                                         ===========   ===========   ===========

              Pro forma                                  $      0.03   $      0.01   $     (0.03)
                                                         ===========   ===========   ===========
</TABLE>

     The fair value of these options was estimated at the date of grant using
     the Black-Scholes option-pricing model with the following weighted-average
     assumptions; expected volatility of 145 percent for 2000, 153 percent for
     1999 and 173 percent for 1998; average risk-free interest rate of 5.19
     percent for 2000, 5.06 percent for 1999 and 5.0 percent for 1998; average
     expected life of 4.5 years for 2000, 3.13 years for 1999 and 5.5 years for
     1998. Dividends were assumed not to be paid during the period of
     calculation. The weighted-average fair value of options granted was $.78,
     $.89 and $.96 in 2000, 1999 and 1998, respectively.

     Option pricing models require the input of highly subjective assumptions
     including the expected stock price volatility. Also, our employee stock
     options have characteristics significantly different from those of traded
     options including long-vesting schedules, and changes in the subjective
     input assumptions can materially affect the fair value estimate. The
     Company believes that the best assumptions available were used to value the
     options.



                                      F-15
<PAGE>   40
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998

NOTE I - CAPITAL TRANSACTIONS - Continued

     Stock Options - Continued

     Changes in our stock options are as follows:

<TABLE>
<CAPTION>
                                                                                                               Weighted-
                                                                                                               average
                                                      Shares                  Exercise price                exercise price
                                                     ---------                --------------                ---------------
<S>                                                  <C>                      <C>                           <C>
         Outstanding at December 31, 1997              785,200                 $1.03 - $2.40                    $1.17
              Granted                                  653,200                   0.73 - 2.00                     1.02
              Exercised                                     --                            --                       --
              Canceled or expired                       (8,000)                         1.06                     1.06
                                                     ---------

         Outstanding at December 31, 1998            1,430,400                   0.73 - 2.40                     1.11
              Granted                                  207,720                   0.77 - 1.54                     1.13
              Exercised                                     --                            --                       --
              Canceled or expired                     (525,000)                  1.06 - 1.33                     1.18
                                                     ---------

         Outstanding at December 31, 1999            1,113,120                   0.73 - 2.40                     1.08
              Granted                                   72,000                   0.50 - 1.06                     0.93
              Exercised                                     --                            --                       --
              Canceled or expired                     (122,600)                  0.73 - 2.00                     1.19
                                                     ---------

         Outstanding at December 31, 2000            1,062,520                   0.50 - 2.40                     1.04
                                                     =========

         Exercisable at December 31, 2000              951,770
                                                     =========
</TABLE>

     Stock options outstanding and exercisable at December 31, 2000 is
     summarized as follows:

<TABLE>
<CAPTION>
                                               Weighted-
                                                average              Weighted-                                  Weighted-
    Range of               Number              remaining              average               Number               average
exercise price            outstanding        contractual life        exercise price        exercisable         exercise price
--------------            -----------        ----------------        --------------        -----------         --------------
<S>                       <C>                <C>                     <C>                   <C>                 <C>
 $0.50 - $0.812             375,000            4.5 years                $0.80                323,000              $0.81
  0.88 -  0.99              150,480            2.5 years                 0.91                135,480               0.91
          1.06              185,000            1.7 years                 1.06                141,250               0.91
  1.09 -  1.29              184,120            1.9 years                 1.24                184,120               1.24
  1.32 -  2.40              167,920            1.7 years                 1.47                167,920               1.47
                           --------                                                          -------

                          1,062,520                                                          951,770
                          =========                                                          =======
</TABLE>



                                      F-16
<PAGE>   41
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE J - INCOME TAXES

     The income tax provision reconciled to the tax computed at the statutory
Federal rate of 34% follows:

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                    ----------------------------------
                                                                      2000        1999         1998
                                                                    ---------   ---------    ---------
<S>                                                                 <C>         <C>          <C>
         Federal income tax expense at statutory rate               $ 278,862   $  84,686    $ 172,453

         Non-deductible expenses                                        5,875     146,285        8,500
         State income taxes, net of federal benefit                    24,605          --           --
         Adjustment of deferred tax items                              53,850          --           --
         Depreciation and amortization                                     --    (103,837)     (56,780)
         NOL carryforwards                                                 --     (65,326)    (165,165)
         Effect of foreign operations, net of foreign tax credits      17,486      55,571       36,938
                                                                    ---------   ---------    ---------

         Income tax expense (benefit)                               $ 380,678   $ 117,379    $  (4,054)
                                                                    =========   =========    =========
</TABLE>

     Deferred tax assets and liabilities at December 31, 2000 and 1999 are
     comprised of the following:

<TABLE>
<CAPTION>
                                                         December 31,
                                                 --------------------------
                                                    2000           1999
                                                 -----------    -----------
<S>                                              <C>            <C>
         Deferred tax assets
              Lawsuit settlement                 $    62,710    $   129,285
              Allowance for doubtful accounts         11,059         25,500
              Prepaid expenses                         8,003             --
              Vacation pay accrual                    21,626             --
              Deferred revenue                        11,974             --
              Net operating loss carryforwards        42,081        223,481
              Other                                   14,800             --
                                                 -----------    -----------
                                                     172,253        378,266
         Deferred tax liabilities
              Depreciation                       $  (273,825)   $  (117,980)
              Amortization                           (62,160)       (42,840)
                                                 -----------    -----------
                                                    (335,985)      (160,820)
                                                 -----------    -----------
         Net deferred tax (liabilities) assets   $  (163,732)   $   217,446
                                                 ===========    ===========
</TABLE>

     The Company has net operating loss carryforwards of approximately $84,000
     that expire in 2014.



                                      F-17
<PAGE>   42
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE J - INCOME TAXES - Continued

     Income tax expense (benefit) for continuing operations consists of the
     following:

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                ----------------------------------
                                                                  2000         1999        1998
                                                                ---------    ---------   ---------
<S>                                                             <C>          <C>         <C>
         Current
              Federal                                           $  11,000    $   2,000   $      --
              Foreign                                              34,224       55,571      36,938
         Deferred
              Federal                                             347,581       59,808     (40,992)
              Foreign                                             (12,127)          --          --
                                                                ---------    ---------   ---------

         Income tax expense (benefit) - continuing operations   $ 380,678    $ 117,379   $  (4,054)
                                                                =========    =========   =========
</TABLE>

NOTE K - COMMITMENTS AND CONTINGENCIES

     Leases

     The Company leases office and warehouse space and certain equipment using
     operating leases for various periods through 2005. Future minimum payments
     under non-cancelable operating leases are as follows:

<TABLE>
<CAPTION>
         December 31,
         ------------
<S>                                                                   <C>
              2001                                                    $  436,685
              2002                                                       334,305
              2003                                                       238,709
              2004                                                       150,235
              2005                                                        86,234
                                                                      ----------
                                                                      $1,246,168
                                                                      ==========
</TABLE>

     Employee Benefit Plan

     The Company's employees can participate in an employee benefit plan under
     Section 401(k) of the Internal Revenue Code offered through its
     Professional Employer Organization. This plan covers employees who are at
     least 18 years of age and have been employed by the Company longer than two
     months. The Company does not make matching contributions.




                                      F-18
<PAGE>   43
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE K - COMMITMENTS AND CONTINGENCIES- Continued

     Lightforce Acquisition

     In June 1996, the Company acquired certain assets and assumed certain
     liabilities of Lightforce, Inc.

     The purchase agreement called for additional shares of common stock to be
     paid, for the first two years, based on sales to the Lightforce
     distributors. Additional common stock, valued at market price share, was
     paid equal to 25% of sales generated by the Lightforce distributor network
     during the first year after the purchase; and 25% of incremental sales
     above the first year generated during the second year. In 1998, the Company
     issued 47,157 shares of common stock, valued at $94,512 under this
     provision.

     In addition, the agreement specified that the seller will receive a
     lifetime 5% commission on all sales of Lightforce products. This commission
     amounted to $117,238, $151,799 and $153,641 in 2000, 1999 and 1998,
     respectively.

     From time to time the Company is involved in various legal matters arising
     in the normal course of business. In management's opinion, such matters are
     without merit and the outcome will not have a material effect on the
     Company's financial position.

NOTE L - DISCONTINUED OPERATIONS

     In 1998, the Company discontinued the operations of Great Xpectations
     Marketing, Inc. (GXI). GXI has remaining liabilities amounting to $100,000,
     $212,386 and $511,903 at December 31, 2000, 1999 and 1998, respectively.
     Earnings resulting from settlement of liabilities during 2000 at less than
     recorded amounts are shown as earnings from discontinued operations, net of
     income taxes in the accompanying statements of operations.


                                      F-19
<PAGE>   44
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE M - NON-CASH INVESTING AND FINANCING ACTIVITIES

     The Company had the following non-cash investing and financing activities:

<TABLE>
<CAPTION>
                                                                2000         1999         1998
                                                             ----------   ----------   ----------
<S>                                                          <C>          <C>          <C>
         Conversion of debt into common stock                $       --   $    1,000   $   30,000

         Lightforce purchase with common stock                       --           --       94,512

         Fixed assets purchases by capital leases               376,168      215,206      324,821
</TABLE>

NOTE N - SEGMENT INFORMATION

     The Company has three operating segments. These operating segments are
     components of the Company for which separate information is available that
     is evaluated regularly by management in deciding how to allocate resources
     and in assessing performance. The Company evaluates performance based on
     operating income (loss).

     The Company's operating segments are based on geographic operations and
     include a domestic segment (United States) and two international segments
     (Canada and other regions). The segments have similar business
     characteristics and each offers similar products through similar methods of
     distribution as described in Note A. The accounting policies of the
     segments are the same as those described in the summary of significant
     accounting policies in Note A. Inter-segment sales, eliminated in
     consolidation, are not material.



                                      F-20
<PAGE>   45
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE N - SEGMENT INFORMATION - Continued

     Financial information summarized by geographic segment for the years ended
     December 31, 2000, 1999 and 1998 is listed below (in thousands):

<TABLE>
<CAPTION>
                                                      Earnings
                                        Sales to       before
                                        external      income       Long-lived    Total
                                        customers      taxes         assets      assets
                                        ----------   ----------    ----------   ----------
<S>                                     <C>          <C>           <C>          <C>
         Year ended December 31, 2000
              Domestic                  $   30,362   $      659    $    5,356   $    8,938
              Canada                         7,384           14           580        1,807
              All others                     2,247          147            --           --
                                        ----------   ----------    ----------   ----------

               Totals                   $   39,993   $      820    $    5,936   $   10,745
                                        ==========   ==========    ==========   ==========

         Year ended December 31, 1999
              Domestic                  $   28,666   $       94    $    4,371   $    7,466
              Canada                         5,564           71           650        1,534
              All others                     1,451           83            --           --
                                        ----------   ----------    ----------   ----------

               Totals                   $   35,681   $      248    $    5,021   $    9,000
                                        ==========   ==========    ==========   ==========

         Year ended December 31, 1998
              Domestic                  $   23,430   $      485    $    3,524   $    6,892
              Canada                         4,153           32           650        1,316
              All others                       801          (10)           --           --
                                        ----------   ----------    ----------   ----------

               Totals                   $   28,384   $      507    $    4,174   $    8,208
                                        ==========   ==========    ==========   ==========
</TABLE>





                                      F-21
<PAGE>   46
                      ROYAL BODYCARE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                        December 31, 2000, 1999 and 1998


NOTE O - EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                        ------------------------------------------
                                                           2000           1999           1998
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
     Earnings from continuing operations                $    439,503   $    130,697   $    511,270

     Basic EPS

     Weighted average common shares outstanding
         during period - basic and diluted                13,916,294     13,893,883     13,699,163

     Earnings per common share - basic and diluted      $       0.03   $       0.01   $      (0.04)
                                                        ============   ============   ============
</TABLE>

     The assumed conversion of the convertible notes would have an anti-dilutive
     effect on diluted earnings per common share for 2000, 1999 and 1998 and
     accordingly have been excluded from the computation.

     For 2000, 1999 and 1998 all stock options and warrants outstanding in the
     respective periods were not included in the computation of diluted earnings
     per common share because their exercise price was greater than the average
     market price of the common stock and, therefore anti-dilutive.

     NOTE P - RELATED PARTY TRANSACTIONS

     The Company has been granted on exclusive license to sell certain products
     by a company controlled by a director newly appointed in June 2000. During
     2000, the Company paid $3,800,000 to the director's company.



                                      F-22
<PAGE>   47

                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
 Ex. No.     Description
 -------     -----------
<S>          <C>
 3.1         Articles of Incorporation(1)

 3.2         By-Laws(1)

 4.1         Specimen copy of Certificate for Common Stock(1)

 4.2         Specimen copy of 10% Convertible Notes issued in 1997 (2)

 4.3         The 1998 Stock Option Plan for our Directors, Employees and
             Consultants (2)

 4.4         Stock Purchase Agreement dated 10/27/97 with Dr. M. G.
             Robertson (2)

 10.1        Exclusive License Agreement with Flanagan Technologies for its
             Microclusters (2)

 10.2        Form of Member Agreement and Policies with Distributors (2)

 10.3        Form of Indemnification Agreement(1)

 10.4        Real Estate Purchase Agreement(3)

 10.5*       Employment Agreement with Richard Howard

 16.1        Letter regarding change in accountant(4)
</TABLE>

----------

*Filed herewith.

(1)  Incorporated by reference to the Annual Report on Form 10-K filed April 26,
     2000

(2)  Incorporated by reference to the Annual Report on Form 10-K/A filed May 7,
     1999

(3)  Incorporated by reference to the Quarterly Report on Form 10-Q filed
     November 13, 2000

(4)  Incorporated by reference to the Current Report on Form 8-K/A filed January
     10, 2001